TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 242
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....Income Tax Act, 1961 (hereinafter referred to as 'the Act') and Rs. 3,35,27,467/- being estimated disallowance @ 10% of the murum expenses incurred by the assessee. 4. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 05.01.2021 declaring total income of Rs. 32,55,43,490/-. The case was selected for scrutiny under CASS and accordingly notice u/s 143(2) of the Act was issued and served on the assessee. Thereafter, notices u/s 142(1) of the Act along with summons u/s 131 of the Act and a detailed questionnaire was issued to the assessee in response to which the assessee made its submissions from time to time. 5. During the course of assessment proceedings the Assessing Officer noted that an amount of Rs. 10 lakhs was seized from Shri Prakash V. Madkar, driver and employee of the assessee company on 09.04.2019 during the election period in Karnataka by SST-06 and brought to Chamarajpet police station. The cash was seized by the department u/s 132 of the Act vide warrant executed on Shri Prakash Madkar on 10.04.2019. The cash was claimed to be belonging to the assessee company. The Assessing Officer observed that the availab....
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....4.4.1 In the subsequent statement recorded u/s 131 of the Income Tax Act, 1961 on 16.04.2019, Shri Prakash Vasant Madkar stated that the cash was handed over to him by Shri Naresh at Solapur and he carried the cash from Solapur office of M/s Shri SM Autade Pvt Ltd to be delivered to Hassan. The assessee company M/s Shri SM Autade Pvt Ltd vide letter dated 23.04.2019 stated that the cash of Rs. 10,00,000/- belongs to the company and it was being carried from Solapur office to be delivered at Hassan site. The explanation provided by Shri Madkar for the source of cash changes each time and he was unable to explain the sources of the cash satisfactorily. In the beginning he claimed that the cash was handed over to him in Bangalore and later on he claimed that he brought the cash from Solapur office. If he had got the cash of Rs. 10,00,000/- from Solapur on 07-04-2019, there is no necessity to keep the cash with him for 2 days. It is also seen that all the cash/fund transfers for Hassan site takes place from Bijapur Office except for the Rs. 10,00,000/- which the assessee claims was from Solapur Office. As per the statements recorded on 9th and 10th April, 2019, he did not even know fro....
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..... He observed that in 8 cases notices / summons were issued but the parties have failed to respond by given date. In other 145 cases, notices u/s summons were returned unserved for insufficient address. Therefore, the transactions of murum purchases remained unconfirmed. He, therefore, issued a show cause notice dated 22.09.2022 asking the assessee to produce these parties on or before 27.09.2022 in order to confirm these transactions. He also asked the assessee to explain as to why part of claim of murum expenses should not be disallowed in case of failure on the part of the assessee. The assessee in response to the same filed a detailed submission. It was stated that the assessee company had furnished all the details including the names and addresses of the suppliers of murum who had supplied the same to the assessee during the year under consideration. The assessee furnished the extracts of ledger accounts in respect of murum expenses claimed. It was submitted that the accounts of the assessee were audited and no discrepancies were noticed by the auditors. It was submitted that the proportionate of murum expenses are commensurate with the volume of contract receipts. Without inc....
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....ct and does carry immense evidentiary value. It was not explained by the appellant or by Shri Prakash V. Madkar that if the cash was taken by him on 07.04.2019 from Solapur, why it was not delivered at Hassan and what was he doing with this cash from 07.04.2019 till interception by SST. Further, if the cash was carried by Shri Madkar from Solapur, he could have stated the same in the statements recorded on 09.04.2019 and 10.04.2019. Reasons for stating that the cash was received by him by an unknown person with reference of Shri Naresh at Bangalore, has not been explained either by Shri Madkar or by the assessee company. The AO has also noted that the transfer of cash/funds to Hassan site took place from Bijapur office and not from Solapur office and this is the only amount which is shown as transfer from Solapur Office. 12. The facts of the present case suggest that after seizure of cash, the appellant company took stock of his books of accounts and tried to explain that the said cash of Rs. 10.00,000/- was out of cash in hand. In the written submission filed before me, the appellant has relied on its cashbook submitted before the AO but the appellant has not answered the....
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....ary evidence to substantiate that all these 153 murum suppliers were paid through banking channels. Even otherwise, it is a well settled legal position that merely because the payment was made through banking channel does not mean that expenses are genuine and were incurred for the purposes of business. 19. The second contention of the appellant is that the books of accounts are duly audited and no addition on estimate basis can be made without rejecting the books of accounts. It has also been contended that books of accounts cannot be rejected without pointing out any specific discrepancy/defect in the books of accounts. I have considered this contention of the appellant. A perusal of the assessment order suggests that the AO took an exercise to verify the genuineness of murum expenses debited in the P&L account and issued notices/summons to 153 suppliers. The result of such notices/summons have been duly mentioned in the assessment order and as per the assessment order, in 145 cases notices/summons remained unserved due to incomplete address. Further, in 8 cases where notices were served, no response was received by the AO. These facts were duly confronted to the appella....
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.... the present case, facts clearly suggests that murum expenses debited in the P&L Account remained unverified/unsubstantiated and therefore the case laws relied upon by the appellant will not be of any help of the appellant. 22. The appellant has contended that no addition can be made without confronting the assessee with the material or evidence collected by the AO. This contention cannot be accepted in the present case, because the AO issued a specific show-cause notice confronting with the appellant that the notices/summons issued to the suppliers remained unserved. Therefore, it is not a case where the appellant was not confronted with the result of independent verification made by the AO. Thus, this contention is rejected. 23. The appellant has taken another contention that no addition can be made merely on the basis of suspicion. In this regard, it is seen that the addition made by the AO is not based on any suspicion. Rather, it is a case where the appellant has failed to substantiate the genuineness of the expenses debited in the P&L Account. Accordingly, the said contention of the appellant is rejected. 24. It is also seen that in this case, the a....
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.... in his statement recorded u/s 131 of the Act that the cash belongs to the company and the cash was handed over to him by Shri Naresh at Solapur and he carried the cash from Solapur office of the assessee to be delivered at Hassan site. He submitted that since the cash has been duly recorded in the books of the assessee company, therefore, the provisions of section 69A of the Act does not apply. 14. So far as the adhoc disallowance @ 10% of murum expenses amounting to Rs. 3,35,27,467/- is concerned, he submitted that in none of the queries the Assessing Officer ever asked the assessee to produce the parties from whom the assessee has purchased murum. Only towards fag end of the assessment proceedings the Assessing Officer vide notice dated 22.09.2022 asked the assessee to produce the parties concerned on 27.09.2022. He submitted that the site of the assessee company at Hassan is around 182 kilometers from Bangalore. The 153 persons to whom the notices were sent by the Assessing Officer are located at different locations and therefore, producing those persons before the Assessing Officer within a span of 5 days was impossible. Further, the disallowance @ 10% made by the Assessing....
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....e cash was received by him at Bangalore. No attempt has been made to explain as to why the cash was given from Solapur office especially when the funds to Hassan site were transferred from Bijapur office. He submitted that the statement given by Shri Prakash Madkar is an afterthought and just to cover up the unaccounted cash of the company. He accordingly submitted that the addition made by the Assessing Officer and sustained by the Ld. CIT(A) is justified. 18. So far as murum expenses are concerned, he submitted that there is no dispute to the fact that the same is on estimate basis and very little time was given to the assessee to produce those parties. However, the assessee could have stated before the Ld. CIT(A) to produce the parties which he has not done. Therefore, the order of the Ld. CIT(A) sustaining the addition made by the Assessing Officer is justified. 19. The Ld. Counsel for the assessee in his rejoinder submitted that no statement of any of the officials of the assessee company has been recorded other than that of the driver. 20. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the pape....
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..... Counsel for the assessee. We find at para 4.4.2 of the assessment order the Assessing Officer has mentioned as under: 4.4.2 As per the submission by Shri SM Autade Pvt Ltd, the opening balance of cash as on 7th April 2019 from Solapur Branch Office is Rs. 22,18,313/-. Shri Prakash Vasant Madkar has been consistent in saying that the money belongs to company but the source had not been explained satisfactorily. Assessee is engaged in the business of construction of roads and frequently required to deal in cash. Assessee was fully aware that the model code of conduct was in place during the Karnataka Lok Sabha election 2019 and any business person had to carry documentary proofs when they travel with more than Rupees 50,000 in cash. The private individuals and businessman carrying cash had to hold documentary proof including legal source and end use, while the model code of conduct is in place for the elections. The cash was received by Prakash Vasant Madkar from an unknown third party in Bangalore on behalf of the company. The cash seized therefore cannot be accepted as part of the cash balance in the hands of the company. Hence the cash belongs to the company and the sou....
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....as the second issue i.e. estimated disallowance of Rs. 3,35,27,467/- of murum expenses being adhoc disallowance at 10% of the direct expenses is concerned, we find the Assessing Officer during the course of assessment proceedings had issued notices u/s 133(6) of the Act to the 153 parties from whom the assessee has purchased murum. Since most of the parties did not respond, the Assessing Officer asked the assessee to produce the parties before him which the assessee failed to do for which he made adhoc disallowance at 10% of the expenses and made addition of Rs. 3,35,27,467/-. We find the Ld. CIT(A) sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that in none of the previous notices the Assessing Officer has ever asked the assessee to produce the parties and only on 22.09.2022 he asked the assessee to produce those parties on 27.09.2022 i.e. within 5 days which was not possible. It is also his submission that the Assessing Officer made disallowance of 10% on adhoc basis without mentioning which party is doubtful / non-genuine especially when ....