GARWARE TECHNICAL FIBRES LIMITED,PUNE vs. DCIT, CC-1(3), PUNE

3 ITA.Nos.1696 to 1703/PUN./2024 originally returned. Statutory notice u/s.143(2) and 142(1) of the I.T. Act were issued and served upon the assessee, in response to which, the learned Authorised Representative of the Assessee appeared before the Assessing Officer from time to time and filed the requisite details.

4 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

5 ITA.Nos.1696 to 1703/PUN./2024 vouchers, etc. were found/seized which supported the excel sheets. It was submitted that there is no corroborative evidence found to support the excel sheets having some figures alleged to be cash receipts and payments. Therefore, there is no "relatable" material or information having any direct relation or nexus with the excel sheets.

9. It was submitted that noting in the excel sheets saved in the pen drive represent items of estimated receipts/expenses in the nature of brief noting and they indicate some expenses of GTFL. It was submitted that noting was made by the Cashier for his information and for assessing the cash-flow requirements which could arise in the near future. It was further submitted that the actual receipts/expenses, if any, incurred would obviously be reflected in the books of account of GTFL as and when the same would have actually occurred. Relying on various decisions, it was submitted that the documents so seized being “dumb” documents and without having any corroborative material or evidence on record and without finding that such document has materialized into transactions giving rise to income of the assessee which has not been disclosed in the regular books of account by such assessee, have to be disregarded for the purposes of assessments to be framed u/s.153A of the Act.

10. Without prejudice to the above, it was argued that if it is considered that the records maintained by Mr. Dalvi were indeed with respect to the year-wise details of unrecorded cash receipts and cash payments of GTFL,

6 ITA.Nos.1696 to 1703/PUN./2024 even then, the entire cash receipts cannot be added and the expenditure should be deducted from such payments for the following reasons :

1. 1. The expenditure is clearly marked and narrated as expenditure for business purposes.

2. The aggregate of cash expenditure is in excess of aggregate of cash receipts. Since the cash expenses incurred are Rs.3225.74 lakhs as against the cash receipts of Rs.3165.75lakhs there is no question of any income escaping assessment.

3. The notings in the excel sheets and the statement recorded by Mr. Dalvi, he has stated that the expenses are towards BD "Business Development" and there is no benefit either to the assessee company or any particular individual.

4. There can be no purpose to not account any income and corresponding business expenses other than if it is purely on estimation.

5. The cumulative summary excel sheet which forms part of Bundie No.9 mentions the source of the expenses and therefore the provisions of section 69C are not applicable.

6. The expenditure is not violative of section 40A(3) for the following reasons: 1. These expenses have not been claimed/debited to the books of account.

2. A plain reading of the seized documents reveal that multiple expenses has been aggregated and recorded in single entry thus these expenses are below Rs.10,000/- all though clubbed together and recorded periodically in larger amounts.

7. The plain analysis of the contents of Bundle No.2 to Bundle No.9 which was also submitted to Investigation Unit-II, Pune dated 27 Jan 2020 is attached as Annexure-1.

8. Your honour will appreciate that expenditure is clearly marked and narrated as expenditure for business purpose, considering the genuineness appropriate ratio/percentage can be applied and allowed.

11. It was accordingly argued that the entire alleged cash receipts cannot be held to be the income of the assessee and at best the net profit ratio prevailing in the respective financial years can be applied vis-à-vis the receipts so recorded. The assessee also filed the year-wise details of net profit earned which is as under:

7 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

F.Y. Unaccounted Unaccounted % PBT Rs. Lakhs Cash Receipts Cash Payments – in lakhs – in lakhs 2012-13 695.93 663.73 5.5% 38.54 2013-14 609.81 588.68 5.7% 34.60 2014-15 452.85 518.48 7.7% 34.84 2015-16 314.14 325.8 10.6% 33.30 2016-17 456.38 505.79 14.5% 66.18 2017-18 420.44 386.42 17.3% 72.74 2018-19 106.39 112.05 17.9% 19.04 2019-20 109.81 126.79 22.9% 25.15 Total 3165.75 3225.74 324.38

“3.7 The explanation given by the assessee has been carefully examined and considered. I do not see any reason to accept the explanation given by the assessee. During the course of search, the documentary evidences regarding cash receipts from sale of scrap and other activities were found from the control and possession of the assessee In the statement given under oath by the person responsible for maintaining the record of such transactions, he has admitted the fact of receipt from sales of scraps and other activities in unambiguous terms and it has also been admitted that these receipts are not recorded in the books of accounts. Now, the assessee has taken a U-turn and declared the documents found and seized during the search as "dumb documents". 3.8 The stand taken by the assessee is not in conformity with the provisions of section 292C of the Act under the heading "Presumptions as to assets, books of account etc" As per the provisions of section 292C of the IT Act, if any document is found during the course of search u/s 132 of the Act it may be presumed that such documents belong to the assessee and contents of such documents are true. For the sake of convenience and immediate reference, the provisions of the section are reproduced as under: "292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed-

8 ITA.Nos.1696 to 1703/PUN./2024 (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belongs to such person; (ii) that the contents of such books of account and other documents are true;” 3.9. A plain reading of this section makes it ample clear that the documents found during the course of search and the contents thereof are admissible as evidence in the eyes of law. The denial of the assessee by filing a letter has no evidentiary value when the transactions have been admitted by the person in his sworn statement. The case laws relied upon by the assessee are very old decisions and have been nullified by inserting the provisions of 292C by the Finance Act 2007 w..e.f. 01.10.1975. Hence the contention of the assessee is not found acceptable and is rejected. It is not a case of conjectures and surmises of AO. There is adequate material or details about the nature and ownership of the documents. Hence in the light of Section 292C and the nature of the transaction mentioned, the documents found cannot be considered as "Dumb Documents". 3.10. The next argument taken by the assessee is that if the receipts are taken for taxation, it cannot be said that the entire cash receipts is income of the respective assessment year. The assessee has further submitted that in the said excel sheet the details of expenditure incurred in cash is also given and considering the same, appropriate net profit ratio may be applied. The submission of the assessee has been carefully considered. During the course of search, a chart containing details of head wise cash receipts and expenditure was found and seized as per page no 20 and 21 of Bundle No.

3.11. From the above details, it is seen that the nature of payments are not relatable to the income earned. It may be seen that the assessee has paid illegal payments to officers which is not admissible as deduction u/s.37(1) of the IT Act. The assessee also failed to co-relate the item and quantum of expenditure incurred for 9 ITA.Nos.1696 to 1703/PUN./2024 earning income as shown in the above table. Hence, the plea taken by the assessee to estimate the profit from cash receipts is not acceptable and is rejected. The total amount of receipts of Rs.4,20,44,000/- for the assessment year under consideration is treated as undisclosed income of the assessee and accordingly added to the total income because the assessee was in receipt of cash income which was unrecorded and the assessee failed to offer it even in the return filed after the search action.”

14. The Assessing Officer further noted that in the computation of income, the assessee has claimed deduction u/sec.35(2AB) of the Act amounting to Rs.13,81,70,841/- on account of capital and revenue expenditure incurred for in house R & D activities. The Assessing Officer asked the assessee to furnish the details of capital and revenue expenditure incurred for R&D purposes along with the report given by the DSIR in form No.3CL as required under Rule 6(7A) of the IT Rules. The assessee submitted necessary documents such as approval granted by the DSIR in Form 3CL, copies of annual report in Form 3CLA, details of capital and 10 ITA.Nos.1696 to 1703/PUN./2024 revenue expenditure incurred and supporting bills and invoices. However, the Assessing Officer noted that the assessee failed to submit the report given by the DSIR in Form-3CL quantifying the admissible revenue and capital expenditure. Therefore, the Assessing Officer vide letter dated 23.09.2021 asked the assessee to furnish copy of Form 3CL. It was mentioned there in that in the absence of report of the competent Authority in Form-3CL, the claim of deduction u/s 35(2AB) will not be allowed. Since the assessee failed to satisfy this condition, the Assessing Officer disallowed the claim of deduction u/s 35(2AB) amounting to Rs.13,81,70,841/- and added the same to the total income of the assessee.

15. The Assessing Officer accordingly, determined the total income of the assessee at Rs.142,10,63,651/- as against the returned income of Rs.124,08,48,810/-.

16. Before the Ld. CIT(A), apart from challenging the addition on merit, the assessee took a ground that the entire case has been built-up by the Assessing Officer on the basis of data retrieved from the pen drive in the form of print-outs of excel sheets and subsequent statement of Shri Shrikant S. Dalvi. Therefore, the authenticity of such data and admissibility of electronic evidence is very much essential to substantiate the allegations of unaccounted cash receipts and cash payments against the assessee. It was argued that the contents of the pen drive being electronic evidence have to 11 ITA.Nos.1696 to 1703/PUN./2024 be certified in terms of section 65B of the Indian Evidence Act. However, the Assessing Officer, before relying upon such electronic evidence, has not brought the mandatory certificate u/s.65B(4) of Indian Evidence Act, on record. Further, before relying upon such evidence, a certificate u/s.65B(4) is a condition precedent to the admissibility of evidence by way of electronic record. Since the Assessing Officer has not obtained such certificate, it was argued that the entire addition made by the Assessing Officer should be deleted.

17. So far as the merit of the case is concerned, the assessee reiterated the same arguments as made before the Assessing Officer. It was submitted that the department had carried out extensive search operation at the business premises of the assessee company from 14.11.2019 to 16.11.2019 and no discrepancy was found either in the cash balance or in the stock. The entire addition was based on the basis of data retrieved from the pen drive in the form of print out of excel sheets and subsequent statement of Shri S S Dalwi. Further, the documents which have been relied upon by the Assessing Officer as per the documents in Bundles-2 to 9 of Annexure A to the Panchnama are dumb documents. Since there is no corroborative evidence or finding that notings on such documents had materialized into transactions giving rise to income of the assessee which had not been disclosed in the regular books of account, therefore, no addition could have been made. Relying on various decisions it was submitted that the addition made by the Assessing Officer for unrecorded cash of Rs.4,20,44,000/- should be deleted.

12 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

18. Without prejudice to the above, the assessee took an alternate ground that even if it is presumed that the assessee has received cash of Rs.4,20,44,000/- during the year under consideration, whole of this amount cannot be considered as income since the said seized pen drive and the excel sheet prepared contain expenditure for business purposes which were also stated by Shri S S Dalvi in his statement recorded u/s 131 of the Act. It was argued that the aggregate of cash expenditure is exceeding the total cash receipts. Since the cash expenses incurred for the entire period is 3227.74 lakh as against cash receipts of Rs.3165.75 lakh, therefore, there is no question of escapement of any income. It was further argued that such expenditure was also not in violation of section 40A(3) since such expenses have not been claimed / debited in the books of account. It was further submitted that a plain reading of the seized documents reveal that multiple expenses have been aggregated and recorded in a single entry and thus each expense is below Rs.10,000/- although clubbed together and recorded periodically in larger amounts. Relying on various decisions it was submitted that only a percentage of profit of such unrecorded sales should be taken and not the entire cash receipts can be added to the total income of the assessee.

14 ITA.Nos.1696 to 1703/PUN./2024 as against Rs.7,98,20,669/- claimed by the assessee. Thus, an amount of Rs.80,82,669/- (being the difference between Rs.7,98,20,669/- (-) Rs.7,17,38,000/-) is not eligible for deduction u/s 35(2AB). Since the Assessing Officer has not doubted the genuineness of the revenue expenditure and has allowed 100% of the expenses amounting to Rs.7,98,20,669/-, therefore, he directed the Assessing Officer to restrict the disallowance to Rs.40,41,335/- being 50% of revenue expenses not found eligible for 35(2AB) deduction by the DSIR.

1. On the facts in the circumstances of the appellant's case and in law, the Ld Commissioner of home Tax (Appeal) erred in not deleting in entirety, the addition of Rs.4,20,44,000/- which was entirely based on digital evidence, in the form of excel sheets contained in a pen drive, which is an inadmissible evidence, as per section 65B of the Indian Evidence Act, 1872.

2. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of become Tax (Appeals) erred in not deleting in entirety, the addition of Rs.4,20,44,000/- as the mandatory conditions specified in section 65B of Indian Evidence Act, 1872 are not satisfied. The purported certificate under section 65B(4) is neither signed by the Authorized Officer, nor signed by the Forensic expert nor by any of the Witnesses, therefore constituting inadmissible evidence 3. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of become Tax (Appeals) erred in not deleting in entirety, the addition of Rs.4,20,44,000/- based on digital evidence seized by the search party without following the mandatory procedure prescribed for seizure of digital evidence as laid down in Chapter 6 of Digital Evidence Investigation Manual 2014, issued by 15 ITA.Nos.1696 to 1703/PUN./2024 CBDT u/s.119 of the Act, as is evident from the Panchnama prepared during search & seizure proceedings.

4. Without prejudice to above, on the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in estimating undisclosed income of the appellant company at Rs.3,57,37,400/- being 85% of the alleged unaccounted cash receipts of Rs.4,20,44,000/-, without bringing on record, any corroborative evidence in support of entries recorded in the pen drive and merely on the basis of a statement of Shri Shrikant S Dalvi recorded u/s 131(1A) of the Act.

5. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in estimating undisclosed income of the appellant company at Rs.3,57,37,400/- being 85% of the alleged unaccounted cash receipts of Rs.4,20,44,000/- without appreciating that the cash found during the course of search & seizure proceedings tallied with the cash balance available with the appellant company's audited books of accounts, thus neither any unaccounted cash indicative of unaccounted cash receipts nor any shortage of cash indicative of unaccounted cash payments was found at the time of search.

6. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in estimating undisclosed income of the appellant company at Rs.3,57,37,400/- being 85% of the alleged unaccounted cash receipts of Rs.4,20,44,000/- without appreciating that appellant company maintains complete stock details in respect of raw materials, finished goods etc. which are subject to rigorous checking, inspection and verification by Excise Department and that no discrepancy in the stock registers duly maintained in the course of business was found by the search party. The physical stock found on the day of search tallied with stock as per stock register, thus there being no excess or shortage of stock in support of Department's allegations of transactions not recorded in books.

7. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) and the Assessing Officer both did not find any discrepancy in the audited books of account, which have been accepted. For any addition of unaccounted cash receipts and/or cash payments and any addition to be made on estimation basis, rejection of books is a sine qua non. Thus, addition sustained by Ld. Commissioner of Income Tax (Appeals) deserves to be deleted.

16 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

8. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in sustaining the additions despite the fact that no corroborative evidence in the form of invoices, bills, vouchers, etc which supported the excel sheets was found during the course of extensive search & seizure proceedings. In the absence of any corroborative evidences and a finding that notings on such documents had materialized into transactions giving rise to income of the appellant which had not been disclosed in regular books of account, these documents are nothing but 'dumb documents"

9. Without prejudice to aforesaid grounds and on the facts and in circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in ignoring the decision of Hon'ble Supreme Court in the case of P.R. Metrani, 157 Taxman 325 (SC), to consider that both receipts and payments recorded in seized material are part of same record and the presumption, once drawn under section 132(4A), about the contents of the seized material has to be either completely true or complete false and the revenue is not entitled to be selective or adopting a pick and choose approach. The nature of payments has been mentioned on the excel sheets which evidently proves that the expenses are incurred for business purposes only and once entire receipts are presumed to be of revenue in nature, the entire expenses side on the same document ought to have been allowed as deduction.

10. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in allowing deduction u/s 35(2AB) only to the extent of Rs.13,41,29,506/- as against claimed at Rs.13,81,70,841/-, thereby disallowing the weighted deduction claimed u/s 35(2AB) of the Act to the tune of Rs.40,41,335/-, being 50% of the revenue expenses ignoring the fact that the books of accounts of the appellant company have been audited and no discrepancy have been pointed out by the auditors with regard to the eligible expenses. 11. The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal.”

No.1 to 3 relates to the order of the Ld. CIT(A) in not deleting the addition on 17. ITA.Nos.1696 to 1703/PUN./2024 account of absence of certificate u/sec.65B(4) of the Indian Evidence Act and the digital evidence cannot be relied upon.

23. Learned Counsel for the Assessee, at the outset, submitted that no certificate u/sec.65B(4) of the Indian Evidence Act was drawn at the time of search and, therefore, the said data does not have any evidentiary value. Relying on various decisions including the decision of Hon’ble Supreme Court in the case of Anvar P.V. vs. B K Basheer 2014 (10) SCC 473 (SC), she submitted that no addition can be made on the basis of data found from electronic device in absence of certificate u/sec.65B(4) of the Indian Evidence Act.

Findings 15. The first contention of the appellant is that the addition of Rs.4,22,44,000/- was made by the assessing officer on the basis of data contained in the pen- drive seized from the office of Sh. S.S. Dalvi. The appellant has contended that no Certificate u/s.65B(4) of Indian Evidence Act was drawn at the time of search and therefore, the said data does not have any evidentiary value. In support of this contention, the appellant, has relied on various case laws as mentioned in its submission.

16. Considering the above submission of the appellant, vide e-mail dated 29/01/2024, the assessing officer was requested to forward the copy of Certificate drawn u/s.65B(4), of Indian Evidence Act, for the pen-drive seized from the cabin of Shri S.S. Dalvi which has been relied upon while making additions. In response to this, the assessing officer vide e-mail dated 06/02/2024 has forwarded the 19 ITA.Nos.1696 to 1703/PUN./2024 copy of Certificate u/s.65B(4) of Indian Evidence Act in respect of the pen-drive and other digital devices/evidences seized from the cabin of Shri S.S. Dalvi.

20 ITA.Nos.1696 to 1703/PUN./2024 decisions are distinguishable and not applicable to the facts of the present case especially when the Assessing Officer in the instant case has obtained a certificate u/sec.65B(4) of the Indian Evidence Act and copy of which was also forwarded to the assessee and the assessee had no answer to the same. Accordingly, the first issue raised by the assessee in the grounds of appeal nos.1 to 3 is dismissed.

27. Similar grounds have been raised by the assessee in other years also. Following similar reasonings the grounds raised by the assessee regarding the evidentiary value of the pen drive in absence of certificate u/s 65B(4) of the Indian Evidence Act for other years are dismissed.

21 ITA.Nos.1696 to 1703/PUN./2024 statement was recorded u/s 131 of the Act, who had accepted that the contents of the excel sheets contain year-wise summary of sales made in cash and the payments made in cash. He has also made a statement that these cash receipts are on account of sale of scrap material and the expenditure appearing in the excel sheets are the payments made in cash on account of business development, sales incentives, etc. which are not recorded in regular books of accounts. She further submitted that no corroborative evidence of any cash was unearthed other than the excel sheets which were obtained from the pen drive found during the course of search. Therefore, in absence of any corroborative evidence, no addition can be made.

22 ITA.Nos.1696 to 1703/PUN./2024 ix) ITO vs. Kranti Impex Pvt. Ltd. vide dated 28.02.2018 x) S.P. Goyal vs. DCIT (2002) 82 ITD 85 (TM) xi) D.A. Patel vs. DCIT [(1999) (3) Tmi 639 – ITAT Mumbai]

A.Y. % PBT 2012-13 5.5% 2013-14 5.7% 2014-15 7.7% 2015-16 10.6% 2016-17 14.5% 2017-18 17.3% 2018-19 17.9% 2019-20 22.9%

25 ITA.Nos.1696 to 1703/PUN./2024 when the Revenue has not filed any appeal against the part relief given by the Ld. CIT(A). He also relied on the following decisions: i) Nagubai Ammal and others vs. B. Shama Rao and others (1956) SCR 451 (SC) ii) Pooran Mal vs. Director of Inspection (1974) 93 ITR 505 (SC) iii) Dr. Partap Singh vs. Director of Enforcement ((1985) 155 ITR 166 (SC) iv) CIT vs. Kamal & Co. (2009) 308 ITR 129 (Raj) v) Balwant Singh vs. Director of Inspection (1969) 71 ITR 550 (Del)

28 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

5 31/03/2018 – Payment on Page-28, GWRL- 2,48,599 account of Scrap Sales adjust. Cash Account 6 31/03/2018 – Payment on Page-28, GWRL- 1,32,183 account of Scrap Sales adjust. Cash Account 7 17/04/2017 – related to Bonus Page-29, GWRL- 7,00,000 Payment Cash Account 8 17/04/2017 – related to Bonus Page-29, GWRL- 21,00,000 Payment Cash Account 9 12/05/2017 – Labour Union Page-33 50,000 Payment 10 08/03/2018 – Pentha Project Page-32 50,000 admin expense 11 08/03/2018 – Dariba Project Page-32 50,000 admin expense 12 Various entries on different Page-30 & 31 1,61,000 dates regarding Hel. Flying charges / pilot payment, etc. 13 Various entries regarding Page 31 1,99,140 advocate expense, adjudication expense, Court matter payments, etc. 14 Advance Refund recd. for Page – 24 5,00,000 scrap Total 50,16,991

29 ITA.Nos.1696 to 1703/PUN./2024 as per the extracts of the excel sheet retrieved from the pen drive is in fact given to any government official or any middleman who in the name of the government official has pocketed the same. No name of any government official is found so as to treat the same as illegal. At the same time, if the contention of the Ld. Counsel for the assessee that the addition should be restricted to gross receipts less expenditure is accepted, then it also gives a distorted figure since in certain years such expenditure is more than the gross receipts. Under these circumstances, in our opinion, only a percentage of such receipts which is commensurate with the net profit for the respective years should be brought to tax to meet the ends of justice.

30 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

“9. The above discussion reveals that consequent to the search, a sum in excess of ` 3 crores was determined as the undisclosed receipts of the assessee; it was sought to be brought to tax. The assessee contended, inter alia, that if that were correct, the other amounts shown as expenditure

31 ITA.Nos.1696 to 1703/PUN./2024 should be allowed as business expenses. This was not upheld by the AO, who disallowed the entire amount. The CIT (A) accepted the assessee‟s contentions, and directed deletion of a major portion of the disallowance. The revenue‟s appeal was rejected by the Tribunal, which, by the impugned order, accepted the assessee‟s cross objection. The threshold point which this court has to decide is whether the assessee is right in contending that since the revenue has suffered concurrent findings on questions of fact, no substantive question of law arises for consideration by the court. There is authority for this proposition, in the form of this Court‟s judgment in Commissioner of Income Tax v. S.J. Knitting and Finishing Mills P. Ltd., [2004] 266 ITR 0582, that in such circumstances, the findings of the lower authorities are to be treated as pure findings of fact, and the reference consequently has to be answered against the revenue.

32 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

13. The Explanation to Section 37 (1) of the Act was inserted by Finance (No.2) Act, 1988 with retrospective effect from 01.04.1962, i.e., inception of the Act. This appears to have been a public policy driven amendment, disallowing deduction benefits in respect of illegal activities which could potentially be brought to tax. The phraseology of the provision clarifies that if the (business or commercial) activity is „an offence or which is prohibited by law" deduction, which might otherwise be eligible to the benefit of Section 37 (1) would not be granted.

33 ITA.Nos.1696 to 1703/PUN./2024 envisaged therein is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is "may be presumed" as is used in section 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so."

presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorized to draw a particular inference from a particular fact. It is of three types, (i) "may presume", (ii) "shall presume" and (iii) "conclusive proof". "May presume" leaves it to the discretion of the Court to make the presumption according to the circumstances of the case. "Shall presume" leaves no option with the Court not to make the presumption. The Court is bound to take the fact as proved until evidence is given to disprove it. In this sense such presumption is also rebuttable. "Conclusive proof" gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combating that effect. In this sense, this is irrebuttable presumption. The words in sub-section (4) are "may be presumed". The presumption under sub-section (4A) therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of Section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in Section 132 or any other provisions of the Act which could warrant such an inference or finding. Presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in Section 132 or any other provision of the Act to indicate that the presumption provided under Section 132 which is a self contained code for search and seizure and retention of books etc. can be raised for the purposes of framing of the regular assessment as well." If the revenue was of the opinion that the expenses claimed towards "green boxes" was inadmissible or was excessive, or not genuine, in order to reject the entries in the books of account and other documents of the assessee, seized during the search, it ought to have relied on other materials. Having once drawn the presumption that the contents of the documents (of the assessee) taken into possession during the search were true, the revenue could not have, consistently with that presumption, proceeded to require the assessee to produce materials in support of the expenditure entries. Such an inconsistent approach in respect of the contents of the same book appears to have been founded only on suspicion that they were not genuine. However, suspicion ITA-1620 & 1622/2010 Page 15 cannot replace proof. Moreover, the full effect of the presumption should be given effect to, whenever the statute directs a particular non- existent state of affairs to be assumed. (Ref State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244; Karnataka State Road Transport v B.A. Jayaram & Ors, AIR 1984 SC 790). In these circumstances, the effect of the presumption (which bade the revenue, when it chose to invoke it, to presume that the "contents of such books of account and other documents are true..". Therefore, in the absence of any materials, in the form of documents, the revenue could not have denied the benefit of any expenses which would otherwise have inured to the assessee, as an allowable deduction under Section 37 (1).

35 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

17. So far as the heads of expenses are concerned, the revenue was unable to show how any of them were prohibited by law, or amounted to offences. The assessee‟s business was to transport export goods, and ensure their door to door delivery in Moscow. Confirmations had been received during the course of proceedings, from some of the assessee‟s clients. The assessing officer himself allowed some deductions; which in turn implied that what aroused his suspicion was the seemingly high level of expenditure. On this aspect, however, the CIT (A) held that the margin of profit, a little over 17% compared favourably with the general trend in the business. In view of these facts, the ITAT, in the opinion of this court, did not commit any error of law in holding that such expenses were deductible under the main part of Section 37 (1) of the Act.

18. In view of the above discussion, all questions framed in these appeals are answered in favour of the assessee, and against the revenue. Consequently, the appeals fail and are dismissed.”

36 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

A.Y. Unaccounted cash Net Profit Percentage receipts 2012-13 695.93 6% 2013-14 609.81 6% 2014-15 452.85 8% 2015-16 314.14 11% 2016-17 456.38 15% 2017-18 420.44 18% 2018-19 106.39 18% 2019-20 109.81 23%

55. Identical grounds have been raised by the assessee for the other years. Therefore, following similar reasonings and in the light of the above discussion, the grounds raised by the assessee in other appeals are also partly allowed.

56. Ground No.10 relates to the order of the Ld. CIT(A) in giving part relief on account of deduction claimed u/s 35(2AB) of the Act.

57. After hearing both the sides, we find the assessee has claimed deduction u/s 35(2AB) amounting to Rs.13,81,70,841/- on account of capital and revenue expenditure incurred for in house R&D activities. During the course of assessment proceedings, the assessee was asked to furnish the details of capital and revenue expenditure incurred for R&D purposes. In 37 ITA.Nos.1696 to 1703/PUN./2024 response thereof, the assessee submitted the details and supporting documentary evidences along with report in Form No. 3CLA. Vide notice u/s 142(1) enclosed with a questionnaire dated 15.03.2021, the assessee was asked to furnish / submit the necessary documents including report given by the DSIR in form no. 3 CL as required under rule 6(7A) of the IT Rules. The assessee submitted necessary documents such as approval granted by the DSIR in Form 3CM, copies of annual report submitted in Form 3CLA, details of capital and revenue expenditure incurred and supporting bills and invoices. But the assessee failed to submit the report given by the DSIR in Form 3CL. quantifying the admissible revenue and capital expenditure. The assessee was again asked to furnish copy of Form 3CL vide letter dated 23.09.2021 and it was impressed upon him that in the absence of report of the competent Authority in Form 3CL, the claim of deduction u/s 35(2AB) will not be allowed. Since the assessee failed to satisfy this condition, the claim of deduction u/s 35(2AB) amounting to Rs. 13,81,70,841/- was disallowed and added to the total income.

58. Before the Ld. CIT(A) it was submitted that the assessee has completed all the formalities for claiming the deduction u/s 35(2AB) and the deduction was disallowed by the assessing officer only because the Form 3CL was not issued by DSIR. The assessee also contended that it had no control over the issuance of Form 3CL by DSIR, however, after the assessment, the DSIR has now issued Form 3CL on 03/10/2023, for AY 2018-19 as well as AY 2019-20. The assessee submitted an application

38 ITA.Nos.1696 to 1703/PUN./2024 under Rule 46A of I.T. Rules requesting to admit the said certificate as 'additional evidence' as the same could not be filed before the AO because the said Certificate was issued subsequent to completion of assessment.

39 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

“(b) The prescribed authority shall furnish electronically its report – (i) In relation to the approval of in-house research and development facility in Part A of Form No.3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL;’.

“(b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval.”

by the Revenue are as under:

1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.4,56,38,000/- on account of undisclosed cash receipts to the extent of 85% of the cash receipts without appreciating the fact that the assessee has failed to prove the nature of transactions recorded in the seized material, nexus between receipts and payments found recorded in the seized material and its business expediency with necessary supporting documents.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.49,41,000/ on account of unexplained expenditure without appreciating the fact that the assessee has failed to prove the nature of transactions recorded in the seized material and the redrafted cash flow cannot be relied upon in absence of verification of availability of opening cash balance as on 01/04/2012 and correct understanding of nature of transactions recorded in the seized material.

3. The appellant craves leave to add, amend, modify or alter any of the grounds.

42 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

66. So far as the second issue is concerned, we find the Assessing Officer made addition of Rs.49,41,000/- on the ground that the cash expenditure during the year exceeds the unaccounted cash receipts. We find the Ld. CIT(A) deleted the addition by recording as under:

43 ITA.Nos.1696 to 1703/PUN./2024 ITA No.1831/PUN/2024

“87. The ground no. 3 raised by the appellant is regarding the addition of Rs.49,41,000/- made u/s 69C of the Act on account of shortfall in cash required for cash expenses. I have discussed this issue in detail while deciding the appeal for AY 2015-16 and re-drafted the cash-flow statement after considering the cash available as on 1.04.2012 (as per seized document). Since, after giving benefit of opening cash balance as on 1/4/2012, there is no cash deficit for the year under consideration, no addition u/s 69C of the Act can be made. Accordingly, the addition of Rs.49,41,000/- made by the assessing officer is directed to be deleted. The ground no. 3 is disposed accordingly.”

44 ITA.Nos.1696 to 1703/PUN./2024 balance determined by the Ld. CIT(A) as per the seized document. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) deleting the addition made by the Assessing Officer of Rs.49,41,000/- on account of unexplained expenditure u/s 69C of the I.T. Act. The second ground of appeal by the Revenue is accordingly dismissed.

Order pronounced in the open Court on 9th January, 2025.