ITXA.1398.00.odt IN HIGH COURT OF JUDICATURE AT BOMBAY rt ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1398 OF 2000 ou M/s Harish Textile Engrs. Ltd., Mumbai ..Appellant Vs. C Dy. Commissioner of Income Tax, Special Range 19 ..Respondent .... h Mr. Nitesh Joshi a/w Jineshkumar Gandhi, Advocates i/b Dave & Girish & Co. for Appellant. ig Mr. Suresh Kumar, Advocate for Respondent. .... H CORAM : M.S. SANKLECHA & G.S. KULKARNI, JJ. RESERVED ON : 27 OCTOBER 2015 y PRONOUNCED ON: 30 OCTOBER 2015 ba JUDGMENT (Per: M.S. Sanklecha, J.): This appeal under Section 260A of Income Tax Act, om 1961 (the 'Act') challenges order dated 6 July 2000 passed by Income Tax Appellate Tribunal (the 'Tribunal'). impugned order of Tribunal disposes revenue's appeal for block B period 1 April 1986 to 12 September 1996. 2. This appeal was admitted by this Court on 29 July 2002 on following substantial questions of law: S.S.DESHPANDE 1 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt (1) Whether on facts and in circumstances of case, addition of rt Rs.10,00,000/ as 'on money' receipt in period ou from 1986 to 1989, was without jurisdiction, patently illegal and invalid, there being no evidence or material in support? C (2) Whether on facts and in circumstances of case, third member of Tribunal erred in holding that he is bound to accept h view of one of two members inspite of ig fact that he has third view? (3) Whether on facts and in H circumstances of case, Tribunal erred in not allowing any deduction out of expenditure of y Rs.1,82,38,330/ ? (4) Whether on facts and in ba circumstances of case, conclusion of Tribunal that loose papers represented receipt om of Rs.8,78,085/ , by appellant on sale of scrap was perverse, being based merely on presumptions, conjectures and surmises? B 3. Mr. Nitesh Joshi, learned Counsel for appellant states that Question No.2 above is not pressed. Thus, Question No.2 is dismissed as not pressed. S.S.DESHPANDE 2 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt 4. Brief facts leading to present appeal for consideration rt of Question Nos. 1, 3 and 4 are as under: (a) appellant is manufacturer of Textile Machinery. On ou 12 September 1996, there was search action under Section 132 of C Act on appellant. Its office premises, factory at Umargaon, Gujarat and residence of two of its Directors were searched by h officers of revenue. (b) ig During course of search, stocks lying in H premises of appellant were inventorised. Besides various loose documents, newspapers and books of accounts were seized by y officers of revenue. ba (c) Consequent to search, on 16 December 1996, notice om under Section 158BC of Act was served on appellant. Upon service of above notice, appellant filed its return of income on 6 March 1997 disclosing its income at Rs.1.15 crores for B block period i.e. 1 April 1986 to 12 September 1996. This undisclosed income declared were interalia unaccounted cash, excess stock, seized jewellery, seized Indira Vikas Patra, seized Kisan Vikas Patra and investment in sundry assets. S.S.DESHPANDE 3 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt (d) On 30 September 1997, Assessing Officer passed rt order under Section 158BC(c) of Act determining appellant's total income for block period 1 April 1986 to 12 March 1996 at ou Rs.6.1 crores. This income was determined by Assessing Officer C on account of following: (i) Undisclosed income on account of on money on sale of textile machinery Rs.4,10,22,595/ h (ii) Expenditure disallowed Rs.1,82,38,330/ of scrap ig (iii) Undisclosed Income on sale Rs. 8,78,085/ H Rs.6,01,39,010/ (e) Being aggrieved, appellant filed appeal from order y dated 30 September 1997 to Tribunal. appeal was filed to ba extent of following three additions made by Assessing Officer: om (i) Receipt of 'on money' to extent of sale of textile machinery for period 1 April 1986 to 31 March 1989 B Rs.40.39 lakhs; (ii) Disallowed expenditure Rs.1.82 crores; and (iii) Sale proceeds of scrap Rs.8.78 lakhs S.S.DESHPANDE 4 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt (f) appellant's appeal was heard by Regular Bench of rt Tribunal consisting of two members viz. Accountant Member and Judicial Member. However there was difference of opinion ou between two members constituting Regular Bench. This C difference was recorded in its order dated 3 August 1977 on following three issues: h (i) 'On money' received for period 1986 89 Rs.40.39 lakhs ig Accountant Member sustained addition only to H extent of Rs.10 lakhs. Judicial Member sustained addition to y extent of Rs.32.30 lakhs. ba (ii) Disallowance of alleged expenses Rs.1.82 crores Accountant Member allowed amount of Rs.45.59 om lakhs as expenditure out of Rs.1.82 crores as claimed. Judicial Member disallowed entire claim for B expenditure of Rs.1.82 crores. (iii) Income on sale of scrap Rs.8.78 lakhs Accountant Member deleted entire addition of Rs.8.78 lakhs. S.S.DESHPANDE 5 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt Judicial Member sustained addition of Rs.8.78 rt lakhs. In view of above difference of opinion, President ou of Tribunal nominated third member to decide above C points of differences between members of Regular Bench. (g) third member of Tribunal as nominated by h President, opined by order dated 10 March 2000 on ig difference of opinion as under: H (i) 'on money' for period 1986 to 1989 addition of only Rs.10 lakhs is sustained. Thus agreeing y with view of Accountant Member of Regular ba Bench of Tribunal; (ii) disallowance of alleged expenses, entire om claim of of Rs.1.82crores was held to be not sustainable. Thus agreeing with view of Judicial Member of B Regular Bench of Tribunal; and (iii) sale of scrap, entire addition of Rs.8.78 lakhs was sustained. Thus agreeing with view of Judicial Member of Regular Bench of Tribunal. S.S.DESHPANDE 6 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:50 ::: ITXA.1398.00.odt (h) Thereafter, opinion of third member was rt forwarded to Regular Bench of Tribunal. By order dated 6 July 2000, Regular Bench of Tribunal disposed of appeal ou by taking into account majority view on three issues as C under: (i) On issue of 'on money', addition of only h Rs.10 lakhs out of Rs.40.39 lakhs made by Assessing ig Officer was sustained for period 1986 to 1989; (ii) On issue of disallowance of expenditure, H amount of Rs.1.82 crores made by Assessing Officer was sustained; and y (iii) On sale of scrap, addition of Rs.8.78 lakhs ba made by Assessing Officer was sustained. om (i) Consequent to order dated 6 July 2000, appellant had preferred present appeal which was admitted on 29 July B 2002. We shall now deal with three substantial questions of law which according to appellant arise for our consideration. S.S.DESHPANDE 7 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt 5. Regarding Question No.1: rt (a) Assessing Officer in assessment order dated 30 September 1997 held that 'on money' on account of sale of Stenter ou machines for block period 1 April 1986 to 12 September 1996 C received by appellant was Rs.4.10 crores. Assessment Order records finding that for period 1 April 1989 to 12 h September 1996, 'on money' received was Rs.3.69 crores and for ig period 1 April 1986 to 31 March 1989 on money received was Rs.40.37 lakhs. H (b) appellant does not dispute Assessment Order y dated 30 September 1997 to extent it holds receipt of 'on ba money' to extent of Rs.3.69 crores for period 1 April 1989 to 12 September 1996. appellant on issue of receipt of 'on om money' only disputes that it had received any 'on money' during period 1 April 1986 to 31 March 1989. B (c) Mr. Joshi, learned Counsel for appellant submits that addition of Rs.10 lakhs by impugned order as being 'on money' received by appellant for period 1 April 1986 to 31 March 1989 is not sustainable on account of following: S.S.DESHPANDE 8 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (i) assessment in this case has been done rt consequent to search under Section 132 of Act. In terms of Chapter XIV B of Act, assessment is ou restricted to only undisclosed income for block C period computed on basis of evidence found in search in terms of Section 158B(b) of Act. Thus, so h far as period 1 April 1986 to 31 March 1989 is ig concerned, as no incriminating evidence was found evidencing receipt of any 'on money' either by H appellant or it's agents on sale of Stenter machines, addition on account of 'on money' is bad. y (ii) Any evidence found of receipt of 'on money' for ba period 1989 to 1996 cannot by itself be basis of estimating undisclosed income for period 1986 to om 1989 as has been done in this case; and (iii) impugned order incorrectly proceeds to B uphold addition of Rs.10 lakhs to income of appellant as 'on money' received for period 1986 to 1989 on basis of admission by appellant to extent of Rs.6 to 7 lakhs. S.S.DESHPANDE 9 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (d) As against above, Mr. Suresh Kumar, learned rt Counsel for Revenue in support of impugned order submits as under: ou (i) It has been admitted by appellant during C assessment proceedings that amounts paid in cash and claimed as expenditure were paid out of cash receipts. In h particular, he invites our attention to Annexure 'A' and 'C' ig to Assessment order which indicates that payments had been made in cash during year 1988 89 H admittedly out of amounts received in cash by appellant; and y (ii) appellants in reply to show cause notice ba have themselves offered Rs.5 to 7 lakhs as being amount received in cash as about 10 Stenter machines om were sold during period 1986 89 in Surat Market. appellants have further stated that they have received cash B in respect of sales made by them in Surat Market in accordance with prevailing practice in Surat. Thus this addition of Rs.10 lakhs by impugned order cannot be found fault with. S.S.DESHPANDE 10 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (e) We have considered rival submissions. appellant rt sought to rely upon definition of undisclosed income which has been defined in Section 158B(b) of Act. Undisclosed income is ou defined as any income based on any entry in books of account C or other documents or transactions which have not been disclosed or would not have been disclosed for purposes of Act. It is h submitted that in this case, there is no evidence in form of any ig entry in books of account or any other document to establish receipt of 'on money' by appellant. Consequently, amount of H Rs.10 lakhs being added to appellant's income as being 'on money' received for period 1986 1989 is unsustainable in law. y It is not in dispute that there is documentary evidence of receipt of ba 'on money' by appellant for period 1989 96. Thus there was evidence of receipt of 'on money' only for part of block om period on sale of Stenter machines for period 1989 96. This evidence was extrapolated in impugned order to conclude that B 'on money' had been received on sale of Stenter machines also for period 1986 89. This extrapolation in case of dealing outside regular books of accounts was subject of consideration S.S.DESHPANDE 11 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt by Supreme Court in Commissioner of S.T. Vs. H.M. Esufali1 rt and it was not disturbed. This interalia on ground that task of detecting escaped turnover is not easy and would involve some ou element of guess work. above decision of Apex Court is sought C to be distinguished on ground that it was case of best judgment assessment and therefore would have no application to h case of undisclosed income. We do not accept above ig submission. As in case of best judgment assessment assessment under Chapter XIV B of Act also involves element of guess H work (see CIT Vs. Dr.M.K.E Memon 248 ITR 310). However guess work should not be arbitrary. In this case besides y evidence for period 1989 to 1996, we have noticed that while ba justifying it's claim for expenditure in cash of Rs.1.82 crores, appellant itself has shown expenditure in cash for period prior om to 1989 out of amounts received in cash according to appellant. B (f) Be that as it may, we find that impugned order has proceeded on basis that appellant had himself admitted to receipt of 'on money' to extent of Rs.6 to 7 lakhs in its letter dated 25 September 1997. This according to appellant is 1. AIR 1973(SC) 2266 S.S.DESHPANDE 12 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt incorrect reading of communication as in that communication, rt appellant had specifically stated that there is no receipt of 'on money' by appellant during period 1986 to 1989. ou amount of Rs.6 to 7 lakhs according to appellant was offered C only to reconcile difference in value of Stenter machines as reflected by its customers in its books and as reflected by h appellant. Thus no reliance could be placed on aforesaid ig communication to reach conclusion that 'on money' was received by appellant for period 1986 to 1989. It would be H appropriate at this stage to reproduce relevant extract of communication by appellant dated 25 July 1997 which reads as y under: ba Without prejudice to above, we beg to state that we had sold about 10 machines, amounting to Rs.1,30,56,000/ during this period in Surat market. Discrepancy in figures, om if at all is to be considered should be within region of Rs.5 lakhs to Rs.7 lakhs. list of parties to whom machines were sold is enclosed. We submit that receipt of portion of sale price in cash is B peculiar only to Surat market. For reasons best known to people staying in Surat, we only can confirm that it was not at our instance that part of sale price was given to us in cash. It was because of their requirement that monies were offered to us in cash. To remain in other hand in no option but to accept same. On other hand in no other area we were dealing in this type of machine that here is no element of cash. Therefore, sale price in respect of S.S.DESHPANDE 13 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt sale of machine to other parties other than Surat is full and final sale proceeds which need no disturbance. rt (emphasis supplied) ou (g) From above, it is evident that appellants have themselves admitted that sale in Surat market had to be in cash as C buyers of Stenter machines would insist on paying appellant part consideration in cash. Thus appellant had no h option but to accept same. This coupled with fact that in its ig appeal memo to Tribunal, appellant has urged following H ground: Assessing Officer has erred in estimating that appellant must have received on monies to extent of y Rs.40,37,625/ in respect of period from 1/4/86 to 31/3/89 as against appellant's contention that ba receipts were only to extent of about Rs.6 lakhs. It is submitted that determination by him of figure on items in question at Rs.4,10,22,595/ is not warranted for. correct figure that he ought to have considered was om Rs.3,64,81,970/ . (emphasis supplied) Thus undisputedly, receipt of 'on money' even for period 1 April B 1986 to 31 March 1989 is admitted by appellant. estimate of Rs.10 lakhs on consideration of facts is not shown to be perverse. S.S.DESHPANDE 14 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (h) appellant interalia placed reliance upon following rt decisions: CIT Vs. Dr. M.K.E. Memon 248 ITR 310 (Bom) ou CIT Vs. R.M.L. Mehrotra 320 ITR 403 (All) CIT Vs. Faqir Chand Chamanlal 262 ITR 295 (P&H) C CIT Vs. Rajendra Prasad Gupta 248 ITR 350 (Raj) CIT Vs. Smt. Usha Tripati 249 ITR 4 (All) CIT Vs. Ghodawat Pan Masala Products Pvt.Ltd. 250 ITR 570 (Bom) h ig reliance is placed on above decisions to contend that in absence of evidence found during course of H search of receipt of 'on money' for period 1 April 1986 to 31 March 1989, revenue cannot tax same as undisclosed y income. fact that there was evidence of receipt of 'on money' ba for period 1989 onwards would not justify authorities from om extrapolating that 'on money' was received by appellant even for earlier period. These decisions are of no assistance as addition on account of 'on money' is based on evidence and B admission of appellant. (i) We are of view that finding reached by officers of Tribunal is essentially finding of fact. There was evidence S.S.DESHPANDE 15 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt available on record indicating receipt of 'on money' particularly for rt period 1989 to 1996. This evidence of receipt of 'on money' with regard to sale of Stenter machines is found in ou appellant's letter dated 25 July 1998 is admission of receipt 'on C money' for sale for Stenter Machine in Surat Market during period 1986 1989. Therefore, it could not be said that there was no h evidence on record for authorities to come to conclusion that ig 'on money' was received by appellant so as to hold that finding is perverse. H (j) On aforesaid factual scenario, majority view taken y by Tribunal, that addition of Rs.10 lakhs as receipt of 'on ba money' for period 1986 to 1989 in circumstances of case on appraisal of facts before them is plausible view. This view om has not been shown to be arbitrary or perverse. Thus Question No.1 is answered in negative i.e. in favour of revenue and B against appellant assessee. 6. Regarding Question No.3: (a) claim of expenses made in cash to extent of Rs.1.82 crores was disallowed by Assessing Officer and upheld S.S.DESHPANDE 16 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt by majority view of Tribunal in impugned order. During rt course of search, search party came across documents which Mr. Joshi, learned Counsel for appellant points out ou could be classified into three different categories as under: C (i) Documents indicating expenditure of Rs.66.87 lakhs paid as gifts to various people associated h with appellant's business; (ii) ig Documents indicating expenditure of Rs.60.46 being amounts paid as speed money, H protection money to union workers and (iii) Documents indicating expenditure of y Rs.55.04 lakhs paid as overtime to workers. ba expenditure in aggregate was Rs.1.82 crores. Assessing Officer in his order dated 30 September 1997 did not om accept that any expenditure was incurred on ground that complete evidence in support of payment was not provided. It B further added same as appellant's income under Section 69C of Act as appellant was unable to explain source of such expenditure. S.S.DESHPANDE 17 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (b) Before Tribunal, impugned order has deleted rt addition made by Assessing Officer to income as unexplained expenditure under Section 69C of Act. However so far as claim ou for deduction on account of expenditure was concerned, C Accountant Member allowed deduction to extent of 25% of Rs.1.82 crores. This after holding that appellant has not been h able to substantiate same, yet on ground that appellant ig may have incurred some expenditure for business purposes. rest of expenditure was disallowed. While Judicial Member H denied entire deduction on ground that no evidence had been led to establish that any expenditure had been incurred. In y any event, according to him, same would also be hit by ba Explanation below Section 37(1) of Act. Similarly, third member concurred with view of Judicial Member and also om held that appellant had not established that expenditure had in fact been incurred for purposes of business. In any view, B third member also held that same would be hit by Explanation to Section 37(1) of Act. S.S.DESHPANDE 18 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (c) Mr. Joshi, learned Counsel for revenue challenges rt addition of Rs.1.82 crores on being disallowed as expenditure on following grounds: ou (i) No undisclosed assets of value of Rs.1.82 C crores have been found with appellant. Therefore natural presumption would be that this amount has been h spent for purposes as reflected in seized documents. ig It was submitted that once receipt of amount in cash was accepted, payment in cash should also be accepted. H In support, reliance was placed upon decision of Kerala High Court in CIT Vs. P.D. Abraham @ Appachand1. y (ii) In any view of matter, Section 292 of Act, ba which was introduced by Finance Act, 2007 with retrospective effect from 1 October 1975, raise om presumption that any document found during course of search would be presumed to correctly reflect facts. B Thus, onus to establish expenditure referred to in loose documents found is not correct is on revenue. Tribunal proceeded to disallow expenditure on 1. 349 ITR 452 S.S.DESHPANDE 19 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt basis that appellants have been unable to prove rt expenditure. basis of above finding is not correct in view of Section 292C of Act which has been ou introduced with retrospecive effect from 1 October 1975. C In above view, it is submitted that appeal be restored to Tribunal to reconsider this issue on h application of Section 292C of Act. (iii) ig In any case, disallowance of expenditure in terms of Explanation to Section 37(1) of Act is H concerned, it would only be applicable if purposes of expenditure was offence or if it was prohibited by y law. impugned order does not establish that ba purposes for which expenditure was incurred in cash was offence or it was prohibited by law, but disallows it om only on being opposed to public policy. Accordingly, application of Explanation 1 to Section 37 of Act to B present facts was unwarranted. (d) As against above, Mr.Suresh Kumar submits as under: (i) Both Assessing Officers as well as impugned order of Tribunal holds that appellant S.S.DESHPANDE 20 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt assessee has not been able to establish that expenditure rt was incurred as claimed by them. documents seized during course of search don't contain names of ou recipients nor their addresses. findings of C Assessing Officer have also been corroborated by impugned order of Tribunal. Each of them separately h hold that appellant has not been able to establish that ig any expenditure was in fact incurred as claimed. (ii) finding of Assessing Officer as well as of H Tribunal in impugned order that no payment having been made by appellant so as to claim y deduction on account of expenditure, is finding of fact. ba This finding of fact has not been challenged on ground that it is perverse. Consequently, impugned order of om Tribunal cannot be found fault with. (iii) occasion to examine application of B Explanation 1 to Section 37 of Act would not arise in present facts. This for reason that it would arise for examination only after appellant assessee has been able to satisfy basic requisites of Section 37 of Act S.S.DESHPANDE 21 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt viz. that expenditure as claimed has been incurred and rt also that expenditure has been incurred for purposes of business. It is only thereafter that ou occasion to examine explanation to Section 37(1) of C Act would arise. It is therefore submitted that in facts of this case examination of Explanation to h Section 37(1) of Act is not warranted. (iv) ig retrospective amendment to Section 292C of Act would not come to aid of appellant as H same only gives discretion to revenue authorities, to presume that documents found during course of y search are true. Besides, presumption in Section ba 292C of Act is discretionary presumption. Therefore it is to be invoked by Authorities under Act. In any om case these documents don't establish fact of payments being made. B (e) We have considered rival submissions. We find that before expenditure can be allowed as deduction under Section 37 of Act, expenditure should have in fact been incurred and S.S.DESHPANDE 22 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt that also wholly and exclusively for purposes of business. rt Assessing Officer on detailed examination of facts has held that appellants were unable to establish that payments had in fact ou been made. This on basis that identity of recipients and C their addresses is not forthcoming nor is identity of persons who made payment of such huge amounts is forthcoming. h Besides loose papers do not indicate clearly whether or not ig money has been paid. documents indicated seeking of funds and/or reimbursement of funds. This by itself cannot establish that H money has been actually expended. Assessment Order also records fact that appellant had also not produced y individuals who had made said payments and/or produced their ba details. If person alleged to have made payments were produced, cross examination would have possibly thrown light om on genuineness of such claims. B (f) We further note that aforesaid findings of Assessing Officer has been reiterated independently by Accountant Member that no concrete evidence has been produced by appellants so as to establish that payments as claimed by S.S.DESHPANDE 23 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt them had in fact been made. Notwithstanding above, rt Accountant Member did allow deduction 25% of total expenditure claimed on ground that it may have been incurred ou for business purposes. This after holding that exact C quantification is not possible. (g) On other hand, we find that Judicial member on h consideration of facts held that there is no evidence led by ig appellant to establish that expenditure claimed by them had been H incurred. Deduction of expenses merely on basis of noting on piece of papers would not be sufficient proof for allowability of y deduction. After giving aforesaid finding, Judicial Member ba further goes on to examine that even if one assumes that such payment has in fact been made, deduction of such payments om was not permissible in view of Explanation to Section 37(1) of Act. Similarly, third member to whom issue of allowablity B of expenditure as deduction was referred to has held that appellants had not furnished any evidence what so ever to prove expenditure was incurred and that it was incurred for purposes of business. S.S.DESHPANDE 24 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt (h) Therefore we notice that impugned order of rt Tribunal has come to conclusion that there is no evidence produced to prove that expenditure claimed as deduction was in ou fact incurred by appellant assessee. Albiet Accountant C Member (minority view) after holding that appellant has not been able to substantiate expenditure does allow deduction to h extent of 25% of Rs.1.82 crores. Therefore, primary ig requirement of satisfaction of Section 37(1) of Act has not been met by appellant assessee. This finding of authorities under H Act as well as Tribunal are undisputedly findings of fact. On basis of available evidence before authorities and y Tribunal, findings arrived at cannot be said to be perverse ba and/or arbitrary. In fact there is no challenge to aforesaid finding on ground that it is perverse. It is plausible view on om basis of evidence available. B (i) appellants contended that once authorities have accepted that amounts were received in cash, it must necessarily also accept that expenditure has been incurred in cash. reliance is placed upon decision of Kerala High Court in P.D. S.S.DESHPANDE 25 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt Abrahim (supra) by appellant in that behalf. In that case, rt unaccounted payments and unaccounted receipts were recorded in same books of account and acceptance of receipts in that ou account would have to be followed by acceptance of payments as C recorded in same books of accounts. This is not so in present facts. payments and receipts of are not recorded in h same documents or same books of accounts. Thus decision ig of Kerala High Court in P.D. Abrahim (supra) would have no application to present facts. H (j) reliance is placed on Section 292C of Act which y ba was introduced by Finance Act, 2007 with retrospective effect from 1 October 1975 by appellant to submit that documents om found during course of search are presumed to correctly reflect facts. It is on basis of documents found during course of search that Assessing Officer had classified them into B three different categories indicating alleged heads of expenditure. This evidence is submitted in view of retrospective amendment of Act by Section 292C of Act be accepted and S.S.DESHPANDE 26 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt onus to establish that expenditure referred to in documents rt is not correct is on revenue. ou (k) In present facts, we find that documents found during course of search are inchoate. It does not indicate C person to whom payment has been made, address of recipient, person by whom payment is made and h documents itself indicates that it is prepared for either seeking of ig funds or reimbursement of funds. Therefore even if H presumption is to be applied and documents are accepted as true, it would not lead to conclusion that payments have been y made in cash so as to claim expenditure. Thus no purpose ba would be served in remanding issue to Tribunal. Further Section 292 of Act provides that where any documents are om found in possession or control of any person in course of search under Section 132 of Act, then it may be presumed in any B proceedings under this Act that contents of such documents are true and correct. It will be noted that section uses word 'may presume' and not 'shall presume' or 'conclusively presume'. words 'may presume' are in nature of discretionary S.S.DESHPANDE 27 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt presumption different from compulsory presumption. Therefore rt this presumption has to be invoked by authorities passing order under Act particularly when invocation of such ou presumption is discretionary on authorities. During course C of assessment proceedings, appellant assessee sought to explain fact that these expenses on which deduction is h claimed had in fact been incurred. This was in response to show ig cause notice issued to appellant. Thereafter Explanation offered by appellant was not found satisfactory on basis of H evidence available before authorities and Tribunal. In this view of matter, amendment to Section 292C of Act even y though with retrospective effect would not bring about any material ba change in conclusion arrived at upon existing facts. om (l) appellants placed great emphasis on non applicability of Explanation to Section 37(1) of Act. It was B contended that payment made in this case was neither offence nor prohibited by law, thus occasion to apply Explanation to Section 37(1) of Act would not arise. In support reliance was placed upon numerous decisions. However, in S.S.DESHPANDE 28 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt facts of present case, this would arise for examination only if rt we were come to conclusion that amounts claimed as expenditure had in fact been incurred by appellant assessee. ou Therefore in present facts, we have not examined issue of C applicability of Explanation to Section 37(1) of Act to payments made. Consequently, numerous case laws cited at h bar also not examined. (m) ig finding of facts recorded by authorities under H Act on issue of payment not being made is possible view. same is not shown to be perverse on arbitrary. y ba (n) In above view, Question No.(3) is answered in negative i.e. in favour of revenue and against appellant om assessee. 7. Regarding Question No.4: B (a) During course of search, various loose papers were seized. Perusal of these loose papers indicate proof of small amounts of money received. In each of these papers there is S.S.DESHPANDE 29 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt detailed description of material, corresponding weight per kg. and rt rate applied. Besides at bottom of each of loose pages, there is signature below words 'received' with date also ou thereon. Some of chits which were recovered also indicates C truck numbers. Assessing Officer was of prima facie view that these indicated sale proceeds of scrap material which have not h been accounted in regular books of accounts. Consequently, ig Assessing Officer issued notice to appellant to show cause why receipts of amounts indicated in these chits should not be H considered as receipt on account of sale of scrap. y (b) appellant assessee responded to notice pointing out ba that loose papers seized in fact reflect purchase of scrap by appellants and not sale. These purchases were out of receipt of 'on om money' received on sale of Stenter machines and therefore could not be added as undisclosed income for block period. B (c) Assessing Officer did not accept contentions of appellant assessee and on facts held that in course of manufacture of Stenter machines, scrap would be generated and it S.S.DESHPANDE 30 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt is this scrap which is sold by appellant assessee. Assessing rt Officer held that scrap is not produced/manufactured, but in course of manufacturing of finished product, scrap is generated. ou Thus on facts Assessing Officer concluded that amounts C indicated in loose papers aggregating to Rs.8.78 lakhs was nothing but sale proceeds of scrap material and therefore added h to income of appellants as income from undisclosed sources. ig In appeal, members of Regular Bench did not agree amongst themselves. Accountant Member deleted addition of H Rs.8.78 lakhs on ground that very fact that documents in possession of appellant would indicate that amounts y have been received by supplier/seller of scrap purchased by ba appellant. This is only acceptable explanation for appellant being in possession of signed document. Judicial Member om on other hand on preponderance of probability came to conclusion that in normal course of human conduct, purchase of B scrap if utilized in manufacturing activity would have been recorded in normal books of accounts as deduction would be available. In these circumstances, he was of view that purchase of scrap is ruled out and it has to be considered as sale of scrap. third S.S.DESHPANDE 31 / 34 ::: Uploaded on - 03/11/2015 ::: Downloaded on - 26/11/2015 16:59:51 ::: ITXA.1398.00.odt member on reference of President agreed with view of rt Judicial Member and on finding of facts concluded that it seems likely that appellant assessee had sold scrap and not purchased ou scrap and therefore addition made by Assessing Officer C ought not to be disturbed. 8. Mr. Joshi, in support of his submission held that h amount of Rs.8.78 crores represents not consideration received on ig sale of scrap but is in fact consideration paid for purchase of scrap. H very fact that documents acknowledging receipt of money was found in possession of appellant is indicative of y fact that amount would have been paid on purchase of scrap ba and seller of scrap would have knowledge of receipt of same. This receipt is what is found during course of search. om Thus, finding of Judicial Member and third member is not only erroneous b M/sHarishTextileEngrs.Ltd. v. Dy.CommissionerofIncomeTax, SpecialRange-19