M/S Harish Textile Engrs. Ltd., Mumbai v. Dy. Commissioner Of Income Tax,Special Range-19

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1398 OF 2000 M/s Harish Textile Engrs. Ltd., Mumbai..Appellant Vs. Dy. Commissioner of Income Tax,Special Range-19..Respondent .... Mr. Nitesh Joshi a/w Jineshkumar Gandhi, Advocates i/b Dave &Girish & Co. for Appellant.Mr. Suresh Kumar, Advocate for Respondent. .... CORAM : M.S. SANKLECHA & G.S. KULKARNI, JJ.RESERVED ON : 27 OCTOBER 2015PRONOUNCED ON: 30 OCTOBER 2015 JUDGMENT (Per: M.S. Sanklecha, J.): This appeal under Section 260A of the Income Tax Act,1961 (the 'Act') challenges the order dated 6 July 2000 passed bythe Income Tax Appellate Tribunal (the 'Tribunal'). The impugnedorder of the Tribunal disposes the revenue's appeal for the blockperiod 1 April 1986 to 12 September 1996. 2.This appeal was admitted by this Court on 29 July 2002on the following substantial questions of law: “(1)Whether on the facts and in thecircumstances of the case, the addition ofRs.10,00,000/- as 'on money' receipt in the periodfrom 1986 to 1989, was without jurisdiction,patently illegal and invalid, there being no evidenceor material in support? (2)Whether on the facts and in thecircumstances of the case, the third member of theTribunal erred in holding that he is bound to acceptthe view of one of the two members inspite of thefact that he has a third view? (3)Whether on the facts and in thecircumstances of the case, the Tribunal erred in notallowing any deduction out of the expenditure ofRs.1,82,38,330/-? (4)Whether on the facts and in thecircumstances of the case, the conclusion of theTribunal that the loose papers represented receiptof Rs.8,78,085/-, by the appellant on sale of scrapwas perverse, being based merely on presumptions,conjectures and surmises?” 3.Mr. Nitesh Joshi, the learned Counsel for the appellantstates that Question No.2 above is not pressed. Thus, Question No.2is dismissed as not pressed. 4.Brief facts leading to the present appeal for considerationof Question Nos. 1, 3 and 4 are as under: (a)The appellant is a manufacturer of Textile Machinery. On12 September 1996, there was a search action under Section 132 ofthe Act on the appellant. Its office premises, factory at Umargaon,Gujarat and residence of two of its Directors were searched by theofficers of the revenue. (b)During the course of the search, the stocks lying inpremises of the appellant were inventorised. Besides various loosedocuments, newspapers and books of accounts were seized by theofficers of the revenue. (c)Consequent to the search, on 16 December 1996, a noticeunder Section 158BC of the Act was served on the appellant. Uponservice of the above notice, the appellant filed its return of incomeon 6 March 1997 disclosing its income at Rs.1.15 crores for theblock period i.e. 1 April 1986 to 12 September 1996. Thisundisclosed income declared were interalia unaccounted cash,excess stock, seized jewellery, seized Indira Vikas Patra, seizedKisan Vikas Patra and investment in sundry assets. (d)On 30 September 1997, the Assessing Officer passed anorder under Section 158BC(c) of the Act determining the appellant'stotal income for the block period 1 April 1986 to 12 March 1996 atRs.6.1 crores. This income was determined by the Assessing Officeron account of the following:- (i) Undisclosed income on account of on-money on sale of textile machineryRs.4,10,22,595/- (ii) Expenditure disallowedRs.1,82,38,330/- (iii) Undisclosed Income on sale --of scrapRs. 8,78,085/Rs.6,01,39,010/-Rs.6,01,39,010/- (e)Being aggrieved, the appellant filed an appeal from orderdated 30 September 1997 to the Tribunal. The appeal was filed tothe extent of the following three additions made by the AssessingOfficer:- (i) Receipt of 'on money' to the extent of sale oftextile machinery for the period 1 April 1986 to 31 March 1989 –Rs.40.39 lakhs; (i) Undisclosed income on account of on-money on sale of textile machineryRs.4,10,22,595/- (ii) Expenditure disallowedRs.1,82,38,330/- (iii) Undisclosed Income on sale --of scrapRs. 8,78,085/Rs.6,01,39,010/-Rs.6,01,39,010/- (e)Being aggrieved, the appellant filed an appeal from orderdated 30 September 1997 to the Tribunal. The appeal was filed tothe extent of the following three additions made by the AssessingOfficer:- (i) Receipt of 'on money' to the extent of sale oftextile machinery for the period 1 April 1986 to 31 March 1989 –Rs.40.39 lakhs; (ii)Disallowed expenditure – Rs.1.82 crores; and(iii)Sale proceeds of scrap – Rs.8.78 lakhs(iii)Sale proceeds of scrap – Rs.8.78 lakhs (f)The appellant's appeal was heard by the Regular Bench ofthe Tribunal consisting of two members viz. Accountant Memberand Judicial Member. However there was a difference of opinionbetween the two members constituting the Regular Bench. Thisdifference was recorded in its order dated 3 August 1977 on thefollowing three issues:- ''--(i)Onmoney received for the period 198689 Rs.40.39 lakhs The Accountant Member sustained the addition only to the extent of Rs.10 lakhs. The Judicial Member sustained the addition to the extent of Rs.32.30 lakhs.extent of Rs.32.30 lakhs. (ii)Disallowance of alleged expenses Rs.1.82 crores The Accountant Member allowed an amount of Rs.45.59 lakhs as expenditure out of Rs.1.82 crores as claimed.lakhs as expenditure out of Rs.1.82 crores as claimed. The Judicial Member disallowed the entire claim forexpenditure of Rs.1.82 crores.expenditure of Rs.1.82 crores. (iii)Income on sale of scrap Rs.8.78 lakhs The Accountant Member deleted the entire addition of Rs.8.78 lakhs. The Judicial Member sustained the addition of Rs.8.78 lakhs. In view of the above difference of opinion, the President of the Tribunal nominated a third member to decide the abovepoints of differences between the members of the Regular Bench. (g)The third member of the Tribunal as nominated by thePresident, opined by an order dated 10 March 2000 on thedifference of opinion as under:- (i)'on money' for the period 1986 to 1989 the addition of only Rs.10 lakhs is sustained. Thus agreeing with the view of the Accountant Member of the Regular Bench of the Tribunal; (ii)disallowance of alleged expenses, the entire claim of of Rs.1.82crores was held to be not sustainable. Thus agreeing with the view of Judicial Member of the Regular Bench of the Tribunal; and (iii)sale of scrap, the entire addition of Rs.8.78 lakhs was sustained. Thus agreeing with the view of Judicial Member of the Regular Bench of the Tribunal. (h)Thereafter, the opinion of the third member wasforwarded to the Regular Bench of the Tribunal. By order dated 6July 2000, the Regular Bench of the Tribunal disposed of the appealby taking into account the majority view on the three issues asunder:- (i)On the issue of 'on money', the addition of onlyRs.10 lakhs out of Rs.40.39 lakhs made by the AssessingOfficer was sustained for the period 1986 to 1989; (ii)On the issue of disallowance of expenditure, theamount of Rs.1.82 crores made by the Assessing Officerwas sustained; and (iii)On sale of scrap, the addition of Rs.8.78 lakhsmade by the Assessing Officer was sustained. (i)Consequent to the order dated 6 July 2000, the appellanthad preferred the present appeal which was admitted on 29 July2002. We shall now deal with the three substantial questions of lawwhich according to the appellant arise for our consideration. -5.Regarding Question No.1: (a)The Assessing Officer in the assessment order dated 30September 1997 held that 'on money' on account of sale of Stentermachines for the block period 1 April 1986 to 12 September 1996received by the appellant was Rs.4.10 crores. The AssessmentOrder records a finding that for the period 1 April 1989 to 12September 1996, the 'on money' received was Rs.3.69 crores and forthe period 1 April 1986 to 31 March 1989 on-money received wasRs.40.37 lakhs. (i)Consequent to the order dated 6 July 2000, the appellanthad preferred the present appeal which was admitted on 29 July2002. We shall now deal with the three substantial questions of lawwhich according to the appellant arise for our consideration. -5.Regarding Question No.1: (a)The Assessing Officer in the assessment order dated 30September 1997 held that 'on money' on account of sale of Stentermachines for the block period 1 April 1986 to 12 September 1996received by the appellant was Rs.4.10 crores. The AssessmentOrder records a finding that for the period 1 April 1989 to 12September 1996, the 'on money' received was Rs.3.69 crores and forthe period 1 April 1986 to 31 March 1989 on-money received wasRs.40.37 lakhs. (b)The appellant does not dispute the Assessment Orderdated 30 September 1997 to the extent it holds receipt of 'onmoney' to the extent of Rs.3.69 crores for the period 1 April 1989 to12 September 1996. The appellant on the issue of receipt of 'onmoney' only disputes that it had received any 'on money' during theperiod 1 April 1986 to 31 March 1989. (c)Mr. Joshi, the learned Counsel for the appellant submitsthat the addition of Rs.10 lakhs by the impugned order as being the'on money' received by the appellant for the period 1 April 1986 to31 March 1989 is not sustainable on account of the following:S.S.DESHPANDE8 / 34 (i)The assessment in this case has been doneconsequent to search under Section 132 of the Act. Interms of Chapter XIV-B of the Act, the assessment isrestricted to only the undisclosed income for the blockperiod computed on the basis of evidence found in thesearch in terms of Section 158B(b) of the Act. Thus, sofar as the period 1 April 1986 to 31 March 1989 isconcerned, as no incriminating evidence was foundevidencing receipt of any 'on money' either by theappellant or it's agents on the sale of Stenter machines,the addition on account of 'on money' is bad. (ii)Any evidence found of receipt of 'on money' forthe period 1989 to 1996 cannot by itself be the basis ofthe estimating undisclosed income for the period 1986 to1989 as has been done in this case; and (iii)The impugned order incorrectly proceeds touphold addition of Rs.10 lakhs to income of the appellantas 'on money' received for the period 1986 to 1989 on thebasis of admission by the appellant to the extent of Rs.6to 7 lakhs. (d)As against the above, Mr. Suresh Kumar, the learnedCounsel for the Revenue in support of the impugned order submitsas under: (i)It has been admitted by the appellant during theassessment proceedings that the amounts paid in cash andclaimed as expenditure were paid out of cash receipts. Inparticular, he invites our attention to Annexure 'A' and 'C'to the Assessment order which indicates that paymentshad been made in cash during the year 1988-89admittedly out of amounts received in cash by theappellant; and (ii)The appellants in reply to the show cause noticehave themselves offered Rs.5 to 7 lakhs as being anamount received in cash as about 10 Stenter machineswere sold during the period 1986-89 in Surat Market. Theappellants have further stated that they have received cashin respect of sales made by them in Surat Market inaccordance with the prevailing practice in Surat. Thus thisaddition of Rs.10 lakhs by the impugned order cannot befound fault with. (ii)The appellants in reply to the show cause noticehave themselves offered Rs.5 to 7 lakhs as being anamount received in cash as about 10 Stenter machineswere sold during the period 1986-89 in Surat Market. Theappellants have further stated that they have received cashin respect of sales made by them in Surat Market inaccordance with the prevailing practice in Surat. Thus thisaddition of Rs.10 lakhs by the impugned order cannot befound fault with. (e)We have considered the rival submissions. The appellantsought to rely upon the definition of undisclosed income which hasbeen defined in Section 158B(b) of the Act. Undisclosed income isdefined as any income based on any entry in the books of accountor other documents or transactions which have not been disclosedor would not have been disclosed for the purposes of the Act. It issubmitted that in this case, there is no evidence in the form of anyentry in the books of account or any other document to establishreceipt of 'on money' by the appellant. Consequently, the amount ofRs.10 lakhs being added to the appellant's income as being 'onmoney' received for the period 1986-1989 is unsustainable in law.It is not in dispute that there is documentary evidence of receipt of'on money' by the appellant for the period 1989-96. Thus there wasevidence of receipt of 'on money' only for the part of the blockperiod on sale of Stenter machines for the period 1989-96. Thisevidence was extrapolated in the impugned order to conclude that'on money' had been received on the sale of Stenter machines alsofor the period 1986-89. This extrapolation in case of dealingoutside the regular books of accounts was a subject of consideration by the Supreme Court in Commissioner of S.T. Vs. H.M. Esufali[1]and it was not disturbed. This interalia on the ground that the taskof detecting escaped turnover is not easy and would involve someelement of guess work. The above decision of Apex Court is soughtto be distinguished on the ground that it was a case of bestjudgment assessment and therefore would have no application tothe case of undisclosed income. We do not accept the abovesubmission. As in case of best judgment assessment an assessmentunder Chapter XIV B of the Act also involves an element of guesswork (see CIT Vs. Dr.M.K.E Memon 248 ITR 310). However theguess work should not be arbitrary. In this case besides theevidence for the period 1989 to 1996, we have noticed that whilejustifying it's claim for expenditure in cash of Rs.1.82 crores, theappellant itself has shown expenditure in cash for the period priorto 1989 out of amounts received in cash according to the appellant. (f)Be that as it may, we find that the impugned order hasproceeded on the basis that the appellant had himself admitted toreceipt of 'on money' to the extent of Rs.6 to 7 lakhs in its letterdated 25 September 1997. This according to the appellant is an1. AIR 1973(SC) 2266 incorrect reading of the communication as in that communication,the appellant had specifically stated that there is no receipt of 'onmoney' by the appellant during the period 1986 to 1989. Theamount of Rs.6 to 7 lakhs according to the appellant was offeredonly to reconcile the difference in the value of Stenter machines asreflected by its customers in its books and as reflected by theappellant. Thus no reliance could be placed on the aforesaidcommunication to reach the conclusion that 'on money' wasreceived by the appellant for the period 1986 to 1989. It would beappropriate at this stage to reproduce the relevant extract of thecommunication by the appellant dated 25 July 1997 which reads as under: incorrect reading of the communication as in that communication,the appellant had specifically stated that there is no receipt of 'onmoney' by the appellant during the period 1986 to 1989. Theamount of Rs.6 to 7 lakhs according to the appellant was offeredonly to reconcile the difference in the value of Stenter machines asreflected by its customers in its books and as reflected by theappellant. Thus no reliance could be placed on the aforesaidcommunication to reach the conclusion that 'on money' wasreceived by the appellant for the period 1986 to 1989. It would beappropriate at this stage to reproduce the relevant extract of thecommunication by the appellant dated 25 July 1997 which reads as under: “Without prejudice to the 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,if at all is to be considered should be within the region ofRs.5 lakhs to Rs.7 lakhs. A list of parties to whom themachines were sold is enclosed.We submit that the receipt of portion of sale price in cash ispeculiar only to Surat market. For the reasons best knownto people staying in Surat, we only can confirm that it wasnot at our instance that part of the sale price was given to usin cash. It was because of their requirement that the monieswere offered to us in cash. To remain in the other hand inno option but to accept the same. On the other hand in noother area we were dealing in this type of machine that hereis no element of cash. Therefore, the sale price in respect of sale of machine to other parties other than Surat is the fulland final sale proceeds which need no disturbance.” (emphasis supplied) (g)From the above, it is evident that the appellants havethemselves admitted that sale in Surat market had to be in cash asthe buyers of the Stenter machines would insist on paying theappellant a part consideration in cash. Thus the appellant had nooption but to accept the same. This coupled with the fact that in itsappeal memo to the Tribunal, the appellant has urged the followingground: “The Assessing Officer has erred in estimating that theappellant must have received on-monies to the extent ofRs.40,37,625/- in respect of the period from 1/4/86 to31/3/89 as against the appellant's contention that thereceipts were only to the extent of about Rs.6 lakhs. It issubmitted that the determination by him of the figure on theitems in question at Rs.4,10,22,595/- is not warranted for.The correct figure that he ought to have considered wasRs.3,64,81,970/-.” (emphasis supplied) Thus undisputedly, receipt of 'on money' even for the period 1 April 1986 to 31 March 1989 is admitted by the appellant. The estimateof Rs.10 lakhs on the consideration of the facts is not shown to beperverse. (h)The appellant interalia placed reliance upon the followingdecisions: CIT Vs. Dr. M.K.E. Memon 248 ITR 310 (Bom)CIT Vs. R.M.L. Mehrotra 320 ITR 403 (All)CIT Vs. Faqir Chand Chamanlal 262 ITR 295 (P&H)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) The reliance is placed on the above decisions to contendthat in the absence of evidence found during the course of thesearch of receipt of 'on money' for the period 1 April 1986 to 31March 1989, the revenue cannot tax the same as undisclosedincome. The fact that there was evidence of receipt of 'on money'for the period 1989 onwards would not justify the authorities fromextrapolating that 'on money' was received by the appellant even forthe earlier period. These decisions are of no assistance as theaddition on account of 'on money' is based on evidence and theadmission of the appellant. (i)We are of the view that the finding reached by officers ofthe Tribunal is essentially a finding of fact. There was evidence CIT Vs. Ghodawat Pan Masala Products Pvt.Ltd. 250 ITR 570 (Bom) The reliance is placed on the above decisions to contendthat in the absence of evidence found during the course of thesearch of receipt of 'on money' for the period 1 April 1986 to 31March 1989, the revenue cannot tax the same as undisclosedincome. The fact that there was evidence of receipt of 'on money'for the period 1989 onwards would not justify the authorities fromextrapolating that 'on money' was received by the appellant even forthe earlier period. These decisions are of no assistance as theaddition on account of 'on money' is based on evidence and theadmission of the appellant. (i)We are of the view that the finding reached by officers ofthe Tribunal is essentially a finding of fact. There was evidence available on record indicating receipt of 'on money' particularly forthe period 1989 to 1996. This evidence of receipt of 'on money'with regard to the sale of Stenter machines is found in theappellant's letter dated 25 July 1998 is an admission of receipt 'onmoney' for sale for Stenter Machine in Surat Market during theperiod 1986-1989. Therefore, it could not be said that there was noevidence on record for the authorities to come to a conclusion that'on money' was received by the appellant so as to hold that thefinding is perverse. (j)On the aforesaid factual scenario, the majority view takenby the Tribunal, that the addition of Rs.10 lakhs as receipt of 'onmoney' for the period 1986 to 1989 in the circumstances of the caseon appraisal of the facts before them is a plausible view. This viewhas not been shown to be arbitrary or perverse. Thus QuestionNo.1 is answered in negative i.e. in favour of the revenue andagainst the appellant-assessee. 6.Regarding Question No.3:- (a)The claim of the expenses made in cash to the extent ofRs.1.82 crores was disallowed by the Assessing Officer and upheld by the majority view of Tribunal in the impugned order. During thecourse of the search, the search party came across the documentswhich Mr. Joshi, the learned Counsel for the appellant points outcould be classified into three different categories as under:- (i)Documents indicating an expenditure of Rs.66.87 lakhs paid as gifts to various people associatedwith the appellant's business; (ii)Documents indicating an expenditure ofRs.60.46 being amounts paid as speed money,protection money to union workers and (iii)Documents indicating an expenditure ofRs.55.04 lakhs paid as overtime to the workers. The expenditure in the aggregate was Rs.1.82 crores. The Assessing Officer in his order dated 30 September 1997 did notaccept that any expenditure was incurred on the ground thatcomplete evidence in support of payment was not provided. Itfurther added the same as appellant's income under Section 69C ofthe Act as the appellant was unable to explain the source of suchexpenditure. (b)Before the Tribunal, the impugned order has deleted theaddition made by the Assessing Officer to income as unexplainedexpenditure under Section 69C of the Act. However so far as claimfor deduction on account of expenditure was concerned, theAccountant Member allowed deduction to the extent of 25% ofRs.1.82 crores. This after holding that the appellant has not beenable to substantiate the same, yet on the ground that the appellantmay have incurred some expenditure for business purposes. Therest of the expenditure was disallowed. While the Judicial Memberdenied the entire deduction on the ground that no evidence hadbeen led to establish that any expenditure had been incurred. Inany event, according to him, the same would also be hit by theExplanation below Section 37(1) of the Act. Similarly, the thirdmember concurred with the view of the Judicial Member and alsoheld that the appellant had not established that expenditure had infact been incurred for the purposes of business. In any view, thethird member also held that the same would be hit by theExplanation to Section 37(1) of the Act. (c)Mr. Joshi, the learned Counsel for the revenue challengesthe addition of Rs.1.82 crores on being disallowed as expenditureon the following grounds:- (i)No undisclosed assets of the value of Rs.1.82crores have been found with the appellant. Therefore thenatural presumption would be that this amount has beenspent for the purposes as reflected in the seized documents.It was submitted that once the receipt of amount in cashwas accepted, the payment in cash should also be accepted.In support, reliance was placed upon the decision of KeralaHigh Court in CIT Vs. P.D. Abraham @ Appachand[1].(ii)In any view of the matter, Section 292 of the Act,which was introduced by the Finance Act, 2007 withretrospective effect from 1 October 1975, raise apresumption that any document found during the course ofa search would be presumed to correctly reflect the facts.Thus, the onus to establish the expenditure referred to inthe loose documents found is not correct is on the revenue.The Tribunal proceeded to disallow the expenditure on the basis that the appellants have been unable to prove theexpenditure. The basis of the above finding is not correctin view of Section 292C of the Act which has beenintroduced with retrospecive effect from 1 October 1975.In the above view, it is submitted that the appeal berestored to the Tribunal to reconsider this issue onapplication of Section 292C of the Act. (iii)In any case, the disallowance of the expenditurein terms of Explanation to Section 37(1) of the Act isconcerned, it would only be applicable if the purposes ofthe expenditure was an offence or if it was prohibited bylaw. The impugned order does not establish that thepurposes for which the expenditure was incurred in cashwas an offence or it was prohibited by law, but disallows itonly on being opposed to public policy. Accordingly, theapplication of Explanation 1 to Section 37 of the Act to thepresent facts was unwarranted. (d)As against the above, Mr.Suresh Kumar submits as under: (i)Both the Assessing Officers as well as theimpugned order of the Tribunal holds that the appellant-20 / 34impugned order of the Tribunal holds that the appellant-20 / 34 assessee has not been able to establish that expenditurewas incurred as claimed by them. The documents seizedduring the course of the search don't contain the names ofthe recipients nor their addresses. The findings of theAssessing Officer have also been corroborated by theimpugned order of the Tribunal. Each of them separatelyhold that the appellant has not been able to establish thatany expenditure was in fact incurred as claimed. (ii)The finding of the Assessing Officer as well as ofthe Tribunal in the impugned order that no paymenthaving been made by the appellant so as to claimdeduction on account of expenditure, is a finding of fact.This finding of fact has not been challenged on the groundthat it is perverse. Consequently, the impugned order ofthe Tribunal cannot be found fault with. (iii)The occasion to examine the application of theExplanation 1 to Section 37 of the Act would not arise inthe present facts. This for the reason that it would arisefor examination only after the appellant-assessee has beenable to satisfy the basic requisites of Section 37 of the ActExplanation 1 to Section 37 of the Act would not arise inthe present facts. This for the reason that it would arisefor examination only after the appellant-assessee has beenable to satisfy the basic requisites of Section 37 of the Act viz. that expenditure as claimed has been incurred andalso that the expenditure has been incurred for thepurposes of business. It is only thereafter that theoccasion to examine the explanation to Section 37(1) ofthe Act would arise. It is therefore submitted that in thefacts of this case the examination of Explanation toSection 37(1) of the Act is not warranted. viz. that expenditure as claimed has been incurred andalso that the expenditure has been incurred for thepurposes of business. It is only thereafter that theoccasion to examine the explanation to Section 37(1) ofthe Act would arise. It is therefore submitted that in thefacts of this case the examination of Explanation toSection 37(1) of the Act is not warranted. (iv)The retrospective amendment to Section 292Cof the Act would not come to the aid of the appellant asthe same only gives discretion to the revenue authorities,to presume that the documents found during the course ofthe search are true. Besides, the presumption in Section292C of the Act is a discretionary presumption. Thereforeit is to be invoked by the Authorities under the Act. In anycase these documents don't establish the fact of paymentsbeing made. (e)We have considered the rival submissions. We find thatbefore the expenditure can be allowed as deduction under Section37 of the Act, the expenditure should have in fact been incurred and that also wholly and exclusively for the purposes of business. TheAssessing Officer on detailed examination of the facts has held thatthe appellants were unable to establish that payments had in factbeen made. This on the basis that the identity of the recipients andtheir addresses is not forthcoming nor is the identity of the personswho made the payment of such huge amounts is forthcoming.Besides the loose papers do not indicate clearly whether or not themoney has been paid. The documents indicated seeking of fundsand/or reimbursement of funds. This by itself cannot establish thatthe money has been actually expended. The Assessment Order alsorecords the fact that the appellant had also not produced theindividuals who had made said payments and/or produced theirdetails. If the person alleged to have made payments wereproduced, the cross examination would have possibly thrown lighton the genuineness of such claims. (f)We further note that the aforesaid findings of theAssessing Officer has been reiterated independently by theAccountant Member that no concrete evidence has been producedby the appellants so as to establish that the payments as claimed by them had in fact been made. Notwithstanding the above, theAccountant Member did allow deduction 25% of the totalexpenditure claimed on the ground that it may have been incurredfor business purposes. This after holding that the exactquantification is not possible. (g)On the other hand, we find that the Judicial member onconsideration of the facts held that there is no evidence led by theappellant to establish that expenditure claimed by them had beenincurred. Deduction of expenses merely on the basis of noting onpiece of papers would not be a sufficient proof for allowability ofdeduction. After giving the aforesaid finding, the Judicial Memberfurther goes on to examine that even if one assumes that suchpayment has in fact been made, the deduction of such paymentswas not permissible in view of Explanation to Section 37(1) of theAct. Similarly, the third member to whom the issue of allowablityof the expenditure as deduction was referred to has held that theappellants had not furnished any evidence what so ever to prove theexpenditure was incurred and that it was incurred for the purposesof business. (h)Therefore we notice that the impugned order of theTribunal has come to a conclusion that there is no evidenceproduced to prove that the expenditure claimed as deduction was infact incurred by the appellant-assessee. Albiet the AccountantMember (minority view) after holding that the appellant has notbeen able to substantiate the expenditure does allow deduction tothe extent of 25% of Rs.1.82 crores. Therefore, the primaryrequirement of satisfaction of Section 37(1) of the Act has not beenmet by the appellant-assessee. This finding of the authorities underthe Act as well as the Tribunal are undisputedly findings of fact. Onthe basis of available evidence before the authorities and theTribunal, the findings arrived at cannot be said to be perverseand/or arbitrary. In fact there is no challenge to the aforesaidfinding on the ground that it is perverse. It is a plausible view onthe basis of the evidence available. (i)The appellants contended that once the authorities haveaccepted that amounts were received in cash, it must necessarilyalso accept that expenditure has been incurred in cash. The relianceis placed upon the decision of the Kerala High Court in P.D. 25 / 34 Abrahim (supra) by the appellant in that behalf. In that case, theunaccounted payments and unaccounted receipts were recorded inthe same books of account and acceptance of receipts in thataccount would have to be followed by acceptance of payments asrecorded in the same books of accounts. This is not so in thepresent facts. The payments and receipts of are not recorded in thesame documents or the same books of accounts. Thus the decisionof the Kerala High Court in P.D. Abrahim (supra) would have noapplication to the present facts. (j)The reliance is placed on Section 292C of the Act whichwas introduced by the Finance Act, 2007 with retrospective effectfrom 1 October 1975 by the appellant to submit that the documentsfound during the course of search are presumed to correctly reflectthe facts. It is on the basis of the documents found during thecourse of search that the Assessing Officer had classified them intothree different categories indicating the alleged heads ofexpenditure. This evidence is submitted in view of the retrospectiveamendment of the Act by Section 292C of the Act be accepted and the onus to establish that the expenditure referred to in documentsis not correct is on the revenue. (k)In the present facts, we find that the documents foundduring the course of the search are inchoate. It does not indicatethe person to whom the payment has been made, the address of therecipient, the person by whom the payment is made and thedocuments itself indicates that it is prepared for either seeking offunds or reimbursement of funds. Therefore even if thepresumption is to be applied and the documents are accepted astrue, it would not lead to the conclusion that payments have beenmade in cash so as to claim the expenditure. Thus no purposewould be served in remanding the issue to the Tribunal. FurtherSection 292 of the Act provides that where any documents arefound in possession or control of any person in the course of searchunder Section 132 of the Act, then it may be presumed in anyproceedings under this Act that the contents of such documents aretrue and correct. It will be noted that the section uses the word'may presume' and not 'shall presume' or 'conclusively presume'.The words 'may presume' are in the nature of discretionary presumption different from a compulsory presumption. Thereforethis presumption has to be invoked by the authorities passing anorder under the Act particularly when the invocation of suchpresumption is discretionary on the authorities. During the courseof the assessment proceedings, the appellant-assessee sought toexplain the fact that these expenses on which the deduction isclaimed had in fact been incurred. This was in response to the showcause notice issued to the appellant. Thereafter Explanation offeredby the appellant was not found satisfactory on the basis of theevidence available before the authorities and the Tribunal. In thisview of the matter, the amendment to Section 292C of the Act eventhough with retrospective effect would not bring about any materialchange in the conclusion arrived at upon the existing facts. (l)The appellants placed great emphasis on the non-applicability of the Explanation to Section 37(1) of the Act. It wascontended that the payment made in this case was neither anoffence nor prohibited by law, thus the occasion to apply theExplanation to Section 37(1) of the Act would not arise. In supportreliance was placed upon numerous decisions. However, in the facts of the present case, this would arise for examination only ifwe were come to the conclusion that amounts claimed asexpenditure had in fact been incurred by the appellant-assessee.Therefore in the present facts, we have not examined the issue ofapplicability of Explanation to Section 37(1) of the Act to thepayments made. Consequently, the numerous case laws cited at thebar also not examined. (m)The finding of facts recorded by the authorities under theAct on the issue of payment not being made is a possible view. Thesame is not shown to be perverse on arbitrary. (n)In the above view, Question No.(3) is answered in thenegative i.e. in favour of the revenue and against the appellant-assessee. 7.Regarding Question No.4:-(a)During the course of the search, various loose paperswere seized. Perusal of these loose papers indicate proof of smallamounts of money received. In each of these papers there is a detailed description of material, corresponding weight per kg. andthe rate applied. Besides at the bottom of each of the loose pages,there is a signature below the words 'received' with date alsothereon. Some of the chits which were recovered also indicatestruck numbers. The Assessing Officer was of the prima-facie viewthat these indicated sale proceeds of scrap material which have notbeen accounted in the regular books of accounts. Consequently, theAssessing Officer issued notice to the appellant to show cause whythe receipts of amounts indicated in these chits should not beconsidered as receipt on account of sale of scrap. (b)The appellant-assessee responded to notice pointing outthat the loose papers seized in fact reflect purchase of scrap by theappellants and not sale. These purchases were out of receipt of 'onmoney' received on sale of Stenter machines and therefore could notbe added as undisclosed income for the block period. (c)The Assessing Officer did not accept the contentions ofthe appellant-assessee and on facts held that in the course ofmanufacture of Stenter machines, scrap would be generated and it (b)The appellant-assessee responded to notice pointing outthat the loose papers seized in fact reflect purchase of scrap by theappellants and not sale. These purchases were out of receipt of 'onmoney' received on sale of Stenter machines and therefore could notbe added as undisclosed income for the block period. (c)The Assessing Officer did not accept the contentions ofthe appellant-assessee and on facts held that in the course ofmanufacture of Stenter machines, scrap would be generated and it is this scrap which is sold by the appellant-assessee. The AssessingOfficer held that scrap is not produced/manufactured, but in thecourse of manufacturing of finished product, scrap is generated.Thus on facts the Assessing Officer concluded that the amountsindicated in the loose papers aggregating to Rs.8.78 lakhs wasnothing but sale proceeds of the scrap material and therefore addedto the income of the appellants as income from undisclosed sources.In appeal, the members of the Regular Bench did not agree amongstthemselves. The Accountant Member deleted the addition ofRs.8.78 lakhs on the ground that the very fact that the documents inthe possession of the appellant would indicate that the amountshave been received by the supplier/seller of scrap purchased by theappellant. This is the only acceptable explanation for the appellantbeing in possession of the signed document. The Judicial Memberon the other hand on preponderance of probability came to theconclusion that in the normal course of human conduct, purchase ofscrap if utilized in manufacturing activity would have been recordedin the normal books of accounts as deduction would be available.In these circumstances, he was of the view that purchase of scrap isruled out and it has to be considered as sale of scrap. The third member on a reference of the President agreed with the view of theJudicial Member and on finding of facts concluded that it seemslikely that the appellant-assessee had sold scrap and not purchasedscrap and therefore the addition made by the Assessing Officerought not to be disturbed. 8.Mr. Joshi, in support of his submission held that theamount of Rs.8.78 crores represents not consideration received onsale of scrap but is in fact consideration paid for purchase of scrap.The very fact that the documents acknowledging the receipt ofmoney was found in the possession of the appellant is indicative ofthe fact that the amount would have been paid on purchase of scrapand seller of scrap would have knowledge of the receipt of thesame. This receipt is what is found during the course of the search.Thus, the finding of the Judicial Member and the third member isnot only erroneous but also perverse. Thus the same has to bedeleted. 9.On the other hand, Mr. Suresh Kumar points out thatthese findings of fact arrived at by the majority members of the Tribunal confirming the view of the Assessing Officer cannot beinterfered with as questions of law. These findings of fact are notperverse as the conduct of the appellant of receiving money outsidethe books of accounts has been accepted by them for the period1989-1996. Thus this Court should not interfere with the order ofthe Tribunal. 10.We are of the view that the conclusion reached by themajority members of the Tribunal that there was in fact sale of scrapis a possible view. This is particularly so as in normal course ofhuman conduct any purchase of raw material even scrap would beshown in regular books of accounts as the same would be entitled todeduction so as to reduce the taxable profit. No person carrying onbusiness would in the usual course of its activity, deny itself thebenefit of any deduction available to it in determining the taxableprofit. Further the reasoning of the authorities that there is a sale ofscrap viz. that one normally does not manufacture final productsout of scrap, but scrap is certainly generated during the course ofmanufacturing final products, cannot be faulted. The appellant-assessee was manufacturing Stenter machines and in the normal course there would have been scrap generated in the manufacturingStenter machines. It is the scrap which is likely to be sold in theopen market for the consideration received by the appellant.Moreover, the appellant has not produced any evidence before theauthorities to indicate who the suppliers of the scrap was or filedtheir evidence to indicate that they had sold scrap to the appellant.In these circumstances, the finding of facts arrived at by themajority members of the Tribunal upholding the order of theAssessing Officer is a plausible view. The same cannot be said to beperverse and/or arbitrary. Accordingly, Question No.(4) as raised isanswered in the negative i.e. in favour of the revenue and againstthe appellant-assessee. 11.Accordingly, all the above questions are answered infavour of the revenue and against the appellant-assessee. 12.Accordingly, appeal dismissed. No order as to costs. [G.S. KULKARNI, J] [M.S. SANKLECHA, J.]