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Facts
Two appeals were filed by the assessee against the orders of the CIT(A). One appeal related to AY 2011-12 concerning an addition invoking Section 69C, which was sustained by the CIT(A) after a remand from the ITAT. The second appeal related to AY 2015-16 concerning an ad-hoc disallowance of expenses and disallowance of labour charges.
Held
The Tribunal held that the addition under Section 69C could not be sustained as the expenditure was for business purposes and profit had already been estimated. For the second appeal, the Tribunal noted that the disallowances were made on the ground of self-made vouchers and cash payments below Rs. 10,000/-, and also considered the assessee's profit ratios. The Tribunal also referred to the provisions of Section 292C and apex court judgments on the admissibility of evidence.
Key Issues
Whether additions based on impounded documents lacking dates and proper corroboration are sustainable? Whether ad-hoc disallowances based on self-made vouchers and cash payments are justified, considering the assessee's profitability and ratio analysis?
Sections Cited
69C, 142(2A), 143(3), 40A(3), 292C, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
These two appeals by the assessee are directed against the order of CIT(A), Jaipur -04 dated 19.12.2024 and Addl. CIT/JCIT(A)-01 Coimbatore dated 06.02.2025 passed u/s. 250 r.w.s 254and 250 of the Income Tax Act, 1961 respectively (in short ‘the Act’).
That the Ld. AO grossly erred in making addition by invoking sec. 69C of Rs. 1, 18,34,723/- and in first round the Ld. CIT(A) allowed the ground, then the department filed appeal before the Hon. ITAT & the Hon. ITAT set-aside the ground to the Ld. CIT(A) but the Ld. CIT(A) didn’t call proper remand report from A.O & sustained the addition of Rs. 1,18,34,723/-.
That Appellant, craves to leave, add, alter the grounds of appeal.
for A.Y. 2015-16, the assessee has raised the following grounds of appeal:
1. That the Ld. CIT(A) grossly erred in rejecting the application for condonation of delay in filling of appeal though the appellant filed reasons etc.
2. That the Ld. A.O. grossly erred on Law and Facts in making disallowance of Rs. 46,122.00 being 20% out of various expenses. The Ld. CIT(A) also erred in not considering the ground.
3. That the Ld. A.O. grossly erred on Law and Facts in making disallowance out of Labour charge Rs. 2,62,003.00 stating to be that register not available. The Ld. CIT(A) also erred in not considering the ground.
That Appellant, craves to leave, add, alter the grounds of appeal.
2. The brief facts of the case are that the assessee filed his return of income declaring total income at Rs. 37,53,350/- on 30.09.2011. The case of the assessee was selected under manual scrutiny being a survey case, as the survey was carried out on the premises of the assessee on 18.02.2011. The matter of the assessee was referred for special audit also u/s. 142(2A) of the Act looking at the complexity and volume of the accounts. Ultimately after certain deliberations between the assessee and the AO, relying on the report and recommendations of the special auditor income of the assessee was assessed at Rs. 3,47,64,795/- (Including the returned income of Rs. 37,53,350/-). Although it is transpired from the order of the AO that through out the special audit process, the assessee never participated/cooperated with the enquiries of the special auditor and ultimately, he completed his audit with the impounded records lying with the Revenue Authorities. The assessee being aggrieved with the order of the AO based on the recommendations of the special auditor preferred an appeal before the Ld. CIT(A), who in turn Allowed/confirmed the order of the AO as under:
S. No. Particulars Amount Remarks 01. Addition made after applying N.P. Rs. 2,77,049/- Confirmed by the Ld. Rate CIT(A) 02. Addition on account of capital Rs. 697919/- Confirmed by the Ld. introduced by the Prop. CIT(A) 03. Capital Expenditure claimed as Rs. 16,225/- Confirmed by the Ld. Revenue Expenditure CIT(A) 04. Unexplained Investment u/s. 69 of Rs. 12,94,873/- Partly Confirmed by the the Act Ld. CIT(A) to the extent of Rs. 59,873/-, balance deleted
5. Disallowance on account of Rs. 1,41,34,476/- Deleted by the Ld. CIT(A) Violation of section 40A (3) of the Act 06. Unexplained Expenditure u/s. 69C Rs. 1,18,34,723/- Deleted by the Ld. CIT(A) of the Act 07. Unaccounted Income (Unverified Rs. 23,04,667/- Partly Deleted by the Ld. Bank Deposits/DD) CIT(A) to the extent of Rs. 14.72 Lacs 08. Undisclosed Income Rs. 4,51,513/- Confirmed by the Ld. CIT(A)
Against above order of the Ld. CIT(A) both the revenue and the assessee were in appeal before the coordinate bench of Tribunal. In its order 09.10.2017, coordinate bench disposed the appeal of both the sides confirmed certain additions, deleted certain additions and on the issue referred at point no. 6 above (in bold) in the table set-aside the matter back to the Ld. CIT(A) for verification of expenditure to the extent of Rs. 92.24 Lacs.
4. The Ld. CIT(A) in his order vide dated: 19.12.2024 confirmed the whole addition of Rs. 1,18,34,723/-. The assessee being aggrieved with the same preferred the present appeal before us and it’s a second round of appeal in the matter. We have gone through the order of the AO passed in the first round of the appeal, order of the Ld. CIT(A) passed in the first round of appeal u/s. 250 of the Act, order of the coordinate bench vide order dated: 09.10.2017 vide and 617/JPR/2016 and the latest order of the Ld. CIT(A) passed u/s. 250 r.w.s. 254 of the Act. It is observed that the expenditure under dispute claimed by the assessee discussed at para 6 of the AO’s order at page no. 47 of the original assessment order passed u/s. 143(3) of the Act. In this para a show cause was issued to the assessee based on the observations of the special auditor as unexplained/not accounted for expenditure including illegal payments made by the assessee (Annexure-4 of the Special Audit Report). On this issue, in the first round of appeal the Ld. CIT(A) allowed the same on the ground that once a profit rate of the industry has been applied and books of accounts are not found to be reliable for the purposes of section 145(3) of the Act, no specific addition u/s. 69C of the Act can be made.
But the tribunal took a different view on this issue and very categorically held that “Where the expenditure is incurred for the purposes of the business and revenue in nature, certainly same can’t be considered for the purposes of further disallowance u/s. 69C of the Act, as profit has already been estimated and these expenses subsumed in that estimation itself. But as far as other payments are concerned, there is no bar in the Act upon the AO to proceed u/s. 69C of the Act.”We have respectfully considered the findings of the coordinate bench and humbly agreed with the same. With the above finding vide para 49 of the order the matter was restored as under:
49. Now coming to transactions reported at item no. 68, 69,70,71,72, 73 and 74 based on Annexure A-24 impounded during the course of survey and as reported as part of Annexure 4 of the special audit report, the special auditor has stated that these are pool payments and in the nature of illegal payments made to functionaries of RIICO by the assessee. Only distinction that we observe here is that unlike entries at transactions reported at item no. 85, 86, 87 and 88 of Annexure 4 of the special audit report, which we have examined earlier, there is no finding either by the special auditor or by the AO that these transactions were entered in the seized cash book or in the books of accounts. Therefore, the basis of observations made by the special auditor is the document referred to as Annexure A-24 which was impounded during the course of survey and which has been contested by the assessee stating that the same cannot be held as a reliable piece of evidence and cannot be held against it. The assessee has contended that there is no date on the seized paper, nowhere it was mentioned Pool and how can the auditor has mentioned as pool payment. It may be part of discussion to give the work on sub contract or estimation or discussion. No where recorded in seized cash book as is the case in respect of items recorded in s.no. 84-88 and consider illegal expense and it was unjustified to mention pool payment or to consider illegal expenses. On perusal of the order of the ld. CIT(A), we however do not see a specific finding of the ld. CIT(A) which has addressed the matter in light of documents marked as Annexure A-24 impounded during the course of survey and the contentions so advanced by the assessee. In the interest of justice and fair play, we hereby set-aside the matter for the limited purposes of examining Annexure A-24 impounded during the course of survey and the items reflected at Item no. 68, 69,70,71,72, 73 and 74 based on Annexure A-24 and as reported as part of Annexure 4 of the special audit report, and taking into consideration the findings of the special auditor, to decide as per law as to whether the provisions of section 69C are attracted in the instant case or not. Needless to say, both the revenue and the assessee would be provided reasonable opportunity to represent their case before the ld. CIT(A).
Now in view of the above discussion and looking at the directions of the coordinate bench in the first round of the hearing, the Ld. CIT(A) was authorized to examine again the items reflected at Item no. 68, 69,70,71,72, 73 and 74 based on Annexure A-24 and as reported as part of Annexure 4 of the special audit report.Here it is pertinent to mention that the matter of the assessee before the coordinate bench was decided ex-parteas none appeared on behalf of the assessee and then coordinate bench observed and ordered that “we however do not see a specific finding of the ld. CIT(A) which has addressed the matter in light of documents marked as Annexure A-24 impounded during the course of survey and the contentions so advanced by the assessee. In the interest of justice and fair play, we hereby set-aside the matter for the limited purposes of examining Annexure A-24 impounded during the course of survey and the items reflected at Item no. 68, 69,70,71,72, 73 and 74 based on Annexure A-24 and as reported as part of Annexure 4 of the special audit report, and taking into consideration the findings of the special auditor, to decide as per law as to whether the provisions of section 69C are attracted in the instant case or not.”[para 49]
We have gone through the latest order of the Ld. CIT(A) and observed that the order of the Ld. CIT(A) was failed to address the issues raised by the assessee, e.g. The Ld. CIT(A) has taken base of the ITAT order wherein the coordinate bench has confirmed the additions mentioned at serial no. 85 to 88 of Annexure 4 of the special audit report. These transactions were duly noted in the Kachhi Cash Book impounded by the department vide Annexure-22. Since payment of these amounts as mentioned at serial no. 85 to 88 of Annexure 4were recorded in the impounded cash book, coordinate bench rightly confirmed the same. But as far as Item nos. 68, 69,70,71,72,73 and 74 based on Annexure A-24 and as reported as part of Annexure 4 of the special audit report are concerned, they are no where recorded in the Kachhi Cash Book impounded by the department vide Annexure- 22 and this fact is there on record and unchallenged by the Revenue also and that’s why there was a categorical finding by the coordinate bench also that “there is no finding either by the special auditor or by the AO that these transactions were entered in the seized cash book or in the books of accounts. Therefore, the basis of observations made by the special auditor is the document referred to as Annexure A-24 which was impounded during the course of survey and which has been contested by the assessee stating that the same cannot be held as a reliable piece of evidence and cannot be held against it. The assessee has contended that there is no date on the seized paper, nowhere it was mentioned Pool and how can the auditor has mentioned as pool payment.” [para 49]
Again, instead of following the directions of the coordinate bench the Ld. CIT(A) is beating around the bush and failed to establish the authenticity of the documents against the assessee. Once the revenue has taken a stand that they are relying and making its base on Kachhi Cash Book impounded by the department vide Annexure-22, then how is it possible that anything which found loose at the premises of the assessee without any date, handwriting verification and corroborating with the base chosen by the department itself can be a basis for addition in the case of the assessee. This observation further getting strengthen by the fact that the special auditor and the AO was also not able to comment and corroborate the same with the Kachhi Cash Book impounded by the department vide Annexure-22 and that’s why the coordinate bench was forced to restore the matter back for verification, otherwise this issue would have been resolved at that time itself. In this matter a thorough verification of facts and law has already been made and wherever the Revenue was in a position to establish the authenticity of the documents, additions were confirmed against the assessee. But where a base has been chosen and accepted by the Revenue and coordinate bench also confirmed the same, it will be a gross injustice against the assessee, i.e. he is getting sticks from both the sides and even the vague and guess work of the revenue is harming his interests.
Tribunal being the final fact-finding body, it is our utmost duty to consider and observe all the relevant material available on records. In our considered opinion the authorities below miserably failed to understand the facts of the case and shifted their own base to hit the target, which is not permissible as per law. Here, we deem it fit to discuss the provisions of section 292C of the Act as under:
Presumption as to assets, books of account, etc. 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 132or survey under section 133A, it may, in any proceeding under this Act, be presumed - (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] (2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub- section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132. Further, the Hon’ble Apex Court elaborately discussed the provisions of the sections 292C of the Act as under:
[2017] 77 taxmann.com 245 (SC)Common Cause (A Registered Society)vs. UOI Loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court. [Para 20] The Court has to be on guard while ordering investigation against any important constitutional functionary, officers or any person in the absence of some cogent legally cognizable material.When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence and not admissible in evidence, whether it would be safe to even initiate investigation?In case it is done, the investigation can be ordered as against any person whosoever high in integrity on the basis of irrelevant or inadmissible entry falsely made, by any unscrupulous person or business house that too not kept in regular books of account but on random papers at any given point of time. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries. In case all these are not insisted, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. The materials which have been placed on record either in the case of Birla or in the case of Sahara are not maintained in regular course of business and thus lack in required reliability to be made the foundation of a police investigation. [Para 21] In case of Sahara, in addition there is adjudication by the Income Tax Settlement Commission. The order has been placed on record. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate the nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents. [Para 22] It is apparent that the Commission has recorded a finding that transactions noted in the documents were not genuine and thus has not attached any evidentiary value to the pen drive, hard disk, computer loose papers, computer printouts. [Para 23] Since it is not disputed that for entries relied on in these loose papers and electronic data were not regularly kept during course of business, such entries were discussed in the order passed in Sahara's case by the Settlement Commission and the documents have not been relied upon by the Commission against assessee, and thus such documents have no evidentiary value against third parties. On the basis of the materials which have been placed on record, it is opined that no case is made out to direct investigation against any of the persons named in the Birla's documents or in the documents of Sahara. [Para 24] In the case of State of Haryana v. Bhajan Lal 1992 Supp (1) SCC 335, this Court has laid down principles in regard to quashing the F.I.R. The Court can quash FIR also if situation warrant even before investigation takes place in certain circumstances. This Court has laid down thus:
(1) Where the allegations made in the first information report of the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under section 156(1) of the Code except under an order of a Magistrate within the purview of section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. [Para 26] Considering the aforesaid principles which have been laid down, it is opined that the materials in question are not good enough to constitute offences to direct the registration of F.I.R. and investigation therein. The materials should qualify the test as per the aforesaid decision. The complaint should not be improbable and must show sufficient ground and commission of offence on the basis of which registration of a case can be ordered. The materials in question are not only irrelevant but are also legally inadmissible under section 34 of the Evidence Act, more so with respect to third parties and considering the explanation which have been made by the Birla Group and Sahara Group, it is opined that it would not be legally justified, safe, just and proper to direct investigation. [Para 27] In view of the materials which have been placed on record and the peculiar facts and circumstances projected in the case, no case is made out to direct the investigation as prayed for. [Para 28]
In view of the facts of the case discussed by this bench and even in the first round of appeal by the coordinate bench alongwith provisions of section 292C of the Act as elaborately discussed and analysed by the Hon’ble Apex Court, it is observed that the order of the authorities below was simply made on conjectures and surmises and without any base. Grounds raised by the assessee are allowed and the orders of the authorities below are set-aside with a direction to delete the addition.
In the result, the appeal of the assessee is allowed.
ITA No. 394/JPR/2025 (A.Y. 2015-16)
The limited issue involved in this appeal pertains to sustainability of ad-hoc disallowance made by the AO and further confirmed by the ADDL.CIT/JCIT (A)-1, Coimbatore. It is observed that on both the disallowances, the AO made the disallowance solely on the ground that the expense vouchers are self-made and payment was made in cash, hence genuineness of the expenditure can’t be verified. Although the payments in cash were below Rs. 10,000/-. The assessee produced Ledger account through paper book before us also. We have gone through the same and found these are merely the entries supported by self-made internal vouchers. Although there is no adverse comment by the Tax Auditor on the same. But, for us the prime question is to deduce the real income of the assessee.
Vide page no. 19 of the paper book the assessee submitted a chart of turnover, Gross Profit, Net Profit and Ratios on both the counts. It is observed that the N.P Ratio for F.Y. 2017-18 was 8.09%, 2018-19 was 7.48% and 2019-20 was 6.70% with a Grand Average of 7.42%, which looks to be fair enough. In the year under consideration the total turnover of the assessee was Rs. 16,47,00,646/- and G.P. was 1,61,35,166/-, i.e. 9.8%, which is below the grand average of the F.Y.s mentioned above, i.e. 22.14% and net profit is Rs. 36,07,032/- , i.e. 2.19% even if we consider the income disclosed under the head other sources amounting to Rs.26,47,866/-, the N.P. comes to 3.8%, which is far below than the individual ratios and grand ratio declared by the assessee.
In view of the above facts, without further stretching the issue and going into the technicalities, we confirm the order of the authorities below and dismiss the grounds raised by the assessee.
In the result, the appeal of the assessee is dismissed.
The Order is pronounced in the open court on the 19TH day of May, 2025.
Sd/- Sd/- (NARINDER KUMAR) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 19/05/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Asstt.Registrar) ITAT, Jaipur
Details Date Initials Designation 1 Draft dictated on PC on 19.05.2025 Sr.PS/PS 2 Draft Placed before author 19.05.2025 Sr.PS/PS 3 Draft proposed & placed before the Second Member JM/AM
4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order