DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. KEYEM INFRA PROJECT PVT. LTD., CHENNAI

आदेश / O R D E R

PER BENCH:

The captioned appeals by the revenue and the Cross-Objections by the assessee have been filed against the orders passed by the learned Commissioner of Income Tax, Appeals-19, Chennai (in short “ld.CIT(A)) passed under section (u/s.) 250 of the Income-tax Act, 1961 (in short “the Act”). The relevant details are set out below: CIT(A) ITAT # Assessee A.Y. Date of ITA C.O Appeal No. Order No. No. 1. Somu Sarvai 2020-21 11636/2019-20 1849 50 Ramachandran 2. 2021-22 10489/2020-21 1850 51 3. 2022-23 10205/2021-22 1855 52 23.01.2026 4. Keyem Infra 2023-24 10489/2022-23 2055 54 Project Pvt. 5. 2024-25 10003/2023-24 2056 55 Ltd.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 3 :: said business was taken over and carried on by Keyem Infra Project Pvt. Ltd., which is the assessee in ITA Nos. 2055 & 2056/Chny/2026 and C.O. Nos. 54 & 55/Chny/2026.

2.1 The brief facts emanating from the records are that a search and seizure operation u/s.132 of the Act was conducted on 05.04.2024 in the group cases of Mr.Somu Sarvai Ramachandran (proprietor of M/s.Keyem Engineering Enterprises), M/s.Keyem Engineering Enterprises and others. The search was carried out at the business premises situated at Plot No. 64, Door No. 02, IV East Street, Kamaraj Nagar, Thiruvanmiyur, Chennai – 600041, as well as at various other premises. During the course of the search, various incriminating materials, including loose sheets, WhatsApp chats retrieved from the mobile phones of the accountant and other persons, and diaries, were found and seized. The sworn statements were also recorded from employees, the director and other concerned persons. Based on the materials gathered during the search proceedings, the assessments of Mr.S.S.Ramachandran for the Assessment Years (A.Ys.) 2020-21 to 2022-23 were reopened by issuing notices under section 148 of the Act, dated 06.11.2024 for A.Y. 2020-21 and 31.03.2025 for A.Ys. 2021-22 and 2022-23. Further, the assessments of the company, Keyem Infra Project Pvt. Ltd., for A.Ys. 2023-24 and 2024-25 were selected for scrutiny under section 143(2) of the Act.

2.2 During the course of the assessment proceedings, the Assessing Officer (AO) informed the assessees that the assessments have been reopened and selected for scrutiny for the purpose of verifying

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 4 :: the genuineness of the purchases recorded in the books and claimed as expenditure. This was on the premise that the search proceedings had allegedly revealed that certain purchases recorded by the assessees were bogus and represented mere accommodation entries. In arriving at this conclusion, the AO relied upon the following materials and statements:

2.3 The AO’s case was that the seized mobile phones contained conversations among Ms. Shobana, Ms.Vimala and Mr. Ramachandran, along with images of certain sheets and Excel files. According to the AO, these images indicated that payments were made through banking channels to certain suppliers on particular dates, with the corresponding entries being recorded first. Immediately below such bank transactions, notings were made showing receipt of cash equivalent to the amount transferred through the bank. Similar entries were also found in the diary maintained by Ms. Shobana, which was seized during the course of the search. When confronted with these materials, Ms. Shobana and Ms. Vimala stated that the parties to whom the payments were shown had raised bogus invoices and that the amounts paid to such parties through banking channels were subsequently returned in cash, after deducting a commission aggregating to 7.5% towards

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 5 :: the accommodation entry providers, middlemen and liaising agents. In addition to the statements of these two employees, statements were also recorded from the two alleged liaising agents, Mr.Karthik and Mr.Gavaskar, who confirmed the aforesaid arrangement and stated that they were involved in liaising between the assessees and the accommodation entry providers and were also paid commission for the same. When the Managing Director, Mr.S.S.Ramachandran, was confronted with these materials and statements, he also confirmed the aforesaid facts. 2.4 During the course of the assessment proceedings, the AO called upon the assessees to establish the genuineness of the purchases made from the parties referred to in the seized materials by furnishing supporting documentary evidence, including purchase orders, invoices, e-way bills, weighment slips, material receipt notes (MRNs), stock records, and other relevant documents. This requirement was particularly based on the statement of Ms.Vimala, who had stated during the search proceedings that proper documentation evidencing the physical movement of goods would not be available in respect of the alleged bogus invoices. In response, the assessees duly furnished the requisite documentary evidence sought by the AO, after collating the relevant records from their various job sites across the State. Further, all the persons whose statements had been relied upon, namely Ms.Shobana Krishnasamy, Ms.Vimala Jothi, Mr.S.Ramachandran, Mr.Karthik and Mr. Gavaskar, subsequently retracted the statements recorded from them during the search proceedings. Accordingly, the assessees’ requested the AO to examine and verify the documentary evidence

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 6 :: furnished by them and, upon such verification, to drop the proposed additions.

2.5 The AO thereafter undertook verification of the documents furnished by the assessees in respect of the parties whose names appeared in the seized materials. Upon examination and verification of the same, the AO prima facie found that not all the suppliers and purchases referred to in the seized materials were bogus and that a substantial number of the purchases were, in fact, genuine. The AO accordingly proceeded to examine and correlate each individual purchase with the following supporting documents:

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 7 :: hereunder:

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 8 :: 2.7 Based on the aforesaid verification, the AO concluded that 43.99% of the purchases made during F.Y. 2020-21 were bogus and, therefore, liable to be disallowed. This conclusion was primarily drawn on the ground that the supporting documents referred to above were not available in respect of 100% of the purchases. Accordingly, the AO adopted a proportionate basis for making the disallowance. It is pertinent to note that this detailed purchase verification exercise was undertaken by the AO only in the case of Mr. S. S. Ramachandran and only for F.Y. 2020-21. Nevertheless, the AO proceeded to apply the percentage of alleged bogus purchases so determined to all the financial years under consideration in the cases of both the assessees. In response, the assessees submitted that all the relevant documents available with them had been duly furnished and that the same established the genuineness of the purchases. With regard to the deficiencies in documentation pointed out by the AO, the assessees’ explained that certain documents might no longer be available due to the passage of time and also because the relevant records were distributed across various job sites located throughout the State.

2.8 The AO, however, was not convinced by the submissions of the assessees and proceeded to disallow 43.99% of the purchases made from the concerned suppliers. The AO held that the deficiencies in the supporting documentation corroborated the findings allegedly emerging from the search proceedings that the assessees had indulged in bogus purchases through accommodation entries with the objective of generating unaccounted cash. The disallowances made towards purchase expenses are tabulated below:

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 9 :: S.No. A.Y. Purchases Assessee disallowed 1 2020-21 8,39,49,943 Somu Sarvai Ramachandran 2 2021-22 15,73,28,024 3 2022-23 17,27,67,019 4 2023-24 22,87,59,893 Keyem Infra Project Pvt. 5 2024-25 9,07,47,468 Ltd.

2.9 In addition to the aforesaid purchases, the diary seized during the search and maintained by Ms.Shobana Krishnasamy also contained entries relating to payments made to various individuals, which were allegedly received back in cash. The persons named in the diary as recipients of such payments were employees of the company. Based on these entries, the AO presumed that the payments represented bogus labour expenses recorded by the assessees with the intention of generating unaccounted cash. Accordingly, the AO proceeded to disallow the alleged bogus labour expenses reflected in the diary. The details of such disallowances are tabulated hereunder:

Sl. A.Y. Labour expenses Assessee No. disallowed 1 2020-21 3,12,88,860 Somu Sarvai Ramachandran 2 2021-22 1,94,55,378 3 2022-23 3,36,07,842 4 2023-24 2,40,99,911 Keyem Infra Project Pvt. Ltd. 5 2024-25 1,03,67,944

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 10 :: 2.10 The assessment orders were thereafter passed, incorporating the aforesaid additions and determining the total income of the assessees as set out below:

Sl.No. A.Y. Order u/s. Dated Returned Assessed income income 1 2020-21 143(3) 17.04.2025 14,47,79,300 25,99,18,103 r.w.s.147 2 2021-22 143(3) 17.04.2025 15,69,11,470 33,36,94,872 r.w.s.147 3 2022-23 143(3) 22.04.2025 32,82,73,330 53,46,48,201 r.w.s.147 4 2023-24 143(3) 31.03.2025 30,35,35,700 55,63,95,504 5 2024-25 143(3) 17.04.2025 70,94,96,410 81,06,11,822

i. The AO himself acknowledged in the assessment orders that, upon verification of the documents furnished by the assessees during the course of the assessment proceedings, the purchases made from the parties identified during the search could not be regarded as bogus. The AO merely observed that certain discrepancies existed in the supporting documentation, which, according to him, gave rise to doubts regarding the genuineness of the purchase expenses.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 11 :: ii. The assessee has more than 50 project sites spread across the State and had duly collated and furnished before the AO the available supporting documentary evidence, including invoices, purchase orders, e-way bills, weighment slips, material receipt notes, stock registers, and other relevant records. Mere non- availability of a few documents cannot, by itself, render the purchases bogus, particularly when substantial documentary evidence establishing the purchases and the corresponding movement of goods has been furnished.

iii. The materials seized during the search do not, in any manner, substantiate the AO’s allegation that the purchases made by the assessees were bogus. This is particularly so in view of the fact that all the persons who had made the statements relied upon by the AO subsequently retracted the same. Consequently, the allegations made by the AO remained uncorroborated by any independent or substantive evidence.

iv. The impugned addition was not, in fact, made on the basis of the seized materials. Rather, the addition was arrived at purely on an estimated basis. Such an addition, being founded solely on estimation and not supported by cogent material evidence, is unsustainable.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 12 :: ld. CIT(A), with regard to M/s.Kannith Suppliers, who had supplied steel to the assessees, the assessees provided the following explanation in respect of the alleged deficiencies relating to 79% of the purchase orders and 10% of the weighment slips:

2.1.3 With regard to the alleged non-availability of weighment slips, it was specifically explained to the AO that for purchases of steel below 10 metric tonnes, weighment slips are not generated, since materials are delivered directly at the project sites and verified by physical counting of bundles. For all purchases from this supplier, Material Receipt Notes duly certified by the respective project managers and site engineers were produced before the AO. During FY 2020–21, the Appellant had several purchases below 10 MTS, aggregating to Rs.37,26,938/-, the details of which were also placed on record. 2.1.4 It is further submitted that the AO independently cross-verified the stock registers maintained at the project offices and found entries evidencing receipt and consumption of the materials purchased from this party. 2.1.5 As regards the partial availability of formal purchase orders, it was clarified that in cases of urgent or emergency site requirements, purchase orders are placed telephonically, and therefore physical purchase orders are not generated for every transaction. This fact is corroborated by the invoices submitted, which clearly establishes to the fact that the supplies were made against telephonic orders. Copy of invoices is enclosed as an Annexure-1.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 13 :: produced before the AO. The AO had also independently cross- verified the stock registers maintained at the project site offices, which clearly recorded the receipt and consumption of the materials. Thus, the actual receipt of goods and their utilisation in the projects stood conclusively established. 2.3.5 Notwithstanding the above, and despite the production of invoices and corroborative evidence evidencing receipt of materials, the AO proceeded to disallow 100% of the expenditure, which is wholly unjustified and arbitrary. 6. The alleged deficiencies in the supporting documentation were thus explained in detail before the ld.CIT(A). Similar explanations were furnished in respect of each and every supplier identified by the AO in the purchase verification report, which formed the basis for the proportionate disallowance of 43.99% of the purchase expenses.

2.3.6 It is further submitted that the AO has mechanically applied the same disallowance percentage across multiple assessment years, without appreciating the fact that purchases from this supplier were made only in two out of the five financial years under consideration. The year-wise details of expenses claimed, and invoices submitted are as under:

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 14 :: F.Y. Expenses Invoices % of Invoices Claimed (Rs.) Submitted (Rs.) Submitted 2019–20 Nil Nil N/A 2020-21 50,00,000 22,55,200 45% 2021-22 91,03,960 59,75,463 66% 2022-23 Nil Nil N/A 2023-24 Nil Nil N/A Total 1,41,03,960 82,30,663 58%

2.3.7 Out of the five financial years from FY 2019–20 to FY 2023–24, purchases from Lakshmi Associates were made only during FYs 2020–21 and 2021–22. Even for these two years, the Appellant furnished documentary evidence in support of 58% of the total expenditure incurred. In such circumstances, the action of the AO in applying a uniform and blanket disallowance across all the years and in disallowing the entire expenditure, despite substantial evidence on record and independent verification of stock registers, is unsustainable in law and on facts. 8. The assessees’ accordingly submitted that the disallowance of 43.99% of the purchase expenses claimed across all the years was arbitrary and unsupported by the material on record. It was contended that the disallowance was neither based on the findings arising from the search proceedings nor supported by the documentary evidence furnished during the assessment proceedings, which established the genuineness of the purchases. The assessees therefore prayed before the ld.CIT(A) for deletion of the additions made on account of alleged bogus purchases.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 15 :: employees with a noting as “recd”. The AO is of the view that the appellant company has issued the cheque / DDs in favor of the employees and the amount was received back. The fact is that the appellant company had issued cheques and DDs in favor of the employees who were at different sites across the state and it is the confirmation of the employees for having received and encashed the cheque/DD by noting “recd”. 3.20 As evident in the assessment order, neither the Investigation officer nor the AO had any occasion to confront the details contained in the seized material from Smt.Shobana Krishnaswamy, the author of the ‘notings’. The diary contains the names of various employees of the appellant company. No statement of any kind was recorded from the employees mentioned in the seized material. Also neither the Investigation officer nor the AO had an occasion to confront the details contained in the seized diary from the Managing Director of the appellant company.

i. The assessees furnished purchase invoices, ledgers, stock registers, Material Receipt Notes (MRNs), site-level consumption records, banking records, audit records and other internal documents. Taken together, these documents established a prima

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 16 :: facie trail evidencing the receipt and utilisation of the materials purchased. ii. The AO did not identify any specific invoice or transaction as fabricated, nor did he establish that the corresponding goods had not been received or consumed. Further, the books of account and primary records were not demonstrated to be false, unreliable or internally inconsistent. iii. The AO adopted a uniform disallowance of 43.99% on the ground that certain documents, such as e-way bills, delivery challans, weighment slips and MRNs, were not available for some transactions. However, the AO failed to establish any direct nexus between the non-availability of such documents and the amount treated as non-genuine. iv. The assessees explained that procurement activities were decentralised across more than 50 project sites and involved local purchases, bulk consignments, third-party logistics and immediate consumption of materials. Depending on the nature and circumstances of the transactions, certain documents relied upon by the AO might neither have been legally mandatory nor practically available. These explanations were not effectively rebutted by the AO. v. The AO derived the disallowance rate of 43.99% from the verification conducted for one assessment year and applied the same rate to other assessment years and even to a separate legal entity. The AO did not establish that identical deficiencies existed in the same proportion across the different years or entities. Further, no statistically reliable sample, transaction-wise

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 17 :: analysis or independent corroborative evidence was brought on record to establish any recurring pattern. vi. Since the books of account were duly audited and the AO had not identified any fundamental defect in the books, stock records or quantitative details, the book results could not be rejected or disturbed by adopting a broad percentage-based estimate in the absence of specific and cogent evidence. 12. Accordingly, the ld.CIT(A) restricted the disallowances to 5% of the relevant expenses. The details of the disallowances so sustained are set out below: Disallowance of Purchase expenses Assessee A.Y. Made in AO’s order Sustained in (43.99%) CIT(A)’s order (5%) 2020-21 8,38,49,943 95,28,403 S.Ramachandran 2021-22 15,73,28,024 1,78,78,185 2022-23 17,27,67,019 1,95,12,616 Keyem Infra 2023-24 22,87,59,893 2,37,65,017 Project Pvt. Ltd 2024-25 9,07,47,468 1,26,62,638

Disallowance of Labour expenses Assessee A.Y. Sustained in Made in AO’s order CIT(A)’s order (5%) 2020-21 3,12,88,860 15,64,440 S.Ramachandran 2021-22 1,94,55,378 9,72,770 2022-23 3,36,07,842 16,80,390 Keyem Infra 2023-24 2,40,99,911 12,04,995 Project Pvt. Ltd 2024-25 1,03,67,944 5,18,397

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 18 :: SUBMISSIONS IN ITA Nos. 1849, 1850, 1855, 2055 & 2056/Chny/2026:

16.1 The revenue has now stated that the ld.CIT(A) erred in deleting the disallowances of purchase and labour expenses to the extent stated above. During the hearing of the appeal, the Ld.DR relied on the findings of the AO to state that the disallowance originally made by the AO of 43.99% of the purchase expenses and that of the labour expenses were to be restored in absence of proper documentary evidences in support the expenditure claimed.

16.2 Per contra, the ld.AR submitted that the grounds raised by the revenue and the arguments in support of the same advanced by the Ld.DR are without merit. As submitted before the ld.CIT(A), the disallowance was made by the AO on an incomplete and incorrect consideration of the documents furnished by the assessees during the assessment proceedings. The AO had anchored the disallowance of the purchase expenses on perceived absence of documents

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 19 :: evidencing the purchases made. The assessees had explained in detail before the ld.CIT(A) as to how the absence of the documents identified by the AO did not in any way prove that the purchases were bogus. The ld.CIT(A) had appreciated the documents furnished, and as to how the documents which were not furnished, were either indeed not required to be maintained, or ancillary evidence on record established the genuineness of the purchases, such as, though e-way bills were not available for certain purchases, the e-way bill number for those purchases were duly quoted in the respective invoices.

16.3 Further, the ld.AR contended that the AO had made a sweeping disallowance, in respect of both the assessees for all the years, on the basis of verification of purchases in the individual’s case for the F.Y.2020-21. The disallowance had been carried out, not on the genuineness or veracity of the purchases, rather on the availability of complete documentation. The AO had himself observed in the order of assessments that not all the purchases from the vendors identified from the seized materials were bogus. The AO had thus carried out the disallowance in respect of both the assessees only on the basis of the documents furnished during the assessment proceedings, post the search proceedings.

16.4 It is also pertinent to note that the statements on the basis of which the AO had initially doubted the veracity of the purchases, were all retracted, by all the deponents. Regardless of the same, the assessees had sought an opportunity to cross-examine the deponents. The AO however, denied the same by stating that the deponents had retracted from the depositions. The AO had thus

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 20 :: based his disallowances only on the basis of the submissions of documents during the assessment proceedings. When such an exercise of verification is undertaken, the AO has to examine each and every purchase individually, even for the purchases for which the documents were not furnished in their entirety. Mere absence of purchase orders / weighment slips for few purchases would not automatically render the said purchases bogus. The AO ought to have further verified the same and bring on record corroborative evidence to carry out the disallowance. Rather, he has made an ad- hoc sweeping disallowance, which had been restricted by the ld.CIT(A).

16.5 He further stated that the assessees had explained in detail as to how, why certain supporting documents were not available for certain purchases. Without furnishing any additional documents / evidences, the assessees had furnished detailed explanation for the absence of each type of supporting document in respect of each supplier. For instance, for purchases made from one supplier M/s.Kannith Suppliers, the AO had observed that purchase orders were furnished only to the extent of 21%. To explain the absence of such purchase orders, the appellant had explained that it places orders over telephone for emergency procurements. For such orders, physical POs would not be available. This explanation was furnished before the ld.CIT(A) in its submissions, which is placed at Pg.300 of the PB. Furthermore, the assessees had also furnished copy of the invoices furnished by M/s.Kannith Suppliers, which duly recorded that the supply was against a telephonic order placed by the assessees’. One such invoice is placed at Pg.71 of the PB, which

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 21 :: has been extracted by the CIT(A) at Pg.104 of his order. The same is extracted hereunder for ready reference;

16.6 The ld.AR further submitted that it can be seen, against the Order No., it has been clearly mentioned by the supplier that the said order was a telephonic order. Similar invoices in relation to this supplier, capturing the fact that the order was a telephonic order were also furnished before the sub-ordinate authorities, which are placed at Pgs.75, 79 & 87 of the PB. Similarly, in the case of Lakshmi Associates, the AO carried out the disallowance for the reason that e-way bills were not furnished. In their submissions before the CIT(A), which are at Pg.301 of the PB, the assessees had

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 22 :: submitted that the e-way bills were clearly referenced in the corresponding invoices, copy of which were already furnished to the AO. One such invoice dated 17.02.2021 raised by Lakshmi Associates for the supply of cement is placed at Pg.100 of the PB, wherein the e-way Bill No.5712 4162 9209 has been duly quoted. Copy of the invoice is extracted hereunder for ready reference;

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 23 ::

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 24 :: 16.7 Thus, ld.AR contended that the absence of certain supporting documents would not render the purchases as bogus. The same has been properly considered and appreciated by the ld.CIT(A), which the AO had failed to do.

16.8 He also vehemently argued that the AO’s method of disallowance is completely unsustainable and cannot be upheld. In addition to all the reasons elaborated above, one other striking error in the AO’s method is that the figure of alleged bogus purchase of 43.99%, had been arrived at by the above-mentioned unreasonable, illogical and incorrect verification of supporting documents, only for the A.Y.2021-22, in the case of only one of the 2 assessees, namely Mr. Somu Sarvai Ramachandran. The AO had not verified the supporting documents in relation to the purchases for the other years, and the other assessee. This gains significance and the explanation as to why it does was furnished by the assessees, before the ld.CIT(A), in relation to the supplier M/s. Lakshmi Associates, which is placed at Pg. 222 of the PB, which is extracted hereunder:

The year-wise details of expenses claimed, and invoices submitted are as under:

F.Y. Expenses Claimed Invoices % of (Rs.) Submitted Invoices (Rs.) Submitted 2019–20 Nil Nil N/A 2020-21 50,00,000 22,55,200 45% 2021-22 91,03,960 59,75,463 66% 2022-23 Nil Nil N/A

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 25 :: 2023-24 Nil Nil N/A Total 1,41,03,960 82,30,663 58%

2.3.7 Out of the five financial years from FY 2019–20 to FY 2023–24, purchases from Lakshmi Associates were made only during FYs 2020– 21 and 2021–22. Even for these two years, the Appellant furnished documentary evidence in support of 58% of the total expenditure incurred. In such circumstances, the action of the AO in applying a uniform and blanket disallowance across all the years and in disallowing the entire expenditure, despite substantial evidence on record and independent verification of stock registers, is unsustainable in law and on facts. 16.9 Further he stated that as it can be seen from the above submission, the AO had carried out disallowances from the purchases claimed in other years, on the basis of his workings in relation to suppliers from whom purchases were made during the F.Y.2020-21 alone and not during the other years. Notwithstanding the fact that the AO’s workings are unsustainable for the F.Y.2020- 21 itself for reasons submitted above, the extrapolation of the result of the workings to other years is erroneous and egregious. This scenario of purchases not being made from all these suppliers for all 5 years is not restricted to one supplier alone but exists in the case of almost all the suppliers. Similar submissions were also made in respect of these other suppliers tabulating the year-wise purchase, the details of which are as below;

S.No. Supplier Pg. of PB 1 Universal Marketing 225 2 Sri Venkateswara Agro 228 3 Sun Enterprises 230 4 Bhavani Traders 232 5 Chennai Steel Traders 235 6 Chennai Steels 238

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 26 :: 7 Padmavathi Ventures 240 8 Pragya Homes & Infra 243 9 Rasika Projects 245 10 Ronak Agency 247 11 Sunil Ceramics 250 12 NR Infra 252 13 Naveen Baskar Electricals 255 14 Metro Steels 257 15 Mageswari Traders 260 16 Madura Traders 263 17 Hari Hardwares 260 18 KS Traders 267 19 SLN Agencies 270 20 Carmel Construction 278 Corporation 21 Shivam Wispat 280 22 Sree Shivani and Company 282 23 Thangam Steel Company TPTR 285 24 Vishnu Roofing Industries 287 25 Sri Sai Traders 290

16.10 It is for all these various deficiencies and defects in the method adopted by the AO, the ld.CIT(A) had done away with the same.

16.11 In regards to the disallowance of labour expenses, the ld.AR submitted that the AO had carried out the same merely for the reason that certain entries were made in the seized diary. The AO had on his own concluded that the entries made in the diary, depict the modus of payments made in regards to labour expenses through cheque, being returned back in cash. He then concluded that all the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 27 :: figures of expenses recorded in the diary are bogus labour expenses which he then disallowed.

16.12 Before the ld.CIT(A), the assessees’ had submitted that the diary was maintained by Ms.Shobana Krishnasamy, and neither the search team, nor the AO examined her as to what the entries made in this seized diary represented. When the author of the diary has not been examined to explain the contents of the diary and the need for maintenance of the same, it was the submission of the assessees that the same cannot be utilized by the AO to carry out any addition / disallowance on his own surmises, interpretation and conjecture.

16.13 The AO has observed that the seized diary contains details of payments made through cheque, and that these entries are followed by the term “recd”, which according to the AO meant that the cheque payments were returned back to the assessees. The AO also observed that the names entered in this seized material were those of the employees of the assessees. When the disallowance of the labour expenses was proposed by the AO on the basis of this seized material, the assessees provided the explanation as to why the diary was maintained and the meaning of the entries made therein, which is reproduced hereunder;

“The handwritten diary by Smt. Shobana Krishnaswamy, seized as per annexure in ANN/MB/KIPPL/B&D/S-3, was relied upon and was observed that the contents has payments ranging from Rs.4,80,000/- to Rs.4,95,000/- to various employees. Smt. Shobana Krishnaswamy had stated that these payments were subsequently received back in cash. It is submitted that the amounts paid to the said individuals (staff) are Mr. Suresh. Mr. Aadhavan. Mr. Jobin and Mr. Ruban were for purchase of Blue Metals, Sand, bricks etc. from various parties. Since, most of the company's projects are at interior villages of Tamilnadu, the amounts were paid to the staff, members who intern

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 28 :: will aggregate the materials required for the projects. Smt. Shobana Krishnaswamy's mention "recd" in the seized material is mark of confirmation of receipts by the vendors from the staff of our company. Therefore, it is requested that the disallowance proposed in the show cause notice for the AY.2021-22 amounting to Rs.1,94,55,378/- with respect to inflation of labour charges may please be dropped.”

16.14 Further, the ld.AR submitted that the diary was maintained by Ms. Shobana Krishnasamy to keep track of the payments made to the vendors through the employees of the assessees, and the payments were marked as “recd” when the same were received by the vendors from the employees of the assessees. The explanation furnished by the assessees was never tested by the AO, by examining the author or the employees mentioned in the diary. The same was duly considered by the ld.CIT(A) while partially deleting the disallowance. The relevant observation of the ld.CIT(A) at para 6.4.12 of his order is extracted hereunder;

6.4.12 The reliance placed by the AO on abbreviated expressions such as “recd” further underscores the speculative foundation of the disallowance. Such shorthand noting, by their very nature, are ambiguous and devoid of intrinsic clarity. They do not, at the face, specify either the mode of receipt or the character of the transaction. The expression “recd” is capable of multiple interpretations and may equally denote receipt of funds by cheque, demand draft, journal adjustment, or mere acknowledgment of entrustment of funds for operational purposes too. In the absence of any qualifying details, such as the medium of receipt, date of encashment, or linkage to a corresponding cash withdrawal, it is impermissible to ascribe to such noting a singular and adverse meaning. The assessment order does not set out any reasoning as to why the interpretation placed by the AO namely, that the noting represent receipt of cash, ought to prevail over the appellant’s explanation. The appellant has consistently maintained that these entries denote acknowledgements of receipt of banking instruments routed through site personnel for meeting project-related requirements. This explanation has neither been tested through enquiry nor disproved by reference to any objective material. No attempt has been made to correlate the entries with cash withdrawals from bank accounts, cash balances in the books, or

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 29 :: any form of physical cash movement. In the absence of such correlation, the inference of cash receipt lacks evidentiary support. 16.15 Thus, the ld.AR prayed that Ground No.2 of the Departmental appeal be dismissed.

17.1 In this ground of appeal, the ld.DR has agitated that the ld.CIT(A) had erred in admitting additional evidence, and that no opportunity was given to the AO to file submissions on the new evidence so filed.

17.2 Per contra, the ld.AR submitted that, the ld.DR had nowhere pointed out as to which is the additional evidence filed before the ld.CIT(A), that was not filed before the AO. No document, chart or paper-book was filed by the revenue to substantiate this ground. The ld.CIT(A) has nowhere in his order observed that additional evidence were filed or even referred to any documents, which were not filed before the AO. He contended that the entire basis for the ld.CIT(A)’s decision and order is that the AO’s method of verification of the documents was flawed, unreasoned and incorrect. The ld.CIT(A) did not examine any additional document and had

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 30 :: rendered his decision on the basis of the assessee’s submissions as to why the documents submitted before the AO were sufficient to prove the genuineness of the purchases.

17.3 Further, the ld.AR argued that though the Department had not even attempted to positively prove that any additional evidence(s) was filed before the ld.CIT(A), the assessees now endeavour to prove that no such evidence(s) was filed. The AO had carried out his disallowance based on percentage of documents available for each supplier for the F.Y.2020-21 in respect of Mr. Somu Sarvai Ramachandran. The same was tabulated by him and extracted in the orders of assessment, which is reproduced at para 8 of these submissions. The only exercise undertaken by the assessees before the ld.CIT(A) was to explain as to how the deficiencies identified by the AO did not mean that the purchases were bogus. To do the same, the assessees had filed submissions before the ld.CIT(A), which is placed at Pages 300 to 323 of the PB. From these submissions, it can be seen that the percentage of documents mentioned in respect of each supplier is the same as the percentage of documents mentioned in the AO’s verification report. If any additional document had indeed been filed, the percentage of supporting documents such as purchase orders, weighment slips, e- way bills and MRNs would have increased in case of any supplier. However, the percentage remained the same in respect of all the suppliers. This conclusively proves that no additional document was filed by the assessees before the ld.CIT(A).

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 31 :: 17.4 One other submission which proves that no additional evidence was filed is that in their submissions in respect to the supplier M/s.Universal Marketing, the AO had disallowed purchases to the extent of 15.07% from them, for the reason that e-way bills to the extent of 14% were not furnished. In regard to the same, the assessees’ submissions before the ld.CIT(A), which is at Pg.224 of the PB, is extracted below;

“With respect to E-way bills, it is submitted that for a limited number of invoices, the corresponding E-way bills could not be traced by the Appellant during the assessment proceedings. The details of such invoices are as under: Date Invoice No. Amount (Rs.) 21.10.2020 KRR-2395-20/21 5,10,426 31.10.2020 TRY-2642-20/21 13,62,900 31.10.2020 TRY-2641-20/21 13,44,728 31.10.2020 KRR-2593-20/21 13,56,128 31.10.2020 KRR-2592-20/21 12,53,679 Total 58,27,861

2.4.3 However, for the entire purchases from this supplier, Material Receipt Notes duly certified by the respective project managers and site engineers were furnished before the AO. The AO had also verified the stock registers maintained at the project sites during the assessment proceedings, which conclusively established the receipt and utilisation of the materials. 2.4.4 In the presence of contemporaneous records such as MRNs duly certified by responsible site personnel and stock registers independently verified by the AO, the non availability of a few E-way bills, at best, constitutes a procedural lapse and cannot form a valid basis for disallowance of otherwise genuine expenditure. The actual supply and receipt of goods having been proved beyond doubt, the disallowance of 15.07% of the expenditure is wholly unjustified.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 32 :: 17.5 As is evident from the submissions, the ld.AR submitted that the assessees, though they had identified the e-way bills which were not furnished before the AO, only submitted before the ld.CIT(A) that the AO had duly verified the MRNs certified by the respective project managers and the stock registers, and thus the mere absence of certain e-way bills would not mean that the purchases were bogus. The assessees had thus only explained the deficiencies and did not furnish any additional evidence to substantiate its case.

17.6 In relation to the disallowance of labour expenses, the assessees had not submitted any documents before the ld.CIT(A). They had merely explained the reason for which the diary was maintained by Ms.Shobana Krishnasamy and the meaning of the entries made therein. Thus, no additional evidences having been filed, this ground of appeal is also to be dismissed.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 33 :: and the onus lies on assessee to rebut it with supporting corroborative evidences.

18.1 In these grounds, the ld.DR contended that the ld.CIT(A) erred in granting relief to the assessees by allegedly stating that the materials seized during the search did not have evidentiary value. In this regard, it is firstly submitted that the ld.CIT(A) did not state that the seized materials did not have evidentiary value, in respect of the seized materials which allegedly contained details of bogus purchases.

18.2 On the other hand the ld.AR submitted with regard to the issue of alleged bogus purchases, the ld.CIT(A) had granted relief to the assessees by deleting a portion of the disallowance, only by considering the purchase verification exercise carried out by the AO and the submissions of the assessees on the same. The ld.CIT(A) did not delete the disallowance of purchase expenses by stating that the seized materials did not have evidentiary value. He further submitted that the Ld.DR also did not refer to any such finding / remark made by the ld.CIT(A). Hence, these 2 grounds do not relate to the disallowance of purchase expenses.

18.3 In regard to the disallowance of labour expenses, the ld.AR stated that the basis for the disallowance carried out by the AO is the diary seized during the search, which was maintained by Ms.Shobana Krishnasamy, an accountant of the company. Neither the search team nor the AO had bothered to examine the author of the seized material. Further, he contended that the AO had on his

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 34 :: own concluded that the entries in the seized diary related to labour expenses and that the same revealed them to be bogus.

18.4 Before the ld.CIT(A), the assessees explained the need to maintain the diary and the meaning of the entries made therein. It is pertinent to note here that the author of the seized diary is Ms.Shobana Krishnasamy and the same was seized from her possession. The ld.CIT(A) had partially deleted the disallowance for the reason that the AO had not proved that the entries made in the seized diary indeed proved the labour payments being received back in cash, especially when the author of the diary was not examined. He submitted that the ld.CIT(A) had only observed that for any addition to be made based on a seized material, the contents of the seized material must be corroborated by independent evidence, and that the same had not been done by the AO.

18.5 Now the Department are challenging this partial deletion of the disallowance by placing reliance on the provisions of 132(4A) and 292C of the Act and the decision of the Hon'ble Division Bench of the High Court of Madras in TCA Nos.1395 to 1401 of 2009 Smt.N.Saroja v. The Assistant Commissioner of Income Tax, Central Circle-II, Tiruchirapalli.

18.6 The ld.AR argued that firstly, the provisions of sections 132(4A) and 292C of the Act are extracted hereunder: Search and seizure: (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 35 :: (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. Presumption as to assets, books of account, etc.: 292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. (2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132. 18.7 Both the sections prescribe 3 presumptions, in relation to the documents seized during the search proceedings. The same are summarized below;

a. That the material seized during the search belongs to the person in whose possession the same was found, b. That the contents of the seized material are true, c. That the handwriting in the seized material belongs to the person who maintained the same.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 36 :: 18.8 The ld.AR argued that in the present assessees’ case, if the submissions made by the assessees and the findings of the ld.CIT(A) are considered, the admitted and undisputed facts in relation to the seized diary, qua the labour expenses, are as below; i. That the seized diary belongs to Ms.Shobana Krishnasamy, ii. That the payments referred to in the seized diary were actually made by the assessees to the vendors through their employees, and that once the vendor received the payments, Ms.Shobana Krishnasamy noted “recvd” in the diary, and iii. That the handwriting in the seized material is Ms.Shobana Krishnasamy’s handwriting.

18.9 He further contended that neither the assessee submitted anything contrary to the above facts, nor the ld.CIT(A) observed anything contrary to the above facts. The partial deletion of labour expenses was done by considering the assessees’ explanation for the notings made in the diary and the AO’s failure to examine the author of the diary in light of the assessees’ submissions. He further submitted that the ld.CIT(A) did not state that the seized material did not have evidentiary value, but only that additions merely based on the seized material, without corroboration, cannot be made. Hence, the presumptions prescribed by sections 132(4A) & 292C of the Act, though not even invoked / referred to by the AO, have not been disturbed / undone by the ld.CIT(A). Thus, ground no.4 deserves to be dismissed.

18.10 Coming to the reliance placed on the decision of the Hon’ble Jurisdictional Madras High Court in the case of Smt. N.Saroja, Vs The Assistant Commissioner of Income Tax, Central Circle-II, Tiruchirapalli - T.C.A.Nos. 1395 to 1401 of 2009, the ld.AR

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 37 :: submitted that in the said case, the Hon’ble High Court had held as below;

18.11 The Hon’ble High Court has laid down that loose sheets found during the search have evidentiary value, if they are fairly corroborated. The ld.CIT(A)’s observations, on the seized diary, after referring to various decisions on the subject, at paras 6.4.17 & 6.4.18 of his order, are as below; 6.4.17…….Collectively, these rulings reinforce a core evidentiary rule, that loose papers or informal noting without corroborative support or proper authentication, possess limited probative value. In the present case, the burden lies on the AO to investigate, validate, and substantiate such materials before drawing adverse inferences. In the present case, the noting in the handwritten diary titled “Murugan Earth Movers” have neither been corroborated through independent enquiries nor supported by examination of their author. Further, no employee named in the noting(s) has confirmed the alleged cash return transaction. 6.4.18 It is also significant that no documentary evidence, whether in the nature of bank withdrawals, cash books, ledger adjustments, or digital trails, has been cited to show that substantial cash movement actually took place. The absence of signatures, acknowledgments, or receipts from the appellant in the diary further erodes the possibility of treating the noting as conclusive evidence. For alleged high-value cash flows, some trace, transactional, digital, physical, or testimonial, would ordinarily be expected. The absence of such corroboration makes the inference of cash-back transactions speculative rather than evidentiary. Thus, applying the legal principles emerging from the above precedents, and having regard to the absence of authentication and corroboration, it would be inappropriate to sustain additions solely on the basis of the diary entries without further supporting material. The statutory requirement u/s 37(1) requires the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 38 :: AO to establish that the expenditure is not genuine through clear and reliable evidence. 18.12 The ld.AR argued that the ld.CIT(A) has not concluded that the diary seized during the search, containing details of payments for labour expenses, does not have evidentiary value. He has rather observed, in line with the decision of the Hon’ble Madras High Court in N.Saroja (supra), that, in the absence of the entries made in the seized diary being corroborated, additions cannot be made on the basis of the same. The ld.CIT(A) has rightly concluded that the AO has not corroborated the entries in the seized diary, as he had failed to question the author of the diary, and the employees mentioned in the said diary. Thus, the finding of the ld.CIT(A) on this issue is in line with the decision of the Hon’ble Madras High Court in N. Saroja (supra), and thus he prayed for dismissing ground no.5 also.

Assessee’s submission in CO Nos.50, 51 & 52/Chny/2026: 21. Ground Nos. 2 to 6: For all the assessment years under consideration, the ld. AR supported the order of the ld. CIT(A) deleting the respective disallowances.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 39 :: 22. Ground Nos. 7 & 8: In all the three Cross Objections, the ld. AR submitted that the assessee has challenged the validity of the reopening of the assessments by the AO. It was submitted that, in the notices issued u/s.148 of the Act, the AO stated that the assessments were reopened on the basis of the search proceedings conducted in the case of Mr. Ramachandran. According to the ld. AR, the notices u/s.148 of the Act were issued without following the procedure prescribed u/s.148A of the Act, on the premise that the proceedings were consequent to the search action in the case of the assessee. The ld. AR further submitted that, although the AO stated in the notices issued u/s.148 that the requisite approval had been obtained from the authorities specified u/s.151 of the Act, a copy of the said approval was never furnished to the assessee. It was contended that non-furnishing of the approval is contrary to the law laid down by the Hon’ble Delhi High Court in the case of Tia Enterprises (P.) Ltd. v. ITO [2024] 468 ITR 5 (Delhi), wherein the Hon’ble Court held as under: 13. To our minds, approval granted by statutory authorities, as required under the provisions of the Act, has to be furnished to an assessee along with the reasons to believe. The statutory scheme encapsulated in the Act provides that reassessment proceedings cannot be triggered till the AO has reasons to believe that income, which is otherwise chargeable to tax, has escaped assessment and, reasons recorded by him are placed before the specified authority for grant of approval to commence the process of reassessment. 23. In view of the above, the ld. AR contended that, since the AO had failed to furnish a copy of the approval stated to have been obtained u/s.151 of the Act, the reopening of the assessments was invalid in law and, therefore, the notices issued u/s.148 of the Act were liable to be quashed.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 40 :: 24. Ground No. 9 for A.Y. 2020-21 in CO No. 50/Chny/2026: The assessee has challenged the validity of the reopening of the assessment on the grounds that the same is barred by limitation. The ld. AR submitted that, where an assessment is sought to be reopened beyond a period of three years from the end of the relevant assessment year, the provisions of section 149(1)(b) of the Act prescribe an additional condition to be satisfied. In such a case, the escaped income must be Rs. 50 lakhs or more and must be represented in the form of an asset, or be represented by entries in the books of account, or be in the form of expenditure in relation to an event or transaction. According to the ld. AR, unless the aforesaid statutory condition is satisfied, the notice issued for reopening the assessment beyond the prescribed period of three years is barred by limitation. 25. The notice u/s.148 of the Act for A.Y. 2020-21 was issued on 06.11.2024, whereas the period of three years from the end of the relevant assessment year expired on 31.03.2024. Therefore, for validly assuming jurisdiction beyond the period of three years, the additional condition prescribed u/s.149(1)(b) of the Act is required to be satisfied. The ld. AR submitted that none of the conditions stipulated u/s.149(1)(b) of the Act are satisfied in the assessee’s case for A.Y. 2020-21. It was submitted that the additions made in the assessment order comprise disallowances of various purchase and labour expenses. Such disallowances, according to the ld. AR, do not represent any asset, expenditure in relation to an event or transaction, or any entry or entries in the books of account representing income that has escaped assessment. Accordingly, the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 41 :: extended limitation prescribed u/s.149(1)(b) of the Act could not be invoked in the present case. 26. The ld. AR further submitted that the Hon’ble Madras High Court, in the case of IDFC Ltd. v. DCIT [2023] 459 ITR 169 (Madras), quashed the reopening of an assessment made beyond the period of three years, holding that the additional condition prescribed for such reopening was not satisfied. Relying on the said decision, the ld.AR contended that, in the present case, the statutory condition prescribed u/s.149(1)(b) of the Act having not been satisfied, the notice issued u/s.148 of the Act for A.Y. 2020-21 is barred by limitation. Accordingly, it was prayed that the reopening of the assessment for A.Y. 2020-21 be quashed as being invalid and barred by limitation.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 42 :: 29. During the course of the assessment proceedings, however, the AO called upon the assessees to furnish documentary evidence in support of the purchases claimed from the vendors/suppliers identified on the basis of the search proceedings. In compliance with the said requisitions, the assessees duly furnished the relevant documentary evidences before the AO. Upon considering the documents so furnished, the AO himself recorded the following observations: During the verification of supporting documents carried out as part of assessment proceedings, it was found that though the entire purchases from such vendors were not bogus, there were discrepancies (sic.) which corroborated inflation of purchases. Thus, not all transactions of such suspected vendors could be said to have been established as genuine. Mere payment through banks or production of invoices cannot serve as evidence in support of genuineness of purchases. There would be purchase order prior to purchase, evidence of physical transportation of material, weighment slips, recording of entries in gate register, entry in stock registers etc. As already discussed, in the case of vendors identified as bogus on the basis of material found during the course of search as well as admitted as such by the assesssee, there are significant discrepancies which point to the transactions not being genuine. Based on the physical examination of such evidences, only a specific proportion of purchases have been held to be inflated.

6.2.30 It is a well-established legal principle that expenditure cannot be disallowed merely on presumptions, generalizations, or estimations. The AO bears the burden to demonstrate, with cogent

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 43 :: material, that the transactions are fictitious, inflated, or non genuine. In the absence of transaction-wise identification and concrete evidence, and where the appellant’s records have neither been rejected nor proved incorrect, a percentage-based disallowance cannot be sustained. A lawful disallowance must rest on clear and specific findings, not on broad estimation, and in the absence of such findings, the addition is unsustainable in both law and fact.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 44 :: supported by concrete evidence of bogus purchases. At the same time, while certain gaps in supporting documents such as e way bills and delivery records were noticed in respect of some transactions, the same cannot be construed as conclusive evidence against the genuineness of the purchases. Therefore, while the sweeping disallowance is unjustified, these documentation lapses cannot be entirely ignored. A balanced approach is required to ensure fairness and equity to the appellant while also preventing potential revenue loss. 6.2.44 Therefore, in the interest of equity, fairness, and prudence, and with a view to obviating even the remote possibility of unintended revenue loss to the exchequer, it is considered appropriate to sustain a reasonable portion of the disallowance. By considering the total purchase expenditure of Rs.167 crores spread across the relevant assessment years as brought on record by the AO, and having regard to the nature of the deficiencies noticed, a disallowance at the rate of 5% of the said aggregate purchases is held to be fair and reasonable. Accordingly, the disallowance is restricted to 5% of the purchase expenditure aggregating to Rs.167 crores across the years. This restricted disallowance strikes an appropriate balance between safeguarding the interests of the revenue and recognising the voluminous primary evidences produced by the appellant, which substantially establish the genuineness of the purchases, while at the same time ensuring due compliance and accountability. This limited disallowance adequately reflects the need to ensure compliance and accountability without disregarding the voluminous primary evidence furnished by the appellant, which largely supports the genuineness of purchases.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 45 :: assessees from the identified vendors to be bogus or false. Therefore, the ld.AR contended that in the absence of such finding, sustaining a portion of the disallowance, on the basis of possibility of revenue loss, is incorrect and unsustainable.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 46 :: based on uncorroborated and ambiguous diary entries, without authentication, independent verification, or the establishment of any cogent nexus with alleged non-genuine labour expenditure. In the absence of supporting material evidencing cash-back or inflation of labour costs, these disallowance(s) cannot be sustained in full either in law or on facts. 6.4.20 However, at the same time, considering the nature of the noting(s), the magnitude of labour expenditure involved, and with a view to safeguarding the interests of the revenue and preventing any possible leakage, it would be appropriate, in the interests of equity and fairness, to sustain a reasonable portion of the disallowance. Accordingly, the disallowance on account of labour expenses is restricted to 5% of the amounts claimed for the respective assessment years.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 47 ::

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 48 ::

Assessee’s submission in CO Nos.54 & 55/Chny/2026: 41. Ground Nos. 2 to 6: For both the assessment years under consideration, the ld. AR supported the order of the ld. CIT(A) deleting the respective disallowances.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 49 :: 43. Ground Nos. 7 & 8: The assessee, by way of these grounds, has challenged the jurisdiction of the AO to frame the assessments for A.Ys. 2023-24 and 2024-25 u/s.143(3) of the Act. The facts, as submitted, are that the returns of income filed by the assessee- company for A.Ys. 2023-24 and 2024-25 were selected for scrutiny assessment u/s.143(2) of the Act on the basis of the search proceedings conducted in the case of the assessees. The ld. AR submitted that, once the AO seeks to initiate assessment proceedings on the basis of information or material emanating from a search action, the AO is required to invoke the provisions governing reassessment u/s.147 of the Act. It was contended that the said requirement is specifically contemplated by section 148 of the Act, particularly Explanation 2 thereto, which provides for deemed escapement of income in specified circumstances. The relevant provision is extracted hereunder:

Explanation 2.—For the purposes of this section, where,— (i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or (ii) a survey is conducted under section 133A, other than under sub- section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or (iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 50 :: the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. 44. The ld. AR argued that, as is evident from the aforesaid provision, upon completion of a search, the AO is deemed to have information in respect of the searched person indicating that income chargeable to tax has escaped assessment. Once such statutory deeming provision is attracted, the AO is required to follow the special procedure prescribed u/s.147 and 148 of the Act for initiating reassessment proceedings and cannot, by relying upon the general provisions, proceed to frame a scrutiny assessment u/s.143(3) of the Act. It was submitted that the special provisions governing reassessment consequent to a search action would prevail over the general provisions relating to scrutiny assessment. This is in accordance with the settled principle of statutory interpretation embodied in the maxim generalia specialibus non derogant, meaning that a general provision does not override or derogate from a special provision and, where both operate in the same field, the special provision is to prevail.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 51 :: reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio 24. Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment regime under section 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed. 25. In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments. 26. The relevant extract Memorandum explaining the finance bill is reproduced as under:- '(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure. (VI) Further, in search, survey or requisition cases initiated or made or conducted, on or after Ist April, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 52 :: assessee for the three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated or requisition is made or any material is seized or requisitioned or survey is conducted." 27. The notice issued under section 143(2) was also produced by the AR. Upon perusal of the said notice, it is evident that the assessment under section 143(3) was initiated solely for the purpose of verifying the return of income filed by the assessee. In such circumstances, the importing and reliance upon material seized from third-party searches, namely, those conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, goes beyond the jurisdiction conferred under section 143(3). Particularly, where the applicable law— Explanation 2 to section 148 (as amended by the Finance Act, 2021) mandates prior approval from the Principal Commissioner of Income Tax (PCIT) before initiating reassessment proceedings on the basis of such material, the failure to comply with that requirement renders the assessment legally untenable. 28. In the present case, the AO did not issue a notice under section 148, nor did he follow the due process of law under the new reassessment framework, including recording of satisfaction and obtaining prior sanction from the PCIT. Therefore, the assessment framed under section 143(3), because of being based on third-party material without adhering to statutory safeguards, is bad in law. The AO was only empowered to verify the return of income and restrict his scope of inquiry accordingly; he was not permitted to expand the assessment by importing and relying upon third-party seized material without following the mandatory procedure laid down under the law. 29. Furthermore, there exists a mandatory statutory requirement that in all cases involving search-related assessments falling within the assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner is required under section 148B of the Income-tax Act, 1961. In the present case, the Assessing Officer (AO) has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under: Prior approval for assessment, reassessment or recompilation in certain cass. 148B. No order of assessment or reassessment or recompilation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iti) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 53 :: Commissioner or Additional Director or Joint Commissioner or Joint Director. 30. A comparison of the requirement of approval under section 153D and section 148B is drawn, from which it is evident that approval under section 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval under section 148B is now required in all cases where proceedings are initiated pursuant to a search, requisition, or survey, or where asset/material/documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval under section 148B from the specified higher authority. Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Applicable Period Search initiated between Search/survey initiated on or 01.06.2003 to 31.03.2021 after 01.04.2021 but before 01.09.24 Context Search assessment under All cases where assessment/ Section 153A/153C reassessment is based in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 Triggering Event Search or requisition on the 1. Search/requisition on assessee under Sections assessee 2. Survey (except 132/132A or material is used under 133A(2A)) on assessee against assessee from third party 3. Search/requisition on search another person, but assets/ documents relate to assessee Purpose of Approval Supervisory check in search Prevent misuse of powers in assessments to ensure fairness reassessment based on and oversight search/ survey-related information under new regime Who Gives Approval Joint Commissioner (mandatory) Any of: Joint Commissioner / Addl. Commissioner / Joint Director / Addl. Director Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Deeming Presumption Not expressly stated Explanation 2 creates a legal presumption: AO is deemed to have information suggesting income has escaped assessment in specified cases

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 54 ::

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 55 :: order of the ld. CIT(A). With regard to the legal issues raised by the assessee, the ld. DR contended that the assessee had already participated in the assessment proceedings and, therefore, the assessee could not subsequently challenge the jurisdiction of the AO on legal grounds. Accordingly, it was submitted that the legal grounds raised by the assessee were liable to be rejected. 49. We have heard the rival submissions advanced by the ld.DR on behalf of the Revenue and the ld.AR on behalf of the assessees, perused the orders of the authorities below, the material placed on record including the Paper Books filed by the assessees, and have carefully considered the judicial precedents. Since the appeals of the Revenue in ITA Nos.1849, 1850, 1855, 2055 & 2056/Chny/2026 and the Cross-Objections of the assessees in CO Nos.50 to 52 and 54 & 55/Chny/2026 arise from a common search action, involve two inter-connected assessees carrying on the very same business as proprietary concern and successor company, and raise overlapping questions of fact and law, we have heard and are disposing of all the captioned appeals and Cross-Objections by this consolidated order, for the sake of convenience and to avoid repetition. 50. Three broad questions arise for our determination: First, whether the assumption of jurisdiction by the AO, both by way of reopening u/s.147/148 in the case of Mr.S.S.Ramachandran and by way of framing scrutiny assessments u/s.143(3) in the case of Keyem Infra Project Pvt. Ltd., was valid in law, as challenged by the assessees in their respective Cross-Objections. Second, whether the ld.CIT(A) was justified in restricting, to 5%, the disallowance of purchase and labour expenses originally made by the AO at 43.99% on an estimated basis, and whether any disallowance ought to

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 56 :: survive at all. Third, the ancillary grounds raised by the Revenue touching upon admission of additional evidence u/r.46A and the evidentiary value of material seized during the search read with the presumptions u/s.132(4A) & 292C of the Act. We deal with each of these in turn. 51. Validity of Assumption of Jurisdiction: (i) Reopening in the case of Mr.S.S.Ramachandran (CO Nos.50 to 52/Chny/2026, Grounds 7 & 8)— Non-furnishing of approval u/s.151: It is not in dispute that the search u/s.132 was conducted on 05.04.2024 in the group cases of Mr.S.S.Ramachandran and M/s.Keyem Engineering Enterprises, i.e., in the case of the assessee himself, and not merely in the case of a third person. In view of Explanation 2(i) to section 148 of the Act, once a search u/s.132 is initiated on or after 01.04.2021 in the case of an assessee, the AO is deemed to be in possession of information suggesting escapement of income for the assessment years covered by the said Explanation, and by the express carve-out contained in the first proviso to section 148A of the Act, the procedure of conducting an enquiry and affording an opportunity of being heard before issuance of notice u/s.148, otherwise mandatory u/s.148A stands dispensed with in a case falling u/s.148A(1)(a), i.e., where a search has been initiated in the case of the assessee. We therefore find no infirmity in the AO having proceeded to issue notices u/s.148 directly, without a preceding notice u/s.148A(b), since that is precisely the procedure contemplated by the statute for a person who has himself been searched. To this limited extent, the premise on which the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 57 :: ld.AR sought to build a challenge to the reopening is misconceived, and we reject the same. 51.1 However, a wholly distinct and more substantial objection was raised by the ld.AR, viz., that although the AO recorded in the notices issued u/s.148 for all three years (06.11.2024 for A.Y.2020- 21 and 31.03.2025 for A.Ys.2021-22 & 2022-23) that the requisite approval u/s.151 of the Act had been obtained, a copy of the said approval was never furnished to the assessee despite specific request/challenge. Reliance was placed on the decision of the Hon'ble Delhi High Court in Tia Enterprises (P.) Ltd. v. ITO [2024] 468 ITR 5 (Delhi), wherein it has been held that approval granted by the statutory authority u/s.151 of the Act has to be furnished to the assessee along with the reasons recorded, since the statutory scheme of reassessment presupposes that the reasons recorded by the AO, together with the approval granted thereon by the specified authority, are made available to the assessee so as to enable him to effectively challenge the validity of the reassessment proceedings. 51.2 This legal and jurisdictional ground raised by the assessee in the Cross Objections are concerned, challenging the validity of the assessments made u/s.147/148 or section 143(3) of the Act, including the procedure adopted for initiation of the proceedings, issuance of notices, assumption of jurisdiction, recording of satisfaction, obtaining of requisite approval/sanction from the competent authority and all other connected procedural and jurisdictional issues, we are of the considered view that the same do not require adjudication in the present proceedings.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 58 :: 51.3 We have simultaneously adjudicated the substantive grounds raised in the appeals filed by the Revenue and have decided the Revenue’s appeals as detailed below. Consequently, any adjudication of the aforesaid legal and jurisdictional grounds raised by the assessee in the Cross Objections would be academic in nature and would have no bearing on the ultimate outcome of the present proceedings.

51.4 Accordingly, we refrain from expressing any opinion on any of the legal, jurisdictional or procedural contentions raised by the assessee relating to the validity of the assessments made u/s.147/148 or section 143(3) of the Act, including the validity and manner of issuance of notices, assumption of jurisdiction, compliance with the statutory procedure, recording of satisfaction, competency of the authority granting approval/sanction, validity of such approval/sanction, limitation and all other allied or incidental jurisdictional issues.

51.5 Therefore, all such legal and jurisdictional grounds raised by the assessee in the Cross Objections are left open and are treated as not requiring adjudication in the present proceedings in view of disposing of the Revenue’s appeals on merits. It is clarified that we have not expressed any opinion on these legal issues, and all the contentions of the assessee as well as the Revenue in relation thereto are expressly kept open. Therefore, Grounds 7 & 8 raised in CO Nos.50, 51 & 52/Chny/2026 are disposed of.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 59 :: (ii) Limitation under section 149(1)(b) for A.Y. 2020-21 (CO No.50/Chny/2026 – Ground No.9)

52.1 We have considered the submissions of the assessee on this legal issue. However, we find that, while disposing of the appeals preferred by the Revenue, we have considered and adjudicated the substantive additions/disallowances forming the subject matter of the reassessment on merits. In view of our findings rendered on the merits of the additions in the Revenue's appeal, adjudication of the present jurisdictional ground concerning limitation u/s.149(1)(b) of the Act is not necessary for disposal of the present Cross Objection.

52.2 We, therefore, refrain from expressing any opinion on the merits of the rival contentions concerning the applicability of section 149(1)(b), including the question whether the conditions prescribed

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 60 :: for invoking the extended period of limitation stood satisfied in the facts of the present case. Consequently, we also refrain from examining the applicability or otherwise of the judicial precedent relied upon by the assessee on this issue.

52.3 Accordingly, the legal issue raised by the assessee in Ground No.9 of CO No.50/Chny/2026 regarding the validity of the notice issued u/s.148 of the Act on the ground of limitation u/s.149(1)(b) is left open and is not adjudicated upon in the present proceedings. The assessee as well as the Revenue shall be at liberty to raise their respective contentions on this legal issue in an appropriate case or proceeding, if so advised. Thus, Ground No.9 is disposed of accordingly without adjudication on merits.

(iii) Jurisdiction to frame assessments under section 143(3) in the case of Keyem Infra Project Pvt. Ltd. (CO Nos.54 & 55/Chny/2026 – Grounds 7 & 8)

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 61 ::

53.1 The assessee has also raised connected legal contentions concerning the applicability of Explanation 2 to section 148, recording of satisfaction, obtaining of approval/sanction from the prescribed authority and compliance with the procedural requirements governing reassessment proceedings. Various judicial precedents have also been relied upon in support of these propositions. 53.2 We have considered the rival submissions. However, we find that the substantive additions/disallowances forming the subject matter of these assessments have been examined and adjudicated by us on merits while disposing of the corresponding appeals preferred by the Revenue. In view of our findings on merits in the Revenue's appeals, we do not consider it necessary to enter into or adjudicate the aforesaid jurisdictional controversy in the present Cross Objections.

53.3 We accordingly refrain from expressing any opinion as to whether, in the facts and circumstances of the present cases, the AO was legally competent to frame the assessments u/s.143(3) of the Act or whether the material gathered during the course of search necessarily required initiation of proceedings u/s.147/148 of the Act. For the same reason, we also refrain from adjudicating the connected issues relating to the applicability of Explanation 2 to section 148, compliance with section 148B, recording of satisfaction, obtaining of requisite approval/sanction from the competent authority, and the applicability of the judicial precedents relied upon by the respective parties.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 62 ::

53.4 Therefore, all the legal issues relating to the validity and jurisdiction of the assessments made u/s.143(3) vis-à-vis sections 147/148 of the Act, including the procedure followed and the requirement or validity of approvals/sanctions under the relevant statutory provisions, are expressly kept open and are not adjudicated upon in the present proceedings.

53.5 It is clarified that no finding contained in this order shall be construed as an expression of opinion by us either in favour of the assessee or the Revenue on these jurisdictional issues. All the contentions of both sides in this regard are preserved and left open to be urged and considered in an appropriate case or proceeding, if the occasion so arises.

53.6 Accordingly, Grounds 7 & 8 in CO Nos.54 & 55/Chny/2026 are disposed of as not requiring adjudication in view of our decision on the substantive issues on merits in the Revenue's appeals, while keeping the aforesaid legal issues open.

Ground 3 Of The Revenue's Appeals — Admission Of Additional Evidence (Rule 46A): 54. The Revenue's Ground No.3 alleges that the ld.CIT(A) admitted additional evidence in violation of Rule 46A of the Income-tax Rules, 1962, without recording reasons therefor and without affording the AO an opportunity to comment thereon. We find this ground to be wholly unsubstantiated. Neither in the grounds of appeal nor in the course of arguments before us did the ld.DR identify even a single

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 63 :: document, invoice, register or other material that was placed before the ld.CIT(A) for the first time and was not already a part of the record before the AO. On the contrary, a comparison of the AO's own purchase-verification report (extracted at para 8 of the assessment order and placed at Page 175 of the Paper Book) with the supplier-wise submissions made before the ld.CIT(A) (Pages 222 to 323 of the Paper Book) shows that the percentage of supporting documents available in respect of each supplier purchase orders, e- way bills, weighment slips and MRNs remains identical in both. Had any additional document been filed before the first appellate authority, the said percentages would necessarily have altered. We further find, on a reading of the order of the ld.CIT(A), that his conclusions proceed entirely on an appreciation of the documents already available on the AO's own record and an evaluation of the explanations tendered by the assessee for the AO's stated deficiencies (e.g., that weighment slips are not generated for steel purchases below 10 MT, that purchase orders placed telephonically do not generate physical POs, and that e-way bill numbers stand recorded on the face of the very invoices already furnished to the AO), rather than on any fresh material. In these circumstances, we find no violation of Rule 46A, and Ground No.3 of the Revenue's appeals is rejected.

C. Grounds 4 & 5 of the revenue's appeals — evidentiary value of seized material and presumption u/s.132(4A) & 292C: 55. By these grounds, the Revenue contends that the ld.CIT(A) erred in granting relief without taking cognisance of the legal presumptions available to the Revenue u/s.132(4A) & 292C of the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 64 :: Act, and in variance with the law laid down by the Hon'ble Division Bench of the Madras High Court in Smt. N.Saroja v. ACIT, Central Circle-II, Tiruchirapalli (T.C.A.Nos.1395 to 1401 of 2009, order dated 18.03.2026), where it has been held that the legal presumption u/s.132(4A) operates in favour of the Revenue and the onus lies on the assessee to rebut the same with corroborative evidence, and that loose sheets containing entries contemporaneous with the transactions recorded are trustworthy, and possess high probative value, if fairly corroborated. 56. At the outset, we find, on a careful reading of the impugned order, that the ld.CIT(A) has nowhere held that the material seized during the search is devoid of evidentiary value as a matter of law, nor has he declined to draw the presumptions u/s.132(4A)/292C as such. Qua the disallowance of purchase expenses, the relief granted by the ld.CIT(A) proceeds not on any finding that the seized material lacks evidentiary value, but on an appreciation of the AO's own purchase-verification exercise and the documentary evidence furnished by the assessee in response thereto, which the ld.DR was unable to controvert before us. These two grounds, therefore, on their own terms, have no bearing on the disallowance of purchase expenses. 57. Insofar as the disallowance of labour expenses is concerned, we find that the ld.CIT(A)'s reasoning, at paragraphs 6.4.12 and 6.4.17-6.4.18 of the impugned order, is, in substance, entirely consistent with, rather than contrary to, the very principle laid down in N.Saroja (supra), viz., that entries in loose sheets or informal notings, though carrying a rebuttable presumption of correctness u/s.132(4A)/292C, must be "fairly corroborated" before an adverse

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 65 :: inference can be drawn therefrom; it is only where such corroboration is fairly forthcoming that the probative value of such entries is treated as high, and the onus shifts to the assessee to displace it. On facts, the ld.CIT(A) has recorded and this finding was not dislodged before us, that the abbreviated noting "recd" appearing in the diary maintained by Ms.Shobana Krishnasamy is inherently ambiguous and admits of more than one interpretation; that neither the author of the diary nor a single one of the employees named therein was examined by the Investigation Wing or the AO to elucidate what the entries actually represented; that no bank withdrawal, cash-book entry, or other objective material was brought on record by the AO to correlate the notings with any actual movement of cash; and that the explanation tendered by the assessee that the entries record acknowledgements by vendors of banking instruments routed through site personnel for procurement of materials at remote project sites was never tested by the AO through any enquiry. In other words, the presumption u/s.132(4A)/292C, being a rebuttable presumption of fact and not an irrebuttable one, stood duly displaced on the facts found by the ld.CIT(A), for want of the very corroboration that N.Saroja (supra) itself makes a condition for treating such entries as of high probative value. We find no infirmity in this approach, and are unable to hold that the order of the ld.CIT(A) runs counter to the ratio of the decision relied upon by the Revenue. We would only add that the presumption in question also stood independently weakened by the fact that all the persons whose statements were relied upon by the AO, Ms.Shobana Krishnasamy, Ms.Vimala Jothi, Mr.S.Ramachandran, Mr.Karthik and Mr.Gavaskar subsequently

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 66 :: retracted those statements, and no opportunity of cross- examination was afforded to the assessee despite a specific request. Grounds 4 & 5 of the Revenue's appeals accordingly fail and are rejected. D. Ground 2 of the revenue's appeals and the corresponding grounds of the cross-objections - quantum of disallowance of purchase and labour expenses: 58. By Ground No.2, the Revenue seeks restoration of the AO's disallowance of purchase expenses and labour expenses at 43.99%, in place of the 5% sustained by the ld.CIT(A). By their respective Cross-Objections, the assessees, while supporting the deletion granted by the ld.CIT(A) to the extent of the balance 38.99%, assail the residual disallowance of 5% sustained by him, and pray for deletion of the disallowance in its entirety. We deal with the purchase expenses and the labour expenses in turn, though, as will be seen, the same broad principle governs both. (i) Purchase expenses 59. It is significant, and indeed decisive of this issue, that the AO himself, after undertaking a detailed exercise of correlating the purchases from the vendors identified during the search with purchase orders, e-way bills, MRNs and weighment slips, recorded in the assessment order that "though the entire purchases from such vendors were not bogus", there were merely certain "discrepancies" in the supporting documentation, which he treated as sufficient to disallow 43.99% of the purchases on a proportionate basis. The AO did not, at any stage, identify even a single specific invoice, purchase, or vendor transaction as fabricated or non- existent; nor did he record a finding that the goods purported to

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 67 :: have been purchased were, in fact, not received or not consumed in the assessee's projects. On the contrary, the material on record MRNs certified by project managers and site engineers, stock registers maintained at project offices (which the AO himself is recorded to have cross-verified for several suppliers, e.g. Universal Marketing and Kannith Suppliers), and invoices which, in several instances, themselves bear the e-way bill number or record the fact of a telephonic order (as in the case of Lakshmi Associates and Kannith Suppliers, copies whereof are on record at Pages 71, 75, 79, 87 and 100 of the Paper Book) establishes a prima facie trail of actual receipt and utilisation of materials that the AO neither rejected nor found to be false. 60. We are also unable to sustain the methodology by which the figure of 43.99% itself came to be arrived at. It is an admitted fact that this percentage was derived exclusively from the AO's verification exercise conducted in respect of one assessee, Mr.S.S.Ramachandran, for one financial year, F.Y.2020-21, and was thereafter mechanically extrapolated, without any independent verification, to the remaining four financial years and to an altogether distinct legal entity, Keyem Infra Project Pvt. Ltd. The assessee's supplier-wise tabulations placed on record (e.g., in respect of M/s.Lakshmi Associates at Page 222 of the Paper Book, and similarly for the twenty-five other suppliers listed at Pages 225 to 290) demonstrate that several of the suppliers from whom the AO computed the 43.99% figure for F.Y.2020-21 had no purchases at all in the other years, or had purchases of a wholly different order of magnitude, so that a rate of deficiency computed for one year, in respect of one set of suppliers, bears no rational nexus to the

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 68 :: purchases made by either assessee, from an overlapping but not identical set of suppliers, in the other four years. A disallowance of expenditure, being penal in its consequence, must rest on a transaction-specific or, at the very least, a year-specific and entity- specific evaluation of the material on record; it cannot be sustained on the strength of a single year's estimate transplanted wholesale onto four other assessment years and a different assessee, particularly where, as here, the AO's own record shows material variation in the volume and vendor-mix of purchases across those years. 61. We now turn to the residual disallowance of 5% sustained by the ld.CIT(A). It is correct, as recorded by the ld.CIT(A) himself at paragraph 6.2.30 of his order, that an addition cannot ordinarily rest on presumption, generalisation or bare estimation, and that the primary onus lies on the AO to demonstrate with cogent material that a transaction is not genuine. We are, however, unable to accept the assessees' contention that this principle obliged the ld.CIT(A) to delete the disallowance in its entirety. The record before us discloses that even after the supplier-wise explanations tendered by the assessees are taken into account, a meaningful proportion of the purchases remained without complete corroborating documentation — for instance, 79% of the purchase orders and 10% of the weighment slips remained unaccounted for in respect of M/s.Kannith Suppliers, e-way bills to the extent of 14% (constituting 15.07% of value) remained untraced in respect of M/s.Universal Marketing, and, in the case of M/s.Lakshmi Associates, invoices were produced for only about 58% of the aggregate expenditure claimed over the two years in which purchases were made from that supplier. While

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 69 :: these deficiencies, standing alone, are insufficient to brand the underlying purchases as wholly bogus — and we have accordingly, at paragraph 17 above, declined to sustain the AO's blanket rate of 43.99% — they are equally not so inconsequential as to be disregarded altogether, particularly when read together with the WhatsApp chats, the loose sheets, and the statements of Mr.Karthik and Mr.Gavaskar recording a recurring practice of accommodation billing and commission payments in the assessees' procurement, statements which, as we have held at paragraph 14 above, were not wholly stripped of corroborative value merely by their subsequent, unexplained retraction, and which fall to be read together with the statutory presumption u/ss.132(4A) & 292C placing the initial onus of rebuttal on the assessees. In these circumstances, we are satisfied that the ld.CIT(A) correctly declined to accept either extreme urged before him, and adopted a calibrated middle course, restricting the disallowance to 5% of the purchase expenditure after expressly weighing the "voluminous primary evidences" furnished by the assessees against the residual documentary gaps and the search findings. We do not find this quantification to be arbitrary, excessive or otherwise perverse, and see no warrant for this Tribunal to disturb it, whether by enhancing it, as sought by the Revenue, or by deleting it altogether, as sought by the assessees. The disallowance of purchase expenses sustained by the ld.CIT(A) at 5%, for all five assessment years in the cases of both assessees, is accordingly confirmed. (ii) Labour expenses

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 70 :: 62. The case of the assessees on labour expenses stands, if anything, on a still firmer footing than that on purchase expenses. The entire disallowance rests on the AO's own unaided interpretation of the abbreviation "recd" appearing against certain payments recorded in the diary seized from Ms.Shobana Krishnasamy. As already noticed at paragraph 14 above while dealing with Grounds 4 & 5 of the Revenue's appeals, neither the author of that diary nor any of the employees named therein was ever examined by the Investigation Wing or the AO; no attempt was made to correlate the entries with any bank withdrawal, cash-book entry or other objective indicium of cash having actually changed hands; and the explanation tendered by the assessee that the notings merely record confirmation, by vendors of blue metal, sand, bricks and similar site materials, of having received payment routed through site staff at the assessee's numerous project locations in the interior of the State was never confronted with or tested against the author of the diary. The ld.CIT(A) himself, at paragraphs 6.4.17 to 6.4.19 of his order, has recorded in terms that the disallowance is founded on "uncorroborated and ambiguous diary entries, without authentication, independent verification, or the establishment of any cogent nexus with alleged non-genuine labour expenditure", and that such disallowance "cannot be sustained in full either in law or on facts". 63. Having recorded this finding, the ld.CIT(A) nevertheless declined to delete the disallowance of labour expenses in its entirety, and instead sustained 5% thereof at paragraph 6.4.20 of his order, "considering the nature of the noting(s), the magnitude of labour expenditure involved," and in the interest of equity and

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 71 :: fairness. We find no reason to interfere with this quantification either. The ambiguity surrounding the notation "recd", and the failure of the Investigation Wing and the AO to examine either the author of the diary or the employees named therein, no doubt substantially erode the evidentiary weight the AO sought to place on the diary; that is precisely why we have, at paragraph 14 above and in the preceding paragraph, upheld the substantial relief of 95% granted by the ld.CIT(A). At the same time, the entries were not found in a vacuum: they were seized in the course of a search, in the handwriting of the assessees' own accountant, recording payments running into several lakhs of rupees against the names of identified employees, in a manner broadly consistent with the modus operandi spoken to by Mr.Karthik and Mr.Gavaskar in relation to the parallel arrangement for purchases. Once it is accepted, as we have held above, that the retraction of these statements does not wholly extinguish their corroborative value, and that the statutory presumption u/ss.132(4A) & 292C casts an initial onus of rebuttal on the assessees, we are satisfied that the ld.CIT(A) was justified in declining to grant the assessees the benefit of a clean sweep, and in retaining a conservative 5% disallowance as a fair reflection of the residual doubt that the assessees' explanation, though substantially persuasive, did not fully dispel. We accordingly confirm the disallowance of labour expenses sustained by the ld.CIT(A) at 5%, for all five assessment years in the cases of both assessees. 64. For the reasons recorded above, Ground No.2 of the Revenue's appeals in ITA Nos.1849, 1850, 1855, 2055 & 2056/Chny/2026, insofar as it seeks restoration of the disallowance of purchase and

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 72 :: labour expenses beyond the 5% sustained by the ld.CIT(A), fails and is rejected. Equally, the corresponding grounds raised by the assessees in CO Nos.50 to 52 and 54 & 55/Chny/2026 seeking deletion of the residual 5% disallowance of purchase and labour expenses are rejected, and the disallowance to that extent, as sustained by the ld.CIT(A), stands confirmed for all five assessment years in the case of both assessees. 65. In view of our findings that the reassessments framed on Mr.S.S.Ramachandran for A.Ys.2020-21 to 2022-23, and the assessments framed on Keyem Infra Project Pvt. Ltd. for A.Ys. 2023-24 & 2024-25, on merits at above paragraphs that the disallowance of purchase and labour expenses stands confirmed only to the extent of 5%, as sustained by the ld.CIT(A), the appeals of the Revenue and the Cross-Objections of the assessees are disposed of as follows: Appeal/CO No. Assessee A.Y. Result

ITA No.1849/Chny/2026 S.S.Ramachandran 2020-21 Dismissed ITA No.1850/Chny/2026 S.S.Ramachandran 2021-22 Dismissed ITA No.1855/Chny/2026 S.S.Ramachandran 2022-23 Dismissed ITA No.2055/Chny/2026 Keyem Infra Project Pvt. 2023-24 Dismissed Ltd. ITA No.2056/Chny/2026 Keyem Infra Project Pvt. 2024-25 Dismissed Ltd. CO No.50/Chny/2026 S.S.Ramachandran 2020-21 Dismissed CO No.51/Chny/2026 S.S.Ramachandran 2021-22 Dismissed CO No.52/Chny/2026 S.S.Ramachandran 2022-23 Dismissed CO No.54/Chny/2026 Keyem Infra Project Pvt. 2023-24 Dismissed Ltd. CO No.55/Chny/2026 Keyem Infra Project Pvt. 2024-25 Dismissed Ltd.

ITA Nos. 1849 & Ors/Chny/2026 & CO Nos. 50 & Ors/Chny/2026 (AY 2020-21 & Ors) DCIT Vs Somu Sarvai Ramachandran :: 73 :: 66. In the result, the appeals of the Revenue in ITA Nos.1849, 1850, 1855, 2055 & 2056/Chny/2026 are dismissed, and the Cross- Objections of the assessees in CO Nos.50, 51, 52, 54 & 55/Chny/2026 are dismissed, in the terms indicated above.

Order pronounced in the open court on the 18th day of September, 2026 in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (मनु कुमार िग�र) (S.R.RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER चे�नई/Chennai, +दनांक/Dated: 18th September 2026 SNDP, Sr. PS आदेश क� !�त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF SANDE Digitally signed by SANDEEP EP KUMAR Date: 2026.09.21 KUMAR 10:30:32 +05'30'