Assessee is company engaged in business of manufacturing of poultry Equipments.  Inflated expenses in the regular books of account. The amount paid to person are assessed to Tax and also paid the tax on the income in their hands. During the search it is found that these expenses are inflated and the cash generated out of such expenses are used for procuring the businesss.  Assessee is submitted that inflated expenses in books be tax as non genuine expenses u/sec. 37 and difference between cash generated and use for paying securing business be added also not under sec. 69C as it has source from non genuine expenses in books and only difference in amount generated and paid be tax on the  . How ever AO has not appreciated this and made addition as under :,
1. disallowance of expense in respective year as inflated expense U/sec. 69 C

2. cash generated out of above and paid for procuring business is against the public policy as amounts are paid to employees of customer or middleman added entire amount u/sec 69C .
1. whether AO action is correct ?
2. Any decision in support of assessee’s contention of taxing real income ?
please guide .