DCIT, CENTRAL CIRCLE, TIRUPATI vs. MUNI SEKAR NAIDU PEMMASANI, TIRUPATI

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G. ACCOUNTANT MEMBER आ.अपी.सं /ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 Assessment years 2011-2012, 2012-2013, 2013-2014, 2014-2015 & 2015-2016

The DCIT, Muni Sekar Naidu Central Circle, Pemmasani, PITCHATOOR. TIRUPATI – 517 507. PIN – 517 588. TIRUPATI. vs. State of Andhra PAN AIKPP6235G Pradesh Andhra Pradesh. (Appellant) (Respondent) For Assessee : Sri E Phalguna Kumar, CA For Revenue : Sri Narender Kumar Naik, CIT-DR Date of Hearing : 30.04.2026 Date of Pronouncement : 03.06.2026 आदेश/ORDER PER VIJAY PAL RAO, VICE PRESIDENT :

The above five appeals by the Revenue are directed against the five separate Orders dated 13.10.2025, dated 15.10.2025 of the learned CIT(A), Visakhapatnam-3, Visakhapatnam, for the assessment years 2011-2012, 2012- 2013, 2013-2014, 2014-2015 and 2015-2016 respectively.

2 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 2. The Revenue has raised common grounds in these appeals. The grounds raised by the Revenue for the assessment year 2011-2012 [ITA.No.2225/Hyd./2025] are reproduced as under:

3 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 in deleting the addition made by the Assessing Officer on account of unexplained investment in subscription of chit and (ii) unexplained expenditure for interest payment on borrowed sum from chit fund operator Sri J Srinivasan.

4 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 of the Act for chit subscription and unexplained expenditure for interest payment on borrowed fund u/sec.69C for all these six years. The assessee challenged the action of the Assessing Officer before the learned CIT(A) and contended that the Assessing Officer has made addition only on the basis of presumption and estimation without any corroborating evidence found or seized during the course of search and seizure in the case of Sri J Srinivasan. The learned CIT(A) called for a remand report from the Assessing Officer and thereafter, deleted both the additions made by the Assessing Officer on account of unexplained investment in chit subscription u/sec.69 as well as the interest payment on borrowed money u/sec.69C of the Act. Aggrieved by the impugned orders of the learned CIT(A) the Revenue has filed these appeals.

5 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 Rs.44 crores. In the statement recorded during the survey proceedings the assessee has admitted to have subscribed to the chits being conducted by Sri J Srinivasan for about nine years and to the tune of Rs.100 crores split into 200 chits. Therefore, the Assessing Officer has rightly divided the total amount of Rs.100 crores in nine years arriving to the average amount of chit subscription of Rs.11 crores per year and that after extending a benefit of doubt having received a dividend @ 20%, the differential chit subscription amount comes to Rs.9 crores for the assessment year 2011-2012 and proportionately in the subsequent assessment years. Thus, the learned DR has submitted that once the assessee has not disputed the subscriptions to the chits for a period of nine years then, in the absence of explaining the source of the said subscription of chit the Assessing Officer has rightly made the additions on account of chit subscription for these assessment years. Similarly, for the addition on account of interest payment on borrowed fund the assessee has not disputed the borrowed amount of Rs.100 crore and repayment of Rs.196 crore in his statement recorded during

6 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 the survey. Hence, the Assessing Officer has taken an average amount of Rs.16 crores per year towards the interest payment on the borrowed fund. The learned CIT(A) has deleted the additions without considering the admitted facts that the assessee has subscribed to the chit and also repayment of the borrowed amount with total interest of Rs.96 crores. When both these amounts i.e., chit subscription/borrowed fund as well as payment of interest are interlinked then, even if the payment of interest is not recorded in the seized material the same is consequential transaction of borrowed sum. The learned DR has referred to the assessment order as well as remand report and submitted that the basic facts of subscription to the chit and borrowing fund from the chit operator are not in dispute then, the interest liability arising from the borrowed fund is a natural consequence of the admitted transactions. Even the assessee himself in the statement explained the interest on the borrowed amount is Rs.96 crores. He has thus contended that the deletion of the addition by the learned CIT(A) on technical ground which is contrary to the facts is not justified

7 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 and therefore, the impugned orders of the learned CIT(A) are liable to be set aside and the orders of the Assessing Officer are to be restored on these issues.

8 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 in the case of Shree Ganesh Trading Co. vs. CIT [2013] 257 CTR 159 [Jh.HC] and submitted that a statement recorded on oath is a piece of evidence and when there is incriminating admission against himself then, it is required to be examined with due care and caution. In the absence of further independent enquiry the addition made solely on the basis of a statement is not sustainable in law. The learned Authorised Representative of the Assessee then relied upon the Judgment of Hon’ble Madras High Court in the case of CIT vs. S. Jayalakshmi Ammal [2017] 390 ITR 189 (Mad.) and submitted that a mere statement without there being any corroborative evidence should not be treated as conclusive evidence against the maker of the statement. He has also referred to the CBDT’s Instruction in File No.286/2003 dated 22nd March, 2003 and submitted that the CBDT has advised the Tax Authorities not to obtain a confession of the undisclosed income rather the Authorities focus on collecting the evidence of income which lead to information. Thus, the CBDT has clearly stated that confession during the course of search and seizure and survey operation do not serve any

9 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 useful purpose in the absence of corroborative evidence. Thus, the learned Authorised Representative of the Assessee has submitted that even during the course of search and seizure operation at the residential premises of Sri J Srinivasan the details found were regarding the outstanding liability of the assessee and no evidence or record was found or seized to show any other transactions of payment by the assessee or repayment of loan or interest. The learned Authorised Representative of the Assessee has thus submitted that when the assessee was not having the surplus money to pay or subscribe to the chit fund or payment of the outstanding dues and interest then, the assumption of the Assessing Officer regarding the subscription of the chit as well as interest on the borrowed amount is without any basis. He has further contended that the outstanding amount was only in respect of the amount received by the assessee from the chit operator after net off the interest and therefore, there was no question of payment of interest on the outstanding amount. He has further contended that once the assessee received the upfront amount in bidding the chit then, the said

10 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 amount is the source of subscription payment towards the chit subscription and that is the reason that there was huge outstanding balance payable by the assessee. Thus, the learned Authorised Representative of the Assessee has submitted that the outstanding loan amount cannot be added as income of the assessee and therefore, the Assessing Officer has wrongly made the addition on account of unexplained investment as well as interest which was rightly deleted by the learned CIT(A). He has relied upon the Orders of the learned CIT(A).

“Contribution to chits: The relevant portion of the notice issued u/s. 142(1) is reproduced as under: "iv) You have further stated that in answer to question no 10 when asked to furnish the details of subscriptions to chits you have

11 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 claimed that you have been contributing to chits in the name of family members and friends for about 9 years and that whenever the chits were bid you used to give blank promissory notes and Post dated cheques. v) In the answer to question no il on being asked whether the chit transactions in your individual capacity have been incorporated in your Return of Income, you have stated that the chit transactions were neither effected in your books nor incorporated in the ROI filed upto AY 2013-14. You have also stated the amount contributed to chits were received from various family members and friends and that when the bids were taken the same were distributed among your family members and friends. You have reiterated that the entire transactions with Sri. J Srinivasan are not reflected in the books of accounts of any of your family members. Finally, you have stated that you have contributed to the tune of about Rs. 100 crores in around 200 chit groups run by Sri. J Srinivasan for the last 9 years out of which the bid amounts was about Rs 65 to 70 Crores. vi) You have stated in January 2015 that you have contributed to chits with Sr. J Srinivasan worth about 100 crores for over 9 years as on the day of survey. The number of chit groups mentioned by you was 200 thus averaging about 20/25 chit groups in a year. By averaging the chit subscriptions of 100 crores for 9 years it works out to Rs 11 crores approximate per year. In other words the chit subscriptions made by you during the Assessment year 2011-12. which falls within the ambit of 9 years of chit subscription as claimed by you, which has been contributed by you entirely in cash and out pertinent to mention here that though the bid amount for all chits claimed to be Rs 65 to 70 crores,

12 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 the subscription for the chits executed the dividends wherever applicable would have been more than the bid amount received. vii) In the absence of any details maintained by you as admitted in the sworn statement the quantum of chit subscription made by you for the AY 2011-12 needs to be estimated. However, in order to give the benefit of doubt towards the dividend attributable to the chits subscribed a sum of Rs 1.8 crores working out to 20% of chits subscribed during the year. | At an average is considered for allowance against the average subscription of Rs. 9 crores for the AY 2011-12.) is allowable. viii) In the absence of any details being furnished towards the chit subscriptions by you, which has been reiterated once again by you in the sworn statement on 25.02.2015. You are hereby required to show cause as to why a sum of Rs. 9 crores should not be treated as your unexplained source to chit subscriptions for the AY 2011-12 and be considered for addition in your individual hands. ix) You may also show cause that in view of your claim that the sources emanated from your friends and family relatives and again returned to same persons by you. As no record or evidence including the modes and dates of the said transaction why the provisions of section 26955 and 2691 should not be invoked for having received and repaid sums in cash in violation of the said provisions." The assessee has admitted to have subscribed to unorganized chits being conducted by Sri. J Srinivasan for about 9 years and to the volume of Rs.100 crores split into 200 chits. This fact has been brought out by the assessee in the sworn statement recorded.’

13 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 It was proposed considering the chits amounting to 100 crores spreading over 9 years the average amount of chit subscription would be around 11 crores per year and that after extending a benefit of doubt having received a dividend at the rate of 20% the differential chit subscription Rs.9 Crores approximate. In the absence of any explanation offered, the value of chits subscribed for the year at an average, after reducing dividend at 20%, the net chit subscription working to 9 crores is hereby added as the unexplained source of Investment in unorganized /unregistered chits by the assessee.”

7.1. Thus, it is clear that the Assessing Officer has asked the assessee to explain the details about the subscription made to the chits based on the statement of the assessee recorded during the course of survey and post survey proceedings. The Assessing Officer has not even referred to any incriminating material either found during the course of search and seizure action in the case of Sri J Srinivsan or during the survey conducted u/sec.133A of the Act in the case of M/. SV Milk and Milk Products Limited in which the assessee is a Managing Director. The entire addition was made by the Assessing Officer on the basis of the statement and assumption that the assessee has made the investment to the tune of Rs.100 crores during the 09

14 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 years. However, as per the details found during the search/ survey proceedings the only outstanding liability amount of the assessee was recorded to the tune of Rs.39.48 crores. The Assessing Officer has even not referred the said document in the assessment order while making this addition. Further, the learned CIT(A) has called for a remand report from the Assessing Officer and in the remand report the Assessing Officer has reiterated its stand as reproduced by the learned CIT(A) in Para nos.6 and 6.1 as under:

“6. Remand reports and Rejoinders:

6.1. The additional evidence filed during the appellate proceedings was forwarded to the AO calling for his comments. In response, the AO submitted his remand report on 24.12.2021 which is reproduced as under:

Kind reference is invited to the above.

15 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 conducted in the case of Mis. S.V. Milk & Milk Products Ltd on 28.01.2015. During the course of survey, certain incriminating records were Impounded which revealed that the assessee and the company had contributed substantial sums in the chits organized by Sri J. Srinivasan. In the sworn deposition u/s 131, the assessee appellant stated that the transactions are outside the books of account. The transactions are undertaken through mode of cash. Therefore, there was a reason to believe that income has escaped assessment for the A.Y 2011-12 within the meaning of Section 147 of the I.T. Act and a notice u/s 148 was issued after obtaining the approval of the competent authority.

16 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 1. Loan & Interest repayment: The assessee in the statement recorded on 25.02.2015 has categorically stated that he has borrowed a sum of Rs.100 crores from Sri J. Srinivasan during the last 6 years and also repaid a sum of Rs. 196 crores being repayment of loan along with interest. Due to non-furnishing of details/explanation, the amount of Interest paid is assessed at Rs.16 crores per year (Rs.96 cr/Rs.6 cr). The interest payment of Rs.16 crores made during the F.Y 2010-11 falls within the ambit of 6 years and hence added for taxation as unexplained sources towards the interest paid. The assessee had admitted in the sworn statement that these transactions were not reflected in his personal books of account.

5.1. Appeal Proceedings:

It was contended that addition cannot be made solely by relying on the statement of the assessee. In support of this, he relied upon the following decisions of various appellate authorities.

(i) Decision of Hon'ble High Court of Andhra Pradesh in G. China Yellappa Nizamabad Vs ITO 370 ITR 671 wherein the Court had held that....... If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleend.to bare exerted force.”

The above case law not at all applicable to the present facts of the case because the sworn statement was concluded as under the above statement is given by me voluntarily without any force, threat or coercion 1 understand the contents of the above statement which has been explained to me in local language Le,

17 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 Telugu. Whatever stated above is true and correct to the best of my knowledge and behalf". From the above, it is clear that the assessee has given the statement voluntarily without any force, threat or coercion. After deposing the statement, the assessee has also signed on the sworn statement.

(ii) Shree Ganesh Trading Co Vs CIT 257 CTR 159 (Hon'ble Jharkhand High Court)

The above case also not applicable to the facts of the present case since the assessee had not responded to any of the notices issued as a result of which the assessment was completed ex- parte u/s 144 of the 1.T. Act.

(iii) CIT VS S. Jayalakshmi Ammal 390 ITR 189 (Madras High Court) The above case law is also not applicable to the facts of the present case because in the said case, sworn statement was given by assessee's son whereas in the instant case the assessee himself deposed. Further, the Board's letter in F.No.286/2/2003 dated 22.03.2003 speaks about the situation where assessees forced to confess the undisclosed income during the course of search & seizure and survey operations. In the present case, there was no such force on the part of the department to admit the undisclosed income. The statement was given voluntarily without any force. On the basis of such statement only, the assessment was completed. 5.2. In the written submissions, the assessee has stated that he could not procure the copies of those loose papers, blank promissory notes and blank cheques issued by him and his family

18 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 members to Sri J. Srinivasan which were found in the premises of Sri J. Srinivasan and subsequently seized by the concerned authority. And hence he could not furnish the details sought for by the A.O. In this connection, it is to state that the assessee did not furnish any reason(s) as to what prevented him from obtaining the copies of required seized material. The same fact also not put forth before the Assessing Officer during the course of assessment proceedings in the absence of which the assessment was completed ex-parte u/s. 144 of the 1.T. Act.

19 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 7.2. Thus, even in the remand report the Assessing Officer has not brought any incriminating material to show that the assessee has actually made that investment in the shape of subscription to the chit fund to the tune of Rs.100 crores during the period of 09 years and Rs.9 crores for the year under consideration. All these figures are only the imagination and assumption of the Assessing Officer and not evident from any material whatsoever either found during the search or survey. The learned CIT(A) has deleted the addition in Para nos.7 to 7.3.10 as under:

“7. DECISION: 7.1. I have carefully considered the grounds of appeal raised in Form-35, the statement of facts appended thereto, the written submissions filed from time to time, the assessment order, the remand reports of the Assessing Officer, and the rejoinders filed by the appellant. Oral arguments made by the learned Authorized Representative (AR) of the appellant Sri E. Phalguna Kumar, CA with reference to written submissions and seized material have also been duly considered. 7.2. Grounds No. 1 and 2 are general in nature and do not call for separate adjudication. Ground No. 3 relates to the addition of Rs.9,00,00,000/- made by the Assessing Officer under section 69 of the Act, on account of unexplained investment in chit subscriptions, by averaging the appellant's admitted cash dealings

20 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 with Shri J. Srinivasan across nine years. Ground No. 4 concerns the addition of Rs.16,00,00,000/- made under section 69C towards unexplained expenditure, being the Assessing Officer's estimation of interest allegedly paid to Shri J. Srinivasan during the year. Other grounds of the appellant relate to the way the additions were made in the assessment and are thus inextricably linked to the aforesaid two additions. In light of the above pleadings and the material on record, the issues raised in Grounds No. 3 and 4, being substantive, are examined and adjudicated in detail in the following paragraphs. 7.3. Ground No. 3 relates to the addition of Rs.9,00,00,000/- made by the Assessing Officer towards unexplained investment in chit subscriptions under section 69 of the Act. 7.3.1. The basis for this addition made by the AO lies in the sworn statements of the appellant recorded u/s 131 on 28.01.2015 and 25.02.2015 during the course of survey under section 133A conducted at his premises, consequent to a search in the case of Shri J. Srinivasan. In those statements, the appellant had indicated that over a period of about nine years he would have subscribed to chit groups conducted by Shri J. Srinivasan to the extent of Rs. 100 crores in the aggregate. The Assessing Officer, in the absence of detailed records, averaged the figure of Rs. 100 crores over nine years, arriving at an annual chit subscription of approximately Rs.11 crores, and after allowing a notional benefit of 20% towards dividends (only for AY 2011-12), treated Rs.9 crores as unexplained investment in the year under consideration. It was emphasized in the assessment order that the transactions were admittedly carried out outside the books of account, largely in cash, and hence attracted the deeming provisions of section 69.

21 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 7.3.2. The appellant, however, has challenged both the methodology adopted by the Assessing Officer and the conclusions drawn. It has been argued that the statements relied upon by the Assessing Officer were not specific to the year under appeal and were in the nature of broad estimates made under stress during survey proceedings, without any supporting records. The appellant has pointed out that in those very statements it was clarified that the chit subscriptions were not in his individual capacity alone but also on behalf of his family members and friends, with bid amounts being distributed among them and also serving as source for subscriptions. By selectively lifting only a portion of the statement that guessed the overall nine-year volume of transactions, and ignoring the qualification as to the nature and ownership of the subscriptions, the Assessing Officer is stated to have misapplied the admission. 7.2.3. The appellant has further contended that there was no material brought on record in the course of survey or assessment to show that a fresh investment of Rs.9 crores was made during the financial year 2010-11. No chit agreements, bid registers, receipts or other documents evidencing a flow of funds during the year were impounded or confronted. Instead, the Assessing Officer has merely divided an aggregate figure over nine years into notional annual instalments and attributed one such instalment to AY 2011-12, which, according to the appellant, is a purely arbitrary estimation not sanctioned by the provisions of section 69. The section contemplates the discovery of a specific investment not recorded in the books of account, and not the reconstruction of a hypothetical annual figure in the absence of any identified investment.

22 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 7.3.4. The appellant has also drawn attention to judicial precedents relied upon in written submissions, particularly those emphasizing that a statement recorded during survey has limited evidentiary value, and that additions cannot be made solely on the basis of such statements without corroborative material. Reference has been made to the decision of the Hon'ble Andhra Pradesh High Court in G. China Yellappa Nizamabad v. ITO (370 ITR 671), where it was held that a retracted statement cannot by itself form the basis of an addition unless supported by evidence. Similarly, in CIT v. S. Jayalakshmi Ammal (390 ITR 189, Madras HC), it was observed that a mere statement without any corroborative evidence should not be treated as conclusive. Reliance has also been placed on the CBDT Instruction dated 10.03.2003 cautioning Assessing Officers against basing additions solely on confessions obtained during survey operations. Further, the appellant relied on the decision of the Hon'ble Supreme Court in M/s Sriram Chits & Investments v. Union of India [AIR 1993 (SC) 2063] wherein it affirmed that a chit fund transaction is not a loan or investment but a mutual arrangement among subscribers, where the foreman merely acts as a trustee holding funds on behalf of members. There exists no debtor- creditor relationship; each subscriber both contributes to and benefits from a common pool, and the prize amount arises as a contractual right, not as borrowing. The Hon'ble Supreme Court approved the Hon'ble Andhra Pradesh High Court's view in Dhoosa Narasimloo v. Yelala Rajanna that chit funds are essentially organizations for mutual benefit. Hence, the appellant argues, such payments cannot be treated as unexplained "investments" under section 69, as they neither create assets nor yield income. Applying the ratio of this judgment in the backdrop of facts of the case, the appellant submitted that his participation in unregistered chits run

23 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 by Shri J. Srinivasan cannot be construed as an "investment" capable of yielding income or return; it represents only a recurring liability cycle arising from business exigencies. 7.3.5. The appellant has submitted that in reality, far from representing undisclosed investment, the transactions with Shri J. Srinivasan had left him with heavy outstanding liabilities. The impounded loose sheets, according to the appellant, reflected total dues of nearly Rs. 39.48 crores towards unpaid chit instalments and loan repayments as on January 2015, which establishes that the chit dealings did not result in income or asset accretion but only created debt obligations. The fact that the end result was a liability rather than an asset is stated to undermine the very applicability of section 69, which presupposes the existence of an unexplained investment. It has also been urged that the Assessing Officer erred in not allowing telescoping of bid amounts received against the instalments paid. In the appellant's explanation, the chit system involves recycling of funds, where subscription payments are offset against bid receipts, and the same money changes hands multiple times. By treating the stated contributions as fresh investments without adjusting for corresponding bid inflows, the Assessing Officer is said to have artificially arrived at the figure of unexplained investment. 7.3.6. In his Remand Report dated 24.12.2021 the AO highlighted that the assessee admitted under oath to having participated in unregistered chits of about Rs. 100 crores over nine years, loan borrowings of Rs. 100 crores and repayments of Rs. 196 crore. The assessment was completed ex-parte u/s 144 due to non-compliance. The AO rejected the appellant's reliance on case laws (G. China Yellappa, Shree Ganesh Trading Co., S. Jayalakshmi Ammal), contending that the statement was

24 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 voluntary and uncoerced, and hence valid evidence. He also emphasized the appellant's delay in filing return after notice u/s 148 and failure to obtain or produce seized documents, concluding that the additions were properly made based on available material and sworn deposition. Further in his Remand Report dated 22.04.2025, the Assessing Officer attached the scanned copies of the incriminating material/ impounding material (ANN/VP/B&D/IMP/03, numbered 1 to 193) stating these to have supported the additions made in the assessment order while admitting that no year wise quantification of the amounts of loan & interest repayment and subscription to chits was made out of the said impounded material. Refuting the appellant's reliance on CIT v. S. Khader Khan Son (2008) 300 ITR 157 (Mad.), the AO maintained that the ruling was inapplicable since the present additions were not based merely on confession but also on documentary support. In his rejoinders, the appellant emphasized once again that estimation on averages cannot substitute for the statutory requirement of identification of specific investments in a given year. The appellant reiterated that the additions were made only on assumptions and surmises, without even a rudimentary attempt to gather independent evidence, reconcile seized papers, or confront the appellant with year-wise details. 7.3.7. Thus, the controversy on this ground revolves around whether the broad statement of the appellant, lacking in year-wise specificity and uncorroborated by seized material, could form the sole basis for estimating and attributing Rs.9 crores of unexplained investment in AY 2011-12. The appellant's plea is that in the absence of concrete material and given the nature of his chit

25 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 transactions as a liability-driven cycle, the provisions of section 69 are not attracted and the addition deserves to be deleted. 7.3.8. I have carefully examined the submissions, the assessment order, the remand report, and the rejoinders. It is a matter of record that no document was impounded during the survey to establish chit subscription relatable to FY 2010-11. On a careful examination of the sworn statements recorded from the appellant on 28.01.2015 and 25.02.2015, it becomes clear that the Assessing Officer's inference that the appellant had made a separate "investment" of Rs. 9 crores in chits during the relevant year is based on a partial and selective reading of those statements. The relevant portions of the sworn statements are reproduced verbatim below for clarity: Statement u/s 131 dated 25.02.2015 "Q.8. State the source for your contribution to chits and the application of the bid amounts taken by you in the chits. Ans. The entire contribution towards instalments in chits were from the bid amounts taken, besides the bid amounts being used for purchasing properties and repayment for loans taken by M/s S.V. Milk and Milk Products (P.) Ltd. from banks." (emphasis supplied) Statement u/s 131 dated 28.01.2015 "Q.11. Are the chit transactions enter into by you with Mr. J. Srinivasan reflected in your individual books of accounts and incorporated in the return of income filed by you? Ans. No. The above transactions are neither reflected in my individual books of accounts nor incorporated in the return of income filed by me till Α.Υ. 2013-14. The amounts

26 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 contributed in the chits were received from various family members and friends and the bids taken were in turn distributed to them. As such, the entire transactions in the chits run by Mr. J. Srinivasan are not reflected in the books of accounts of any of our family members. I do not have any evidence in this regard. However, I wish to state that I would have contributed to the tune of about Rs. 100 crores in about more than 200 chit groups run by Mr. Srinivasan during the last nine years, out of which the bid amount taken would be about Rs. 65 to 70 crores." (emphasis supplied) When the above questions and replies are read in their entirety, it becomes evident that the chit transactions were not independent investments made out of undisclosed income, but rather formed part of a continuous cycle of borrowing and repayment undertaken in a financially strained business environment. The appellant, in his sworn statement, categorically explained that the chit instalments were met out of the very bid amounts received, and that no separate or unaccounted source of funds existed for such payments. The same pool of money rotated between bids, repayments, and settlement of business liabilities. A combined reading of the appellant's statement and the seized documents enclosed with the Assessing Officer's remand report unmistakably shows that the chit dealings were driven by an effort to generate liquidity to sustain the financially distressed company, M/s. S.V. Milk and Milk Products Pvt. Ltd. In this context, it is pertinent to note the appellant's response regarding the seized document depicting the consolidated outstanding balances between the appellant and Shri J. Srinivasan as on the date of search in the latter's case. The said

27 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 response, recorded in the appellant's statement dated 28.01.2015, in reply to Question No. 30, is reproduced below. "Q. 30. During the course of search operation u/s 132 of the 1.T. Act at the residential premises of Mr J Srinivasan at No:12, Thanikachalam Street, Perambur, Chennai-11, a loose sheet containing following details were found: 01.01.2015 Munisekhar Naidu B. Group Chit Balance Payable : 58,00,020 Total Chit Balance Payable :28,74,61,040 :27,32,61,040 Total loan balance :12,15,70,000 Total outstanding :39,48,31,060

I am showing you the copy of the above sheet. Please go through the entries stated as above and offer your explanation. Ans: I agree that the total outstanding payable to Mr. J. Srinivasan on account of the chit balance and the loan balance would be about Rs 39.48 crores as mentioned in the above sheet found at the residence of Mr J. Srinivasan. I would like to add that during the last 9 years, I have been borrowing from Mr. J. Srinivasan at various intervals of time at exorbitant rates which were being settled subsequently. For example, for a sum of Rs. one crore borrowed on 20.9.13, Rs 12 lakhs has been deducted upfront and Rs 88 lakhs has been disbursed. The said sum of Rs one crore was repaid in 100 days at the rate of Rs one lakh per day which amounts

28 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 to about 72%. If this kind of exorbitant interest charged by Mr J. Srinivasan is taken into account, the liability mentioned above is correct. Sample copies of the seized material bearing ANN/VP/B&D/IMP/03, pages 1 to 193, as referred to in the remand report dated 22.04.2025, pertaining to the chit and loan transactions of the appellant with Sri J. Srinivasan, are reproduced below for ready reference and proper appreciation of the facts.

29 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025

These impounded loose sheets, on a close reading, merely reflect the extent of the appellant's indebtedness. This inference is further corroborated by the reference in the seized material to outstanding dues of about Rs. 39.48 crores towards unpaid chit instalments and loan repayments as on January 2015. These facts clearly demonstrate that the chit transactions neither originated from any unaccounted source of income nor resulted in any income generation or asset creation; they merely represented accumulated debt obligations. I concur with the view that where the source of

30 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 payments is traceable to borrowings and bid receipts, and the resultant position is that of a liability rather than an asset, the provisions of section 69-which presuppose an unexplained investment-have no application in such circumstances. The appellant's explanation that the chit dealings constituted cyclical cash movements without any element of unexplained investment stands fully supported by the sworn statements as well as the material on record. Consequently, the inference drawn by the Assessing Officer in treating an estimated sum of Rs. 9 crores as fresh chit "investment" is devoid of factual or evidentiary basis. 7.3.9. The AO's assertion of non-applicability of appellant's reliance on judicial precedents of Hon'ble Andhra Pradesh High Court in G. China Yellappa v. ITO (370 ITR 671), that of the Hon'ble Madras High Court in CIT v. S. Jayalakshmi Ammal (390 ITR 189) and that of Hon'ble Jharkhand High Court in Shree Ganesh Trading Co. v. CIT [2013] 30 taxmann.com 170 (257 CTR 159) is taken note of. The only basis relied upon by the Assessing Officer is the statement of the appellant. However, this statement is neither corroborated by any direct evidence nor supported by any third-party statement or material suggesting that the appellant's contributions in the chits exceeded the funds available from borrowings or bid receipts. Although the judicial precedents cited may not directly cover the present factual matrix, they collectively affirm the principle that a self-incriminating statement cannot, by itself, form the sole foundation for an addition unless it is substantiated by independent evidence or surrounding circumstances. This principle assumes greater significance in light of the decision of the Hon'ble Supreme Court in CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC)/[2013] 352 ITR 480 (SC) affirming the judgment of the Madras High Court in CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.), wherein it was held

31 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 that a statement recorded under section 133A does not have evidentiary value so as to bind the assessee conclusively. While an admission is undoubtedly a significant piece of evidence, it is not conclusive and can be retracted or explained if shown to be incorrect. In the present case, as evident from the appellant's replies extracted supra, he has consistently denied having earned any unaccounted income, and the seized or impounded material does not in any manner contradict this assertion. 7.3.10. Taking all the above factual and legal aspects into consideration, I am of the considered view that the estimation of Rs. 9 crores as unexplained investment for the year under appeal is wholly unsupported by any material, either direct or circumstantial. The addition of Rs. 9,00,00,000/- made under section 69 on the issue of contribution to chits, resting solely on conjecture and estimation without reference to any specific seized document or corroborative third-party evidence, is therefore unsustainable in law. The same is accordingly directed to be deleted. Ground No. 3 is, therefore, allowed.”

7.3. Thus, the learned CIT(A) has given a finding of fact by considering all the relevant details as well as loose sheet found during the course of search and seizure action containing the details of the outstanding liability of the assessee to the tune of Rs.39.48 crores. This outstanding liability towards unpaid chit instalments and loan repayment cannot be considered as income of the assessee. It is pertinent to note that if these are the amounts relating to the

32 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 amounts outstanding for unpaid chit instalments and loan taken by the assessee then, the question of investment in subscription of the chit does not arise. If the assessee has taken the money by bidding the chit then, the money received by the assessee has to be repaid in the form of chit instalments in the subsequent period and the document which was found during the course of search reveals that the assessee could not pay the chit instalments and hence, the non-payment of chit instalments does not constitute any unexplained investment or undisclosed income of the assessee. Accordingly, in the facts and circumstances of the case and in view of various binding precedents as referred and relied upon by the learned CIT(A) we do not find any error or illegality in the impugned order of the learned CIT(A) and the same is upheld. Issue no.1 of the Revenue is dismissed.

33 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 “Loan & Interest repayment: The relevant portion of the notice issued u/s. 142(1) is reproduced as under: "x) In response to question no's 12,13 and 14 in the sworn statement recorded on 28.1.2015 you have stated that you used to take loans on short term basis from Sri. J Srinivasan at interest of 18% PA whenever you were in need of funds. You have stated that in the last six years you had taken loans in cash and through RTGS to the tune of Rs. 100 crores excluding interest at various intervals and have retumed the same also by RTGS and cash. Provide break up of Interest payments made from AY 2009-10 to AY 2015-16. xi) It is pertinent that though you had claimed that the loans were taken and repaid by RTGS and in cash it proves contradictory since you have also stated that the loan transactions were not recorded in your books of accounts hence it is to be taken that the entire loan transactions were in cash only in the absence of any evidence is furnished in support of the claim." The assessee in addition to the statement recorded on 28.01.2015, while answering the question No.9 of the statement recorded on 25.02.2015 has categorically stated he has borrowed a sum of Rs. 100 crores from Shri J Srinivasan during the last 6 years and also repaid the sum of Rs. 196 crores being repayment of loan along with interest. Due to non furnishing of details/ explanation, the amount of interest paid is assessed at Rs. 16 crores per year (96/6). The interest repayment of Rs. 16 crores made during the FY 2010-11 falls within the ambit of 6 years and hence added as unexplained sources towards the interest paid for taxation.”

34 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 8.1. Thus, it is clear that the Assessing Officer has referred only the statement of the assessee recorded on 28.01.2015 as well as on 25.02.2015 but has not referred any corroborating evidence of payment of interest or impounded material revealing any undisclosed income on account of interest payment by the assessee. During the proceedings before the learned CIT(A), the Assessing Officer submitted his remand report which is reproduced in Para no.7.1 of this order hereinabove.

8.2. Thus, in the said remand report the Assessing Officer has reiterated its stand and has not either referred or relied upon any record of payment of interest or any other incriminating material either found during the course of search/survey proceedings or otherwise brought on record. The learned CIT(A) has deleted the addition on this account in Para nos.7.4 to 7.4.7 as under:

“7.4. Ground No. 4 concerns the addition of Rs.16,00,00,000/- made by the Assessing Officer under section 69C of the Act towards unexplained expenditure. 7.4.1. Facts and evidences relating to this addition is almost identical to that of the chits and narration of evidences and

35 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 statements cited at paragraph 7.3 supra is equally applicable here. The Assessing Officer relied upon the sworn statement of the appellant dated 25.02.2015, wherein it was admitted that borrowals of about Rs.100 crores had been taken from Shri J. Srinivasan over a period of six years and that total repayments including interest aggregated to about Rs. 196 crores. Since no break-up was provided and no supporting evidence was filed, the Assessing Officer allocated the difference of Rs. 96 crores evenly over six years, and brought to tax Rs. 16 crores in the year under appeal as unexplained expenditure on interest repayment. It was also noted that though the appellant mentioned RTGS transactions, he simultaneously admitted that no such borrowals were reflected in the books, leading the Assessing Officer to conclude that the transactions were entirely in cash and outside the regular accounting system. 7.4.2. The appellant, however, has strongly challenged the basis of this addition. It is contended that section 69C specifically applies only where the assessee "has incurred any expenditure" and has not offered a satisfactory explanation about its source. In the present case, there is no document, receipt, voucher, or impounded paper evidencing an actual outgo of interest in FY 2010-11. The appellant's statement itself does not contain a year- wise break-up of interest, but only refers in broad terms to cumulative repayments over six years. To treat one-sixth of this aggregate as relating to AY 2011-12 is argued to be a mere mathematical exercise, not a finding of actual expenditure. The appellant has stressed that the seized material at best records liabilities outstanding to Shri J. Srinivasan and does not demonstrate any interest payments. Further, during the course of appellate proceedings, the appellant has submitted that the case of Shri J. Srinivasan, the lender, has been subject to search

36 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 assessment proceedings. In his assessments, no addition on account of interest received from the appellant has been made, concluding that he did not receive any interest. 7.4.3. In additions to the statements and sample seized material copies reproduced at para 7.3.8 above, in the context of the loans availed and interest paid the following extract of the Statement u/s 131 dated 28.01.2015 is relevant. Q.13 What are the terms of loans taken by you from Mr J. Srinivasan during the last six years ? Ans. The entire loan transactions entered into with Mr J. Srinivasan was on hand loan basis. As such, there were no agreements entered into in this regard. Loans used to be disbursed both by way of cash and RTGS and repayments were also made in cash and RTGS. I have never given any collateral/mortgage of any property in lieu of the loans taken. I used to give promissory notes/blank cheques towards the loan taken which used to be invariably settled within 100 days. Whenever the loans were granted, Mr J. Srinivasan used to deduct interest at the rate of 18% per annum upfront and disburse the balance amount only. As far as I am concerned, I would have borrowed various sums of money ranging from Rs 10 lakhs to Rs one crore at various intervals of time during the last six years totaling to approximately about Rs 100 Crores excluding interest. Besides this amount borrowed, I have not borrowed any sum of money from Mr J. Srinivasan. 7.4.4. In support of these submissions, the appellant has relied on judicial pronouncements in G. China Yellappa v. ITO (370 ITR 671), CIT v. S. Jayalakshmi Ammal (390 ITR 189), Shree Ganesh Trading Co. v. CIT [2013] 30 taxmann.com 170 (257 CTR

37 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 159) and CBDT's Instruction F. No. 286/2/2003-IT(Inv.) dated 10.03.2003. As narrated at para 7.3.6 supra, the AO has distinguished these case laws stating that here the appellant gave the statement himself and has also mentioned clearly that it was out of his own volition. 7.4.5. When the facts of the present case are examined along with seized material, it becomes clear that the addition made by the AO does not rest on any documentary evidence of interest payment in FY 2010-11. What is relied upon is only an aggregate figure mentioned in a statement recorded u/s 131, applied mechanically over six years. Section 69C requires a finding that "expenditure has been incurred in the year in question, which is absent here. The loose sheets record borrowal and repayment balances, but they are silent as to the year-wise quantum of interest outgo. The appellant's inability to furnish detailed records does not fill the evidentiary gap that the law requires to sustain an addition under section 69C. Therefore, while the Assessing Officer's estimation was an attempt to quantify unaccounted transactions in the absence of evidences, the absence of year- specific corroboration renders the addition unsustainable in law. Furthermore, even if one were to ignore the evidentiary deficiencies and proceed on the footing that interest of Rs. 16 crores was in fact paid during FY 2010-11, the provisions of section 69C would still not be attracted in the peculiar facts of this case. The sworn statements themselves record that the appellant had borrowed substantial principal sums from Shri J. Srinivasan in cash and through RTGS, and the liabilities reflected in the loose sheets corroborate the continuance of such borrowals. In the absence of any contrary material, the principal funds so borrowed constitute a legitimate source for any repayment of interest. we also look at the sample copies of seized evidences and reply to Q.30 in

38 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 statement dated 28.01.2025 given by the appellant reproduced at para 7.3.8 above, it is clear that interest liabilities of the appellant was getting deducted upfront before disbursing the loan to the appellant. Therefore, the source of the interest was the fresh loan itself. Once a source is available and no evidence is brought on record to show that the funds were diverted or applied elsewhere, it cannot be said that the interest expenditure is "unexplained" within the meaning of section 69C. 7.4.6. The Hon'ble Andhra Pradesh High Court in Gajjam Chinna Yellappa vs. Income-tax Officer [2015] 59 taxmann.com 69 (Andhra Pradesh and Telangana)/[2015] 370 ITR 671 (Andhra Pradesh and Telangana) (Mag.) [06-11- 2014] held the following.

"13. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10, 2003, issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements."

39 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 The same principle was echoed by the Hon'ble Madras High Court in Commissioner of Income-tax, Tiruchirapalli vs. Smt. S.Jayalakshmi Ammal [2016] 74 taxmann.com 35 (Madras)/[2016] 242 Taxman 449 (Madras)/[2017] 390 ITR 189 (Madras) [01-08-2016), where it was observed that unless the Revenue demonstrates that the assessee had no means to meet t 69C cannot be invoked. 7.4.7. In light of the above that the addition of Rs.16,00,00,000/- under section 69C is not supported by any year-specific material evidencing an actual outgo of interest in FY 2010-11. The Assessing Officer's estimation rests solely on a broad admission without corroboration, contrary to the settled legal position laid down in G. China Yellappa v. ITO (370 ITR 671. AP), CIT v. S. Jayalakshmi Ammal (390 ITR 189, Mad.), and Shree Ganesh Trading Co. v. CIT (257 CTR 159, Jharkhand). Further, even assuming that some interest was in fact paid, the borrowal of principal funds from Shri J. Srinivasan constitutes a clear and identifiable source, adequately explaining the origin of such payment. As evident from the sample copies of the seized material reproduced in the preceding paragraphs, both interest and principal components outstanding were first adjusted at the time of disbursing fresh loans to the appellant. Moreover, it is pertinent that the lender's own case has undergone scrutiny consequent to search action, and no corresponding interest income has been brought to tax therein. This factual position renders the addition made by the Assessing Officer even more untenable. In view of these facts and circumstances, I hold that the addition of Rs.16,00,00,000/- made under section 69C is unsustainable in law and on facts. Accordingly, Ground No.4 is allowed and the addition is directed to be deleted.”

40 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 8.3. It is pertinent to note that if the amount was received by the assessee as in the process of bidding of chit then, the same is received net off the dividend/interest and commission applicable on the amount and therefore, to the extent of the amount received as a successful bidder of the chit there is no question of payment of any interest except the payment of the chit instalment for the remaining period which was part of the addition made by the Assessing Officer on account of unexplained investment. Further the assessee in his statement categorically stated that loan was given after deducting the interest upfront. Accordingly, there is no material brought on record by the Assessing Officer to show that the assessee has actually paid any interest then, the addition made by the Assessing Officer on the basis of his assumption that assessee has paid interest on loan taken from Sri J Srinivasan is not sustainable. The learned CIT(A) has referred and relied upon various binding precedents on this point. Therefore, in the facts and circumstances of the case, we do not find any error or illegality in the impugned

41 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025 order of the learned CIT(A). We, therefore, upheld the Order of the learned CIT(A) on this issue.

Order pronounced in the open Court on 03.06.2026.

Sd/- Sd/- [MANJUNATHA G.] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 03rd June, 2026. VBP

42 ITA.Nos.2225, 2233, 2235, 2236 & 2237/Hyd./2025

Copy to : The DCIT, Central Circle, 3rd Floor, Aayakar Bhavan, 1. KT Road, TIRUPATI – 517 501. Andhra Pradesh. Muni Sekar Naidu Pemmasani, 1-3, Srikalahasti Road, 2. PITCHATOOR – 517 588. TIRUPATI. Andhra Pradesh. 3. The Pr. CIT-(Central), Tirupati. 4. The DR, ITAT, “B” Bench, Hyderabad. 5. Guard file. BY ORDER VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.06.03 RAO 12:09:12 +05'30'