SWARAN NADHAN SALARIA,MUMBAI vs. DICT CENTRAL CIRCLE 1(2), MUMBAI

ITA 1052/MUM/2025Status: DisposedITAT Mumbai30 July 2025AY 2017-18Bench: us, the Ld. Counsel for the assessee filed an additional ground on 04.06.2025, which is reproduced as under:46 pages

AI SummaryPartly Allowed

Facts

The assessee, head of the "Trig" group, underwent a search and seizure action under Section 132 of the Income Tax Act. The Assessing Officer made ad-hoc disallowances for salary/wages and administrative expenses, and the assessee made suo-motu disallowances for interest and excess depreciation, prompting penalty proceedings across several assessment years from 2014-15 to 2020-21. Penalties were initiated under Section 271(1)(c), Section 270A, and Section 271AAB of the Act.

Held

The Tribunal dismissed the additional ground regarding the sustainability of assessment additions under Section 143(3) read with Section 153C. Penalties related to estimated disallowances of salary/wages and administrative expenses were cancelled for all years, as they were based on ad-hoc estimates without rejecting books of account. Penalties for suo-motu disallowances of interest and excess depreciation were also cancelled for all years, as the Assessing Officer failed to establish that these additions were linked to tangible assets/documents found during the search or that the expenses were proven false through search action, thus not meeting the conditions of Explanation 5A of Section 271(1)(c) or the definition of 'undisclosed income' under Section 271AAB.

Key Issues

Whether penalties are leviable on ad-hoc disallowances made on an estimated basis without rejecting the assessee's books of account, and whether suo-motu additions of income made in response to search-related notices (Section 153A) attract penalties under Section 271(1)(c), Section 270A, or Section 271AAB when no incriminating material is found during search or conditions for 'undisclosed income' are not met.

Sections Cited

132, 139(1), 142(2A), 143(1), 143(3), 145(3), 148, 153A, 153C, 271(1)(c), 270A, 270A(2), 270A(6), 271AAB, 37(1), 36(1)(iii), 40A(ia), 92D, 274, 276C, 271(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

For Appellant: Mr. Virabhadra S. Mahajan, Sr. DR

Hearing: 30/07/2025

dispute involved in these appeals, same were heard together and dispute involved in these appeals, same were heard together and dispute involved in these appeals, same were heard together and disposed off by way this consolidated order for the sake of disposed off by way this consolidated order for the sake of disposed off by way this consolidated order for the sake of convenience.

Firstly, we take up the appeal of the assessee for assessment 2. Firstly, we take up the appeal of the assessee for assessment Firstly, we take up the appeal of the assessee for assessment year 2014-15. The grounds raised 15. The grounds raised by the assessee are reproduced by the assessee are reproduced as under:

1. On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the learned CIT (A) has erred in confirming the penalty levied on learned CIT (A) has erred in confirming the penalty levied on learned CIT (A) has erred in confirming the penalty levied on adhoc disallowance of salaries and wages amounting to adhoc disallowance of salaries and wages amounting to adhoc disallowance of salaries and wages amounting to Rs.14,22,444/ Rs.14,22,444/- & adhoc disallowance of administrative administrative expenses amounting to Rs.2,17,162/ expenses amounting to Rs.2,17,162/- made u/s 37(1) of the made u/s 37(1) of the act on estimated basis. act on estimated basis.

2. On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the learned CIT (A) has erred in confirming the penalty leviedon learned CIT (A) has erred in confirming the penalty leviedon learned CIT (A) has erred in confirming the penalty leviedon suo-moto disallowance of interest of Rs moto disallowance of interest of Rs.33,94,396/ .33,94,396/- & Excess depreciation of Rs.38,02,913/ Excess depreciation of Rs.38,02,913/- in the return of in the return of income income filed u/s 153A.

Briefly stated, facts of the case are that Briefly stated, facts of the case are that the asses the assessee, an individual, is head of a group namely “ is head of a group namely “Trig”, based at Chandigarh. Trig”, based at Chandigarh. The Trig group is engaged in providing manpower, securities and roup is engaged in providing manpower, securities and roup is engaged in providing manpower, securities and facility services to various business entities. T facility services to various business entities. The assessee filed his he assessee filed his original return of income u/s 139(1) of the Act on 28.11.2014 original return of income u/s 139(1) of the Act on 28.11.2014 original return of income u/s 139(1) of the Act on 28.11.2014 declaring total income at Rs.1,80,57,280/ declaring total income at Rs.1,80,57,280/-. The return of income The return of income was selected for scrutiny and selected for scrutiny and the assessment u/s 143(3) of the the assessment u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) was completed on tax Act, 1961 (in short ‘the Act’) was completed on tax Act, 1961 (in short ‘the Act’) was completed on 28.12.2016 28.12.2016 28.12.2016 determining determining determining total total total income income income at at at Rs.2,12,77,280/-. Rs.2,12,77,280/ Rs.2,12,77,280/ Subsequently, in view of search and seizure action u/s 132 of the Subsequently, in view of search and seizure action u/s 132 of the Subsequently, in view of search and seizure action u/s 132 of the Act carried out in the case of the assessee in the case of the assessee, notice u/s 153 notice u/s 153A of the Act dated 18.12.2020 Act dated 18.12.2020 was issued to the assessee. In response issued to the assessee. In response to notice u/s 153A of the Act notice u/s 153A of the Act, the assessee filed return of income on , the assessee filed return of income on 24.02.2021 declaring total income at Rs.1,78,56,660/-(i.e. total 24.02.2021 declaring total income at Rs.1,78,56,660/ 24.02.2021 declaring total income at Rs.1,78,56,660/ income varied as compared to income declared in original return of as compared to income declared in original return of as compared to income declared in original return of income filed on 28/11/2014) income filed on 28/11/2014) .

“5. The arguments made by the assessee vide the above The arguments made by the assessee vide the above The arguments made by the assessee vide the above mentioned submission are mentioned submission are duly perused but not found to be duly perused but not found to be tenable for the following reasons: tenable for the following reasons: (i) During the assessment proceedings, it was found (i) During the assessment proceedings, it was found (i) During the assessment proceedings, it was found that the assessee assessee assessee had had had not not not fully fully fully maintained maintained maintained the the the requisite requisite requisite details/supporting details/supporting details/supporting documents/bills/vouchers documents/bills/vouchers documents/bills/vouchers etc. etc. etc. to authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. Further, during the Special Audit conducted in the case u/s Further, during the Special Audit conducted in the case u/s Further, during the Special Audit conducted in the case u/s 142(2A) of the Act, the Spec 142(2A) of the Act, the Special Auditor had also requested for ial Auditor had also requested for party-wise details (with Name, Address & PAN of the parties), wise details (with Name, Address & PAN of the parties), wise details (with Name, Address & PAN of the parties), supporting supporting supporting documents documents documents etc., etc., etc., to to to examine examine examine correctness correctness correctness & & & completeness of cash expenses claimed by the assessee. The completeness of cash expenses claimed by the assessee. The completeness of cash expenses claimed by the assessee. The assessee, however, failed to produce requisite d assessee, however, failed to produce requisite details & etails & explanations with regard to the cash payments made by it. explanations with regard to the cash payments made by it. explanations with regard to the cash payments made by it. ii) The assessee has submitted that since the disallowance of ii) The assessee has submitted that since the disallowance of ii) The assessee has submitted that since the disallowance of salaries and wages made u/s 37(1) of the Act are on estimate salaries and wages made u/s 37(1) of the Act are on estimate salaries and wages made u/s 37(1) of the Act are on estimate basis and hence no penalty is leviable. In this regard, it is basis and hence no penalty is leviable. In this regard, it is basis and hence no penalty is leviable. In this regard, it is pertinent to note that the facts of the case under consideration inent to note that the facts of the case under consideration inent to note that the facts of the case under consideration are distinguishable and squarely different. The plain reading are distinguishable and squarely different. The plain reading are distinguishable and squarely different. The plain reading of the assessment order is indicative of the fact that the of the assessment order is indicative of the fact that the of the assessment order is indicative of the fact that the disallowances were not made on mere adhoc basis but after disallowances were not made on mere adhoc basis but after disallowances were not made on mere adhoc basis but after carefully consid carefully considering the cash expenses claimed during the ering the cash expenses claimed during the year and thereafter a percentage of the same was disallowed year and thereafter a percentage of the same was disallowed year and thereafter a percentage of the same was disallowed after due diligence and taking into after due diligence and taking into consideration facts of the consideration facts of the case."It is noteworthy that the disallowance of cash expenses case."It is noteworthy that the disallowance of cash expenses case."It is noteworthy that the disallowance of cash expenses towards salaries & wages hav towards salaries & wages have been calculated at 4% e been calculated at 4% whereas the disallowance of administrative expenses has whereas the disallowance of administrative expenses has whereas the disallowance of administrative expenses has been calculated at 10%. Have these disallowances been purely been calculated at 10%. Have these disallowances been purely been calculated at 10%. Have these disallowances been purely made on estimate basis then the common percentage rate of made on estimate basis then the common percentage rate of made on estimate basis then the common percentage rate of disallowance would have been made by the AO on the two disallowance would have been made by the AO on the two disallowance would have been made by the AO on the two separate cash expenses instead of d parate cash expenses instead of different disallowance rate. ifferent disallowance rate. (iii) The assessee has disallowed interest expense of The assessee has disallowed interest expense of The assessee has disallowed interest expense of Rs.33,94,396/ Rs.33,94,396/- & excess depreciation of Rs.38,02,913/ depreciation of Rs.38,02,913/- in ITR Swaran Nadhan Salaria 7 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 filed u/s 153A of the Act and had there been no search action, filed u/s 153A of the Act and had there been no search action, filed u/s 153A of the Act and had there been no search action, the assessee wo the assessee would not have offered this additional income for uld not have offered this additional income for taxation. (iv) Further, during the course of search/post search Further, during the course of search/post search Further, during the course of search/post search proceedings as well as proceedings as well as during the assessment proceedings, it during the assessment proceedings, it was found that, the assessee had used said shell entities for was found that, the assessee had used said shell entities for was found that, the assessee had used said shell entities for rotation of funds/cir rotation of funds/circuitous transactions in order to and cuitous transactions in order to and creation of fictitious asset. On perusal of the ledger account creation of fictitious asset. On perusal of the ledger account creation of fictitious asset. On perusal of the ledger account extracted from the Tally data, it was found during search extracted from the Tally data, it was found during search extracted from the Tally data, it was found during search action that the assessee company had made payments to action that the assessee company had made payments to action that the assessee company had made payments to certain entities which are found to be shell certain entities which are found to be shell entities. The entities. The conduct & affairs of these shell entities had established that conduct & affairs of these shell entities had established that conduct & affairs of these shell entities had established that these shell entities were floated by the assessee group/under these shell entities were floated by the assessee group/under these shell entities were floated by the assessee group/under control of the assessee group with a purpose to do circular control of the assessee group with a purpose to do circular control of the assessee group with a purpose to do circular transactions and create fictitious assets. Thus, the arg transactions and create fictitious assets. Thus, the arg transactions and create fictitious assets. Thus, the argument of the assessee cannot be accepted of the assessee cannot be accepted (v) To sum up, in the instant case, interest expenses (v) To sum up, in the instant case, interest expenses (v) To sum up, in the instant case, interest expenses (Rs.33,94,396/ (Rs.33,94,396/-) and extra depreciation (Rs.38,02,913/ ) and extra depreciation (Rs.38,02,913/-) was disallowed by the assessee post search, in the return of disallowed by the assessee post search, in the return of disallowed by the assessee post search, in the return of income filed in response to notice issued income filed in response to notice issued u/s 153A of the u/s 153A of the Income Tax Act, 1961. The surrendering of this income for Income Tax Act, 1961. The surrendering of this income for Income Tax Act, 1961. The surrendering of this income for taxation after identification of omission on part of the assessee taxation after identification of omission on part of the assessee taxation after identification of omission on part of the assessee cannot be termed as a "bonafide disclosure" and hence is cannot be termed as a "bonafide disclosure" and hence is cannot be termed as a "bonafide disclosure" and hence is liable for imposition of penalty for under liable for imposition of penalty for under-reporting of inc reporting of income. The judgements relied upon by the assessee are not relevant The judgements relied upon by the assessee are not relevant The judgements relied upon by the assessee are not relevant to the present case as the facts are different. to the present case as the facts are different. (vi) There has been deliberate omission on the part of the (vi) There has been deliberate omission on the part of the (vi) There has been deliberate omission on the part of the assessee and has furnished inaccurate particulars of income assessee and has furnished inaccurate particulars of income assessee and has furnished inaccurate particulars of income for the year under consi for the year under consideration and therefore all the facts deration and therefore all the facts which are material to the income were not disclosed in the which are material to the income were not disclosed in the which are material to the income were not disclosed in the original return of income filed. original return of income filed. (vii) In the judgment delivered in the case of Union of India and (vii) In the judgment delivered in the case of Union of India and (vii) In the judgment delivered in the case of Union of India and Others Vs. Dharmendra Textile Processors and Others (2007) Others Vs. Dharmendra Textile Processors and Others (2007) Others Vs. Dharmendra Textile Processors and Others (2007) 295 ITR 244 (SC) the Hon'ble Apex Court has reiterated as 295 ITR 244 (SC) the Hon'ble Apex Court has reiterated as 295 ITR 244 (SC) the Hon'ble Apex Court has reiterated as under: "...the object behind the enactment of section 271(1)(c) read "...the object behind the enactment of section 271(1)(c) read "...the object behind the enactment of section 271(1)(c) read with the Explanations quoted above indicates that the said with the Explanations quoted above indicates that the said with the Explanations quoted above indicates that the said section has been enacted to provide for a remedy for loss of section has been enacted to provide for a remedy for loss of section has been enacted to provide for a remedy for loss of revenue. The penalty under the said sections is a civil liability. The penalty under the said sections is a civil liability. The penalty under the said sections is a civil liability. Wilful concealment is not an essential ingredient for attracting Wilful concealment is not an essential ingredient for attracting Wilful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution the civil liability as is the case in the matter of prosecution the civil liability as is the case in the matter of prosecution Swaran Nadhan Salaria 8 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 under section 276C of the Act. While considering an appeal under section 276C of the Act. While considering an appeal under section 276C of the Act. While considering an appeal against an order made under section 271(1)(c) what is order made under section 271(1)(c) what is required to be examined is the record which the officer required to be examined is the record which the officer required to be examined is the record which the officer imposing the penalty had before him and if that record can imposing the penalty had before him and if that record can imposing the penalty had before him and if that record can sustain the finding that there had been concealment, that sustain the finding that there had been concealment, that sustain the finding that there had been concealment, that would be sufficient to sustain the pena would be sufficient to sustain the penalty. ...The Explanations added to section 271(1)(c) in their entirety ...The Explanations added to section 271(1)(c) in their entirety ...The Explanations added to section 271(1)(c) in their entirety also indicate the element of strict liability on the assessee for also indicate the element of strict liability on the assessee for also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing concealment or for giving inaccurate particulars while filing concealment or for giving inaccurate particulars while filing returns." (viii) Further, in the case of MAK Data P. Ltd v (viii) Further, in the case of MAK Data P. Ltd vs. CIT (Supreme s. CIT (Supreme Court) the Hon'ble Supreme Court has held that: Court) the Hon'ble Supreme Court has held that: "It is the statutory duty of the assessee to declare its true "It is the statutory duty of the assessee to declare its true "It is the statutory duty of the assessee to declare its true income in the return of income filed by it from year to year and income in the return of income filed by it from year to year and income in the return of income filed by it from year to year and if the assessee had concealed true particulars of income than if the assessee had concealed true particulars of income than if the assessee had concealed true particulars of income than the assessee is liable for penalty proceedings u/s 271 read assessee is liable for penalty proceedings u/s 271 read assessee is liable for penalty proceedings u/s 271 read with s. 274 of the Act." with s. 274 of the Act." (ix) Further the Delhi High Court in the case of CIT Vs Zoom (ix) Further the Delhi High Court in the case of CIT Vs Zoom (ix) Further the Delhi High Court in the case of CIT Vs Zoom Communication Pvt. Ltd. vide dated Communication Pvt. Ltd. vide ITA No. 07/2010 dated Communication Pvt. Ltd. vide ITA No. 07/2010 dated 24.05.2010 has held that: 24.05.2010 has held that:- "The Court cannot overlook the fact "The Court cannot overlook the fact that only a small that only a small percentage of the Income Tax Returns are picked up for percentage of the Income Tax Returns are picked up for percentage of the Income Tax Returns are picked up for scrutiny. If the assessee makes a claim which is not only scrutiny. If the assessee makes a claim which is not only scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the incorrect in law but is also wholly without any basis and the incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not explanation furnished by him for making such a claim is not explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would und to be bonafide, it would be difficult to say that he would und to be bonafide, it would be difficult to say that he would still not be liable to penalty under Section 271(1)(c) of the Act. still not be liable to penalty under Section 271(1)(c) of the Act. still not be liable to penalty under Section 271(1)(c) of the Act. ITA No.7/2010 Page 14 of 18 If we take the view that a claim ITA No.7/2010 Page 14 of 18 If we take the view that a claim ITA No.7/2010 Page 14 of 18 If we take the view that a claim which is wholly untenable in law and has absolutely no which is wholly untenable in law and has absolutely no which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not on which it could be made, the assessee would not on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting be liable to imposition of penalty, even if he was not acting be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give bonafide while making a claim of this nature, that would give bonafide while making a claim of this nature, that would give a license to unscrupulous assessees to make wholly untenable a license to unscrupulous assessees to make wholly untenable a license to unscrupulous assessees to make wholly untenable and unsustainable cl and unsustainable claims without there being any basis for aims without there being any basis for making them, in the hope that their return would not be picked making them, in the hope that their return would not be picked making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of up for scrutiny and they would be assessed on the basis of up for scrutiny and they would be assessed on the basis of self- assessment under Section 143(1) of the Act and even if assessment under Section 143(1) of the Act and even if assessment under Section 143(1) of the Act and even if their case is selected for scrutin their case is selected for scrutiny, they can get away merely y, they can get away merely by paying the tax, which in any case, was payable by them. by paying the tax, which in any case, was payable by them. by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims The consequence would be that the persons who make claims The consequence would be that the persons who make claims of this nature, actuated by a malafide intention to evade tax of this nature, actuated by a malafide intention to evade tax of this nature, actuated by a malafide intention to evade tax otherwise payable by them would get away without otherwise payable by them would get away without otherwise payable by them would get away without paying Swaran Nadhan Salaria 9 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 the tax legally payable by them, if their cases are not picked the tax legally payable by them, if their cases are not picked the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, up for scrutiny. This would take away the deterrent effect, up for scrutiny. This would take away the deterrent effect, which these pena which these penalty provisions in the Act have.” 4.7 Consequently, penalty was levied under section 271(1)(c) at Consequently, penalty was levied under section 271(1)(c) at Consequently, penalty was levied under section 271(1)(c) at 100% of tax sought to be evaded on ought to be evaded on ₹88,36,915/- -, amounting to ₹30,03,667/-. The CIT(A) confirmed the levy, holding that: . The CIT(A) confirmed the levy, holding that: . The CIT(A) confirmed the levy, holding that:

As far as regular ground No. 1 As far as regular ground No. 1 of the appeal in relation in relation to the penalty levied in respect of salary and wages and administrative penalty levied in respect of salary and wages and administrative penalty levied in respect of salary and wages and administrative expenses is concerned, the assessee has challenged mainly on the cerned, the assessee has challenged mainly on the cerned, the assessee has challenged mainly on the ground that penalty levied is on the estimate basis. It is undisputed ground that penalty levied is on the estimate basis. It is undisputed ground that penalty levied is on the estimate basis. It is undisputed fact that the Assessing Officer has fact that the Assessing Officer has levied the penalty @ 4% out of levied the penalty @ 4% out of the salary and wages expenses claimed to have incurred in cash the salary and wages expenses claimed to have incurred in cash the salary and wages expenses claimed to have incurred in cash mode. Similarly, disallowance out of administrative expenses has mode. Similarly, disallowance out of administrative expenses has mode. Similarly, disallowance out of administrative expenses has been made @ 10% out of expenses claimed to have been incurred in been made @ 10% out of expenses claimed to have been incurred in been made @ 10% out of expenses claimed to have been incurred in the cash mode. As far as levy o the cash mode. As far as levy of the penalty in respect of addition f the penalty in respect of addition made on the estimate basis, the Ld. Counsel relied on the decision made on the estimate basis, the Ld. Counsel relied on the decision made on the estimate basis, the Ld. Counsel relied on the decision of the Tribunal in the case of of the Tribunal in the case of Dr. Kaushal Goes v. Asst. CIT Dr. Kaushal Goes v. Asst. CIT (2015) 45 CCH 0363 (Delhi 45 CCH 0363 (Delhi-Trib.) wherein the Tribunal following the wherein the Tribunal following the Swaran Nadhan Salaria 11 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 decision of the Co-ordi ordinate Bench in the case of Smt. Surinder Kaur nate Bench in the case of Smt. Surinder Kaur 31 SOT 23 (Lucknow) deleted the penalty observing as under: 31 SOT 23 (Lucknow) deleted the penalty observing as under: 31 SOT 23 (Lucknow) deleted the penalty observing as under:

11. The contention of Ld. D.R. that once the assessee has 11. The contention of Ld. D.R. that once the assessee has 11. The contention of Ld. D.R. that once the assessee has himself reflected and surrendered the unaccounted income of himself reflected and surrendered the unaccounted income of himself reflected and surrendered the unaccounted income of Rs.4,95,000/ Rs.4,95,000/- in his Income tax return the defense of lack of in his Income tax return the defense of lack of jurisdiction is not available to the assessee, is not tenable for jurisdiction is not available to the assessee, is not tenable for jurisdiction is not available to the assessee, is not tenable for the two reasons: one that there is no estoppels against the the two reasons: one that there is no estoppels against the the two reasons: one that there is no estoppels against the statute because when defense is available by virtue of statute statute because when defense is available by virtue of statute statute because when defense is available by virtue of statute to the assessee, th to the assessee, the penalty proceedings being independent e penalty proceedings being independent one, he cannot be estopped merely by virtue of the fact that he one, he cannot be estopped merely by virtue of the fact that he one, he cannot be estopped merely by virtue of the fact that he himself has surrendered the unaccounted income in his income himself has surrendered the unaccounted income in his income himself has surrendered the unaccounted income in his income tax return, because the assessee claimed to have surrendered tax return, because the assessee claimed to have surrendered tax return, because the assessee claimed to have surrendered the amount of Rs.4,95,000/ the amount of Rs.4,95,000/- to buy peace of mind and to buy peace of mind and to avoid the protracted litigation; Second, when the revenue has avoid the protracted litigation; Second, when the revenue has avoid the protracted litigation; Second, when the revenue has statutory power to proceed against the assessee by reopening statutory power to proceed against the assessee by reopening statutory power to proceed against the assessee by reopening the assessment of a particular assessment year and then the assessment of a particular assessment year and then the assessment of a particular assessment year and then initiating the penalty proceedings, it cannot be al initiating the penalty proceedings, it cannot be allowed to lowed to proceed mechanically to invoke the penal provisions. So proceed mechanically to invoke the penal provisions. So proceed mechanically to invoke the penal provisions. So initiating the penalty proceedings on the basis of void initiating the penalty proceedings on the basis of void initiating the penalty proceedings on the basis of void assessment order are not sustainable in the eyes of law. assessment order are not sustainable in the eyes of law. assessment order are not sustainable in the eyes of law. Assessee is well within his right to take this defence of Assessee is well within his right to take this defence of Assessee is well within his right to take this defence of challenging the asse challenging the assessment order even though assessment ssment order even though assessment Swaran Nadhan Salaria 12 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 order has not been challenged, at the time of challenging the order has not been challenged, at the time of challenging the order has not been challenged, at the time of challenging the penalty order. penalty order.

Other reversals Other reversals (32,12,153) 27,52,74,380 Total 10.3. It is found that considerable amount of salary has been 10.3. It is found that considerable amount of salary has been 10.3. It is found that considerable amount of salary has been paid in cash in each of the years. It is found that the assessee paid in cash in each of the years. It is found that the assessee paid in cash in each of the years. It is found that the assessee has not maintained party has not maintained party-wise ledger in the books for wise ledger in the books for recording cash payment of salary in the books of accounts. It recording cash payment of salary in the books of accounts. It recording cash payment of salary in the books of accounts. It is seen that the assessee has passed a consolidated entry in the assessee has passed a consolidated entry in the assessee has passed a consolidated entry in the books for cash payment of salary to multiple parties. The the books for cash payment of salary to multiple parties. The the books for cash payment of salary to multiple parties. The assessee has not provided the complete details of such assessee has not provided the complete details of such assessee has not provided the complete details of such employees like address, PAN, Aadhaar No., etc. so as to employees like address, PAN, Aadhaar No., etc. so as to employees like address, PAN, Aadhaar No., etc. so as to establish the identity of such empl establish the identity of such employees. As mentioned above, oyees. As mentioned above, the salary register does not contain the details of mode of the salary register does not contain the details of mode of the salary register does not contain the details of mode of payment. Hence, it is not ascertainable from the salary payment. Hence, it is not ascertainable from the salary payment. Hence, it is not ascertainable from the salary register whether the salary paid to the respective employees is register whether the salary paid to the respective employees is register whether the salary paid to the respective employees is in cash or through bank. Consequently, the cash s in cash or through bank. Consequently, the cash salaries as alaries as per salary register could not be fully correlated with the cash per salary register could not be fully correlated with the cash per salary register could not be fully correlated with the cash salaries as per books of accounts. Further, the assessee has salaries as per books of accounts. Further, the assessee has salaries as per books of accounts. Further, the assessee has not substantiated in detail as to how the salary payments not substantiated in detail as to how the salary payments not substantiated in detail as to how the salary payments does not attract TDS provisions. In respect of each of the does not attract TDS provisions. In respect of each of the does not attract TDS provisions. In respect of each of the employee and has only provided a generic remark. Further, as loyee and has only provided a generic remark. Further, as loyee and has only provided a generic remark. Further, as regards the source of salaries paid in cash, the assessee has regards the source of salaries paid in cash, the assessee has regards the source of salaries paid in cash, the assessee has submitted that the same is out of cash withdrawals from bank submitted that the same is out of cash withdrawals from bank submitted that the same is out of cash withdrawals from bank accounts at various branches. From the salary register accounts at various branches. From the salary register accounts at various branches. From the salary register provided by the asse provided by the assessee; it is seen that the employees of the ssee; it is seen that the employees of the assessee company have been deputed at various cities & assessee company have been deputed at various cities & assessee company have been deputed at various cities & Swaran Nadhan Salaria 14 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 towns across India. However, it is found that in certain towns across India. However, it is found that in certain towns across India. However, it is found that in certain locations, the assessee does not have any bank accounts and locations, the assessee does not have any bank accounts and locations, the assessee does not have any bank accounts and hence, a question arises as to how the as hence, a question arises as to how the assessee managed to sessee managed to make salary payments through cash in such locations. make salary payments through cash in such locations. make salary payments through cash in such locations. 10.4. The assessee has further submitted that the guards 10.4. The assessee has further submitted that the guards 10.4. The assessee has further submitted that the guards employed by the assessee are required to give certain amount employed by the assessee are required to give certain amount employed by the assessee are required to give certain amount to the assessee company as security deposits and such to the assessee company as security deposits and such to the assessee company as security deposits and such security depo security deposits are recovered from them through the salary sits are recovered from them through the salary to be paid to such employees. Hence, the security deposits to be paid to such employees. Hence, the security deposits to be paid to such employees. Hence, the security deposits collectible from the guards are adjusted from the salary collectible from the guards are adjusted from the salary collectible from the guards are adjusted from the salary payable to them. Accordingly, the assessee has passed payable to them. Accordingly, the assessee has passed payable to them. Accordingly, the assessee has passed consolidated journal entries in the bo consolidated journal entries in the books by debiting Salary oks by debiting Salary a/c and crediting Security Deposit a/c. However, the assessee a/c and crediting Security Deposit a/c. However, the assessee a/c and crediting Security Deposit a/c. However, the assessee has neither given the employee wise details of security has neither given the employee wise details of security has neither given the employee wise details of security deposits and the months for which the salary has been deposits and the months for which the salary has been deposits and the months for which the salary has been adjusted nor produced any supporting documents in relation to adjusted nor produced any supporting documents in relation to adjusted nor produced any supporting documents in relation to the same. Thus, the assessee has not substantiated the salary the same. Thus, the assessee has not substantiated the salary the same. Thus, the assessee has not substantiated the salary expenses adjusted through security deposits with proper expenses adjusted through security deposits with proper expenses adjusted through security deposits with proper details and supporting documents. details and supporting documents. 10.5. It is also seen that the other entities of the assessee 10.5. It is also seen that the other entities of the assessee 10.5. It is also seen that the other entities of the assessee group i.e. M/s. Trig Security & Detective group i.e. M/s. Trig Security & Detective Services, M/s. Trig Services, M/s. Trig Integrated Facility Management, M/s. Trig Facility Services Integrated Facility Management, M/s. Trig Facility Services Integrated Facility Management, M/s. Trig Facility Services and M/s. Trig Detective Private Ltd. have made payment of and M/s. Trig Detective Private Ltd. have made payment of and M/s. Trig Detective Private Ltd. have made payment of salary on behalf of the assessee. In this regard, the assessee salary on behalf of the assessee. In this regard, the assessee salary on behalf of the assessee. In this regard, the assessee has passed Journal entries in the books by debiting Sa has passed Journal entries in the books by debiting Sa has passed Journal entries in the books by debiting Salary a/c and crediting the Trig group entity as and when the a/c and crediting the Trig group entity as and when the a/c and crediting the Trig group entity as and when the payments are made by the other Trig group entity. However, payments are made by the other Trig group entity. However, payments are made by the other Trig group entity. However, the assessee has not provided the complete details of such the assessee has not provided the complete details of such the assessee has not provided the complete details of such employees like address, PAN, Aadhaar No., etc. so as to employees like address, PAN, Aadhaar No., etc. so as to employees like address, PAN, Aadhaar No., etc. so as to establish the identit establish the identity of such employees. Further, there is no y of such employees. Further, there is no reference in the Salary register provided by the assessee as to reference in the Salary register provided by the assessee as to reference in the Salary register provided by the assessee as to how much payment has been made by the assessee and how how much payment has been made by the assessee and how how much payment has been made by the assessee and how much payments are made by the other Trig group entity much payments are made by the other Trig group entity much payments are made by the other Trig group entity employee-wise. Accordingly, the assessee wise. Accordingly, the assessee has not been able to has not been able to completely correlate in detail the salary register with the books completely correlate in detail the salary register with the books completely correlate in detail the salary register with the books of accounts in respect of such on behalf payments of salary of accounts in respect of such on behalf payments of salary of accounts in respect of such on behalf payments of salary made by the other Trig made by the other Trig group entities.” 6.2 The response of the assessee for above show cause notice The response of the assessee for above show cause notice The response of the assessee for above show cause notice issued has been reproduced by the AO in para 10.3 of the as been reproduced by the AO in para 10.3 of the as been reproduced by the AO in para 10.3 of the assessment order. For ready reference same is assessment order. For ready reference same is extracted extracted as under:

4. The administrative expenses exclusively and wholly 4. The administrative expenses exclusively and wholly 4. The administrative expenses exclusively and wholly incurred for bus incurred for business purpose only. As we are in service iness purpose only. As we are in service industries and we have branches in all over India, we industries and we have branches in all over India, we industries and we have branches in all over India, we have to pay cash to various officers reimbursement of have to pay cash to various officers reimbursement of have to pay cash to various officers reimbursement of expenses expenses expenses like like like business business business promotion, promotion, promotion, printing printing printing & & & Swaran Nadhan Salaria 16 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 Stationery, Courier charges, fuels etc on day to day Stationery, Courier charges, fuels etc on day to day Stationery, Courier charges, fuels etc on day to day basis for basis for smooth running of business. We have already smooth running of business. We have already submitted documentary proof for the same. submitted documentary proof for the same. Considering the specific circumstances under which the Considering the specific circumstances under which the Considering the specific circumstances under which the expenses are incurred in cash, we request you not to do any expenses are incurred in cash, we request you not to do any expenses are incurred in cash, we request you not to do any disallowance towards cash expenses incurred in cash as disallowance towards cash expenses incurred in cash as disallowance towards cash expenses incurred in cash as these these these are are are reasonable reasonable reasonable & & & exclusively exclusively exclusively incurred incurred incurred for for for the the the business purpose" purpose" 6.3 After considering submission of assessee, considering submission of assessee, The AO made considering submission of assessee, addition observing as under: as under:

“10.4 After considering the submission of the assessee,4% of “10.4 After considering the submission of the assessee,4% of “10.4 After considering the submission of the assessee,4% of "Salary & Wages" expenses claimed to "Salary & Wages" expenses claimed to be incurred in CASH be incurred in CASH mode and 10% of "administrative expenses" claimed to be mode and 10% of "administrative expenses" claimed to be mode and 10% of "administrative expenses" claimed to be incurred in CASH mode, are hereby disallowed on estimated incurred in CASH mode, are hereby disallowed on estimated incurred in CASH mode, are hereby disallowed on estimated basis u/s. 37(1) of the Act and added to the computation of basis u/s. 37(1) of the Act and added to the computation of basis u/s. 37(1) of the Act and added to the computation of income. Thus following disallowances of expenses and thereby income. Thus following disallowances of expenses and thereby income. Thus following disallowances of expenses and thereby additions to the computation of income are made in the case of dditions to the computation of income are made in the case of dditions to the computation of income are made in the case of assessee on these issues, as under: assessee on these issues, as under: (i) Disallowance @ 4% out of "Salary & Wages" expenses (i) Disallowance @ 4% out of "Salary & Wages" expenses (i) Disallowance @ 4% out of "Salary & Wages" expenses claimed to be incurred in Cash Mode claimed to be incurred in Cash Mode - Rs.14,22,444/- - (i.e. 4% of Rs.3,55,61,103/ of Rs.3,55,61,103/-) (ii) Disallowance 10 (ii) Disallowance 10% out of "administrative Expenses" % out of "administrative Expenses" expenses claimed to be incurred in Cash Mode expenses claimed to be incurred in Cash Mode -Rs.2,17,162/ Rs.2,17,162/- (i.e. 10% of Rs.21,71,622/ Rs.21,71,622/-).” 6.4 After careful examination of the show After careful examination of the show cause notice issued by notice issued by the AO and assessee’s submissions in response to the show cause the AO and assessee’s submissions in response to the show cause the AO and assessee’s submissions in response to the show cause notice, the AO held that otice, the AO held that the assessee failed to substantiate the failed to substantiate the genuineness of the salary and administrative expenses claimed to genuineness of the salary and administrative expenses claimed genuineness of the salary and administrative expenses claimed have been incurred in cash mainly for the reason that the salary have been incurred in cash mainly for the reason that t have been incurred in cash mainly for the reason that t registers provided were were deficient in particulars such as PAN, deficient in particulars such as PAN, Adhar, addresses, dates, and mode of payment ses, dates, and mode of payment. But in our opinion in a But in our opinion in a large scale organization engaged in supply of manpower, incidence large scale organization engaged in supply of manpower, incidence large scale organization engaged in supply of manpower, incidence Swaran Nadhan Salaria 17 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 of part of expenses without PAN or Adhar of part of expenses without PAN or Adhar No. may be possible in may be possible in normal course of business. normal course of business. Further, the observation of t observation of the AO that claim of adjustments against security deposits and payments made claim of adjustments against security deposits and payments made claim of adjustments against security deposits and payments made by group concerns remain by group concerns remained unverified in the unverified in the absence of documentary evidence, is concerned, documentary evidence, is concerned, we find that we find that the AO has not pointed out any specific incidence and even no disallowanc specific incidence and even no disallowance has specific incidence and even no disallowanc been made on this account been made on this account. In view of above, it is evident that it is evident that the addition in respect of salary and wages and administrative expense in respect of salary and wages and administrative expense in respect of salary and wages and administrative expense has been purely on ad has been purely on ad-hoc and estimate basis, without pointing out hoc and estimate basis, without pointing out any specific entry of expenses for disallowance, h any specific entry of expenses for disallowance, hence ence, respectfully, following the decision following the decision of coordinate bench of Tribunal referred of coordinate bench of Tribunal referred above, we hereby cancel cancel the penalty in respect of disallowance of in respect of disallowance of ‘salary and wages’ and and ‘administrative expenses’.

“8.3 I have gone through the submissions filed by the “8.3 I have gone through the submissions filed by the “8.3 I have gone through the submissions filed by the appellant and the relevant records. It is an esta appellant and the relevant records. It is an established fact blished fact and various decisions of the Hon'ble Apex court and other and various decisions of the Hon'ble Apex court and other and various decisions of the Hon'ble Apex court and other courts have held that suo courts have held that suo-moto disclosure in the return after moto disclosure in the return after search action does not absolve the appellant of the penalty search action does not absolve the appellant of the penalty search action does not absolve the appellant of the penalty provisions. 8.4 The appellant has relied upon the decision of H 8.4 The appellant has relied upon the decision of H 8.4 The appellant has relied upon the decision of Hon'ble Chandigarh Tribunal in the case of DCIT Central Circle Chandigarh Tribunal in the case of DCIT Central Circle Chandigarh Tribunal in the case of DCIT Central Circle-1, Chandigarh v Kulwant Singh wherein it was held that penalty Chandigarh v Kulwant Singh wherein it was held that penalty Chandigarh v Kulwant Singh wherein it was held that penalty should not be levied on suo should not be levied on suo-moto income offered in the return moto income offered in the return Swaran Nadhan Salaria 18 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 u/s 153A. As per the appellant case of the Apex court decision u/s 153A. As per the appellant case of the Apex court decision u/s 153A. As per the appellant case of the Apex court decision in Mak Data P Ltd has been discussed and differentiated. Data P Ltd has been discussed and differentiated. Data P Ltd has been discussed and differentiated. 8.5 It is however noted that facts in that case were different. 8.5 It is however noted that facts in that case were different. 8.5 It is however noted that facts in that case were different. The relevant paras of the order are reproduced as under: The relevant paras of the order are reproduced as under: The relevant paras of the order are reproduced as under: "Applying the similar proposition, even when the "Applying the similar proposition, even when the "Applying the similar proposition, even when the Assessing officer is precluded from Assessing officer is precluded from making any making any addition in the absence of any incriminating material addition in the absence of any incriminating material addition in the absence of any incriminating material found during the search action in the assessment found during the search action in the assessment found during the search action in the assessment proceedings carried out u/s 153A of the Act in which proceedings carried out u/s 153A of the Act in which proceedings carried out u/s 153A of the Act in which the original assessment proceedings stood completed the original assessment proceedings stood completed the original assessment proceedings stood completed and not abated, the Assessing office and not abated, the Assessing officer, in our view, is r, in our view, is also precluded from initiate the penalty proceedings u/s also precluded from initiate the penalty proceedings u/s also precluded from initiate the penalty proceedings u/s 271(1)(c) of the Act in case of already concluded 271(1)(c) of the Act in case of already concluded 271(1)(c) of the Act in case of already concluded assessment in the absence of any incriminating assessment in the absence of any incriminating assessment in the absence of any incriminating material found during the search action." material found during the search action." In the present case seized material is av In the present case seized material is available. Thus, the ailable. Thus, the facts are totally different and not applicable. facts are totally different and not applicable. 8.6 In this regard, reliance is placed on the decision of Hon'ble 8.6 In this regard, reliance is placed on the decision of Hon'ble 8.6 In this regard, reliance is placed on the decision of Hon'ble Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] 38 taxmann.com 448 (SC) which held as under: 38 taxmann.com 448 (SC) which held as under: "Voluntary disclosure does not release assessee from mischief disclosure does not release assessee from mischief disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c)." of penal proceedings under section 271(1)(c)." 8.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi 8.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi 8.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi Vs ACIT [2009] 125 TTJ 631 (Delhi) held that where certain Vs ACIT [2009] 125 TTJ 631 (Delhi) held that where certain Vs ACIT [2009] 125 TTJ 631 (Delhi) held that where certain income was disclosed in return filed income was disclosed in return filed in response to notice in response to notice under section 153C following search, which income was not under section 153C following search, which income was not under section 153C following search, which income was not disclosed in original return, it was a clear case of concealment disclosed in original return, it was a clear case of concealment disclosed in original return, it was a clear case of concealment of income attracting penalty under section 271(1)(c); in such a of income attracting penalty under section 271(1)(c); in such a of income attracting penalty under section 271(1)(c); in such a case it was unnecessary to invoke Explanation 5 case it was unnecessary to invoke Explanation 5 to section to section 271(1)(c) 8.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar 8.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar 8.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar [2015] 59 taxmann.com 99 (Calcutta), while deciding matter [2015] 59 taxmann.com 99 (Calcutta), while deciding matter [2015] 59 taxmann.com 99 (Calcutta), while deciding matter related to section 271(1)(c) Expl 5A held that even where related to section 271(1)(c) Expl 5A held that even where related to section 271(1)(c) Expl 5A held that even where subsequent to search, assessee voluntarily disclosed a sum subsequent to search, assessee voluntarily disclosed a sum subsequent to search, assessee voluntarily disclosed a sum and offered said sum to tax, since said amount was not nd offered said sum to tax, since said amount was not nd offered said sum to tax, since said amount was not disclosed in original return, penalty levied urider section disclosed in original return, penalty levied urider section disclosed in original return, penalty levied urider section 271(1)(c) was justified. 271(1)(c) was justified. Hon'ble Supreme Court has upheld the decision of Hon'ble Supreme Court has upheld the decision of Hon'ble Supreme Court has upheld the decision of Hon'ble High Court in the above case. Hon'ble High Court in the above case.

“20. Thus, the first requirement for invoking Explanation 5 is 20. Thus, the first requirement for invoking Explanation 5 is 20. Thus, the first requirement for invoking Explanation 5 is that in a valid search, some tangible assets/documents must that in a valid search, some tangible assets/documents must that in a valid search, some tangible assets/documents must have been found which would reflect concealed income of the have been found which would reflect concealed income of the have been found which would reflect concealed income of the assessee and whi assessee and which have become basis for making addition of ch have become basis for making addition of concealed income. It is an admitted position that there has not concealed income. It is an admitted position that there has not concealed income. It is an admitted position that there has not been any seizure of tangible assets/documents in the search been any seizure of tangible assets/documents in the search been any seizure of tangible assets/documents in the search which could be said to be belonging to the assessee. Therefore, which could be said to be belonging to the assessee. Therefore, which could be said to be belonging to the assessee. Therefore, it cannot be said that a it cannot be said that assessee has been found to be the ssessee has been found to be the owner of tangible assets and that such tangible assets have owner of tangible assets and that such tangible assets have owner of tangible assets and that such tangible assets have been acquired by her by utilizing her undisclosed income been acquired by her by utilizing her undisclosed income been acquired by her by utilizing her undisclosed income earned before the date of search, and also there is no claim by earned before the date of search, and also there is no claim by earned before the date of search, and also there is no claim by the assessee that she has acquired any suc the assessee that she has acquired any such asset out of h asset out of income not disclosed before the Department. income not disclosed before the Department.

21.

We, therefore, uphold the order of learned CIT(A) in 21. We, therefore, uphold the order of learned CIT(A) in 21. We, therefore, uphold the order of learned CIT(A) in cancelling the penalty which had been levied by the Assessing cancelling the penalty which had been levied by the Assessing cancelling the penalty which had been levied by the Assessing Officer on the basis of an apparently invalid assessment order Officer on the basis of an apparently invalid assessment order Officer on the basis of an apparently invalid assessment order and by invoking and by invoking the provisions of Explanation 5 which, on the the provisions of Explanation 5 which, on the face of it, are not applicable, as no tangible asset belonging to face of it, are not applicable, as no tangible asset belonging to face of it, are not applicable, as no tangible asset belonging to assessee has has been seized.” 7.2 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant material on record. The Assessing Officer has invoked the relevant material on record. The Assessing Office the relevant material on record. The Assessing Office Swaran Nadhan Salaria 20 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 Explanation 5A below the section 271(1)© of the Act. For ready 5A below the section 271(1)© of the Act. For ready 5A below the section 271(1)© of the Act. For ready reference, said Explanation is reproduced as under: reference, said Explanation is reproduced as under: Where in the course of a 71[search 72 initiated under section 132 [Explanation 5.-Where in the course of a section 132 before the 1st day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the other valuable article or thing (hereafter in this Explanation referred to as assets other valuable article or thing (hereafter in this Explanation referred to as assets assessee claims that such assets have been acquired by him by utilising (wholly or in part) his assessee claims that such assets have been acquired by him by utilising (wholly or in part) his assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a) for any previous year which has ended before the date of the search, but the return of income for any previous year which has ended before the date of the search, but the return of income for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished bef for such year has not been furnished before the said date or, where such return has been ore the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or furnished before the said date, such income has not been declared therein ; or furnished before the said date, such income has not been declared therein ; or (b) for any previous year which is to end on or after the date of the search, for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is then, notwithstanding that such income is declared by him in any return of income furnished on declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause or after the date of the search, he shall, for the purposes of imposition of a penalty under clause or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or section (1) of this section, be deemed to have concealed the particulars of his income or section (1) of this section, be deemed to have concealed the particulars of his income or nished inaccurate particulars of such income, 73[unless,- furnished inaccurate particulars of such income, (1) such income is, or the transactions resulting in such income are recorded, such income is, or the transactions resulting in such income are recorded, such income is, or the transactions resulting in such income are recorded,- (i) in a case falling under clause (a), before the date of the search; and in a case falling under clause (a), before the date of the search; and in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in a case falling under clause (b), on or before such date, in the books of account, if any, maintained 74 by him for any source of income or such income is in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the 75[ 76[Principal Chief Commissioner or] Chief Commissioner or otherwise disclosed to the [Principal Chief Commissioner or] Chief Commissioner or 76[Principal Commissioner or] Commissioner] before the said date ; or [Principal Commissioner or] Commissioner] before the said date ; or [Principal Commissioner or] Commissioner] before the said date ; or se of the search 74, makes a statement under sub-section (4) of (2) he, in the course of the search section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his posses any money, bullion, jewellery or other valuable article or thing found in his posses any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his 74income which has not been disclosed so far in his his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in 77 77[***] sub-section (1) of return of income to be furnished before the expiry of time specified in section 139, and also specifies in the statement the manner in which such income has been , and also specifies in the statement the manner in which such income has been , and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.] derived and pays the tax, together with interest, if any, in respect of such income.] derived and pays the tax, together with interest, if any, in respect of such income.] 7.3 From plane reading of From plane reading of above provisions, we find that above provisions, we find that for invoking explanation 5A , the assessee must be found to be a owner invoking explanation 5A , the assessee must be found to be a owner invoking explanation 5A , the assessee must be found to be a owner of tangible asset acquired out of the undisclosed income. In the of tangible asset acquired out of the undisclosed income. of tangible asset acquired out of the undisclosed income. instant case before us is also the issue in dispute is whether the instant case before us is also the issue in dispute is whether the instant case before us is also the issue in dispute is whether the assessee is found to assessee is found to be owner of the tangible assets and whether be owner of the tangible assets and whether such tangible assets have been such tangible assets have been acquired by the assessee using quired by the assessee using the relevant undisclosed income undisclosed income before the date of the search. before the date of the search. The Swaran Nadhan Salaria 21 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 assessee in the return of income filed in response to notice under assessee in the return of income filed in response to notice under assessee in the return of income filed in response to notice under section 153A of the Act made variation in total income as compared the Act made variation in total income as compared the Act made variation in total income as compared to the original return of income filed. But detail to the original return of income filed. But detail of variation has not variation has not been mentioned by the AO been mentioned by the AO in impugned assessment order in impugned assessment order. The AO has simply stated that the assessee has withdrawn the expenses on has simply stated that the assessee has withdrawn the expenses on has simply stated that the assessee has withdrawn the expenses on interest and depreciation which were claimed to interest and depreciation which were claimed to have have been incurred through shell entities, but nowhere brought on record as how said through shell entities, but nowhere brought on record as how said through shell entities, but nowhere brought on record as how said withdrawal of expenses in the return filed u/s 153A was as a withdrawal of expenses in the return filed u/s 1 withdrawal of expenses in the return filed u/s 1 consequence to search action. Under the ce to search action. Under the Explanation 5A, the Explanation 5A, the Assessing Officer has to establish that the Assessing Officer has to establish that the suo-motu motu disallowance made by the assessee made by the assessee for any money, bullion, jewellery or other any money, bullion, jewellery or other valuable article or thing valuable article or thing or income was based on the based on the books of account or the documents found during the course of search and account or the documents found during the course of search and account or the documents found during the course of search and unless this condition is satisfied, the penalt unless this condition is satisfied, the penalty levied invoking y levied invoking Explanation 5A is not sustainable in law. 5A is not sustainable in law. The lower authorities lower authorities have not established the fact that the tablished the fact that the suo-motu disallow disallowance made by the assessee was a result of any tangible assets or documents as a result of any tangible assets or documents as a result of any tangible assets or documents found during the course of found during the course of the search, therefore, the the search, therefore, the suo-moto disallowance made by the assessee disallowance made by the assessee don’t attract penalty u/s attract penalty u/s 271(1)(c) of the Act unless the conditions provided under 271(1)(c) of the Act unless the conditions provided under 271(1)(c) of the Act unless the conditions provided under Explanation 5A to section 271(1)(c) of the Act are fulfilled to section 271(1)(c) of the Act are fulfilled to section 271(1)(c) of the Act are fulfilled. In view of the above, the penalty in respect of interest and the excess the penalty in respect of interest and the excess the penalty in respect of interest and the excess depreciation is also cancelled cancelled. The relevant grounds of the appeal of The relevant grounds of the appeal of the assessee are allowed. the assessee are allowed.

2. On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the learned CIT (A) has erred in learned CIT (A) has erred in confirming the penalty leviedon confirming the penalty leviedon suo-moto disallowance of interest of Rs.44,65,742/ moto disallowance of interest of Rs.44,65,742/- & Excess & Excess depreciation depreciation of of Rs.97,75,277/- Rs.97,75,277/ in in the the return return of of income filed u/s 153A. 9.1 While completing the assessment u/s 153A of the Act, the While completing the assessment u/s 153A of the Act, the While completing the assessment u/s 153A of the Act, the firstly, Assessing Assessing Officer Officer made made addition addition on on three three items, items disallowance on estimate basis in respect of cash expense incurred disallowance on estimate basis in respect of cash expense incurred disallowance on estimate basis in respect of cash expense incurred secondly, on salary, wages es es and and and administrative administrative administrative expenses, expenses, expenses, disallowance u/s 40A(ia) for non disallowance u/s 40A(ia) for non-deduction of tax at source deduction of tax at source amounting to Rs.19,050/-, thirdly, disallowance amounting to Rs.19,050/ disallowance of interest expenses and depreciation expenses incurred through shell expenses and depreciation expenses incurred through shell expenses and depreciation expenses incurred through shell companies. Accordingly, in the penalty order passed u/s 270A of companies. Accordingly, in the penalty order passed u/s 270A of companies. Accordingly, in the penalty order passed u/s 270A of the Act, the Assessing Officer held the assessee guilty of under the Act, the Assessing Officer held the assessee guilty of under the Act, the Assessing Officer held the assessee guilty of under Swaran Nadhan Salaria 24 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 reporting of the income. The relevant part of the discussion of the reporting of the income. The relevant part of the discus reporting of the income. The relevant part of the discus Assessing Officer in the penalty order is reproduced as under: Assessing Officer in the penalty order is reproduced as under: Assessing Officer in the penalty order is reproduced as under:

6. The arguments made by the assessee vide the afore The arguments made by the assessee vide the afore The arguments made by the assessee vide the afore- mentioned submission are duly perused but not found to be mentioned submission are duly perused but not found to be mentioned submission are duly perused but not found to be tenable for the following reasons: tenable for the following reasons: (i) During the assessment (i) During the assessment proceedings, it was found that the proceedings, it was found that the assessee assessee assessee had had had not not not fully fully fully maintained maintained maintained the the the requisite requisite requisite details/supporting details/supporting details/supporting documents/bills/vouchers documents/bills/vouchers documents/bills/vouchers etc. etc. etc. to to to authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. Further, during the Special Audit conducted in the case u/s Further, during the Special Audit conducted in the case u/s Further, during the Special Audit conducted in the case u/s 142(2A) of the Act, the Special Auditor had also requested for 2(2A) of the Act, the Special Auditor had also requested for 2(2A) of the Act, the Special Auditor had also requested for party-wise details (with Name, Address & PAN of the parties), wise details (with Name, Address & PAN of the parties), wise details (with Name, Address & PAN of the parties), supporting supporting supporting documents documents documents etc., etc., etc., to to to examine examine examine correctness correctness correctness & & & completeness of cash expenses claimed by the assessee. The completeness of cash expenses claimed by the assessee. The completeness of cash expenses claimed by the assessee. The assessee, however, fai assessee, however, failed to produce requisite details & led to produce requisite details & explanations with regard to the cash payments made by it. explanations with regard to the cash payments made by it. explanations with regard to the cash payments made by it. (ii) The assessee has submitted that since the disallowance of (ii) The assessee has submitted that since the disallowance of (ii) The assessee has submitted that since the disallowance of salaries and wages made u/s 37(1) of the Act are on estimate salaries and wages made u/s 37(1) of the Act are on estimate salaries and wages made u/s 37(1) of the Act are on estimate basis and hence no penalty is leviable. basis and hence no penalty is leviable. In this regard, it is In this regard, it is pertinent to note that the facts of the case under consideration pertinent to note that the facts of the case under consideration pertinent to note that the facts of the case under consideration are distinguishable and squarely different. The plain reading are distinguishable and squarely different. The plain reading are distinguishable and squarely different. The plain reading of the assessment order is indicative of the fact that the of the assessment order is indicative of the fact that the of the assessment order is indicative of the fact that the disallowances were not made on mere adhoc basis disallowances were not made on mere adhoc basis but after but after carefully considering the cash expenses claimed during the carefully considering the cash expenses claimed during the carefully considering the cash expenses claimed during the year and thereafter a percentage of the same was disallowed year and thereafter a percentage of the same was disallowed year and thereafter a percentage of the same was disallowed after due diligence and taking into consideration facts of the after due diligence and taking into consideration facts of the after due diligence and taking into consideration facts of the case. It is noteworthy that the disallowance of cash expenses case. It is noteworthy that the disallowance of cash expenses case. It is noteworthy that the disallowance of cash expenses towards salaries & wages have been calculated at 4% owards salaries & wages have been calculated at 4% owards salaries & wages have been calculated at 4% whereas the disallowance of administrative expenses has whereas the disallowance of administrative expenses has whereas the disallowance of administrative expenses has been calculated at 10%. Had these disallowances been purely been calculated at 10%. Had these disallowances been purely been calculated at 10%. Had these disallowances been purely made on estimate basis then the common percentage rate of made on estimate basis then the common percentage rate of made on estimate basis then the common percentage rate of disallowance would have been ma disallowance would have been made by the AO on the two de by the AO on the two separate cash expenses instead of different disallowance rate. separate cash expenses instead of different disallowance rate. separate cash expenses instead of different disallowance rate. (iii) It is admitted fact that the disallowance of Rs.85,996/ (iii) It is admitted fact that the disallowance of Rs.85,996/ (iii) It is admitted fact that the disallowance of Rs.85,996/- by the AO pertains to non the AO pertains to non-compliance of TDS provisions by the compliance of TDS provisions by the assessee. The assessee has submitted that no assessee. The assessee has submitted that no penalty is penalty is leviable by merely making a claim of expenditure. The leviable by merely making a claim of expenditure. The leviable by merely making a claim of expenditure. The assessee has also placed reliance on various judicial assessee has also placed reliance on various judicial assessee has also placed reliance on various judicial pronouncements in support of its claim. However, the facts of pronouncements in support of its claim. However, the facts of pronouncements in support of its claim. However, the facts of the instant case are different. It is unbelievable that assessee the instant case are different. It is unbelievable that assessee the instant case are different. It is unbelievable that assessee company which is engaged in providing uniformed guarding hich is engaged in providing uniformed guarding hich is engaged in providing uniformed guarding Swaran Nadhan Salaria 25 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 services to corporate / government/multinational all over India services to corporate / government/multinational all over India services to corporate / government/multinational all over India for many years is unaware both about the industry norms as for many years is unaware both about the industry norms as for many years is unaware both about the industry norms as well as the provisions of income tax with respect to TDS well as the provisions of income tax with respect to TDS well as the provisions of income tax with respect to TDS deductions. (iv) The assesse (iv) The assessee has disallowed interest expense of e has disallowed interest expense of Rs.44,65,742/ Rs.44,65,742/- & excess depreciation of Rs.97,75,277/ & excess depreciation of Rs.97,75,277/- in ITR filed u/s 153A of the Act.and had there been no search action, filed u/s 153A of the Act.and had there been no search action, filed u/s 153A of the Act.and had there been no search action, the assessee would not have offered this additional income the assessee would not have offered this additional income the assessee would not have offered this additional income for taxation, (v) Further, during (v) Further, during the course of search/post search the course of search/post search proceedings as well as during the assessment proceedings, it proceedings as well as during the assessment proceedings, it proceedings as well as during the assessment proceedings, it was found that, the assessee had used said shell entities for was found that, the assessee had used said shell entities for was found that, the assessee had used said shell entities for rotation of funds/circuitous transactions in order to and rotation of funds/circuitous transactions in order to and rotation of funds/circuitous transactions in order to and creation of fictitious asset. On perusal o creation of fictitious asset. On perusal of the ledger account f the ledger account extracted from the Tally data, it was found during search extracted from the Tally data, it was found during search extracted from the Tally data, it was found during search action that the assessee company had made payments to action that the assessee company had made payments to action that the assessee company had made payments to certain entities which are found to be shell entities. The certain entities which are found to be shell entities. The certain entities which are found to be shell entities. The conduct & affairs of these shell entities had established that conduct & affairs of these shell entities had established that conduct & affairs of these shell entities had established that these shell entities were floated by the assessee group/under hese shell entities were floated by the assessee group/under hese shell entities were floated by the assessee group/under control of the assessee group with a purpose to do circular control of the assessee group with a purpose to do circular control of the assessee group with a purpose to do circular transactions and create fictitious assets. Thus, the argument transactions and create fictitious assets. Thus, the argument transactions and create fictitious assets. Thus, the argument of the assessee cannot be accepted. of the assessee cannot be accepted. (vi) To sum up, in the instant case, (vi) To sum up, in the instant case, interest expenses interest expenses (Rs.44,65,742/ (Rs.44,65,742/-) and extra depreciation (Rs.97,75,277/ ) and extra depreciation (Rs.97,75,277/-) was disallowed by the assessee post search, in the return of disallowed by the assessee post search, in the return of disallowed by the assessee post search, in the return of income filed in response to notice issued u/s 153A of the income filed in response to notice issued u/s 153A of the income filed in response to notice issued u/s 153A of the Income Tax Act, 1961. The surrendering of this income for Income Tax Act, 1961. The surrendering of this income for Income Tax Act, 1961. The surrendering of this income for taxation after identification of omission on part of the assessee tion after identification of omission on part of the assessee tion after identification of omission on part of the assessee cannot be termed as a bonafide disclosure" and hence is cannot be termed as a "bonafide disclosure" and hence is cannot be termed as a "bonafide disclosure" and hence is liable for imposition of penalty for under liable for imposition of penalty for under- reporting of income. reporting of income. (vii) The assessee has shown total income at Rs.48,42,160/ The assessee has shown total income at Rs.48,42,160/ The assessee has shown total income at Rs.48,42,160/- in the original return of income filed by the assessee. However, nal return of income filed by the assessee. However, nal return of income filed by the assessee. However, in the return filed in response to notice u/s 153A of the Act, in the return filed in response to notice u/s 153A of the Act, in the return filed in response to notice u/s 153A of the Act, the total income is declared at Rs.53,99,630/ the total income is declared at Rs.53,99,630/-. Thus, the . Thus, the assessee has shown additional income after the issue of assessee has shown additional income after the issue of assessee has shown additional income after the issue of notice u/s 153A of the Act notice u/s 153A of the Act and had there been no search and had there been no search action, the assessee would not have offered this additional action, the assessee would not have offered this additional action, the assessee would not have offered this additional income for taxation. income for taxation. (viii) The judgements relied upon by the assessee are not (viii) The judgements relied upon by the assessee are not (viii) The judgements relied upon by the assessee are not relevant to the prese case as the facts are different. relevant to the prese case as the facts are different.

7.5 Before me, appellant has again submitted that since me, appellant has again submitted that since me, appellant has again submitted that since salary and administrative expenses were disallowed on salary and administrative expenses were disallowed on salary and administrative expenses were disallowed on estimation basis only, penalty cannot be levied. Further, estimation basis only, penalty cannot be levied. Further, estimation basis only, penalty cannot be levied. Further, appellant has placed reliance of 270A (6) and submitted that it appellant has placed reliance of 270A (6) and submitted that it appellant has placed reliance of 270A (6) and submitted that it does not cover following underrepor does not cover following underreported incomes: 1. the amount of income in respect of which the assessee 1. the amount of income in respect of which the assessee 1. the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the offers an explanation and the Assessing Officer or the offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner (Appeals) or the Commissioner or the Principal Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the Commissioner, as the case may be, is satisfied that the Commissioner, as the case may be, is satisfied that the explanation is explanation is bona fide and the assessee has disclosed all bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; the material facts to substantiate the explanation offered; the material facts to substantiate the explanation offered; 2. the amount of under 2. the amount of under-reported income determined on the reported income determined on the basis of an estimate, if the accounts are correct and complete basis of an estimate, if the accounts are correct and complete basis of an estimate, if the accounts are correct and complete to to the the satisfaction satisfaction of of the the Assessing Asse ssing Officer Officer or or the the Commissioner (Appeals) or the Commissioner or the Principal Commissioner (Appeals) or the Commissioner or the Principal Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed Commissioner, as the case may be, but the method employed Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; is such that the income cannot properly be deduced therefrom; is such that the income cannot properly be deduced therefrom; 3. the amount of under 3. the amount of under-reported income determined on th reported income determined on the basis of an estimate, if the assessee has, on his own, basis of an estimate, if the assessee has, on his own, basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the estimated a lower amount of addition or disallowance on the estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of same issue, has included such amount in the computation of same issue, has included such amount in the computation of Swaran Nadhan Salaria 27 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 his income and has disclosed all the facts material to the his income and has disclosed all the facts material to the his income and has disclosed all the facts material to the addition or disallowa addition or disallowance; 4. the amount of under 4. the amount of under-reported income represented by any reported income represented by any addition made in conformity with the arm's length price addition made in conformity with the arm's length price addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee determined by the Transfer Pricing Officer, where the assessee determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed had maintained information and documents as prescribed had maintained information and documents as prescribed under section 92D, under section 92D, declared the international transaction declared the international transaction under Chapter X, and, disclosed all the material facts relating under Chapter X, and, disclosed all the material facts relating under Chapter X, and, disclosed all the material facts relating to the transaction; and to the transaction; and 5. the amount of undisclosed income referred to in section 5. the amount of undisclosed income referred to in section 5. the amount of undisclosed income referred to in section 271AAB. However, in the present case it is important to note that the However, in the present case it is important to note that the However, in the present case it is important to note that the conditions as per point (b), which is regarding accounts being conditions as per point (b), which is regarding accounts being conditions as per point (b), which is regarding accounts being correct and complete to the satisfaction of AO and point (c) correct and complete to the satisfaction of AO and point (c) correct and complete to the satisfaction of AO and point (c) which is regarding disclosure of all facts have not been which is regarding disclosure of all facts have not been which is regarding disclosure of all facts have not been satisfied by the appellant. During the assessment proceedings, satisfied by the appellant. During the assessment proceedings, satisfied by the appellant. During the assessment proceedings, it was found it was found that the appellant had not maintained the that the appellant had not maintained the requisite details/ supporting documents/bills/voucher to requisite details/ supporting documents/bills/voucher to requisite details/ supporting documents/bills/voucher to authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. authenticate cash expenses claimed against taxable income. In the absence of complete submission or documentary In the absence of complete submission or documentary In the absence of complete submission or documentary evidence there was no other way for the AO t evidence there was no other way for the AO to work out o work out disallowance other than the methodology adopted. It is noted disallowance other than the methodology adopted. It is noted disallowance other than the methodology adopted. It is noted that the figures of 4% and 10% have been taken conservatively that the figures of 4% and 10% have been taken conservatively that the figures of 4% and 10% have been taken conservatively by the AO and only to the extent which was not verifiable in by the AO and only to the extent which was not verifiable in by the AO and only to the extent which was not verifiable in the absence of documentary evidence. Further, during the the absence of documentary evidence. Further, during the the absence of documentary evidence. Further, during the Special Audit conducted in the case u/s. 142(2A) of the Act, ial Audit conducted in the case u/s. 142(2A) of the Act, ial Audit conducted in the case u/s. 142(2A) of the Act, the special Auditor had also requested for party the special Auditor had also requested for party-wise details, wise details, supporting documents to examine correctness & completeness supporting documents to examine correctness & completeness supporting documents to examine correctness & completeness of cash expenses claimed by the appellant. The appellant, of cash expenses claimed by the appellant. The appellant, of cash expenses claimed by the appellant. The appellant, however, failed to however, failed to produce requisite details & explanations produce requisite details & explanations with regard to cash payment made by it. Importantly, these with regard to cash payment made by it. Importantly, these with regard to cash payment made by it. Importantly, these disallowances have not been challenged by the appellant and disallowances have not been challenged by the appellant and disallowances have not been challenged by the appellant and no further appeal has been filed. During penalty proceedings no further appeal has been filed. During penalty proceedings no further appeal has been filed. During penalty proceedings before the AO again no documents we before the AO again no documents were submitted. Even re submitted. Even before me, no details or documents have been furnished in this before me, no details or documents have been furnished in this before me, no details or documents have been furnished in this regard even though a number of opportunities were granted to regard even though a number of opportunities were granted to regard even though a number of opportunities were granted to the assessee. the assessee. 7.6 Considering the facts of the case and in the light of 7.6 Considering the facts of the case and in the light of 7.6 Considering the facts of the case and in the light of assesse's submission, I am of the opinion assesse's submission, I am of the opinion that the Ld. AO was that the Ld. AO was left with no choice but to estimate the income, to the extent left with no choice but to estimate the income, to the extent left with no choice but to estimate the income, to the extent which was not verifiable, as complete details were not which was not verifiable, as complete details were not which was not verifiable, as complete details were not submitted by the assessee. It is important to note here that submitted by the assessee. It is important to note here that submitted by the assessee. It is important to note here that whatever details are available with the department are whatever details are available with the department are whatever details are available with the department are Swaran Nadhan Salaria 28 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 available due to search and seizure action. If no search action ailable due to search and seizure action. If no search action ailable due to search and seizure action. If no search action had been taken by the department, the assesse would not had been taken by the department, the assesse would not had been taken by the department, the assesse would not have voluntarily disclosed the income as it had not been filing have voluntarily disclosed the income as it had not been filing have voluntarily disclosed the income as it had not been filing its return of income. Thus, the action of appellant is clearly its return of income. Thus, the action of appellant is clearly its return of income. Thus, the action of appellant is clearly deliberate suppression and under reporting of income. Based suppression and under reporting of income. Based suppression and under reporting of income. Based on above discussion levy of penalty is upheld on this ground. on above discussion levy of penalty is upheld on this ground. on above discussion levy of penalty is upheld on this ground. Accordingly, this ground of appeal Accordingly, this ground of appeal is dismissed.

“9.2 Before me, the appellant has submitt “9.2 Before me, the appellant has submitted that the ed that the additional income was offered in the return of income out of additional income was offered in the return of income out of additional income was offered in the return of income out of abundant precaution and to avoid litigation. It has further abundant precaution and to avoid litigation. It has further abundant precaution and to avoid litigation. It has further been submitted that no penalty may be levied as the been submitted that no penalty may be levied as the been submitted that no penalty may be levied as the declaration of additional income has been done suo declaration of additional income has been done suo-moto. As moto. As noted by the AO, during search/post search proceedings and e AO, during search/post search proceedings and e AO, during search/post search proceedings and assessment proceedings, it was found that the appellant had assessment proceedings, it was found that the appellant had assessment proceedings, it was found that the appellant had used shell entities for rotation of funds/circuitous transactions used shell entities for rotation of funds/circuitous transactions used shell entities for rotation of funds/circuitous transactions in order to and creation of fictitious asset. On perusal of the in order to and creation of fictitious asset. On perusal of the in order to and creation of fictitious asset. On perusal of the ledger account ext ledger account extracted from the Tally data found during racted from the Tally data found during search action, it was found that appellant company had made search action, it was found that appellant company had made search action, it was found that appellant company had made payments to various shell entities. The appellant had used payments to various shell entities. The appellant had used payments to various shell entities. The appellant had used these shell entities to book inadmissible expenses and to these shell entities to book inadmissible expenses and to these shell entities to book inadmissible expenses and to conceal its taxable income. The said in conceal its taxable income. The said inadmissible expenses admissible expenses including interest and excess depreciation amounting to Rs including interest and excess depreciation amounting to Rs including interest and excess depreciation amounting to Rs 1,42,41,019/ 1,42,41,019/- were suo-moto disallowed by the appellant in moto disallowed by the appellant in the return of income filed in response to notice issued u/s the return of income filed in response to notice issued u/s the return of income filed in response to notice issued u/s 153A of the Act. 153A of the Act. 9.3 I have gone through the submissions f 9.3 I have gone through the submissions filed by the appellant iled by the appellant and the relevant records. It is an established fact and various and the relevant records. It is an established fact and various and the relevant records. It is an established fact and various decisions of the Hon'ble Apex court and other courts have held decisions of the Hon'ble Apex court and other courts have held decisions of the Hon'ble Apex court and other courts have held that suo-moto disclosure in the return after search action does moto disclosure in the return after search action does moto disclosure in the return after search action does not absolve the appellant of the penalty pr not absolve the appellant of the penalty provisions. 9.4 The appellant has relied upon the decision of Hon'ble 9.4 The appellant has relied upon the decision of Hon'ble 9.4 The appellant has relied upon the decision of Hon'ble Chandigarh Tribunal in the case of DCIT Central Circle Chandigarh Tribunal in the case of DCIT Central Circle Chandigarh Tribunal in the case of DCIT Central Circle-1, Chandigarh v Kulwant Singh wherein it was held that penalty Chandigarh v Kulwant Singh wherein it was held that penalty Chandigarh v Kulwant Singh wherein it was held that penalty Swaran Nadhan Salaria 29 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 should not be levied on suo should not be levied on suo-moto income offered in the return moto income offered in the return u/s 153A. As per the appellant case of the Apex court decision . As per the appellant case of the Apex court decision . As per the appellant case of the Apex court decision in Mak Data P Ltd has been discussed and differentiated. in Mak Data P Ltd has been discussed and differentiated. in Mak Data P Ltd has been discussed and differentiated. 9.5 It is however noted that facts in that case were different. 9.5 It is however noted that facts in that case were different. 9.5 It is however noted that facts in that case were different. The relevant paras of the order are reproduced as under: The relevant paras of the order are reproduced as under: The relevant paras of the order are reproduced as under: "Applying the similar p "Applying the similar proposition, even when the Assessing roposition, even when the Assessing officer is precluded from making any addition in the absence officer is precluded from making any addition in the absence officer is precluded from making any addition in the absence of any incriminating material found during the search action in of any incriminating material found during the search action in of any incriminating material found during the search action in the assessment proceedings carried out u/s 153A of the Act in the assessment proceedings carried out u/s 153A of the Act in the assessment proceedings carried out u/s 153A of the Act in which the original assessment pro which the original assessment proceedings stood completed ceedings stood completed and not abated, the Assessing officer, in our view, is also and not abated, the Assessing officer, in our view, is also and not abated, the Assessing officer, in our view, is also precluded from initiate the penalty proceedings u/s 271(1)(c) of precluded from initiate the penalty proceedings u/s 271(1)(c) of precluded from initiate the penalty proceedings u/s 271(1)(c) of the Act in case of already concluded assessment in the the Act in case of already concluded assessment in the the Act in case of already concluded assessment in the absence of any incriminating material found during absence of any incriminating material found during the search the search action." In the present case seized material is available. Thus, the In the present case seized material is available. Thus, the In the present case seized material is available. Thus, the facts are totally different and not applicable. facts are totally different and not applicable. 9.6 In this regard, reliance is placed on the decision of Hon'ble 9.6 In this regard, reliance is placed on the decision of Hon'ble 9.6 In this regard, reliance is placed on the decision of Hon'ble Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] Supreme Court in the case of MAK Data (P.) Ltd. vs CIT [2013] 38 taxmann.com 448 (SC) which held as under: 38 taxmann.com 448 (SC) which held as under: "Voluntary disclosure does not release assessee from mischief "Voluntary disclosure does not release assessee from mischief "Voluntary disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c)." of penal proceedings under section 271(1)(c)." 9.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi 9.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi 9.7 Further Hon'ble ITAT Delhi in the case of Smt. Kiran Devi Vs ACIT [2009] 125 TTJ 631 (Delhi) held Vs ACIT [2009] 125 TTJ 631 (Delhi) held that where certain that where certain income was disclosed in return filed in response to notice income was disclosed in return filed in response to notice income was disclosed in return filed in response to notice under section 153C following search, which income was not under section 153C following search, which income was not under section 153C following search, which income was not disclosed in original return, it was a clear case of concealment disclosed in original return, it was a clear case of concealment disclosed in original return, it was a clear case of concealment of income attracting penalty under section 271(1)(c); i of income attracting penalty under section 271(1)(c); in such a n such a case it was unnecessary to invoke Explanation 5 to section case it was unnecessary to invoke Explanation 5 to section case it was unnecessary to invoke Explanation 5 to section 271(1)(c) 9.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar 9.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar 9.8 Hon'ble Calcutta High Court in CIT Vs Prasanna Dugar [2015] 59 taxmann.com 99 (Calcutta), while deciding matter [2015] 59 taxmann.com 99 (Calcutta), while deciding matter [2015] 59 taxmann.com 99 (Calcutta), while deciding matter related to section 271(1)(c) Expl 5A held that even where related to section 271(1)(c) Expl 5A held that even where related to section 271(1)(c) Expl 5A held that even where subsequent to search, assessee voluntarily disclosed a sum equent to search, assessee voluntarily disclosed a sum equent to search, assessee voluntarily disclosed a sum and offered said sum to tax, since said amount was not and offered said sum to tax, since said amount was not and offered said sum to tax, since said amount was not disclosed in original return, penalty levied under section disclosed in original return, penalty levied under section disclosed in original return, penalty levied under section 271(1)(c) was justified. 271(1)(c) was justified. Hon'ble Supreme Court has upheld the decision of Hon'ble Hon'ble Supreme Court has upheld the decision of Hon'ble Hon'ble Supreme Court has upheld the decision of Hon'ble High Court in the above case. Court in the above case.

(6) The under-reported income, for the purposes of this section, shall not include the following, reported income, for the purposes of this section, shall not include the following, reported income, for the purposes of this section, shall not include the following, namely:- (a) the amount of income in respect of which the assessee offers an explanation and the the amount of income in respect of which the assessee offers an explanation and the the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or Assessing Officer or 20[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) [the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, or the Commissioner or the Principal Commissioner, as the case may be, is satisfied as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts that the explanation is bona fide and the assessee has disclosed all the material facts that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; to substantiate the explanation offered; (b) the amount of under the amount of under-reported income determined on the basis of an estimate, if the reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or 21[the accounts are correct and complete to the satisfaction of the Assessing Officer or accounts are correct and complete to the satisfaction of the Assessing Officer or Joint Commissioner (Appeals) or] the Commissioner Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the Principal Commissioner, as the case may be, but the method employed is such that the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; the income cannot properly be deduced therefrom; (c) the amount of under the amount of under-reported income determined on the basis of an estimate, if t reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the assessee has, on his own, estimated a lower amount of addition or disallowance on the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has same issue, has included such amount in the computation of his income and has same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; disclosed all the facts material to the addition or disallowance; (d) the amount of under under-reported income represented by any addition made in conformity reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the with the arm’s length price determined by the Transfer Pricing Officer, where the with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, assessee had maintained information and documents as prescribed under assessee had maintained information and documents as prescribed under declared the international transaction under Chapter X, and, disclosed all the material declared the international transaction under Chapter X, and, disclosed all the material declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and facts relating to the transaction; and (e) the amount of undisclosed income referred to in the amount of undisclosed income referred to in section 271AAB.

10.2 The Ld. Counsel for the assessee referred to the clause (a) of The Ld. Counsel for the assessee referred to the clause (a) of The Ld. Counsel for the assessee referred to the clause (a) of sub-section 6 and submitted that assessee has duly offered section 6 and submitted that assessee has duly offered section 6 and submitted that assessee has duly offered explanation in respect of interest and excess depreciation and xplanation in respect of interest and excess depreciation and suo- xplanation in respect of interest and excess depreciation and motu offered income in the return of income filed offered income in the return of income filed in response to offered income in the return of income filed section 153A of the Act therefore, section 153A of the Act therefore, according to the assessee, the according to the assessee, the explanation of the assessee is bona anation of the assessee is bonafide and the assessee has fide and the assessee has disclosed all the mat disclosed all the material fact to substantiate the e erial fact to substantiate the explanation offered, therefore, no penalty in respect of inter therefore, no penalty in respect of inter therefore, no penalty in respect of interest and excess Swaran Nadhan Salaria 32 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 depreciation should be levied invoking clause (a) sub-section (1) of depreciation should be levied invoking clause (a) sub depreciation should be levied invoking clause (a) sub section 143 of the Act in respect of estimate in respect to salary and section 143 of the Act in respect of estimate in respect to salary and section 143 of the Act in respect of estimate in respect to salary and wages and administrative expenses. The Ld. Counsel for the wages and administrative expenses. The Ld. Counsel for the wages and administrative expenses. The Ld. Counsel for the assessee referred to clause (a) of section assessee referred to clause (a) of section (2) and addition has been (2) and addition has been made purely on the estimate basis made purely on the estimate basis and books of accounts have not and books of accounts have not been rejected u/s 145 been rejected u/s 145(3) of the Act and therefore, accounts have (3) of the Act and therefore, accounts have been treated by the Ld. AO been treated by the Ld. AO as correct and complete to satisfaction correct and complete to satisfaction and addition has been made on es and addition has been made on estimate basis from non timate basis from non-production of the vouchers on the expenses on the part of the assessee. vouchers on the expenses on the part of the assessee. vouchers on the expenses on the part of the assessee. The Ld. Counsel submitted that the Assessing Officer has himself estimated Counsel submitted that the Assessing Officer has himself estimated Counsel submitted that the Assessing Officer has himself estimated part of the expenses as genuine and merely estimated the addition part of the expenses as genuine and merely estimated the addition part of the expenses as genuine and merely estimated the addition for non-maintenance o maintenance of the vouchers, therefore, the case of the therefore, the case of the assessee falls under clause (b) of section 270 assessee falls under clause (b) of section 270 and no penalty is and no penalty is leviable due to exclusion carved from the definition of the under ue to exclusion carved from the definition of the under- ue to exclusion carved from the definition of the under reported income.

10.3 We are of the opinion that addition in respect of salary, w We are of the opinion that addition in respect of salary, w We are of the opinion that addition in respect of salary, wages and administrative expenses have been made by the Assessing and administrative expenses have been made by the Asse and administrative expenses have been made by the Asse Officer on estimate only, d Officer on estimate only, due to lack of vouchers maintained by the ue to lack of vouchers maintained by the assessee in respect of cash assessee in respect of cash. If according to the Assessing Officer, f according to the Assessing Officer, the expenditure was not genuine the expenditure was not genuine, then the Assessing Off the Assessing Officer could have disallowed the entire cash expenses but he did not do so and have disallowed the entire cash expenses but he did not have disallowed the entire cash expenses but he did not only estimated disallowance of 4% of the salary and wages and 10% estimated disallowance of 4% of the salary and wages and 10% estimated disallowance of 4% of the salary and wages and 10% on administrative expenses and no basis for such estimation has on administrative expenses and no basis for such estimation has on administrative expenses and no basis for such estimation has been provided by the Assessing Officer. In the circumstances, been provided by the Assessing Officer. In the ci been provided by the Assessing Officer. In the ci Swaran Nadhan Salaria 33 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 addition being merely on the estimate basis cannot be sustained in addition being merely on the estimate basis cannot be sustained in addition being merely on the estimate basis cannot be sustained in view of reasons pari materia pari materia with penalty cancelled u/s cancelled u/s 271(1)(c) of the Act and particularly in view of clause of sub the Act and particularly in view of clause of sub-section 2 of section section 2 of section 270 of the Act as in the case of the 270 of the Act as in the case of the assessee, the Assessing Officer assessee, the Assessing Officer has made disallowance out of has made disallowance out of cash expenses and no books of cash expenses and no books of accounts have been rejected invoking section 145(3) of the Act. As accounts have been rejected invoking section 145(3) of the Act accounts have been rejected invoking section 145(3) of the Act regards the penalty levied for interest regards the penalty levied for interest and excess depreciation and excess depreciation suo motu offered by the assessee offered by the assessee in the return of income filed in in the return of income filed in response to section 153A of the Act, w n 153A of the Act, we find that the e find that the assessee has explained the suo-motu motu variation made in the return of income and made in the return of income and provided all material facts to su provided all material facts to substantiate the explanation. Thus bstantiate the explanation. Thus explanation being bona xplanation being bonafide in nature no penalty is leviable u/s fide in nature no penalty is leviable u/s 270A of the Act. Accordingly, the penalty levied by the Assessing 270A of the Act. Accordingly, the penalty levied by the Assessing 270A of the Act. Accordingly, the penalty levied by the Assessing Officer for under reporting of the income u/s 270A of the Act is Officer for under reporting of the income u/s 270A of the Act is Officer for under reporting of the income u/s 270A of the Act is hereby deleted.

“7.1 The appellant in this ground has contended that the AO 7.1 The appellant in this ground has contended that the AO 7.1 The appellant in this ground has contended that the AO has erred in not mentioning the specific provision of Section has erred in not mentioning the specific provision of Section has erred in not mentioning the specific provision of Section 271AAB of the Act for initiation of penalty proceedings in the 271AAB of the Act for initiation of penalty proceedings in the 271AAB of the Act for initiation of penalty proceedings in the assessment order. It is noted that the appellant had also raised assessment order. It is noted that the appellant had also raised assessment order. It is noted that the appellant had also raised this contention before the AO during the course of penalty ntention before the AO during the course of penalty ntention before the AO during the course of penalty proceedings. The AO in his order has already clarified that the proceedings. The AO in his order has already clarified that the proceedings. The AO in his order has already clarified that the provisions of the 271AAB (1A) of the Act have been correctly provisions of the 271AAB (1A) of the Act have been correctly provisions of the 271AAB (1A) of the Act have been correctly Swaran Nadhan Salaria 35 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 invoked in this case and only the manner and rates vary invoked in this case and only the manner and rates vary invoked in this case and only the manner and rates vary between the two parts o between the two parts of the section. 7.2 As per provisions of section 271AAB, penalty is levied on 7.2 As per provisions of section 271AAB, penalty is levied on 7.2 As per provisions of section 271AAB, penalty is levied on 'undisclosed income of the specified year unlike u/s. 271(1)(c) 'undisclosed income of the specified year unlike u/s. 271(1)(c) 'undisclosed income of the specified year unlike u/s. 271(1)(c) where penalty can be levied for two different charges. Though where penalty can be levied for two different charges. Though where penalty can be levied for two different charges. Though penalty u/s.271AAB is levied for singular charge, it penalty u/s.271AAB is levied for singular charge, it penalty u/s.271AAB is levied for singular charge, it proposes levy of penalty at different slabs subjected to conditions levy of penalty at different slabs subjected to conditions levy of penalty at different slabs subjected to conditions prescribed therein. Penalty u/s.271AAB is reproduced in prescribed therein. Penalty u/s.271AAB is reproduced in prescribed therein. Penalty u/s.271AAB is reproduced in tabular manner as under: tabular manner as under: 7.3 As can be seen from the above chart the charge u/s 7.3 As can be seen from the above chart the charge u/s 7.3 As can be seen from the above chart the charge u/s 271AAB is singular. Only rates of penalty vary depen 271AAB is singular. Only rates of penalty vary depen 271AAB is singular. Only rates of penalty vary depending upon either fulfilment/non either fulfilment/non-fulfilment of conditions laid down in the fulfilment of conditions laid down in the section by appellant. Therefore, non section by appellant. Therefore, non-specification of subsection specification of subsection in the penalty notice u/s 271AAB issued by AO in the present in the penalty notice u/s 271AAB issued by AO in the present in the penalty notice u/s 271AAB issued by AO in the present case do not vitiate penalty proceedings. case do not vitiate penalty proceedings. 7.4 Reliance is 7.4 Reliance is placed on the judgment of Hon'ble ITAT, Jaipur placed on the judgment of Hon'ble ITAT, Jaipur bench in Rambhajo's vs ACIT, ITA 991/JP/2017 which has bench in Rambhajo's vs ACIT, ITA 991/JP/2017 which has bench in Rambhajo's vs ACIT, ITA 991/JP/2017 which has adjudicated same issue and held as under: adjudicated same issue and held as under: "On close reading of provisions of Section 271AAB, we "On close reading of provisions of Section 271AAB, we "On close reading of provisions of Section 271AAB, we find that the primary condition or charge for levy of find that the primary condition or charge for levy of find that the primary condition or charge for levy of penalty is the existence of undisclosed income for the alty is the existence of undisclosed income for the alty is the existence of undisclosed income for the specified previous year found during the course of search specified previous year found during the course of search specified previous year found during the course of search in the case of assessee. Once the said primary condition in the case of assessee. Once the said primary condition in the case of assessee. Once the said primary condition or charge is satisfied, for the purposes of quantifying the or charge is satisfied, for the purposes of quantifying the or charge is satisfied, for the purposes of quantifying the penalty, the Assessing office penalty, the Assessing officer has to examine the r has to examine the satisfaction of ancillary conditions as specified under satisfaction of ancillary conditions as specified under satisfaction of ancillary conditions as specified under clause (a), clause (b) or clause (c) to sub clause (a), clause (b) or clause (c) to sub- -section (1) to Section 271AAB. Merely because the quantum of penalty Section 271AAB. Merely because the quantum of penalty Section 271AAB. Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the varies from 10% to 30% subject to compliances with the varies from 10% to 30% subject to compliances with the ancillary c ancillary conditions, it cannot be said that where the AO onditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is has initiated the penalty under section 271AAB, there is has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of any ambiguity in the charge or there is any lack of any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer.” application of mind on part of the Assessing application of mind on part of the Assessing 11.2 We have heard rival submissions of the p We have heard rival submissions of the parties and perused arties and perused the relevant materials on record the relevant materials on record. The contention of the assessee is . The contention of the assessee is that penalty u/s 271AAB is levied @ 10%, 20% and 30% depending that penalty u/s 271AAB is levied @ 10%, 20% and 30% depending that penalty u/s 271AAB is levied @ 10%, 20% and 30% depending Swaran Nadhan Salaria 36 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 on the demonstrations on the demonstrations of specified conditions applicable over the applicable over the facts of the case. The Ld. Counsel for t facts of the case. The Ld. Counsel for the assessee he assessee was of the view that the Assessing Officer was required to specify relevant rate that the Assessing Officer was required to specify relevant rate that the Assessing Officer was required to specify relevant rate under which penalty was leviable and due to non under which penalty was leviable and due to non- -specification of the same, relying on the decision relying on the decision of Hon’ble Karnataka High Court Hon’ble Karnataka High Court in the case of Manjunath Cotton Manjunath Cotton & Ginning Factory & Ginning Factory(supra), though which is on the section 271(1)(c) of the Act which is on the section 271(1)(c) of the Act, but being being pari-materia, is applicable over the facts of this case also. However, we do not the facts of this case also. However, we do not the facts of this case also. However, we do not agree with the contention of the Ld. Counsel for the assessee for the agree with the contention of the Ld. Counsel for the assessee for the agree with the contention of the Ld. Counsel for the assessee for the reason that penalty is levied on reason that penalty is levied on charge of undisclosed income charge of undisclosed income defined under the said section and rate of the penalty depends on defined under the said section and rate of the penalty depends on defined under the said section and rate of the penalty depends on the other conditions which are fulfilled. Therefore, non conditions which are fulfilled. Therefore, non conditions which are fulfilled. Therefore, non-specification of rate or suppression suppression of the same in the penalty notice of the same in the penalty notice do not vitiate the penalty proceedings. Accordingly, we do not find any vitiate the penalty proceedings. Accordingly, we do not find any vitiate the penalty proceedings. Accordingly, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and we error in the order of the Ld. CIT(A) on the issue in dispute and error in the order of the Ld. CIT(A) on the issue in dispute and accordingly uphold the same. accordingly uphold the same.

Swaran Nadhan Salaria 37 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 “8.2 During the course of assessment proceedings it was n 8.2 During the course of assessment proceedings it was n 8.2 During the course of assessment proceedings it was noted by the AO that even the returns which had been filed in by the AO that even the returns which had been filed in by the AO that even the returns which had been filed in response to notice u/s. 153A showed wide variation as response to notice u/s. 153A showed wide variation as response to notice u/s. 153A showed wide variation as compared to the original return of income. Variations were also compared to the original return of income. Variations were also compared to the original return of income. Variations were also noted in the P& L account, balance sheet, cash and bank noted in the P& L account, balance sheet, cash and bank noted in the P& L account, balance sheet, cash and bank balances etc. Since, balances etc. Since, the books were unreliable, the case was the books were unreliable, the case was taken up for special audit u/s 142(2)(A). It is further noted that taken up for special audit u/s 142(2)(A). It is further noted that taken up for special audit u/s 142(2)(A). It is further noted that complete details and information with regard to expenses complete details and information with regard to expenses complete details and information with regard to expenses claimed in cash mode were not submitted at any stage i.e. claimed in cash mode were not submitted at any stage i.e. claimed in cash mode were not submitted at any stage i.e. neither during the search proceedi neither during the search proceedings, nor during post search ngs, nor during post search proceedings and not even during assessment proceedings and proceedings and not even during assessment proceedings and proceedings and not even during assessment proceedings and thus could not be verified. Thus, the AO disallowed 4% of the thus could not be verified. Thus, the AO disallowed 4% of the thus could not be verified. Thus, the AO disallowed 4% of the salary and wages expenses and 10% of administrative salary and wages expenses and 10% of administrative salary and wages expenses and 10% of administrative expenses, to the extent which were not verifiable, in t expenses, to the extent which were not verifiable, in t expenses, to the extent which were not verifiable, in the absence of necessary documentary evidences. absence of necessary documentary evidences. 8.3 During penalty proceedings, the appellant submitted that 8.3 During penalty proceedings, the appellant submitted that 8.3 During penalty proceedings, the appellant submitted that since the disallowances in the salary and wages made u/s since the disallowances in the salary and wages made u/s since the disallowances in the salary and wages made u/s 37(1) of Act are on estimate basis hence no penalty is leviable. 37(1) of Act are on estimate basis hence no penalty is leviable. 37(1) of Act are on estimate basis hence no penalty is leviable. The AO after going through The AO after going through the submissions of appellant levied the submissions of appellant levied the penalty. 8.4 As discussed in prepares, the appellant had not been able 8.4 As discussed in prepares, the appellant had not been able 8.4 As discussed in prepares, the appellant had not been able explain the entries during the course of search action. Again, explain the entries during the course of search action. Again, explain the entries during the course of search action. Again, during the course of assessment proceedings, complete details during the course of assessment proceedings, complete details during the course of assessment proceedings, complete details were not filed with were not filed with AO. Again, during the course of special AO. Again, during the course of special audit complete details were not filed. Thus, due to lack to data audit complete details were not filed. Thus, due to lack to data audit complete details were not filed. Thus, due to lack to data and any clarification from appellant's end, the AO computed and any clarification from appellant's end, the AO computed and any clarification from appellant's end, the AO computed income on the total receipts on estimate basis as no relevant income on the total receipts on estimate basis as no relevant income on the total receipts on estimate basis as no relevant data or substantive records data or substantive records were produced by the appellant were produced by the appellant before him. The appellant has not gone into further appeal before him. The appellant has not gone into further appeal before him. The appellant has not gone into further appeal against the quantum order of the AO. The appellant has not against the quantum order of the AO. The appellant has not against the quantum order of the AO. The appellant has not provided any details even before me except filing a note on the provided any details even before me except filing a note on the provided any details even before me except filing a note on the matter. 8.5 The AO in his order has observe 8.5 The AO in his order has observed that appellant had d that appellant had incurred expenses under the heads 'salary & wages' & incurred expenses under the heads 'salary & wages' & incurred expenses under the heads 'salary & wages' & 'administrative expenses' in cash mode. The AO has also noted 'administrative expenses' in cash mode. The AO has also noted 'administrative expenses' in cash mode. The AO has also noted that complete documentary evidences and explanations with that complete documentary evidences and explanations with that complete documentary evidences and explanations with regard to such cash expenses was not provided by the regard to such cash expenses was not provided by the regard to such cash expenses was not provided by the appellant. Accordingly, the AO disallowed expenses to the . Accordingly, the AO disallowed expenses to the . Accordingly, the AO disallowed expenses to the extent which was not verifiable. During the penalty proceedings extent which was not verifiable. During the penalty proceedings extent which was not verifiable. During the penalty proceedings before the AO, the appellant submitted that it had not gone into before the AO, the appellant submitted that it had not gone into before the AO, the appellant submitted that it had not gone into Swaran Nadhan Salaria 38 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 appeal against the quantum order and that penalty cannot be appeal against the quantum order and that penalty cannot be appeal against the quantum order and that penalty cannot be levied on addition levied on addition made on estimate basis. 8.6 Before me, the only contention of the appellant in his 8.6 Before me, the only contention of the appellant in his 8.6 Before me, the only contention of the appellant in his submissions, on this ground, is that penalty cannot be levied on submissions, on this ground, is that penalty cannot be levied on submissions, on this ground, is that penalty cannot be levied on additions made on additions made on estimate basis. 8.7 Considering the facts of the case and in the light of 8.7 Considering the facts of the case and in the light of 8.7 Considering the facts of the case and in the light of assessee' submi assessee' submission, I am of the opinion that the AO was left ssion, I am of the opinion that the AO was left with no choice but to estimate the income, to the extent which with no choice but to estimate the income, to the extent which with no choice but to estimate the income, to the extent which was not verifiable, as complete details were not submitted by was not verifiable, as complete details were not submitted by was not verifiable, as complete details were not submitted by the appellant. It is important to note here that whatever details the appellant. It is important to note here that whatever details the appellant. It is important to note here that whatever details are available wit are available with the department are available due to search h the department are available due to search and seizure action. If no search action had been taken by the and seizure action. If no search action had been taken by the and seizure action. If no search action had been taken by the department, the assessee would not have voluntarily disclosed department, the assessee would not have voluntarily disclosed department, the assessee would not have voluntarily disclosed the income as it had not been filing its return of income. Thus, the income as it had not been filing its return of income. Thus, the income as it had not been filing its return of income. Thus, the action of appellan the action of appellant is clearly deliberate suppression of t is clearly deliberate suppression of income. The ground of the appeal of the appellant is income. The ground of the appeal of the appellant is income. The ground of the appeal of the appellant is accordingly dismissed.” 12.1 Prior to confirming the penalty on salary and wages and Prior to confirming the penalty on salary and wages and Prior to confirming the penalty on salary and wages and administrative expenses, the Ld. CIT(A) referred penses, the Ld. CIT(A) referred to the provisions of to the provisions of section 271AAB and definition of the undisclosed income and held section 271AAB and definition of the undisclosed income section 271AAB and definition of the undisclosed income that the disallowance made by the assessee satisfied the definition that the disallowance made by the assessee satisfied the definition that the disallowance made by the assessee satisfied the definition of the ‘undisclosed income undisclosed income’ and therefore, the disallowance and therefore, the disallowance is liable for penalty u/s 271AAB penalty u/s 271AAB of the Act. The relevant finding of the Ld. . The relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:

“6.2 I have gone through the submissions of assessee, the 6.2 I have gone through the submissions of assessee, the 6.2 I have gone through the submissions of assessee, the assessment order, penalty order and the facts of the case. assessment order, penalty order and the facts of the case. assessment order, penalty order and the facts of the case. Under section 271AAB of the Act, penalty is levied where Under section 271AAB of the Act, penalty is levied where Under section 271AAB of the Act, penalty is levied where undisclosed inc undisclosed income is found during the course of a search ome is found during the course of a search action u/s 132 of the Act in relation to the specified previous action u/s 132 of the Act in relation to the specified previous action u/s 132 of the Act in relation to the specified previous years. As per this section penalty is to be levied only on years. As per this section penalty is to be levied only on years. As per this section penalty is to be levied only on undisclosed income. The term undisclosed income broadly undisclosed income. The term undisclosed income broadly undisclosed income. The term undisclosed income broadly means income represented either wh means income represented either wholly or partly by any olly or partly by any money, bullion, jewellery or other valuable article or thing or money, bullion, jewellery or other valuable article or thing or money, bullion, jewellery or other valuable article or thing or any entry in the books of account or transactions found during any entry in the books of account or transactions found during any entry in the books of account or transactions found during Swaran Nadhan Salaria 39 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 the course of search u/s132 and which has not been recorded the course of search u/s132 and which has not been recorded the course of search u/s132 and which has not been recorded on or before the date of search in the books of on or before the date of search in the books of account or other account or other documents maintained in the normal course. documents maintained in the normal course. 6.3 On going through the facts and records of the case, I 6.3 On going through the facts and records of the case, I 6.3 On going through the facts and records of the case, I observe that appellant was covered in a search and seizure observe that appellant was covered in a search and seizure observe that appellant was covered in a search and seizure action u/s 132 of the Act. As noted by the AO, returns were action u/s 132 of the Act. As noted by the AO, returns were action u/s 132 of the Act. As noted by the AO, returns were filed in this case filed in this case based on re-worked unaudited financials in worked unaudited financials in which wide variations were noticed as compared to the original which wide variations were noticed as compared to the original which wide variations were noticed as compared to the original return of income filed. Also, there was variation in various other return of income filed. Also, there was variation in various other return of income filed. Also, there was variation in various other particulars of the P&L account and Balance Sheet. There was particulars of the P&L account and Balance Sheet. There was particulars of the P&L account and Balance Sheet. There was variation even in the variation even in the cash and bank balances as shown in the cash and bank balances as shown in the previous balance sheet filed and the re previous balance sheet filed and the re- written one filed written one filed recently. These variations existed even in cases where the recently. These variations existed even in cases where the recently. These variations existed even in cases where the earlier financials filed had been audited. Thus, it was observed earlier financials filed had been audited. Thus, it was observed earlier financials filed had been audited. Thus, it was observed that the books of accounts, financ that the books of accounts, financials of various entities as well ials of various entities as well as the subsequent return of income filed, were not reliable and as the subsequent return of income filed, were not reliable and as the subsequent return of income filed, were not reliable and serious doubts existed regarding the correctness of the books of serious doubts existed regarding the correctness of the books of serious doubts existed regarding the correctness of the books of accounts of the appellant group. No details were submitted accounts of the appellant group. No details were submitted accounts of the appellant group. No details were submitted before the AO to explain the discre before the AO to explain the discrepancies. Again, during the pancies. Again, during the course of special audit in the group case complete details were course of special audit in the group case complete details were course of special audit in the group case complete details were not filed. Thus, due to lack to data and any clarification from not filed. Thus, due to lack to data and any clarification from not filed. Thus, due to lack to data and any clarification from appellant's end, the AO computed income on the total receipts appellant's end, the AO computed income on the total receipts appellant's end, the AO computed income on the total receipts on estimate basis as no relevant data o on estimate basis as no relevant data or substantive records r substantive records were produced by the appellant before him. The AO finally were produced by the appellant before him. The AO finally were produced by the appellant before him. The AO finally noted that during the search proceedings, post search noted that during the search proceedings, post search noted that during the search proceedings, post search proceedings and during assessment proceedings assessee proceedings and during assessment proceedings assessee proceedings and during assessment proceedings assessee could not explain the cash transactions and other deficiencies. could not explain the cash transactions and other deficiencies. could not explain the cash transactions and other deficiencies. Since the details furnished were incomplete and not verifiable ce the details furnished were incomplete and not verifiable ce the details furnished were incomplete and not verifiable addition was made. addition was made. 6.4 In the context of section 271AAB of the Act, undisclosed 6.4 In the context of section 271AAB of the Act, undisclosed 6.4 In the context of section 271AAB of the Act, undisclosed income would be represented by money, bullion, jewellery or income would be represented by money, bullion, jewellery or income would be represented by money, bullion, jewellery or other valuable articles or things or an unrecorded entry other valuable articles or things or an unrecorded entry other valuable articles or things or an unrecorded entry as per documents found or a false entry recorded in the books of documents found or a false entry recorded in the books of documents found or a false entry recorded in the books of account. In the case of appellant, it is noted that there was account. In the case of appellant, it is noted that there was account. In the case of appellant, it is noted that there was wide variation in the figures of financials as submitted even in wide variation in the figures of financials as submitted even in wide variation in the figures of financials as submitted even in cases where audit had been finalized. Thus, the expenses can cases where audit had been finalized. Thus, the expenses can cases where audit had been finalized. Thus, the expenses can be treated as false entries as the appellant has not been able to treated as false entries as the appellant has not been able to treated as false entries as the appellant has not been able to substantiate the same anytime during the search or even later. substantiate the same anytime during the search or even later. substantiate the same anytime during the search or even later. Thus, in my opinion the AO rightly initiated penalty u/s Thus, in my opinion the AO rightly initiated penalty u/s Thus, in my opinion the AO rightly initiated penalty u/s 271AAB of the Act. 271AAB of the Act.

Swaran Nadhan Salaria 40 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 6.5 Appellant's claim that since these are on estimat 6.5 Appellant's claim that since these are on estimat 6.5 Appellant's claim that since these are on estimate basis penalty cannot be levied is also incorrect. Considering the facts penalty cannot be levied is also incorrect. Considering the facts penalty cannot be levied is also incorrect. Considering the facts of the case and in the light of assessee' submission, I am of the of the case and in the light of assessee' submission, I am of the of the case and in the light of assessee' submission, I am of the opinion that the AO was left with no choice but to estimate the opinion that the AO was left with no choice but to estimate the opinion that the AO was left with no choice but to estimate the income as complete details were not submitted by the income as complete details were not submitted by the income as complete details were not submitted by the assessee either during search proceedings or before the AO or special either during search proceedings or before the AO or special either during search proceedings or before the AO or special auditor. Thus, AO after going through details made addition on auditor. Thus, AO after going through details made addition on auditor. Thus, AO after going through details made addition on account of cash expenses to the extent which was not account of cash expenses to the extent which was not account of cash expenses to the extent which was not verifiable. It is also important to note here that whatever details verifiable. It is also important to note here that whatever details verifiable. It is also important to note here that whatever details are available with the department are available due to search re available with the department are available due to search re available with the department are available due to search and seizure action u/s 132 of the Act. If no search action had and seizure action u/s 132 of the Act. If no search action had and seizure action u/s 132 of the Act. If no search action had taken place, the assessee would not have voluntarily disclosed taken place, the assessee would not have voluntarily disclosed taken place, the assessee would not have voluntarily disclosed the income, as the appellant had not been filing any returns the income, as the appellant had not been filing any returns the income, as the appellant had not been filing any returns even though it was receiving huge receipts. Thus, the action of ugh it was receiving huge receipts. Thus, the action of ugh it was receiving huge receipts. Thus, the action of appellant is clearly deliberate suppression of income. appellant is clearly deliberate suppression of income. appellant is clearly deliberate suppression of income. 6.6 Thus considering the discussion in the pre 6.6 Thus considering the discussion in the pre-paras, I am of paras, I am of the opinion that section 271AAB of the Act has correctly been the opinion that section 271AAB of the Act has correctly been the opinion that section 271AAB of the Act has correctly been levied levied in in this this case. case. Accordingly, Accordingly, this this ground ground of of appellant is is dismissed.” 12.2 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The penalty u/s 271AAB of the Act . The penalty u/s 271AAB of the Act is independent of the addition made by the Assessing Officer in the is independent of the addition made by the Assessing Officer in the is independent of the addition made by the Assessing Officer in the assessment order and same could be initiated during the assessment order and same could be initiated during the assessment order and same could be initiated during the assessment proceeding depending on fulfilling of the conditions assessment proceeding depending on fulfilling of the conditions assessment proceeding depending on fulfilling of the conditions provided in the section. The pen provided in the section. The penalty could be levied @ 10% or 20% alty could be levied @ 10% or 20% or 30% to 60% of the undisclosed income or 30% to 60% of the undisclosed income for specified previous specified previous year. In the case, it is undisputed that the assessment year under year. In the case, it is undisputed that the assessment year under year. In the case, it is undisputed that the assessment year under consideration is specified year consideration is specified year and only dispute is in respect of dispute is in respect of issue whether the disallow issue whether the disallowance in respect of which penalty is levied ance in respect of which penalty is levied satisfy the definition of the satisfy the definition of the ‘undisclosed income’. Therefore, for . Therefore, for ready reference said Explanation to section 271AAB defining the ready reference said Explanation to section 271AAB defining the ready reference said Explanation to section 271AAB defining the undisclosed income is reproduced as under: undisclosed income is reproduced as under:

Swaran Nadhan Salaria 41 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 [Penalty where search has been Penalty where search has been initiated. 13 271AAB. (1) ………………………. (1) ………………………. (a) ………………………… ………………………… (b) ……………………. ……………………. (c) …………………. 18 [(1A) ……………………… ……………………… (2) ……………………………. ……………………………. (3) ………………………………. ………………………………. Explanation.-For the purposes of this For the purposes of this section,- (a) “specified date” means the due date of furnishing of return of income “specified date” means the due date of furnishing of return of income “specified date” means the due date of furnishing of return of income under sub-section (1) of section (1) of section 139 or the date on which the period or the date on which the period specified in the notice issued specified in the notice issued 22[under section 148 section 148 or under section 153A, as the case may be,] for furnishing of return of income expires, as , as the case may be,] for furnishing of return of income expires, as , as the case may be,] for furnishing of return of income expires, as the case may be; the case may be; (b) “specified previous year” means the previous year “specified previous year” means the previous year- (i) which has ended before the date of search, but the date of which has ended before the date of search, but the date of which has ended before the date of search, but the date of furnishing the return of income under sub furnishing the return of income under sub-section (1) of section (1) of section 139 for such year has not expired before the date of search and for such year has not expired before the date of search and for such year has not expired before the date of search and the assessee has not furnished the return of income for the the assessee has not furnished the return of income for the the assessee has not furnished the return of income for the previous year before the date of search; or previous year before the date of search; or (ii) in which search was conducted; in which search was conducted; (c) “undisclosed income undisclosed income” means- (i) any income of the specified previous year represented, either any income of the specified previous year represented, either any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other wholly or partly, by any money, bullion, jewellery or other wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or valuable article or thing or any entry in the books of account or valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search other documents or transactions found in the course of a search other documents or transactions found in the course of a search under section 132 section 132, which has- (A) not been recorded on or before the date of search in the not been recorded on or before the date of search in the not been recorded on or before the date of search in the books of account or other documents maintained in the books of account or other documents maintained in the books of account or other documents maintained in the Swaran Nadhan Salaria 42 1050, 1051, 1052, 1053, ITA No. 1049, 1050, 1051, 1052, 1053, 1054/MUM/2025 normal course relating to such previous year; or normal course relating to such previous year; or normal course relating to such previous year; or (B) otherwise not been disclosed to the otherwise not been disclosed to the otherwise not been disclosed to the 23[Principal Chief Commissioner or] Chief Commissioner or Commissioner or] Chief Commissioner or Commissioner or] Chief Commissioner or 23[Principal Commissioner or] Commissioner before the date of Commissioner or] Commissioner before the date of Commissioner or] Commissioner before the date of search; or search; or (ii) any income any income of the specified previous year represented, either of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded wholly or partly, by any entry in respect of an expense recorded wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the in the books of account or other documents maintained in the in the books of account or other documents maintained in the normal course relating to the specified previous year which is normal course relating to the specified previous year which is normal course relating to the specified previous year which is found to be fals found to be false and would not have been found to be so had e and would not have been found to be so had the search not been conducted.] the search not been conducted.] 12.3 In above definition under sub In above definition under sub-section 1 income represented in section 1 income represented in the form of assets like money, bullion, jewellery or other valuable the form of assets like money, bullion, jewellery or other valuable the form of assets like money, bullion, jewellery or other valuable items or income representing any entry in the books of account which income representing any entry in the books of account which income representing any entry in the books of account which was not found recorded in the books of accounts before the date of was not found recorded in the books of accounts before the date of was not found recorded in the books of accounts before the date of the search or otherwise not disclosed to the Pr. Chief Commissioner or otherwise not disclosed to the Pr. Chief Commissioner or otherwise not disclosed to the Pr. Chief Commissioner etc. then, the said income falls in the category of undisclos the said income falls in the category of undisclos the said income falls in the category of undisclosed income. The clause 2 of the section specify income. The clause 2 of the section specify that income represented income represented by way of entry in respect of expens by way of entry in respect of expenses if same is found to be false es if same is found to be false and would not have been found to so and would not have been found to so had said search had said search not conducted, then said expenses would amount to undisclosed then said expenses would amount to undisclosed then said expenses would amount to undisclosed income.

12.4 In the instant case before us, addition has been made by the In the instant case before us, addition has been made by the In the instant case before us, addition has been made by the Assessing Officer in respect of expenses incurred on salary, wages Assessing Officer in respect of expenses incurred on salary, wages Assessing Officer in respect of expenses incurred on salary, wages and administrative expenses but voucher of the same were not and administrative expenses but voucher of the same were not and administrative expenses but voucher of the same were not produced by the assessee during assessment proceedings and produced by the assessee during assessment proceedings a produced by the assessee during assessment proceedings a Swaran Nadhan Salaria 43 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 therefore, disallowance on estimated basis in respect of expenses therefore, disallowance on estimated basis in respect of expenses therefore, disallowance on estimated basis in respect of expenses which were incurred in cash has been made by the AO which has which were incurred in cash has been made by the AO which has which were incurred in cash has been made by the AO which has not been disputed by the assessee. not been disputed by the assessee. disallowance of the expenses on the salary, wages 12.5 Thus for disallowance of the expenses on the salary, wages disallowance of the expenses on the salary, wages and administrative expen and administrative expenses falling into the definition of the into the definition of the undisclosed income, same should be found to be fal , same should be found to be fal , same should be found to be false and would not have been found to be so not have been found to be so if the search had not been conducted. not been conducted. Thus, the two conditions are required to be fulfilled, firstly, said Thus, the two conditions are required to be fulfilled Thus, the two conditions are required to be fulfilled found to be false and secondly secondly, said expenses expenses should be found to be fal should be found in the course of the search action. We find that should be found in the course of the search action. We find that should be found in the course of the search action. We find that both these conditions are not both these conditions are not satisfied in the instant case. The in the instant case. The Assessing Officer has nowhere held the said cash expenditure is Assessing Officer has nowhere held the said cash expenditure Assessing Officer has nowhere held the said cash expenditure either bogus or false e but he made disallowance merely for the lack but he made disallowance merely for the lack of verification of the vouchers of the expenses made in cash. The of verification of the vouchers of the expenses made in cash. of verification of the vouchers of the expenses made in cash. second condition is that the fact of expenses being false should second condition is that the fact of expenses being false should second condition is that the fact of expenses being false should emerge in search action. Bu emerge in search action. But nothing has been brought on record nothing has been brought on record that non availability of vouchers was observed in search action, availability of vouchers was observed in search action, availability of vouchers was observed in search action, rather, it appears that fact has been recorded in assessment rather, it appears that fact has been recorded in assessment rather, it appears that fact has been recorded in assessment proceeding. Unless, the conditions specified for disallowance to be Unless, the conditions specified for disallowance to be Unless, the conditions specified for disallowance to be in the nature of the undisclosed income specified in section 271AAB in the nature of the undisclosed income specified in section 271AAB in the nature of the undisclosed income specified in section 271AAB are satisfied , no penalty could be levied in respect of disallowance no penalty could be levied in respect of disallowance no penalty could be levied in respect of disallowance merely for the reason that Assessing Officer has made addition in merely for the reason that Assessing Officer has made addition in merely for the reason that Assessing Officer has made addition in the assessment order. The ground No. 2 of the appeal of the the assessment order. The ground No. 2 of the appeal of the the assessment order. The ground No. 2 of the appeal of the assessee is accordingly allowed. assessee is accordingly allowed.

10.2 In this regard it is noted that the during the 10.2 In this regard it is noted that the during the 10.2 In this regard it is noted that the during the course of search/post search proceedings as well as during the search/post search proceedings as well as during the search/post search proceedings as well as during the assessment proceedings, it was found that, the appellant assessment proceedings, it was found that, the appellant assessment proceedings, it was found that, the appellant had used said shell entities for rotation of funds/circuitous had used said shell entities for rotation of funds/circuitous had used said shell entities for rotation of funds/circuitous transactions in order to and creation of fictitious asset. transactions in order to and creation of fictitious asset. transactions in order to and creation of fictitious asset. During search, During search, on perusal of the ledger account extracted on perusal of the ledger account extracted from the Tally data it was found that the appellant had from the Tally data it was found that the appellant had from the Tally data it was found that the appellant had made payments to certain entities which were found to be made payments to certain entities which were found to be made payments to certain entities which were found to be shell entities. It was established that these shell entities shell entities. It was established that these shell entities shell entities. It was established that these shell entities were floated by the appellant group to were floated by the appellant group to facilitate circular facilitate circular transactions and to create fictitious assets. The interest transactions and to create fictitious assets. The interest transactions and to create fictitious assets. The interest expense of Rs. 16,43,363/ expense of Rs. 16,43,363/- and excess depreciation of Rs and excess depreciation of Rs 12,97,357/- was not disclosed correctly in the original was not disclosed correctly in the original return filed u/s. 139(1) of the Act as well as in the return return filed u/s. 139(1) of the Act as well as in the return return filed u/s. 139(1) of the Act as well as in the return filed in response to notice issued u/s 153A of the Act. ed in response to notice issued u/s 153A of the Act. ed in response to notice issued u/s 153A of the Act. Thus, the AO had disallowed Thus, Thus, the AO had disallowed the AO had disallowed the aforementioned the aforementioned the aforementioned expenses u/s 36(1) (iii) of the Act and also initiated expenses u/s 36(1) (iii) of the Act and also initiated expenses u/s 36(1) (iii) of the Act and also initiated penalty proceedings. During penalty proceedings, it was penalty proceedings. During penalty proceedings, it was penalty proceedings. During penalty proceedings, it was held that since the appellant had not disclos held that since the appellant had not disclosed the same ed the same in its return of income or in books of the accounts, such in its return of income or in books of the accounts, such in its return of income or in books of the accounts, such income/expenses income/expenses income/expenses to to to that that that extent extent extent have have have remained remained remained undisclosed for the year under consideration. undisclosed for the year under consideration. 10.3 Before me the appellant has only submitted that 10.3 Before me the appellant has only submitted that 10.3 Before me the appellant has only submitted that since it was on estimate basis the penalty since it was on estimate basis the penalty cannot be cannot be levied. After going through the details, it is clear that these levied. After going through the details, it is clear that these levied. After going through the details, it is clear that these entries were found in the shape of ledgers at the time of entries were found in the shape of ledgers at the time of entries were found in the shape of ledgers at the time of search. The same were established to be payments made search. The same were established to be payments made search. The same were established to be payments made to shell companies. The appellant had neither disclosed to shell companies. The appellant had neither disclosed to shell companies. The appellant had neither disclosed the same in i the same in its original return nor in the 153A return. The ts original return nor in the 153A return. The appellant has not explained the entries and also not appellant has not explained the entries and also not appellant has not explained the entries and also not disclosed fully in its returns. Further, no appeal has been disclosed fully in its returns. Further, no appeal has been disclosed fully in its returns. Further, no appeal has been filed against this addition. Accordingly, I am of the opinion filed against this addition. Accordingly, I am of the opinion filed against this addition. Accordingly, I am of the opinion that the AO has correctly levied t that the AO has correctly levied the penalty. Accordingly, he penalty. Accordingly, this ground of appeal this ground of appeal is dismissed.

Swaran Nadhan Salaria 45 1050, 1051, 1052, 1053, 1050, 1051, 1052, 1053, 1054/MUM/2025 13.1 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The Assessing Officer has levied . The Assessing Officer has levied penalty in respect of disallowance of the expenses on interest made penalty in respect of disallowance of the expenses on interest penalty in respect of disallowance of the expenses on interest u/s 36(1)(iii) of the Act and s 36(1)(iii) of the Act and suo-motu disallowance of depreciation disallowance of depreciation amounting amounting to to Rs.12,97,357/-. Rs.12,97,357/ . As As regards regards the the interest interest of of Rs.16,43,363/- disallowed u/s 36(1)(iii) of the Act disallowed u/s 36(1)(iii) of the Act is conc is concerned, we find that the same was was disallowed for the reason that loan disallowed for the reason that loans and advances have been held to be advances have been held to be given for non-business purpose and business purpose and therefore, the interest in respect to those loans and advances was therefore, the interest in respect to those loans and advances therefore, the interest in respect to those loans and advances held to be for non- -business purpose and accordingly disallowed business purpose and accordingly disallowed under section 36(1)(iii) of the Act. There is no finding recorded by section 36(1)(iii) of the Act. There is no finding recorded by section 36(1)(iii) of the Act. There is no finding recorded by the Assessing Officer to the Assessing Officer to cover the said disallowance under cover the said disallowance under the definition of the undisclosed income comprising of the entry of the definition of the undisclosed income comprising of the entry of the definition of the undisclosed income comprising of the entry of the expenses in the books of accounts. Similarly, regarding the expenses in the books of accounts. Similarly, regarding the expenses in the books of accounts. Similarly, regarding the depreciation also the Assessing Officer has made no recording for also the Assessing Officer has made no recording for also the Assessing Officer has made no recording for satisfaction of the entry of the expenses satisfaction of the entry of the expenses as undisclosed income. The as undisclosed income. The Assessing Officer has not brought on record as how issue of the Assessing Officer has not brought on record as how issue of the Assessing Officer has not brought on record as how issue of the depreciation has been unearthed depreciation has been unearthed during search action search action. In absence of clear finding of the facts, penalty levied cannot be sustained. of clear finding of the facts, penalty levied cannot be sustained. of clear finding of the facts, penalty levied cannot be sustained. Accordingly, the ground No. 3 of the appeal of the assessee is also Accordingly, the ground No. 3 of the appeal of the assessee is also Accordingly, the ground No. 3 of the appeal of the assessee is also allowed.