DCIT, CC-2(1),, CHENNAI vs. M/S. SNJ DISTILLERS PVT. LTD., CHENNAI

आदेश / O R D E R Per BENCH:

This bunch of 6 appeals, 3 each from Revenue and 3 each from assessee are directed against separate, but identical orders of the

2 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 CIT(A) -18, Chennai dated 18.07.2019 pertaining to the assessment years 2014-15, 2015-16 and 2016-17. Similarly, the assessee has filed an appeal against the order of the CIT(A)-19, Chennai dated 23.09.2019 for the assessment year 2017-18. Since, the facts and issues involved in these appeals are identical, for the sake of convenience these appeals are heard together and are being disposed of by this consolidated order.

3 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019

4 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 4. The brief facts of the case are that the assessee company is engaged in the business of manufacturing and sales of distillery products. The assessee company manufactured and sold goods only to Tamil Nadu State Marketing Corporation. The assessee has filed its return of income U/s.139 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) admitting total income of Rs.16,09,06,810/- on 16.09.2015 and the same was processed U/s.143(1) of the Act. A search and seizure action U/s.132 of the Act was carried out in the business premises of the assessee company on 09.05.2016. During the course of search, certain incriminating materials were found and seized vide annexure ANN/VJ/SNJ/B&D/S-1 in the procession of Smt. Banusree who was working as cashier in the assessee company, which contain the details of date wise unaccounted cash receipts and payments for the period 03.07.2014 to 07.05.2016. Further, during the course of search proceedings at the business premises of the assessee company, a cash of Rs.3,93,57,669/- was found in the chamber of Shri P.Srikant, Purchase Manager of the assessee company and the same was inventorised. During the course of search, it was further noticed that as per cash book, the balance available as on date of search was at Rs.24,83,589/- and hence the excess cash of Rs.3,68,74,080/- was seized U/s.132 of the Act.

5 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 During the course of search, a statement U/s.132(4) of the Act was recorded from Smt. Banusree and in response to a specific question, she admitted that at the instance of Shri S.N. Jayamurugan, Managing Director of the company, she used to receive unaccounted cash from various vendors and the same was kept in the locker in the chamber of Shri P. Srikant. A statement from Shri P. Srikant, Purchase Manager was also recorded where he had admitted that the assessee company was indulged into receiving cash outside the books as per the instructions of Shri Jayamurugan. Similarly, a sworn statement of Shri S.N. Jayamurugan was recorded where he has admitted that Shri P. Srikant was custodian of unaccounted cash received from various vendors and the same was kept in the locker. He further stated that unaccounted cash was being generated by inflation of expenditure from various suppliers of bottles and other vendors. The seized notepad was shown to him and was asked to explain the contents of the same. After going through the seized book, he admitted that during the period 03.07.2014 to 07.05.2016, the assessee company has generated unaccounted cash to the tune of Rs.31.51 Crores and further agreed to offer the same for taxation as its undisclosed income of the company for the relevant assessment years.

6 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 5. Subsequently, Shri S.N. Jayamurugan, the Managing Director had filed an affidavit dated 29.06.2016 (after one and half month of search) before the DDIT(Inv) and in which he had denied receipt of cash as admitted in the statement recorded U/s.132 of the Act on 10.05.2016. However, he further stated in order to buy peace from the Department and to settle the matter voluntarily offered additional income of Rs.31 Crores for the assessment years 2015-16 to 2017-18. In the said affidavit, he has denied having received any unaccounted cash from any of the supplier and further stated that the search party had recorded sworn statement at the odd hours of the late night from him which was given under mental pressure and disturbed state of mind, stress and duress and therefore no credence should be given to such statement. Further Shri S.N. Jayamurugan had filed another affidavit on 27.02.2017 (after nine and half months) before the DDIT(Inv), Unit -1(1), Chennai and denied to the facts as admitted in oath taken U/s.132(4) of the Act dated 10.05.2016 and earlier affidavit dated 29.06.2016. He once again reiterated that statement recording during the search at odd hours should not be considered as evidence, because the same was recorded under mental pressure and disturbed state of mind, stress and duress.

7 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 6. Consequent to the search, the case has been selected for scrutiny and accordingly notices U/s.153A of the Act dated 16.08.2017 was issued and served on the assessee. In response, the assessee company has filed its return of income on 14-09-2017 admitting total income of Rs.29,44,77,850/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO vide office notice dated 23.05.2018 issued u/s.142(1) requested the assessee to explain as to why the entire unaccounted cash receipt of Rs.31.59 Crores should not be brought to tax as undisclosed and unaccounted income for the respective assessment years. In response, the assessee vide letter dated 08.06.2018 has objected the proposed addition and filed a detailed written submissions to argue that cash found and seized during the course of search has been duly explained and matched with the books of accounts maintained in the name of various group concerns in the light of evidences including Wealth Tax return filed for the respective assessment years. The assessee had also denied to have received any unaccounted cash from vendors as reported in the scribbling pad named “Sharp Note Pad -4”, which was found and seized during the course of search and further which was the mixture of cash actually withdrawn from banks and other entities. The assessee further stated that the entirely alleged scribbling pad

8 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 was taken under the directions and coercion of the Search Team for giving addition/offer of income for 3 years. The assessee further argued that a glance at the same will show that the same is written under one hand writing at one stretch for 3 years in one scribbling pad in an hour. The same alleged scribbling pad shall be sent for testing to forensic examination to prove whether the writings on the scribbling pad were written on the same day or during the last 3 years in one pad itself. The assessee further submitted that the entries contained in the scribbling pad had neither any vouchers nor invoices were found to support the transactions mentioned therein nor any details as to the payee or nature of expenditures or sources is mentioned therein. The alleged scribbling pad is part of the purported statement and declaration obtained by the Search Team in the manner hereinafter mentioned and hence the alleged scribbling pad does not given any corroborative evidence which is exclusively made on the basis of suspicion and guesswork and even no cogent material has brought on record by the Search Team to substantiate the transactions of alleged scribbling pad.

9 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Team including the physical cash found during the course of search from the chamber of Shri Srikant, Purchase Manager, rejected the arguments advanced by the assessee that cash found during course of search was accounted in the books of accounts of the assessee and other group concerns. The AO further noted that seized note pad was found in the possession of Smt. Banusree and the contents recorded in the said document was handwritten by Smt. Banushree and the same was also identified by her. Further, the oath was taken U/s.132(4) of the Act, by Smt. Banusree on 10.05.2016 in which she had admitted that she was handling unaccounted cash as per directions of Shri Jayamurugan, Managing Director and Shri Shrikanth, Purchase Manager. From the above, it is very clear that the scribbling notebook found during the course of search was belonging to the assessee and contents recorded therein are true and correct and was accepted by the assessee as it is unrecorded transactions outside the books of accounts. The AO further noted that the assessee’s contention that the entries in the scribbling pad does not supported with any bills or vouchers is not correct and not acceptable because unaccounted transactions are never supported by bills and vouchers and that is why these are called as unaccounted transactions. The Ld.AO on the basis of evidences collected during

10 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 the course of search coupled with sworn statement recorded from the parties including Shri S.N. Jayamurugan, Managing Director of the assessee company came to the conclusion that the facts gathered during the course of search clearly establish the modus-operandi for generation of unaccounted cash from suppliers of bottles and other vendors by way of inflating the expenditure is undoubtedly proved. Therefore, the arguments of the assessee in the light of the subsequent retraction statement along with affidavits is only an afterthought to circumvent liability of tax on undisclosed income offered during the course of search and hence the same cannot be accepted. Accordingly, he opined that the assessee has generated unaccounted cash by way of inflating expenditure through various vendors of used bottles and other raw materials and the same has been used to make various unaccounted payments. Accordingly, there is no error in the findings recorded by the Search Team in the light of sworn statement of the assessee to treat the total amount of cash generated and recorded in scribbling pad as unaccounted income of the assessee for the assessment years 2014-15 to 2017- 18. He, therefore made additions towards unaccounted cash as income of the assessee for asst years 2014-15 to 2017-18.

11 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 8. Similarly, the AO has made various other additions including additions towards disallowance of expenditure incurred in relation to exempt income U/s.14A of the Act on the ground that although the assessee has not earned any exempt income but expenses relatable to exempt income cannot be ruled out when the assessee has systematically invested huge amounts in dividend bearing investments. The AO has also made additions towards business promotion expenses on the ground that the assessee has not able to file necessary supporting bills and vouchers to prove that the expenditure debited under the head ‘business promotion expenses’ is genuine and it was incurred wholly and exclusively for the purpose of business of the assessee.

12 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 on the ground that when there is no exempt income earned for the year, then disallowance contemplated U/s.14A cannot be made. The Ld.CIT(A) has also allowed partial relief in respect of disallowance of marketing expenses by following the ITAT, Chennai Bench decision in assessee’s own case for the assessment years 2010-11 to 2013-14 in ITA Nos.300 to 303/Mds/2016 vide order dated 27.05.2016 and restricted the disallowance to 10% of marketing expenses incurred in cash. In so far as expenditure incurred by cheque, the AO has specifically invoked Section 40(a)(ia) of the Act for non-deduction of tax at source on such payments and hence the findings of the Tribunal for earlier years will not come to the rescue of the assessee as regards disallowance made by invoking the provisions of Section 40a(ia) of the Act, and accordingly sustained addition made towards marketing expenses by invoking provisions of Section 40a(ia) of the Act for non-deduction of tax at source on such payments. As regards, additions made towards unaccounted cash receipts on the basis of the alleged scribbling pad, the Ld.CIT(A) for the total reasons recorded in the assessment order has affirmed the findings of the Ld.AO on the ground that the impugned document found during the course of search in the possession of Smt. Banusree, Accountant, who works for the assessee company had categorically accepted that she had

13 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 recorded transactions as per the instructions of Shri S.N. Jayamurugan, Managing Director of the assessee company and that of Shri Srikant, Purchase Manager. The said statements have been endorsed by Shri S.N. Jayamurugan, Managing Director of the assessee company and categorically admitted that transactions recorded in scribbling pad are unaccounted cash receipts and payments and are outside the books of accounts. Although the assessee company had subsequently filed an affidavit to retract the statements recorded during the course of search, but such statements have been filed after a gap of nine months from the date of search, that too without any substantive evidences to support the claim and hence the same cannot be accepted. Therefore, he opined that there is no error in the findings recorded by the AO to come to the conclusion that undisclosed income found on the basis of the documents seized during the course of search is nothing but unaccounted cash received from various vendors and suppliers by way of inflation of expenditure in the books of accounts. Accordingly confirmed the additions made by the AO towards unaccounted cash for all assessment years. Aggrieved by the Ld.CIT(A) order, the assessee as well as the Revenue are in appeal before us.

14 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 10. The first issue that came up for our consideration from Revenue appeals for all assessment years is disallowance of expenditure U/s.14A r.w. Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as the ‘Rules’).

10.1 The Ld.AO had disallowed expenditure incurred in relation to exempt income by invoking Rule 8D(2) of the IT Rules 1962 on the ground that although the assessee has not earned any exempt income for the impugned assessment years, but incurring of expenditure in relation to dividend bearing investments cannot be ruled out, more particularly when the assessee had made huge investments in shares and securities which yield exempt income. According to the AO, whether are not exempt income is earned but expenditure relatable to such exempt income which do not form part of total income needs to be computed in accordance with the prescribed procedure provided under Rule 8D(2) of the Rules and accordingly by following the decision of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg.Co. Ltd. vs. DCIT [2010] 194 taxman 203 (Bom) computed disallowance by invoking provisions of Rule 8D(2) of the IT Rules 1962. The Ld.CIT(A) on appeal by the assessee had deleted the addition made by the AO by following the decision of the Hon’ble

15 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd., supra, on the ground that when there is no exempt income earned for the year, the question of disallowance of expenditure incurred in relation to said exempt income does not arise.

10.2 The Ld.DR submitted that the Ld.CIT(A) has erred in deleting the additions made by the AO towards disallowance of expenditure incurred in relation to exempt income U/s.14A r.w.r.8D(2) of the Rules, without appreciating the fact that the assessee has been borrowing interest bearing funds for its working capital needs, but at the same time made investments which will generate exempt income from tax and accordingly, necessary expenditure relatable to said exempt income needs to be disallowed under the provisions of Section 14A of the Act.

10.3 The Ld.AR for the assessee, on the other hand strongly supporting the order of the Ld.CIT(A) submitted that the issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd., supra, where the Hon’ble court has categorically observed that when there is no exempt income for the year under consideration, then the disallowance contemplated

16 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 U/s.14A of the Act cannot be made. The Ld.AR further submitted that the said principles is further supported by the decision of the Hon’ble Supreme Court in the case of Oil Industry Development Board, where the Hon’ble Supreme Court while dismissing the SLP filed by the Revenue against the order of the Hon’ble High Court of Delhi held that in the absence of any exempt income, disallowance U/s.14A of the Act of any amount was not permissible.

10.4 We have heard both the parties through video conferencing, perused the materials available on record and gone through the order of the authorities below. The facts born out from record clearly indicate that the assessee has not earned any dividend income which does not form part of total income for the year under consideration. In fact, the Ld.AO has categorically admitted that for the impugned assessment years, the assessee has not earned any dividend income from investments. It is a settled position of law by the decisions of the Hon’ble Supreme Court and other High Courts that when there is no exempt income for the year, then disallowance contemplated U/s.14A of the Act cannot be made. The Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd., supra has held that no disallowance U/s.14A of the Act can be made if there is no dividend

17 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 income. A similar view has been expressed by the Hon’ble Supreme Court in the case of Oil Industry Development Board in its order dated 08.02.2019, where the court while dismissing the SLP filed by the Revenue has confirmed the decision of the Hon’ble High Court of Delhi which held that in the absence of any exempt income disallowance U/s.14A of the Act of any amount was not permissible. The Hon’ble Supreme Court while arriving at a conclusion has followed its earlier decision in the case of Cheminvest Limited vs. CIT [2015] 378 ITR 33, where a similar view has been expressed by the court. In this case, the assessee has filed all evidences to prove the fact that no exempt income is earned for the year. The assessee has also filed all evidences to prove that its own fund being share capital and reserves and surplus is over and above amount of investments. Under these facts, no disallowances could be made for any expenditure including interest expenses. Therefore, we are of the considered view that the Ld.CIT(A) has rightly deleted additions made towards disallowance of expenditure U/s.14A r.w.Rule 8D of the Rules. Hence, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue for all assessment years.

18 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 11. The next issue that came up for our consideration from Ground No.3 of Revenue appeals for all assessment years and Ground No.5 of assessee appeal for assessment year 2017-18 is disallowance of marketing expenditure and business promotion expenses.

11.1 The AO has disallowed 100% of marketing expenditure incurred in cash and 100% of marketing expenditure incurred in cheque, but payment made without deduction of tax at source on the ground that the assessee has incurred huge marketing expenditure in cash but failed to file supporting bills and vouchers to justify said expenditure to establish that it was incurred wholly and exclusively for the purpose of business of the assessee. According to the AO, the assessee has even failed to explain as to why TDS has not been deducted on payments made to certain parties even though the payment made to said parties was above the prescribed limit provided for deduction of tax at source. It is the contention of the assessee before the lower authorities that business cannot be carried out without incurring marketing and sales promotion expenses. Further, most of these payments were passed through proper banking channels and TDS also has been deducted wherever applicable.

19 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Although certain payments have been made in cash but such payments has been made in order to get service from service providers in relation to business activity of the assessee. Merely for the reason that few payments were made in cash, genuine business expenditure incurred wholly and exclusively for the purpose of business cannot be disallowed. The assessee further submitted that the ITAT, Chennai Bench in the assessee’s own case for earlier assessment years had examined the issue and held that wherever marketing expenditure incurred in cheque cannot be disallowed merely for non-furnishing of supporting bills and vouchers. However, in respect of expenditure incurred in cash, the Tribunal has directed the AO to restrict the disallowance to the extent of 10% of the unsupported cash expenditure. As regards expenditure incurred in cheque but payment has been made without deduction of tax, the fact remains that the assessee has deducted TDS in all applicable cases, therefore the observations of the AO is that TDS has not been deducted on certain payments is incorrect.

11.2 We have heard both the parties through video conferencing, perused the materials available on record and gone through the order of the authorities below. The AO has disallowed the expenditure

20 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 incurred under the head ‘marketing and business promotion expenses’ on the ground that the assessee could not establish genuineness of expenditure with supporting bills and vouchers. The Ld.CIT(A) has restricted such disallowance to the extent of 10% of expenditure incurred in cash by following the decision of the ITAT, Chennai Bench in assessee’s own case for assessment years 2010-11 to 2013-14 in ITA Nos.300 to 303/Mds/2016 vide order dated 27.05.2016, where the Tribunal has observed that wherever expenditure incurred through proper banking channels, the genuineness of such expenditure cannot be doubted merely for the reason that no supporting bills / vouchers are submitted. As regards expenditure incurred in cash, the Tribunal further noted that wherever expenditure incurred only by cash, then there are chances of inflating such expenditure, therefore directed the AO to restrict the disallowance to the extent of 10% of cash expenditure. In these years, the Ld.CIT(A) has followed the order of the Tribunal and directed the AO to restrict the disallowance to the extent of 10% of cash expenditure incurred under the head marketing and sales promotion expenses. We do not find any error in the findings of the Ld.CIT(IA) as regards expenditure incurred in cash and hence we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. As regards the claim of the

21 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 assessee that for the assessment year 2017-18, the Ld.AO has disallowed a sum of Rs.28,18,994/- even though said expenditure has been incurred in cheque but for not furnishing supporting bills and vouchers, we find that the Tribunal has given categorical finding for earlier assessment years that once expenditure is incurred in cheque through proper banking channels then there cannot be any disallowance even though there is no supporting bills and vouchers furnishes in support of said expenditure. Therefore, we are of the considered view that to that extent the findings of the AO as well as CIT(A) deserves to be reversed. However facts are contradictory because there is no clarity from the orders of the authorities below in so far as the nature of payments under which these payments are made. Therefore for the limited purpose of ascertaining the fact with regard to the nature of payment, we remit the issue back to the file of the AO for the assessment year 2017-18 and direct him to re-examine the issue in the light of the claim of the assessee that said expenditure has been incurred through proper banking channel. In case, the AO finds that the expenditure is incurred through proper banking channel then there cannot be any disallowance. To sum up, the grounds taken by the Revenue for the assessment year 2015-16 to 2017-18 are rejected and the ground taken by the assessee for the assessment

22 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 year 2017-18 is restored back to the file of the AO for the limited purpose of verification.

12.1. The facts with regard to the impugned disputes are that during the course of search incriminating documents in the form of scribbling pad was found and seized which contains the transactions in the form of cash received from various vendors and suppliers and the same has been used to make unaccounted cash expenditure. On the basis of seized documents, a statement U/s.132(4) of the Act was recorded from Smt. Banusree and Shri Srikant, Purchase Manager where both have agreed that transactions recorded in the seized material is outside the books of accounts and said transactions were recorded on the behest of Shri S.N. Jayamurugan, Managing Director of the assessee company. The said statement was confronted to Shri Jayamurugan, while recording sworn statement U/s.132(4) of the Act,

23 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 where he had categorically admitted that entries recorded in scribbling pad is nothing but unaccounted cash receipt from various vendors by way of inflation of expenditures. The seized notepad was shown to him and was asked to explain the contents of the same. After going through the seized book, he admitted that during the period 03.07.2014 to 07.05.2016, the assessee company has generated unaccounted cash to the tune of Rs.31.51 Crores and further agreed to offer the same for taxation as its undisclosed income of the company for the relevant assessment years. Subsequently, Shri S.N. Jayamurugan, the Managing Director had filed an affidavit dated 29.06.2016 (after one and half month of search) before the DDIT(Inv) and in which he had denied receipt of cash as admitted in the statement recorded U/s.132 of the Act on 10.05.2016. However, he further stated in order to buy peace from the Department and to settle the matter voluntarily offered additional income of Rs.31 Crores for the assessment years 2015-16 to 2017-18. In the said affidavit, he has denied having received any unaccounted cash from any of the supplier and further stated that the search party had recorded sworn statement at the odd hours of the late night from him which was given under mental pressure and disturbed state of mind, stress and duress and therefore no credence should be given to such statement.

24 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Further Shri S.N. Jayamurugan had filed another affidavit on 27.02.2017 (after nine and half months) before the DDIT(Inv), Unit - 1(1), Chennai and denied to the facts as admitted in oath taken U/s.132(4) of the Act dated 10.05.2016 and earlier affidavit dated 29.06.2016. He once again reiterated that statement recording during the search at odd hours should not be considered as evidence, because the same was recorded under mental pressure and disturbed state of mind, stress and duress.

12.2 The Ld.AR for the assessee submitted that the Ld.CIT(A) has erred in confirming the addition towards purported unaccounted cash receipts recorded in seized document being scribbling pad which contains rough and false figures without appreciating the fact that the same cannot be relied upon to make addition on account of undisclosed income, in the absence of any independent supporting and corroborative evidences. The Ld.AR further submitted that the Department has found one scribbling pad at the time of search in possession of Smt. Banusree and such seized document gives raise to make huge additions towards unrecorded cash receipts on the basis of jottings without any supporting evidences to prove that the assessee has received unaccounted cash from various vendors and

25 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 suppliers. The Ld.AR referring to the seized documents submitted that the entries recorded in the seized document reveals that the cash was received from 03.07.2014 to 07.05.2016 and total of such cash receipts accounts for a sum of Rs.31 Crores for 3 financial years. The AO has made additions only on the basis of the seized documents coupled with statements recorded during the course of search, where Accountant of the assessee and the Purchase Manager have admitted that they have maintained rough cash book for receipt of cash from vendors and suppliers and the same has been used to make unaccounted expenditure. According to the AO, for the said purpose, cash has been generated through vendors by inflating expenditures and the details of cash received from various parties have been recorded against their names. Therefore it is highly incorrect to state that the document found during the course of search is a dumb document which does not show any light on the undisclosed income of the assessee. But fact remains is that the said documents was written at the time of search and at the instance of the Search Party to create an evidence for confession taken towards undisclosed income which is evident from the fact that if we go through the handwriting and the manner in which the said cash book was written had clearly indicates that the same was written on the single day.

26 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019

12.3 The Ld.AR further submitted that the assessee has right from the beginning claimed that the document found during the course of search was neither belongs to it nor the contents of the document does not show any light on undisclosed income of the assessee. In fact, the assessee has requested the AO to send the document for forensic examination to ascertain the correctness of the handwriting and correctness of entries therein. But the AO as well as the CIT(A) have refused to send the document for forensic examination. From the above, it is very clear that the documents found at the time of search and the basis for addition is only a dumb document which was created to support the confessional statement taken during the course of search. The Ld.AR for the assessee further submitted that when cash book is maintained whether it is regular cash book or rough cashbook, it is obvious that book is maintained to arrive at a balance of each day, whereas the document relied upon by the AO clearly shows that the assessee has recorded some receipts and payments without there being any corresponding reference to persons from whom those cash has been received and the names to whom cash has been paid for expenditure. Moreover, the balancing has been done at monthly basis. Therefore from the above, it is very clear that

27 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 the same document is created in support of confession statement taken during the course of search and hence the same cannot be considered as credible evidence to make huge additions towards unaccounted cash receipts. The Ld.AR further submitted that the cash book found during the course of search contains cash receipts from 03.07.2014 to 07.05.2016, but fact remains is that there was a huge flood in December 2015 in Chennai because of unseasoned rains and all books of accounts and documents of the assessee was washed away in the floods. The assessee has lodged police complaint on 27.12.2015 for which the jurisdictional Inspector of Police has issued a certificate stating that the assessee has lodged a complaint for lost books of accounts and other records due to flood. He further submitted that when the assessee has categorically stated that the documents and the books of accounts were lost up to December 2015, how a Search Party can found a single and isolated document which contains the entries of unaccounted cash receipts prior to the date of floods. Therefore from the above, it is very clear that the document found during the course of search was created by the Department to support the confession taken towards undisclosed income and hence the same cannot be considered as incriminating material found as a result of search.

28 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019

12.4 The Ld.AR for the assessee further referring to Circular issued by the CBDT vide Instruction No.286/2/2003 dated 10-03-2003 submitted that the CBDT has issued a circular directing all its field officers to not to take confession statement by coercion or pressure, but rather concentrate on collecting evidences in support of undisclosed income found during the course of search. In this case, except a dumb document being scribbling pad and a confession statement recorded U/s.132(4) of the Act, no other credible evidence with the Department to support its stand that the entries recorded in seized document reflects unrecorded cash receipts from various vendors and suppliers. The Ld.AR further submitted that although the AO has taken support from the fact that huge cash balance was recovered during the course of search and which was not tallied with book balance, but fact remains that the assessee has filed necessary evidences to prove that the cash balance found during the course of search was tallied with the book balance as on the date of search in various group companies and the same has been supported by cash book and Wealth Tax return filed for the relevant assessment years. The AO as well as the CIT(A) has ignored all the evidences filed by the assessee and made additions only on the basis of the statement

29 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 recorded during the course of search U/s.132(4) of the Act, and further taking note of seized document in the form of scribbling pad without appreciating the fact that the said document is a dumb document which cannot be considered as credible evidence to make additions. In this regard, he relied upon following case laws. 1) CIT vs. Shri Praveen Juneja, (2017) 99 CCH 0115 (Del HC) 2) ACIT vs. Layer Exports P. Ltd.,(2017) 53 ITR (Trib) 0416 (Mumbai). 3) ITO vs. Karan R.Shah in ITA 3652 & 4290/Mum/2015 4) Shree Ganesh Trading Co. vs. CIT, (2013) 257 CTR 0159 5) Kailashben Manharlal Chokshi vs. CIT, (2008) 328 ITR 411 6) CIT vs. P.V.Kalyanasundaram, (2007) 294 ITR 0049 7) Pullangode Rubber Produce Co. Ltd., vs. State of Kerala & ANR, (1973) 91 ITR 0018

12.5 The Ld.CIT-DR for the Revenue, on the other hand strongly supporting the order of the CIT(A) submitted that there is no merit in the arguments taken by the Ld.AR for the assessee in so far as additions towards unaccounted cash receipts on the basis of seized document being scribbling pad, because the said document was found during the course of search from the chamber of Shri P.Srikant,

30 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Purchase Manager of the assessee company and was written by Smt. Banusree, Accountant of assessee company which is evident from the fact that both have categorically accepted the fact that the said cash book was maintained at the direction of Shri Jayamurugan, Managing Director of the assessee company to record unaccounted cash receipts received from the vendors and suppliers. The Ld.DR further submitted that the document kept in the custody of the responsible person cannot be considered as dumb document, because three persons including the Managing Director of the assessee company were accepted the fact that the said document was maintained to record unaccounted transactions of the assessee outside the books of accounts. Further, it was very clearly kept on record in the seized notepad, how and from whom this cash was received and to whom and when it was dispersed to. Though the names of the suppliers and vendors as well as the recipients were not clearly revealed from the notings that is not material at this stage and this will be dealt in the later part of this submission. Thus from the readings of all the respective sworn statements of all the key employees of the company, it is lucidly established that an elaborate mechanism was set up by the assessee to inflate the expenditure and receive the proceeds in cash and keep an unaccounted record of all such cash, including the

31 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 source of receipt as well as the dispersal of such unaccounted cash, Thus the modus operandi in generating the unaccounted income thorough inflation of expenditure and receipt of such income through cash by the key employees is established clearly and beyond any doubt.

12.6. The DR further submitted that although the AR for the assessee taken an argument that cash withdrawn from bank of Rs.6.99 crore was also recorded in scribbling pad but failed to reconcile and explain during assessment proceedings and even before the ITAT how and when withdrawals of cash from the bank was not demonstrated cogently, linking each withdrawal from the banks with the entry in the seized notepad. Thus, the crucial facts were still not laid on the table. In so far as the arguments of the AR for referring the note book and handwriting for forensic examination, it was well established principles of law that without establishing a prima facie case of such alleged manipulation or doctrine of entries nor identifying the investigating officer who had allegedly got this entries written, this allegation and request is preposterous and does not survive. This argument was squarely rejected by the CIT(A) for its shallowness and hollowness vide his orders under Para 20.3. At the best, or the worst

32 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 as the case may be, this allegation has been raised with an ulterior motive of side tracking the contents and import of the seized notepad. Moreover, the statements u/s.132(4) of the Act recorded on 09.05.2016 from the cashier and the purchase manager were still intact and the assessee is unable to file any evidences to deny the admission made by two employees at the time of search that transactions recorded in seized document is unaccounted cash receipts received from various parties. He further submitted that although the Ld.AR for the assessee made a serious allegation of coercion and undue inference of the Search Party at the time of recording statement U/s.132 (4) of the Act, but said allegation was not substantiated with evidences. If at all the Search Partly has recorded statement by coercion or undue inference, the assessee was at liberty to lodge a complaint against the officer who used coercion to record statement. Unless the assessee proves the same with any evidences that the statement was recorded by coercion or undue inference, the allegation of the assessee cannot be accepted. The Ld.DR further submitted that the AO as well as the CIT(A) has appreciated the relevant facts in the light of various incriminating materials found during the course of search which was further supported by statement recorded from three persons and hence mere filing of retraction

33 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 statement with an affidavit cannot alter the facts prevailing at the time of search. No doubt, when a person give statement is at liberty to retract his statement but such retraction should come within a reasonable time and also the same should be supported by necessary evidences. Unless the person gives the statement come out with necessary evidences to disprove his confession, the Department can very much rely on the statement recorded during the course of search, because the statement made before the authorities at the time of search is an oath which cannot be simply discarded. The Ld.DR further submitted that although the assessee filed an FIR before the jurisdictional Police Officer for loss of books of accounts and records but on perusal of the certificate issued by the Police Officer, nothing is clear whether any documents or books of accounts was destroyed due to flood in the premises of the assessee. Further the additions made by the AO which was confirmed by the Ld.CIT(A) are not only based on the material found during the course of search, but it was further supported by the statement of the Shri S.N. Jayamurugan, Managing Director of the assessee company made during the course of search and also at the time of post-search investigation where once again he has admitted the fact that the entries contained in scribbling pad represents unaccounted cash receipts from various vendors and

34 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 suppliers. Although, the Managing Director of the company has filed subsequent affidavit retracting his earlier statements, but such statement has been filed after a gap of nine and half months that too without any supporting evidences to justify his claim that the earlier statement was given under duress, undue inference and stress. Therefore, there is no merit in the arguments taken by the Ld.AR for the assessee that the statement was recorded at the time of search cannot be considered as credible evidence to make addition. The Ld.DR referring to the findings of the Ld.CIT(A) submitted that the Ld.CIT(A) has narrated all arguments of the assessee in light of various judicial precedents and held that statement recorded during the course of search is an important evidence which can be relied upon to make additions unless the assessee rebut such statement with necessary evidences. The Ld.DR has also distinguished the case laws cited by the ld.AR including the decision of Hon’ble Supreme Court in the case of Pullungode Rubber Industries Ltd supra, and argued that the contents in incriminating materials were neither sufficiently rebutted nor proven unworthy of making additions. Unless the assessee sufficiently explain and prove that contents recorded in incriminating material is unworthy for making additions, the AO can very well rely on such statements and evidences. The similar stand of

35 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 the AO in similar circumstances was upheld by Hon’ble High Court of Madras in the case of S.Shamkumar [2018] 99 taxman.com (Madras) and the Hon’ble Punjab and Haryana High Court in the case of Bachitar Singh 328 ITR 400. Hence, the former part of Pullangode Rubber decision would not come in to play but the later part would empower the AO to consider and act upon the material seized. The Ld.CIT(A) after considering the relevant facts has rightly appreciated the evidence brought on record by the AO to confirm additions and hence there is no reason to deviate from the findings recorded by the CIT(A) and to give relief to the assessee.

12.7 We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. We have also carefully considered the plethora of judicial precedents cited by both the sides. The additions made by the AO towards unaccounted cash receipts from vendors and suppliers is solely on the basis of incriminating material found during the course of search being ‘scribbling pad’ further coupled with statement recorded during the course of search from Smt.Banusree, Cashier / Accountant, Shri P.Srikant, Purchase Manager and Shri S.N. Jayamurugan, Managing Director of the assessee company. Except these

36 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 documents, the AO has not brought on record any other evidence to support additions made towards unaccounted cash receipts as undisclosed income of the assessee. There is no dispute with regard to the fact that incriminating material was found during the course of search, but fact remains that whether the incriminating material found during the course of search being scribbling pad is sufficient enough to draw an adverse inference against the assessee to conclude that the information contained in the said incriminating material relates to undisclosed income of the assessee. No doubt, the assessee has initially admitted undisclosed income on the basis of the material found during the course of search. But subsequently the said statement has been retracted with written affidavit on the ground that the initial statement was recorded at odd hours of the late night which was given under mental pressure and disturbed state of mind and duress. The assessee further stated that although the Department has found cash which was not matched to book balance, but subsequently the assessee has filed a reconciliation statement along with necessary evidences to prove that cash balance found during the course of search was fully recorded in the books of accounts and also duly recorded in Wealth Tax return for the relevant assessment year. No doubt, statements recorded under various provisions of the Income

37 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Tax Act are a vital tool in the hands of the Income Tax Authorities in their thrust to establish certain factual and legal positions. Further, admission is an extremely important piece of evidence and it is admissible against its makers, but the fact remains is that the statement recorded during the course of search or survey is important piece of evidence if it is supported by corroborative evidence. In case, the contents recorded in the statement is not supported by corroborative evidences, solely on the basis of statement recorded during the course of search no adverse inference can be drawn against the assessee, more particularly when such statement has been retracted along with sworn affidavit on the ground that the same was given under mental pressure and disturbed state of mind. It is a well settled principle of law that admission is an extremely important piece of evidence, but it cannot be said that is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account did not correctly disclose the correct state of facts. This principle is supported by the decision of the Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co.Ltd., vs. State of Kerala & Anr supra. Similarly, the retraction should have evidence most probably being a statement not only

38 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 denying the earlier stated facts but explaining the reasons for making a statement earlier and giving substituted facts in support of retraction. Total denial of the stand stated in the previous statement cannot be said to be effective and at best, we deem merely as a plea of denial which may not be of much help. Further, retraction to be effective and credible should be intimated to the Income Tax Authorities at the earliest, when the matter was still alive. If retraction made after the lapse of considerable time then the same are liable to be rejected, because of possibility of afterthought and fabrication of evidence.

12.8. In this factual and legal background, if we examine the facts of present case, one has to see whether additions made by the AO towards unaccounted cash receipts received from various vendors and suppliers as recorded in seized incriminating document being scribbling pad is in fact the undisclosed income of the assessee or which is a dumb paper having no evidentiary value. Admittedly, incriminating material found during the course of search in the possession of an employee of the company does not bear the signature of the Managing Director of the assessee company. It is also an admitted fact that the said scribbling pad was written in pencil and balanced on monthly basis. Further, the said document contains cash

39 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 transactions of regular withdrawals from bank account of the assessee which was recorded in the books of accounts for the relevant period as well as some other cash entries of receipts and payments. According to the AO, the assessee has systematically recorded cash receipts from various vendors and payment of said cash to various parties for expenditure. The said finding has been arrived at on the basis of admission of the person who wrote the alleged undisclosed cash book and which was further supported by the admission of one Shri P. Srikanth, Purchase Manager and Shri S.N. Jayamurugan, Managing Director of the assessee company were in the initial statements, they have admitted to have received unaccounted cash from various parties and the same has been deployed for unaccounted expenditure. However, fact remains is that the earlier statement has been subsequently retracted by the parties and stated that the same has been recorded at odd hours in a confused state of mind and coercion. Therefore, it does not carry any evidentiary value. The assessee had also made an allegation that the said document was written on the same day at the direction of the Search Party, where they have forced the assessee to write cash book to support the confessional statement taken for undisclosed income. The assessee further stated that the alleged scribbling pad had neither any

40 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 vouchers nor invoices to support the transactions mentioned therein nor any details as to the payee or the nature of expenditure or source is mentioned therein. We have gone through the statement recorded from the assessee and alleged incriminating documents found during the course of search being ‘Sharp Notepad -4’. On perusal of the contents of the scribbling pad, we find that the said document has been written to record some cash receipts and to make some cash payments towards expenses. We further noted that the said cash receipts is a mixture of cash actually withdrawn from banks on various dates from regular bank account of the assessee and some other cash entries for which there is no reference of any source or party from whom cash has been received. Similarly, the purported payment claims to have been made for expenses are also no reference to any particular expenditure or person to whom said amount has been paid. Moreover the cash book has been balanced on monthly basis. From the above, one thing is very clear that the alleged scribbling pad was written in one go without any specific reference to the source of receipt of cash and nature of payment made to various persons. Although the AO has stated that the assessee received cash from various vendors and suppliers of materials but failed to bring on record any particular name from whom said cash has been received and also

41 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 the names and address of persons to whom said cash has been made. If at all the AO had details of name and address of suppliers and vendors from whom money has been received, then he would have cross verified the transactions with them to know the exact nature of receipts recorded in the impugned scribbling pad. There is no iota of any evidence on record to prove that the AO had made any attempt to corroborate the entries mentioned in alleged scribbling pad to the alleged names and address of suppliers and vendors. Similarly, although the AO had alleged that the said cash has been used for making expenditure, but failed to bring on record the nature of expenditure and the person to whom the said amount has been made. In the absence of any specific reference to the source of cash receipt and from whom cash has been received and also the nature of expenditure for which cash has been paid and the persons to whom said cash has been paid, it is very difficult to accept the contents of the scribbling pad as undisclosed income of the assessee outside the books of accounts. Moreover, it is highly incorrect to say that a person maintains parallel books of accounts to record unaccounted transactions would also include cash withdrawn from regular bank accounts and record the same along with undisclosed books of accounts. From the above, it is abundantly clear that the impugned

42 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 scribbling pad is part of the purported statement and declaration obtained by the Search Team to support the declaration taken towards undisclosed income for the period covered under search. It is a well settled principle of law that when dumb document like the present scribbling pad are recovered during the course of search and the Revenue wants to make use of it, the onus is on the Revenue to collect cogent evidences to corroborate the noting in alleged incriminating documents. In this case, the Revenue has failed to bring on record any cogent evidences to prove conclusively that the noting in the seized papers refer the unaccounted cash receipts of the assessee. Further no circumstantial evidences in the form of unaccounted assets and liabilities outside the books of accounts were found in the course of search. Although, the Department has seized cash of Rs.3,68,74,080/-, but the same was tallied with regular books of accounts maintained by the assessee along with other group companies and individuals for which the assessee has filed necessary evidences in the form of cash books along with the copies of Wealth Tax returns filed for the AY 2015-16 before the DDIT(Inv). We, therefore are of the considered view that only on the basis of cash seized during the course of search, it cannot be inferred that the assessee has received huge unaccounted cash from various parties

43 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 by inflation of expenditure and the same has been used to make unaccounted expenditure outside the books of accounts.

12.9. We further note another important aspect of the issue with regard to impugned scribbling pad. The purported cash book found during the course of search contains cash receipts from 03.07.2014 to 07.05.2016. In this regard the claim of the assessee is there was a huge flood in December 2015 in Chennai because of unseasoned rains and all books of accounts and documents of the assessee was washed away in the floods. The assessee has lodged police complaint on 27.12.2015 for which the jurisdictional Inspector of Police has issued a certificate stating that the assessee has lodged a complaint for lost books of accounts and other records due to flood. He further submitted that when the assessee has categorically stated that the documents and the books of accounts were lost up to December 2015, how a Search Party can found a single and isolated document which contains the entries of unaccounted cash receipts prior to the date of floods. We find merits in arguments of the assessee that when all books of accounts prior to floods are destroyed in floods, how a single book which pertains to period before floods can be found in the office of the assessee. Therefore from the above, it is

44 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 very clear that the document found during the course of search was created by the Department to support the confession taken towards undisclosed income and hence the same cannot be considered as incriminating material found as a result of search which can be used against the assessee. We, further are of the considered view that the impugned additions made by the AO on the basis of incriminating material being scribbling pad named ‘Sharp NotePad-4’ is an inadequate material or rather no material at all and as such deserves to be ignored. Further, it is a settled position of law that statement recorded U/s.132(4) of the Act is an important piece of evidence but reliability depends upon the facts of the case and particularly surrounding circumstances and in this case, the lower authorities reached to the conclusion on the basis of assumption resulting into fastening on the liability of the assessee on the basis of inadequate material coupled with statement recorded during the course of search. No doubt, statement of oath recorded U/s.132(4) of the Act is a piece of evidence, when there is incriminating material supporting the said admission. In the absence of any corroborative evidence, merely on the basis of admission in statement recorded U/s.132(4) of the Act, no liability can be fastened on the assessee. The AO has not brought on record any material and reasons for rejection of assessee’s contention

45 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 by which the assessee has retracted from his admission. None of the authorities gave any reason as to why the AO did not proceed further to enquire into the unaccounted income as admitted by the assessee in the statement U/s.132(4) of the Act. This fact was also not taken care of and considered that in a case where there was a search operation, no assets or cash was recovered from the assessee in that situation which had permitted the assessee to make declaration of undisclosed income of Rs.31 Crores for 3 assessment years. This principle is supported by the decision of the Hon’ble Jharkand High Court in the case of M/s. Shree Ganesh Trading Co. vs. CIT, (2013) 257 CTR 0159. The Hon’ble Gujarat High Court in the case of Kailashben Manharlal Chokshi vs. CIT, supra had considered an identical issue and held that statement recorded at odd hours cannot be considered to be voluntary statement, if it is subsequently retracted and necessary evidence is laid contrary to said admission and therefore admission on the basis of retracted statement U/s.132(4) of the Act was not called for. The Hon’ble Supreme Court in the case of CIT vs. P.V.Kalyanasundaram, supra held that question as to what is the actual sale price of the property, the implication of the contradictory statements made by the seller and whether reliance could be placed on the loose sheets recovered in the course of search

46 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 are all questions of fact and not substantial questions of law. The ITAT, Mumbai in the case of ACIT vs. Layer Exports Pvt. Ltd., [2017] 531 ITR (Trib) 0416 (Mumbai) had considered a similar issue in the light of loose papers found during the course of search and after considering relevant facts held that no addition could be made simply on the basis of uncorroborated noting in loose papers found during search because addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, was unsustainable and bad in law.

12.10. In this case, on perusal of facts available on record, we are of the considered view that the additions made by the AO towards unaccounted cash receipts from vendors and suppliers recorded in alleged scribbling pad is not based on any cogent evidence or supported by any unaccounted assets and investments unearthed during the course of search, but solely on the basis of assumptions and presumptions. Further, suspicion however strong cannot take place of evidences which can be used against the assessee, when particularly the assessee has retracted his statement along with sworn affidavit and explained the reasons for giving admission at the time of

47 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 search. This principle is supported by the decision of Hon’ble Supreme Court in the case of Umacharan Shaw & Bros vs. CIT(1959) 37 ITR 271(SC). Further, the assessee has brought on record various reasons to prove that the alleged scribbling pad is part of purported statement and declaration obtained by the search team during the course of search, but it is not a cash book maintained by the assessee to record unaccounted cash received from various vendors and parties for inflation of expenditure to make various payments for expenditure. Had it been the case of the AO that the alleged scribbling pad and its contents was tested by cross examining the parties as stated by the AO in his assessment order, then obviously it would give raise to an occasion to the AO to rely on said documents to make additions. In this case, the AO has not made any effort to verify the entries recorded in the scribbling pad by making further enquiries and cross examining the alleged persons or suppliers named in the said incriminating document. Further, on perusal of incriminating documents found during the course of search, we find that nothing was emanating regarding name and address of persons from whom said amount was received and the nature of expenditure for which said amount was paid. In absence of any effort from the AO by way of further enquiries, merely on the basis of a dumb paper coupled with

48 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 statement recorded during the course of search, additions made towards undisclosed income cannot be sustained, more particularly when said statement has no longer in operation.

12.11 As regards the argument of the Ld.DR that although Shri S.N. Jayamurugan, Managing Director had retracted his statement, but other two statements recorded during the course of search is still in force and the persons who gave the statements have never retracted from the earlier statement recorded during the course of search, we find that when a statement was recorded from employee of assessee which was further vetted by the Managing Director, then the earlier statement given by the employees are merged with the subsequent statement of a Managing Director, because the person in charge of the affairs of the company is always Managing Director, who is having knowledge of affairs of the company. Therefore even though the employees statement were not retracted, the same cannot be considered as an evidence which can be used against the assessee when the Managing Director of the assessee company has retracted his statement along with sworn affidavit explaining the reasons. Therefore, the arguments that the other two statements are sufficient

49 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 enough to draw an adverse inference against the assessee cannot be accepted.

12.12. The CIT(A) without appreciating these facts has simply confirmed additions made by the AO towards undisclosed income on the basis of scribbling pad found during search. We, therefore for above reasons reverse the findings of the Ld. CIT(A) and direct the AO to delete additions made towards undisclosed income on the basis of scribbling pad for the asst. years 2014-15 to 2017-18.

50 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 obtained. The assessee has not capitalized the total amount incurred for setting up the new breweries project, because the total plant was not ready for use. The AO has disallowed deduction claimed U/s.32AC of the Act, on the ground that the assessee has not capitalized the amount spent for establishment of new manufacturing facility at Andhra because the same was not ready for use. The AO has also taken support from the fact that the assessee has shown the amount incurred for setting up new plant and machinery under the head capital work-in-progress pending capitalization.

13.1 The Ld.AR for the assessee submitted that the Ld.AO as well as the Ld.CIT(A) were erred in disallowing deduction claimed towards investment in new plant and machinery without appreciating the fact that as per provisions of Section 32AC of the Act, once a plant and machinery was installed on or before the specified date then there is no requirement of put to use said plant and machinery as required under the provisions of Section 32 of the Act for claiming the benefit of deduction. The Ld.AR further referred to the provisions of Section 32 and 32AC of the Act and submitted that unlike Section 32, there is no requirement of put to use said plant and machinery U/s.32AC of the Act, in order to claim the benefit of additional allowances but what is

51 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 required to be seen is whether the assessee company is engaged in the business of manufacturing or production of any article or thing and further the assessee had acquired and installed new plant and machinery as specified in said section. In this case, there is no dispute with regard to entitlement of the assessee for the benefit because the AO had not disputed the amount of plant and machinery acquired and installed, but the AO has denied the benefit only for the reason that the said plant and machinery was not put to use without appreciating the fact that there is no requirement of put to use said plant and machinery for availing the benefit of additional allowances.

13.2 The Ld.DR submitted that there is no merit in arguments of the assessee for the reason that facts brought out by the lower authorities clearly indicate that the plant and machinery acquired and installed in new manufacturing facility is not complete which is evident from the fact that the assessee has kept the amount spent towards new manufacturing facility under the head capital work-in-progress pending capitalization. From the above, it is very clear that the plant and machinery acquired and installed is not ready for use and put to use to claim the benefit of additional allowances as per Section 32AC of the Act. The Ld.DR further submitted that the term installation really

52 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 means the plant and machinery is ready for use. Unless the plant and machinery is ready for use and put to use, the benefit of additional deduction cannot be allowed. The Ld.DR further submitted that the language used in the provisions of Section 32AC are seen without giving any interpretation skills, then the words used are acquired and installed, imply that not only acquiring, the same shall be installed. The word ‘install’ is defined in English language as ready for us. In this case, the cost of eligible machinery was clearly shown as work in progress, implying that the same is not yet installed. Thus, the cumulative clause acquired and installed is not completely fulfilled. The AO as well as the Ld.CIT(A) having considered relevant facts rightly disallowed the claim of deduction u/s.32AC of the Act. In this regard, he relied upon the decision of Hon’ble Bombay High Court in the case of Wittle Anderson vs. CIT [1971] 79 ITR 630, where the court laid down that when the machinery was kept in working condition and ready for use, the machinery was entitled for depreciation. Similarly, he relied upon the decision of Hon’ble Madras High Court in the case of CIT vs. Maps Tours and Travels [2008] TMI 12123 Madras and argued that the High Court has request to grant depreciation on cars purchased but not registered for flying on the road.

53 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 13.3 We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The provisions of Section 32AC of the Act, deals with a situation “where an assessee being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired and installed during any previous year exceeds twenty-five crore rupees, and said assets are installed on or before 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year.” A plain reading of Section 32AC of the Act, makes it clear that in order to get the benefit of additional 15% deduction, the assessee needs to acquire and install new assets of specified amount and such assets are required to be installed on or before specified date. In this case, there is no dispute with regard to the amount spent for acquiring new plant and machinery which is more than amount specified under section 32AC of the Act. In fact, the assessee had acquired plant and machinery of Rs.32,15,77,537/- which is more than the prescribed limit U/s.32AC of the Act. Further, there is no dispute with regard to the period under which said plant and machinery are required to be

54 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 installed. In fact, the AO has admitted very clearly that the assessee has acquired new assets over and above the prescribed limit and such assets are installed on or before the said specified date. Once, there is no dispute with regard to the amount incurred in acquiring new assets and such assets are installed on or before specified date, then the requirement of the particular asset, ready for use or put to use is not required at all. Unlike the provisions of Section 32 of the Act, where the assessee requires to install and put to use the asset in order to claim depreciation, under the provisions of Section 32AC of the Act, there is no such requirement of put to use the asset during the particular period to claim the benefit. What is required is acquiring and installing new assets above the specified limit and within the specified date. Once an asset is acquired and installed within the specified date then the assessee is entitled for additional allowances as prescribed U/s.32AC of the Act. Moreover, when the assessee is in the business of manufacturing a particular product and such process requires a continuous process plant which involves installation of different plant and machinery and some other process then, obviously unless the complete plant is ready for use, the assessee could not put to use the particular plant and machinery for the purpose of manufacturing. In this case, the assessee has

55 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 explained the process of manufacturing brewery as per which it is a continuous process plant where various stages of processing needs to be carried out for which different plant and machineries are required to be installed including malting, kilning, mailing, mashing, boiling of wort hops and fermentation and all these process requires different stages of setting up and construction. In so far as plant and machinery, the assessee has acquired and installed the plant and machinery which is above the prescribed limit and such plant and machinery has been installed within the prescribed date provided U/s.32AC of the Act. Merely for the reason that the plant is not ready for use, the amount spent for acquiring and installing plant and machinery, the benefit of additional allowance provided under said section cannot be denied more particularly when the provision is a beneficial provision which needs to be liberally considered. In this case, on perusal of facts, the assessee has fulfilled all terms and conditions to get the benefit of additional deduction and said deduction is available for the impugned assessment year alone. In case, the assessee did not avail the deduction for the impugned assessment year, then it cannot claim the deduction for subsequent assessment year. In so far as case laws relied upon by the Ld. DR, we are of the considered view that those case laws are in connection with claim of depreciation u/s 32 of the

56 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019 Act, and the word used under section 32 and 32AC are different and further under section 32AC of the Act, only requirement is acquire and installation of plant and machinery, and there is no requirement of put to use such plant and machinery. Therefore, we are of the considered view that the AO as well as the CIT(A) were erred in not allowing the additional allowances claimed by the assessee U/s.32AC of the Act and hence, we direct the AO to delete the additions made towards disallowance of deduction claimed U/s.32AC of the Act.

Order pronounced on 4th November, 2020 at Chennai.

Sd/- Sd/- ( जी. मंजुनाथ ) (धु�वु� आर एल रे�डी) (Duvvuru R.L Reddy) (G. Manjunatha) लेखा सद�य /Accountant Member �याियक सद�य/Judicial Member

चे�ई/Chennai, �दनांक/Dated 4th November, 2020

57 ITA Nos.2703 to 2705, 2194, 2195 & 2993/Chny/2019

RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. िनधा�रती/Assessee 2. राज�व/Revenue 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF