DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. SHRI ARUN KUMAR JAIN, CHENNAI

The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

On the facts and in the circumstances of the ease and in law, the Lil CIT(A) erred in deleting the addition of Rs. 1,86,67,297/- made by the Assessing Officer u/s 69 of the Income Tax Act, 1961. 3. The learned CIT(A) failed to appreciate that the addition was based on incriminating material seized during search proceedings, clearly indicating unexplained investments not recorded in the books of account.

The learned CIT(A) erred in accepting the assessee's contention that the impugned amount constituted business income, ignoring the fact that the same was not substantiated with proper books or documentary evidence at the time of assessment.

The learned CIT(A) wrongly held that treating the amount as unexplained investment would result in double taxation, without appreciating that the nature and source of income remained unexplained.

The learned CIT(A) erred in relying on judicial precedents without appreciating that the facts of the present case are distinguishable, particularly in view of the seized documents and statement recorded under section 131. 7. The learned CIT(A) failed to consider that the assessee had admitted cash transactions outside the books, thereby justifying invocation of section 69 and taxation under section 115BBE.

The order of the learned CIT(A) is erroneous and contrary to the facts and provisions of law. and therefore the order of the Assessing Officer deserves to be restored.

For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.

Brief facts of the case are that the assessee is an individual engaged in the business of money lending and financial intermediation. A search under section 132 of the Income Tax Act, 1961 (“the Act”) was conducted in the case of Shri Amit Kothari on 23.09.2021, pursuant to which the business premises of the assessee were also subjected to search proceedings. During the search at the premises of Shri Amit Kothari, certain red-coloured notebooks were found and seized. The notebooks contained details of receipts and payments relating to money-lending transactions and other activities carried out outside the regular books of account. In his statement, Shri Amit Kothari admitted that the notebooks recorded unaccounted receipts and payments pertaining to money-lending activities, including loans advanced by the assessee through a syndicate.

1 During the post-search proceedings, the assessee's statement was recorded under section 131 of the Act on 10.01.2022. The assessee admitted to advancing cash loans for money-lending business and agreed to disclose additional income of Rs.5.50 crore. Accordingly, the assessee offered Rs.2.25 crore for Assessment Year 2021-22 and Rs.3.25 crore for Assessment Year 2022–23. 3.2 For Assessment Year 2022-23, the assessee filed the return of income on 08.11.2022, declaring total income of Rs.5,76,25,510/- which included Rs.3.25 crore offered as business income from money-lending activities. The return was DCIT Vs Shri Arun Kumar Jain selected for compulsory scrutiny, and the Assessing Officer issued notice under section 143(2) on 19.06.2023, followed by a notice under section 142(1) seeking further details.

3 During the assessment proceedings, the Assessing Officer examined the party-wise details of interest paid to investors furnished by Shri Amit Kothari and observed that the assessee had received interest of Rs.1,00,02,700/- during the relevant previous year. The Assessing Officer, however, considered only Rs.1,38,32,703/- out of the Rs.3.25 crore disclosed by the assessee as explained business income and treated the balance amount of Rs.1,86,67,297/- as unexplained investment under section 69 read with section 115BBE of the Act.

4 The Assessing Officer completed the assessment under section 143(3) on 08.12.2023. Aggrieved by the addition, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”].

The ld.CIT(A), after considering the assessment order, seized material, statement recorded under section 131, written submissions of the assessee and relevant judicial precedents, held that the amount of Rs.1,86,67,297/- represented business income from money-lending activities and that the conditions for invoking section 69 read with section 115BBE were not satisfied. Accordingly, the CIT(A) directed the Assessing Officer to treat the impugned amount as business income and allowed the relevant grounds of appeal.

Aggrieved by the order of the CIT(A) dated 28.01.2026, the Revenue has preferred the present appeal before the Tribunal.

The Revenue contends that the order of the ld.CIT(A) is erroneous in law and on facts and that the Assessing Officer was justified in treating Rs.1,86,67,297/- as unexplained investment under section 69 of the Act. The Revenue's case is that the addition was founded upon incriminating material seized during the search proceedings, particularly the red- coloured notebooks containing details of unaccounted cash transactions relating to money-lending activities. The assessee had also admitted in his statement recorded under section 131 that he had advanced cash loans outside the books of account. According to the Revenue, the assessee failed to maintain proper books of account or furnish supporting documentary evidence to substantiate the entire amount of Rs.3.25 crore offered as business income. The Assessing Officer, upon examining the third-party details furnished by Shri Amit Kothari, found that the interest attributable to the assessee's transactions did not substantiate the entire amount disclosed.

1 The Revenue further contends that the ld.CIT(A) erred in accepting the assessee's claim that the impugned amount constituted business income without adequately appreciating the evidentiary significance of the seized material and the statement recorded during the post-search proceedings. It is also the Revenue's contention that the ld.CIT(A) wrongly concluded that the addition would result in double taxation, notwithstanding that the nature and source of the impugned amount allegedly remained unexplained. The judicial precedents relied upon by the CIT(A), according to the Revenue, were distinguishable on facts. The Revenue accordingly seeks restoration of the assessment order and the addition of Rs.1,86,67,297/- made under section 69 read with section 115BBE of the Act.

Before us none appeared for the assessee despite service of notice of hearing. The assessee contended before CIT(A) that the impugned amount of Rs.1,86,67,297/- forms part of the additional income of Rs.3.25 crore voluntarily disclosed in the return of income for Assessment Year 2022–23 pursuant to the search and subsequent proceedings. The entire amount of Rs.3.25 crore was offered as business income arising from the assessee's money-lending and financial intermediation activities. The assessee submitted before CIT(A) that the seized notebooks themselves establish the nexus of the transactions with the money-lending business carried on through the finance syndicate. The assessee had admitted the cash transactions and offered the additional income in the relevant assessment years. Consequently, the absence of regular books of account for such transactions does not, by itself, justify recharacterising part of the income already disclosed as unexplained investment under section 69. DCIT Vs Shri Arun Kumar Jain 8. The assessee submitted before CIT(A) that the Assessing Officer has not brought any independent material on record to establish that the amount of Rs.1,86,67,297/- arose from a source other than the disclosed money-lending business. The Assessing Officer merely relied upon the interest-related details furnished by Shri Amit Kothari to segregate the amount disclosed by the assessee. The assessee further submitted before CIT(A) that that the deeming provisions of section 69 cannot be invoked without establishing the existence of an unexplained investment satisfying the statutory conditions. Once the nature and source of the amount are explained as arising from business activities and the income has been disclosed in the return, the amount should be assessed under the appropriate head of income. In support of its contentions, the assessee relied upon the decisions in CIT v. Smt. P.K. Noorjahan, CIT v. Bajargan Traders, Overseas Leathers v. DCIT, DCIT v. Ramnarayan Birla, and other judicial precedents concerning the treatment of undisclosed business receipts and the applicability of sections 69 and 115BBE. Particular reliance was placed upon the decision of the Chennai Tribunal in the case of DCIT, Central Circle-2(1), Chennai v. Shri Amit Kumar Kothari, ITA No. 1218/Chny/2023, dated 08.08.2023, for Assessment Year 2021–22. In that case, the Tribunal held that the undisclosed receipts arising from finance-business transactions recorded in the seized notebooks were assessable as business income, having regard to the facts and the absence of material establishing any other source of income. The assessee submitted before CIT(A) that the Assessing Officer was not justified in treating Rs.1,86,67,297/- as unexplained investment under section 69 read with section 115BBE after the amount had been disclosed as business income.

We have heard the submissions of ld. DR for the revenue and perused the material available on record, including the assessment order, the order of the CIT(A), the seized material referred to in the assessment proceedings, the statement recorded under section 131 of the Act and the written submissions placed before the CIT(A).

The issue arising for our consideration is whether the Assessing Officer was justified in treating Rs.1,86,67,297/- out of the additional income of Rs.3.25 crore disclosed by the assessee as unexplained investment under section 69 read with section 115BBE of the Act, or whether the CIT(A) was justified in directing that the amount be treated as business income from money-lending activities. The material on record establishes that the proceedings originated from the search conducted in the case of Shri Amit Kothari, during which red- coloured notebooks containing details of unaccounted receipts and payments relating to finance-business transactions were seized. The assessee was found to be associated with the transactions recorded therein and, in his statement recorded under section 131, admitted to advancing cash loans through the finance syndicate. The assessee thereafter offered Rs.3.25 crore as additional income for the assessment year under consideration and disclosed the same under the head “Profits and Gains of Business or Profession”. The Assessing Officer did not dispute the disclosure of Rs.3.25 crore in its entirety but proceeded to treat Rs.1,86,67,297/- as unexplained investment on the basis of the interest-related details available in the records of Shri Amit Kothari. In our considered view, the difference between the amount disclosed as business income and the amount considered supported by the interest-related details does not, by itself, establish that the balance amount represents an unexplained investment within the meaning of section 69 of the Act.

Section 69 is attracted where the statutory conditions concerning an investment not recorded in the books of account and the absence of a satisfactory explanation regarding its nature and source are fulfilled. The applicability of the provision must, therefore, be examined with reference to the actual nature of the transaction and the evidence available on record. The absence of regular books of account for the unaccounted transactions, though relevant, cannot by itself determine the character of the income where the surrounding material establishes its connection with an identified business activity.

In the present case, the seized notebooks relate to money- lending and finance-business transactions. The assessee admitted the transactions and disclosed the additional income arising therefrom as business income. The ld.CIT(A), upon DCIT Vs Shri Arun Kumar Jain examination of the assessment record and the submissions of the assessee, found that the Assessing Officer had not brought any independent evidence on record to establish that the impugned amount originated from a source other than the assessee's money-lending business. We find merit in the reasoning of the CIT(A) that the Assessing Officer's reliance upon the interest-related details furnished by Shri Amit Kothari was insufficient, in the facts of the present case, to recharacterise the balance amount as unexplained investment. The extent of interest reflected in the third-party records and the character of the income disclosed by the assessee are distinct matters. A discrepancy in the computation or attribution of interest does not, without further supporting evidence, conclusively establish that the balance amount constitutes an unexplained investment under section 69. 13. We also take note of the decision of the Chennai Tribunal in DCIT, Central Circle-2(1), Chennai v. Shri Amit Kumar Kothari, ITA No. 1218/Chny/2023, dated 08.08.2023, for Assessment Year 2021–22. In that case, the Tribunal considered the entries recorded in the notebooks seized during the search and held that the undisclosed income arising from the finance-business transactions was assessable as business income, in view of the finding that the assessee's source of income was the finance business and that no material establishing another source was available on record. Though the aforesaid decision concerns a different assessee and assessment year, the principle emerging therefrom is relevant to the issue under consideration. The character of income must be determined with reference to the nature of the transactions, the surrounding circumstances and the evidence available on record. In the present case, the ld.CIT(A) has applied this approach after examining the seized material, the assessee's statement and the disclosure made in the return of income. The CIT(A) has also relied upon the principles discussed in DCIT v. Ramnarayan Birla and other decisions concerning the treatment of undisclosed business receipts. The underlying principle is that, where an undisclosed receipt or investment is satisfactorily linked to an identifiable business activity, its tax treatment must be determined with reference to that business nexus rather than automatically invoking the deeming provisions applicable to unexplained investments.

We are, therefore, of the considered view that the Revenue has not demonstrated any infirmity in the factual findings recorded by the CIT(A). The Revenue's contention that the assessee did not maintain proper books of account or that the transactions were undertaken in cash does not, in the circumstances of the present case, conclusively establish the statutory conditions necessary for invoking section 69 in respect of the impugned amount. We further observe that the assessee had already included the sum of Rs.3.25 crore in the return of income for Assessment Year 2022–23 as business income from money-lending activities. In the absence of DCIT Vs Shri Arun Kumar Jain material establishing that the amount of Rs.1,86,67,297/- represented a separate unexplained investment, the Assessing Officer was not justified in segregating that amount from the business income disclosed by the assessee and subjecting it to the deeming provisions of section 69 read with section 115BBE of the Act.

In view of the foregoing discussion, we find no reason to interfere with the order of the ld.CIT(A), who has considered the relevant facts, the nature of the seized material, the assessee's disclosure and the applicable judicial principles before directing the Assessing Officer to treat Rs.1,86,67,297/- as business income for Assessment Year 2022-23. The findings of the ld.CIT(A) are supported by the material available on record and no contrary evidence has been brought to our notice to warrant a different conclusion. Accordingly, the order of the ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed.

In the result, the appeal filed by the Revenue for Assessment Year 2022–23 is dismissed. Order pronounced in the open court on the 14th day of October, 2026 in Chennai. (एस. आर. रघुनाथा) (मनु कुमार िग"र) (S.R.RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER "या"यक सद*य/JUDICIAL MEMBER

""थ"/Respondent 3. आयकरआयु"/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय"ितिनिध/DR 5. गाड"फाईल/GF