TaxTMI 
TaxTMI 
TaxTMI 
2020 (11) TMI 492
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....r brevity, grounds of appeal filed for the AY 2014-15 are reproduced as under:- "1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The ld.CIT(A) failed to note the fact that the assessee has been borrowing interest bearing funds for its working capital needs but a the same time made investments which will generate income exempt from tax which cannot be considered as an allowable business expenditure. Hence, proportionate disallowance u/s 14A is made. 3. The ld.CIT(A) failed to consider that the assessee was not able to produce supporting bills and vouchers to prove the genuineness of the above mentioned expenses made by way of cash. The department filed appeal before the Hon'ble High Court against the order of the Hon'ble ITAT mentioned above and the appeal is pending. 4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 3. The assessee has more or less raised common grounds of appeal for all assessment years. Therefore, the grou....
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....ompany, a cash of Rs. 3,93,57,669/- was found in the chamber of Shri P.Srikant, Purchase Manager of the assessee company and the same was inventorised. During the course of search, it was further noticed that as per cash book, the balance available as on date of search was at Rs. 24,83,589/- and hence the excess cash of Rs. 3,68,74,080/- was seized U/s.132 of the Act. During the course of search, a statement U/s.132(4) of the Act was recorded from Smt. Banusree and in response to a specific question, she admitted that at the instance of Shri S.N. Jayamurugan, Managing Director of the company, she used to receive unaccounted cash from various vendors and the same was kept in the locker in the chamber of Shri P. Srikant. A statement from Shri P. Srikant, Purchase Manager was also recorded where he had admitted that the assessee company was indulged into receiving cash outside the books as per the instructions of Shri Jayamurugan. Similarly, a sworn statement of Shri S.N. Jayamurugan was recorded where he has admitted that Shri P. Srikant was custodian of unaccounted cash received from various vendors and the same was kept in the locker. He further stated that unaccounted cash was be....
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....naccounted income for the respective assessment years. In response, the assessee vide letter dated 08.06.2018 has objected the proposed addition and filed a detailed written submissions to argue that cash found and seized during the course of search has been duly explained and matched with the books of accounts maintained in the name of various group concerns in the light of evidences including Wealth Tax return filed for the respective assessment years. The assessee had also denied to have received any unaccounted cash from vendors as reported in the scribbling pad named "Sharp Note Pad -4", which was found and seized during the course of search and further which was the mixture of cash actually withdrawn from banks and other entities. The assessee further stated that the entirely alleged scribbling pad was taken under the directions and coercion of the Search Team for giving addition/offer of income for 3 years. The assessee further argued that a glance at the same will show that the same is written under one hand writing at one stretch for 3 years in one scribbling pad in an hour. The same alleged scribbling pad shall be sent for testing to forensic examination to prove whether....
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....urugan, Managing Director of the assessee company came to the conclusion that the facts gathered during the course of search clearly establish the modus-operandi for generation of unaccounted cash from suppliers of bottles and other vendors by way of inflating the expenditure is undoubtedly proved. Therefore, the arguments of the assessee in the light of the subsequent retraction statement along with affidavits is only an afterthought to circumvent liability of tax on undisclosed income offered during the course of search and hence the same cannot be accepted. Accordingly, he opined that the assessee has generated unaccounted cash by way of inflating expenditure through various vendors of used bottles and other raw materials and the same has been used to make various unaccounted payments. Accordingly, there is no error in the findings recorded by the Search Team in the light of sworn statement of the assessee to treat the total amount of cash generated and recorded in scribbling pad as unaccounted income of the assessee for the assessment years 2014-15 to 2017- 18. He, therefore made additions towards unaccounted cash as income of the assessee for asst years 2014-15 to 2017-18. 8....
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....reasons recorded in the assessment order has affirmed the findings of the Ld.AO on the ground that the impugned document found during the course of search in the possession of Smt. Banusree, Accountant, who works for the assessee company had categorically accepted that she had recorded transactions as per the instructions of Shri S.N. Jayamurugan, Managing Director of the assessee company and that of Shri Srikant, Purchase Manager. The said statements have been endorsed by Shri S.N. Jayamurugan, Managing Director of the assessee company and categorically admitted that transactions recorded in scribbling pad are unaccounted cash receipts and payments and are outside the books of accounts. Although the assessee company had subsequently filed an affidavit to retract the statements recorded during the course of search, but such statements have been filed after a gap of nine months from the date of search, that too without any substantive evidences to support the claim and hence the same cannot be accepted. Therefore, he opined that there is no error in the findings recorded by the AO to come to the conclusion that undisclosed income found on the basis of the documents seized during the....
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....of Section 14A of the Act. 10.3 The Ld.AR for the assessee, on the other hand strongly supporting the order of the Ld.CIT(A) submitted that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd., supra, where the Hon'ble court has categorically observed that when there is no exempt income for the year under consideration, then the disallowance contemplated U/s.14A of the Act cannot be made. The Ld.AR further submitted that the said principles is further supported by the decision of the Hon'ble Supreme Court in the case of Oil Industry Development Board, where the Hon'ble Supreme Court while dismissing the SLP filed by the Revenue against the order of the Hon'ble High Court of Delhi held that in the absence of any exempt income, disallowance U/s.14A of the Act of any amount was not permissible. 10.4 We have heard both the parties through video conferencing, perused the materials available on record and gone through the order of the authorities below. The facts born out from record clearly indicate that the assessee has not earned any dividend income which does not form part of total income for the year under ....
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....diture to establish that it was incurred wholly and exclusively for the purpose of business of the assessee. According to the AO, the assessee has even failed to explain as to why TDS has not been deducted on payments made to certain parties even though the payment made to said parties was above the prescribed limit provided for deduction of tax at source. It is the contention of the assessee before the lower authorities that business cannot be carried out without incurring marketing and sales promotion expenses. Further, most of these payments were passed through proper banking channels and TDS also has been deducted wherever applicable. Although certain payments have been made in cash but such payments has been made in order to get service from service providers in relation to business activity of the assessee. Merely for the reason that few payments were made in cash, genuine business expenditure incurred wholly and exclusively for the purpose of business cannot be disallowed. The assessee further submitted that the ITAT, Chennai Bench in the assessee's own case for earlier assessment years had examined the issue and held that wherever marketing expenditure incurred in cheque c....
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....ding for earlier assessment years that once expenditure is incurred in cheque through proper banking channels then there cannot be any disallowance even though there is no supporting bills and vouchers furnishes in support of said expenditure. Therefore, we are of the considered view that to that extent the findings of the AO as well as CIT(A) deserves to be reversed. However facts are contradictory because there is no clarity from the orders of the authorities below in so far as the nature of payments under which these payments are made. Therefore for the limited purpose of ascertaining the fact with regard to the nature of payment, we remit the issue back to the file of the AO for the assessment year 2017-18 and direct him to re-examine the issue in the light of the claim of the assessee that said expenditure has been incurred through proper banking channel. In case, the AO finds that the expenditure is incurred through proper banking channel then there cannot be any disallowance. To sum up, the grounds taken by the Revenue for the assessment year 2015-16 to 2017-18 are rejected and the ground taken by the assessee for the assessment year 2017-18 is restored back to the file of t....
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....h was given under mental pressure and disturbed state of mind, stress and duress and therefore no credence should be given to such statement. Further Shri S.N. Jayamurugan had filed another affidavit on 27.02.2017 (after nine and half months) before the DDIT(Inv), Unit - 1(1), Chennai and denied to the facts as admitted in oath taken U/s.132(4) of the Act dated 10.05.2016 and earlier affidavit dated 29.06.2016. He once again reiterated that statement recording during the search at odd hours should not be considered as evidence, because the same was recorded under mental pressure and disturbed state of mind, stress and duress. 12.2 The Ld.AR for the assessee submitted that the Ld.CIT(A) has erred in confirming the addition towards purported unaccounted cash receipts recorded in seized document being scribbling pad which contains rough and false figures without appreciating the fact that the same cannot be relied upon to make addition on account of undisclosed income, in the absence of any independent supporting and corroborative evidences. The Ld.AR further submitted that the Department has found one scribbling pad at the time of search in possession of Smt. Banusree and such seiz....
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....tted that when cash book is maintained whether it is regular cash book or rough cashbook, it is obvious that book is maintained to arrive at a balance of each day, whereas the document relied upon by the AO clearly shows that the assessee has recorded some receipts and payments without there being any corresponding reference to persons from whom those cash has been received and the names to whom cash has been paid for expenditure. Moreover, the balancing has been done at monthly basis. Therefore from the above, it is very clear that the same document is created in support of confession statement taken during the course of search and hence the same cannot be considered as credible evidence to make huge additions towards unaccounted cash receipts. The Ld.AR further submitted that the cash book found during the course of search contains cash receipts from 03.07.2014 to 07.05.2016, but fact remains is that there was a huge flood in December 2015 in Chennai because of unseasoned rains and all books of accounts and documents of the assessee was washed away in the floods. The assessee has lodged police complaint on 27.12.2015 for which the jurisdictional Inspector of Police has issued a c....
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....15 (Del HC) 2) ACIT vs. Layer Exports P. Ltd.,(2017) 53 ITR (Trib) 0416 (Mumbai). 3) ITO vs. Karan R.Shah in ITA 3652 & 4290/Mum/2015 4) Shree Ganesh Trading Co. vs. CIT, (2013) 257 CTR 0159 5) Kailashben Manharlal Chokshi vs. CIT, (2008) 328 ITR 411 6) CIT vs. P.V.Kalyanasundaram, (2007) 294 ITR 0049 7) Pullangode Rubber Produce Co. Ltd., vs. State of Kerala & ANR, (1973) 91 ITR 0018 12.5 The Ld.CIT-DR for the Revenue, on the other hand strongly supporting the order of the CIT(A) submitted that there is no merit in the arguments taken by the Ld.AR for the assessee in so far as additions towards unaccounted cash receipts on the basis of seized document being scribbling pad, because the said document was found during the course of search from the chamber of Shri P.Srikant, Purchase Manager of the assessee company and was written by Smt. Banusree, Accountant of assessee company which is evident from the fact that both have categorically accepted the fact that the said cash book was maintained at the direction of Shri Jayamurugan, Managing Director of the assessee company to record unaccounted cash receipts received from the vendors and suppliers. The Ld.DR further submit....
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.... of the seized notepad. Moreover, the statements u/s.132(4) of the Act recorded on 09.05.2016 from the cashier and the purchase manager were still intact and the assessee is unable to file any evidences to deny the admission made by two employees at the time of search that transactions recorded in seized document is unaccounted cash receipts received from various parties. He further submitted that although the Ld.AR for the assessee made a serious allegation of coercion and undue inference of the Search Party at the time of recording statement U/s.132 (4) of the Act, but said allegation was not substantiated with evidences. If at all the Search Partly has recorded statement by coercion or undue inference, the assessee was at liberty to lodge a complaint against the officer who used coercion to record statement. Unless the assessee proves the same with any evidences that the statement was recorded by coercion or undue inference, the allegation of the assessee cannot be accepted. The Ld.DR further submitted that the AO as well as the CIT(A) has appreciated the relevant facts in the light of various incriminating materials found during the course of search which was further supported....
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....as also distinguished the case laws cited by the ld.AR including the decision of Hon'ble Supreme Court in the case of Pullungode Rubber Industries Ltd supra, and argued that the contents in incriminating materials were neither sufficiently rebutted nor proven unworthy of making additions. Unless the assessee sufficiently explain and prove that contents recorded in incriminating material is unworthy for making additions, the AO can very well rely on such statements and evidences. The similar stand of the AO in similar circumstances was upheld by Hon'ble High Court of Madras in the case of S.Shamkumar [2018] 99 taxman.com (Madras) and the Hon'ble Punjab and Haryana High Court in the case of Bachitar Singh 328 ITR 400. Hence, the former part of Pullangode Rubber decision would not come in to play but the later part would empower the AO to consider and act upon the material seized. The Ld.CIT(A) after considering the relevant facts has rightly appreciated the evidence brought on record by the AO to confirm additions and hence there is no reason to deviate from the findings recorded by the CIT(A) and to give relief to the assessee. 12.7 We have heard both the parties, perused the mater....
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....ve evidence. In case, the contents recorded in the statement is not supported by corroborative evidences, solely on the basis of statement recorded during the course of search no adverse inference can be drawn against the assessee, more particularly when such statement has been retracted along with sworn affidavit on the ground that the same was given under mental pressure and disturbed state of mind. It is a well settled principle of law that admission is an extremely important piece of evidence, but it cannot be said that is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account did not correctly disclose the correct state of facts. This principle is supported by the decision of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co.Ltd., vs. State of Kerala & Anr supra. Similarly, the retraction should have evidence most probably being a statement not only denying the earlier stated facts but explaining the reasons for making a statement earlier and giving substituted facts in support of retraction. Total denial of the stand stated in ....
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....rite cash book to support the confessional statement taken for undisclosed income. The assessee further stated that the alleged scribbling pad had neither any vouchers nor invoices to support the transactions mentioned therein nor any details as to the payee or the nature of expenditure or source is mentioned therein. We have gone through the statement recorded from the assessee and alleged incriminating documents found during the course of search being 'Sharp Notepad -4'. On perusal of the contents of the scribbling pad, we find that the said document has been written to record some cash receipts and to make some cash payments towards expenses. We further noted that the said cash receipts is a mixture of cash actually withdrawn from banks on various dates from regular bank account of the assessee and some other cash entries for which there is no reference of any source or party from whom cash has been received. Similarly, the purported payment claims to have been made for expenses are also no reference to any particular expenditure or person to whom said amount has been paid. Moreover the cash book has been balanced on monthly basis. From the above, one thing is very clear that t....
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....h receipts of the assessee. Further no circumstantial evidences in the form of unaccounted assets and liabilities outside the books of accounts were found in the course of search. Although, the Department has seized cash of Rs. 3,68,74,080/-, but the same was tallied with regular books of accounts maintained by the assessee along with other group companies and individuals for which the assessee has filed necessary evidences in the form of cash books along with the copies of Wealth Tax returns filed for the AY 2015-16 before the DDIT(Inv). We, therefore are of the considered view that only on the basis of cash seized during the course of search, it cannot be inferred that the assessee has received huge unaccounted cash from various parties by inflation of expenditure and the same has been used to make unaccounted expenditure outside the books of accounts. 12.9. We further note another important aspect of the issue with regard to impugned scribbling pad. The purported cash book found during the course of search contains cash receipts from 03.07.2014 to 07.05.2016. In this regard the claim of the assessee is there was a huge flood in December 2015 in Chennai because of unseasoned rai....
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....he AO did not proceed further to enquire into the unaccounted income as admitted by the assessee in the statement U/s.132(4) of the Act. This fact was also not taken care of and considered that in a case where there was a search operation, no assets or cash was recovered from the assessee in that situation which had permitted the assessee to make declaration of undisclosed income of Rs. 31 Crores for 3 assessment years. This principle is supported by the decision of the Hon'ble Jharkand High Court in the case of M/s. Shree Ganesh Trading Co. vs. CIT, (2013) 257 CTR 0159. The Hon'ble Gujarat High Court in the case of Kailashben Manharlal Chokshi vs. CIT, supra had considered an identical issue and held that statement recorded at odd hours cannot be considered to be voluntary statement, if it is subsequently retracted and necessary evidence is laid contrary to said admission and therefore admission on the basis of retracted statement U/s.132(4) of the Act was not called for. The Hon'ble Supreme Court in the case of CIT vs. P.V.Kalyanasundaram, supra held that question as to what is the actual sale price of the property, the implication of the contradictory statements made by the sell....
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....r suppliers named in the said incriminating document. Further, on perusal of incriminating documents found during the course of search, we find that nothing was emanating regarding name and address of persons from whom said amount was received and the nature of expenditure for which said amount was paid. In absence of any effort from the AO by way of further enquiries, merely on the basis of a dumb paper coupled with statement recorded during the course of search, additions made towards undisclosed income cannot be sustained, more particularly when said statement has no longer in operation. 12.11 As regards the argument of the Ld.DR that although Shri S.N. Jayamurugan, Managing Director had retracted his statement, but other two statements recorded during the course of search is still in force and the persons who gave the statements have never retracted from the earlier statement recorded during the course of search, we find that when a statement was recorded from employee of assessee which was further vetted by the Managing Director, then the earlier statement given by the employees are merged with the subsequent statement of a Managing Director, because the person in charge of t....
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....nery without appreciating the fact that as per provisions of Section 32AC of the Act, once a plant and machinery was installed on or before the specified date then there is no requirement of put to use said plant and machinery as required under the provisions of Section 32 of the Act for claiming the benefit of deduction. The Ld.AR further referred to the provisions of Section 32 and 32AC of the Act and submitted that unlike Section 32, there is no requirement of put to use said plant and machinery U/s.32AC of the Act, in order to claim the benefit of additional allowances but what is required to be seen is whether the assessee company is engaged in the business of manufacturing or production of any article or thing and further the assessee had acquired and installed new plant and machinery as specified in said section. In this case, there is no dispute with regard to entitlement of the assessee for the benefit because the AO had not disputed the amount of plant and machinery acquired and installed, but the AO has denied the benefit only for the reason that the said plant and machinery was not put to use without appreciating the fact that there is no requirement of put to use said ....
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....duction of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired and installed during any previous year exceeds twenty-five crore rupees, and said assets are installed on or before 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year." A plain reading of Section 32AC of the Act, makes it clear that in order to get the benefit of additional 15% deduction, the assessee needs to acquire and install new assets of specified amount and such assets are required to be installed on or before specified date. In this case, there is no dispute with regard to the amount spent for acquiring new plant and machinery which is more than amount specified under section 32AC of the Act. In fact, the assessee had acquired plant and machinery of Rs. 32,15,77,537/- which is more than the prescribed limit U/s.32AC of the Act. Further, there is no dispute with regard to the period under which said plant and machinery are required to be installed. In fact, the AO has admitted very clearly that the assessee has a....