DCIT,CENTRAL CIRCLE-3(1), CHENNAI vs. SHRI B. BASKAR REDDY, HYDERABAD

This appeal filed by the revenue and cross objection filed by the assessee are directed against the order passed by the learned Commissioner of Income Tax (Appeals)-19, Chennai, dated 23.09.2022 and pertains to assessment year 2016-17. Since, facts are identical and issues are common, for the sake of convenience, the appeal filed by the revenue and the cross :-2-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 objection filed by the assessee are being heard together and are being disposed off, by this consolidated order.

The revenue has raised the following grounds of appeal: “1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law. 2 The learned CIT(A) erred in deleting the addition made towards unaccounted cash, jewellery and unexplained investments without appreciating the facts on record.

The brief facts of the case are that, the appellant is the Vice President (Finance) of M/s. Apollo Hospitals Enterprises Ltd., Hyderabad and Joint Secretary of M/s. Apollo Hospital Education and Research Foundation. A search and seizure operation u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted in the case of Apollo group on 05.01.2016 and during the course of search, the residence of the appellant was also covered. During the course of search, cash of Rs. 6,32,340/-, unexplained jewellery over and above what was disclosed in wealth tax returns filed by the assessee and certain loose sheets containing various investments was found and seized. A statement u/s. 132(4) of the Act, was recorded from the appellant and called upon the assessee to explain source for cash and unexplained jewellery. The appellant was called upon to explain jotting recorded in loose sheets, where the :-4-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 appellant had admitted undisclosed income of Rs. 2.70 crores, to cover up various discrepancies and investments.

Consequent to search, the case was taken up for assessment. During the course of assessment proceedings, the Assessing Officer, called upon the assessee to explain source for cash found at the time of search amounting to Rs. 6,32,340/-. The Assessing Officer, had also called upon the assessee to explain unexplained jewellery and source for investments. In response, the assessee submitted that out of cash seized amounting to Rs. 6,32,340/-, a sum of Rs. 1,32,140/- is out of his past savings and balance of Rs. 5 lakhs belongs to his aunt Smt. Padmavathamma, and she had kept the cash with the appellant for safe keeping as she was travelling abroad. The assessee has also explained unexplained jewellery and argued that said jewellery belongs to his family members and was acquired over the years. The appellant had also explained the contents of seized material and entries recorded therein and argued that seized documents contains investment made to Chit Funds and purchase of property and all transactions has been recorded/included in his regular return of income filed for :-5-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 relevant assessment year. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, the assessee could not explain source for cash found during the course of search and also failed to explain excess jewellery found during the course of search. Therefore, made additions towards cash found during the course of search amounting to Rs. 6,32,340/- and unexplained jewellery amounting to Rs. 16,93,524/-. The Assessing Officer, had also made additions towards voluntary admission of undisclosed income of Rs. 2.70 crores on the ground that averment filed by the assessee after a gap of more than one year from the date of search is an afterthought and assessee could not explain how admission made during the course of search is incorrect.

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has reiterated his arguments made before the Assessing Officer and explained cash found and seized during the course of search including unexplained jewellery. The appellant had also explained additions made towards voluntary admission of undisclosed income in the :-6-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 statement recorded u/s. 132(4) of the Act. The ld. CIT(A), after considering relevant submissions of the assessee and also by following certain judicial precedents, deleted additions made by the Assessing Officer towards cash found and seized during the course of search and also additions made towards unexplained jewellery. The ld. CIT(A), had also deleted additions made by the Assessing Officer towards voluntary admission of undisclosed income by holding that without any corroborative evidence admission of statement u/s. 132(4) of the Act, cannot be taken as a conclusive and thus, directed the Assessing Officer to delete additions made towards admission of undisclosed income. In so far as legal ground taken by the assessee in light of observation of the Assessing Officer in the assessment order, on the issue of notice u/s. 153A of the Act, the ld. CIT(A) observed that said observation is only a typographical error and as per records available on record, it was observed that no notice u/s. 153A of the Act, was issued for this assessment year and the Assessing Officer had rightly issued notice u/s. 143(2) of the Act and completed assessment u/s. 143(3) of the Act. Aggrieved by the CIT(A) order, the revenue is in appeal and the assessee has filed cross objection.

The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, submitted that the ld. CIT(A) erred in deleting additions made by the Assessing Officer towards cash found and seized during :-8-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 the course of search without appreciating the fact that the assessee has failed to substantiate source for cash with evidence and the claim made by the assessee during assessment year is only an afterthought. The Ld. DR, further submitted that if at all, the claim of the assessee is correct that an amount of Rs. 5 lakhs belongs to Smt. Padmavathamma, the assessee should have stated this fact while recording statement u/s. 132(4) of the Act. Since, the assessee could not explain source at the time of search, the averment can only be considered as an afterthought. The ld. CIT(A), without appreciating relevant facts deleted additions made by the Assessing Officer.

The Ld. Counsel for the assessee, on the other hand supporting the order of the ld. CIT(A) submitted that, although the assessee could not explain this fact at the time of search, but subsequently the assessee has obtained confirmation from Smt. Padmavathamma, through e-mail where she had stated that she kept a sum of Rs. 5 lakhs with appellant for safe keeping as he was proceeding to USA. The Ld. Counsel for the assessee, further submitted that the assessee had also furnished necessary bank statement of Smt. Padmavathamma, :-9-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 to prove withdrawal of cash from bank. The ld. CIT(A), after considering relevant facts as rightly deleted additions made by the Assessing Officer and their order should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards a sum of Rs. 1,32,340/-, during the course of search itself the assessee explained that it is out of past savings from salary income. The assessee being a highly paid employee, the possibility of keeping cash to the extent of Rs. 1,32,340/- out of his declared income cannot be ruled out. Therefore, we cannot find fault with reasons given by the ld. CIT(A) to delete additions made towards cash found to the extent of Rs. 1,32,340/-. As regards the balance amount of Rs 5 lakhs, although the assessee could not explain source for cash found and seized during the course of search, but subsequently, obtained the confirmation from Smt. Padmavathamma, and also filed necessary bank statement to prove withdrawal of cash from the bank. As per the explanation furnished by the assessee, Smt. Padmavathamma kept a sum of Rs. 5 lakhs with the appellant for safe keeping of the money as she was proceeding to USA. This fact has :-10-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 been confirmed by Smt. Padmavathamma, through e-mail. The Assessing Officer never disputed these facts. Therefore, once the Assessing Officer not disputed the fact that a sum of Rs. 5 lakhs belongs to Smt. Padmavathamma and she had admitted to have given cash to the appellant, the Assessing Officer ought to have verified the admission of third party by exercising power provided under the Act. Since, the Assessing Officer does not believed the claim of the assessee, in our considered view, he cannot make addition only on the basis of admission in the statement recorded u/s. 132(4) of the Act and therefore, we are of the considered view there is no error in the reasons given by the ld. CIT(A) to delete additions made towards cash found and seized during the course of search and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue.

The next issue that came up for our consideration from ground no. 4 of revenue’s appeal is deletion of additions towards unexplained jewellery amounting to Rs. 16,93,524/-, as per the provisions of section 69B of the Act. During the course of search, gold ornaments worth Rs. 1,22,71,602/- was found. The assessee has declared jewellery in wealth tax :-11-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 returns filed for relevant assessment years amounting to Rs. 1,05,78,078/-. There is an excess jewellery to the extent of Rs. 16,93,524/-. The assessee was called upon to explain jewellery with necessary bills and source for investment. Since, the assessee could not explain excess jewellery found during the course of search, the Assessing Officer made additions u/s. 69B of the Act.

The ld. CIT-DR, Shri. R. Clement Ramesh Kumar, submitted that the ld. CIT(A) erred in deleting additions made towards unaccounted jewellery without appreciating fact that, the assessee failed to satisfactorily explain the source for investment in jewellery with documentary evidence either during the course of search or during assessment proceedings. The ld. DR, further submitted that at the time of search, the assessee could not produce any bills for purchase of jewellery and also explained source. The ld. CIT(A), without appreciating admission of the assessee deleted additions on the basis of statement of the assessee that excess jewellery found during the course of search belongs to his family members.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Assessing Officer has quantified excess jewellery in terms of value with reference to quantity of jewellery found during the course of search. Further, there is no segregation as to how much jewellery belongs to assessee and to his :-13-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 family members. It is a common practice in Indian society that jewellery belonging to all family members are kept in a common place and also during the course of search the same is identified and not segregated for the purpose of valuation. But, in the present case, no such exercise was carried out by the Department. Further, during the course of assessment proceedings, the assessee has filed details of jewellery belongs to his wife and other family members and also reconciled jewellery found during the course of search with wealth tax returns filed by his wife Smt. B. Kusuma kala, for assessment year 2012-13. As per the details filed by the assessee, the family members of the appellant including his married daughter and un-married daughter are having jewellery within the limit specified by the CBDT for the purpose of seizure during the course of search. Further, if you consider the jewellery owned by other family members, then there is no excess jewellery as quantified by the Department during the course of search. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards unexplained investment in jewellery amounting to Rs. 16,93,524/-. Thus, we are inclined to uphold the :-14-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 findings of the ld. CIT(A) and reject grounds taken by the revenue.

The next issue that came up for our consideration from ground no.5 to 8 of revenue’s appeal is deletion of addition of Rs. 2.70 crores made towards undisclosed income on the basis of statement recorded u/s. 132(4) of the Act. During the course of search, certain loose sheets comprising promissory notes, signed cheque leaves etc., as per annexure A/BBR/HYD/D/02 was found and seized. The seized loose sheets were confronted with the assessee and a statement u/s. 132(4) of the Act was recorded. In the statement, the assessee admitted undisclosed income of Rs. 2.70 crores in his hand and Rs. 30 lakhs in the hands of Smt. B. Kusuma Kala, to cover up various discrepancies and investments. The assessee further stated that, the loose sheet page no. 16 to 23 did not pertains to any transaction or investment and in fact, those papers related to Shri GR Reddy, who happened to be one of the patients in Apollo Hospital. Loose sheet page no. 30 to 35 contains investment in M/s. BBR Securities Pvt Ltd. During the course of assessment proceedings, the assessee explained contents of seized loose papers and argued that investment in :-15-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 SSV Chit Fund Pvt Ltd and share capital with M/s. BBR Securities Pvt Ltd, is made out of salary income and payment is through bank account. The Assessing Officer, did not accept the explanation of the assessee and according to the Assessing Officer, when the assessee has made admission towards undisclosed income in the statement u/s. 132(4) of the Act, any subsequent averments without corroborative evidence can only be considered as an afterthought and thus, rejected arguments of the assessee and made additions towards voluntary admission of undisclosed income of Rs. 2.70 crores.

The ld. CIT-DR, Shri R. Clement Ramesh Kumar, submitted that the ld. CIT(A) erred in deleting the addition of Rs. 2.70 crores made towards unexplained investment and admitted by the assessee in the statement recorded u/s. 132(4) of the Act, without appreciating fact that by admitting undisclosed income, the appellant has prevented the Department for further porbe on loose sheets found during the course of search. The ld. CIT-DR, further submitted that the admission in the statement u/s. 132(4) of the Act is not only based on confession, but also backed by incriminating material found during the course of search, which clearly shows :-16-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 unexplained investment in Chit Fund and share capital of company. The ld. CIT(A), without appreciating relevant facts simply deleted additions made by the Assessing Officer.

The Ld. Counsel for the assessee, supporting the order of the ld. CIT(A) submitted that, the loose sheets found during the course of search did not contain any undisclosed income as alleged by the Assessing Officer. Further, the assessee has explained contents of seized material with reference to bank statement and also proved that investment in SSV Chit Fund and share capital of company is out of salary income. The Assessing Officer, has made additions towards undisclosed income only on the basis of statement recorded from the appellant u/s. 132(4) of the Act, without any reference to corroborative evidence. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and their order should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Assessing Officer has made additions of Rs. 2.70 crores towards undisclosed income on the basis of statement :-17-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 recorded u/s. 132(4) of the Act. We have gone through relevant question and answers of statement recorded from the assessee and more particularly question no 21 of the statement and answer given by the assessee. In the said statement, there is no classification of any undisclosed investment in any kind of assets including Chit fund or share capital. We further noted that, the loose sheets contain certain jotting in respect of investment in chit fund and share capital of a company. The assessee has explained investment in chit fund and all payments to chit funds is through proper banking channel and out of salary income of the appellant. In respect of remaining loose sheets, the appellant explained those loose sheets belongs to Shri G.R. Reddy, who is one of the patient of Apollo Hospital and said loose sheets does not contain any undisclosed income of the appellant. From the contents of loose sheet and statement recorded from the appellant during the course of search, it is abundantly clear that the admission of undisclosed income of Rs. 2.70 crores is not on the basis of any material found during the course of search, which satisfies any kind of investment in assets. Further, there is no classification of any investment in asset or any expenditure which is outside the books of accounts of the :-18-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 assessee. Therefore, we are of the considered view that additions of Rs. 2.70 crores towards voluntary disclosure of undisclosed income is only on the basis of statement recorded u/s. 132(4) of the Act, but not based on any material found during the course of search. It is a well established principle of law from the decision of Hon’ble Supreme Court in the case of Kashmira Singh vs State of MP (AIR 1952 SC 159), where it has been clearly held that, the admission should not be the foundation of assessment, instead, independent evidence should form the basis of assessment, while admission supplements it. The CBDT has very clearly emphasized the need to focus on gathering evidences during the course of search/survey, rather than obtaining admission. The Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co Ltd vs State of Kerala [1973] 91 ITR 18 (SC), held that although admission is an extremely important piece of evidence, but it cannot be said that it is conclusive. The sum and substance of ratio laid down by various courts including the Hon’ble Apex Court and also emphasis of CBDT is that admission in a statement u/s. 132(4) of the Act, cannot be taken as conclusive evidences unless said admission is supported by evidence. In the present case, from the :-19-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 statement recorded from the assessee, we find that the Department has taken a confession statement from the assessee towards undisclosed income, without there being any material found during the course of search, which satisfies undisclosed income in any kind of asset or investment. The ld. CIT(A), after considering relevant submissions of the assessee and also taking note of various facts has rightly deleted additions made by the Assessing Officer towards undisclosed income, on the basis of admission in the statement recorded u/s. 132(4) of the Act. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue.

In the result, appeal filed by the revenue is dismissed.

The solitary legal issue that came up for our consideration from ground no. 1.1 to 1.3 of assessee’s cross objection is validity of assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 153(1)(b) of the Act . The Ld. Counsel for the assessee, referring to para 3 of assessment order submitted that. the Assessing Officer has issued notice u/s. 153A of the Act. dated 27.03.2017 for the assessment year 2016-17, although the impugned assessment year is the :-21-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 year of search which falls outside the scope of provisions of section 153A of the Act. He further submitted that, the Assessing Officer has issued notice u/s. 143(2) of the Act, dated 05.07.2017 and specified that case is selected for limited scrutiny to verify certain issues, however the assessment has been framed on the basis of various incriminating material claimed to have been found during the course of search, contrary to the circular issued by the CBDT. Therefore, he submitted that the assessment order passed by the Assessing Officer should be quashed.

The ld. CIT-DR, Shri. R. Clement Ramesh Kumar, supporting the order of the ld. CIT(A) submitted that, the ld. CIT(A) has recorded categorical findings in para 7.3 of his order, that as per the assessment records no notice u/s. 153A of the Act, was issued to the appellant and a reference to this effect by the Assessing Officer in para 3 of assessment order is only a typographical error. Further, the Assessing Officer has rightly issued notice u/s. 143(2) of the Act and also framed assessment u/s. 143(3) of the Act. Further, although the notice issued u/s. 143(2) of the Act, specified for verification of certain issues, but the impugned assessment year is the year :-22-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 of search, the relevant materials found during the course of search and statement recorded from the assessee needs to be considered to frame the assessment. Since, there are certain issues with reference to incriminating material found during the course of search, coupled with statement recorded from the assessee, the Assessing Officer has rightly completed the assessment, after considering various material found during the course of search. Therefore, it cannot be said that the assessment order passed by the Assessing Officer is null and void.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It was the categorical findings of the ld. CIT(A) that, although the Assessing Officer referred to notice u/s. 153A dated 27.03.2017 in Para 3 of assessment order, but no such notice was issued to the assessee as per assessment records. It was further observed that, the Assessing Officer inadvertently mentioned in the assessment order that notice u/s. 153A of the Act was issued instead of notice u/s. 142(1) of the Act. In our considered view, the observation of the Assessing Officer in para 3 of assessment order appears to be :-23-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 typographical error in so far as the pre-assessment notice issued for taking up the case for scrutiny assessment. Therefore, we are of the considered view that, when the substantive issue of assessment is subject matter of search operation conducted u/s. 132 of the Act and also the impugned assessment year is the year of search, which falls outside the scope of provisions of section 153A /153C of the Act, in our considered view, the question of issue of notice u/s. 153A of the Act does not arise. Further, when the assessment records clearly shows that no such notice was issued u/s. 153A, then mere reference to section in the assessment order does not nullify the whole assessment proceedings. Therefore, we are of the considered view that, there is no merit in the ground taken by the assessee challenging the validity of assessment order and thus, we reject ground of cross objection filed by the assessee on this issue.

The next issue that came up for our consideration from ground 2.1 to 3.2 of cross objection filed by the assessee is towards addition made by the Assessing Officer for cash found during the course of search, unexplained jewellery and addition towards admission of undisclosed income. Since, the :-24-: ITA. No: 988/Chny/2022 & CO: 02/Chny/2023 appeal filed by the revenue on these issues is dismissed, the grounds of cross objection filed by the assessee becomes infructuous and thus, other grounds taken by the assessee on the issue of additions made towards cash found during the course of search and unexplained jewellery and also additions towards undisclosed income are dismissed as infructuous.