Law:

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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Block period from 1-4-1990 to 26-9-2000 - Assessee was engaged in construction of residential flats - A search conducted at its business premises revealed that it had made certain illegal payments such as bribes which had been debited in its books of account as 'construction expenses' - In block assessment, Assessing Officer made addition of amount of said illegal expenses as undisclosed income of assessee - On appeal, Tribunal confirmed addition - Whether Tribunal had taken correct decision in view of Explanation to section 37(1) - Held, yes J. Balachandran for the Appellant. Pushya Sitaraman for the Respondent. JUDGMENT K. Raviraja Pandian, J. - The appeals are filed against the order of the Income-tax Appellate Tribunal, Madras "B" Bench, dated 12-1-2007, made in I.T. SS. A. Nos. 87/Mad./2005 and 98/Mad./2005 for the assessment year 1-4-1990, to 26-9-2000 (block period). The substantial questions of law formulated for entertainment of the appeals are as follows : "1. Whether the Tribunal is correct in law in concluding that the expenses incurred were illegal, not allowable in spite of the admitted position of such expenses incurred in order to complete the construction process including the provision for amenities such as electricity, water connection, sewerage, etc., which are essential and not against public purpose could not be termed as illegal ? 2. Whether the Tribunal is correct in law in rejecting the claim of the appellant on the inclusion of unaccounted portion to the extent of Rs. 27,29,500, in the offer of Rs. 40 lakhs in the block return especially in the context of the seized materials identifying the expenses to the extent of Rs. 67,79,900 ? 3. Whether the Tribunal is correct in law in concluding that the expenses incurred were illegal, camouflaged as labour/construction expenses in spite of the contradictory evidence available in the seized records especially in the light of the definition of undisclosed income in section 158B(b) of the Act ?" 2. The facts of the case are as follows : 3. The assessees is engaged in the construction of residential flats at…

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