DCIT, CENTRAL CIRCLE-3(1), CHENNAI vs. KNR MANIVANNAN, CHENNAI

Aforesaid appeals by Revenue for Assessment Years (AY) 2012-13 to 2015-16 arise out of common order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 29-12-2022 in the matter of separate assessments framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 147 of the Act. Facts as well as issues are quite identical in all the years. The appeal for AY 2012-13 has been taken to be the lead year. The grounds taken by revenue in AY 2012-13 read as under: -

The order of the Id. Commissioner of CIT. (Appeals) is erroneous on facts of the case and in law.

The Ld. CIT(A) erred in deleting the addition made u/s. 68 of the IT Act amounting to Rs.13,55,000/-, which was made based on the entries retrieved from the impounded tally accounts during the survey operation and further the assessee could not explain the tally entries, on receipt of sums, with evidence.

1 The Ld. CIT(A) erred in deleting the addition made u/s. 68 of the IT Act on the finding that the addition u/s. 68 should emanate from the regular books of the assesssee only, without appreciating that the addition u/s. 68 of the IT Act was made on the basis of the retrieved entries in the impounded lap top containing tally data, which should be construed as books of accounts maintained by the assessee, within the meaning of section 68 of the IT Act, wherein un- accounted receipts were recorded by the assessee and further the same were not disclosed in the regular books of accounts.

2 The Ld. CIT(A) erred in deleting the addition made u/s. 68 of the IT Act, without appreciating the sworn depositions of the Mangers of the assessee that the cash received does not pertain to GSNR Rice Industries Private Limited (earlier SNR Rice Industries Ltd) and the cash received was unaccounted and hence after spending the entry was deleted.

The Ld. CIT(A) erred in deleting the addition made u/s. 69 of the IT Act amounting to Rs.5,59,53,250/-, which was made based on the entries retrieve from the impounded tally accounts and further the assessee could not explain the tally entries with evidence.

1 The Ld. CIT(A) erred in deleting the addition made u/s. 69 of the IT Act on the finding that the assessee company was in receipt of funds to the tune Rs. 21.35 crores from M/s. True Value Homes Private Limited and the sums on which addition u/s. 69 was made was part of the fund transfers form M/s. True value Homes Private Limited, without appreciating the fact that in the impounded tally data no such entries were found on the source of the payments.

2 The Ld. CIT(A) erred in deleting the addition made u/s. 69 of the IT Act on the finding that the assessee company was in receipt of funds to the tune Rs.21.35 crores from M/s. True Value Homes Private Limited without appreciating the fac1 that there was evidence regarding the receipt of funds from M/s. True Value Homes Private Limited, in the books of the assessee, so as to explain its source.

The ld. CIT(A) erred in deleting the addition made u/s. 69C of the IT Act, by holding that there was enough source to explain the payment of 10.96 lakhs by and such payment cannot be treated as un explained u/s. 69C of the IT Act and the expenses were telescoped with the receipts of Rs.21.35 crores from, M/s. True Value Homes limited, Whereas there was no evidence regarding the receipt of funds from M/s. True Value Homes Private limited, in the books of the assessee, so as to explain its source.

The Ld. CIT(A) erred in deleting the addition made towards interest income partly without appreciating the fact that the assessee had not furnished any details of the loan transactions and the interest income and further failed to disclose any interest income even in respect of the accounted loan transactions, and therefore the entire interest income requires to be brought to tax. As is evident, the revenue is aggrieved by certain relief provided by first appellate authority.

The Ld. Sr. DR advanced arguments and supported the assessment framed by Ld. AO. The Ld. AR, on the other hand, submitted that Ld. CIT(A) has merely followed the order of Tribunal in assessee’s own case as well as orders rendered in group cases for earlier years and therefore, it was a covered case. The Ld. SR. DR submitted that the department is in further appeal against the earlier order of the Tribunal. The fact that the issues are covered in assessee’s favor, could not be controverted before us. Having heard rival submissions and upon perusal of case records, the appeals are disposed-off as under. Proceedings before Ld. AO

1 It emerges that the assessee being resident individual is Managing Director in an entity namely M/s GSNR Rice Industries Private Ltd. (GSNR-earlier known as M/s SNR Rice Industries Pvt. Ltd.) besides having proprietorship concern by the name Shri Narayana Reddiar Modern Rice Mills (NRMR). The assessee is also partner in firm M/s Ramjay Auto Finance (RAF). The assessee is stated to be engaged in trading of petroleum products, paddy, agro products, rice, dealing in securities, real estate development etc. The assessee was assessed u/s 143(3) on 20-02-2015. However, a survey operation was conducted in Auto finance (RAF). During survey certain books, documents, loose sheets, CPU with pen drive were impounded based on which the case was reopened and impugned assessments were framed by Ld. AO.

2 In the assessment proceedings, the Ld. AO alleged that the survey evidences contain details of unexplained cash credits, unexplained expenditure, unexplained investment in agricultural land and unexplained interest income of the assessee. It was alleged that the assessee paid cash to his brother Shri K.N. Nehru. Further, the assessee received cash from GSNR and paid cash for acquiring agricultural land. The assessee also introduced cash in GSNR. All these transactions were not available in regular books of account. The retrieved data also had details of interest receivable from persons to whom loans were given which was more than interest income disclosed by the assessee in the return of income. These transactions have been tabulated by Ld. AO on page no.3 of the assessment order as under: - Amount Reference Evidence Unexplained 10,96,900 Cash payments made to KN. Nehru (KNN) by Shri expenditure Narayana Reddiar Modern Rice Mill-Ledger- KNN 1-CASH- in the books of accounts of Shri Narayana Reddiar Modern Rice Mill Unexplained cash 13,55,000 Cash payments made to K.N.Mannivannan by Shri Narayana Reddiar Modern Rice Mill-Ledger- Shri NARAYANA REDDAR MODERN RICE MILL-in the books of accounts of KN. Manivannan (Agri) Unexplained 33,25,000 CASH PAID for acquiring Land by K.N.Mannivanan- Investment Ledger- LAND PURCHASE - in the books of accounts of Manivanan(Agri) 76,78,250 CASH PAID for acquiring Land by K.N. Mannivannan - Ledger- LAND PURCHASE - in the books of accounts of SNR Rice Industries Pvt Ltd 4,49,50,000 Cash received from K.N.Mannivannan into SNR Rice Industries Pvt Ltd-ledger KN.Mannivannan CAPITAL- in the books of 43,28,510 KNM AMOUNT RECEIVABLE - Interest on from Loans given by K.N. Manivannan to various other sources parties - Extract from Laptop Total 6,27,33,660 On the basis of the same, Ld. AO alleged that an amount of Rs.627.33 Lacs escaped assessment in this year and issued notice u/s 148 on 11- 03-2019. The same was followed by statutory notices u/s 143(2) as well as notices u/s 142(1) calling for requisite details from the assessee.

3 The assessee submitted that unexplained investment as tabulated above aggregating to Rs.559.53 Lacs was already added in the hands of GSNR which has been deleted by first appellate authority and therefore, proposed addition may be deleted based on that order. However, Ld. AO held that each case is different. The appellate order as stated by the assessee would not have any impact on this case for completion of assessment. The assessment was to be completed based on survey findings.

4 On merits, Ld. AO held that the assessee paid cash of Rs.10.96 Lacs to Shri K.N. Nehru which was recorded in undisclosed books of account of proprietorship concern M/s Narayana Reddiar Modern Rice Mill as expenditure. However, the same was not reflected in the regular books of proprietorship concern. The assessee submitted that the said amount was part of Rs.21.35 Crores transferred from M/s True Value Homes Value P. Ltd. but it was wrongly entered in tally account data as amount received by Shri K.N. Nehru from M/s Narayanan Reddiar Modern Rice Mill. However, rejecting the submissions, Ld. AO added the amount of Rs.10.96 Lacs to the income of the assessee.

5 From retrieved data, it was alleged that the assessee received cash of Rs.13.55 Lacs from M/s Narayana Reddiar Modern Rice Mill which was recorded in undisclosed books of the assessee but the same was not available in the regular books of proprietorship concern. The assessee submitted that this amount also was part of Rs.21.35 Crores transferred from M/s True Value Homes Private Ltd. but it was wrongly entered in tally data as amount received from proprietorship concern. However, Ld. AO similarly added the same as unexplained cash credit u/s 68. 3.6 The assessee paid cash of Rs.33.25 Lacs for acquiring certain land and the same was recorded in undisclosed books of accounts as Land purchase. The same was not available in regular books of accounts of proprietorship concern. The assessee also paid another Rs.76.78 Lacs for purchase of land which was recorded in undisclosed books of GSNR and the same was similarly not reflected in the regular books of proprietorship concern. The assessee paid another cash of Rs.449.50 Lacs towards capital which was recorded in undisclosed books of GSNR and this transaction also was not available in the regular books of proprietorship concern. The assessee reiterated that all the three amounts were added in the assessment of GSNR but the same has been deleted by learned first appellate authority. However, rejecting assessee’s submissions, Ld. AO added aggregate amount of Rs.559.53 Lacs as unexplained investment.

7 From retrieved data, Ld. AO observed that certain interest was receivable on loans given by the assessee to various parties. Since no details thereof were furnished by the assessee, Ld. AO added the amount of Rs.43.28 Lacs as interest receivable.

8 In AY 2013-14, similar assessment has been framed on the assessee on 21-11-2019 wherein Ld. AO made similar addition of unexplained expenditure, unexplained cash credit, unexplained investment and undisclosed interest income. Similar are the additions in AY 2014-15 as well as in AY 2015-16. 3.9 The assessee assailed all the orders before first appellate authority and the same were substantially allowed by Ld. CIT(A) vide common order dated 29-12-2022 against which the revenue is in further appeal before us. First Appellate Proceedings

1 During appellate proceedings, the assessee relied on first appellate order passed in the case of GSNR. In those proceedings, GSNR claimed that there were cash receipts to the tune of Rs.21.35 Crores from M/s True Value Homes Private Ltd. (TVHPL) through the present assessee. The same was used for various purposes in the hands of various persons of the group. Therefore, all the alleged unexplained investment should be considered as part of investment out of the said amount of Rs.21.35 Crores. In those proceedings, Ld. CIT(A) concurred with the submission of the assessee and rendered factual findings that there were cash receipts for Rs.21.35 Crores which were shown in the financial statements of TVHPL. These amounts, though reflected in the retrieved data to some extent, were not reflected in assessee’s regular books of accounts. The assessee’s explanation was that the amounts were not utilized for business purposes but used for various other purposes by other persons in the group. This explanation was accepted by Ld. CIT(A) and the addition made by Ld. AO on account of unexplained investment in the hands of GSNR was deleted. Upon further appeal, Tribunal confirmed the appellate order and dismissed the appeal of the revenue. The bench observed that from cash flow statement, it is clear that all unaccounted investments etc. made by the group, in various financial years, are within the limits of funds received from M/s True Value Homes P. Ltd. in the respective years. In other words, there remained no unexplained investments in the hands of the assessee in any of the assessment years under consideration.

2 Relying on the aforesaid findings of Tribunal, the assessee submitted that the unexplained expenditure of Rs.10.96 Lacs and unexplained investment for Rs.33.25 Lacs as well as Rs.76.78 Lacs were also to be treated as sourced out of funds received from TVHPL for Rs.21.35 Crores. Similar argument was made for addition of Rs.449.50 Lacs. On issue of unexplained cash for Rs.13.55 Lacs, the assessee submitted that these were internal transfers of an individual to his proprietary concerns and therefore, the same could not be brought to tax u/s 68 of the Act. On the issue of addition of interest of Rs. 43.28 Lacs, the assessee furnished interest calculation for the period from 01.04.2011 to 31.03.2014 and pleaded to restrict the addition to that extent.

3 Considering the aforesaid factual position and in view of the decision of Tribunal in group cases, Ld. CIT(A) deleted impugned addition of Rs.10.96 Lacs, Rs.33.25 Lacs, Rs.76.78 Lacs & Rs.449.50 Lacs as made by Ld. AO by observing that these amounts were sourced out of overall amount of Rs.21.35 Crores received from TVHPL and the same were part of those receipts only. The relevant findings of Ld. CIT(A) are as under: - 7.1.2 The above additions were made by the AO based on the retrieved tally data from the laptop which was impounded during the course of survey. As stated in the assessment order itself, much of the additions (Rs. 76, 78,250 + Rs.1,84,84,000 + Rs.2,86,63,000 + Rs.2,25,17,000) were already made in the case of the company GSNR Rice Industries Pvt. Ltd based on the same entries and the same were deleted by the CIT(A)- 6 Chennai vide his order in ITA No.144-146,148 & 149/C1T(A)-6/2018-19 dated 29.05.2019. Further, it was claimed by the assessee that the entries related to the S 69C column and cash column of S 69 in the above table were part of the Rs.21.35 crores transferred from M/ s True Value Homes Private Limited but the same was not accepted by the AO. In the assessee's own case, the then CIT(A) for the AY 2016-17 accepted the cash flow involving the amount of Rs.21.35 crores (explaining the source for earlier AYs also) received from True Value Homes Pvt. Ltd and deleted similar additions vide his order in ITA No.150/C1T(A)-6/2018-19 dated 29.05.2019. Further, the Hon'ble ITAT Chennai, by a combined order in ITA No.2407 to 2411/CHNY/2019 (DCIT v M/s GSNR Rice Industries Pvt Ltd) and and ITA No.2825/CHNY/2019 (ITO Vs K.N.NEHRU) dated 09.06.2021 upheld the claim of assessee accepting the cash flow in which Rs.21.35 cr was shown as received from M/ s True Value Homes Private Limited and confirmed the order of the CIT (Appeals) deleting the additions. The summary of cash flow is as under: XXXXX 7.1.3 It can be seen from the above that the cash outflow for every year explains the source for the entries in the retrieved data based on which additions made u/s 69C and 69 (cash portion) for every year under appeal and there is a balance of Rs.2,75,69,661/- even after explaining all the entries in respect of the investments, expenditure, etc out of Rs.21.35 crore, received from M/s True Value Homes Private Limited. In the circumstances, as the Hon'ble ITAT has accepted the source of Rs.21.35 Cr shown as received from M/s True Value Homes Private Limited as source for the entries based on which the additions were made, there is no case for additions and by following the binding decision of the Hon'ble ITAT as discussed above, the above additions u/ s 69C and u/ s 69 (cash portion) are deleted. 7.1.4 With reference to additions of Rs.4,49,50,000 in the AY 2012-13, Rs.98,00,000 in the AY 2013-14 and Rs.30,00,000 in the AY 2015-16, the AO has observed that they were paid towards capital recorded in the retrieved data of GSNR Rice Industries Pvt Ltd as Shri.K.N .Manivannan Capital. Observing that these payments are not reflected in the books of the proprietary concern of the assessee, the AO added them u/ s 69. It is to be noted that these amounts have been added in the case of GSNR Rice Industries Pvt Ltd also in those respective AYs u/s 68 which have been deleted earlier by the CIT(A) which has been confirmed by the Hon'ble ITAT also. The decision of the earlier CIT(A) in this regard is as under: 6.1.21 One of the explanations of the assessee is that there were cash receipts from M/s True Value Homes P Ltd during the financial years 2011-12 to 2014-15, to the tune of Rs.21.35 crores. These amounts were initially received by the managing director of the assessee company and hence the accountant of the assessee entered some of these amounts in the tally 'software' in the computer as amounts received from M/s True Value Homes P Ltd or Shri KN Manivannan etc… 6.1.22 The above explanation of the assessee seems to be correct. In fact, as could be seen from the audited financials of M/s. True Value Homes P Ltd for the financial years 2011-12 to 2014-15, there were payments (advances) made to the assessee company to the tune of Rs.21.35 crores as reflected in the 'loans and advances' category on the assets side of the balance sheets. 6.1.23 Therefore, the above amounts of Rs.5,00,00,000/-, Rs.4,50,00,000/-, Rs.6,75,00,000/- and Rs.5,10,00,OOO/- received from M/s. True Value Homes P Ltd during the financial years 2011-12 to 2014- 15, form a clear source of funds for any unaccounted investments etc., in the hands of the assessee or its managing director or any other person in the group. Thus, the amounts reflected in the retrieved 'tally data' as the amounts received from M/s. True Value Homes P Ltd or Shri KN Manivannan or KNM or other members of the group etc., are on account of the above amounts received from M/s. True Value Homes P Ltd, to the extent of Rs.21.35 crores. The decision of the Hon'ble ITAT in this regard is as under:

Similarly, other cash receipts shown in retrieved data of the computer shown as cash receipts from the group persons are considered as amount drawn from M/s. True Value Homes Pvt. Ltd. These amounts include cash received from M/s. True Value Homes Pvt Ltd, cash received from Shri K.N. Manivannan and cash received from IM/s. Janani Minerals. A careful analysis of the above, show that most of the amounts drawn from M/s. True Value Homes Pvt. Ltd., were not entered in computer CPU directly as such. Further, entries found in retrieved data from the CPU are incomplete and not depicts any particular nature of credits and further name from whom such credits were received. Therefore, based on some entries recorded in computer and later deleted for some purpose or for no reasons, the same cannot be considered as some cash receipts which are not disclosed in the regular books of accounts, unless the AO brought on record some evidences to show that said cash receipt was received from particular source and for particular purpose. Further, in any case as discussed in the preceding paragraph, the purported cash receipt shown in diary, notebook and deleted CPU cannot be treated as unexplained cash credits, which can be taxed u/s.68 of the Act. At the same time, these cash entries cannot be considered as source of funds for· the assessee's investments / expenditure if any. Hence, the finding of facts recorded by the ld.CIT(A) that amount received from M/s. True Value Homes Pvt. Ltd., and reflected as loans and advances in its books alone are considered as source of funds for assessee's investments / expenditure is based on evidences on record which is uncontroverted and hence, we are inclined to uphold findings of the ld. CIT(A) and reject arguments of the Revenue. Relying on the above, it is clear that the receipt entries shown as cash received from the assessee and entered in GSNR's retrieved data as 'K N Manivannan's Capital' are part of the receipt entries of cash from True Value Homes (P) Ltd and it is not investments in the hands of the assessee. The amounts received from True Value Homes (P) Ltd forms the source from which investments/ expenditure have been made by the group in the years concerned; it is seen that the same amounts received from True Value Homes (P) Ltd were assessed u/s 68 when it is the source and the same have been assessed u/s 69 and 69C when the investments/ expenditure were made from that same source. Such additions are not possible when the entire source of Rs.21.35 crores is explained as transferred from True Value Homes (P) Ltd which was already accounted in its balance sheet as observed by the earlier CIT(A) in his order reproduced above and confirmed by the Hon'ble ITAT. Therefore, these additions towards Shri.K.N. Manivannan Capital are deleted. The Ld. CIT(A) finally held that the source of funds was explained and therefore, the impugned additions were unsustainable. The addition of unexplained cash for Rs.13.55 Lacs was also deleted by following Tribunal order in assessee’s own case for AY 2016-17 wherein the bench held that the additions was merely based on dumb documents.

4 In AYs 2013-14 to 2015-16, Ld. AO added the amounts paid through cheques as unexplained investment u/s 69. The Ld. CIT(A) deleted the same on the ground that the said payments were paid through cheques only and therefore, these additions were unwarranted.

5 In AY 2013-14, Ld. AO made addition of Rs.5 Lacs which was deleted by Ld. CIT(A) after perusal of SB Bank Account with the observation that the source of impugned payment was agricultural income already reflected by the assessee in return of income for AY 2013-14. 4.6 The addition of Rs.60.44 Lacs and Rs.22 Lacs, made in AYs 2014- 15 & 2015-16 respectively as made by Ld. AO, was deleted on the ground that the same was merely double addition.

7 In AY 2013-14, Ld. AO made another addition of Rs.272.46 Lacs on the basis of retrieved tally data. The same represent cash deposited by the assessee in Corporation Bank Account and the same was not recorded in the regular books of NRMR. The assessee’s submission that the same was part of amount of Rs.21.35 Crores received from TVHPL was rejected. The Ld. CIT(A), after perusal of Corporation Bank Account, rendered factual finding that no such amount was credited in the stated bank account. The scanned copies of the bank accounts have been extracted in the impugned order.

8 Regarding impugned addition of interest income, Ld. CIT(A) relied on first appellate findings in assessee’s own case for AY 2016-17 and directed Ld. AO to undertake the same exercise and work out the interest @24% on loans which were not reflected in the regular books of accounts.

9 Aggrieved, the revenue is in further appeal before us.

Upon perusal of impugned orders, it could be seen that the adjudication of Ld. CIT(A) is based on first appellate orders as confirmed by Tribunal in the case of group concerns. This fact remains uncontroverted before us. Nothing is shown to us that the aforesaid orders of the Tribunal, has subsequently been reversed, in any manner. No change in facts could be demonstrated before us.

We further find that the impugned additions of Rs.10.96 Lacs, Rs.33.25 Lacs, Rs.76.78 Lacs & Rs.449.50 Lacs as made by Ld. AO in AY 2012-13 has been deleted by Ld. CIT(A) on the ground that these amounts were sourced out of amount of Rs.21.35 Crores received from TVHPL and the same were part of those receipts only. This emanates from the order of the Tribunal in group cases. Therefore, no interference is required on this issue. Similarly, the addition of unexplained cash for Rs.13.55 Lacs has been deleted by following Tribunal order in assessee’s own case for AY 2016-17 wherein the bench held that the additions was merely based on dumb documents. Facts being the same, taking the same view, we uphold the adjudication of Ld. CIT(A), in this regard.

The additions made in AYs 2013-14 to 2015-16 are cheque payments and as rightly held by Ld. CIT(A), the same could not be considered as unexplained investment u/s 69. In AY 2013-14, the addition of Rs.5 Lacs as made Ld. AO are sourced out of agricultural income already reflected by the assessee in return of income for AY 2013-14. The addition of Rs.60.44 Lacs and Rs.22 Lacs, made in AYs 2014-15 & 2015-16 respectively, are merely double addition. All these factual findings remain uncontroverted before us. The addition of Rs.272.46 Lacs has rightly been deleted since there is no such amount as credited in assessee’s bank account. The directions given qua assessment of interest income is based on first appellate findings in assessee’s own case for AY 2016-17 and therefore, facts being the same, we confirm the adjudication of Ld. CIT(A). All these appeals field by revenue stand dismissed accordingly. We see no reason to interfere in the impugned order.

All the captioned appeals stand dismissed. Order pronounced on 29th November,2023 (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) "ाियक सद!/JUDICIAL MEMBER लेखासद! / ACCOUNTANT MEMBER चे5ई Chennai; िदनांक Dated : 29-11-2023 DS आदेशकीTितिलिपअ&ेिषत/Copy of the Order forwarded to : 1. अपीलाथ"/Appellant 2. !"थ"/Respondent 3. आयकरआयु>/CIT 4. िवभागीय!ितिनिध/DR 5. गाडCफाईल/GF