TaxTMI 
TaxTMI 
2015 (11) TMI 287
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....atently illegal and invalid, there being no evidence or material in support? (2) Whether on the facts and in the circumstances of the case, the third member of the Tribunal erred in holding that he is bound to accept the view of one of the two members inspite of the fact that he has a third view? (3) Whether on the facts and in the circumstances of the case, the Tribunal erred in not allowing any deduction out of the expenditure of Rs. 1,82,38,330/? (4) Whether on the facts and in the circumstances of the case, the conclusion of the Tribunal that the loose papers represented receipt of Rs. 8,78,085/, by the appellant on sale of scrap was perverse, being based merely on presumptions, conjectures and surmises?" 3. Mr. Nitesh Joshi, the learned Counsel for the appellant states that Question No.2 above is not pressed. Thus, Question No.2 is dismissed as not pressed. 4. Brief facts leading to the present appeal for consideration of Question Nos. 1, 3 and 4 are as under: (a) The appellant is a manufacturer of Textile Machinery. On 12 September 1996, there was a search action under Section 132 of the Act on the appellant. Its office premises, factory at....
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.... (ii) Disallowance of alleged expenses Rs. 1.82 crores The Accountant Member allowed an amount of Rs. 45.59 lakhs as expenditure out of Rs. 1.82 crores as claimed. The Judicial Member disallowed the entire claim for expenditure of Rs. 1.82 crores. (iii) Income on sale of scrap Rs. 8.78 lakhs The Accountant Member deleted the entire addition of Rs. 8.78 lakhs. The Judicial Member sustained the addition of Rs. 8.78 lakhs. In view of the above difference of opinion, the President of the Tribunal nominated a third member to decide the above points of differences between the members of the Regular Bench. (g) The third member of the Tribunal as nominated by the President, opined by an order dated 10 March 2000 on the difference of opinion as under: (i) 'on money' for the period 1986 to 1989 the addition of only Rs. 10 lakhs is sustained. Thus agreeing with the view of the Accountant Member of the Regular Bench of the Tribunal; (ii) disallowance of alleged expenses, the entire claim of of Rs. 1.82crores was held to be not sustainable. Thus agreeing with the view of Judicial Member of the Regular Bench of the Tribunal; and ....
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....er XIVB of the Act, the assessment is restricted to only the undisclosed income for the block period computed on the basis of evidence found in the search in terms of Section 158B(b) of the Act. Thus, so far as the period 1 April 1986 to 31 March 1989 is concerned, as no incriminating evidence was found evidencing receipt of any 'on money' either by the appellant or it's agents on the sale of Stenter machines, the addition on account of 'on money' is bad. (ii) Any evidence found of receipt of 'on money' for the period 1989 to 1996 cannot by itself be the basis of the estimating undisclosed income for the period 1986 to 1989 as has been done in this case; and (iii) The impugned order incorrectly proceeds to uphold addition of Rs. 10 lakhs to income of the appellant as 'on money' received for the period 1986 to 1989 on the basis of admission by the appellant to the extent of Rs. 6 to 7 lakhs. (d) As against the above, Mr. Suresh Kumar, the learned Counsel for the Revenue in support of the impugned order submits as under: (i) It has been admitted by the appellant during the assessment proceedings that the amounts paid i....
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....hat it was a case of best judgment assessment and therefore would have no application to the case of undisclosed income. We do not accept the above submission. As in case of best judgment assessment an assessment under Chapter XIV B of the Act also involves an element of guess work (see CIT Vs. Dr.M.K.E Memon 248 ITR 310). However the guess work should not be arbitrary. In this case besides the evidence for the period 1989 to 1996, we have noticed that while justifying it's claim for expenditure in cash of Rs. 1.82 crores, the appellant itself has shown expenditure in cash for the period prior to 1989 out of amounts received in cash according to the appellant. (f) Be that as it may, we find that the impugned order has proceeded on the basis that the appellant had himself admitted to receipt of 'on money' to the extent of Rs. 6 to 7 lakhs in its letter dated 25 September 1997. This according to the appellant is an incorrect reading of the communication as in that communication, the appellant had specifically stated that there is no receipt of 'on money' by the appellant during the period 1986 to 1989. The amount of Rs. 6 to 7 lakhs according to the appellant w....
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.... (emphasis supplied) Thus undisputedly, receipt of 'on money' even for the period 1 April 1986 to 31 March 1989 is admitted by the appellant. The estimate of Rs. 10 lakhs on the consideration of the facts is not shown to be perverse. (h) The appellant interalia placed reliance upon the following decisions: CIT Vs. Dr. M.K.E. Memon 248 ITR 310 (Bom) CIT Vs. R.M.L. Mehrotra 320 ITR 403 (All) CIT Vs. Faqir Chand Chamanlal 262 ITR 295 (P&H) CIT Vs. Rajendra Prasad Gupta 248 ITR 350 (Raj) CIT Vs. Smt. Usha Tripati 249 ITR 4 (All) CIT Vs. Ghodawat Pan Masala Products Pvt.Ltd. 250 ITR 570 (Bom) The reliance is placed on the above decisions to contend that in the absence of evidence found during the course of the search of receipt of 'on money' for the period 1 April 1986 to 31 March 1989, the revenue cannot tax the same as undisclosed income. The fact that there was evidence of receipt of 'on money' for the period 1989 onwards would not justify the authorities from extrapolating that 'on money' was received by the appellant even for the earlier period. These decisions are of no assistance as the addition on account of 'on m....
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.... such expenditure. (b) Before the Tribunal, the impugned order has deleted the addition made by the Assessing Officer to income as unexplained expenditure under Section 69C of the Act. However so far as claim for deduction on account of expenditure was concerned, the Accountant Member allowed deduction to the extent of 25% of Rs. 1.82 crores. This after holding that the appellant has not been able to substantiate the same, yet on the ground that the appellant may have incurred some expenditure for business purposes. The rest of the expenditure was disallowed. While the Judicial Member denied the entire deduction on the ground that no evidence had been led to establish that any expenditure had been incurred. In any event, according to him, the same would also be hit by the Explanation below Section 37(1) of the Act. Similarly, the third member concurred with the view of the Judicial Member and also held that the appellant had not established that expenditure had in fact been incurred for the purposes of business. In any view, the third member also held that the same would be hit by the Explanation to Section 37(1) of the Act. (c) Mr. Joshi, the learned Counsel for the revenue ....
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....ated by the impugned order of the Tribunal. Each of them separately hold that the appellant has not been able to establish that any expenditure was in fact incurred as claimed. (ii) The finding of the Assessing Officer as well as of the Tribunal in the impugned order that no payment having been made by the appellant so as to claim deduction on account of expenditure, is a finding of fact. This finding of fact has not been challenged on the ground that it is perverse. Consequently, the impugned order of the Tribunal cannot be found fault with. (iii) The occasion to examine the application of the Explanation 1 to Section 37 of the Act would not arise in the present facts. This for the reason that it would arise for examination only after the appellant-assessee has been able to satisfy the basic requisites of Section 37 of the Act viz. that expenditure as claimed has been incurred and also that the expenditure has been incurred for the purposes of business. It is only thereafter that the occasion to examine the explanation to Section 37(1) of the Act would arise. It is therefore submitted that in the facts of this case the examination of Explanation to Section 37(1) ....
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....n the basis of noting on piece of papers would not be a sufficient proof for allowability of deduction. After giving the aforesaid finding, the Judicial Member further goes on to examine that even if one assumes that such payment has in fact been made, the deduction of such payments was not permissible in view of Explanation to Section 37(1) of the Act. Similarly, the third member to whom the issue of allowablity of the expenditure as deduction was referred to has held that the appellants had not furnished any evidence what so ever to prove the expenditure was incurred and that it was incurred for the purposes of business. (h) Therefore we notice that the impugned order of the Tribunal has come to a conclusion that there is no evidence produced to prove that the expenditure claimed as deduction was in fact incurred by the appellant-assessee. Albiet the Accountant Member (minority view) after holding that the appellant has not been able to substantiate the expenditure does allow deduction to the extent of 25% of Rs. 1.82 crores. Therefore, the primary requirement of satisfaction of Section 37(1) of the Act has not been met by the appellant-assessee. This finding of the authoritie....
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....m the expenditure. Thus no purpose would be served in remanding the issue to the Tribunal. Further Section 292 of the Act provides that where any documents are found in possession or control of any person in the course of search under Section 132 of the Act, then it may be presumed in any proceedings under this Act that the contents of such documents are true and correct. It will be noted that the section uses the word 'may presume' and not 'shall presume' or 'conclusively presume'. The words 'may presume' are in the nature of discretionary presumption different from a compulsory presumption. Therefore this presumption has to be invoked by the authorities passing an order under the Act particularly when the invocation of such presumption is discretionary on the authorities. During the course of the assessment proceedings, the appellant-assessee sought to explain the fact that these expenses on which the deduction is claimed had in fact been incurred. This was in response to the show cause notice issued to the appellant. Thereafter Explanation offered by the appellant was not found satisfactory on the basis of the evidence available before the authori....
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....ey' received on sale of Stenter machines and therefore could not be added as undisclosed income for the block period. (c) The Assessing Officer did not accept the contentions of the appellant-assessee and on facts held that in the course of manufacture of Stenter machines, scrap would be generated and it is this scrap which is sold by the appellant-assessee. The Assessing Officer held that scrap is not produced/manufactured, but in the course of manufacturing of finished product, scrap is generated. Thus on facts the Assessing Officer concluded that the amounts indicated in the loose papers aggregating to Rs. 8.78 lakhs was nothing but sale proceeds of the scrap material and therefore added to the income of the appellants as income from undisclosed sources. In appeal, the members of the Regular Bench did not agree amongst themselves. The Accountant Member deleted the addition of Rs. 8.78 lakhs on the ground that the very fact that the documents in the possession of the appellant would indicate that the amounts have been received by the supplier/seller of scrap purchased by the appellant. This is the only acceptable explanation for the appellant being in possession of the sig....