TaxTMI 
TaxTMI 
1999 (5) TMI 608
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessment by his order dated 30-3-1988 on a total income of Rs. 16,36,468. While completing the assessment, he treated a sum of Rs. 4,00,625 which represented peak of raw material purchased by payment of cash as income derived from other sources. The refusal to treat the revised return as Amnesty return was contested before the CIT(A) in appeal against the assessment order. The learned CIT(A) found his impugned orders that the assessment was made as a sequel to and on the basis of materials seized during the search and seizure operations which took place from 20-5-1986 to 30-5-1986. The surrender of such concealed income so detected in the search proceedings does not come under the umbrella of Amnesty Scheme. For this reason, the leaned CIT(A) justified the action of the Assessing Officer in refusing to treat the revised return as amnesty return. The Assessing Officer treated the sum of Rs. 4,00,625 as income from other sources. His reasons for doing so are mentioned in para 3 of his orders. He states in that para that the company is one of the concerns of M/s. Lupin Laboratories (P.) Ltd. in which there was a search require operation under section 132 on 20-5-1986. In the cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade. On that basis and in the spirit of true and complete disclosure and on the basis of a peak working, an amount of Rs. 27.80 lakhs has been determined, and considering other relevant facts, it has been agreed that an amount of Rs. 19.33 lakhs may be considered as additional income for taxation." In para 14, it is stated as follows : "On the above basis, the total amount of additional income for taxation comes to Rs. 185.00 lakhs (rounded). This addition may be made to the total income and the total taxable income ascertained after such deductions the company may be entitled to on the facts and in law and considering the assessments hitherto made and disclosures made under Voluntary Disclosure Scheme." Para 16 of the said letter is as follows : "We may clarify that this letter is being filed in the cases of the taxable entities in respect of whom raids under section 132 proceedings had been carried out by the department. We have not been furnished with copies of any of the statements in respect of the persons whose statement were recorded. They have assured us that the approach in the matter has been one of mutual trust and, therefore, the contents of this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....25 4,00,625 - 4,00,625 Thus, it can be seen that even according to the company, the unaccounted cash introduced was admitted to Rs. 4,00,625. Following facts are important to be noted in this connection. The first return was filed on 31-7-1985 at a time when Amnesty return was not in force disclosing an income of Rs. 6,88,200. Search and seizure operations were conducted under section 132 on 20-5-1986. Statements of Shri S. Srinivas, Finance Manager, Shri Ganesh Narayan Swami, Junior Officer, Materials and Shri Sharad Manohar Mhatre, Stores Clerk dated 21-5-1986 which were all recorded under section 132(4) were furnished in the Paper Book at pages 19 to 45 which were found to be in manuscript and the photocopies of those manuscript statements, were filed as Apart of the Paper Book. Further the statement recorded under section 131 of the Income-tax Act from Shri R.S. Krishnan on 29-5-1986 is furnished at pages 30 to 35 of the Paper Book. Shri R. S. Krishnan was the Material Manager of Lupin Labs. (P.) Ltd. who looked after all raw material, packing material purchases and also was in-charge of transit stores. He was examined under s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es whose premises have been searched by the tax authorities ? Ans. No." The learned counsel for the company invited our pointed attention to question No. 6, question No. 7, question No. 19 and question No. 30 and the answers given in clarification thereto. The clarifications given by letter dated 17-2-1986 were as follows : "Question No. 6: Will the immunity apply in cases where cash credits which have been accepted as genuine by the ITO, while making assessment originally are now disclosed as income ? Answer: Yes. Question No. 7: Where the investigations in the case of persons other than the assessee indicate concealment of income by the assessee and the assessee makes a true and full disclosures of his income would he be entitled to immunity under these circulars ? Ans. Yes Question No. 19: Kindly clarify the expression' before detection by the department' ? Ans. If the ITO has already found material to show that there has been concealment that would mean the department has detected the concealment. If the ITO only had prima facie belief that would not mean concealment has been detected. Question No. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity and other benefits given in the Amnesty Scheme only in respect of assets or income which had been found and/or seized by the tax authorities before the filing of the revised returns by the assessee concerned and also in those cases where the tax authorities had looked into the seized papers and had carried out some investigation (before the furnishing of revised returns by the assessee) to show that the income declared in the revised return had already been detected by the Department from the papers and documents found and seized in the course of the search." We are satisfied that M/s. Supreme Pharma and M/s. Midway Traders were detected in the investigations perhaps made by the Assessing Officer subsequent to the filing of the revised return by the company on 30-9-1986 under which total income of Rs. 11,18,530 was returned. If really justification for addition of Rs. 4,00,625 can be gathered from the seized material itself and if the department really detected the said amount as a result of search and seizure, necessary proceedings to support his contention would have been filed by the learned departmental representative at-least before us. However, he failed to produce any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the declarant is to be assessed on the basis of the declaration made by him/her. At that time the question of asking the source of the income to be assessed would not arise because if the declarant is asked to declare the source of income while making a declaration under the Amnesty Scheme, then the whole purpose of the scheme shall be frustrated. The Amnesty Schemes are actually formulated to unearth undeclared money and to afford an opportunity to the tax evaders to voluntarily declare the money which had evaded tax and to pay the tax under the scheme." In view of the above exposition of law by the learned Authors, the question of treating it as income from other sources does not arise, so also there is no question of our treating it even as part of business income. In this connection, the Company also relied upon the decision of the B-Bench of this Tribunal in Khetshi K. Haria v. Fourth ITO (1992) 40 ITD 167Since High Court decision is already cited, we do not feel it necessary to deal with this Tribunal's decision which deals with a case of a penalty under section 271(1)(c). 5. Now, let us come to the second ground which deals with greater disallowance under section 37....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the amount of Rs. 1,16,376 which represents hotel payments. Therefore, the disallowance under section 37(3A) is to be worked out afresh in the light of above findings. 8. The third ground relates to disallowance from out of remuneration paid to the Directors. According to the learned CIT(A), the disallowance is to be made by applying provisions of section 40A(5) instead of 40(c). In this connection, we are expected to do no better than following the decision in CIT v. Hico Products (P.) Ltd. (No.1) (1993) 201 ITR 567/69 Taxman 575. The Bombay High Court in that case thoroughly examined the scope of section 40A(5)(a) and (c) of the Income-tax Act. Speaking about the limits prescribed in sub-clauses (i) and (ii) of clause (a), their Lordships held that these limits apply to payments made to all persons covered by clause (a). The substantive provisions of clause (a) clearly takes within its ambit all persons employed by the company. Had there been no proviso to this clause, this provision and all the limits and ceilings specified in clause (c) would have applied to payments of the nature prescribed in sub-clauses (i) and (ii) of clause (a) made to the employee directors also. Bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... have been determined at Rs. 3,11,311 where as it is restricted by the lower authorities to Rs. 1,40,619. The grievance on behalf of the assessee is that the following items were not considered eligible for deduction under section 80HH : Rs. (i) 43B disallowance 1,69,791 (ii) Share of profits in firm 3,73,082 (iii) Dividend on shares 126 (iv) Interest from distributors 90,671 (v) Profit under s. 41(2) 1,61,760 (vi) Insurance claim 3,148 (vii) Peak of raw materials purchases 4,00,625 It is contended that the CIT(A) should have considered Rs. 4,00,625 as business income in computing the deduction under section 80HH. As already stated above, the company claimed relief of Rs. 3,11,311 under section 80HH. According to it, it is entitled to 80HH relief on all the following six items : Rs. (1) Share of profits 54,059 (2) Insurance claim 3,149 (3) Dividend and shares 126 (4) Interest from distributors 90,671 (5) Profit under s. 41(2) 1,61,760 (6) Disallowance under s. 43B 1,69,791 Out of the above stated six items, the counsel for the company before us did not press his claim in re....