DCIT, MANGALORE vs. M/S DELTA INFRALOGISTICS WORLDWIDE LTD, MANGALORE

Per Bench

These are appeals by the assessee for Assessment Years 2003-04 to 2008-09 and cross appeals by Revenue for Assessment Years 2004-05 to 2008-09, directed against separate orders of the CIT(A)-VI, Bangalore, all dated 27.03.2012. Since common issues are involved in all these appeals, they were heard together and we deem it appropriate to dispose them off by way of this consolidated order.

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2.1 The assessee is a company carrying on the business of clearing and forwarding agents and custom house agents at Mangalore. A search and seizure action under section 132 of the Income Tax Act, 1961 (in short ‘the Act’) was conducted at the premises of the assessee on 17.01.2008. Survey under section 133A of the Act was also conducted at the port premises of the assessee. In the course of the search, certain documents were found and seized; based on which the Managing Director of the assessee company was examined and he admitted and agreed to offer to tax undisclosed income of Rs.1,74,72,000/-; comprising of Rs.39,72,000/- for Assessment Year 2005-06 and Rs.1,35,00,000/- for Assessment Year 2007-08. Subsequently, the assessee retracted the aforesaid admission / declaration of undisclosed income vide letter dated 15.04.2008, filed before the ADIT (Inv.), Mangalore.

2.2 After the conclusion of search operations, the Assessing Officer (AO) initiated assessment proceedings under section 153A of the Act for Assessment Years 2002-03 to 2007-08. Along with these assessment proceedings under section 153A of the Act, the AO also took up assessment proceedings for Assessment Year 2008-09. In the orders of assessment passed under section 153A r.w.s. 143(3) of the Act for Assessment Years 2002-03 to 2007-08 and the order of assessment passed under section 143(3) of the Act for Assessment Year 2008- 09, all dated 04.12.2009, the AO made additions / disallowances towards unexplained investments based on material found in the course of search; unexplained expenditure based on a ledger of M/s. Indian Shipping Agencies Pvt. Ltd., found during the course of search; besides addition in respect of machinery hire charges held to be unaccounted. In these orders of assessment, the AO also

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disallowed expenses claimed under tipper mamool, labour charges paid as speed money and disallowance under section 40(a)(ia) of the Act.

2.3 Aggrieved by the orders of assessment passed for Assessment Years 2002-03 to 2008-09 dated 04.12.2009, the assessee filed appeals before the CIT(A)-VI, Bangalore. The CIT(A), while disposing off these appeals by way of separate orders dated 27.03.2012, allowed the assessee partial relief by entirely deleting the disallowance made in respect of speed money; disallowance made under section 40(a)(ia) of the Act; and the additions made towards unexplained expenditure based on the seized ledger of M/s. Indian Shipping Agencies Pvt. Ltd. The CIT(A) confirmed / upheld the additions made in respect of unexplained investment, as well as machinery hire charges; and allowed partial relief in respect of disallowance made under the head tipper mamool.

3.1 Being aggrieved by the orders of CIT(A)-VI, Bangalore dated 27.03.2012 in the case on hand, the assessee has filed appeals for Assessment Years 2003-04 to 2008-09 and Revenue has preferred cross appeals for Assessment Years 2004-05 to 2008-09. We have heard and considered the submissions put forth by the learned AR for the assessee and the standing counsel for Revenue. We have also carefully perused the material placed before us by the learned AR (page 1 to 323), the list of citations, synopsis, written submissions; as well as the paper book filed by Revenue (pages 1 to 70) comprising written submissions, opinions of standing counsel and citations. We now proceed to dispose off these appeals by grouping all common issues raised by the assessee and Revenue in their respective appeals hereunder.

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Assessee’s appeals in ITA Nos. 771 to 776/Bang/2012 for Assessment Years 2003-04 to 2008-09

4.1 The grounds raised in the assessee’s appeals before the Tribunal, Assessment Year wise are extracted hereunder:

Assessment Year 2003-04

(i) That the search initiated in the case of the appellant is illegal and ultra vires the provisions of Section 132[1][a], [b] and [c] of the Act; (ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action u/s.132[1] is bad in law [224 ITR 19 (SC)] and consequent assessment U/S.153A is

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null and void-ab-initio on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80 (iii) That the warrant issued in the joint names of the persons said to have been specified in the warrant is bad in law to initiate search in the individual cases of the several persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants; (iv) That the search is also bad in law in that separate lists of the items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the I.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the appellant, if the search were to have been considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant; (v) That the assessment is also bad in law since the warrant is in the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/B01 to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 Et 6006/2010, which is binding on the authorities below (vi) The learned A.O. has not discharged the burden of proving that there is a valid initiation of the search u/s.132[1][a], [b] Et [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the

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Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. 3. The authorities below are not justified in denying the appellant the copy of the warrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled. 4. The learned A.O. has erred in law in holding the appellant is not entitled to question the validity of the search in the course of the assessment proceedings and 'vied to appreciate that the search proceedings u/s.132 are in aid of ultimate assessment and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment. The learned A.O. failed to appreciate that a valid search is a sine 5. qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. The finding of the learned A.O. that the validity of search could not 6. be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled. Without prejudice to the right to seek waiver with the Hon'ble 7. CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. For the above and other grounds that may be urged at the time of 8. hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs

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in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

Assessment Year 2004-05

The orders of the authorities below in so far as they are against 1. the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] is not justified under the facts and 2. circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs. 3,22,500/- as unexplained investment in the purchase of property from Sri Ajith Kumar Rai relying on the erroneous initial declaration u/s.132[4] of the Act, made by Sri Mohiuddin, which has been explained by Sri Mohiuddin as incorrect subsequently that no such payment has been made, which has been substantiated by the examination of Sri Ajith Kumar Rai by the learned A.O. himself at the back of the appellant and thus the addition is on the erroneous appreciation of facts and purely on suspicion and surmise and consequently deserves to be deleted. The learned CIT[A] is not justified under the facts and 3. circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.1,14,172/- as difference in credit balance under the facts and in the circumstances of the appellant's case and the same is not arising out of any seized materials and further the difference is due to error in accounting requiring rectification and not addition and consequently, the addition sustained requires to be deleted. 3. The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.34,902/- as against a sum of Rs.11,52,004/- made by the A.O. as bogus sundry creditors under the facts and in the circumstances of the appellant's case and the same is not arising, out of any seized materials and further the difference is due to error in accounting requiring rectification and not addition and consequently, the addition sustained by the learned CIT[A] requires to be deleted. 4.1 The addition is purely on suspicion and surmise, assumptions and presumptions and in the absence any shred of evidence that the liability ceased to exist and the A.O. has not discharged the burden of proving

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the cessation of liability or to disprove the existence of the liability to make the addition of the trading liability. 5. The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.2,00,000/- as against a sum of Rs.21,93,623/- made by the A.O. under explanation to section 37[1] in respect of tipper mamools as these expenses are not in the nature of bribes and are in the nature of customary mamools payable to the crew of the trucks, who bring cargo for loading or unloading from the ships in the port yard. 5.1 The disallowance sustained is only out of suspicion and surmise, assumptions and presumptions, without an iota of evidence and requires to be deleted. Grounds urged and not pressed before CIT[A] and again urged before the Hon'ble ITAT as additional grounds and application for their admission as additional grounds is separately filed. 6. The appellant denies itself liable to be assessed u/s.153A rws 143[3] of the Act under the impugned order on the ground - That the search initiated in the case of the appellant is illegal and ultra (i) vires the provisions of Section 132[1][a], [b] and [c] of the Act; That the search is conducted not on the basis of any prior (ii) information or material inducing any belief but purely on the suspicion and therefore, the action u/s.132[1] is bad in law [224 ITR 19 (SC)] and consequent assessment U/S.153A is null and void-ab-initio on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. That the warrant issued in the joint names of the persons said (iii) to have been specified in the warrant is bad in law to initiate search in the individual cases of the several persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants; That the search is also bad in law in that separate lists of the (iv) items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the I.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the appellant, if the search were to have been

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considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant; That the assessment is also bad in law since the warrant is in (v) the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/BOI to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 Et 6006/2010, which is binding on the authorities below. The learned A.O. has not discharged the burden of proving (vi) that there is a valid initiation of the search u/s.132[1][a], [b] Et [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. 7. The authorities below are not justified in denying the appellant the copy of the warrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled.

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justifiable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment. 9. The learned AO failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon’ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. The finding of the learned A.O. that the validity of search could 10. not be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled. Without prejudice to the right to seek waiver with the Hon'ble 11. CCIT/DG, the appellant denies itself liable to be charged to interest u/s.234A, 234B and 234D of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. For the above and other grounds that may be urged at the time of 12. hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

Assessment Year 2005-06 The orders of the authorities below in so far as they are against 1. the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] is not justified under the facts and 2. circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.3,50,000/- as against a sum of Rs.35,09,286/- made by the A.O. under explanation to section 37[1] in respect of tipper mamools as these expenses are not i i the nature of bribes and are in the nature of customary mamools payable to the crew of the trucks, who bring cargo for loading or unloading from the ships in the port yard. 2.1 The disallowance sustained is only out of suspicion and surmise, assumptions and presumptions, without an iota of evidence and requires to be deleted. Grounds urged and not pressed before CIT[A] and again urged before the Hon'ble ITAT as additional grounds and application for their admission as additional grounds is separately filed.

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The appellant denies itself liable to be assessed u/s.153A rws 143[3] of the 3. Act under the impugned order on the ground - That the search initiated in the case of the appellant is illegal and ultra (i) vires the provisions of Section 132[1][a], [b] and [c] of the Act; That the search is conducted not on the basis of any prior (ii) information or material inducing any belief but purely on the suspicion and therefore, the action u/s.132[1] is bad in law [224 ITR 19 (SC)] and consequent assessment U/S.153A is null and void-ab-initio on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. That the warrant issued in the joint names of the persons said (iii) to have been specified in the warrant is bad in law to initiate search in the individual cases of the several persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants; That the search is also bad in law in that separate lists of the (iv) items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the I.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the appellant, if the search were to have been considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant; That the assessment is also bad in law since the warrant is in the (v) joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/B01 to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 & 6006/2010, which is binding on the authorities below

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The learned A.O. has not discharged the burden of proving (vi) that there is a valid initiation of the search u/s.132[1][a], [b] ft [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. 4. The authorities below are not justified in denying the appellant the copy of the arrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled. 5. The learned A.O. has erred in law in holding the appellant is not entitled to question the validity of the search in the course of the assessment proceedings and failed to appreciate that the search proceedings u/s.132 are in aid of ultimate assessment and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment. 6. The learned A.O. failed to appreciate that a valid search is a sine qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. 7. The finding of the learned A.O. that the validity of search could not be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled. 8. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.234A and 234B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal

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may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

Assessment Year 2006-07 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.3,00,000/- as against a sum of Rs.29,03,062/- made by the A.O. under explanation to section 37[1] in respect of tipper mamools as these expenses are not in the nature of bribes and are in the nature of customary mamools payable to the crew of the trucks, who bring cargo for loading or unloading from the ships in the port yard. 2.1 The disallowance sustained is only out of suspicion and surmise, assumptions and presumptions, without an iota of evidence and requires to be deleted. Grounds urged and not pressed before CITrA1 and again urged before the Hon'ble ITAT as additional grounds and application for their admission as additional grounds is separately filed.

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persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants; That the search is also bad in law in that separate lists (iv) of the items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the 1.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the appellant, if the search were to have been considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant; That the assessment is also bad in law since the warrant (v) is in the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/B01 to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon ible Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 a 6006/2010, which is binding on the authorities below The learned A.O. has not discharged the burden of (vi) proving that there is a valid initiation of the search u/s.132[1][a], [b] a [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. 4. The authorities below are not justified in denying the appellant the copy of the arrant and the materials inducing the belief in the existence of

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the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled. 5. The learned A.O. has erred in law in holding the appellant is not entitled to question the validity of the search in the course of the assessment proceedings and failed to appreciate that the search proceedings u/s.132 are in aid of ultimate assessment and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment. 6. The learned A.O. failed to appreciate that a valid search is a sine qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. 7. The finding of the learned A.O. that the validity of search could not be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled. 8. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.234A, 234B and 234D of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. Assessment Year 2007-08 The orders of the authorities below in so far as they are against the 1. appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.7,50,000/- as against a sum of Rs.76,20,956/- made

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by the A.O. under explanation to section 37[1] in respect of tipper mamools as these expenses are not in the nature of bribes and are in the nature of customary mamools payable to the crew of the trucks, who bring cargo for loading or unloading from the ships in the port yard. 2.1 The disallowance sustained is only out of suspicion and surmise, assumptions and presumptions, without an iota of evidence and requires to be deleted. 3.1 The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.18,70,440/- as unaccounted machinery hire receipts under the facts and in the circumstances of the appellant's case. 3.2 The addition made is purely on suspicion and surmise, assumptions and presumptions and contrary to the evidence and legal presumptions u/s.292C of the Act. 3.3 Without prejudice to the above, the addition made is excessive and liable to be reduced substantially. Grounds urged and not pressed before CITIA] and again urged before the Hon'ble ITAT as additional grounds and application for their admission as additional grounds is separately filed.

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That the search is also bad in law in that separate lists of the (iv) items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the 1.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the appellant, if the search were to have been considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant; That the assessment is also bad in law since the warrant is in (v) the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/B01 to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 & 6006/2010, which is binding on the authorities below. The learned A.O. has not discharged the burden of (vi) proving that there is a valid initiation of the search u/s.132[1][a], [b] Et [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. The authorities below are not justified in denying the appellant the 5. copy of the warrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled.

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The learned A.O. has erred in law in holding the appellant is not 6. entitled to question the validity of the search in the course of the assessment proceedings and failed to appreciate that the search proceedings u/s.132 are in aid of ultimate assessment and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment. The learned A.O. failed to appreciate that a valid search is a sine 7. qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80. The finding of the learned A.O. that the validity of search could 8. not be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, 9. the 33pellant denies itself liable to be charged to interest u/s.234A, 234B and 234D of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. For the above and other grounds that may be urged at the time of 10. hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

Assessment Year 2008-09

The orders of the authorities below in so far as they are against 1. the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] is not justified under the facts and 2. circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.21,00,000/- as against a sum of Rs.1,11,47,498/- made by the A.O. under explanation to section 37[1] in respect of tipper mamools as these expenses are not in the nature of bribes and are in

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the nature of customary mamools payable to the crew of the trucks, who bring cargo for loading or unloading from the ships in the port yard. 2.1 The disallowance sustained is only out of suspicion and surmise, assumptions and presumptions, without an iota of evidence and requires to be deleted. 3.1 The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.32,15,032/- as unaccounted machinery hire receipts under the facts and in the circumstances of the appellant's case. 3.2 The addition made is purely on suspicion and surmise, assumptions and presumptions and contrary to the evidence and legal presumptions u/s.292C of the Act. 3.3 Without prejudice to the above, the addition made is excessive and liable to be reduced substantially. 4 The learned CIT[A] is not justified under the facts and circumstances of the appellant as set out in Annexure-1 annexed, in sustaining a sum of Rs.40,00,000/- as unexplained investment in the property u/s.69B of the Act under the facts and in the circumstances of the appellant's case. The addition made is on the erroneous appreciation of facts and purely on suspicion and surmise, assumptions and presumptions and contrary to evidence and consequently deserves to be deleted. Without prejudice to the right to seek waiver with the Hon'ble 5. CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. For the above and other grounds that may be urged at the time of 6. hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

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Revenue’s Appeals in ITA Nos. 818 to 822/Bang/2012 for Assessment Years 2004-05 to 2008-09

4.2 The grounds raised in Revenue’s appeals before the Tribunal in these Assessment Years are extracted hereunder:

Assessment Year 2004-05 1.1 The Ld. C.I.T. (Appeals) erred in deleting the speed money amounting to Rs. 45,00,000 through port laborers. 1.2 The Ld. C.I.T. (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency. 1.3 The Ld. C.I.T.(Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules. 1.4 The Ld. C.I.T. (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s. Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle. 1.5 The Ld. C.I.T. (Appeals) failed to appreciate the fact that in the case Sri Maddi Venkataraman and Co. (P) Ltd. v. CIT reported in 229 ITR 534(1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed. 2. The Ld.CIT(A) erred in law in deleting the disallowance of Rs.19,93,623/-made u/s.37(1) of the I.T.Act as the expenditure incurred towards tipper mamool by the assessee was prohibited by law and opposed to public policy. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the addition made as unexplained expenditure of Rs. 1,66,02,075.

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For these and such other grounds that may be urged at the time of 4. hearing the orders of Ld. C.I.T (A) may be set aside and that of assessing officer may be restored. Assessment Year 2005-06

1.1 The Ld. C.I.T (Appeals) erred in deleting the speed money amounting to Rs. 76,74,539/- through sub contractors and Rs. 1,25,00,000/- through port laborers. 1.2 The Ld. C.I.T (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency. 1.3 The Ld. C.I.T (Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules. 1.4 The Ld. C.I.T (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle. 1.5 The Ld. C.I.T (Appeals) failed to appreciate the fact the in the case Sri Maddi Venkataraman and Co. (p) Ltd. v. CIT reported in 229 ITR 534 (1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed.

The Ld.CIT(A) erred in law in deleting the disallowance of 2. Rs. 31,59,286/- made u/s. 37(1) of the I.T.Act as the expenditure incurred towards tipper mamool by the assessee was prohibited by law and opposed to public policy. That on the facts and circumstances of the case and in law, the Ld. 3. CIT(Appeals) erred in deleting the addition made as unexplained expenditure of Rs. 59,67,500/-. For these and such other grounds that may be urged at the time of 4. hearing the orders of Ld. CIT(A) may be set aside and that of assessing officer may be restored.

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Assessment Year 2006-07

1.1 The Ld. C.I.T. (Appeals) erred in deleting the speed money amounting to Rs 4,67,17,395/-.

1.2 The Ld. C.I.T. (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency.

1.3 The Ld. C.I.T.(Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules.

1.4 The Ld. C.I.T. (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s. Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle.

1.5 The Ld. C.I.T. (Appeals) failed to appreciate the fact that in the case Sri Maddi Venkataraman and Co. (P) Ltd. v. CIT reported in 229 ITR 534(1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed.

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Assessment Year 2007-08

1.1 The Ld. C.I.T. (Appeals) erred in deleting the speed money amounting to Rs 5,79,88,098/-. 1.2 The Ld. C.I.T. (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency. 1.3 The Ld. C.I.T.(Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules. 1.4 The Ld. C.I.T. (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s. Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle. 1.5 The Ld. C.I.T. (Appeals) failed to appreciate the fact that in the case Sri Maddi Venkataraman and Co. (P) Ltd. v. CIT reported in 229 ITR 534(1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed. 2. The Ld.CIT(Appeals) failed appreciate the fact that the declaration made by the assessee Rs. 1,35,00,000 u/s 132(4) of the I T Act was voluntary and binding on the assessee. The Ld.CIT(Appeals) is erred by linking the speed money issue to the voluntary declaration made by the assessee during the search. 3. The Ld.CIT(Appeals) has made factual error by stating that Rs. 40,79,000 added protectively as unexplained investment of the assessee has been substantially confirmed by the CIT(A) in the case of Shri Mohiuddin. But fact is that in the case of shri Mohiuddin also, same income is added protectively. The 0T(A) in the case of Shri Mohiuddin has dismissed his appeal but not stated that the same has to be substantially assessed in his hands.(The income is substantially assessed

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in the hands of Smt.Shahnaz Mohiuddin and her appeal is pending before CIT(A)-V1,Bangalore.) 4. The Ld.CIT(A) erred in law in deleting the disallowance of expenses Rs.3,10,000/- made u/s.40(a)(ia) of the I.T.Act. 5. The Ld.CIT(A) erred in law in deleting the disallowance of Rs.68,70,956/-made u/s.37(1) of the I.T.Act as the expenditure incurred towards tipper mamool by the assessee was prohibited by law and opposed to public policy. 6. That on the facts and circumstances of the case and in law, the Ld. OT(Appeals) erred in deleting the addition made as unexplained expenditure of Rs. 3,22,000. 7. For these and such other grounds that may be urged at the time of hearing the orders of Ld. C.I.T (A) may be set aside and that of assessing officer may be restored. Assessment Year 2008-09

1.1 The Ld. C.I.T. (Appeals) erred in deleting the speed money amounting to Rs 4,77,52,116/- through sub contractors and Rs.1,40,00,000 through port laborers. 1.2 The Ld. C.I.T. (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency. 1.3 The Ld. C.I.T.(Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules. 1.4 The Ld. C.I.T. (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s. Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle. 1.5 The Ld. C.I.T. (Appeals) failed to appreciate the fact that in the case Sri Maddi Venkataraman and Co. (P) Ltd. v. CIT reported in 229 ITR 534(1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed.

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Ground Nos.3 to 6 and Additional Grounds for Assessment Year 2003-04 Assessee’s appeals Ground Nos. 6 to 10 and Additional Grounds for Assessment Year 2004-05 Ground Nos. 3 to 7 and Additional Grounds for Assessment Year 2005-06 Ground Nos. 3 to 7 and Additional Grounds for Assessment Year 2006-07 Ground Nos. 4 to 8 and Additional Grounds for Assessment Year 2007-08

5.1 At the outset of the hearings, the learned AR for the assessee submitted at the Bar before the Bench that the assessee is not pressing ground Nos. 3 to 6 and additional grounds raised in its appeal for Assessment Year 2003-04; Ground Nos. 6 to 10 and Additional Grounds raised in its appeal for Assessment Year 2004-05; ground nos. 3 to 7 and additional grounds raised in its appeals for Assessment Years 2005-06 and 2006-07 and ground Nos. 4 to 8 and additional grounds for Assessment Year 2007-08. In view of the assessee not pressing the aforesaid grounds in these appeals, the same are dismissed as not pressed.

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Assessee’s appeals – charging of interest under section 234A, 234B and 234C of the Act

Ground No. 7 for Assessment Year 2003-04 Ground No. 11 for Assessment Year 2004-05 Ground No.8 for Assessment Years 2005-06 and 2006-07 Ground No.9 for Assessment Years 2007-08 and 2008-09

In the above grounds for the above Assessment Year (supra), the assessee denies itself liable to be charged interest under section 234A, 234B, 234C of the Act, as the case may be for the relevant Assessment Years. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and we therefore uphold the action of the AO in charging the aforesaid interest. The AO is, however, directed to recompute the interest chargeable under section 234A, 234B and 234C of the Act, if any, while giving effect to this order for the concerned Assessment Year.

7.1 In this ground No. 2 (supra) for Assessment Years 2003-04 and 2004-05, the assessee contends that the additions of Rs.7,50,000/- and Rs.3,22,500/- made as unexplained investment in immovable properties under section 69B of the Act for these two Assessment Years is unwarranted and unjustified. In support of the ground, the learned AR has put forth the following written submissions:

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“8. UNEXPLAINED INVESTMENT IN PROPERTY - AJIT KUMAR RAI [AY 2003-04 & 2004-05]: [a] The additions made on this count are Rs. 7,50,000/- for AY 2003- 04 Et Rs. 3,22,500/- for AY 2004-05. In course of search a ledger of Indian Shipping Agency was found [b] and seized and inventorised as A/HML/18. At page 61 of the seized material, a ledger folio in the name of Ajith Kumar Rai was found recorded, which has been scanned and reproduced in page [26] of the assessment order for the assessment year 2003-04. [c] As per the notings made in the aforesaid seized material at page 61, there were payments made to Ajith Kumar Rai in capacity as GPA holder of Mr. Sharath Kumar Alwa and Vinay Kumar Shetty, which included payments in cash and cheque. The Managing Director of the assessee company was examined at the time of search and he admitted that a sum of Rs.10,72,500/- as noted in the aforesaid seized material was paid by way of cash, which was agreed to be offered as undisclosed income. Later, under the letter dated 15/04/2008, Shri Mohiuddin, retracted the aforesaid disclosure and it was contended before the A.O. that an abandoned ledger of Indian Shipping Agency that was used to make certain jottings and notings, which were all not accurate. The A.O. rejected the said contention by observing that the cheque payments made as noted in the seized materials were tallying with the sale deed under which the assessee purchased the property from Ajith Kumar Rai. Hence, the learned A.O. held that the cash payments noted therein would have to be considered as true and invoked the provisions of section 292C of the Act. [d] The assessee contended before the learned C1T[A] that the notings made in page [61] of the seized material A/HML/18 were not accurate and that the Assessing Officer had summoned Ajith Kumar Rai, in course of assessment proceedings and had examined him. Copy of the statement of Ajith Kumar Rao, is placed at pages 83 to 88 of the Paper book. It was contended that Sri Ajith Kumar Rai had denied the receipt [e] of any cash in the statement on oath given before the A.O. Thus, the erroneous entries made in the seized material, which is a abandoned ledger of Indian Shipping Agency could not be relied

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upon simply because Sri Mohiuddin had initially admitted that there were payments made in cash to the extent of Rs. 10,72,500/- in the statement recorded u/s.132[4] of the Act. It is submitted that the appellant has discharged the onus cast upon him of showing that the declaration made u/s. 132[4] of the [f] Act was erroneous by letting in evidence in the shape of the statement of Sri.Ajith Kumar Rai, which has not even been adverted to by the learned A.O. in the assessment order, leave alone, gathering materials to discredit the statement of Sri Ajith Kumar Rai that supports the plea of the assessee that no cash payments were made for purchase of property. [g] The learned CIT[A] however, did not accept the aforesaid contentions of the assessee and she has held that the retraction of Sri A.Mohiuddin cannot be accepted on the ground that no evidence was adduced to show that the admission made at the time of search was incorrect. This finding of the learned CIT[A] is opposed to law and facts of the assessee's case in as much as, there is material on record in the shape of the statement of Sri Ajith Kumar Rai, which supports the plea of the assessee that no cash payments as mentioned in the seized materials were infact made by the assessee. The notings made in the seized material are not the regular books of accounts but an abandoned ledger of Indian Shipping Agency, in which certain transactions were noted, which were not entirely accurate. Merely because some of the entries made in the seized documents accord with the payments made and recorded in the sale deed is no ground to presume that the other payments made [h] therein are also correct. In the absence of material gathered to discredit the statement of Sri Ajith Kumar Rai, the addition sustained by the learned CIT[A] is unjustified and liable to be deleted. It is prayed accordingly.”

7.2 Per contra, the learned Standing Counsel for Revenue submitted that the seized material A/HML/18 where cash payments noted was not an abandoned ledger and the transactions recorded therein are correct and accurate. According to the learned Standing Counsel, the AO has reproduced the relevant noting made

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in the ledger account, which shows payments made both in cheque as well as cash. The payments made by cheque are found recorded in the books of account, whereas the cash payments are not recorded therein. He referred to the admission of the Managing Director (M.D) of the assessee at the time of search vide statement under section 132(4) of the Act dated 18.01.2018 and contended that the subsequent retraction by the assessee on 15.04.2008 was not based on any evidence to show that there were no cash payments made. The learned Standing Counsel submitted that in view of the above, the additions were rightly made and the CIT(A) has correctly sustained the said additions.

7.3.1 We have considered the rival submissions / contentions put forth and perused the material on record. In the course of search proceedings, a ledger belonging to Indian Shipping Agencies Pvt. Ltd., was found wherein several transactions were recorded on various pages thereof. Page 61 of the said ledger contained the account of Shri Ajit Kumar Shetty (Rai) in which there were recorded several payments made on different dates; both by cash and cheque. It was explained that these payments were made by the assessee company for purchase of a property. At the time of search, the M.D. of the assessee company stated that the cheque payments recorded in the said ledger were recorded in the books of account, whereas the cash payments were not recorded. In this regard, the M.D. admitted and agreed to offer undisclosed income of Rs.10,72,500/-; comprising of Rs.7,50,000/- for Assessment Year 2003-04 and Rs.3,22,500/- for Assessment Year 2004-05. However, this statement / admission was later retracted vide the assessee’s letter dated 15.04.2008, by explaining that there were no cash payments made to Shri Ajit Kumar Shetty as noted in the seized ledger, which are not the regular books of account of the assessee. Subsequently, the AO also examined the said Shri Ajit Kumar Shetty (Rai) on 07.07.2009, based on the material found in the course of search and the statement of the M.D. of the assessee

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company recorded under section 132(4) of the Act. It is seen from the statement of Shri Ajit Kumar Shetty (Rai) dated 07.07.2009 (copy placed at pages 83 to 88 of paper book) that he has denied the receipt of any cash from the assessee for the sale of property. The assessee / learned AR placed strong reliance on this statement of Shri Ajit Kumar Rai (Shetty). On the other hand, Revenue relies on the admission made by the M.D. of the assessee company in statement under section 132(4) of the Act on 18.01.2008 (copy placed at pages 68 to 70 of paper book) as well as the notings made in the seized ledger belonging to Indian Shipping Agencies Pvt. Ltd., to contend that there were cash payments made by the assessee and hence these constitute unexplained investments.

7.3.2 We find from the assessee’s contentions that no cash was paid for purchase of the property as noted in the seized ledger stands corroborated by the evidence gathered by the Department from Shri Ajit Kumar Rai (Shetty). As rightly contended by the assessee, the seized ledger of Indian Shipping Agencies Pvt. Ltd., in which these entries were made is not the regular cash book or any other books of account; and it is apparent that this ledger has been used for rough jottings and notings. We have perused the letter of retraction dated 15.04.2008 filed before the ADIT (Inv.), Mangalore (copy placed at pages 71 to 75 of paper book) by the assessee in which the M.D. of the assessee has stated that there was no consideration paid over and above the consideration mentioned in the registered sale deed and the cash advance noted in the seized ledger were returned by the recipient after cheques were given, but no noting of the cash returned were made in the seized material. Considering the factual matrix of the case, as discussed above, we are of the considered view that no addition could be made in respect of the so-called cash payments outside the books of account as unexplained investment. The contentions of Shri Ajit Kumar Rai (Shetty), that no cash payment was received by him from the assessee cannot be brushed aside lightly and his

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averments have not been controverted by the authorities below. No material has been brought on record to disbelieve / discredit Shri Ajit Kumar Rai’s (Shetty) claim; which supports the stand of the assessee that no cash payment was made as stated at the time of search. Therefore, making any addition on the basis of the assessee’s statement at the time of search by ignoring the assessee’s subsequent explanation / rebuttal, which is corroborated by the statement of Shri Ajit Kumar Rai (Shetty), is clearly not justified. In this view of the matter, we find that the additions of Rs.7,50,000/- for Assessment Year 2003-04 and Rs.3,22,500/- for Assessment Year 2004-05 to be factually unsustainable and accordingly delete the same. Consequently, ground No.2 of assessee’s appeals for Assessment Years 2003-04 and 204-05 are allowed.

8.1 In this ground (supra), the assessee challenges the addition of Rs.1,14,172/- made by the AO on account of differences in liabilities.

8.2.1 We have heard and considered the rival contentions and submission put forth by both the assessee and Revenue and have perused the material on record. According to the assessee, no addition can be made in respect of the difference in creditors, while on the other hand, Revenue contends that the assessee has not furnished any reconciliation to explain the aforesaid differences amounting to Rs.1,14,172/-.

8.2.2 We find that the CIT(A) has decided this issue by observing as under at para 2.4.2 of the impugned order for Assessment Year 2004-05:

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“2.4.2 I have considered the submissions made by the appellant and I find that the addition of Rs.1,14,172/- was originally made in the assessment order passed u/s.143(3) for the assessment year 2005-06 on the ground that there was a difference in the balance of the sundry creditors. On appeal, in the original assessment proceedings, the CIT [Appeals], Mangalore, had deleted the addition observing that the difference arose in the earlier financial year relevant to the assessment year 2004-05. In course of present assessment proceedings the appellant was asked to reconcile the difference in respect of this sum of Rs.1,14,172/-. However, no reconciliation was filed before the A.O. and neither has any such reconciliation being filed before me. In the circumstances the addition made by the A.O. requires to be confirmed and no interference is called for.”

8.2.3 In the course of hearing before us, the learned AR for the assessee did not file any reconciliation in respect of the difference in creditors balance; as already pointed out by the CIT(A). There is a difference of Rs.1,14,172/- in the creditor’s balances and this fact was noticed by the AO in the course of assessment proceedings. In the absence of any reconciliation being furnished to explain the difference of Rs.1,14,172/- in creditor’s balances, we find no reason to interfere with or deviate from the action of the CIT(A) in sustaining the aforesaid disallowance. Consequently, ground No.2 of assessee’s appeal for Assessment Year 2004-05 is dismissed.

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9.1 In these grounds in the assesse’s appeal (supra) for Assessment Years 2004- 05 to 2008-09, the assessee challenges the CIT(A)’s action in partly sustaining the disallowance of expenses claimed as Tipper Mamools. Revenue is also in appeal on this issue, and in the grounds raised (supra) for Assessment Years 2004-05 to 2008-09, against the relief granted by the CIT(A). The addition sustained by the learned CIT(A) challenged by the assessee are Rs.2,00,000/- (ground Nos.5 and 5.1) for Assessment Year 2004-05; Rs.3,50,000/-, Rs.3,00,000/-, Rs.7,50,000/- and Rs.21,00,000/- (Ground Nos. 2 and 2.1) for Assessment Years 2005-06 to 2008-09. Revenue has challenged the deletion of Rs.19,93,623/- and Rs.31,59,286/- (ground No.2) for Assessment Years 2004-05 and 2005-06; deletion of Rs.26,03,062/- (ground No.3) for Assessment Year 2006-07; Rs.68,70,956/- (Ground No.5) for Assessment Year 2007-08 and Rs.90,47,498/- (Ground No.4) for Assessment Year 2008-09.

9.2.1 Before us, the learned AR for the assessee submitted that the entire expenditure debited as tipper mamools was allowable, since it was given to the crew members of the trucks for incurring wayside expenses for transportation of the cargo to and from the port. It was submitted that the transportation crew of the trucks used to render the account of expenses incurred by the truck drivers at the relevant station, viz., CISF or Customs station etc., and these expenses did not represent any illegal payments made to any Government authority. The learned AR further submitted that the AO had disallowed the entire expenses claimed; which included batta paid to the truck crew and other expenses which have also been disallowed and therefore the CIT(A) had called for a remand report in the matter from the AO. In the remand report dated 01.11.2010 (copy placed at pages 265 to 274 of paper book), the AO has given break-up of the disallowance made under the head Tipper Mamool, which is as follows:

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9.2.2 The learned AR contends that the expenses that are noted as CISF, Customs, Port, etc., in the vouchers are not illegal consideration or gratification paid to these

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authorities, but are expenses incurred at the relevant stations by the truck drivers for obtaining gate passes, etc. According to the learned AR, there was no material on record to show that these expenses are either illegal or prohibited expenses and even in the orders of assessment, the AO has reproduced certain vouchers, which show small amounts under entertainment; which are presumed to be illegal payments like tips, greasing, etc., without any material on record to arrive at such a conclusion.

9.3 Per contra, the learned Standing Counsel for Revenue supported the orders of the AO and contends that the CIT(A) has deleted the disallowances substantially, based on the presumption that the entire expenses claimed by the assessee are legitimate business expenses. With regard to the AO’s remand report pointing out the break-up of expenses, he submitted that the total expenditure claimed was disallowed by the AO as there was no supporting evidence given by the assessee and in remand proceedings, the vouchers were examined afresh and a report was rendered for the limited purpose of ascertaining the expenses that related to payments made to government officials. According to the learned Standing Counsel, the assessee had not discharged the burden of proving that these expenses were incurred for the purposes of its business and therefore the disallowances made by the AO from out of Tipper Mamool expenses claimed ought to be restored.

9.4.1 We have heard and considered the rival contentions and perused the material on record. The facts of the matter, as emanate from an appraisal of the record before us, is that in the course of assessment proceedings, the AO noticed that the assessee had claimed expenditure under the head ‘Tipper Mamools’ in respect of the transportation business carried on by the assessee. The AO noted that the assessee had produced vouchers in respect of these expenses claimed and

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some of these vouchers were also found and seized in the course of search. The assessee submits that the amounts claimed as Tipper Mamools were small amounts paid in cash to crew members of the trucks for incurring wayside expenses while transporting goods to and from the Port. From these vouchers, the AO noted that there were certain expenses that revealed payments made to the officials of NMPT, CISF, Customs, Road Transport department, etc., apart from entertainment expenses such as hotel bills. The AO was of the view that the entire expenses claimed under this head was hit by the Explanation to section 37(1) of the Act, since these payments were in the nature of illegal payments made to government officials. On appeal, the CIT(A) called for a remand report from the AO to give details of the break-up of the expenses claimed under the head ‘Tipper Mamool’ and the AO furnished the remand report dated 01.11.2010 giving the break-up (extracted above at para 9.2.1 of this order). Subsequently, the CIT(A) decided the grounds holding that the entire expenses debited under the head ‘Tipper Mamools’ did not represent any illegal payments and that they are legitimate business expenses. However, according to the CIT(A), it was unclear whether the payments involved any prohibited consideration paid to government servants and therefore, with a view to take care of any payments to government officials, which cannot be ruled out, an adhoc amount of the disallowance was sustained for each Assessment Year by the CIT(A).

9.4.2 From a perusal of the orders of assessment, it is seen that the entire expenditure debited under the head ‘Tipper Mamools’ has been disallowed considering the same to be payments made as illegal gratification to government officials. According to the assessee’s explanations, the amounts paid under this head, have been paid to the transportation crews of trucks for incurring wayside expenses and there were no illegal payments made and the reference to various stations such as CISF, Customs, NMPT, etc., are only limited to expenditure

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incurred at the relevant station. The CIT(A), on examination thereof has rendered a finding that majority of the payments are unconnected with any payments that are referred to government officials of CISF, Customs, NMPT, etc., and in that view of the matter, deleted the disallowance / additions substantially and confirmed adhoc additions for various years to take care of any such payments to government officials. Having considered the rival contentions, the impugned orders of the CIT(A) and the AO’s remand report dated 01.11.2010; we find that substantial part of the addition / disallowance made out of the expenditure claimed on tipper mamools represents legitimate business expenditure like hotel bills, port pass, crew / driver’s batta, labour charges, etc. Some notations with regard to the expenses bearing the CISF, Customs, NMPT, etc., are also found in the vouchers and this is explained to be expenditure incurred at that station and not payments of illegal gratification to government officials. In the factual matrix of the case on this issue, as discussed above, we are of the view that the aforesaid explanations put forth by the assessee are plausible and not farfetched. Revenue has not doubted that the assessee had to make payments to truck drivers and truck crews for incurring wayside expenses and certain reimbursement of expenses incurred by these transportation crews have been claimed. No proof has been brought on record by the AO to establish that the references to expenses incurred by transportation crews at various stations like CISF, Customs, etc., are in respect of illegal gratifications paid to any government officials, in order to come to and take any adverse view against the assessee. Taking into account the explanations put forth by the assessee in the facts and circumstances of the case on hand and the fact that the AO has not brought on record any material to establish that these expenses are in fact illegal gratification paid to government officials, in our view, no additions can be made on pure presumptions and surmises.

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9.4.3 In the light of the above discussion, from para 9.1 to 9.4 of this order, we are of the view that the factual finding of the CIT(A) that all these expenses are legitimate business expenses has not been controverted or shown to be erroneous by Revenue. We, however, find that even after rendering the above factual finding that expenses claimed under the head ‘tipper mamools’ are legitimate business expenses, the CIT(A) has gone on to hold that some / partial adhoc disallowance of these for Assessment Years 2004-05 to 2008-09 was required to take care of payments to government officials; which, in our view, is not called for. In this view of the matter, we delete the adhoc disallowances made by the CIT(A) of Rs.2,00,000/- for Assessment Year 2004-05; Rs.3,50,000/- for Assessment Year 2005-06; Rs.3,00,000/- for Assessment Year 2006-07; Rs.7,50,000/- for Assessment Year 2007-08 and Rs.21,00,000/- for Assessment Year 2008-09. Consequently, the grounds raised by the assessee on this issue are allowed and the grounds raised by Revenue in this regard are dismissed.

10.1 The next issue in the assessee’s appeals for Assessment Years 2007-08 and 2008-09 are the grounds raised in respect of the additions made in respect of machinery hire charges amounting to Rs.18,70,440/- and Rs.32,15,032/- respectively.

10.2 On this issue, the learned AR for the assessee has put forth the following written submissions:

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During the course of search a note book was seized [b] and inventorised as A/HML/04 dated 17/01/2008. In this book unloading charges through JCBs were recorded. At the time of search one Sri H.Asif, Cashier of the assessee company was examined and he stated that the unloading charges were collected at Rs.180 for a Ten wheeler truck and Rs.100 for a Six wheeler truck and these were not recorded in the main cash book of the assessee. [c] In course of assessment proceedings it was explained to the A.O. that these machine hire charges were collected and distributed amongst the workers, who share the collections with the truck drivers, machine operators, etc. The said explanation of the assessee was rejected by the A.O. stating that the assessee did not give any corroborative evidence to support the said plea. Reliance was placed on the statement of Asif and the failure of Sri A.Mohiuddin, the Managing Director of the assessee company, to correct the erroneous statement at the time of search. The learned CIT[A] confirmed the addition stating that no evidence was furnished by the assessee. It is submitted that the authorities below ought to have [d] appreciated that small sums of Rs.100 and Rs.160 per vehicle collected at the time of unloading was not the receipts of the assessee company. The said amount was collected and distributed amongst the workers and machine operators, etc. The explanation of the assessee ought to have been considered on the preponderance of probabilities and the rejection of the explanation is totally unjustified. [e] Without prejudice to the above, in the event it is held that the aforesaid machinery hire charges are required to be considered as income of the assessee, it is submitted that the same requires to be telescoped with the unexplained investments that have been added separately by the learned A.O.

10.3 Per contra, the learned Standing Counsel for Revenue supported the orders of the authorities below on this issue and pointed out that the assessee has not furnished any material in support of its explanation that these amounts collected towards machinery hire charges as per the seized material were used for distribution amongst the port labour, operators, etc.

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10.4.1 We have considered the rival contentions and perused the material on record. We find that on this issue, the CIT(A) at para 2.7.3 of the impugned order for Assessment Year 2007-08 (and para 2.6.3 of the order for Assessment Year 2008-09 which are similar) has held as under:

Assessment Year 2007-08 “2.7.3 I have considered the above submissions. From the material on record, the A.O. concluded that the statement given by one Sri Asif with regard to the material seized at the time of search is acceptable and that the submissions of Sri Asif before the A.O. have been given in consultation with the accounts manager of the appellant company. Therefore, there is no dispute that the machine hire collections as per the seized note book is not accounted. The appellant has been given sufficient opportunity by the A.O. in course of assessment proceedings to explain the receipts in the seized note book. Except for asking for cross-examination of Sri Asif, the appellant did not give any other explanation or justification before the A.O. I find that the request for cross- examination has also not been availed by the appellant before the A.O. Infact, the statement of Sri Asif has been shown to the Managing Director of the appellant and the same was confirmed by him in the statement recorded on 18.01.2008. Under these circumstances, I am not inclined to interfere with the findings recorded by. the A.O. The addition of Rs.18,70,440/- is confirmed.”

10.4.2 As rightly submitted by the learned Standing Counsel, we are also of the view that the assessee has not been able to adduce any evidence in support of the explanation and claim put forth; that the amounts collected towards machinery hire charges as per the seized materials found at the time of search did not belong to it and it was used for distribution amongst the staff and other members of the gang / crew that was carrying out the work. It is also seen that the AO and CIT(A) have relied on the statement of Shri Asif, the assessee’s employee, given at the time of search that this shows that these amounts were being collected and recorded

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as such in the seized materials. Considering the fact that the material found shows the collection of cash, which was not recorded in the assessee’s books of account, we are of the considered view that the addition made on this account is justified. In this view of the matter, we find no reason to interfere with the order of the CIT(A) on this issue and consequently dismiss the ground Nos. 3.1 to 3.3 raised by the assessee for Assessment Years 2007-08 and 2008-09.

11.1.1 This ground in the assessee’s appeal for Assessment Year 2008-09 is with reference to the addition of Rs.40,00,000/- made as unexplained investment in property. According to the learned AR for the assessee, the assessee had given certain advances to Mrs. Bitty D’souza, Mrs. Philomena D’souza and Mrs. Agnes D’souza for purchase of property at Kulur. The AO found that a debit voucher was found and seized as A/HML/22 dated 17.01.2008, showing payments amounting to Rs.70,00,000/-; which included payment of Rs.10,00,000/- in cash. As per the assessee’s books of account, an amount of Rs.30,00,000/- was shown as having been paid on 04.07.2007 and therefore the difference of Rs.40,00,000/- has been added by the AO as unexplained investment in property.

11.1.2 The learned AR contended that no payments were made by the assessee to Mrs. Bitty D’souza, Mrs. Philomena D’souza and Mrs. Agnes D’souza as per notings in the seized material. It is submitted that the AO examined the aforesaid three persons and they have denied receipt of any consideration in excess of the amount mentioned in the registered sale deed. Copies of the statements of Mrs. Bitty D’souza, Mrs. Philomena D’souza and Mrs. Agnes D’souza are placed at pages 89 to 97 of paper book.

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11.2 The learned Standing Counsel for Revenue, refuting the contentions put forth by the assessee, submitted that merely because the aforesaid vendors have denied the receipt of undisclosed consideration of Rs.40 lakhs, it does not mean that the assessee has not made any such payments and contended that since the assessee has not submitted any plausible explanation for the notings made in the seized material, the addition of Rs.40 lakhs was rightly sustained by the CIT(A).

11.3 We have considered the rival contentions and perused and carefully considered the material on record. We notice that there has been no examination of the Managing Director of the assessee company on the basis of the relevant seized material at the time of search. There is no admission of any cash payment made by the assessee. The assessee has contended that the notings made in the seized material was erroneous and has sought to substantiate the explanation by calling upon the AO to examine the vendors of the property in question at Kalur. It is a matter of record that all 3 vendors viz., Mrs. Bitty D’souza, Mrs. Philomena D’souza and Mrs. Agnes D’souza have been examined by the AO and in their statements recorded on 20.07.2009 have denied receipt of any amount in excess of the consideration mentioned in the registered sale deed. In similar circumstances, in Assessment Years 2003-04 and 2004-05, while dealing with ground No.2 raised by the assessee in those Assessment Years on the issue of unexplained investment in property (supra), we had taken the view that the assessee’s contention that no cash was paid for purchase of property, as noted in the seized material, stands corroborated by the statements recorded by the AO from the vendor. In the present instance too the three vendors, in their statements before the AO, have denied receipt of consideration over and above the consideration mentioned in the registered sale deed. The aforesaid statements of these vendors (copies placed at pages 89 to 97 of paper book) cannot be brushed aside lightly and their statements

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have neither been discredited nor any material brought on record by the authorities below to controvert their statements. In this factual matrix of the case, we hereby delete the addition of Rs.40,00,000/- made for Assessment Year 2008-09. Consequently, ground No.4 raised by the assessee on this issue for Assessment Year 2008-09 is allowed.

REVENUE’S APPEALS (Remaining Grounds)

Ground No.2 – Revenue’s appeal for Assessment Year 2007-08

12.1 These grounds (supra) are raised by Revenue challenging the deletion of additions on account of speed money amounting to Rs.45,00,000/- for Assessment Year 2004-05; Rs.76,74,539/- and Rs.1,25,00,000/- for Assessment Year 2005-06; Rs.4,67,17,395/- for Assessment Year 2006-07; Rs.5,79,88,098/- and Rs.1,35,00,000/- for Assessment Year 2007-08 and Rs.4,77,52,116/- and Rs.1,40,00,000/- for Assessment Year 2008-09; by the CIT(A) in the impugned orders by following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2005-06 in ITA No.1209/Bang/2019 dated 30.06.2010.

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12.2 The learned Standing Counsel for Revenue contended that the assessee has been claiming huge deductions towards speed money paid to port labourers. He submitted that the M.D. of the assessee company had admitted an amount of Rs.1,35,00,000/- as undisclosed income on account of speed money paid for Assessment Year 2007-08 in his statement under section 132(4) of the Act at the time of search proceedings. It was further submitted that the evidences detected at the time of search showed that the assessee’s claim of having made payment to the port labourers was bogus; as many of the port labourers examined at the time of search had denied having received any speed money from the assessee. The learned Standing Counsel also submitted that the assessee was paying speed money directly upto Assessment Year 2005-06, and from Assessment Year 2006- 07, the assessee started claiming this expenditure towards sub-contractors, which are held to be bogus by the AO in the impugned orders of assessment. In this regard, reference was made to the discussion made by the AO in the orders of assessment and submitted that the CIT(A) had deleted the disallowances following the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case for Assessment Year 2005-06 (supra). It was contended that the aforesaid decision of the Tribunal for Assessment Year 2005-06 in the assesse’s own case was not applicable since it was rendered before the search action conducted in the case on hand and that then there was no detailed examination made of the facts with regard to the genuineness of the payments; as has been done in these assessments pursuant to search conducted in the assessee’s case. In the light of the above, it was prayed that the decision of the CIT(A) on this issue be reversed.

12.3 Per contra, the learned AR for the assessee supported the impugned orders of the CIT(A) on this issue and placed reliance upon the order of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2005-06 in ITA No.1209/Bang/2009 dated 30.06.2010. The learned AR further submitted that

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the similar issue of speed money payments was decided in favour of the assessee Co-ordinate Benches of this Tribunal in the assessee’s own case in ITA No.1120/Bang/2016 vide order dated 26.07.2013 for Assessment Year 2009-10 and in ITA No.1439/Bang/2014 vide order dated 08.05.2015 for Assessment Year 2010-1. The learned AR drew the attention of the Bench to the materials adduced before the CIT(A) to show the practice for payment of speed money, which was prevalent in the new Mangalore Port Trust (NMPT). In this regard, it is submitted that the CIT(A) called for a remand report from the AO and in the remand report dated 26.04.2010 (placed at pages 275 to 277 of Paper Book), the AO had reported that the assessee had produced documents of labour allotment, discharge summary and vouchers regarding payment of speed money and that the payment of speed money was made to port labourers in accordance with the rates fixed with the understanding entered into between the labour unions, stevedores’s association and NMPT. It was prayed that in view of the above, the impugned orders of the CIT(A) deleting the disallowances on account of speed money payments be upheld.

12.4.1 We have considered the rival contentions / submissions and perused the material on record; including the judicial pronouncements cited. It is seen that the Hon’ble Karnataka High Court in the case of Konkan Marine Agency reported in 313 ITR 308 (Kar) at para 7 thereof has held as under:

“7. We have perused the orders passed by the authorities below and taking into consideration the assessee’s business and the prevailing practice in the trade, whereby payments have to be made by the firms such as the assessee in order to ensure that work of handling goods are done within a reasonable time and to handle emergency operations of cargo handling beyond the working hours, such payments are made either through labour or workers’ union, cannot be considered to be either prohibited by law and further the assessee cannot be expected to take the receipt from individual workers or make payment by way of cheques. In our opinion, the payment is clearly for business consideration and

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cannot be considered to be illegal in nature and have been incurred in the ordinary course of business and, therefore, the said amount ought to be allowed as deduction by way of business expenditure.”

12.4.2 In the light of the aforesaid view expressed by the Hon’ble Karnataka High Court in the case of Konkan Marine Agency (supra), it is evident that there is a prevailing practice of paying speed money to the port labour at NMPT; which is allowable expenditure. We find that following the judgment of the Hon’ble Karnataka High Court in Konkan Marine Agency (supra), the speed money disallowed by the AO in regular assessment proceedings was deleted by the CIT(A) in the assessee’s own case for Assessment Years 2005-06, 2009-10 and 2010-11, which was upheld by the orders of Co-ordinate Benches of this Tribunal for Assessment Years 2005-06, 2009-10 and 2010-11 (supra). In this factual and legal matrix of the case, as discussed above, we are of the view and hold that the CIT(A) was justified in deleting the disallowance of speed money on the ground that it was paid to port labourers who are employees of New Mangalore Port Trust.

12.5.1 We now have to consider the objections raised by the learned Standing Counsel with regard to the genuineness of the expenditure on the ground that the vouchers did not bear the signature of all the persons to whom the payments were made and that some of the port labourers examined at the time of search had denied the receipt of the speed money. We find that, on this aspect, the learned CIT(A) passed an order under section 250(4) of the Act on 18.03.2011 and had called for a remand report on this issue of Speed Money payments from the AO; with the following directions:

Ascertain the practice and the rates for making the payment to (i) the port labourers through the Stevedores Association, labour unions and New Mangalore Port Trust for providing various services by the port labourers.

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(ii) After conducting such enquiries, the Assessing Officer has to verify the evidences seized during the course of the search in respect of the payment made to port labourers to ascertain as to whether the payments are according to the rates prevailing at the relevant time. (iii) If the payments are not according to the prevailing rates, the working to ascertain the inflation of the expenses.

12.5.2 In response to the directions of the CIT(A) in the remand order under section 250(4) of the Act, the AO submitted the remand report dated 26.04.2010 (copy placed at pages 240 to 264 of Paper Book), wherein it is submitted at paras 1.2 to 1.5 thereof as under:

“1.2 During the remand report proceedings, the practice of making the payment to the port labourers and the rates fixed for such payment have been ascertained from the Stevedores Association (the information collected from the Stevedores Association is enclosed to this letter). It is ascertained that in order to speed up the Stevedoring work in the Port, there is the practice of payment of "Speed money" to the Port labourers as per the understanding entered into between the Labour unions, Stevedores Association, and New Mangalore Port Trust. The rates of paying this speed money are as per the rates fixed for various articles handled by the port laborers.

1.3 However, no vouchers relating to speed money payment were seized in respect of this assessee during the search action. During the remand report proceedings, the assessee produced the following documents in respect of the speed money payment: Labour allotment statement in respect of various a. Vessels issued by NMPT. b. Discharge Summary issued by NMPT regarding quantity of cargo handled. c. Vouchers regarding payment of speed money.

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1.4 The above documents have been examined in detail. It is noticed from the above documents that the speed money payments to the port labourers were made according to the rates fixed in the Understanding entered into between the Labour unions, Stevedores Association, and New Mangalore Port Trust.

1.5 However, it is to be mentioned here that the vouchers maintained to- prove the speed money payment to the port labourers do not contain the signature of individual/each labourer, but common vouchers are maintained for a Group of labourers where signature of one labourer only is put who is claimed to have put the signature representing other labourers. Regarding the genuineness of these signatures and other issues, the same have been elaborately discussed in the assessment orders u/s 153A while disallowing the expenses under this head.”

12.5.3 Considering the aforesaid findings and the AO’s remand report, the CIT held that the assessee has followed the established the practice for payment of speed money prevalent at New Mangalore Port Trust in accordance with the rates fixed in the agreement with the labour unions. The CIT(A) did not give much importance to the denial of certain labourers for having received speed monies; which was termed as understandable. For these reasons, the CIT(A) deleted the disallowances made by the AO in the impugned orders of assessment; which we have carefully examined and find no cause for interference therein or deviation therefrom. Considering the AO’s remand report and the enquiries made at the relevant point in time, it is seen that even on facts, the assessee has been able to establish the genuineness of the expenses claimed under this head and we find that there is no adverse material on record to establish that there is any inflation of expenses by the assessee. In this view of the matter, we are of the view that no interference is called for in the impugned orders of the CIT(A) on the issue of payments of speed money. Consequently, the grounds raised by Revenue on this issue are dismissed.

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13.1 In these grounds (supra), Revenue assails the impugned orders of the CIT(A) in deleting the disallowance of Rs.1,66,02,075/- and Rs.59,67,500/- that was made as unexplained expenditure based on seized material A/HML/18 for the Assessment Years 2004-05 and 2005-06 respectively. A similar ground No.6 has been raised for Assessment Year 2007-08 in respect of the deletion of Rs.3,22,000/- as unexplained expenditure.

13.2 The learned Standing Counsel for Revenue submitted that in the course of search, a ledger belonging to M/s. Indian Shipping Agencies Pvt. Ltd., was found and seized i.e., A/HML/18. On various pages of this seized ledger, there were notings of cash payments and in this regard, the assessee did not furnish any explanation before the AO to show that the entries recorded therein were recorded in the regular books of account. For these reasons, the AO has made the said additions / disallowances based on the various payments that were found recorded in the seized ledger. In this regard, substantive additions were made in the case on hand and protective additions were made in the case of M/s. Indian Shipping Agencies Pvt. Ltd., a group company. The CIT(A) deleted the additions in the case on hand, relying on the order passed by the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd. Therefore, it is submitted, the deletion of the additions made in the case of the assessee was not justified and the additions made by the AO have to be restored.

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13.3 Per contra, the learned AR for the assessee submitted that the CIT(A) has correctly relied on the order of the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd. According to the learned AR, the CIT(A) in the appellate order passed in the case of M/s. Indian Shipping Agencies Pvt. Ltd., had examined the various additions made on merits and had recorded categorical findings that the entries in the seized materials were duly recorded in the books of account of various group concerns of the assessee. The learned AR submits that in view of the above, the CIT(A)’s finding in the case of M/s. Indian Shipping Agencies Pvt. Ltd., rendered after examining the books of account of various group concerns was correctly relied upon by the CIT(A) in the case on hand for deleting the additions. It was also submitted by the learned AR that no further appeals were filed by Revenue against the orders of the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd., and therefore the matter had attained finality. In this regard, the learned AR took us through the impugned appellate orders of the CIT(A) to point out the findings recorded in respect of each item of addition made in the case of M/s. Indian Shipping Agencies Pvt. Ltd., on substantive basis.

13.4 We have considered the rival submissions / contentions and perused the material on record. In the course of search, a ledger belonging to M/s. Indian Shipping Agencies Pvt. Ltd., was found and seized as item A/HML/18. In this ledger, details of certain payments were noted on several pages for various years and the AO made additions considering these payments as unexplained expenditure incurred by the assessee. Protective additions were also made, in respect of these very same additions, in the case of M/s. Indian Shipping Agencies Pvt. Ltd., on protective basis. The CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd., examined the various additions made in the hands of M/s. Indian Shipping Agencies Pvt. Ltd., and examined / verified the explanations

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tendered in respect of the receipts that were claimed to be recorded in the regular books of account of various group companies. Thereafter, the CIT(A) deleted the additions rendering the finding that these expenditures cannot be made on the basis of notings made in the seized material that were uncorroborated. From the orders of assessment, it is seen that the assessee has put forth the very same explanation before the AO, as was put forth before the CIT(A) and the addition was made as the relevant books of account were not produced at that point of time. Before the CIT(A), in the case of M/s. Indian Shipping Agencies Pvt. Ltd., it appears that the books of account of various group concerns were produced and after due verification, these additions have been deleted. Following the conclusions arrived at and findings rendered by the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd., the CIT(A) has deleted the additions made in the hands of the assessee in the case on hand as well. It has also been informed that the order of the CIT(A) in the case of M/s. Indian Shipping Agencies Pvt. Ltd., has reached finality since the Department had not filed any appeals against the said order. On a careful consideration of the factual matrix of the case as discussed above and the material on record, we find no reason to interfere with the findings recorded by the learned CIT(A) while deleting the aforesaid additions made by the AO on account of unexplained expenditure. Consequently, grounds raised by Revenue at No.3 for Assessment Years 2004-05 and 2005-06 and ground No.6 raised for Assessment Year 2007-08 are dismissed.

Ground No.3 (Revenue’s appeal for Assessment Year 2008-09

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14.1 In ground No.2 for Assessment Year 2006-07, Revenue has challenged the CIT(A)’s action in deleting the disallowance of Rs.44,430/- made by the AO on account of short deduction of TDS on the payments to labour contractors. Similarly, Revenue has also raised ground No.4 for Assessment Year 2007-08 and ground No.3 for Assessment Year 2008-09 in respect of deletion of disallowances under section 40(1)(ia) of the Act, amounting to Rs.3,10,000/- and Rs.50,969/- respectively, in respect of short deduction of TDS on payments made to contractors.

14.2 On this issue, the learned Standing Counsel for Revenue relied on the finding rendered by the AO in the orders of assessment for Assessment Years 2006-07 to 2008-09, while the learned AR for the assessee supported the orders of the CIT(A) in the impugned orders.

14.3 After having heard and considered the rival contentions / submissions and the material on record, we find that the CIT(A) had rightly deleted these disallowances made under section 40(a)(ia) of the Act, holding that it would amount to duplication. The CIT(A), on examination of the details on record in this regard, found that the said payments made to sub-contractors in these years was in respect of speed money and hence there was no obligation to deduct tax at source thereon. It is however seen that the impugned disallowances were made on the ground that there is short deduction of TDS and it is not a case of failure to deduct tax at source. Considering the fact that no disallowance can be made under section 40(a)(ia) of the Act in respect of short deduction of TDS as was held by the ITAT Kolkata Bench in the case of DCIT Vs. S. K. Tekriwal in ITA No.1135/Kol/2010, we are of the view that no interference is called for in the impugned orders of the

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CIT(A). Consequently, ground No.2 for Assessment Year 2006-07, ground No.4 for Assessment Year 2007-08 and ground No.3 for Assessment Year 2008-09 raised by Revenue are dismissed.

15.1 In this ground, Revenue assails the decision of the CIT(A) in deleting he amount of Rs.40,79,000/-, which was considered as unexplained investment in Kuthar Lands.

15.2 The learned Standing Counsel for Revenue submitted that the AO had made the aforesaid addition of Rs.40,79,000/- in the assessee’s hands on the basis of the seized document A/HML/20, that was found and seized at the assessee’s premises at the time of search. Page 107 of the seized material A/HML/20 showed payments received from one Shri P. Badruddin, who was a partner with the assessee company’s M.D. Shri Mohiuddin in the firms M/s. Delta Industries, M/s. APCO Containers, M/s. Divya Shakti, etc. On page 107 of the seized material A/HML/20, after listing out the details of payments received from Shri. Mohiuddin between 10.08.2005 to 16.05.2006, there were further notings made towards “land cash” of Rs.35,50,000/-; below which other expenses of conversion, commission, registration, lawyer, survey, etc., were also recorded. The total of these expenses was Rs.45,06,255/-. At the time of search, the M.D. of the assessee company was examined and he admitted that there was a cash payment of Rs.35,50,000/- towards purchase of land, which was received from Shri P. Badruddin. Later, in a statement under section 131 of the Act recorded on 27.06.2008, the M.D. of the assessee company denied that there was any cash payment made and that the Accountant had wrongly mentioned the “Land Cost” as “land Cash”. The AO noted both the

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aforesaid statements recorded from the M.D, but relied upon the initial statement given on the date of search while making the addition of Rs.40,79,000/-, after noting that the registration of Rs.4,27,255/- was paid by cheque. The learned Standing Counsel further submitted that the property was purchased in the name of Shri Mohiuddin and Smt. Shahanaz Mohiuddin and the additions were only made protectively in the hands of the assessee. It was contended that the CIT(A) was not justified in deleting the addition without ascertaining the fate of the substantive addition.

15.3 Per contra, the learned Counsel for the assessee relied upon the finding rendered by the CIT(A) in the impugned order to submit that there is no material on record to connect the aforesaid investment made to the assessee. According to the learned AR, the said property was not purchased by the assessee or from out of the funds of the assessee and therefore, there was no justification to make any addition at all; either on substantive or protective basis.

15.4 We have considered the rival contentions / submissions and perused the material on record. The CIT(A), while deleting the addition of Rs.40,79,000/- in the case on hand, observed that the substantive addition was sustained in the hands of Shri. A. Mohiuddin, M. D. of the assessee company and therefore, the protective addition made in the case on hand was to be deleted. We are not aware / informed as to the fate or present status of the appeal filed in the case of Shri. A. Mohiuddin. The fact remains that the AO made the addition towards unexplained investment in the purchase of Kuthar lands in the hands of the assessee only on protective basis and not on substantive basis. As rightly contended by the assessee, there is no need for making this addition of the said unexplained investment in the hands of the assessee in the case on hand as it is not Revenue’s case that the lands at Kuthar were purchased either by the assessee or that

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unexplained funds of the assessee were used to make the said payment. It is seen that even the AO has only made the addition protectively in the hands of the assessee because the seized material, in which these payments were noted, were found in the course of search conducted in the case of the assessee company. In the facts and circumstances, as narrated above, we are of the view that the CIT(A) has rightly deleted the addition and we find no reason to interfere with or deviate from his decision. Consequently, ground No.3 of Revenue’s appeal for Assessment Year 2007-08 is dismissed.

16.1 In this ground for Assessment Year 2008-09 (supra), Revenue assails the order of the CIT(A) directing deletion of Rs.33,00,000/- paid to M/s. S. S. Associates and Rs.8,69,000/- paid to M/s. Divya Enterprises that was disallowed under section 40(a)(ia) of the Act for failure to deduct tax at source as required under section 194C of the Act as these payments were in the nature of contract payments.

16.2.1 The learned Standing Counsel for Revenue submitted that cash payments were made to M/s. S. S. Associates through debit vouchers to the extent of Rs.33,00,000/- and these vouchers were found in the course of search. According to the learned Standing Counsel, these cash payments were not accounted in the regular books of account. Similarly, cash payments were also made to M/s. Divya Enterprises on various dates amounting to Rs.8,69,000/-, and vouchers recording these payments were found at the time of search; which again were not recorded in the regular books of account. It is submitted that in the course of assessment proceedings, the assessee took the stand that the payments through

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debit vouchers were made to individual labouerrs engaged by these two contractors; i.e., M/s. S. S. Associates and M/s. Divya Enterprises and Vouchers in support were produced before the AO. The AO, however, rejected the same because the seized vouchers were prepared in the names of M/s. S. S. Associates and M/s. Divya Enterprises. In that view of the matter, the AO invoked the provisions of section 40(a)(ia) of the Act to make the disallowances since no TDS has been made on the payments made.

16.2.2 The learned Standing Counsel submitted that the CIT(A) had deleted the disallowances made under section 40(a)(ia) of the Act by recording a finding that the vouchers for payments were produced and each payment made was less than Rs.20,000/-. It is contended that the CIT(A) erred in accepting the claim of the assessee that these cash payments were not part of the contract payments to M/s. S. S. Associates or M/s. Divya Enterprises. According to the learned Standing Counsel, the entire vouchers produced and the explanations put forth was an after – thought by the assessee to extricate itself from the disallowance made by the AO. It is submitted that , in view of the above, the disallowance under section 40(a)(ia) of the Act made by the AO ought to be restored since admittedly no TDS was made on these payments by the assessee.

16.3 Per contra, the learned AR for the assessee relied upon the findings rendered by the CIT(A) in the impugned order. According to the learned AR, assessee produced the vouchers in proof of the payments made, which were all recorded in the books of account. It was submitted that the CIT(A) had noted that each payment was made to different workers and each voucher was for an amount less than Rs.20,000/-. The CIT(A) had accepted that the payments were made as disbursement to the labourers and that there was no works contract given by the assessee to either M/s. S S Associates or M/s. Divya Enterprises. The learned AR

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contends that, on the basis of the above facts and circumstances, there was requirement for deducting tax at source under section 194C of the Act and consequently the provisions of section 40(a)(ia) of the Act were not attracted.

16.4 We have considered the rival contentions / submissions put forth and perused the material on record. In the factual matrix of the case, as discussed above, we are of the view that the CIT(A) has rightly deleted the disallowance made by the AO under section 40(a)(ia) of the Act, after examining the vouchers produced at proof of payment. It is not disputed that each voucher for the aforesaid payments is less than Rs.20,000/- and the payments have been made to various persons and therefore the provisions of section 194C of the Act are not attracted at all. The fact is that several vouchers of less than Rs.20,000/- are prepared and no adverse finding has been rendered thereon. Revenue has also not adduced any material to establish that these payments by the assessee are in the nature of works contract with M/s. S. S. Associates or M/s. Divya Enterprises and therefore the provisions of section 194C of the Act are not attracted to these payments made. In our view, no disallowance under section 40(a)(ia) of the Act can be made since there was no requirement to deduct TDS in the first place. In this view of the matter and after taking into account the facts and circumstances of the case on this issue, we are of the opinion that the CIT(A)’s finding directing deletion of the disallowance made by the AO for any interference and is accordingly upheld. Consequently, ground No.2 raised in Revenue’s appeal for Assessment Year 2008-09 is dismissed.

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Order pronounced in the open court on this 08th day of May, 2019.

Sd/- Sd/- Sd/- (N. V. VASUDEVAN) (JASON P BOAZ) Vice President Accountant Member Bangalore. Dated: 08th May, 2019. /NS/*

Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.