DEEPAK PANDEY,VARANASI vs. ITO, WARD - 3(3),, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.175/VNS/2019 A.Y.-2012-13 Deepak Pandey, vs. Income Tax Officer, D-62/43D, Sonia Anshik, Ward-3(3), Varanasi Varanasi, Uttar Pradesh-221010 PAN: BAWPP5981J (Appellant) (Respondent) Assessee by: Sh. Kalrav Mehrotra, Advocate Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 21.01.2026 Date of pronouncement: 17.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), Varanasi under section 250 of the Income Tax Act, 1961 dated 4.06.2019, wherein the ld. CIT(A) has dismissed the appeals of the assessee and upheld the orders of the Assessing Officer passed under section 153A for the A.Y. 2012-13 of the Income Tax Act on 29.03.2014. The grounds of appeal are as under:- “1. The learned Commissioner of Income-tax (Appeals) Varanasi, has erred in law as well as on facts, in confirming of addition of Rs. 23,00,000/-made on account of cash belonging to M/s Raj Associates found from the possession of the assessee, who is an employee of the M/s Raj Associates. 2. The learned Commissioner of Income-tax (Appeals) Varanasi, has erred in law as well as on facts, stating non-compliance of various notices being one of the reasons, whereas the assessee did e-mailed adjournment request to learned Commissioner of Income-tax (Appeal). 3. Any other ground the appellant may raise during the further course of proceedings.” 2. The facts of the case are that, during the U.P. State Assembly Election, 2012, Rs. 23,00,000/- was seized on 6.01.2012 from the custody of the assessee. 1

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 Accordingly, a notice under section 153A was issued to the assessee. In response, the assessee filed a return of Rs. 1,32,200/- and submitted before the AO that the entire seized cash belonged to M/s Raj Associates, Sujabad Parao, Varanasi and also submitted / produced some papers relating to sales and stock of M/s Raj Associates. It was submitted that seized cash were the sale proceeds of M/s Raj Associates, Pradhan Market, Sujabad, Parao, Varanasi which was a proprietary concern of Rajinder Singh Chaddha (HUF) Karta, Rajinder Singh Chaddha, L-1 Centre Stage Mall, Sector 18, Noida. It was further submitted that the above case had been centralized with the ld. DCIT, Central Circle-4, Delhi for the assessment under section 153A of the I.T. Act, 1961. Subsequently, the ld. AO issued a notice under section 153C to M/s Raj Associates, Sujabad Parao, Varanasi, who in its reply submitted the same facts and requested that the matter be sent to DCIT, Central Circle-4, as he was the AO who enjoyed jurisdiction over the assessee. An affidavit was also filed by the Karta of Rajinder Singh Chaddha (HUF) that the seized amount of Rs. 23,00,00/- belonged to his proprietary concern, M/s Raj Associates, Sujabad Parao, Varanasi. Subsequently, letters were also received from DCIT, Central Circle-4, Delhi to transfer all information regarding the aforesaid matter to him. Accordingly, the proceedings were transferred to the DCIT, Central Cricle-4, Delhi. However, to save the Revenue, assessment was also completed in the hands of the assessee on protective basis and accordingly an addition of Rs. 23,00,00/- was added to the income of the assessee. 3. Aggrieved with the said assessment order, the assessee filed an appeal before the ld. CIT(A), Varanasi. Before the ld. CIT(A), Varanasi, it was submitted that the entire seized cash belonged to M/s Raj Associates, Sujabad Parao, Varanasi and the papers relating to M/s Raj Associates were filed before the AO. The fact that the cash was that of M/s Raj Associates, Pradhan Market, Parao, Varanasi was confirmed by the proprietor of M/s Raj Associates, Sh. Rajinder Singh Chaddha Karta, Rajinder Singh Chaddha (HUF) by way of an affidavit. After examining the said matter, the AO had passed on the information to the AO of Rajinder Singh Chaddha (HUF). However, the ld. CIT(A), to verify the matter, wrote to the DCIT, 2

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 Central Cricle-29, New Delhi to confirm whether the cash belonged to Rajinder Singh Chaddha (HUF) and was informed by the letter of the ACIT, Central Cricle- 29, Delhi that no such substantive assessment had been finalized in the case of Rajinder Singh Chaddha (HUF) for the year under consideration. Further queried upon whether cash seized from the possession of Deepak Pandey and claiming to be belonging to Rajinder Singh Chaddha (HUF) had been examined in his case and whether the cash was found to be explained, the AO responded that the issue of cash seized in the case of Deepak Pandey found no mention in the assessment order of Rajinder Singh Chaddha (HUF) and queries to the assessee had not met with any response. The ld. CIT(A) forwarded the report to the assessee and asked for his comments but did not receive a response. Therefore, the ld. CIT(A) held that since the cash seized from the present assessee, Sh. Deepak Pandey, had not been examined or held to be explained in the case of Rajinder Singh Chaddha (HUF), clearly the cash remained unexplained in his hands. Accordingly, he confirmed the additions in the hands of the assessee on substantive basis. 4. The assessee is aggrieved at this confirmation of the amount in his hands and has accordingly come in appeal before us. Sh. Kalrav Mehrotra, Advocate (hereinafter referred to as the ld. AR) appearing before us, submitted that the assessee Sh. Deepak Pandey was working with the firm M/s Raj Associates, a proprietary concern of Sh. Rajinder Singh Chaddha, as a cashier. He was carrying the cash of the firm to be deposited into the bank account of the firm with HDFC Bank, Rath Yatra Branch, Varanasi. During the course of police checking at Bhadoi Chungi, P.S. Adampur, Varanasi, the said cash was found from his possession. It had been submitted before the AO at that point of time that the amount cash found represented the sale proceeds of M/s Raj Associates. M/s Raj Associates was a firm dealing in Indian made foreign liquor having FL-2 license taken from the Government of Uttar Pradesh which had a depot for wholesale, sale of foreign liquor and beer at Varanasi. The total sales for the period from 4.01.2011 to 5.01.2012, in the case of Varanasi Depot was Rs. 1,83,47,073/-, which was the source for such cash which was being deposited into the bank account. At the time 3

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 of the seizure, the assessee had categorically stated that the cash belonged to the firm and was being taken for deposit in the bank account. Furthermore, since the sale proceeds have been totally recorded in the book of accounts of the firm, there was no reason to make any addition in the hands of anyone. The ld. AR drew our attention to page no. 30 of his paper book which contained a copy of unsigned copy of letter sent to DCIT, Central Cricle-4, Delhi by the authorized signatory of M/s Raj Associates where all these facts have been listed out. The ld. AR, thereafter invited our attention to pages 83 and 84 of the second paper book filed on page 8.12.2025 which contained a copy of the affidavit of Sh. Rajinder Singh Chaddha, where the proprietor of Raj Associates had owned up to the fact that the cash that had been seized belonged to M/s Raj Associates and Sh. Deepak Pandey, being an employee of that concern, was only carrying the same to be deposited with HDFC bank Varanasi. The ld. AR submitted that on the strength of these facts, the AO had issued a notice under section 153C to Rajinder Singh Chaddha (HUF) and this was demonstrative of his belief that the money did not belong to the assessee. Subsequently, he had on a request from the AO at Delhi transferred all proceedings in that matter to the AO at Delhi but only to protect the interest of the Revenue, he had made a protective addition in the hands of the assessee. The ld. AR submitted that the ld. CIT(A) had confirmed the addition made in the hands of the assessee on substantive basis only because the AO at Delhi had not made any addition on this account in the hands of Rajinder Singh Chaddha (HUF) but it was submitted that firstly this was not a ground to make an addition because the addition could only be made in the hands of the assessee if it were determined that the assessee was the owner of the income in dispute. Since, there was no finding at any stage that the assessee was the owner of the cash that had been recovered from him, the lapse of the Department, if any, in making the addition in the hands of the actual owner could not be a basis of converting the protective addition into a substantive addition. Secondly, it was argued that since it had been submitted by Rajinder Singh Chaddha (HUF) that the money was explained in its’ hands, the failure of the AO to make an addition, could not be construed to mean that the matter had not

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 been considered during the course of assessment proceedings. The ld. AR drew our attention to the decision of the Mumbai Tribunal in the case of Pegasus Properties (P.) Ltd. v. DCIT (2022) 135 taxman.com 294 (Mum-Trib) which pointed out that where there was no substantive addition made in the hands of any other person, the protective assessment made in the hands of an assessee could not survive. He also drew our attention to the judgment of the Delhi Bench in the case of M/s Fussy Financial Services Pvt. Ltd. in ITA No. 4227/DEL/2014 and the Gauhati Bench in the case of ITO vs. Keshava Nanda Kakati (2021) 133 taxman.com 316 (Gauhati-Trib), where similar view had been taken. Finally he drew our attention to the judgment of the Mumbai Bench of the ITAT in the case of Suresh K. Jajoo v. ACIT (2010) 39 SOT 514 (Mumbai) wherein it had been held that an assessment could only be considered as protective when there were a substantive assessment and therefore a substantive assessment had to precede a protective assessment. Accordingly, he prayed that the addition deserves to be deleted. 5. On the other hand, Sh. Koushlendra Tewari, CIT DR (hereinafter referred to as the ld. DR) responding to the arguments of the assessee drew our attention to the paper book filed by the Revenue on 8.02.2023 and pointed out that the impugned assessment order in the case of the assessee referred to only one statement of the assessee recorded on 27.11.2013, recorded before the Varanasi AO and did not refer to any other statement recorded at the time of seizure of cash on 8.01.2012. The New Delhi AO of Rajinder Singh Chaddha (HUF) had requisitioned the records and materials seized from the assessee only on 11.03.2014 and the same had been sent to him on 22.03.2014. It was submitted that by the time these materials were received by the Delhi AO, it is entirely possible that the assessment order in the case of Rajinder Singh Chaddha (HUF) dated 25.03.2014 came to be passed. Therefore, the issue had not been considered in the hands of the said HUF and the aforesaid submissions that the matter had been considered in the file of HUF were misplaced. It was submitted that no reliance could be placed on the unsigned and undated reply to the DCIT, Central 5

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 Circle-4, Delhi because it did not find place in the assessment record of the said HUF and the contention raised that the assessee had at the time of search and seizure stated that the cash belong to the firm remained unsubstantiated and unproved. It is, therefore, evident that the issue was not considered or examined in the hands of the said HUF as rightly stated by the ACIT (Central Circle)-29, New Delhi vide his report dated 10.08.2018. It was pointed out that before sending this report, the AO had asked the HUF to make compliance but no compliance had been made and that assessee had also failed to offer any comments on the said report as stated in the impugned appellate order. Accordingly, it was argued that the sustenance of the addition of Rs. 23,00,000/- in the hands of the assessee was justified. 6. We have duly considered the facts and circumstances of the case. It is apparent that during the U.P. Elections, cash was seized from the assessee by the U.P. Police and handed over to the Department. The assessee submitted before the AO that the cash did not belong to him but rather to M/s Raj Associates proprietary concern of Rajinder Singh Chaddha (HUF). Subsequently, Rajinder Singh Chaddha, the Karta of Rajinder Singh Chaddha (HUF) and proprietor of M/s Raj Associates filed an affidavit before the AO wherein he admitted that the cash seized of Rs. 23,00,000/- on 6.01.2012 belonged to M/s Raj Associates and was seized by the police during vehicle checking drive while Deepak Pandey, one of his employees, was carrying it for depositing it in HDFC, Rath Yatra Branch, Sigra, Varanasi in the bank account maintained by M/s Raj Associates. In the said affidavit, the deponent had also stated that M/s Raj Associates, whose PAN number is AAIHR97573 were dealing in sale of India made foreign liquor under license issued by the Competent Authority and that the amount of cash found and seized, from the possession of Sh. Deepak Pandey, represented the sale proceeds of M/s Raj Associates. It is observed that alongwith the said affidavit, copies of the sales register, stock register and cash book of M/s Raj Associates had been being submitted separately to confirm the source of cash seized on 6.01.2012. It is also apparent from the assessment order that the AO, after receiving such confirmation derived satisfaction that the 6

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 amount in question belonged to M/s Raj Associates and accordingly issued a notice under section 153C to that assessee. Thus, there was no doubt in the mind of the AO that the money did not belong to the present appellant. Subsequently, on a requisition, from the DCIT, Central Circle-4, the AO transferred the matter to the said AO. From the same, it is apparent that there was no confusion in the minds of the AO as to who the amount of Rs. 23,00,000/- seized on 6.01.2012, should be considered in the hands of. That being the case, there does not appear to be any reason for making a protective addition in the hands of the assessee. A protective addition can only be made if there is doubt as to whom the asset or income belongs to. Once a satisfaction has been reached by way of issue of notice under section 153C, it is clear that there remained no doubt in the mind of the AO as to in whose case the cash of Rs. 23,00,000/- had to be considered. Therefore, there was no occasion, in our opinion, for the AO to make a protective addition in the hands of the assessee. We observe that the ld. CIT(A) has confirmed the addition on substantive basis in the hands of the assessee because subsequently the AO at Delhi has informed, that the amount in question was not considered in the hands of Rajinder Singh Chaddha (HUF) during the course of assessment proceedings of that assessee for that assessment year. However, we note that this cannot be a ground for converting a protective addition into a substantive addition in the hands of the assessee. If the Department was unable to consider the cash seized on 6.01.2012 in the hands of Rajinder Singh Chaddha (HUF) in the proceedings under section 153A due to paucity of time, nothing prevented it from initiating action for escapement of income under other provisions of the Act, if it was satisfied that income had in fact had escaped assessment. We note that the said HUF has in its various submissions stated that the seized cash represented the proceeds of cash sales made by M/s Raj Associates under a license issued by the Competent Authority. In the circumstances, the failure to make an addition in the hands of that assessee, cannot be a ground to convert the protective addition into a substantive addition in the hands of the appellant. We note that the Mumbai Bench of the Tribunal in the case of Pegasus Properties (P.) Ltd. v. DCIT (supra) has held that

ITA No.175/VNS/2019 Deepak Pandey A.Y. 2012-13 where there was no substantive addition made in the hands of any other person, protective addition made in the hands of the assessee under section 69A did not survive. We further note that similar view has been held by the ITAT Delhi Bench in the case of ITO vs. M/s Fussy Financial Services Pvt. Ltd (supra) and the Gauhati Bench in the case of ITO v. Keshava Nanda Kakati (supra). Accordingly, in view of the facts of the case and the aforesaid judicial precedents, we hold that the decision of the ld. CIT(A) to treat the protective addition in the hands of the assessee a substantive addition only because no addition had been made in the hands of the party which had been identified as the actual owner of the seized currency, is not justified and accordingly we quash his order and delete the additions made by the AO. 7. In the result, the appeal of the assessee is allowed. Order pronounced on 17.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.