M/S. GLOBAL TECH PARK PVT LTD.,,BANGALORE vs. DCIT, CENTRAL CIRCLE-1(1), BENGALURU

4. During search proceedings, it was found that the assessee is claiming depreciation on luxury cars used for the personal purposes of the directors of the assessee company. A statement was recorded u/s. 132(4) in which the assessee admitted that the cars are used for the personal purposes of the assessee and offered to disallow the depreciation claim on the personal use of luxury cars. The ld. AO relied upon the statement recorded of the Managing Director of the assessee company wherein in response to Q.No.77, it was admitted that the high-end cars have been purchased by the company for business necessities, however, it has been used by the Managing Director and his family members for personal use, therefore he agreed for disallowance of Rs.6.89 crores. He agreed to file the details within 2 days. Subsequently summons was issued u/s. 131 wherein the Managing Director also confirmed the same. Based on this, a show- cause notice was issued on 13.11.2019 asking the assessee to explain why depreciation on personal use of luxury cars should not be disallowed. The assessee submitted a reply stating that the assessee is a private limited company and the vehicles used are for the business purposes of the company. Though company did not maintain any log book, it was also the claim by the assessee that in earlier year also, depreciation is allowed to the assessee company. It was also the claim that on account of employment agreement with the directors, these cars are provided by the assessee to the directors etc., and they are used for the business activities of the company, hence no depreciation should be disallowed.

5. The ld. AO held that as remuneration paid to directors did not specifically mention the perquisite value of company owned cars to be used for personal purposes, non-maintenance of log book and admission of the Managing Director in the statement recorded u/s. 132(4) and 131 of the Act, depreciation claimed on the luxury cars were disallowed of Rs.5,17,486. Ld AO further held that as no tax is deducted on perquisites, disallowance u/s 40a(ia) is also to be made.

(i) the addition/disallowance made by the ld. AO is devoid of any merit for the reason that the date of search was 1.2.2018 which was concluded on 29.3.2018. As on the date of search, the assessment for AY 2012-13 was not pending. The return of income was filed for that assessment year on 29.9.2012 and therefore if any addition is required to be made it could only have been made on the basis of incriminating material found during the course of search. His submissions is that the ld. AO has made the disallowance only on the basis of the statement of Managing Director u/s. 132(4) of the Act, which cannot be considered as incriminating material. He submits that as there is absence of incriminating material found during the course of search relating to this disallowance, the issue is covered in favour of assessee by the decision of the Hon’ble Supreme Court in the case of Abhisar Build well P. Ltd.(2023) 454 ITR 212 (sc) [TS-5106-SC-2023-O], (2023) 332 CTR 729 (SC).

(ii) Mere statement u/s. 132(4) of the Act cannot be considered as any incriminating material found during search, based on which the concluded assessment for AY 2012-13 could be disturbed.

(iii) Perquisite value was taxed in the hands of the director for the use of motor cars. He further stated that the AO further disallowed the above expenditure holding that on such perquisites no tax was deducted.

(iv) On the merits also, he submitted that when the perquisite value is taxed in the hands of the director, the addition in the hands of the company is not proper.

(v) When the recipient of income has already paid tax on the income, then disallowance u/s. 40(a)(ia) could not have been invoked.

(vi) Eeven the ld. CIT(A) upholding the disallowance @ 50% is not reasonable. He has rejected the offer of the assessee of 20% disallowance without any reason.

(vii) Merely for non-maintenance of log book in the case of company, disallowance could not have been made for personal use.

(viii) There is no material available with the ld. AO that cars are not used for the purposes of business of the assessee.

Private limited [ 397 ITR 82 ] (Delhi) PCIT vs Best Infrastructure (India) (P) Ltd [TS-5668-HC-2017(Delhi)-O] where the question was.

Whether having regard to the materials seized in the course of search under section 132 and the statements made on behalf of the assessee, additions made by the Assessing Officer under section 153A, were not justified as held by the Income-tax Appellate Tribunal ?"

This extract is taken from Pr. CIT v. Best Infrastructure (India) P. Ltd., (2017) 397 ITR 82 : 2017 SCC Online Del 9591 38. Fifthly, statements recorded under section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this court in CIT v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.

"9. In CIT v. Harjeev Aggarwal [2016] 6 ITR-OL 504 (Delhi) ; [2016] 290 CTR 263 ; [2016] SCC OnLine 1512** this court had held as follows (page 515 of 6 ITR-OL):

"In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement, under the provisions of Chapter XIV-B of the Act.

In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words 'evidence found as a result of search' would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation.

.. . However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of account, documents, assets, etc. Plainly, the intention of Parliament is to permit such examination only where the books of account, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of section 132(4) of the Act are read in the context of section 158BB(1) read with section 158B(b) of the Act, it is at once clear that a statement recorded under section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an assessee has to be computed on the basis of evidence and material found during search. The statement recorded under section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order for an assessment to be based on the statement recorded.

In CIT v. Shri Ramdas Motor Transport [1999] 238 ITR 177 (AP), a Division Bench of the Andhra Pradesh High Court, reading the provision of section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminating material is found, the powers under section 132(4) of the Act cannot be invoked.. ..

It is also necessary to mention that the aforesaid interpretation of section 132(4) of the Act must be read with the Explanation to section 132(4) of the Act which expressly provides that the scope of examination under section 132(4) of the Act is not limited only to the books of account or other assets or material found during the search. However, in the context of section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.

If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under section 132(4) is accepted, it would result in ignoring an important check on the power of the Assessing Officer and would expose the assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted. Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee.

In CIT v. Naresh Kumar Agarwal [2014] 369 ITR 171 (T&AP), a Division Bench of the Telangana and Andhra Pradesh High Court held that a statement recorded under section 132(4) of the Act which is retracted cannot constitute a basis for an order under section 158BC of the Act.. . ."

dismissed the same on account of low tax effect on August9, 2019. Thus, the decision in Harjeev Aggarwal (supra) continues to be the prevailing legal position.

17. In view of this, we hold that the disallowance made by the ld. AO and disallowance restricted by the ld. CIT(A) is not in accordance with law in the absence of any incriminating material found during the course of search with respect to the impugned disallowance. Hence ground No.2 of the appeal of assessee is allowed.

18. In view of our decision in ground No.2, ground No.2.1 is not required to be adjudicated.

AY 2013-14 (ITA No.2316/Bang/2024)[ By Assessee]

“ 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in upholding 50% of the disallowance of depreciation on Luxury Cars without appreciating that the cars were used wholly and exclusively for the purposes of the business and at any rate, the assessment for the year under appeal had not abated on the date of search and therefore, no disallowance ought to have been sustained in the absence of any incriminating material found in course of search to warrant any disallowance under the facts and in the circumstances of the appellant's case. 2.1 Without prejudice to the above, the disallowance sustained by the learned CIT[A] at 50% of the depreciation claimed is excessive and liable to be reduced substantially.

3. The learned CIT[A] is not justified in upholding the addition of Rs.84,59,015/- made u/s.69 rws 115BBE of the Act on account of interest accrued on loan given to Century Woods without appreciating that the said addition cannot be made in the unabated assessment proceedings u/s. 153A of the Act in the absence of any incriminating materials found at the time of search under the facts and in the circumstances of the appellant's case.

4. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234B and 234D of the Act, which under the facts and in the circumstances of the appellant's case and the same deserves to be cancelled.

5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”

22. Ground No.1 is general in nature. Ground No.3 is not pressed and therefore same is dismissed. Ground No.4 of the appeal is with respect

to interest u/s. 234B & 234D of the Act which is consequential in nature and therefore same is also dismissed.

23. This leaves us with ground No.2 of the appeal wherein the ld. CIT(A) has confirmed the disallowance to the extent of 50% of depreciation on luxury cards allegedly used by the family members of director, but the claim of the assessee is that the disallowance has been made without any incriminating material found during the course of search.

24. The facts show that for this AY 2013-14, assessee filed its return of income on 30.9.2013 at a taxable income of Rs.4,29,94,540 which was revised on 1.3.2014 at a total income of Rs.3,50,94,610. This return was not picked up for scrutiny. Search took place on 1.2.2018. Pursuant to that, notice u/s. 153A was issued on 10.1.2019 which was responded to by the assessee by filing return of income on 27.2.2019. The assessment order was passed u/s. 153A r.w.s. 153D r.w.s. 143(3) of the Act on 31.12.2019 wherein the total income was assessed at Rs.8,15,51,420.

25. The ld. AO made disallowance on depreciation on luxury cars of Rs.3,50,735 along with other addition of Rs.2,97,47,130 and Rs.84,59,015. Other additions are deleted by the ld. CIT(A) or if confirmed by the ld. CIT(A), are not pressed before us.

26. The facts of disallowance of depreciation on luxury motor cars is identical to the facts stated for AY 2012-13. The argument of the parties are also same and the decision of the ld. CIT(A) is also identical.

AY 2013-14 [ITA No.2363/Bang/2024 ][Revenue’s appeal]

“ (1) Whether on the facts and circumstances of the case, the Id. CIT(A) was correct in admitting the cash book & ledger accounts submitted by the assessee company without providing any opportunity to the AO to verify the same under rule 46 of income Tax Rules. (2) Whether on the facts and circumstances of the case, the ld. CIT(A) was right in accepting assessee's explanation on the issue of cash payment to Sajjad Khan & fand Khan without making detailed enquiries & verifications into transactions shown in order to build up of cash balances in the cash book on dates of impugned payments.”

evidence and therefore the provisions of Rule 46A does not apply and further the cash payment made by the assessee is from the regular books of account which does not need any further verification in absence of any incriminating material.

advances recorded in the regular books of account, he made addition u/s. 69 of the Act. Further, we do not find admission of any additional evidence by the ld. CIT(A). Therefore, there is no violation of Rule 46A of the I.T. Rules. Further whether the amount can be added u/s. 69 of the Act does require any further verification as it is part of regular books of account which was available before the AO prior to the date of search. Hence we do not find any merit in both the grounds of appeal raised by the ld. AO. filed by the ld. AO for AY 2013-14 is dismissed.

“ 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in upholding 50% of the disallowance of depreciation on Luxury Cars without appreciating that the cars were used wholly and exclusively for the purposes of the business and at any rate, the assessment for the year under appeal had not abated on the date of search and therefore, no disallowance ought to have been sustained in the absence of any incriminating material found in course of search to warrant any disallowance under the facts and in the circumstances of the appellant's case. 2.1 Without prejudice to the above, the disallowance sustained by the learned CIT[A] at 50% of the depreciation claimed is excessive and liable to be reduced substantially.

3. The learned CIT[A] is not justified in upholding the addition of Rs.1,25,10,000/- made u/s.69 rws 115BBE of the Act on account of interest accrued on loan given to Century Woods without appreciating that the said addition cannot be made in the unabated assessment proceedings u/s. 153A of the Act in the absence of any incriminating materials found at the time of search under the facts and in the circumstances of the appellant's case.

4. The learned CIT[A] is not justified in upholding the addition of Rs.8,36,583/- towards foreign travel expenses under the facts and in the circumstances of the appellant's case.

5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 39. Ground No.1 is general in nature, ground Nos. 3 & 4 are not pressed and therefore these are dismissed.

AY 2015-16 (ITA No.2318/Bang/2024)[ By assessee]m

“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in upholding 50% of the disallowance of depreciation on Luxury Cars without appreciating that the cars were used wholly and exclusively for the purposes of the business and at any rate, the assessment for the year under appeal had not abated on the date of search and therefore, no disallowance ought to have been sustained in the absence of any incriminating material found in course of search to warrant any disallowance under the facts and in the circumstances of the appellant's case. 2.1 Without prejudice to the above, the disallowance sustained by the learned CIT[A] at 50% of the depreciation claimed is excessive and liable to be reduced substantially.

3. The learned CIT[A] is not justified in upholding the addition of Rs.1,12,67,172/- made u/s.69 rws 115BBE of the Act on account of interest accrued on loan given to Century Woods without appreciating that the said addition cannot be made in the unabated assessment proceedings u/s. 153A of the Act in the absence of any incriminating materials found at the time of search under the facts and in the circumstances of the appellant's case.

5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 43. Ground No.1 is general in nature and ground Nos.3, 4 & 5 are not pressed, hence dismissed.

AY 2016-17 (ITA No.2319/Bang/2024)[ By Assessee ]

“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in upholding 50% of the disallowance of depreciation on Luxury Cars without appreciating that the cars were used wholly and exclusively for the purposes of the business under the facts and in the circumstances of the appellant's case. 2.1 Without prejudice to the above, the disallowance sustained by the learned CIT[A] at 50% of the depreciation claimed is excessive and liable to be reduced substantially.

3. The learned CIT[A] is not justified in upholding the addition of Rs.1,09,97,172/- made u/s.69 rws 115BBE of the Act on account of interest accrued on loan given to Century Woods under the facts and in the circumstances of the appellant's case.

4. The learned CIT[A] is not justified in upholding the addition of Rs.10,00,00,000/- as unexplained investment being the cash paid towards purchase of the land from Divyashree Chambers under the facts and in the circumstances of the appellant's case.

Croes and further entry of 10 Crores cash totalling to Rs.126 crores. Based on this, notice u/s. 142(1) was issued on 13.11.2019 asking the assessee why cash payment of Rs.10 crores should not be added to total income as unexplained investment.

“The pages referred by your good self contains the draft calculation used for discussion purposes with the bank representatives with a view to avail maximum permissible loan from the bank, which would pose lesser strain on the own funds of the Company. At a point during the discussion, the bank representatives were sceptical on the value of the project and refused to fund the project to the desired level - However, to achieve the objectives of negotiation, it was represented before them that the building was acquired by paying additional consideration in cash amounting to Rs 10 Cr plus, a flat in Mumbai was given to the seller in exchange. All these conversations have happened orally with the sole objective to rack up the financial assistance from the bankers - whereas in reality, the building was acquired at the price mentioned in the purchase deed without paying any additional consideration and neither Satish P Chandra nor any of the family members nor the company had any owned a flat in Mumbai. Thus, it is the submission of the Assessee that no addition could be made in relation, based on assumptions and surmises, without any cogent evidence for the same."

2024(Karnataka)-O] and decision of the coordinate bench in case of ITO versus Ramachandra Shetty and sons 153 Taxman.com 666 as well as the decision of the coordinate bench in case of Honourable Arum Plaza private limited versus DCIT 152 taxmann.com 85. it was further submitted that the loose papers only are not relevant for making the addition ,the he further referred to the submissions made before the learned CIT – A, is reproduced by the learned CIT – A the appellate order.

statement of Shri Satish Praphulla Chandra u/s 131 of the Act on 07/09/2018 where in question no. 165 was raised to him as under: -

Q. 165 I am showing you page no 155 of the seized material marked as A- GTP-BD1-03 found and seized during search operation. Please go through the same and explain its contents.

A. This is the Divyashree draft calculation for loan purposes.

“As regards Question No. 1:

Upon reading the material provided and the order of the learned Single Judge delivered on 12-8-2022, it is evident that the income that has escaped assessment and notices under section 153C of the Income-tax Act, 1961, were solely issued based on loose sheets and documents which are termed as 'diaries' found during the search.

The applicability of section 69A of the Act arises only when the principles laid down under section 68 of the Act are satisfied. section 68 states that there must be books of accounts or any books with credit entry. The said Act reads thus:

"Section 68: Where any sum is found credited in the books of an assessee maintained for any previous years and the assessee offers no explanations about nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year."

The language of the Law is vague and subjective, thus making us rely on an Apex court decision in the case of V.C. Shukla (supra) TS-5026-SC-1998-O], wherein the relevant portion reads thus:

"Collection of sheet fastened or bound together so as to form material whole. Loose sheets or scraps of paper cannot be termed as books."

In this regard, it is relevant to extract Section 69A of the Act, which reads thus:

"69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."

The lack of corroborative evidence to show how the loose sheets found at the house of Sri K Rajandran are connected to the Respondents herein, or their occupation, is evident from the panchanama provided by the Assessing Officer.

"16. To appreciate the contentions raised before us by the learned counsel for the parties it will be necessary at this stage to refer to the material provisions of the Act. Section 3 declares that a fact a relevant to another when it is connected with the other in any of the ways referred to in the provisions of the Act relating to the relevancy of facts; and those provisions are to be found in Section 6 to 55 appearing in Chapter II. Section 5, with which Chapter II opens, expressly provides that evidence may be given in any suit or proceeding of the existence or non-existence of every fact in issue and the facts declared relevant in the aforesaid section, and of no others. Section 34 of the Act reads as under:-

"34. Entries in books of account when relevant - Entries in book of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire but such statements shall not alone be sufficient evidence to charge any person with liability."

" In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book…I think the term "book" in S. 34 aforesaid may properly' be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S.34."

"278. With respect to the kind of materials which have been placed on record, this Court in V.C. Shukla case has dealt with the matter though at the stage of discharge when investigation had been completed by same is relevant for the purpose of decision of this case also. This court has considered the entries in Jain Hawala Diaries, note books and file containing loose sheets of papers not in the form of "books of accounts" and has held that such entries in loose papers/sheets are irrelevant and not admissible under section 34 of the Evidence Act, and that only where the entries are made in the books of accounts regularly kept, depending on the nature of occupation, that those are admissible.

"14. In setting aside the order of the trial court, the High Court accepted the contention of the respondents that the documents were not admissible in evidence under section 34 with the following words: "70. ….an account presupposes the existence of two persons such as a seller and a purchaser, creditor and debtor. Admittedly, the alleged diaries in the present case are not records of the entries arising out of a contract. They do not contain the debts and credits. They can at the most be described as a memorandum kept by a person for his own benefit which will enable him to look into the same whenever the need arised to do for his future purpose. Admittedly the said diaries were not being maintained on day-to day basis in the course of business. There is no mention of the dates on which the alleged payment were made. In fact, the entries there in are on monthly basis. Even the names of the persons whom the alleged payments were made do not find a mention in full. they have been shown in abreviated form. Only certain 'letters' have been written against their names which are within the knowledge of only the scribe of the said diaries as to what they stand for and whom they refer to."

20. Mr. Sibal, the learned counsel for the Jains, did not dispute that the spiral note books and the small pads are 'books' within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor they were regularly kept in the course of business. he

submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr. Sibal, in business parlance 'account' means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued Mr. Sibal. He next contended that even if it was assumed for argument's sake that the above books were books of account relating to a business still they would not be admissible under section 34 as they were not regularly kept. It was urged by him that the words 'regularly kept' mean that the entries in the books were contemporaneously made at the time the transactions took place but a cursory glance of the books would show that the entries were made therein long after the purported transactions took place. In support of his contentions, he also relied upon the dictionary meanings of the words 'account' and 'regularly kept'.

which require to be set aside in these writ appeals, as the same are void and illegal.”

Pronounced in the open court on this 31 day of July, 2025.