Search admissions and block assessments: retraction needs proof, bogus bill commission is disallowable, and business-linked jetty costs may qualify.

A voluntary disclosure recorded during search can be retracted only with credible material showing mistake or inaccuracy; an affidavit alone is insufficient, so the earlier surrender of accommodation-bill income was upheld. Payments to local fishermen for temporary jetty construction were treated as allowable business expenditure where a clear commercial nexus was shown, while commission paid to obtain bogus accommodation bills was not deductible because it was incurred for an unlawful and fictitious billing arrangement. Foreign travel expenditure reflected in regular books could not be disallowed in block assessment without seized material, as such adjustments belong to regular assessment. The article concludes that search-based admissions and block additions depend on reliable evidence, not mere assertions.

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Issues: (i) Whether the assessee had validly retracted the voluntary disclosure of undisclosed income made during search so as to exclude the amount of accommodation bills earlier surrendered; (ii) whether payments to local fishermen for construction of temporary jetties were allowable as business expenditure; (iii) whether commission paid for obtaining bogus accommodation bills was deductible; (iv) whether foreign travel expenditure of a director could be disallowed in block assessment in the absence of search material.

Issue (i): Whether the assessee had validly retracted the voluntary disclosure of undisclosed income made during search so as to exclude the amount of accommodation bills earlier surrendered.

Analysis: A statement recorded during search is a relevant piece of evidence and may be retracted only on the basis of material showing that the earlier admission was mistaken or incorrect. The retraction in this case was supported only by an affidavit and not by any reliable contemporaneous record showing which bills were genuine, how the segregation was made, or how the earlier disclosure was said to be erroneous. The initial disclosure was voluntary, followed by further statements and a confirmatory letter with a party-wise break-up. In the absence of proof of mistake, coercion, or supporting evidence, the later retraction could not displace the earlier admission.

Conclusion: The retraction was invalid and the addition based on the surrendered amount was sustained in favour of Revenue.

Issue (ii): Whether payments to local fishermen for construction of temporary jetties were allowable as business expenditure.

Analysis: The payments were made to secure cooperation for construction of a temporary jetty required for transport of machinery and had a clear business nexus. They were not shown to be prohibited by law or contrary to public policy. The mere fact that the payments were not contractual did not make them inadmissible. Allowability depended on commercial purpose and the assessee's ability to link the expenditure to the business activity and supporting records.

Conclusion: The expenditure was held to be allowable, subject to factual verification of the business nexus, in favour of the assessee.

Issue (iii): Whether commission paid for obtaining bogus accommodation bills was deductible.

Analysis: Procuring bogus bills does not constitute a genuine business transaction and is an act of falsifying accounts. Such expenditure is not incurred for any lawful business purpose and falls within the mischief of the statutory bar against allowance of expenditure incurred for an offence or prohibited object. The claim that the payment generated income was rejected because the activity merely depressed taxable profits and represented undisclosed income rather than deductible expense.

Conclusion: The commission was not deductible and the disallowance was restored in favour of Revenue.

Issue (iv): Whether foreign travel expenditure of a director could be disallowed in block assessment in the absence of search material.

Analysis: Block assessment is confined to undisclosed income unearthed from search material and connected evidence. The foreign travel expenditure was reflected in the regular books and no seized material showed that it was unaccounted or not for business purposes. Any disallowance on merits would fall within regular assessment proceedings, not block assessment proceedings.

Conclusion: The disallowance could not be sustained in block assessment and relief was granted to the assessee.

Final Conclusion: The cross-appeals were disposed of with the Revenue succeeding on the principal challenge to the retraction and on the commission disallowance, while the assessee obtained relief on the business expenditure issues that were held to be allowable or outside the scope of block assessment.

Ratio Decidendi: A voluntary admission made during search can be displaced only by credible material proving mistake or inaccuracy, and in block assessment only income or disallowances supported by search evidence can be brought to tax.

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