SHRI N NAVEEN BALAJI,PONDICHERRY vs. ASST. COMMISSIONER OF INCOME TAX, CHENNAI

आदेश /O R D E R

PER S.R. RAGHUNATHA, AM :

These two appeals have been preferred by the assessees, namely, Shri K. Nagarajan (ITA No.2394/Chny/2025) and his son Shri N. Naveen Balaji (ITA

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No.2396/Chny/2025), against the separate orders passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [hereinafter referred to as “the Ld. CIT(A)”], dated 20.06.2025 and dated 19.06.2025 respectively, both arising from the assessment orders dated 28.03.2013 for the Assessment Year (AY) 2011-12 passed by the Assistant Commissioner of Income Tax, Central Circle-II(2), Chennai [hereinafter referred to as “the AO”], u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

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between 31.03.2010 and 02.11.2010. During the search, it was found that share transactions of about Rs.41 crores and Rs.40 crores had been carried out in the names of Shri K.Nagarajan and Shri N.Naveen Balaji respectively. On verification, no corresponding transactions were found in their Demat accounts with India Infoline Ltd. and Religare Securities Ltd. Surveys u/s.133A of the Act conducted on the said brokers and on M/s.Sosha Credit Pvt. Ltd., Kolkata revealed that the shares of M/s.Prraneta Industries Ltd., M/s.Mahan Industries Ltd. and M/s.Yes Bank Ltd. had been acquired off-market and transferred to the two partners through M/s.Esquire Dealcom Pvt. Ltd. and M/s.Wonderful Apparel Agencies Pvt. Ltd. The directors of these companies, examined u/s.131 of the Act, stated that one Shri Pankaj Kasera was the person behind the companies and the transactions.

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including cheques issued to M/s.Adhunik Computer Marketing Pvt. Ltd. and M/s.Krypton Electrical Suppliers Pvt. Ltd. The AO noted that the cheques dated 25.09.2010 and 29.09.2010 were cancelled and withdrawn, and that, in lieu thereof, fresh cheques aggregating to Rs.12.80 crores were stated to have been issued on the advice of Shri Pankaj Kasera. Relying on the evidence found at the Karaikal branch of the firm, where unaccounted sales of Rs.4,09,00,079/- recorded in a ‘Test Sales Register’ were found, the deficiency in stock found during the search and the statements recorded, the AO held that the entire sum of Rs.81 crores routed through Shri Pankaj Kasera was unaccounted, that the sum of Rs.12.80 crores was also sourced from unaccounted sale of jewellery, and that the claim of cost of acquisition of the shares could not therefore be allowed.

41,01,79,512 Undisclosed income worked out by the assessee vide letter dated 22.03.2013 Less: Cash deficit at residence (1,37,149) Less: Cash deficit (5,61,507) (5,24,18,146) Less: Cost of stock transferred from the firm to the partners' accounts Balance 35,70,62,710 Add: Profit on sale of transferred stock 83,54,522 Add: Commission paid to Shri Pankaj Kasera 40,50,000 Add: Additional disclosure 46,41,678 Assessed total income 37,41,08,910

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39,92,51,181 Undisclosed income worked out by the assessee vide letter dated 22.03.2013 Less: Cash deficit (5,61,507) (5,24,18,146) Less: Cost of stock transferred from the firm to the partners' accounts Balance 34,62,71,528 Add: Profit on sale of transferred stock 83,54,522 Add: Commission paid to Shri Pankaj Kasera 4,05,000 Add: Additional disclosure 46,41,678 Assessed total income 35,96,72,728

“5. The submissions made by the assessee to CIT(A) were perused. With regard to the cost of acquisition of shares, it is seen that a total amount of Rs.12.8 crores were made through banking channel. However, that payment was made post the search operation and was reflected on the bank statements furnished by the assessee. As per the assessee, the amount of Rs.12.8 crore was accounted as investment on shares in the balance sheet of Shri.Naveen Balaji as well as Nagarajan for the A.Y.2010-11. However, even though the cheque payments were made to Pankaj Kasera's companies dated 25.09.2010 & 29.09.2010, those cheques were later cancelled based on assessee's instructions due to certain unforeseen circumstances and those acknowledgements as well as letters were furnished by the assessee. Later the payment of Rs.12.8 crores (6.4 cr. + 6.4 cr.) was made through banking channel only on 21.03.2011 and 12.08.2011. Hence, it can be considered only as an afterthought and also there is no clarity whether that amount was transferred for the purchase of those particular shares.”

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and 24.02.2011, a sum of Rs.12,80,00,000/- was paid to M/s.Esquire Dealcom Pvt. Ltd. (Rs.4,00,00,000/- and Rs.4,00,00,000/- on 21.03.2011) and to M/s.Wonderful Apparel Agencies Pvt. Ltd. (Rs.4,80,00,000/- on 12.08.2011), as evidenced by the bank statements and the confirmation from Axis Bank. The ld.CIT(A), however, was not convinced and confirmed the additions by holding in the lead case as under:-

“8.4.1 During the course of appellate proceedings, the appellant has claimed that Rs.6.4 crores representing his alleged half-share of a total payment of Rs.12.8 crores made jointly with Shri Naveen Baalaji was incurred towards the acquisition of certain shares. The AR claimed that this amount should be allowed as a deduction from the total sale consideration of Rs.81 crores received upon the sale of those shares. In support of this claim, the AR has submitted copies of invoices and corresponding cheque payments. However, upon examination, several inconsistencies and credibility issues emerge viz.. • The entire payment of Rs.12.8 crores was made after the date of the search and seizure (02.11.2010) conducted by the Department. Specifically, these payments were executed in March and August 2011, whereas the search took place earlier. This timing raises doubts regarding the genuineness and contemporaneity of the transactions. • The Cheques initially issued in September 2010 i.e. prior to the search were either cancelled or never honoured. This casts further doubt on whether any actual consideration was paid during the relevant period or whether these transactions were merely structured after the fact to create a paper trail. • The remand report submitted by the AO confirmed that the alleged payments were made post-facto and appear to be self-serving in nature. There is no independent or corroborative evidence validating that these payments were genuinely made for the acquisition of shares. • The appellant, during the course of search proceedings, admitted under oath that the entire amount of Rs.81 crores received in a combination of cash and cheques constituted unaccounted income. This admission undermines the claim that any portion of the consideration was used to acquire shares in a legitimate and traceable manner. • There is no verifiable documentation or audit trail linking the Rs.12.8 crores (including the appellant’s Rs.6.4 crores share) with the acquisition of any specific shares. No dematerialized account (Demat) records or shareholding statements have been furnished to establish beneficial ownership or transfer. • The investigation also revealed that the transactions involved paper companies used merely to provide accommodation entries. The shares in question were never actually held by the appellant in a verifiable or legitimate manner. 8.4.2 In light of the above factors, the undersigned is of the view that the appellant’s claim of having incurred Rs.6.4 crores as cost of acquisition lacks credibility and evidentiary support. The alleged payments were made after the search u/s 132 of the Act, were not backed by traceable documentation, and have been structured

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to give an appearance of a legitimate investment. Consequently, the AO was justified in disallowing the purported cost of acquisition. As there being no substantiated or reliable basis for the claim, the related ground raised by the appellant in this appeal upon this issue is treated as dismissed and the addition made by the AO is sustained. * * * 8.5.2 The undersigned is of the view that the so-called sale proceeds were artificially engineered with the sole intent of converting unaccounted or unreported cash into what appears as long-term capital gains (LTCG), which are exempt from tax. Further, there is no credible evidence or documentation to substantiate any real investment of Rs.6.4 crores, the amount purportedly invested. On account of these facts, the amount claimed as proceeds from the share transaction cannot be considered legitimate. Instead, it qualifies as undisclosed income, which the taxpayer attempted to disguise as tax-exempt capital gains through a sham scheme. Therefore, the claim for capital gains treatment is rejected. In this back drop, it is held that as there was no genuine acquisition or investment, the transaction cannot give rise to capital gains in the first place. Therefore, the entire amount involved in the bogus transaction is rightly treated as income and added to the returned income by the AO. Accordingly, the ground raised by the appellant upon this issue is hereby treated as dismissed. 8.6.1 … In respect of the arithmetic error, the appellant has not raised specific ground praying to rectify the error. During the course of appellate proceedings, the AR has chosen not to raise any additional ground upon this issue. In the absence of any ground, the undersigned is not inclined to adjudicate upon the said error. The appellant is at liberty to approach the AO to rectify the arithmetic error. …”

“1. The order of the learned CIT(A)-19, is wrong, illegal and is opposed to law and facts of the case. 2. The revenue authorities erred in not appreciating that the principle of real income requires only the actual income element to be subjected to tax and not the gross consideration received. 3. The learned CIT(A) failed to see that the impugned addition of the entire sale value of shares at ₹41,01,79,512/- as income of the appellant is arbitrary, excessive, illegal and unsustainable in law. 4. The Learned CIT(A) failed to appreciate that the entire addition has been made solely based on untested and uncorroborated statement of Shri Pankaj Kesdari, who is stated to have admitted to receiving ₹81 crores in the form of cash and a few cheques. The payments by cheque, as admitted in the said statement itself, represent genuine consideration paid by the appellant towards the purchase of

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shares, which fact is fully supported by contemporaneous records including invoices, remittance proofs, and copies of cheques. 5. The Learned CIT(A) failed to appreciate that the entire addition has been made solely based on the untested and uncorroborated statement of Shri Pankaj Kesdari, who is stated to have admitted to receiving ₹81 crores in the form of cash and a few cheques, The said statement was never subjected to cross-examination by the appellant. 6. The Learned CIT(A) ought to have seen that the Assessing Officer grossly erred in law and on facts in adding the entire sale consideration of ₹41,01,79,512/- received on the sale of shares as the income of the appellant, without granting deduction for the cost of acquisition of shares. 7. The Learned CIT(A) ought to have seen that the Assessing Officer has failed to appreciate that the amount of ₹41,01,79,512/- represents the gross sale proceeds of shares, whereas only the net gains, being the difference between sale consideration and cost of acquisition, can be brought to tax. 8. The Learned CIT(A) failed to see that the Assessing Officer while assessing the entire ₹41,01,79,512/- as income of the appellant erred in ignoring the detailed evidences produced by the appellant, including invoices from the companies from whom shares were purchased, proof of remittance of funds towards such purchase, and photocopies of cheques issued to the parties, which conclusively establish the cost of purchase incurred by the appellant. 9. The Learned CIT(A) did not consider the fact that there is an arithmetical error in the order in which the learned assessing officer has wrongly considered the alleged commission paid to Pankaj Kasera @0.1% at Rs.81 lakhs instead of Rs.8.1 lakhs (being 0.1% of Rs.81 crores) as per para 23 of the assessment order. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon’ble Tribunal may be pleased to allow the appellants appeal and thus render justice.”

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It was submitted that cheques towards the purchase consideration had been issued on 25.09.2010 and 29.09.2010, prior to the search, that a prohibitory order dated 03.11.2010 was placed on the bank account of the assessee immediately after the search, on account of which the cheques could not be presented and were cancelled; that the prohibitory order was lifted on 07.03.2011, whereafter the consideration was discharged through banking channels on 21.03.2011 and 12.08.2011; and that the funds for the said payments were borrowed from M/s. Pondicherry Sri Lakshmi Jewellery, the firm in which the assessee is a partner, which is verifiable from the books and bank statements of the firm and the assessee. According to the ld.AR, the statement of Shri Pankaj Kasera, read as a whole, acknowledges receipt of cheques as well as cash and does not establish that the assessee did not acquire the shares, and the cost of acquisition of Rs.6,40,00,000/- ought therefore to have been allowed.

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K.Nagarajan and Shri N.Naveen Balaji during July to October, 2010, and the shares were transferred to their demat accounts immediately thereafter and sold by them in the market. It was submitted that, in such an arrangement, the money is received first and returned after deduction of commission, and Shri Pankaj Kasera, whose only income was his commission and who did not have the wherewithal, could not have advanced Rs.12.80 crores and received it back after six to twelve months; unless he had received the cost of the shares, he would not have purchased them and the assessees could not have received the sale proceeds of Rs.81 crores. The ld.DR further submitted that the assessees had admitted during the search that the entire sum of Rs.81 crores represented their unaccounted income from retail jewellery, real estate commission and other activities, and no evidence had been furnished to show that Rs.12.80 crores out of it was derived from accounted sources; that there was no reason for the assessees to route their accounted income through a scheme devised to launder unaccounted money; that the invoices of M/s.Esquire Dealcom Pvt. Ltd. and M/s. Wonderful Apparel Agencies Pvt. Ltd. are dated in the year 2009, whereas Shri Pankaj Kasera admitted that he received the money only in July to October, 2010; and that the cheques issued in September, 2010 were drawn in favour of different parties and in different amounts from the payments ultimately made. The cheques issued in September, 2010 were as under: Date Payer Payee Amount (Rs.) 25.09.2010 K. Nagarajan Wonderful Apparels Agencies Pvt. Ltd. 5,03,85,825 25.09.2010 N. Balaji Wonderful Apparels Agencies Pvt. Ltd. 5,07,03,700 29.09.2010 K. Nagarajan Esquire Dealcom Pvt. Ltd. 1,28,19,175 29.09.2010 K. Nagarajan Adhunik Computer Marketing Pvt. Ltd. 7,95,000 29.09.2010 K. Nagarajan Krypton Electrical Suppliers Pvt. Ltd. 4,88,700 29.09.2010 N. Balaji Esquire Dealcom Pvt. Ltd. 1,28,07,600

As against the above, the payments ultimately made through banking channels were as under:

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Date Beneficiary Amount (Rs.) 21.03.2011 Esquire Dealcom Pvt. Ltd. 4,00,00,000 21.03.2011 Esquire Dealcom Pvt. Ltd. 4,00,00,000 12.08.2011 Wonderful Apparels Agencies Pvt. Ltd. 4,80,00,000

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unaccounted sales recorded in the ‘Test Sales Register’ and the stock deficiency found during the search. Before the ld.CIT(A), the assessee himself accepted that the consideration paid in cash was from unaccounted sources. Nothing has been placed before us to dislodge these findings. In such a situation, where the shares were only a vehicle for routing the assessee's own unaccounted money and receiving it back as sale proceeds, the cash paid to the entry operator cannot be treated as a cost of acquisition to be set off against the sale proceeds. The plea that only the ‘net gain’ should be taxed under the principle of real income is, therefore, without merit insofar as the cash component is concerned.

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payments are not linked to the transaction, or the source of the payments is itself not explained, no exclusion would be warranted.

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07.03.2011, whereafter Rs.8,00,00,000/- was paid to M/s.Esquire Dealcom Pvt. Ltd. on 21.03.2011, within a fortnight, and the balance of Rs.4,80,00,000/- was paid to M/s.Wonderful Apparel Agencies Pvt. Ltd. on 12.08.2011, in accordance with the letters of the payee companies dated 18.01.2011, 29.01.2011 and 24.02.2011. The aggregate of the cheques originally drawn and of the payments eventually made is identical, namely, Rs.12,80,00,000/-. The AO, in his remand report, has himself accepted that the sum of Rs.12.80 crores was paid through banking channels and is reflected in the bank statements furnished by the assessees. The circumstance that the original cheques were drawn in favour of four entities rather than two does not detract from this, since all those entities were admittedly controlled by Shri Pankaj Kasera and the payments were redirected on the instructions of the payee companies. Nor can the absence of a corresponding receivable in the books of M/s.Wonderful Apparel Agencies Pvt. Ltd., an entity found to be a conduit for accommodation entries, be held against the assessees, when that company has in fact received Rs.4,80,00,000/- through banking channels and has not been shown to have returned it. The fact that the payments were completed after the search cannot, therefore, by itself render them non-genuine, when the obligation to pay had been acted upon by drawing cheques prior to the search and its discharge was deferred only on account of the prohibitory order.

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this sum was sourced from unaccounted sale of jewellery is not supported by any specific material linking these payments to such sales. The cash component of the consideration, which the assessees have accepted as having come from unaccounted sources, continues to stand taxed, as held in para 19 above. The discrepancy noticed in the scrip-wise statement in respect of the shares of M/s.Yes Bank Ltd. pertains only to the internal break-up furnished by the assessee and does not affect the amount actually paid through banking channels, which is the measure of the cost now allowed. We, therefore, hold that the authorities below were not justified in bringing to tax the entire sale proceeds of the shares without allowing the cost of acquisition discharged through banking channels. The AO is directed to allow a deduction of Rs.6,40,00,000/- in the case of each assessee towards the cost of acquisition of the shares, after verifying that the said sum has not been claimed or allowed in any other assessment year. Ground Nos.2, 3, 4, 6, 7 and 8 are accordingly allowed in both the appeals.

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and in any event, the assessee was admittedly the beneficiary of the arrangement for which Shri Pankaj Kasera has stated that he earned a commission of 0.10%. We see no reason to interfere with the addition to the extent of Rs.4,05,000/-. Ground No.9 is dismissed.

Order pronounced in the court on 05th November, 2026 at Chennai.

Sd/- Sd/- (एस एस &व'वने( र&व) (एस. आर. रघुनाथा) (S.S.VISWANETHRA RAVI) (S.R.RAGHUNATHA) �या�यक सद*य/Judicial Member लेखा सद*य/Accountant Member

EJTADA Digitally signed by चे�नई/Chennai, EJTADA DURGA NARESH DURGA Date: 2026.11.10 +दनांक/Dated, the 05th November, 2026. NARESH 16:59:51 +05'30'

आदेश क� ��त-ल&प अ.े&षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3.आयकर आयु/त/CIT– Chennai/Coimbatore/Madurai/Salem 4. &वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF