SANIKAM GOVINDA RAJAGOPAL REDDY,BENGALURU vs. ACIT, CENTRAL CIRCLE-2(4), BANGALORE

Brief facts of the case shows that assessee is an individual who provides consultancy services to students who want to take admission in medical, dental, engineering colleges etc. for which he receives commission/consultancy fees from the students/ family members of the students after completion of the admission process. In the return of income filed by the assessee for all these assessment years the assessee has reported a total income from commission received from such students under the head business after claiming expenditure in connection therewith. Assessee has also some other income which is taxable under the head income from other sources.

On 17 February 2021, the Income Tax Department conducted a search operation under Section 132 of the Income Tax Act in the case of Shri Adichunchungiri Education Trust. In relation to this operation, the residential premises of the assessee, located at 19, 7th Cross, 17th Main Road, Koramangala, Sixth Floor, Bengaluru 560095, were also searched. It is acknowledged that no search warrant was issued in the name of the assessee.

For the assessment year 2016–17, following a search and seizure operation, the Assessee’s case was centralized. Subsequently, a notice under section 153C of the Income Tax Act was issued on 22 December 2021 and served upon the appellant, requesting the return of income for the year under appeal. The assessee filed the return of income on 20 January 2020, reporting a total income of ₹ 1,323,180/–, consistent with the original return. Further notice under section 143(2) was issued on 9 February 2022.

Pursuant to these proceedings, an assessment order under section 153C of the Income Tax Act was passed on 29 March 2023, determining the total income of the assessee at ₹ 4,278,690/–. The sole addition comprised ₹ 2,955,517 as unexplained money under section 69A of the Act, representing the excess aggregate deposits in the bank account of ₹ 5,423,895 over the declared business receipts of ₹ 2,460,700 and other sources of income amounting to ₹ 7,678.

The assessee, dissatisfied with the assessment order, filed an appeal before the learned CIT (A). The initial objection concerned the validity of the assessment proceedings initiated under section 153C of the Act. The second issue raised related to the addition made without any incriminating material discovered during the search process, and furthermore, the assessee contested the addition of ₹2,955,517 under section 69A of the Act.

Regarding the validity of proceedings initiated under Section 153C of the Act, it was contended that no satisfaction had been recorded pursuant to Section 153C of the Act. The existence and documentation of such satisfaction are fundamental prerequisites for jurisdictional assumption under Section 153C of the Act. The assessee further objected, asserting that documents seized during the search of the searched person pertain to the appellant and impact the determination of the appellant’s total income for the relevant assessment year. However, the learned assessing officer did not reference any such documents. Additionally, the assessee argued that no incriminating material was found during the search, thus precluding any additions in a concluded assessment. Reliance was placed on the Supreme Court’s decision in CIT v. Sinhghad Technical Education Society (397 ITR 344), which held that materials seized must relate specifically to the assessment year for which proceedings under Section 153C are undertaken. In the absence of pertinent material for the year under appeal, the initiation of proceedings is legally unsustainable and merits dismissal. The assessee also challenged the addition of ₹2,955,000 made under Section 69A, stating it does not correspond to any material seized during the search. Notably, notice under Section 153C was issued on 22 December 2020, by which time the assessment year 2016–17 had reached finality, since the window for issuing notice under Section 143(2) expired on 30 September 2017.

Consequently, in the absence of any incriminating material, no addition is permissible, as affirmed by the Honourable Jurisdictional High Court in Delhi International Airport Pvt. Ltd. (ITA No. 322/2018, dated 29 September 2020). Furthermore, on substantive grounds, the assessee explained the addition as being attributable to previous withdrawals, thereby negating any merit for such an addition.

The learned CIT (A) was presented with similar appeals concerning other assessment years, and accordingly, issued a consolidated appellate order covering the period from assessment year 2015–16 to assessment year 2021– 22.

In paragraph 11, the learned CIT(A) addressed the Assessee’s appeals for assessment years 2016–17 to 2020–21 after considering the remand report submitted by the Assessing Officer on 13 June 2025. The assessee provided a rejoinder on 24 July 2025.

In paragraph 12.2 of the appellate order, the learned CIT(A) noted that numerous loose sheets had been seized. When questioned regarding their contents, the appellant explained that he acted as a commission agent for management seat allocations and received consultancy fees via bank transfers or cash from various individuals. The relevant loose sheets were also reproduced in paragraph 12.2 of the appellate order. Furthermore, it was held that during his statement recorded under section 132 of the Income Tax Act, the assessee acknowledged the incriminating loose sheets and described the nature of transactions they reflected, including cash loans, cash payments, and cash rent, among others. Consequently, he confirmed that certain cash receipts were deposited into his bank account. The learned CIT(A) concluded that the Assessing Officer had appropriately relied on this incriminating material to calculate additions based on the difference between the bank credits and the receipts declared in the return of income. Accordingly, the addition made by the Assessing Officer for unaccounted bank credits pertaining to the assessment years 2016–17 to 2020–21 was upheld.

The assessee, dissatisfied with the order of the appellate authority, has filed this appeal. The assessee has also raised a technical objection, contending that the assessment order passed under section 143(3) of the Act is invalid and void ab initio, as the learned Assessing Officer failed to invoke the provisions of section 153C of the Act based on documents seized during the search. It is specifically noted that, in cases falling under section 153C of the Act, the date of recording satisfaction is deemed to be the date of search. Consequently, the impugned assessment ought to have been completed by assuming jurisdiction under section 153C of the Act.

The principal argument presented by the authorized representative is that the addition was made without any incriminating material being found during the search; consequently, no addition should have been made in the Assessee’s case. He referenced the remand report submitted by the assessing officer dated 13 June 2025, which appears at pages 556–591 of the paper book. In particular, he noted that paragraph 4 of the report explicitly states loose sheets were discovered during the search, and a statement under section 132(4) of the Act was recorded. Nevertheless, no additions were made concerning the matters for which these loose sheets were cited by the assessing officer.

Further, he pointed to the assessing officer's finding in the remand report that the additions had been based on bank statements relating to assessment years 2015–16 to 2020–21. According to the assessing officer, "during the course of scrutiny proceedings, the Assessee’s bank statements pertaining to assessment years 2015–16 to 2020–21 were analyzed, and discrepancies between total credits in the bank accounts and declared gross receipts were taxed."

Therefore, it is his submission that the additions for assessment years 2016– 17 to 2020–21 are not based on any incriminating material identified during the search and, as such, should be deleted.

He also referred to relevant documents in his paper book, including the panchnama dated 16 April 2021 and the Assessee’s statement under section 132(4) of the Act dated 18 February 2021, together with the list of inventories compiled during the search proceedings on 17 February 2020.

In summary, his main contention is that the additions in the Assessee’s case are derived from an analysis of bank statements rather than any incriminating material uncovered in the search, rendering both the assessing officer’s and CIT(A)’s decisions to make and confirm the additions, respectively, incorrect.

The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that there is no infirmity in the assessment order passed under section 153C of the act.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. In the remand report submitted by the learned AO placed on page No. 556 onwards in paragraph No. 4 submits as follows:

As reflected in paragraph 4 of the appellate order issued by the learned CIT(A), the assessing officer has made an addition of ₹2,955,517 as unexplained money under section 69A of the Act for the assessment year 2016–17. This adjustment is based on the finding that the assessee had bank credits totaling ₹5,423,895 in their Bank of Baroda account, while only ₹2,468,378 was disclosed as gross receipts. The assessing officer determined the difference of ₹2,955,517 (i.e., ₹5,423,895 minus ₹2,468,378) to be unexplained money under section 69A. Notably, this addition was made solely based on an analysis of the Assessee’s bank statements and the gross receipts declared in the return of income. There is no indication that the assessing officer relied on any incriminating material uncovered during the search when making this addition.

For the assessment year 2017–18, the Assessing Officer observed that the total credits in the Bank of Baroda account amounted to ₹2,423,083. Of this, the assessee declared gross business receipts of ₹1,775,900. Consequently, the remaining amount of ₹642,100 was treated as unexplained income under Section 69A of the Act. Thus, for this assessment year as well, the addition was based on a comparison of the Assessee’s tax return with the bank statement maintained at Bank of Baroda.

For the assessment year 2018–19, the assessee reported gross business receipts totaling ₹1,906,200. However, a credit of ₹9,501,469 was recorded in the Assessee’s bank account, resulting in an additional sum of ₹7,559,519 being included under section 69A of the Act. Accordingly, it is evident that the addition for this year has been made based on the return of income submitted by the assessee and the amount credited to the Assessee’s bank account.

A similar addition was made for Assessment Year 2019–20. The assessee reported gross receipts of ₹1,911,701 in the income return for the relevant year. However, unexplained credits totaling ₹13,287,909 were identified in the bank account, resulting in an additional ₹11,083,051 being included in the Assessee’s total income under Section 69A of the Act. This assessment was based on both the income tax return and the bank statement furnished by the assessee.

For the assessment year 2020–21, an addition of ₹20 lakhs was made to the Assessee’s total income in relation to fixed deposits held with the State Bank of India. Notably, no incriminating material was identified during the search to support this addition.

For the assessment year 2020–21, the assessee reported gross business receipts of ₹1,056,001. However, credits totaling ₹5,807,419 were observed in the bank account. After deducting income from other sources amounting to ₹676,765, the assessing officer added ₹4,064,653 under Section 69A of the Act. This adjustment was based on a review of the income tax return and the Assessee’s Bank of Baroda statement.

For the assessment year 2021–22, a similar addition was made after it was observed that the total credits in the bank account amounted to ₹10,027,455, whereas the gross receipts reported by the assessee resulted in an addition of ₹14,278,977 to the total income after appropriate adjustments. This adjustment was based on an analysis of the income tax return, comparing the gross receipts disclosed by the assessee with the credits reflected in the Bank of Baroda account. It is noteworthy that there was no reference to any incriminating material discovered during the search proceedings.

It has been determined that the due dates for issuance of notice under Section 143(2) of the Act are as follows: (i) for Assessment Year (AY) 2015–16, the deadline was 30 September 2016; (ii) for AY 2016–17, 30 September 2017;(iii) for AY 2017–18, 30 September 2018; (iv) for AY 2018–19, 30 September 2019; (v) for AY 2019–20, 30 September 2020;(vi) and for AY 2020–21, 30 June 2020.

The facts indicate that the notice under Section 153C of the Act was issued to the assessee on 22 December 2020. As of that date, all the assessment years were concluded, and any reassessment could only be initiated based on incriminating material discovered during search. This principle is established by the Supreme Court decisions in Commissioner of Income Tax v. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC), and Principal Commissioner of Income Tax v. Abhisar Build well Private Limited (2023) 454 ITR 212 (SC).

It is undisputed by the departmental representative that the additions made to the Assessee’s income for these assessment years were based on a comparison of deposits reflected in the Assessee’s Bank of Baroda statement with the gross receipts declared in the income tax returns. Notably, no incriminating material was found during the search to justify the additions on account of unexplained income. Furthermore, it is observed that the learned CIT(A) did not address this issue, despite it being specifically raised by the assessee.

Based on the foregoing facts, we conclude that the additions made to the Assessee’s accounts for all relevant assessment years are not supported by incriminating material discovered during the search. Accordingly, in deference to the decisions of the Honourable Supreme Court, we adhere to the established principle that concluded assessments may be disturbed only if incriminating material is found during a search relating to the individual concerned, for each specific assessment year. In the result, addition made in the hands of the assessee for assessment year 2016 – 17 to assessment year 2020 – 21 stands deleted.

There are no other grounds raised by the assessee which now requires adjudication. In the result appeal filed by the assessee are allowed.