DEPUTY COMMSSIONER OF INCOME TAX (CENTRAL CIRCLE) -3(3), MUMBAI, MUMBAI vs. M/S. WELSPUN ENTERPRISES LIMITED, MUMBAI

In course of assessment proceeding, the Assessing Officer (‘A.O.’ for short), while verifying the books of account noticed that the assessee had debited expenditure of Rs.23,47,354/- to a party, by name, Mr. Mohd Salim, S/o. Mohd. AinuddinHoque. Referring to the statement of employees recorded in course of search and seizure operation, the A.O. observed, though, the expenditure was claimed towards sub-contract expenses and purchases, however, they were unable to furnish authenticating documentary evidences in support. Based on such enquiry conducted in course of search and seizue operation, the A.O. called upon the assessee to prove the genuineness of such expenses. In response to the query raised, the assessee reiterated that they were sub-contract expenses paid to a labour contractor, who supplied labour at various work sites. The A.O., however, was not convinced with the explanation of the assessee. Treating the expenses as non-genuine, the A.O. added to the income of the assessee.

The assessee contested the aforesaid addition before ld. First appellate authority.

While deciding the issue in appeal, ld. First appellate authority based on materials available on record found that in course of search and seizure operation, ledger extracts of the payments made towards labour supplied and other supporting evidences were found. He further observed that the reasoning of the A.O. that the labour contractor has declared

We have considered rival submissions and perused the materials on record. It is a common point before us that identical issue came up for consideration before the co- ordinate bench in assessee’s case in A.Y. 2013-14. While deciding the issue in ITA No.3625/Mum/2024, the co-ordinate bench in order dated 23.12.2025 upheld the decision of ld. First appellate authority in deleting the addition. Notably, in the decision referred to above, the co-ordinate bench while dealing with the issue has held as under: 7. We have carefully considered all relevant facts of the case and find sufficient merits in the contentions of the assessee. There is absolutely no infirmity in the findings and the decision arrived at by the ld.CIT(A).Section 37(1) of the Act is a residual provision that allows businesses to deduct revenue expenditures not specifically covered under Sections 30 to 36, provided they meet certain conditions. The primary condition is that the expense must not be a capital or personal expense and must be incurred "wholly and exclusively" for the purpose of the business or profession. To claim a deduction under Section 37(1), the following cumulative conditions must be met: -The expenditure must be revenue in nature, not a capital expenditure . -It must not be a personal expense of the assessee. -It must have been incurred wholly and exclusively for the purposes of the business or profession. -It should not be an expense of the nature specifically described in Sections 30 to 36 of the Income Tax Act. 7.1 Nothing has been brought by the AO on record to show that expenses incurred on labour contractors were capital in nature or were personal expenses and also were not wholly and exclusively incurred for the purposes of business of the assessee. It is settled law that burden of proof is on assessee and in order to claim that an expenditure falls under section 37(1), the burden of proving the necessary facts in that connection is on the assessee. Where an assessee claims a deduction, the onus is on him to bring all material facts on record to substantiate his claim. It is his duty to prove payment especially when the ITO doubts the genuineness thereof .In the instant case, the assessee has been able to discharge the onus in satisfactory manner duly supporting the claim of deduction with documentary evidences.All the payments have been made through banking channels and TDS has also been duly deducted by the assessee on the impugned payments. It is also worth mentioning here that the assessment in this case has been made u/s 153A consequent to search and seizure operation.However, the AO has utterly failed to bring on record any adverse incriminating materials found during search in respect of these payments.The disallowance made lacks any substance and is devoid of any merit and has been made only on presumptions and surmises. Accordingly, we hold that there is no infirmity in the appellate order which is therefore upheld. The ground of appeal, therefore, fails.

In ground nos. 2 to 7, the department has challenged the deletion of certain additions, such as, disallowance of Rs.5,41,718/- u/s. 40(a)(ia) of the Act, disallowance of Rs.86,54,962/- u/s. 14A of the Act, disallowance of Rs.5,13,47,789/- u/s. 36(1)(iii) of the Act and disallowance of depreciation on BOT projects amounting to Rs.83,78,549/-. The aforesaid statutory disallowances were made by the A.O. while completing the assessment u/s. 153A r.w.s. 143(3) of the Act.

Before ld. First appellate authority, the assessee contested these disallowances, pleading that in case of unabated assessment, no disallowance can be made in absence of any incriminating material found during the search and seizure operation. Ld. first appellate authority having found merit in the submissions of the assessee, deleted the disallowances.

Before us, ld. Departmental Representative (ld. DR for short) relying upon the decision of Hon'ble Supreme Court in case of PCIT vs. Abhisar Buildwell (P.) Ltd. 149 taxmann.com 399 (SC) submitted that while deciding the appeals relating to M/s Kesarwani Zarda Bhandar Sahson Allahabad (Civil Appeal Nos. 7738-7739/2021, 7732- 7735/2021 and 7740/2021), the Hon'ble Supreme Court has held that even in case of unabated/completed assessment, the A.O. retains the jurisdiction to assess not only the undisclosed income found during the search operation, but the other income materials relating to which were available at the time of original assessment.

We have considered rival contentions, in light of the decisions relied upon and perused the materials on record. Insofar as, the factual position relating to the issue in dispute is concerned, there is nothing in the assessment order or any other materials available on record to demonstrate that the statutory disallowances noted above were based on any incriminating material found during the search and seizure operation. In fact, ld. First appellate authority in his order has recorded a categorical finding of fact regarding absence of incriminating material qua the disallowances made. Even, at the time of hearing before us, ld. DR was unable to demonstrate any reference to incriminating material by the A.O. while make the subject disallowances. Thus, it is proved on record that the statutory disallowances made by the A.O. were not based on any incriminating material found during the search and seizure operation. In case of Abhisar Buildwell (P.) Ltd (supra), the Hon'ble Supreme Court has held as under: 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. 14. In view of the above and for the reasons stated above, it is concluded as under:

As could be seen from the above, in paragraph 14(iv), the Hon'ble Supreme Court in no uncertain terms has held that in absence of any incriminating material found during search and seizure operation, the A.O. cannot assess or reassess taking into consideration the other material in respect of completed/unabated assessment. The Hon'ble Apex Court has further held that in case of unabated/completed assessment, the only recourse available to the A.O. is reopening of assessment u/s. 147 of the Act. Thus, keeping in view the ratio laid down by the Hon'ble Supreme Court, as above, we do no find any infirmity in the decision of ld. First appellate authority in deleting the disallowances. Grounds are dismissed.

In the result, the appeal is dismissed. Order pronounced in the open court on 06.03.2026