SRI SRINIVASA EDUCATIONAL & CHARITABLE TRUST,BANGALORE vs. DCIT, CENTRAL CIRCLE-2(3), BANGALORE

PER WASEEM AHMED, ACCOUNTANT MEMBER:

Page 2 of 145 A.Y. 2020-21. 3. The assessee has raised extensive grounds of appeal which are numbered as Ground Nos. 1 to 13. The Ground Nos. 1 and 13 of the appeal are general in nature and do not require any separate adjudication. Hence, we dismiss the same.

4. The issue raised by the assessee through Ground No. 2 of the appeal is that the assessment order was passed beyond the statutory time limit prescribed under section 153B of the Act. Hence, the assessment order is void ab initio being barred by time.

5. The relevant facts of the case are that the assessee is a charitable trust incorporated under section 25 of the companies Act 1956 corresponding to section 8 of the companies Act 2013. The assessee trust was granted registration under section 12AA of the Act, which was subsequently migrated to section 12AB of the Act as per the amended provisions introduced by the Finance Act, 2020. The assessee operates educational institutions, including schools, medical colleges, and engineering colleges etc. 5.1 The assessee was subjected to search proceedings under section 132 of the Act, initiated as on 17th February 2021. The search was carried out on the following premises of the assessee: (1) Head office at GD House, 619/G, 36th Cross, 2nd Block, Rajajingar (2) Saptagiri Institute of Medical Science & Research Centre (3) Saptagiri Engineering College 5.2 In the case of Head office and Saptagiri Institutes of Medical Science & Research, the search was temporary concluded vide Panchnama dated 20th February 2021 and 19th February 2021 .

Page 3 of 145 respectively. As such, in the cases of first two premises Prohibitory orders were placed which were revoked as on 5th April 2021 and 20th April 2021 respectively by drawing final Panchnama. 5.3 In consequence to the search, the assessment proceedings under section 153A of the Act for A.Y. 2020-21 and assessment proceedings under 143(3) of the Act for A.Y. 2021-22 by treating the same (AY 2021- 22) as search year, were initiated. After detailed discussions with respect to the materials being unearthed during the search, reply submitted by the assessee in response to several notices being issued during the assessment proceeding, the AO completed the assessment vide order dated 24th November 2023, assessing the total income at Rs. 123,94,28,202/- as against the return income of Rs. 9,53,220/- for the AY 2020-21. Likewise, the AO completed the assessment for AY 2021-22 vide order dated 28th November 2023 assessing the total income at Rs. 138,43,73,474/- as against the returned income of Rs. 6,95,140/-.

challenging the validity of the search and consequence assessment order as well challenging the addition or disallowances made on the merits. However, the learned CIT(A) dismissed the assessee’s appeals on both the counts.

7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

8. Before us, the assessee has raised the issue of assessment order being barred by time and consequently argued that the assessment order is being void ab initio. 8.1 The learned AR before us argued that assessment order under section 143(3) r.w.s. section 153A of the Act is time barred and .

Page 4 of 145 consequently void ab initio. The argument of the learned AR can be broadly divided into 4 limbs. The first limb of argument, is that the crucial aspect in determining limitation is the “date of execution of the last authorization.” According to the learned AR, in the case of the appellant, the AO wrongly took the date as 20.04.2021, i.e., the date when Prohibitory orders under section 132(3) were revoked, whereas in law, the search itself stood concluded much earlier when the authorized officer and the search team finally left the premises of the appellant on 19.02.2021 and 20.02.2021. The ld. AR emphasized that once the search party exits the premises after completing the operations under the warrant of authorization, the authorization gets fully exhausted and the search cannot be regarded as continuing. Any subsequent visit by the department, merely for the limited purpose of lifting a restraint order or making inspection of the materials already placed under prohibition, does not constitute a valid continuation of search and therefore it cannot extend the limitation period for making the assessment under section 153B of the Act. 8.1.1 The ld. AR further submitted that the concept of “temporary conclusion” of search as noted in the Panchnamas dated 19.02.2021 and 20.02.2021 is alien to the statutory scheme. In law, the search has to be regarded as concluded when the search team leaves the premises upon execution of the authorization. There is no provision permitting the department to keep the search proceedings in a state of suspension or revival without fresh authorization. Therefore, the later panchnamas drawn on 05.04.2021 and 20.04.2021, when the officers revisited the premises for revoking the Prohibitory orders, are not valid Panchnamas evidencing conclusion of search; rather, they only reflect inspection of .

Page 5 of 145 the materials earlier restrained. In this regard reliance was placed on the judgment of the Hon’ble Karnataka High Court in the case of C. Ramaiah Reddy v. ACIT [2012] 20 taxmann.com 781, wherein it was held that the search comes to an end when the search party leaves the premises, and Prohibitory orders issued under section 132(3) of the Act cannot be equated to continuation of search. The learned AR also placed reliance on various other case laws which are available on record. 8.1.2 On this reasoning, the ld. AR asserted that the last valid panchnama evidencing conclusion of search in the appellant’s case is dated 20.02.2021. Accordingly, as per section 153B(1)(a) and (b), read with the third proviso and the sixth proviso of the Act, the limitation period for completion of assessment expired on 31.03.2022 for A.Y. 2020-21 and 30.09.2022 for A.Y. 2021-22, since the last authorization fell in the financial year 2020-21. 8.1.3 He further argued that the references later made to the Valuation Officer under section 142A or to the ld. PCIT under 2nd proviso to section 143(3) of the Act are irrelevant for the purpose of exclusion of time, because they were initiated after the expiry of the original limitation period. Thus, the assessments framed on 24.11.2023 and 28.11.2023 are hopelessly barred by limitation and liable to be quashed as void ab initio. 8.2 In the second limb of argument, the learned AR submitted that as per the scheme of the Act, the assessment year relevant to the previous year in which the search is conducted is to be treated as the “search assessment year,” and the limitation for completing the assessment is governed by section 153B(1)(b) of the Act. Assessments for six preceding assessment years are also required to be made under .

Page 6 of 145 section 153A, and the limitation for such years is prescribed in section 153B(1)(a). 8.2.1 It was explained that though the expression “search is conducted” is not specifically defined in the Act, the meaning can be understood from the scheme of section 153B(1) and its sixth proviso. The AR pointed out that the sixth proviso to section 153B(1) was inserted by the Finance Act, 2022, with retrospective effect from 01.04.2021. This proviso clarifies that when the last authorisation for search under section 132 is executed during the financial year commencing on 01.04.2020, the relevant assessment year for the purpose of completing the assessment shall be the assessment year commencing on 01.04.2021, and the time limit for completing such assessment shall be on or before 30.09.2022. 8.2.2 The ld. AR drew our attention to the CBDT Circular No. 23/2022 dated 03.11.2022, which contains the explanatory notes to the Finance Act, 2022. The circular clearly explains that the amendment was introduced to address situations where the search or requisition concluded during FY 2020-21 left very little time for the Assessing Officer to complete the assessment, especially in cases where returns were filed late. Hence, the sixth proviso extended the due date for completing such assessments up to 30.09.2022. 8.2.3 The ld. AR submitted that, as per the said proviso, the financial year in which the last authorization for search was executed is to be regarded as the year in which the search is conducted, and the assessment year relevant to such financial year becomes the “search assessment year.” In the present case, it is not disputed that the last authorisation for search was executed during FY 2020-21. Therefore, the .

Page 7 of 145 assessment year relevant to FY 2020-21, i.e., AY 2021-22, becomes the “search assessment year.” 8.2.4 The learned AR further pointed out that the Assessing Officer himself, while framing the assessment, has accepted AY 2021-22 as the “search assessment year.” The AO has made the assessment under section 143(3) for AY 2021-22, whereas for AYs 2015-16 to 2020-21, assessments were framed under section 153A of the Act. This clearly demonstrates that the AO also considered that the search was conducted during FY 2020-21, which is in full agreement with the statutory interpretation given under the sixth proviso to section 153B(1) of the Act. 8.2.5 On this basis, the ld. AR argued that the limitation period for completing the assessment for AY 2020-21 should be computed as per section 153B(1)(a), which allows twelve months from the end of the financial year in which the search was conducted. Thus, the limitation for AY 2020-21 ended on 31.03.2022. Similarly, for AY 2021-22, the limitation period ended on 30.09.2022, as specifically provided under the sixth proviso to section 153B(1) of the Act. 8.2.6 The ld. AR emphasised that this interpretation is also supported by the explanatory notes contained in the Finance Act, 2022, and CBDT Circular No. 23/2022. Both clearly state that in cases where the last of the authorisations for search was executed during FY 2020-21, the assessment must be completed on or before 30.09.2022. 8.2.7 Based on the above reasoning, the learned AR submitted that the assessments completed on 24.11.2023 and 28.11.2023 for AYs 2020-21 and 2021-22, respectively, are beyond the prescribed limitation period.

Page 8 of 145 Since the statute itself fixes the time limit for completion, any assessment made beyond this period is void and without jurisdiction. 8.3 The learned AR advanced the third limb of argument before us on the issue of the assessment orders being barred by time. It is argued that the prohibitory orders issued under section 132(3) of the Act in the case of the appellant trust are bad in law and hence cannot be taken into account for computing the limitation period under section 153B of the Act. It was contended that these orders were issued without fulfilling the legal requirements laid down under section 132(3) of the Act. The learned AR explained that for a valid Prohibitory order to exist, there must be clear reasons showing impracticability to seize the materials at the time of search. However, in the present case, the prohibitory orders were issued mechanically and without any practical difficulty in seizing the documents or assets. 8.3.1 The ld. AR pointed out that in the head office premises of the trust at GD House, a prohibitory order was issued on 19.02.2021 and revoked only on 05.04.2021. But the panchanama clearly showed that only 159 pages of documents were seized at the time of revocation, while 1,315 pages had already been seized during the first visit. This, according to the learned AR, proves that there was no real “paucity of time” or “voluminous nature of documents” to justify restraint order under section 132(3) of the Act. The prohibitory order was, therefore, unjustified and invalid. Similarly, in the premises of Sapthagiri Institute of Medical Sciences, two prohibitory orders were issued — one in respect of a wooden almirah and another for a garage containing luxury cars. On revocation of these orders, only 237 pages of documents were seized, and none of the cars were actually taken possession of. This again .

Page 9 of 145 shows that the prohibitory orders were issued without any genuine reason and therefore the same were contrary to law. 8.3.2 The learned AR submitted that under section 132(3) of the Act, the impracticability to seize is a condition precedent and must be based on valid reasons such as the weight, volume, or dangerous nature of the material. The section cannot be used merely for the purpose of further verification or investigation. In this case, the authorised officer issued prohibitory orders citing “paucity of time” and “need for further verification,” which are not legally recognized grounds under the Act. Moreover, the authorised officer did not record any satisfaction or belief that the materials placed under restraint represented undisclosed income or investment, which is mandatory before invoking section 132(3) of the Act. 8.3.3 The learned AR relied on several judicial precedents, including B.K. Nowlakha v. Union of India reported in 192 ITR 436 (Hon’ble Delhi High Court), Dr. C. Balakrishna Nair v. CIT reported in 103 Taxman 242(Hon’ble Kerala High Court), and CIT v. Sandhya P. Naik reported in 124 Taxman 384 (Hon’ble Bombay High Court), to submit that prohibitory orders issued without compliance of mandatory legal conditions are invalid and cannot extend the period of limitation for assessment. 8.3.4 Based on these facts and precedents, the learned AR argued that all the prohibitory orders in the appellant’s case were invalid in law. Therefore, the corresponding panchanamas dated 05.04.2021 and 20.04.2021 drawn upon revocation of such orders cannot be treated as continuation of search or taken into consideration for computing limitation period under section 153B(1)(a) and (b) of the Act. The date .

Page 10 of 145 of the last valid panchanama recording the conclusion of search was 20.02.2021, which falls in the financial year 2020-21. Accordingly, the time limit for completion of assessment for A.Y. 2020-21 expired on 31.03.2022 and, as per the sixth proviso to section 153B(1), for A.Y. 2021-22 expired on 30.09.2022. Since the assessment orders were passed only on 24.11.2023 and 28.11.2023, the learned AR submitted that they are clearly barred by limitation and liable to be quashed as invalid in law. 8.4 The fourth limb of argument of the learned AR on the issue of assessment being time barred is that the revocation of the prohibitory orders issued under section 132(3) of the Act was done beyond the period of one month, which is in violation of the binding instruction of the CBDT. Therefore, the panchanamas drawn during the second visit in April 2021, after more than forty days from the date of the prohibitory orders, cannot be taken into consideration for computing the limitation under section 153B of the Act. 8.4.1 The ld. AR referred to paragraph 3.117 of the Search & Seizure Manual, 2007 (Volume-1) issued by the Directorate of Income Tax, wherein the CBDT had directed that search and seizure work should be completed as early as possible, and any restraint order issued under section 132(3) of the Act should be revoked within one month from the date of such order. The learned AR also referred to CBDT Instruction F No. 286/57/2002-IT (Inv-II) dated 03.07.2002, which clearly states that search and seizure operations should be completed quickly and any prohibitory order under section 132(3) should be lifted within one month from the date of passing the order.

Page 11 of 145 8.4.2 The ld. AR submitted that these CBDT instructions are benevolent in nature and meant to protect the rights of the assessee by preventing unnecessary prolongation of restraint orders. They are binding on all income-tax authorities as per section 119(1) of the Act and the settled law laid down by the Hon’ble Supreme Court in several cases, including UCO Bank v. CIT (1999) 104 Taxman 547 (SC) and Catholic Syrian Bank v. CIT (2012) 18 Taxmann.com 282 (SC). The learned AR emphasized that circulars and instructions issued by the Board are binding on the tax authorities and cannot be ignored, especially when they grant administrative relief to the taxpayer. 8.4.3 It was pointed out that in the case of the appellant, the prohibitory orders under section 132(3) of the Act were issued on 19.02.2021 and revoked only on 05.04.2021 and 20.04.2021, well beyond the one-month period prescribed by the CBDT instruction. This delay of about more than 40 days is contrary to the binding directions of the Board. Therefore, the revocation of the prohibitory orders and the panchanamas drawn thereafter are invalid in law. The ld. AR also cited the ruling of the ITAT, Visakhapatnam Bench in Polisetty Somasundaram v. DCIT (2023) 153 Taxmann.com 591, which held that if the prohibitory order is not lifted within the one-month period as prescribed by CBDT, the panchanama drawn thereafter becomes invalid and cannot be used to extend the limitation period for assessment. 8.4.4 Based on these facts and legal precedents, the ld. AR argued that the date of the last valid panchanama should be considered as 20.02.2021, which was the date when the search actually concluded. Since this date falls in F.Y. 2020-21, the limitation for completion of assessment for A.Y. 2020-21 expired on 31.03.2022, and for A.Y. 2021- .

Page 12 of 145 22 on 30.09.2022, as per the sixth proviso to section 153B(1) of the Act. Therefore, the assessments completed on 24.11.2023 and 28.11.2023 are clearly barred by limitation and are void ab initio. 8.5 The ld. AR concluded by praying that the Hon’ble Tribunal may kindly hold that the assessments made for A.Ys. 2020-21 and 2021-22 are invalid in law as they were completed beyond the period of limitation prescribed under section 153B of the Act, and accordingly, the same may be annulled.

Page 13 of 145 executed on the conclusion of the search as recorded in the last panchanama drawn in relation to the person searched. 9.1.1 The learned DR contended that the statutory phrase “on the conclusion of the search as recorded in the last panchanama” is unambiguous and has to be read literally. It means that the search is deemed to be completed only when the final panchanama is drawn and not earlier. In the present case, though the initial search operations were carried out in February 2021, the authorised officer had issued prohibitory orders under section 132(3) of the Act in respect of certain documents and materials which could not be immediately examined. Those Prohibitory orders were legally valid and formed an integral part of the ongoing search proceedings. The revocation of such Prohibitory orders took place on 20.04.2021, and on that date the last panchanama was drawn. Therefore, the search was concluded only on 20.04.2021, and not on 20.02.2021 as claimed by the assessee. 9.1.2 The learned DR further argued that the assessee’s contention that the search should be treated as concluded when the search team left the premises is contrary to both statutory provisions and judicial pronouncements. The search does not automatically end when the search party exits the premises if prohibitory orders under section 132(3) of the Act are in force. Such orders effectively continue the search because they restrict the movement and handling of books, documents or assets until further orders. The revocation of the prohibitory order signifies the completion of the search process. Hence, the computation of limitation starts from the end of the financial year in which the search actually concluded, that is, the financial year 2021–22.

Page 14 of 145 9.1.3 The learned DR supported this interpretation by referring to the landmark judgment of the Hon’ble Supreme Court in the case of VLS Finance Ltd. vs. CIT (2016) 68 taxmann.com 368 (SC) and in case of Shri Anil Minda vs. CIT reported in 148 taxmann.com 407. In those cases, the Hon’ble Apex Court categorically held that the limitation period for completing a block assessment under the then section 158BE (which is in pari materia with section 153B of the Act) must be reckoned from the date of the last panchanama drawn during the search proceedings. The Hon’ble Supreme Court also affirmed that multiple visits or temporary suspensions of search operations do not invalidate the search process, and that the final panchanama marks the true conclusion of the search. The Hon’ble Court clarified that the existence of restraint orders under section 132(3) of the Act keeps the search proceedings alive until such restraint is lifted. 9.1.4 The learned DR also relied on the decision of the Hon’ble Delhi High Court in VLS Finance Ltd. (2007) 159 Taxman 102 (Delhi) and reiterated that searches can be temporarily concluded for practical and logistical reasons, and there is no legal bar to the same warrant being executed on multiple occasions until the search is finally completed. The concept of “temporary conclusion” is a matter of administrative convenience and does not signify the end of the search. 9.1.5 The learned DR further argued that the assessee’s reliance on earlier Hon’ble High Court decisions such as C. Ramaiah Reddy vs. ACIT (2012) 20 Taxmann.com 781 (Kar.) is misplaced and unsustainable in view of the binding judgment of the Hon’ble Supreme Court in VLS Finance Ltd. (Supra) and Anil Minda (supra). Further as per submission of the assessee itself, appeal filed by the revenue against decision of .

Page 15 of 145 Karnataka High court in C. Ramaiah Reddy(supra) in civil appeal 2734/2013 was dismissed in limine by the Hon’ble Supreme Court due to low tax effect. Hence, the view taken in C. Ramaiah Reddy(supra) does not constitute a binding precedent under Article 141 of the Constitution of India. Therefore, the reliance placed by the assessee on such decisions is both factually and legally incorrect. 9.2 Regarding the second limb of argument advance by the assessee, the learned DR submitted that the assessee’s interpretation of section 153B(1) of the Act, is erroneous. The assessee has argued that the year in which the last authorisation for search was executed should be treated as the “search year” for determining the limitation period for assessment. However, the learned DR contended that section 153B(1) of the Act only prescribes the time limit for completing the assessment and does not define what constitutes a “search year.” The term “search year” is derived from the scheme of section 153A of the Act, which specifically refers to the year in which the search is initiated under section 132, and not the year in which it concludes. 9.2.1 The learned DR explained that interpreting the “search year” as the year of execution of the last authorisation, as suggested by the assessee, would lead to an incorrect conclusion. It would ignore the fact that the search begins when the first entry is made into the premises under a valid warrant. It would be illogical to say that the search did not occur in the year in which the search proceedings actually commenced. The date of execution of the last authorisation can only signify the conclusion of the search, but the “search” itself is initiated much earlier. Therefore, the assessee’s argument that the date of the last authorisation determines the search year is misplaced.

Page 16 of 145 9.2.2 To clarify this interpretation, the learned DR referred to the provisions of section 153A of the Act. Section 153A(1) clearly states that where a search is initiated under section 132 or where assets are requisitioned under section 132A of the Act, the AO shall issue notice requiring the person to file returns for six preceding assessment years and for the relevant assessment year corresponding to the previous year in which such search is conducted or requisition is made. The provision uses the phrase “search is initiated” and not “search is concluded.” This makes it clear that for the purpose of assessment, the determining event is the initiation of the search, not its conclusion. 9.2.3 The learned DR further explained that the phrases “initiated under section 132” and “requisitioned under section 132A” both refer to the first action taken under those provisions, which is the issuance and execution of the first warrant of authorisation. These terms do not refer to the conclusion or the last step of the search operation. The language used in the second proviso to section 153A of the Act further reinforces this point. It states that any pending assessment or reassessment for the relevant years shall abate from the “date of initiation of the search” and not from the date of completion. This statutory language unambiguously establishes that the initiation date is the decisive point for determining the “search year.” 9.2.4 The learned DR stressed that the statute itself provides clarity on this matter, leaving no ambiguity. The date of initiation of the search under section 132 or requisition under section 132A is the correct and lawful date for reckoning the “search year.” The “search assessment year” must therefore correspond to the financial year in which the .

Page 17 of 145 search was initiated, not the year in which the last authorisation was executed. 9.2.5 The learned DR concluded that the AO has correctly adopted the date of initiation of the search as the basis for determining the search year. The approach followed by the AO is consistent with the statutory provisions and the legislative intent. Therefore, the interpretation advanced by the assessee, which relies on the year of the last authorisation, is contrary to the scheme of the Act and cannot be accepted. 9.3 The learned DR in the THIRD limb of argument also clarified that the issuance of prohibitory orders under section 132(3) of the Act was done strictly in accordance with law. The provision allows the authorized officer to issue restraint orders when it is not practicable to seize certain documents or materials immediately. The term “practicable” covers a broad range of circumstances including volume of material, time constraints, security conditions, or any other reasonable cause. Therefore, such an order is a legitimate extension of the search process and not a separate or independent proceeding. The subsequent revocation of the prohibitory order and drawing of the last panchanama are necessary procedural acts that mark the completion of the search. With regard to the 4th Limb of argument of the ld. AR, the 9.4 learned DR submitted that the appellant has relied upon a CBDT instruction as part of its fourth limb of argument. However, it was clarified that the circular referred to by the appellant was issued in a completely different context. The said circular was applicable to the provisions of section 132(8A) of the Act as they stood prior to the amendment brought by the Finance Act, 2002. The amendment came .

Page 18 of 145 into effect from 01.06.2002 and significantly altered the scope and time limits under the section. Therefore, the appellant’s reliance on the earlier circular is misplaced. 9.4.1 The learned DR explained that before the amendment, section 132(8A) allowed an order passed under section 132(3) to remain in force for 60 days from the date of the order, and the authorised officer could extend the period beyond 60 days with approval from higher authorities. The provision was later amended to restrict the duration strictly to 60 days without any unlimited extension power. Hence, after the amendment, the earlier circular could not hold any relevance or legal value in interpreting the post-amendment provision. 9.4.2 The learned DR further clarified that the CBDT Circular No. F.No.286/57/2002-IT (Inv.II) dated 03.07.2002 was issued only to address issues arising under the pre-amendment regime where such extensions were permissible. The circular was administrative in nature and intended to guide departmental officers for internal compliance and planning. It did not confer any new power or override the statutory limitation fixed by the amended provision. 9.4.3 It was also pointed out that the circular referred to by the appellant pertained to orders under section 132(2) of the Act, whereas the present case concerns an order passed under section 132(3) of the Act. The learned DR stressed that the appellant has misunderstood the context and scope of the instruction. The CBDT circulars and instructions are meant for administrative guidance and cannot override or modify the provisions of the Income-tax Act. 9.4.4 The learned DR submitted that when the statute itself prescribes a 60-day limit, any 30-day time frame mentioned in the instruction can .

Page 19 of 145 only be considered as an internal target for administrative convenience. Such a circular or instruction cannot have a binding legal effect that supersedes or modifies the statutory mandate. Although circulars or instruction issued by the CBDT carry administrative authority, they cannot replace or rewrite the provisions of law enacted by Parliament. 9.4.5 The learned DR emphasized that the interpretation of the appellant is contrary to the legislative intent and the express wording of section 132(8A) of the Act as amended. The law clearly sets out the period of limitation and conditions for extension, leaving no room for administrative flexibility beyond what is stated in the statute. The CBDT circulars/instructions must be read in harmony with the Act and cannot be used to challenge or dilute the statutory provisions. 9.4.6 In conclusion, the learned DR submitted that the appellant has grossly misinterpreted both the statute and the instruction. The instruction referred to does not apply to orders under section 132(3) of the Act, and even otherwise, it cannot alter the time limit prescribed under the Act. Therefore, the appellant’s argument based on the said instructions has no merit and deserves to be rejected. 9.5 In view of the above the learned DR stressed that the AO correctly reckoned the limitation period from the end of the financial year 2020-21 and 2021–22, i.e., 31.03.2022. In terms of the third proviso to section 153B(1) of the Act the AO had a period of twelve months from the end of that financial year 2021-22 to complete the assessment excluding the time taken for obtaining the valuation report from the DVO under section 142A of the Act and the time taken on account of reference to the PCIT. Accordingly, the assessments .

Page 20 of 145 completed on 24.11.2023 and 28.11.2023 for AYs 2020–21 and 2021–22 respectively were well within the statutory time limit. 9.6 The learned DR concluded by submitting that the assessee’s arguments are based on a misinterpretation of law and an incorrect understanding of the search procedures. The limitation period has been computed strictly as per the provisions of the Act and judicial precedents. Therefore, the plea of the assessee that the assessments are barred by limitation is devoid of any merit and deserves to be rejected. The assessments made by the Assessing Officer are valid, lawful, and within the time prescribed under section 153B of the Act.

Page 21 of 145 11.2 The provision of section 153B(1) of the Act lays down the time limit for completion of assessment in search cases. The limitation is to be reckoned from the end of the financial year in which the last authorisation for search was executed. Sub-section (2) of section 153B of the Act provides that an authorisation shall be deemed to have been executed on the conclusion of the search as recorded in the last panchnama drawn in relation to the person searched. Hence, the conclusive event for determining limitation is the drawing of the last panchnama evidencing completion of search. 11.3 In the present case, the search operations at the assessee’s premises were carried out on 19.02.2021 and 20.02.2021. During this process, certain materials and documents were put under restraint through prohibitory orders under section 132(3) of the Act. Those restraint orders were revoked later on 20.04.2021, and a final panchnama was drawn on that date. The controversy, therefore, centers on whether the search is deemed to have concluded on 20.02.2021 (as claimed by the assessee) or 20.04.2021 (as contended by the Revenue). 11.4 The assessee contends that the search was concluded when the search team finally left the premises on 20.02.2021 and that any later visit to revoke restraint orders was merely administrative and cannot be treated as continuation of the search. In this regard reliance is placed on the decision of the Hon’ble Karnataka High Court in C. Ramaiah Reddy v. ACIT (supra). 11.5 In that case (C. Ramaiah Reddy), the search was initiated at the assessee’s premises on 5th December 1995, and the search team left on the same day after seizing certain documents and assets. However, a prohibitory order under section 132(3) was issued in respect of certain .

Page 22 of 145 jewelleries, books of account, etc., found at the time of search. Later on, on January 24, 1996, the authorised officer prepared one more panchnama in which, the prohibitory order passed under section 132(3) on December 5, 1995, was lifted. The books of account, jewelleries, etc., which were earlier kept under the prohibitory order were released and no seizure was made on that day. Thereafter the block assessment order was passed as on 28th January 1997. The Department contended that the search concluded on 24th January 1996 as last panchmana was drawn on that date and considering the last panchnana the assessment order was passed well within the statutory time limit. However, the Hon’ble Karnataka High Court, held that the limitation for completing a block assessment runs from the end of the month in which the last authorization for search under section 132 is executed, as evidenced by the last panchnama recording the conclusion of the search. The law contemplates more than one authorisation, but for limitation purposes, only the execution of the last one is relevant. It was further observed that a search must be carried out continuously and concluded in one stretch; it may extend beyond a single day or even occur on holidays, but once the search party leaves the premises with the seized materials, the search stands completed and the authorization is fully executed. The authorized officer cannot keep the premises open for fresh or repeated searches by visiting over a time. In cases where physical seizure is impractical due to volume, weight, or other characteristics, the officer may pass a prohibitory or restraint order, but such orders cannot be used to extend the limitation period. After the search concludes, the officer may revisit only to inspect items covered by these orders and, if necessary, seize them; however, such subsequent inspections do not .

Page 23 of 145 amount to new searches and do not reset the limitation clock. The detailed finding is recorded in para 63 to 80 of the said order, the relevant portion is reproduced as recorded in para 76 to 77 of the said order here under: 76. Once the authorised officer enters into the premises and conducts search, the search gets concluded when he comes out of the premises as evidenced by the panchnama. In the course of the said search he may seize any books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of search. In the course of search he has been vested with the power to break open any room in the premises, any locker in the premises, any almirah or where it is not possible or practicable to take physical possession, the second proviso to sub-section (1) of section 132 applies and pass a prohibitory order which amounts to a deemed seizure. In cases where sub-section (1) is not attracted, sub-section (3) provides for a restraint order which is not a deemed seizure. In the course of search if no incriminating material is found also, the search comes to an end. These are the four contingencies that can normally happen after the authorised officer enters the premises, before comes out of the premises. It is in the course of search those materials were considered and such orders were passed. Even in respect of the subject-matter of those two orders the search comes to an end when the authorised officer comes out of the premises. Once he comes out, the authorisation comes to an end. On the basis of the same authorisation he cannot enter the premises again for search. If he wants to search again he has to obtain another authorisation. However, in law he is entitled to enter the premises again, not for the purpose of search, but only for the purpose of inspection of the subject-matter of either the prohibitory order or the restraint order. When he enters the premises again, he has no jurisdiction to look into any other material except those materials which are the subject-matter of a prohibitory order or a restraint order. As he is not entering the premises again with the intention of making a search of the premises, the authorisation contemplated under section 132(1) of the Act is not necessary. However, when he inspects the materials which are the subject- matter of these two orders it is done in furtherance of the search conducted when he entered the premises by virtue of the authorisation granted under section 132(1) of the Act. He can after such inspection seize any incriminating materials which disclose undisclosed income for the purpose of block assessment under Chapter XIV of the Act. Merely because one more panchnama is drawn evidencing seizure of any material in the course of such inspection that cannot be construed as a last panchnama referred to in Explanation (2) to section 158BE. When once a warrant of authorisation has been issued for search before it is concluded as evidenced by the panchnamas, what is to be recorded in the panchnama is as under : (1) Whether the authorised officer entered and searched the premises ?

(2) Broke open the lock of any door, box, locker, safe, almirah, etc. ? (3) Searched any person as provided under clause (iia) of sub-section (1) of section 132 ? (4) Afford the authorised officer necessary facility to look into the electronic record as provided under clause (iib) of sub-section (1) of section 132 ? (5) Seized any book of account, other documents, money, bullion, jewellery, etc. ? (6) Placed any marks of identification, on any books of account, other documents, etc. ? (7) Made a note of or an inventory of any such money, bullion, jewellery, other valuables, etc. ? (8) Whether any prohibitory order made under the second proviso to sub- section (1) of section 132 amounting to deemed seizure ? (9) Whether any restraint order passed under sub-section (3) of section 132 ? (10) Whether nothing incriminating material is found and no seizure is made ?

11.6 The learned AR, relying on the above, argued that the situation here is identical. The search stood concluded when the search party first .

Page 25 of 145 left the premises i.e. 20.02.2021. The prohibitory orders under section 132(3) of the Act were lifted after two months merely for inspection, and hence the last valid panchnama evidencing completion of search is 20.02.2021. 11.7 On the contrary, the learned DR relied on the judgments of the Hon’ble Supreme Court in VLS Finance Ltd. v. CIT (2016) 68 taxmann.com 368 (SC) and Anil Minda v. CIT [2023] 148 taxmann.com 407 (SC), which are directly on the point and binding. 11.8 In VLS Finance Ltd. (supra), the authorisation for search was issued on 19nd June 1998 based on which the search was commenced on 22nd June 1998 which went up to morning hour of 23rd June 1998 and panchnama was drawn with the remark temporary concluded. The impugned search was followed by various visit by the search team which went on till 5th August 1998 on which date last panchnama was drawn for conclusion of search. The question before the Hon’ble Supreme Court that from which date the period of limitation is to be counted, i.e. from 22nd June, 1998 when the respondent authorities visited the premises of the appellants on the basis of Warrant of Authorisation dated 19th June, 1998 or 5th August, 1998, on which date the Revenue authorities last visited the premises of the appellants on the basis of the same Warrant of Authorisation dated 19th June, 1998 and conducted the search of the appellants premises. The Hon’ble Supreme court in these facts observe that the assessee has not challenged the subsequent visit of the search team on ground of absence of fresh search. Therefore, the Hon’ble Supreme court without going into the validity of subsequent visits by the search party held that the limitation period shall be computed from that date on which last panchnama was drawn which was drawn on 5th .

Page 26 of 145 august 1998. Accordingly, the Hon’ble Supreme Court upheld the Revenue’s contention and ruled that the last panchnama drawn during the execution of the authorisation is conclusive for determining limitation. The relevant observation of the Hon’ble Supreme Court is extracted here under: 27. We may point out that the appellants never challenged subsequent visits and searches of their premises by the respondents on the ground that in the absence of a fresh authorisation those searches were illegal, null and void. Notwithstanding the same, it was argued that at least for the purpose of limitation the subsequent searches could not be taken into consideration, as according to the learned counsel, the legal position was that the authorisation dated 19th June, 1998, was executed on 22nd June, 1998 and the search came to an end with that when the search party left the premises on 23rd June, 1998 after making seizure of certain documents etc and issuing restraint order under Section 132(3) of the Act in respect of certain items which they allegedly could not seize due to impracticability on that day. Some judgments of various High Courts are relied upon to support this proposition. It was also argued that there was no concept of 'revalidation of authorisation' provided under the Act, which has been applied by the High Court in the impugned judgment, which according to the learned counsel for the appellants, amounts to legislating a new concept which is contrary to law.

28. The learned Additional Solicitor General, refuting the aforesaid contention, submitted that as per explanation (2) to Section 158BE, when it is a case of search, period of limitation is to be counted 'on the conclusion of search as recorded in the last panchnama drawn.......' It was argued that last panchnama was admittedly drawn on 5th August, 1998 and, therefore, period of limitation is to be counted from that date.

11.9 Similarly, in Anil Minda v. CIT (supra), there were two search authorization being first dated 13th March 2001 and 2nd dated 26th March 2001. With respect to first authorisation, the search was conducted on multiple date and finally concluded on 11th April 2001 when the last panchanama was drawn. On the other hand, the search dated 26th March 2001 was concluded on same day i.e. 26th March 2001. The assessee relying on the decision of Hon’ble Karnataka High Court in C. Ramaiya Reddy (supra) contended that as per the provisions of the Act last authorization would be the starting point of limitation. It was .

Page 27 of 145 submitted that even if the first authorization dated 13-3-2001 was executed on a later date i.e., on 11-4-2001, that would be of no consequence and for the purpose of reckoning the limitation period, the first authorization is irrelevant and it is the "last of the authorization" dated 26th March 2001 has to be kept in mind. However, the Hon’ble Supreme Court rejected the assessee’s contention and affirmed the view taken in VLS Finance Ltd. (supra) that the last panchnama drawn during the execution of the authorisation is conclusive for determining limitation. 11.10 After considering the principles from the above decisions and facts on record, we note that in the present case, the search was actually concluded on 20.02.2021, when the authorised officer finally left the premises after completing the physical search. On that date, a panchnama was drawn, and all acts of search under section 132(1) of the Act were completed. The later visit on 20.04.2021 was only for lifting the prohibitory order under section 132(3) of the Act and for inspection of items already covered by such restraint/prohibitory order. No further search activity was carried out on that date. This visit was not supported by a fresh authorisation. It was only a consequential administrative act. 11.11 We find that the ratio of the Hon’ble Karnataka High Court in C. Ramaiah Reddy (supra) squarely applies to the facts of the present case. The High Court has clearly held that where a prohibitory order is revoked later, the subsequent panchnama evidencing such revocation is not a “last panchnama” for the purpose computation of limitation under section 153B of the Act. The search is deemed to have concluded when the authorised officer first leaves the premises after completing search .

Page 28 of 145 actions. Any later inspection of restrained items does not extend the limitation period. 11.12 The Revenue has relied upon the decision of the Hon’ble Supreme Court in VLS Finance Ltd (supra). However, the facts of that case are materially different. In VLS Finance, the assessee never challenged the validity of the subsequent visits by the search team. The Hon’ble Supreme Court itself noted this fact in para 27 of the order. The Hon’ble Court therefore proceeded on the footing that the later visits formed part of the same continuing search. Importantly, the Hon’ble Supreme Court did not examine whether the subsequent visits were legally valid acts of search in the absence of a fresh warrant. The Hon’ble Court merely applied Explanation 2 to section 158BE on the peculiar facts of that case. 11.13 In contrast, the assessee before us has consistently argued that the later visit on 20.04.2021 was not a search action but only an inspection to lift the restraint/prohibitory order. The factual foundation in VLS Finance Ltd (supra) is therefore not comparable. The principle laid down by the Hon’ble Karnataka High Court in C. Ramaiah Reddy (supra) directly applies here and is not diluted by principles laid in VLS Finance Ltd(supra). 11.14 The Revenue also referred to Anil Minda (supra). That case is also distinguishable and dealt with a different factual matrix. In the said case there were two different search authorisations (13.03.2001 and 26.03.2001) and the issue before the Hon’ble Supreme Court was which of these authorisations was the “last of the authorisations” for the purpose of computing limitation. Further there was no prohibitory order or restraint order involved in that case. There was no revocation of any .

Page 29 of 145 restraint, no inspection under section 132(3) of the Act, and no later panchnama drawn merely to lift such order.

11.15 Thus, the entire reasoning in the case of Anil Minda (supra) was based on execution of multiple warrants, not on the legal effect of revoking a restraint order. In the present case, there is only one authorisation, and the later visit was solely for lifting the section order passed under section 132(3) of the Act. Therefore, in our considered view application of principle of Anil Minda (supra) to the present facts would be wholly inappropriate. 11.16 We also note that the coordinate bench of Mumbai Tribunal in recent case of Index Logistics Pvt Ltd vs. ACIT in 3346, 3362, 3362 & 3360/Mum/2023 where identical facts were involved has decided the issue in assessee’s favour after placing reliance on the ratio of Hon’ble Karnataka High Court in C. Ramaiah Reddy (supra). The coordinate bench also distinguishing the judgment of Hon’ble Supreme court in VLS Finance Ltd. (supra) and Anil Minda(supra). 11.17 In view of the above detailed discussion, we hereby hold that the valid and legally recognised last panchnama evidencing conclusion of search is the one drawn on 20.02.2021. On the contrary, the panchnama dated 20.04.2021, drawn only for lifting the section 132(3) restraint, is not a panchnama of search for the purpose of limitation. Consequently, we hold the assessments framed for AYs 2020-21 and 2021-22, being beyond the period prescribed under section 153B of the Act, are time- barred. Hence the argument advance by the learned AR of the assessee under First limb is hereby allowed.

12.3 On a plain reading of sections 153A of the Act, we find that the statute consistently uses the expression “search is initiated under section 132” and not “search is concluded” or “last authorisation is executed.” Section 153A(1) of the Act specifically mandates that where a search is initiated under section 132, the AO shall issue notice requiring the assessee to furnish returns for six preceding assessment years and for the assessment year relevant to the previous year in which such search is conducted. The term “search is initiated” is thus determinative of the starting point for the block of assessment years covered under section .

Page 31 of 145 153A of the Act. The second proviso to section 153A of the Act also makes it clear that any pending assessment or reassessment shall abate from the date of initiation of the search, leaving no scope to treat the conclusion date as relevant. 12.4 The language of section 153B(1) of the Act also supports this interpretation. The provision only prescribes the time limit for completing assessments and does not redefine what constitutes a “search year.” Therefore, the determination of the “search year” must necessarily flow from section 153A of the Act, which identifies the initiation of search as the decisive event. Once the search is initiated by execution of the first authorisation, all further actions, including subsequent authorisations, are part of the same search proceeding and do not extend or alter the original point of initiation. 12.5 We also find merit in the Revenue’s submission that adopting the assessee’s interpretation—where the last authorisation determines the search year—would lead to administrative uncertainty and potential misuse. If every subsequent authorisation or minor action is treated as determining a fresh “search year,” it would indefinitely extend the limitation period, defeating the very object of the limitation provision under section 153B of the Act. The legislative intent is to provide certainty by linking the limitation period to a single, definite even i.e. last of authorisation as recorded in the last panchnama drawn for the initiation of the search. 12.6 As regards the assessee’s reliance on the sixth proviso to section 153B(1) of the Act, inserted by the Finance Act, 2022, we note that the proviso only deals with the extension of time limits for searches executed during the financial year 2020–21 in the special context of .

Page 32 of 145 pandemic-related constraints. It does not alter or redefine the concept of “search year.” The proviso merely clarifies the extended timeline for completion of assessments in cases where searches were initiated or concluded in FY 2020–21. It cannot be read to mean that the date of the last authorisation overrides the date of initiation as the relevant reference point. 12.7 We further observe that the CBDT Circular No. 23/2022 dated 03.11.2022, relied upon by the assessee, explains the legislative intent behind the insertion of the proviso. The circular nowhere suggests that the date of the last authorisation should be treated as the determining factor for fixing the “search year.” Rather, it focuses on easing compliance difficulties for cases where searches during FY 2020–21 left limited time for completion. Hence, the assessee’s interpretation is misplaced. 12.8 Considering the above statutory framework and the consistent use of the expression “search is initiated” across sections 153A of the Act, we hold that the financial year in which the first authorisation was executed and the search was initiated is the correct “search year.” The limitation period as prescribed under section 153B of the Act work in different parlance and it has no linking to determination of search year. The provision of section 153B(1) and section 153B(2) of the Act prescribe that in assessment in consequence search shall finalise within 12 Month, 18 Month or 21 Month as the case may be from the end of financial year in which last of authorisation is executed as recorded in last panchnama drawn. In normal circumstances, it is quite possible search initiated in any particular financial year will be concluded in the next financial year. Hence in our considered view the “search year” shall .

Page 33 of 145 be the year in which search first conducted not the year in which search finally concluded. However, the limitation period as prescribed under section 153B of the Act shall be reckoned from the year in which search was finally concluded. 12.9 Be that as may be, at this stage we restrain ourselves from giving final verdict whether the assessment is time-bared or not. As the assessee in the first and next limbs of arguments has challenged the validity of the Prohibitory order and revocation of prohibtory order after prescribed time limit. Fist limb of argument is already in favour of the assessee. If the outcome of the next limbs or argument is decided in favour of the assessee, then the observation made under this limb will become infructuous.

Page 34 of 145 because of paucity of time or convenience. The provision is intended for situations where seizure is genuinely impossible for the reasons such as due to size, weight, danger, or legal restrictions. In holding so, we draw support and guidance from the judgment of Hon’ble Karnataka High Court in the case of C. Ramaiah Reddy v. ACIT (2012) 20 taxmann.com 781. The relevant observation of the Hon’ble high court is extracted as under: 71. A search is a thorough inspection of a man's house, building or premises or of his person, with the object of discovering some material which would furnish evidence of guilt for some offence with which he is charged. It implies a prying into hidden places for that which is concealed. When once the search starts it can go on continuously day or night, rain, or shine. There is no bar for the operation to continue on holidays. It is possible, in a given case, due to the volume of the place to be searched or on account of the volume of the articles to be seized, it may not be possible to complete the search within 24 hours. In which event, there is no prohibition to continue search beyond 24 hours and in such an event, the search would come to an end only after the search is completed may be 48 hours or 72 hours, but the search should be continued without any interruption.

Page 35 of 145 (c) other physical characteristics ; and (d) due to being its dangers nature.

74. Therefore, the law recognizes such a situation and has provided a remedy to tackle such problems. The authorised officer has been given a discretion for the reasons to be recorded in writing to pass a restraint order in respect of the articles, books and other material which he could not take physical possession of, i.e., by making an inventory and leaving it to the custody of the assessee and directing him not to part with the same without his permission.

75. Similarly, in circumstances not covered under those provisions, it is open for him to pass a prohibitory order under sub-section (3) not amounting to seizure which order will be in force for a period of 60 days after securing the possession of the materials, articles, etc., in the aforesaid manner. Action under section 132(3) of the Income-tax Act can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seize the item, if he is of the view that it represented undisclosed income. Power under section 132(1)(iii) of the Income-tax Act thus cannot be exercised, so as to circumvent the provisions of section 132(1)(iii) read with section 132(1)(v) of the Income-tax Act. 13.3 Similarly, the Hon’ble Bombay High Court in the case of CIT Vs. Sandhya P Nair (2002) 124 Taxman, 384(Bombay) held that the prohibitory order placed under section 132(3) of the Act as invalid. The relevant finding of the Hon’ble court reads as under: In the present case, the cupboard in which 45 kgs. of silver articles were kept was sealed by making an order under section 132(3). The authorised officers were obviously very much aware of the contents of the cupboard and the nature of the articles in view of the inventory made by them. They had also came to the conclusion that the said 45 kgs. of silver articles need not be seized. There was no practical impediment to seizure of the said 45 kgs. of silver, if it was considered by the authorised officer as necessary. The contention of the department that it was not practical to seize huge quantity of silver at odd hours, was rightly held to be untenable by the Tribunal, because at the same odd hour, the search party seized and removed from the premises of the assessee 5,729 gms. of gold ornaments, cash of Rs. 1,69,000 and books of account weighing nearly 500 kgs. On 26-10-1996, 6 kgs. of silver articles in the said cupboard were released, a panchanama was made and a further order under section 132(3) was passed with respect to the said sealed cupboard and the seal was placed again. Thus, the Tribunal had rightly held that the proceedings on 26-10-1996 could not be considered as part of the execution of the search proceedings which concluded on 20-10-1996. Indeed, by simply stating in the panchanama that the search was temporarily suspended, the authorised officer could not keep the search proceedings in operation by passing a restraint order under section 132(3).

Action under section 132(3) can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty, the officer is left with no other alternative but to seize the item, if he is of the view that it represents the undisclosed income. Power under section 132(3), thus, cannot be exercised so as to circumvent the provisions of section 132(3), read with section 132(5). The position has become much more clear after the insertion of the Explanation to section 132(3) effective from 1-7-1995, that a restraint order does not amount to seizure. Therefore, by passing a restraint order, the time-limit available for framing of the order cannot be extended. As regards the order passed on 13- 12-1996, the officer concerned, on his own admission, had no locus standi in the matter. Moreover, the panchanama made on that date had many defects as admitted by the department itself.

13.4 In the present case, the materials kept under restraint were documents and papers, which are easily portable and could have been seized immediately. The Revenue has not produced any note or reason recorded by the authorised officer establishing why such seizure was impracticable. This absence of justification makes the restraint orders arbitrary and invalid. 13.5 Accordingly, we hold that the prohibitory orders issued under section 132(3) of the Act in the present case were not in conformity with law. Therefore, the panchnama dated 05-04-2021 and 20-04-2021 on the date of revocation of impugned invalid prohibitory order cannot be relied upon for extending the limitation period. Therefore, the third limb of the assessee’s argument is allowed. Hence, we hold that as per the provision of section 153B(1) r.w. provisos therein, the assessment order for A.Y. 2020-21 and 2021-22 was required to completed on or before 31st March 2022 and 30th Septembers 20222 respectively. However, in the present case the assessment order for A.Ys. 2020-21 and 2021-22 was passed as on 24th November 2023 and 28th November 2023 respectively which is passed beyond statutory time limit and not maintainable.

Board') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. {Refer to UCO Bank, Calcutta v. CIT [1999] 4 SCC 599{.

14.3 We also draw support and guidance from the judgment of Hon’ble Kerala High Court in the case of CIT vs. Punalur Papers Mills Ltd reported in 34 taxman 268, where it was held that the circular can afford administrative relief even beyond the relevant terms of the statute. The relevant finding of the Hon’ble High Court reads as follows: 4. We see no force in this plea. The Board of Revenue is competent to issue circulars under section 119 of the Act. The circulars so issued have got the force of law. All officers of the department are bound by the said circulars. The benevolent circulars issued by the Board are in the nature of administrative relief. They really 'supplant' the law. The circular can afford administrative relief, even beyond the relevant terms of the statute. It can deviate from the provisions of the Act. The Courts have held that such circulars are binding on the officers of the department. It is not open to the department to contend, even in cases where the circular goes beyond the terms of the section, that the circular has no legal effect or should not be given effect to. The circulars would go to the assistance of the assessees. It is settled law that the circulars cannot impose any burden on the taxpayer. But, by the issue of a circular, the rigour of the law can be relaxed by giving administrative relief. Apart from the fact that such circulars are binding on the officers of the department, even if the circulars are relied on for the first time in the High Court during the course of hearing, the assessee will be entitled to the benefit afforded by the circulars. The Court is bound to take note of the circular. These propositions are well settled by a series of decisions of the Supreme Court as well as the High Courts— 14.4 In the present case, the prohibitory orders under section 132(3) were issued on 19.02.2021 but were revoked only on 05.04.2021 and 20.04.2021. This clearly shows that the revocation was made after more than forty days, well beyond the one-month period prescribed by the .

Page 39 of 145 CBDT instruction. The delay in revocation is contrary to the binding direction of the Board, which the Investigation Wing were duty-bound to follow. The contention of the Revenue that the CBDT instruction was issued in the context of the pre-amended section 132(8A) of the Act cannot be accepted, since the language of the instruction clearly applies to all prohibitory orders under section 132(3) of the Act, and the purpose of the instruction is administrative discipline and protection of taxpayer rights, not interpretation of statutory provisions. 14.5 It is also relevant to note that the Hon’ble ITAT, Visakhapatnam Bench, in Polisetty Somasundaram v. DCIT reported in (2023) 153 taxmann.com 591, has held that where a prohibitory order under section 132(3) of the Act is not revoked within one month as per the CBDT’s directive, any panchanama drawn thereafter loses its legal validity and cannot be considered for computing limitation under section 153B of the Act. The relevant finding of the Tribunal in said case reads as follows: 26. In the instant case, the PO was released on 6-8-2020, which is beyond period of 30 days. The search party has therefore not followed the CBDT instruction dated 3-7-2002 even though it is binding on the department. We, therefore, respectfully following the judicial pronouncements, find force in the argument of the Ld. AR that even though section 132(8A) grants a time limit of 60 days for removing the restraint order, the limit specified by the CBDT, Instruction dated 3-7-2002 for a period of one month is binding on the Ld. Revenue Authorities. Accordingly, in the instant case, the period of limitation for removal of Prohibitory Order expires on 1-3-2020. The argument of the Ld. DR that it is only an Instruction and not a Circular could not be accepted due to the fact that the Hon'ble jurisdictional High Court have categorically held that the Authorities responsible for administration of the Act shall observe and follow any such orders, Instructions and Directions of the Board. The Act has empowered the Board u/s. 119 to issue Instructions to the subordinate Authorities. Section 119(1) of the Act is reproduced herein below for reference: ------ 27. In the instant case however, we find that the Authorities have not followed the Instructions of the Board issued by CBDT vide Instruction dated 3-7-2002. We therefore are of the considered view that since the Prohibitory Order has not been removed within the time limit specified by the CBDT Instruction (supra), the releasing of the Prohibitory Order on 6- 8-2020 and resultant Panchnama on 6-8-2020 becomes invalid in .

Page 40 of 145 law. On this count also we find that the period of limitation for the purpose of passing the assessment order commences from 31-1-2020 and should have been completed on or before 31-3-2021 which was further extended by Taxation and Other Laws Amendment (TOLA) to 30thSeptember, 2021. But, we find that the assessment order has been passed on 31-3-2022 which is bad in law.

14.6 The ratio of the said decision directly applies to the present facts, as the panchanamas drawn in April 2021 were clearly beyond the permissible time limit.

14.7 Once the CBDT instruction has the binding force of law under section 119(1), any action taken in violation of it renders the subsequent proceedings irregular and invalid. The Revenue authority cannot claim immunity by treating the instruction as merely advisory, when judicial precedents have consistently upheld the binding nature of CBDT circulars upon revenue authorities.

14.8 We therefore hold that the last valid panchanama in this case was drawn on 20.02.2021, when the actual search concluded. Any panchanama prepared thereafter, on the basis of belated revocation of restraint orders, cannot extend the limitation under section 153B of the Act. Consequently, the limitation for completion of assessment for A.Y. 2020-21 expired on 31.03.2022, and for A.Y. 2021-22 on 30.09.2022, as per the sixth proviso to section 153B(1) of the Act. The assessments completed on 24.11.2023 and 28.11.2023 are therefore barred by limitation and are invalid in law.

15.1 On these findings, we hold that since the prohibitory orders under section 132(3) were not validly issued and the search year was rightly in F.Y. 2020–21, the computation of limitation must be made from 31.03.2021. Accordingly, the assessments completed in November 2023 are barred by limitation under section 153B of the Act. The assessee, therefore, succeeds on this technical ground.

Page 42 of 145 17.1 The learned AR before us submitted that the assessment orders passed for Assessment Years 2020-21 and 2021-22 are bad in law and liable to be quashed, as the mandatory approval granted under section 153D of the Act, by the Additional Commissioner of Income Tax (Addl. CIT), was purely mechanical and without independent application of mind. 17.2 He explained that section 153D of the Act provides a statutory safeguard against arbitrary and unjust assessment orders in search cases. The purpose of this provision is to ensure that before the AO finalises an assessment under section 153A or 153C of the Act, a superior authority, i.e., the Joint or Additional Commissioner or additional commissioner, reviews the draft order independently and applies his mind to the facts, materials, and reasoning adopted by the AO. This mechanism is designed to introduce an additional layer of scrutiny and accountability in search assessments. 17.3 The learned AR submitted that in the present case, this legislative intent has been completely defeated. The ld. Addl. CIT, instead of performing an independent evaluation of the voluminous assessment records and seized materials, accorded approval in a perfunctory and routine manner. The AO submitted the draft assessment orders for six assessment years, from A.Y. 2015-16 to A.Y. 2020-21, to the Addl. CIT on 23.11.2023, and the Addl. CIT granted approval for all six assessments together the very next day, on 24.11.2023. Likewise, for A.Y. 2021-22, the draft order was submitted on 28.11.2023 which was approved on the same day. The ld. AR argued that it is humanly impossible for the Addl. CIT to have examined such large volumes of seized material, statements, and assessment records covering multiple .

Page 43 of 145 years dwithin one day. This clearly shows that the approval was mechanical and granted without any real application of mind. 17.4 It was further submitted that the letters of approval issued by the ld. Addl. CIT are totally silent on the factual or legal issues involved in the assessments. They do not refer to the seized documents, statements, or enquiries conducted by the AO. The letters merely state that approval is being granted u/s 153D and even direct the AO to “check returned income, 26AS reconciliation, penalty initiation etc.” before finalising the orders. Such directions prove that the ld. Addl. CIT had not verified these crucial aspects himself, thereby abdicated his statutory duty and relegated the responsibilities back to the AO. This shows that the approval was not an independent judicial act but a mere formality done to meet procedural compliance before the time-barring date. 17.5 The learned AR further pointed out that section 153D of the Act requires prior approval before passing the assessment order. Once such approval is granted, the AO is not empowered to alter or modify the order. Therefore, when the ld. Addl. CIT granted only conditional approval subject to further verification by the AO, it becomes clear that he had not examined the case materials at all. Such conditional or omnibus approval for multiple years together does not satisfy the legal requirement of section 153D of the Act, which mandates a separate and conscious approval for each assessment year after a thorough appraisal of the respective records. 17.6 He also submitted that the ld. Addl. CIT’s hasty action was driven purely by the pressure of limitation, as only two days were left for completing the assessments for A.Y. 2020-21 and less than one day for .

Page 44 of 145 A.Y. 2021-22. This shows that the approval was granted under severe time constraints, without any meaningful examination of facts. The ld. AR emphasised that the ld. Addl. CIT’s non-application of mind is also reflected in the assessment orders themselves, where certain additions— such as the disallowance of “building under construction” expenses— were made contrary to the facts on record, showing that even the approving authority had not noticed the basic accounting treatment. 17.7 The ld. AR relied on several judicial precedents to support his argument that mechanical approval under section 153D of the Act invalidates the assessment. He cited the decision of the Hon’ble Delhi High Court in the case of Principal CIT v. Anuj Bansal reported in 165 taxmann.com 2 Delhi, 2024, where it was held that approval granted by the ld. Addl. CIT without independent application of mind is invalid in law. The Hon’ble Supreme Court affirmed this view by dismissing the department’s SLP reported in 165 taxmann.com 3. He also relied in the case of Principal CIT v. Shiv Kumar Nayyar reported in 163 taxmann.com 9 Delhi HC, 2024, where it was held that granting approval for multiple cases on the same day or a single composite approval for several years clearly indicates mechanical exercise. Similarly, in the case of Principal CIT v. MDLR Hotels (P.) Ltd (Delhi HC, 2024), reported in 166 taxmann.com 327, the Hon’ble Court reiterated that the legislative intent behind section 153D of the Act is to ensure the superior authority applies his mind on the seized material before granting approval. 17.8 Further reliance was placed on the Hon’ble Allahabad High Court’s decisions in Principal CIT v. Subodh Agarwal (2023) reported in 149 taxmann.com 373 and Principal CIT v. Sapna Gupta reported in 147 taxmann.com 288 where it was held that the approval must be specific .

Page 45 of 145 for each year and cannot be omnibus or casual. The Hon’ble Court also observed that it is humanly impossible to examine multiple cases in one day and still claim to have applied an independent mind. 17.9 Based on these facts and legal principles, the ld. AR contended that the approvals granted by the ld. Addl. CIT on 24.11.2023 and 28.11.2023 were mechanical, lacked judicial application of mind, and were rendered merely to meet the time limit. Therefore, the assessment orders passed under section 153A read with section 143(3) of the Act for A.Ys. 2020-21 and A.Y. 2021-22 are invalid and bad in law for want of valid approval under section 153D of the Act.

Page 46 of 145 it is incorrect to assume that the ld. Addl. CIT becomes aware of the facts only at the time of receiving the draft assessment order. It is, in fact, a continuous process of supervision and monitoring, not a one-day exercise as alleged by the assessee. 18.2 The learned DR further submitted that section 153D of the Act does not require a detailed or descriptive written approval. The requirement of prior approval under this section is only an internal check mechanism to ensure that the AO’s proposed assessment is fair and reasonable, and not arbitrary. It is not meant to be a repetition or duplication of the AO’s work. The ld. Addl. CIT’s role is supervisory to ensure that the AO has properly appreciated the facts and law, examined all relevant materials, and prepared a justified assessment order. 18.3 He pointed out that the ld. Addl. CIT, while granting approval, also advised the AO to verify certain aspects such as returned income, 26AS reconciliation, and penalty initiation. These instructions do not show non-application of mind; rather, they are an additional layer of verification meant to ensure correctness and completeness of the assessment. The learned DR emphasised that such directions are routine and reflect due diligence and not mechanical approval. 18.4 The learned DR also clarified that the issuance of approval letters and assessment orders on a particular date does not mean that all assessments were prepared or approved mechanically on that single day. In the department’s administrative process, the formal approval and order issuance may occur together for record-keeping purposes, but the ld. Addl. CIT reviews facts and materials as an ongoing process .

Page 47 of 145 throughout the assessment. This is a practical and universal administrative system followed across quasi-judicial and judicial forums. 18.5 It was further argued that the allegations of mechanical approval are baseless and speculative. The assessee has not produced any evidence to prove that the ld. Addl. CIT did not apply his mind or failed to examine the records. The ld. DR submitted that the burden lies on the assessee to establish such claims with credible proof, which has not been done. On the contrary, the facts show that the ld. Addl. CIT was continuously involved in the assessment process and was in full knowledge of the seized materials, appraisal reports, and investigation findings. 18.6 The learned DR also highlighted that the provisions of section 153D of the Act are intended to maintain administrative efficiency and internal accountability, not to create unnecessary duplication of work between the AO and ld. Addl. CIT. The section ensures that the range head reviews and approves the assessments after being satisfied with the AO’s appreciation of facts and law. Therefore, the approval granted in this case was proper, legal, and valid. 18.7 In conclusion, the ld. DR submitted that the assessee’s argument is a mere afterthought, raised at a belated stage to escape the consequences of valid search assessments. The assessee has shown lack of understanding of the departmental procedures and has failed to discharge the onus of proving that the approval was mechanical. The approval under section 153D of the Act was given after due consideration of facts and materials on record and in conformity with law. Therefore, the contention of the assessee that the assessment .

Page 48 of 145 orders are invalid due to improper approval deserves to be rejected, and therefore, the ground of appeal should be dismissed.

18.8 Furthermore, the learned DR was afforded the opportunity to make submission upon the recent order of the Delhi Tribunal in case of Shri Kailash Gahlot vs DCIT in wherein the Tribunal vide order dated 24th October 2025 has held that approval under section 153D of the Act is an administrative and supervisory requirement, not a quasi-judicial sanction, and therefore it does not call for detailed reasoning or elaborate discussion in the approval note.

Page 49 of 145 20.1 The statutory framework under section 153D of the Act prescribes that “No order of assessment or reassessment shall be passed by an AO below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) … except with the prior approval of the Joint Commissioner.” Thus, the legislature has clearly cast a duty on the approving authority to examine the draft order, seized material, appraisal report (where applicable) and satisfy himself that the safeguards envisaged under sections 153A/153C are properly followed. This legislative framework was introduced as a safeguard so that search assessments are not left solely to the AO, but are vetted at a higher level after examining the seized material and proposed additions. Therefore, the approval must not a mere formality but it should an independent check. In practice, the AO must prepare a detailed draft assessment order for each assessment year, along with computation sheets, discussion of seized/incriminating material, appraisal report, questionnaires issued, replies of the assessee and supporting evidence, and place this “153D proposal” before the JCIT/Addl. CIT well before the limitation date. This framework also ontemplated in the CBDT search manual and internal instructions. 20.2 The circular issued by the Board (Circular No. 3/2008 dated 12.3.2008) emphasises that assessment or reassessment in search cases shall be approved by the ld. Joint Commissioner, and such provision was made applicable “to each assessment year falling within six assessment years immediately preceding the year in which search is conducted.”

20.3 Courts have consistently held that the prior approval is mandatory and must be year-specific and assessee-specific. The omnibus or .

Page 50 of 145 mechanical approvals (for example, the same-day approval of dozens of draft orders by a single common letter, or a single approval for multiple years and assessees) show non-application of mind and vitiate the entire block of assessments, as recognised by Allahabad High Court in PCIT v. Sapna Gupta reported in 2022 SCC On Line All 1294, Delhi High Court in Shiv Kumar Nayyar reported in [2024] 163 taxmann.com 9. It is further reiterate that the section 153D approval must “stand on its own legs”, show independent evaluation of material for each year, and cannot be treated as an empty ritual and failure to follow this procedure renders the assessment orders invalid in law. 20.4 Further the Hon’ble Karnataka High Court in case of CIT vs. Smt. Annapoornamma Chandrashekar reported in 17 taxmann.com 120 held as under: “approval' means to agree with full knowledge of the contents of what is approved and pronounce it as good. In other words confirmsauthoritatively. When the power of such approval is vested in higher authority, when such higher authority approves an order of the lower authority, which means he has gone through the order of the lower authority, he has no reason to disagree, he finds no fault with that order and, therefore, he confirms the order by his approval. It is to be seen that the statute has not used merely the word 'approval'. The word used is 'previous approval'. Therefore, unless the approval is previously taken, the assessment order would have no value at all. Therefore, when previous approval is a condition precedent and approval means to 'agree', i.e., to concur, to give mutual assent, to come into harmony, it is possible only after application of mind by the authority according approval.

20.5 The “approval” under section 153D must mean application of mind by the approving authority, and cannot be rubber stamping. It distinguished between “approval” and mere “permission”. When approval is given, the approving authority must have full knowledge of what is being approved, must confirm authoritatively the order of the lower authority and cannot simply assume it.

Page 51 of 145 20.6 In the present case the approval letter does not indicate that the ld. Addl. CIT examined the seized documents or appraisal report. There is no reference to any evidence. This shows that the approving authority has merely endorsed the draft orders placed before him by the AO without any meaningful scrutiny. As it is a settled law that if approval is granted as an empty formality, the assessment framed on such approval cannot survive.

20.7 Be that as may be, this Tribunal in the case of M/s Khoday Eswara and Sons bearing the involving similar facts and circumstances, held that the approval under section 153D of the Act is not proper. The case of the present assessee is covered by the decision in case M/s Khoday Eswara and Sons(supra). The finding of the Tribunal vide order dated 20th September 2024 in said case is extracted as under: 6. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 153D of the Act in the Search Assessment regime mandate that prior approval is necessary for a valid assessment under section 153A of the Act by AO below the rank of JCIT. For the sake of brevity, the relevant provisions of Section 153D of the Act are reproduced herein below: "No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner." 6.1 The Legislative intent of the provisions of Section 153D can be gathered from the CBDT Circular No. 3 of 2008, dated 12-3-2008 which read as under: "50. Assessment of search cases Orders of assessment and reassessment to be approved by the Joint Commissioner. 50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A does not provide for any approval for such assessment.

50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. 50.3 Applicability-These amendments will take effect from the 1st day of June, 2007." 6.2 From the perusal of the section 153D of the Act read with the CBDT Circular No. 3 of 2008, dated 12-3-2008, the legislative intent can be gathered so far as that the legislature in its highest wisdom made it compulsory that the assessments of search cases should be made with the prior approval of superior authority. As such, the higher authority should apply their mind on the materials gathered during search and other relevant circumstances based on which the officer is making the assessment. Furthermore, the AO should frame the assessment after due application of mind after evaluating the seized materials. Thus, the superior authority has to approve the Assessment order. The object of entrusting the duty of Approval of assessment in search cases is that the Joint CIT, with his experience and maturity of understanding should scrutinize the seized documents and any other material forming the foundation of Assessment. It is a trite law that whenever any statutory obligation is casted upon any statutory authority, such authority is required to discharge its obligation not mechanically, not even formally but after due application of mind. 6.3 Thus, the obligation of granting Approval by the superior authority to high tax quantum assessment orders in search and seizure assessments acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. 6.4 The Hon’ble Delhi High Court in the case of PCIT Vs. Anuj Bansal reported in 165 taxmann.com 2 has observed as under: 13. In another words, it was emphasised that the approval was granted without examining the assessment record or the search material. The relevant observations made in this behalf by the Tribunal in the impugned order are extracted hereafter: "17.1 However, in the present case, we have no hesitation in stating that there is complete non-application of mind by the Learned Addl. CIT before granting the approval. Had there been application of mind, he would not have approved the draft assessment order, where the returned income of Rs. 87,20,580/-. Similarly, when the total assessed income as per the AO comes to Rs. 16,69,42,560/-, the Addl. CIT could not have approved the assessed income at Rs. 1,65,07,560/- had he applied his mind. The addition of Rs. 15,04,35,000/- made .

Page 53 of 145 by the AO in the instant case is completely out of the scene in the final assessed income shows volumes. 17.2 Even the factual situation is much worse than the facts decided by the Tribunal in the case of Sanjay Duggal (supra). In that case, at least the assessment folders were sent whereas in the instant case, as appears from the letter of the Assessing Officer seeking approval, he has sent only the draft assessment order without any assessment records what to say about the search material. As mentioned earlier, there are infirmities in the figures of original return of income as well as total assessed income and the Addl. CIT while giving his approval has not applied his mind to the figures mentioned by the AO. Therefore, approval given in the instant case by the Addl. CIT, in our opinion, is not valid in the eyes of law. We, therefore, hold that approval given u/s 153D has been granted in a mechanical manner and without application of mind and thus it is invalid and bad in law and consequently vitiated the assessment order for want of valid approval u/s 153D of the Act. In view of the above discussion, we hold that the order passed u/s 153A r.w.s. 43(3) has to be quashed, thus ordered accordingly. The ground raised by the Assessee is accordingly allowed".

14. In this appeal, we are required to examine whether any substantial question of law arises for our consideration.

15. Having regard to the findings returned by the Tribunal, which are findings of fact, in our view, no substantial question of law arises for our consideration. The Tribunal was right that there was absence of application of mind by the ACIT in granting approval under Section 153D. It is not an exercise dealing with a immaterial matter which could be corrected by taking recourse to Section 292B of the Act.

16. We are not inclined to interdict the order of the Tribunal.

17. Accordingly, the appeal is closed. 6.5 The above view taken by the Hon’ble Delhi High Court in the case of PCIT Vs. Anuj Bansal reported in 165 taxmann.com 2 has been affirmed by the Hon’ble Apex Court reported in 165 taxmann.com 3 in the SLP filed by the Revenue. 6.6 In the light of the above stated discussion, there remains no ambiguity to the fact that there has to be an application of mind of the higher authority in granting the approval under the provisions of section 153D of the Act for the assessment in the search proceedings. 6.7 Now coming to the facts of the case on hand, we find important at the threshold, necessary to refer the observations made by the ld. CIT-A in his order as detailed below: i. There is no manner prescribed under the Act for granting the approval under section 153D of the Act by the Range head. ii. There is no format prescribed under the Act or the rules for taking the approval from the range head.

Page 54 of 145 iii. The provisions of section 153D only requires that the AO before framing the assessment will take the approval from the range head which is nothing but an administrative job to be performed. iv. iv. There is no requirement under the provisions of law for granting any opportunity to the assessee before approving the assessment order framed by the AO. v. The letter written by the AO for getting the approval from the range head, was supported along with detailed checklist indicating the statements, seized materials and submissions filed by the assessee. Thus, the additional CIT while granting approval under section 153D of the Act has examined the draft order, written submission, seized material, sworn statement etc. 6.8 Admittedly, there is no form, or the manner specified under the Act in which the approval needs to be obtained by the AO from the ld. Joint Commissioner which has been specified, but the approval cannot be treated as mere administrative approval as observed by the learned CIT-A as evident in the light of the case laws cited above. The application of mind of the joint Commissioner is sine qua non while granting the approval under the provisions of section 153D of the Act. 6.9 Now the controversy arises whether the ld. Additional Commissioner applied his mind while granting the approval under section 153D of the Act. At the threshold, it can be inferred from the finding of the ld. CIT-A, discussed above, that there was no application of mind. On the contrary, according to the ld. CIT-A, the application of mind was not necessary while granting the approval under the provisions of section 153D of the Act. 6.10 Our view is further fortified about the nonapplication of mind by the ld. additional Commissioner of income tax while granting the approval under section 153D of the Act by the fact that the AO in the letter dated 30-03-2024 while taking the approval have enclosed the draft assessment orders and the checklist. On perusal of the letter of the AO dated 30 March 2022, it is mentioned that “Addition made in 143(3) orders dated 29.12.2017” whereas the assessment has been made by the AO vide order dated 31-03-2022 and that too under section 153A r.w.s. 143(3) r.w.s. 153D of the Act. 6.11 Likewise, the letter written by the AO for the approval under section 153D of the Act dated 30 March 2022 does not refer to any seized materials, statements, written submissions of the assessee except the checklist and draft assessment order whereas the ld. CIT-A in his order had made reference that all these documents have been duly verified by the Additional Commissioner of income tax while granting the approval under section 153D of the Act. The relevant observation of the ld. CIT-A to this effect reads as under: “5.1.4 It is apparent from the above that due procedure laid down under Section 153D of the Act has been followed by the AO as well as the Addl.CIT and therefore as discussed in the preceding paragraphs the conditions for giving approval ifs 153D have been met. Even otherwise it is evident from the above letter of the AO that a draft order for AY 2020-21 was submitted along with a detailed checklist which indicates that statements, seized materials and submissions filed by the appellant have been considered while preparing the draft order and same are sent for approval, made by the appellant along with a .

Page 55 of 145 checklist. The Addl.C11` granted his approval u/s 153D of the Act, after examining the draft order, written submission of the appellant, seized material, sworn statement along with the detailed checklist submitted by the AO. Thus, there is enough indication of application of mind by the very fact that the Addl.CIT has given approval after going through the draft order, written submission of the appellant, seized material, sworn statement and the detailed checklist. The fact that the approval_ granted u/s 153D by the Addl.CIT does not mention the seized material and statements recorded does not imply that there has been no application of mind by the Addl.CIT. Hence the contention of the appellant. that the Addl.CIT has passed the order in a mechanical manner without application of mind is without basis and deserves to be rejected.” 6.12 The above observation of the ld. CIT-A does not consonance with the letter written by the AO dated 30 March 2022 for taking the approval from the ld. Additional Commissioner of Income Tax under the provisions of section 153D of the Act. As such, the above finding of the ld. CIT-A does not match with the letter written by the AO for seeking the approval under section 153D of the Act. All these details in fact strongly indicate that there was no application of mind by the ld. additional Commissioner of income tax while granting the approval under section 153D of the Act in the given facts and circumstances. 6.13 Besides the above, we note that the checklist enclosed along with the letter of the AO suffers from graving errors as highlighted below: i. The assessee filed original return of income dated 15 February 2021 whereas the checklist says the original return was filed under section 139(1)/139(4) of the Act dated 9th of January 2021. ii. As per the checklist, the assessee has declared return income of ₹ 7,00,24,760.00 whereas the assessee has declared business loss of ₹ 3,52,59,770.00 only. iii. In the checklist, the reference was made to the provisions of section 153C of the Act regarding the warrant of the search person and recording of satisfaction by the AO of the search person and satisfaction recorded by the AO of the other person, satisfaction was recorded with reference to the seized material. Likewise, whether the return of income was filed for the year under consideration in response to the notice issued under section 153C of the Act. 6.14 Upon cumulative analysis of the facts stated above, it is transpired that the checklist was prepared considering the assessee on hand as the person other than search person and the proceedings were initiated under the provisions of section 153C of the Act. However, all these information containing in the checklist are far from the reality for the reasons as discussed above. All these facts clearly establish that the approval was obtained by the AO at the fag end of the assessment from the higher authorities which was subsequently granted in the mechanical manner in a day and without application of mind. 6.15 Regarding the contention of the ld. DR that the matter of valid approval under section 153D should not be taken up for hearing on the ground that the assessee has also raised issue of validity of assessment in the absence of DIN on 153D approval and the issue relating to the DIN is pending before the .

Hon’ble Supreme Court. As such, the Hon’ble Supreme Court stayed finding of Hon’ble Delhi High Court in the case of CIT v. BrandixMauritiusHoldingsLtd. [2023] 149 taxmann.com 238/293 Taxman 385/456 ITR 34 dated 20-3-2023 in ITA 163 of 2023, wherein the Division Bench of the Delhi High Court has held that in the absence of DIN any communication, order should be treated invalid. In this regard it is important to note that all other issues raised by the assessee including DIN are open and we are not going to decide any of it at this stage as the assessee has succeeded on of the ground challenging the validity of the assessment on account of mechanical approval under section 153D of the Act which we have allowed in assessee’s favour. In doing so we draw support and guidance from the judgment of Hon’ble Kerala High Court in the case of Kishore Thanaji Hasbe vs. ACIT reported in 162 taxmann.com 436. In the said case issue raised before the Hon’ble Kerala High Court includes the validity of assessment on account of absence of DIN. The Hon’ble Bench of Kerala High Court left the issue of DIN open in view of stay by the Hon’ble Supreme court as discussed above but decided the other relevant issue. With this observation, the impugned ground of appeal raised by the assessee challenging the validity of the assessment order on account of non-application of mind/mechanical approval by the ld. additional Commissioner of income tax while granting the approval under section 153D of the Act is thereby allowed. Hence ground of appeal of the assessee is allowed.

20.8 The above finding of coordinate bench of this Tribunal is squarely applicable in the present case of the assessee. However, it is pertinent to mention that the above finding has been challenged by the revenue before the Hon’ble Jurisdictional High Court in and issue is under sub-judice. Therefore, as of now the view taken by the coordinate bench is applicable subject to the outcome of appeal in ITA No. 30/2025.

20.9 It is also pertinent to note that appeal was fixed for clarification about the recent decision of Delhi Tribunal in case of Kailash Gahlot vs. DCIT (supra). But there was no argument advanced by the ld. DR about the same except reiterating the contentions discussed in the preceding paragraph. However, on the perusal of the same (Tribunal order in the case Kailash Gahlot), we note that the bench in the impugned order has not considered the earlier decision third member bench of Tribunal in the .

Page 57 of 145 case of Shri Dheeraj Chaudhry vs. ACIT (supra) wherein the dispute regarding approval under section 153D of the Act has been decided in favour of the assessee. In the said order it was held that single approval for multiple assessment years of the same assessee or various assessee can be granted. On the contrary, we note that the Hon’ble Delhi High Court in case of PCIT vs. Shiv Kumar Nayyar reported in [2024] 163 taxmann.com 9 has held approval mechanical is bad in law and on account of single approval for multiple assessment year. The relevant observation the Hon’ble Delhi High court reads as under: 17. Notably, the order of approval dated 30.12.2020 which was produced before us by the learned counsel for the assessee clearly signifies that a single approval has been granted for AYs 2011-12 to 2017-18 in the case of the assessee. The said order also fails to make any mention of the fact that the draft assessment orders were perused at all, much less perusal of the same with an independent application of mind. Also, we cannot lose sight of the fact that in the instant case, the concerned authority has granted approval for 43 cases in a single day which is evident from the findings of the ITAT, succinctly encapsulated in the order extracted above.

20.10 In view of the above detailed discussion and following case laws as discussed above we hereby hold that the approval granted by the ld. Additional CIT in the present case lack application of mind and such approval represents the mechanical approval. Hence, in the absence of proper approval under section 153D of the Act, the assessment order is not maintainable under provision of the Act. However, the revenue has liberty to file M.A. in case the view taken by this Tribunal in the case of the Khoday Eshwarsa and Sons is reversed by the Hon’ble High Court which is under appeal. Hence the ground of appeal of the assessee is allowed.

Page 59 of 145 accounted in the name of respective student. On further query, he sought time to file reconciliation statement and other relevant material. 22.5 The AO found that the assessee failed to provide the supporting evidence and treatment or mode of receipt in the books of accounts. Hence, the AO proposed to make addition of the impugned receipts. 22.6 The assessee during the assessment proceedings submitted that it had not received any donations in cash and had only collected development fees from students admitted under management quota. The assessee maintained that the trust had not received any additional receipts that were not accounted for in its books of accounts. It emphasized that the donations and receipts reflected in the records were genuine and that all cash receipts were either accounted for and supported by necessary documentation. Furthermore, the assessee provided a list of students and details from the parents to substantiate the sources of funds, asserting that these receipts were for the purpose of furthering the trust’s charitable activities. 22.7 On the other hand, the AO’s findings revealed significant discrepancies and inconsistencies in the assessee’s records. The AO noted that none of the cash donations bore the PAN details of the donors, and there was no satisfactory explanation for the treatment or reconciliation of receipts in the books of accounts. An analysis was carried out comparing the seized receipts with the relevant bank entries, which showed clear mismatches. For example, Receipt No. 2852 worth ₹1,80,000 was shown as received on 04.08.2015, but the bank entry was dated 10.06.2015 almost two months earlier. Similarly, Receipt No. 133 worth ₹1,75,000 was shown as received on 01.06.2016, while the bank deposit was recorded on 31.05.2016. These discrepancies raised .

Page 60 of 145 questions about the genuineness of the receipts and the overall authenticity of the assessee’s explanations. 22.8 In view of the above, the AO concluded that the cash receipts were not properly accounted for in the books and appeared to have been diverted for the personal benefit of the trustees, triggering provisions under section 13(1)(c) of the Act. As a result, the AO invoked section 164(2) of the Act, applying the maximum marginal rate on the unaccounted cash receipts. Accordingly, an amount of ₹3,38,62,500/- was added to the total taxable income of the assessee.

Page 61 of 145 receipts. Specifically, many of the receipts lacked the signature of either the donor or the donee, raising questions about their authenticity. Additionally, the ld. CIT(A) found the appellant’s explanation — that cash was first deposited in the bank and the details were updated later — to be unacceptable. This is because if the cash deposits were genuine, they should have been reflected in the bank statements and reconciled properly in the accounts. The presence of mismatches between receipt dates and deposit dates was seen as a serious issue. Since, these concerns were not convincingly addressed by the appellant, the ld. CIT(A) ultimately rejected the appellant’s arguments and upheld the findings of the Assessing Officer.

Page 62 of 145 collection of the college and that all such amounts were properly deposited in the bank accounts of the institution. The AO has also reproduced this part of his statement in the assessment order, yet failed to give due weight to it. It was submitted that the assessee had explained during assessment proceedings that no cash donations were ever received. The receipts represented development fees collected from students admitted under the management quota. The assessee further clarified that the students or their parents directly deposited these amounts into the trust’s bank accounts, and thereafter, receipts were issued to them by the college office. Hence, all the receipts found during the search were genuine and accounted for in the books. 25.2 The learned AR emphasised that even as per the AO’s own findings in paragraph 5.4 of the assessment order, there was no mismatch in the quantum of amounts shown in the seized receipts and the corresponding amounts deposited in the bank. This clearly supports the assessee’s claim that all the amounts reflected in the seized receipts were duly deposited and accounted for. The only discrepancy pointed out by the AO was regarding the date of deposit being prior to the date of the receipt in a few cases. The learned AR submitted that such minor variations in dates cannot be a valid ground to treat the receipts as unaccounted donations. 25.2 The learned AR explained that the apparent mismatch in dates occurred because the students were instructed to deposit the fees directly into the bank account of the trust and later submit the deposit challans to the college office. Upon receipt of the challans, the receipts were prepared and issued to the students. Thus, where the date of .

Page 63 of 145 deposit precedes the date on the receipt, it only indicates the procedural delay between deposit and issuance, not that the receipts represent unaccounted money. 25.3 The learned AR further argued that the AO himself cited only two instances from earlier years i.e. FY 2015-16 and FY 2016-17, and none pertaining to the year under appeal. Therefore, even those minor discrepancies are irrelevant for the present assessment year. Once all the receipts are found deposited in the bank accounts and recorded in the books, there is no scope for any presumption of unaccounted cash donations. 25.4 It was further submitted that the learned CIT(A) failed to properly appreciate the factual explanations and mechanically confirmed the addition. The learned CIT(A) rejected the appellant’s reconciliation on the wrong assumption that any mismatch in date implies unaccounted receipt. The learned AR argued that such reasoning is arbitrary and unsustainable because if the cash was actually deposited in the bank, it would automatically reflect in the bank statement, leaving no scope for concealment. The learned CIT(A)’s observation that the mismatch in dates shows unaccounted receipt is purely speculative and contrary to evidence. 25.5 The learned AR concluded by stating that the reconciliation submitted before the lower authorities clearly demonstrated that all the seized receipts correspond to deposits made in the trust’s bank accounts. No part of the receipts represented cash received outside the books. The alleged mismatches were only due to the time gap between deposit and issuance of receipts. Therefore, the addition of ₹3,38,62,500 towards alleged unaccounted cash donations is wholly unjustified, .

Page 64 of 145 arbitrary, and contrary to facts. He prayed that the Hon’ble Tribunal be pleased to delete the said addition in the interest of justice.

Page 65 of 145 27.3 The AO has also not disputed that the total of the seized receipts matches with the total of the deposits made in the bank accounts of the trust. The only observation made by the AO is that, in certain cases, the date of bank deposit preceded the date mentioned on the receipt. For example, receipt No. 2852 for ₹1,80,000 was dated 04.08.2015, while the corresponding bank deposit appeared on 10.06.2015. Similarly, receipt No. 133 for ₹1,75,000 was dated 01.06.2016, and the related bank deposit was dated 31.05.2016. Except for such differences in dates, there is no discrepancy regarding the amounts or their ultimate deposit in the bank, was found. 27.4 The explanation of the assessee that these differences arose because the students were required to deposit the money directly into the bank account of the trust and subsequently submits the deposit challans to the college’s office, in our considered opinion, is plausible and in accordance with common institutional practice. The receipts were issued by the office only after verifying the deposit challans. Therefore, it is natural that the date of deposit would, in some cases, precede the date of issuance of receipt. This, by itself, cannot be a reason to infer unaccounted cash transactions. 27.5 It is also noteworthy that neither the AO nor the ld. CIT(A) has found any instance where the receipts discovered during the search correspond to amounts not deposited in the bank or not reflected in the books of account. The entire finding of the revenue authorities is based on the assumption that a mismatch in date automatically implies concealment or manipulation. Such assumption cannot replace evidence. No material has been brought on record to suggest that any part of the .

Page 66 of 145 receipts was retained by the trustees or diverted for non-charitable purposes. 27.6 Further, the caretaker of the trust, Shri Griyappa Dayananda Manoj, in his statement recorded under section 131(1A) after the search, had also explained that in some cases, receipts were reissued in the name of parents instead of students at their request, and that the original receipts were already accounted for in the books of the respective students. This statement provides a reasonable explanation for the presence of duplicate or altered receipts and was not effectively controverted by the AO. 27.7 The AO’s reference in the absence of PAN details or donor signatures on certain receipts is also not sufficient to establish that the receipts are bogus. It is common in educational institutions that students or parents, especially from smaller towns, may not provide PAN or sign the fee receipts. What is relevant is whether the amounts have been properly received and accounted for, and the evidence on record clearly shows that all these receipts correspond to bank deposits. 27.8 It is also important to note that the AO, while making the addition, relied on two instances from earlier assessment years—A.Y. 2015-16 and A.Y. 2016-17—to question the genuineness of receipts. However, no such instance was found for the year under appeal. Thus, applying observations from earlier years without verifying the current year’s records is not justified. The principle of assessment is that each year is an independent unit of assessment, and without specific evidence for the year under appeal, no addition can be sustained merely on suspicion or past assumptions.

Page 67 of 145 27.9 The learned CIT(A), in our opinion, has not appreciated the factual matrix in the right perspective. The ld. CIT(A) rejected the reconciliation statement submitted by the assessee solely on the ground that the explanation was not acceptable because of mismatched in the dates. The ld. CIT(A) did not point out any concrete discrepancy or unrecorded transaction. Moreover, the ld. CIT(A) failed to appreciate that all amounts had been deposited in the bank account of the trust, and once such deposits are verifiable from the bank statements, the allegation of unaccounted receipts loses its foundation. 27.10 It is a well-settled legal position that suspicion, however strong, cannot take the place of proof. The revenue authorities must bring positive material on record to demonstrate that the assessee has actually received income that is not recorded in its books. In the absence of such material evidence, the addition cannot be sustained merely based on assumptions or procedural variations. 27.11 In the case on hand, the receipts in question relate to admission and development fees collected from students under the management quota. Such fees are common in educational institutions and, as long as the funds are applied for the objects of the trust, they cannot be termed as unaccounted or diverted. There is no finding by the AO that the trust has misused these funds for personal benefit or purposes outside its charitable objects. Hence, the invocation of sections 13(1)(c) and 164(2) is not sustainable. 27.12 Considering the entire factual and legal background, we find that the explanation offered by the assessee is reasonable, credible, and supported by contemporaneous evidence. The seized receipts are part of the regular collection process and are duly reflected in the books of .

Page 68 of 145 account through corresponding bank deposits. The minor difference in dates is procedural and does not indicate concealment or suppression of income. 27.13 In light of the above discussion, we hold that the addition of ₹3,38,62,500 made by the AO and confirmed by the CIT(A) is unsustainable in law and on facts. We accordingly direct the deletion of the said addition. Hence, the ground raised by the assessee is allowed. The next issue raised by the assessee through Ground Nos. 5 28. & 6 of the appeal is that the learned CIT(A) erred in confirming the disallowances of building construction expenses of Rs. 72,33,46,682/- only.

29. During the search at Sapthagiri Engineering College, it was found that the assessee in tally (accounting software) has claimed building under construction expense for Rs. 72,33,46,682/- for the year under consideration out of which a sum Rs. 39,86,76,950/- was claimed to be incurred in cash. As per the assessee the building construction expenses were incurred for different institutions, details of the same stand as under: Institution Cash (Rs.) Bank (Rs.) Total (Rs.) Sapthagiri Engineering College 1,58,00,000 27,33,200 1,85,33,200 Sapthagiri Medical Science & 38,26,50,000 27,82,47,050 66,08,97,050 Research centre National public School 2,26,950 4,36,89,482 4,39,16,432 Total 39,86,76,950 32,46,69,732 72,33,46,682 29.1 On question by the search team regarding the supporting documents for building construction, the accountant of Sapthagiri Engineering College, Smt. Nayana Rangaraj expressed her inability. She .

Page 69 of 145 stated that ledgers of building construction were prepared at the head office of trust. No details of construction plan, contract awarded, completion certificate, bill vouchers etc. are maintained at this office nor the payment are made from this office. She also expressed her inability to identify the building which was being constructed. 29.2 Thereafter, statement of accountant of the assessee trust, Shri Balakrishna was also recorded. He admitted that cash withdrawals are taken under the building construction expenses and covid expenses at the instruction of chairman Shri GD Dayananda. He further stated that no supporting bill vouchers are available with him. He also provided the details of cash payment towards building construction since 1st April 2016 to 16th February 2022 as per the cash book. 29.3 The statement of Shri Balakrishna was confronted to the chairman Shri GD Dayananda who confirmed the same. He also expressed inability to provide the supporting evidences. 29.4 During the post search proceedings also, the assessee was asked to produce the details and evidences such as date of commencement of construction, completion date, completion certificate, identify the building which was constructed with supporting bills and voucher. To which, the assessee replied that the construction was carried out through hiring of daily labourer and materials were procured from different vendors. But the assessee failed to produce the required supporting documentary evidence. The assessee only submitted a valuation report from valuer M/s Mourya Concepts OPC Ltd. However, it was found that valuation report does not consist information regarding the date of commencement and completion of the construction. The basis for self-construction discount was also not provided. Thereafter, .

Page 70 of 145 the director of valuer firm was summoned and his statement was recorded to which he stated that the information regarding commencement and completion of construction was not provided. Accordingly, the valuation report was not accepted in the absence of crucial information which was necessary to determine the cost of construction as per the CPWD parameters. 29.5 Hence, a reference was made to DVO. The DVO vide report dated 26th September 2023 submitted that the Sapthagiri Engineering college and its building was constructed much prior to the year 2014. Likewise, Sapthagiri Institute of medical science with 350 bed facility was already functioning before October 2011 and all other infrastructure of the hospital would have been established before 27th February 2015. Similarly, the building of National Public School may have been constructed prior to April 2014. The DVO also reported that it is not ascertainable that which blocks and school building and how much area has been constructed during the relevant period. 29.6 Hence, in view of the above, an inference was drawn that the entire expenses claimed under the building construction whether in cash or through bank are bogus. Thus, a show cause notice was issued proposing to disallow the impugned expenses. 29.7 In response, the assessee furnished some bills and vouchers at the very fag end of assessment dated 10-11-2023. However, on perusal of said bills and vouchers, the AO noted that those bills/voucher pertain to only building construction at National Public School and majority of them were handwritten vouchers. 29.8 On further verification/examination of bills or vouchers, the AO noticed following discrepancies:

- There were various bills of material purchases in the name of National Public School-NPS. However, the delivery address on such bills is around 24-35 KM away from the actual location of NPS. The photocopies of such bills are extracted at pages 30 to 33 of the assessment order. Hence, it was inferred that building materials were purchased for personal benefit in the name of NPS. - The assessee furnished numerous handmade vouchers from a party namely Bismillah Transport. However, it was noticed that all the transport vouchers were of different dates and periods but all of them are serially numbered. Thus, it suggests that the impugned transporter only worked for assessee which is not possible. Accordingly, it was inferred that vouchers were made afterthought to satisfy the requirements. - Likewise hand-made vouchers from Kabbbalamma Earth Mover and Shivashree Traders were also submitted. On examination of the same, it was noticed that there was mismatch in serial No. and date of voucher. For example, a voucher serial No. 454 was issued as on 13-06-2015 whereas voucher serial No. 242 issued as on 09-07-2015. - The cash memos for transportation of goods were also submitted which contains vehicle number. On examination of vehicle number, it was found that vehicles were not registered on the date of issue of the vouchers.

29.9 In view of the above, the AO dismissed the assessee’s claim and disallowed the entire claim of building construction expenses for Rs. 72,33,46,682/- only. The AO inferred that since the impugned expenditure were not incurred for the trust but diverted to the personal benefit of the person referred in section 13(1)(c) of the Act, the deduction under section 11 of the Act is not available and taxable as per the provisions of section 164(2) of the Act.

30. Aggrieved, assessee preferred an appeal before the learned CIT(A). 30.1 The assessee contended that the principles of natural justice were violated because the valuation report from the DVO was adopted without providing a copy or affording the assessee an opportunity to rebut or explain the findings contained in the DVO report. The assessee argued that the assessing officer relied on the DVO report without issuing a notice or giving a fair hearing as required under section 142A(7) of the Act, thereby depriving it using its rights for justifying its claim. Further, the assessee highlighted that the valuation officer overstepped his jurisdiction by assuming that a building was not constructed between 2014–2021 without sufficient supporting evidence, which is beyond the scope of section 142A of the Act. The assessee asserted that the assessing officer failed to properly use his independent judgment and merely adopted the DVO’s findings mechanically. Additionally, the assessee denied the liability raised under section 156 of the Act and argued that the total income assessed was incorrectly determined, ignoring the factual circumstances, such as the absence of any building construction during the specified period. The assessee also challenged the denial of exemption under section 11 of the Act, emphasizing that the assessing officer failed to appreciate that the appellant was a registered charitable trust, and thus the disallowance of expenses and the addition of Rs. 72,33,46,682/- towards building construction was unjustified. As per the assessee, all the expenses relating to building construction were well documented and should not have been rejected outrightly.

Page 73 of 145 30.2 However, the learned CIT(A) found that the assessee later on accepted the fact that the opportunity extended by the DVO to rebut was provided. The learned CIT(A) found that the DVO report was only one of the aspects of the AO’s finding. As such the building expense disallowed based on detailed reasoning. Regarding the assessee’s claim that the DVO exceeded jurisdiction, the learned CIT(A) found that the DVO was to value the cost of building constructed during the year 2014 to 2021. However, the information was not provided by the assessee, then the DVO based on approval documents of BBMP (Bruhat Bengaluru Mahanagara Palike) and MCI etc. has given the report. Hence the assessee argument is not acceptable. 30.3 The ld. CIT(A) observed that the AO, in order to verify the authenticity of the appellant’s claims, rightly referred the matter to the District Valuation Officer (DVO). The DVO’s report revealed that the major buildings (including those of National Public School, Sapthagiri Institute of Medical Science & Research Centre, and Sapthagiri Engineering College) had already been completed before 2014, directly contradicting the appellant’s claim that the expenses were related to construction during 2014–2021. 30.4 During the appellate proceedings, the assessee was asked to provide local authority approvals and supporting documentation for the alleged construction activities, but it failed to furnish credible evidence. The ld. CIT(A) specifically noted that many of the vouchers and bills submitted were self-made cash vouchers, lacking independent verification, and were fraught with discrepancies — including mismatches in vehicle numbers, bills addressed to disconnected places, serial number duplications, and absence of vendor details. Additionally, .

Page 74 of 145 many vouchers appeared suspicious because the same person prepared and signed them, as evident by handwriting verification, further weakening their evidentiary value. For example, the purchase of electrical item shown on handwritten voucher was not containing the name of the seller except the thumb impression of seller. Accordingly, the learned CIT(A) was of the view that except for the labour expenses, all the other items involve proper invoice with details of the suppliers. But in the case on hand material purchases have been shown in cash without having invoice detail of the supplier except supported by hand written voucher having thumb impression. 30.5 The ld. CIT(A) also considered the appellant’s argument that approvals from the Medical Council of India (MCI) supported the existence of ongoing construction. However, upon examination, it was found that the key approvals were either obtained much earlier (e.g., first approval in 2012) or related to seat increases in 2023, long after the assessment year under review. Thus, these approvals did not convincingly establish that construction expenditures were incurred during the claimed period. 30.6 The ld. CIT(A) emphasized that while the assessee argued the AO’s assessment was based in the absence of buildings, but the AO’s real contention was that there was no reliable evidence or documentation to support the specific expenses claimed for the period under review. Despite opportunities given, the appellant could not substantiate its claims with credible records, third-party confirmations, or valid purchase bills. 30.7 Given the combination of (i) The DVO report confirming no new construction, (ii) Discrepancies and deficiencies in the submitted vouchers, .

(iii) Lack of proper approvals or completion certificates, and (iv) The appellant’s inability to rebut the AO’s findings effectively, 30.8 The ld. CIT(A) held that the disallowance made by the AO was fully justified. As a result, the ground of appeal raised by the appellant was dismissed, and the addition made in the assessment order was upheld.

31. Being aggrieved by order of the learned CIT(A), the assessee is in appeal before us. 31.1 The learned AR for the assessee before us detailed argument by filing written submission which is extracted as under:

24. The AO made disallowance of the whole of the “building under construction” expenses of Rs.72,33,46,682/- by citing the following reasons: a) The assessee trust has shown own expenditure in cash to the extent of Rs.33,86,76,950/-, out of the total expenditure of Rs.72,33,46,682/- debited during the year towards building under construction. b) The bills/invoices pertaining to the said expenses were not available at the time of search. With regard to the expenditure incurred in cash, the assessee could submit only self-vouchers during post-search proceedings in support of such expenditure. c) The assessee furnished a Valuation report of the buildings prepared by M/s Mourya Concepts DPC Pvt Ltd during the post search proceedings. However, neither the assessee nor the valuer could furnish the details of date of commencement of construction, stage of construction, completion certificate, basis for the self-construction discount etc. The Director of M/s Mourya Concepts DPC Pvt Ltd, who was examined and recorded on 08.09.2021, stated that they were not given the commencement and completion certificates for any of the buildings. There is no mention of the self-construction discount factor and depreciation factor in the Valuation report for the period of 2014-

21. The Valuation report is untrustworthy for these reasons. d) A reference was made to the DVO during the assessment proceedings vide letter dated 27.03.2023 and the DVO submitted his report dated 26.09.2023 with regard to the buildings of SIMS & RC, SCE and NPS of the assessee trust. The DVO stated in his report that: i. In SIMS & RC, 350 bed hospital was already functioning before October 2011 and almost full infrastructure of Hospital and Medical College would have been established by 27.02.2015 ii. In SCE, all its buildings have been constructed much prior to 2014 .

Page 76 of 145 iii. NPS may have been constructed prior to 01.04.2014 and it cannot be ascertained which blocks and school building and how much area has been constructed during the relevant period, if any e) In view of the DVO’s report, it becomes clear that even the expenses incurred through bank are bogus, apart from the expenses incurred in cash. f) The assessee submitted bills and vouchers for verification during the assessment proceedings, which pertained to the construction of building in NPS. Majority of them contained hand signed bills and e- way bills were not submitted in a sizeable number of cases. g) The verification of the bills submitted by the assessee revealed discrepancies such as the delivery address being different from that of NPS address in some e-way bills, bills of the same vendor containing continuous serial numbers over a number of days, mismatch between the bill number and date, quoting of vehicle number in the bill which did not exist on the relevant date.

25. Based on the aforesaid reasons, the AO concluded that the assessee could not substantiate the expenditure towards building under construction with documentary evidences. Further, the AO concluded that that there are no evidences to prove that the said expenditure has been utilized for the objects of the trust and consequently, it has to be considered that the said amounts were diverted to the trustees in violation of the provisions of section 13(1)(c) of the Act. Accordingly, the AO made disallowance of the whole of the “building under construction” expenses of Rs.72,33,46,682/-.

26. In this regard, the appellant submits that the disallowance of the building under construction expenditure fails at the threshold itself since no deduction of the said expenditure was claimed by the appellant towards “application of income” for charitable purposes of the trust in the return of income.

27. The appellant has shown the “building under construction” under “Capital work-in-progress” in the balance sheet. The said expenditure is capitalised and added to the “buildings” asset periodically as and when some part of the construction is completed. Copy of the financial statements of the appellant for the A.Y 2020-21 is submitted at Page Nos.67 to 78 of PB-2.

Page 77 of 145 “Buildings” asset appears at three places in the depreciation statement and the sum total of the additions made to the said assets during the year is Rs.50,19,08,842/- (Rs.6,50,09,511 + Rs.43,79,90,471 + Rs.0), which tallies with the amount of deletion shown in “Building under construction”.

34. Since no exemption u/s 11 was claimed by the appellant in respect of the “building under construction” expenditure, the question of making disallowance of the said expenditure for determining the total income of the appellant trust does not arise at all. Hence, the appellant submits that the disallowance of “building under construction” expenses of Rs.72,33,46,682/- made in the assessment order is arbitrary and wholly untenable on facts.

Page 78 of 145 basis to the DVO as well as the AO, in support of the building under construction expenditure.

Page 79 of 145 untenable as the said inference was drawn without obtaining the opinion of a forensic document examiner. The inference drawn by the CIT(A) with regard to effecting purchase of electrical items and sanitary items made from casual laborers based on just one voucher containing thumb impression of the recipient in the voucher (the other voucher pointed out by the CIT(A) contains signature and not thumb impression) is also not tenable as it is not appropriate to infer that the purchase was made from a casual laborer merely due to affixing of thumb impression by the recipient.

44. The appellant submits that the entire expenditure debited towards building under construction cannot be doubted and disallowed merely due to incurring of a part of such expenditure in cash and some alleged deficiencies in few bills and self-made vouchers. Such a view taken by the AO is highly unreasonable.

45. Moreover, the disallowance so made without rejecting the books of account of the appellant, which have been subjected to audit under the statute, is not sustainable. Having accepted the books of accounts and considering the same as the basis for computation of income in the assessment order, the AO could not have made disallowance of whole of the expenditure debited towards building under construction.

47. Further, the appellant submits that the AO has wrongly rejected the Valuation Reports of the Approved/Registered valuer submitted by the appellant during the post search proceedings, in support of the cost of construction of buildings incurred during the period from 2014 to 2021 and the cost of construction of the buildings as on 01.04.2014. Copies of the valuation reports of the Registered valuer are submitted at Page Nos.135 to 148 and 149 to 165 of PB-2 respectively.

50. However, the appellant submits that the said reason given by the AO is not tenable since it is evident from the valuation report for the construction .

Page 80 of 145 made during the period from 2014 to 2021 that the registered valuer has adopted the average cost of construction for the years 2014 to 2021 by taking the CPWD rates for the year 2012 and arriving at the average cost for 2014 – 2021 by indexing the same by the weighted average index for 2014 to 2021, in the absence of the details of commencement and completion. The logical and scientific method so followed by the Registered Valuer cannot be termed as arbitrary by the AO. 51 Another reason cited by the AO for rejection of the registered valuer’s report for the cost of construction during the period 2014 to 2021 is that the report has not considered self-construction discount factor and depreciation factor though the construction activity was stated to have been carried out by the appellant itself by directly engaging labour. With regard to the registered valuer’s report for the cost of construction as on 01.04.2014, the reason cited by the AO for rejection is that the self-construction discount factor adopted by the Registered Valuer is arbitrary and without any basis.

55. The AO placed strong reliance on DVO valuation reports dated 26.09.2023 in respect of the buildings in SIMS & RC, SCE and NPS of the appellant to conclude that no construction has taken place during the period from 2014 to 2021. However, the appellant submits that the DVO valuation reports lack legality and credibility since they were given without making physical inspection of the buildings.

Page 81 of 145 available buildings merely on the reasoning that the commencement and completion certificates could not be produced by the assessee.

Page 82 of 145 debited in the books of the appellant cannot be doubted and the addition made by disallowing the whole of the said expenditure is not sustainable on facts for this reason also.

67. In support of this contention, the appellant places reliance on the decision of the Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. CIT [1954] 26 ITR 775 (SC) (Copy submitted at Page Nos.30 to 36 of PB- 3), wherein it was held as under: “As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income- tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh (supra).”

Page 83 of 145 submits that the finding of the AO regarding the diversion of the funds of the trust for the individual benefit of the trustees in violation of section 13(1)(c) is based on mere surmises and conjectures, without reference to any evidence or material on record, is not sustainable in view of the said binding legal principle laid down by the Hon’ble Supreme Court.

31.3 On the other hand, the learned DR vehemently supported the finding of Revenue authorities.

32. We have heard the rival contentions of both the parties and perused the materials available on records and the orders of the authorities below. The issue for adjudication is whether the disallowance of ₹72,33,46,682/- towards “building construction expenses” made by the AO and confirmed by the learned CIT(A) is sustainable in law and on facts in the given facts and circumstances. 32.1 It is noted that the AO found that the assessee-trust had claimed a total expenditure of ₹72.33 crore towards “building under construction,” of which ₹39.86 crore was shown as cash expenditure. During the course of search and subsequent proceedings, the assessee could not produce complete documentary evidence such as construction contracts, bills, vouchers, or completion certificates. Statements of the accountant and the chairman of the trust confirmed that large sums were withdrawn in cash for construction and majority of them has no supporting bills or vouchers. Furthermore, the AO also found deficiency in some of the bills and voucher furnished by the assessee. 32.2 The AO also obtained a valuation report from the DVO, and as per the AO, the DVO reported that the buildings in question—of Sapthagiri Engineering College, Sapthagiri Institute of Medical Sciences, and .

Page 84 of 145 National Public School had been constructed much before 2014. On this basis, the AO concluded that no new construction had taken place during the relevant period (AY 2020–21) and held the entire claim of construction expenditure to be bogus. The AO further held that the expenditure was diverted for personal benefit of specified persons under section 13(1)(c), thereby denying exemption under section 11 and taxing the income under section 164(2) of the Act. 32.3 The learned CIT(A) upheld the disallowance. He also observed that the assessee had failed to produce credible proof of any construction during the relevant period, that the vouchers were largely handwritten and internally generated, and that many documents exhibited serious discrepancies—such as mismatch of serial numbers, non-existent vehicle registrations, and fictitious vendor details. The DVO’s conclusion that the major buildings existed prior to 2014 was found to be supported by local authority approvals and absence of new project documentation. Hence, the ld. CIT(A) held that the disallowance was justified and dismissed the assessee’s appeal. 32.4 However, the learned AR for the assessee raised multiple arguments. The first argument of the learned AR is that the expenditure on “building under construction” was capitalized as “work-in-progress” and not claimed as “application of income” under section 11 neither the depreciation on the building was claimed as application hence, the disallowance itself was misconceived. 32.5 From the perusal of the financial statements and computation of income placed before us, we find that the “building under construction” expenditure was treated as capital work-in-progress and not claimed as “application of income” in the return. The assessee’s computation shows .

Page 85 of 145 application of income restricted to revenue expenditure and loan repayments. Thus, the claim of the assessee that building construction expenditure not claimed as application somewhat appears to be correct. However, it is pertinent to note here that the assessee has utilised the borrowed fund towards the construction expenditure and the repayment of loan has been claimed as application of income. This shows that the loan repayment has been shown as application of income which has direct nexus with the building construction. However, the fact that the assessee has claimed building construction expenditure as application of income indirectly by claiming repayment of loan as application will not amount of non-genuineness of the construction activity carried out by the assessee. 32.6 The next argument of learned AR is that the DVO report was unreliable as no physical inspection was conducted, and its conclusions that the buildings were pre-2014 were beyond the scope of section 142A of the Act. Undoubtedly the AO has placed great reliance on the report of the DVO for holding the entire building construction expenditure as bogus. However, the DVO’s report itself admits that the dates of commencement and completion were not provided and that it was “not ascertainable which blocks or area were constructed during the relevant period.” In such circumstances, a categorical conclusion that no construction took place during the relevant period is unfounded. Further the DVO’s role under section 142A of the Act is confined to estimating cost, not determining the period of construction. Therefore, his observations cannot be treated as conclusive proof. 32.7 Be that as may be, here it is also very important to note that the AO while framing the regular assessment u/s 143(3) for A.Y. 2022-23 .

Page 86 of 145 has also made reference to DVO on the issue of building construction cost. The DVO vide report dated 23-05-2025 valued the cost of construction of the building up to 31-03-2022 at Rs. 536,45,04,381/- and valued the cost of construction carried out during the F.Y. 2021-22 at Rs. 41,18,93,995/-. The copy of the valuation report is available on pages 196 to 211 of the paper book. This valuation has been accepted by the AO while framing the assessment for A.Y. 2022-23 which is evident from the assessment order available on record. Accordingly applying the backward calculation, the cost of construction of the building up to 31st March 2021 is arrived at Rs.495,89,29,417/-, whereas the assessee in the books of accounts has capitalised the cost of construction for the period starting from F.Y 2014-15 to F.Y. 2020-21 at Rs. 492,89,29,417/- and showing Capital work in progress of ₹5,54,21,128/-. Thus, it is transpired that the amount of construction expenditure claimed by the assessee for F.Ys. 2014-15 to 2020-21 and valuation made by the DVO vide report dated 23-05-025 are somewhat similar to a great extent. Hence, in our considered opinion, the action of holding entire construction expenses incurred during the year as bogus and outright rejection of the assessee’s claim based on DVO’s report dated 26-09- 2023 which was based on improper facts and information is not right. On contrary, the claim of the assessee for building construction is being supported by the subsequent valuation carried by the DVO and accepted by the AO himself. 32.8 The learned AR’s further claimed that self-made vouchers and some discrepancies in few bills could not justify the rejection of the entire claim. It was contended that the books were duly audited under both section 12A(b) of the Act and the Companies Act, with no adverse .

Page 87 of 145 remarks. In addition, the independent valuer’s report estimated cost of construction consistent with the books of account, applying standard CPWD rates and reasonable self-construction discount. The AO erred in rejecting it summarily. 32.9 In this regard, we are of the view that the AO did not undertake any independent verification of the vendors or contractors to whom the payments were allegedly made, nor did he bring on record any material to suggest that the funds were routed back or misappropriated. Discrepancies in a few vouchers or use of cash for labour and raw materials, though undesirable, cannot by themselves lead to an inference of bogus expenditure, particularly in construction projects involving unorganised sector labour. It may raise suspicion requiring the detailed verification and examination of facts. It is well settled position of law that suspicion whatsoever strong cannot partake as evidence. 32.10 The AO’s conclusion that the entire construction expenditure was bogus and that funds were diverted to the trustees under section 13(1)(c) is without any supporting evidence. No material or incriminating document was found during search indicating diversion of funds for personal benefit. The AO’s inferences are entirely based on suspicion, minor discrepancies in a few vouchers, and the DVO’s presumptive findings, which in our considered view is not justifiable. As such, the addition to the total income of the assessee must rest on tangible and cogent evidence. In this case, the AO has brought no such material on record. Therefore, the allegation of diversion or personal benefit cannot stand judicial scrutiny. 32.11 We are also conscious to the fact that the books of account of the assessee are duly audited under section 12A(b) of the Act as well as .

Page 88 of 145 under the Companies Act, 2013. Neither the statutory auditor nor the AO has pointed out any defect in the maintenance of accounts. Having accepted the books as reliable, the AO cannot selectively disbelieve one line item of capital expenditure without rejecting the books as a whole. Such an approach is contrary to settled principles of accounting and law. Especially considering the fact that the DVO in subsequent assessment year, based on detailed verification has accepted construction activity carried out by the assessee. 32.12 Considering the overall facts and in the light of the above discussion, we hold that the expenditure towards “building under construction” which has been disallowed by the AO and sustained by the learned CIT(A) lacks legal basis. The DVO report, being inconclusive and beyond its statutory scope, cannot be relied upon to hold that no construction took place. The AO failed to bring any positive evidence of diversion or bogus expenditure and finding of diversion of fund in the garb of bogus expenses are based on surmise and conjecture and therefore unsustainable. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the disallowance of ₹72,33,46,682/- made towards building construction expenses. Hence, the grounds of appeal raised by the assessee in this respect are allowed.

33. The next issue raised by the assessee through ground No. 7 of the appeal is that learned CIT(A) erred in confirming the disallowances of interest expenses of Rs. 1.68 crores attributable to lease deposit of Rs. 14 crores.

Page 89 of 145 paid an amount of Rs. 14 crores. On examination of source of payment and fund trail, the search team found that the assessee as on 31st March 2015 has taken loan from corporation bank for the sum of Rs. 25 crores. The entire loan amount of Rs. 25 crores were transferred to another bank account with corporation bank then to SBI bank account as on 2nd April 2016. 34.1 From the SBI bank account of the assessee, the fund was transferred to TGMC bank account -191 of the assessee on 4th April 2016 out of which the sum of Rs. 14 crore was withdrawn, which on the same day shown as paid to Smt. Kalpana Dayanand on account of lease on 4th April. On the same day, Smt. Kalpana Dayanand given entire cash of Rs. 14 crores as loan to the proprietary concern of the chairman of the assessee trust namely M/s Srinivasa Enterprise. The cash was deposited by the M/s Srinivasa Enterprises in small instalment in its TGMC bank CC-18 account which was kept as it is. As neither the amount was withdrawn subsequently, nor any large payment was made from impugned CC account. 34.2 Further, M/s Srinivasa Enterprises repaid the cash loan of Rs. 14 Lakh to Smt. Kalpana Dayanand in the form of payment of her personal corporation tax, income tax, advance tax, TDS and payment of her jewellery bill etc. 34.3 Furthermore, the search team also issued notice under section 133(6) of the Act to sub registrar calling information regarding value of the land. Accordingly, it was found that market value of the land stand only at Rs. 5.85 crores whereas assessee paid lease charges of Rs. 14 crores which is 2.5 times of the market value. It was also found that the land was taken on lease in the year 2016 and still the said land after .

Page 90 of 145 passing of 5 years remained barren and unattended. There was no work commenced on such land for the furtherance of object of the trust. 34.4 Considering the above, the AO issued show cause notice proposing to treat the transaction as diversion of the fund towards the entirely unrelated objective of the assessee trust. In absence of satisfactory reply from the assessee trust, the AO treated the payment of Rs. 14 crores to Smt. Kalpana Dayananda as diversion of fund as interest free loan out of interest-bearing fund. As such, the AO has treated the assessee as AOP and not as trust as the assessee has violated the provisions of section 13(1)(c) of the Act as held in previous issues. Therefore, the AO disallowed the proportionate interest @ 12% for Rs. 1.68 crores out of total finance cost of Rs. 18,79,17,598/- under the provisions of section 36(1) of the Act.

35. The aggrieved assessee preferred an appeal before the learned CIT(A) who after considering the facts in totality, confirmed the addition made by the AO by observing as under: 11.1 During the course of search proceedings, from concrete evidence it was found that, the appellant has given land advance of Rs.14 Crores to Kalpana Dayanand and as per cash book, on 4th April 2016, cash payment of Rs.14 crores were made to Kalpana Dayanand from SIMS & RC. This payment is purportedly with regard to the land lease agreement between SIMS & RC and Kalpana Dayanand dated 4th April 2016. The same day Kalpana Dayanand has given cash of Rs.14 Crores to Srinivasa Enterprises as loan. 11.2 The flow of events of the cash payments is as below: From the ledger account found in Tally data, it is found that, Rs.100 Crores loan was taken from Corporation Bank on 31st March 2015. Out of the above loan, on 04th April 2016, Rs.14 Crore was withdrawn in two installments of Rs.7Crores each and total Rs.14 Crores was paid in cash to Kalpana Dayanand on the same day. Smt. Kalpana Dayanand on the same day paid this cash to Shri G. Dayanand, the Trustee of the appellant. Shri G. Dayanand deposited it in his proprietary concern Srinivasa Enterprise’s bank account in TGMC Bank Ltd. on the very same day.

11.3 During the course of post search proceedings the guideline value of the land purportedly taken on lease has been obtained from the registration department. It is noticed that the value of the entire land is only Rs.5.85 Crores. It is seen that, the land valued at only Rs.5.85 Crores has been taken for lease at more than 2.5 times of its value. Based on these findings, since the AO has disallowed the interest due on this amount u/s 36(1)(iii) of the IT Act, as he has assessed the appellant as an AOP and not as a Trust. During the course of appellant proceedings, the appellant states that provisions of sec. 36(1)(iii) is not applicable to trust and that the transaction is for the benefit i.e. activity of the trust. 11.4 Even on the date of passing the asst. order i.e. 5 years after taking the land on lease in 2016, the land is still barren. This proves the fact that this transaction is neither for the purpose of the trust activity or for the purposes of business. Therefore, this act of disallowing the corresponding interest portion by the AO is hereby confirmed.

36. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 36.1 The learned AR before us submitted that the AO and the learned CIT(A) erred in disallowing a sum of ₹1,68,00,000/- being proportionate interest expenditure allegedly attributable to the lease deposit of ₹14 crores given to one of the trustees, Smt. Kalpana Dayanand. The ld. AR argued that the finding of the authorities below is contrary to the facts on record and the legal provisions applicable to charitable trusts. 36.2 It was explained that the appellant trust had entered into a duly executed lease agreement with Smt. Kalpana Dayanand on 04.04.2016 for taking 4.5 acres of land on lease. The amount of ₹14 crores paid to the trustee was not a loan or diversion of funds but a “lease deposit”, as clearly mentioned in the lease deed. A scanned copy of the lease agreement, forming part of the assessment record, confirms that the said amount was a refundable lease deposit given in pursuance of the lease arrangement and not an interest-free advance.

Page 92 of 145 36.3 The learned AR submitted that the AO wrongly treated the payment as “land advance.” It was clarified that the deposit was made in compliance with the terms of the lease deed, and this fact is supported by the caretaker of the trust, Sri. G.D. Manoj, in his statement recorded under section 131(1A) dated 23.07.2021. The caretaker clearly stated that the ₹14 crores paid represented a refundable lease deposit. Copies of the statement were placed in the paper book to substantiate this position. 36.4 The ld. AR pointed out that the lease agreement specifies a period of 11 years and does not stipulate payment of any recurring lease rent. Hence, the lump-sum refundable deposit was the only consideration under the contract. Given the length of the lease period and the absence of annual rent, the payment of ₹14 crores as a refundable lease deposit was commercially justified and within the framework of a legitimate transaction. 36.5 It was further argued that the land taken on lease is located adjacent to the Saptagiri Medical College and Hospital premises of the appellant trust and has been utilised for the activities of the trust, such as parking of buses and vehicles, sports and cultural events, and construction-related activities. Therefore, the conclusion of the AO that the land remains barren and unutilised is incorrect and contrary to the evidence furnished during the assessment as well as the appellate proceedings. 36.6 The learned AR submitted that the AO had presumed that the payment to the trustee was a diversion of funds in violation of section 13(1)(c) of the Act. However, the facts and documents on record show that the transaction was for the purpose of the trust and in furtherance .

Page 93 of 145 of its charitable activities. Since, the deposit was refundable and made under a valid lease arrangement, there was no element of personal benefit to the trustee. 36.7 It was further submitted that the provisions of section 36(1)(iii) of the Act, relied upon by the AO, has no application to the case of a charitable trust. That provision applies only for computation of business income and is not relevant in determining the application of income under section 11 of the Act. Hence, the disallowance made by invoking section 36(1)(iii) of the Act is not legally sustainable. 36.8 The ld. AR also referred to the market value of the land as per the guideline rate of ₹1.30 crore per acre notified by the Government of Karnataka and explained that the fair market value of the land at the time of the lease was more than ₹20 crores. Therefore, advancing a refundable lease deposit of ₹14 crores could not be considered excessive or unreasonable in the circumstances. 36.9 It was further emphasised that the transaction was transparent, duly supported by legal documentation, and made through proper banking channels. The lease was for the benefit of the trust, and the funds borrowed for paying the deposit were used exclusively for the trust’s purposes. Thus, the interest cost incurred on such borrowing qualifies as expenditure incurred for the objects of the trust. 36.10 In conclusion, the learned AR submitted that the authorities below have not appreciated the facts correctly and have wrongly inferred that the transaction was a diversion of funds. The lease agreement, the statements of the trustees, and the supporting evidence clearly establish that the payment was a refundable lease deposit made for the benefit of the trust. Hence, the disallowance of interest expenditure of .

Page 94 of 145 ₹1,68,00,000/- made by the AO is unjustified both on facts and in law. The learned AR therefore prayed that the Tribunal be pleased to delete the disallowance and allow the appeal. 36.11 On the other hand, the learned DR vehemently supported the finding of the revenue authorities.

37. We have heard the rival contentions of both the parties and perused the materials available on record. The core issue for adjudication is whether the disallowance of ₹1.68 crores, being proportionate interest expenditure attributable to the lease deposit of ₹14 crores given to Smt. Kalpana Dayanand, is justified in law and on facts. 37.1 The undisputed facts are that the appellant trust had entered into a registered lease agreement dated 04.04.2016 with Smt. Kalpana Dayanand for taking 4.5 acres of land on lease. The payment of ₹14 crores was made by the trust as per the terms of this agreement. The AO, based on the flow of funds and certain surrounding circumstances, concluded that the transaction represented diversion of interest-bearing funds to the trustee in the guise of an interest-free advance. Consequently, the AO disallowed proportionate interest expenditure under section 36(1)(iii) of the Act and also invoked the provisions of section 13(1)(c) of the Act, alleging violation of trust conditions. The learned CIT(A) confirmed the AO’s findings by observing that the land had not been utilised even after five years of lease and that the payment appeared excessive compared to the guidelines value. 37.2 After examining the lease agreement and the documentary evidences placed in the paper book, we find considerable merit in the contentions of the assessee. The lease agreement clearly specifies the .

Page 95 of 145 amount of ₹14 crores as a refundable lease deposit, not as an advance or interest-free loan. The nature of the transaction is further corroborated by the statement of the caretaker, Sri G.D. Manoj, recorded under section 131(1A) of the Act, wherein he categorically stated that the payment was a refundable deposit. These facts have not been controverted by the Revenue with any contrary material evidence. The agreement also prescribes a lease tenure of 11 years and does not provide for recurring lease rent. Thus, the one-time refundable deposit constitutes the entire consideration under the lease, which is a commercially recognised form of arrangement in long-term property leasing. 37.3 We also find that the land in question is situated adjacent to the Saptagiri Medical College and Hospital campus run by the trust. The assessee has placed on record explanations and written submissions before the ld. CIT(A) demonstrating that the land is being used for various purposes connected with the trust’s activities, such as parking of vehicles, sports, student events, and construction of related facilities. Therefore, the finding of the AO that the land is barren and unutilised is not factually supported by any evidence. The utilization of the land for the trust’s purposes shows that the lease arrangement was genuine and made for the benefit of the trust. 37.4 Further, we are of the considered opinion that the invocation of section 36(1)(iii) is legally untenable in the present case. The said provision applies to business entities for the purpose of computing income under the head “Profits and Gains of Business or Profession.” The assessee here is a charitable trust governed by the provisions of sections 11 to 13 of the Act, and its income has to be computed based .

Page 96 of 145 on the principle of “application” and “accumulation” of income, not under the regular business computation mechanism. Therefore, the disallowance of interest expenditure under section 36(1)(iii) has no legal basis in the context of a charitable trust. 37.5 We further note that the AO’s observation that the market value of the land was ₹5.85 crores does not, by itself, render the lease deposit of ₹14 crores unreasonable. The fair market value and the lease consideration cannot be equated because lease transactions depend on several commercial factors such as tenure, location, future expansion needs, and proximity to existing operations. The assessee’s explanation that the land was adjacent to its existing institution and was acquired for long-term operational needs appears reasonable and aligns with the trust’s objectives. 37.6 As regards the allegation of violation of section 13(1)(c) of the Act, we find that the payment made under a valid lease agreement, was refundable in nature, and was supported by bank records. No evidence has been brought on record to show that the trustee derived any personal benefit or that the amount was appropriated for non-charitable use. The mere fact that the lessor happens to be a trustee does not, by itself, attract section 13(1)(c) of the Act, unless it is established that the payment was excessive, unreasonable, or for personal gain which is not the case here. 37.7 Considering the totality of the facts, the documentary evidence, and the statutory framework, we are satisfied that the lease deposit was made for the genuine purpose of the trust and that the interest expenditure incurred on borrowed funds utilised for such purpose qualifies as application of income under section 11 of the Act. The AO .

Page 97 of 145 and the learned CIT(A) have drawn adverse inferences merely on suspicion and without disproving the genuineness of the transaction. Accordingly, we hold that the disallowance of ₹1,68,00,000/- made by the AO and confirmed by the ld. CIT(A) is unsustainable in law and on facts. We, therefore, direct the AO to delete the disallowance. The ground of appeal raised by the assessee is allowed.

38. The next issue raised by the assessee through Ground Nos. 8 & 9 of its appeal is that the learned CIT(A) erred in confirming the addition made by the AO for Rs. 20,92,65,800/- on account of alleged cash payments made from unaccounted funds.

39. The necessary facts are that during the search proceeding at office of the assessee trust at GD an excel file namely SELF LAND.xlsx was found and seized as part of seized material annexure A/SECT/BVB2/16. The impugned excel file among other sheet contains 2 sheets namely “SPR Thimme Gowda” and “Self CQH’s Statistcks”. 39.1 The sheet “SPR Thimme Gowda” contains columns such as S. No., particular, Chq. No’s, chq. dates, refers by and amount column. In the impugned sheet there were 8 entries. Entries at serial Nos. 1 to 3 contain information regarding payment aggregating to Rs. 10,24,50,000/- during the month of October 2019 and particular column for the same reads as “Setu with interest”, “Setu” and “cash” respectively. The AO inferred that these are entries of payment made in cash to the party “Thimme Gowda”. The next entries at S. Nos. 4 to 8 contains information regarding payment through cheque issued from bank account of different units of the assessee’s trust which aggregates to Rs. 7.75 crores. On inquiry with the bank, it was found that those were cash withdrawal through self/bearer cheque. Hence, it was inferred .

Page 98 of 145 that cash was paid to “Thimme Gowda” after withdrawal from the bank however this withdrawal in the books was shown as building construction expenses. 39.2 Likewise, the sheet “Self CQH’s Statistcks” contains columns such as S. No., party name, dates, Chq. No’s, referred by, particulars. A/c No and amounts column. In this sheet there were 19 entries showing payment through self cheque against the name of various parties including Thimme Gowda which aggregates to Rs. 2,92,65,800/-. As per these 2 excel sheet being “SPR Thimme Gowda” and “Self CQH’s Statistcks” these payments were made at the direction or reference of ‘GD Sir’ or ‘GDM Sir’. 39.3 The above discussed seized material was confronted to Shri Griyappa Dayananda Manoj who is caretaker of the assessee trust and son of Chairman of assessee trust namely Shri Griyappa Dayananda while recording his statement under section 131(1) of the Act as on 10th August 2021. He confirmed that the name “Thimmegowda” mentioned therein referred to Shri Thimmegowda, who is a family friend and associated with the activities of the trust. On being asked about the references to “GD SIR” and “GDM SIR,” he clarified that “GD SIR” refers to Shri G. Dayananda, whereas he did not know who “GDM SIR” and denied being referred to by that name. The authorities further sought explanations regarding cash withdrawals and cheque transactions totalling about ₹7.75 crore, ₹10.24 crore, and ₹2.92 crore appearing in the seized documents. The assessee admitted that documentary evidence like bills or third-party vouchers was not available but maintained that the said amounts were withdrawn and spent towards building and construction activities of the trust, supported by self-cash .

Page 99 of 145 vouchers. When confronted with specific transactions such as ₹50 lakh transfer between Sapthagiri Hospital and TGMC account, he explained that the same was part of the hospital’s building construction expenses. He further stated that all the remaining entries in the seized sheets formed part of the overall construction expenditure of approximately ₹99 crores incurred over five to six financial years. Although the payments were made largely in cash, he justified this by stating that the trust operates in rural areas where labourers and suppliers prefer cash transactions. He reiterated that all expenses were genuinely incurred for creation of building assets and were duly verified by the statutory auditors based on self-vouchers. 39.4 The AO based on above discussed facts, culled out during the search and post search proceedings, inferred that those cash payments to the parties namely Shri Thimme Gowda and others from the fund of the assessee were accommodated towards building construction expense. As such, the same is nothing but diversion of fund for the personal benefit of Shri Griyappa Dayananda and Shri Griyappa Dayananda Manoj being repayment of their personal loan. 39.5 However, the assessee through submission letter dated 14th November 2022 denied having entered to any transaction with Shri Thimme Gowda. But the AO did not accept the same and issued a show notice dated 18-10-2023. The assessee failed to make reply to show cause notice within the time and only make submission on the last day of available time limit for passing the assessment order. Hence, the AO did not consider the assessee’s submission and proceeded to complete the assessment order by making addition of Rs. 20,92,65,800/- .

Page 100 of 145 (10,24,50,000 + 7,75,50,000 + 2,92,65,800) on account of diversion of trust fund.

40. The aggrieved assessee preferred an appeal before the learned CIT(A). However, the learned CIT(A) confirmed the AO’s finding by observing as under: 12.2 It can be seen that; cash is withdrawn from the trust books by booking expenses in various entities of the appellant trust and booked under building construction head. The cash withdrawn is unlisted for cash payment to the person like Thimmegowda, Setu and others. This fact is evident from the seized material as has been reproduced in the assessment order above. 12.3 During the course of appeal proceedings the appellant has made the following submission in this regard: i. No cash received and no cash paid: On this it is held that, the seized material indicates that payments have been made to Setu, Thimmegowda and multiple parties, both in cheque as well as cash. Both these details are found in the same sheet and is part of the same seized material. ii. The AO has ignored cheque nos. mentioned in the same excel sheets: On this it is held that, there are both cash and bank payments and the fact that cheque nos. are also mentioned which can be verified independently gives credibility to the cash payments also. iii. There is no evidence for cash payments: On this it is held that, as has been elaborately discussed in the assessment order amounts have been withdrawn from various entities of the appellant and the same have been utilized for this cash payments. Evidence in the form of ledger extracts, excel sheets and Tally data is available to confirm the same. iv. Amount disallowed for construction of building should be available for the purposes of this repayment: On this it is held that, this plea is premature and cannot be decided now. v. Amounts mentioned are only rough estimates: On this it is held that, rough estimates do not get corroborated by the books of account in Tally and bank payments. vi. Even if the trust has repaid the trustees loan obligation, the trustees have an outstanding amount of Rs. 12,50,35,605/- in the audited books of the trust. On this it is held that, repayment of loan far exceeds this outstanding amount and the appellant has not given details of the same. vii. With respect to repayment of Rs.10,67,65,800/- has found in the loose sheets/ excel sheet has paid to Thimmegowda has to be considered since the sale agreement is cancelled. On this it is held that, the presence of a agreement to sale even if cancelled is proved that, transactions have happened between .

Thimmegowda and the appellant. This further gives support to the seized material which indicates cash payments have been made to Thimmegowda. 12.4 Therefore, based on the above discussion, it is held that, the appellant explanation for cash payments throughout various entities is not maintainable and the AO’s action in making this addition of Rs.2,09,26,5800/- is confirmed. 12.5 Therefore, this ground of appeal is dismissed.

41. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 41.1 The learned AR before us submitted that the addition of ₹20,92,65,800 made by the AO towards alleged cash payments was completely unjustified and without any proper evidence. It was explained that the said addition was based merely on certain Excel sheets titled “SPR Thimme Gowda” and “SELF CHQ’s STATISTICS,” which were found during the search from the computer of an accountant of the trust. The learned AR argued that these loose sheets, without any corroborative evidence, could not form the basis for a substantive addition, especially when the corresponding entries were already reflected in the regular books of account of the trust. 41.2 The learned AR contended that the entries showing payments to “Setu” amounting to ₹9.24 crore were wrongly treated as repayment of cash loans taken by Shri G.D. Dayananda from trust funds. It was pointed out that there was no material to prove that the loans of Shri G.D. Dayananda were repaid using trust money. The learned AR emphasized that this inference was purely based on presumption and conjecture, with no seized evidence to support it. Relying on established judicial precedents, it was argued that additions made merely on assumptions, without corroborative proof, cannot be sustained in law. 41.3 With regard to the entry of ₹1 crore allegedly paid to Shri Thimmegowda, the ld. AR clarified that it was a dumb entry, as the Excel .

Page 102 of 145 sheet did not specify the identity of the payer, payee, or purpose of the transaction. Further, Shri G.D. Manoj, in his statement recorded under section 131(1A) of the Act, categorically denied having any knowledge of such payment. The learned AR relied on the judgment of Hon’ble Delhi High Court ruling in CIT v. D.K. Gupta (2008) 174 Taxman 476, which held that dumb documents without corroboration cannot be used as evidence for making additions. Hence, it was submitted that the addition of ₹1 crore was baseless and unsustainable. 41.4 Regarding the transactions of ₹7.75 crore shown at Sl. Nos. 4 to 8 in the Excel sheet “SPR Thimme Gowda,” the AR submitted that these were cash withdrawals from the trust’s own bank accounts through self- cheques. The said withdrawals were duly recorded in the books under the “Building under Construction” head and utilized for creation of trust assets. It was highlighted that the AO himself acknowledged in the assessment order that such withdrawals were reflected in the books of account. Therefore, treating these withdrawals as diversion of funds was unjustified, as there was no evidence to show that the money was used for personal benefit of any trustee. The learned AR also argued that the addition resulted in double taxation since the entire building expenditure had already been disallowed by the AO in the same year. 41.5 As for the entry of ₹2.92 crore found in the “SELF CHQ’s STATISTICS” sheet, the learned AR submitted that this too represented legitimate cash withdrawals from the trust’s bank accounts, used for meeting construction-related expenses. It was explained that the trust operates in rural areas and many payments for building and labour were necessarily made in cash. The learned AR stressed that all withdrawals .

Page 103 of 145 were duly supported by bank records, self-vouchers, and Tally entries, and the statutory auditor had verified the same. 41.6 The learned AR argued that the AO’s conclusion that these withdrawals represented diversion of funds for personal benefit of the trustees was purely speculative and unsupported by any evidence. It was further contended that the mere mention of names in the Excel sheet did not prove any cash payment to those individuals. Such names might only represent persons authorized to withdraw or manage cash on behalf of the trust. Since the entries were duly reflected in the books and used for legitimate construction expenditure, the provisions of section 13(1)(c) of the Act had no application. 41.7 In conclusion, the learned AR submitted that there was no diversion of funds or misuse of trust resources, and that the entire addition of ₹20,92,65,800—comprising ₹9.24 crore, ₹1 crore, ₹7.75 crore, and ₹2.92 crore—was based solely on unverified, dumb data. The transactions were genuine, recorded in the regular accounts, and directly linked to the trust’s charitable activities. Therefore, the AR prayed to delete the entire addition and allow the grounds of appeal in full. 41.8 On the contrary, the learned DR vehemently supported the order of the authorities below.

42. We have heard the rival contentions of both the parties and perused the materials available on record. The addition of ₹20,92,65,800/- has been made by the AO on the allegation that the assessee trust made cash payments out of trust funds to certain parties such as Shri Thimmegowda and others as repayment of personal loan. The basis for this conclusion was the Excel sheets titled “SPR Thimme Gowda” and “Self CHQ’s Statistics” found during the course of search .

Page 104 of 145 proceedings. It is an undisputed fact that the impugned Excel sheets were found in the computer of an accountant of the trust and not from the personal custody of any trustee. The entries therein, by themselves, do not contain any indication that such payments represented unaccounted or undisclosed cash transactions. 42.1 During the course of statement recorded under section 131 of the Act, Shri Griyappa Dayananda Manoj clarified that the names mentioned in the Excel sheets referred to individuals associated with the trust’s construction activities and that all withdrawals had been utilized for the trust’s building construction work. He also explained that the trust’s projects were located in rural areas where many payments were necessarily made in cash. This explanation finds support in the fact that the corresponding amounts were duly reflected in the trust’s books of account under the head “Building under Construction.” 42.2 The AO himself acknowledged that the withdrawals through self- cheques aggregating to ₹7.75 crore and ₹ 2.92 were recorded in the books as building construction expenses. Further, in the preceding part of this order, we have already accepted the genuineness of the building construction expenditure incurred by the assessee. Once the genuineness of construction expenses has been accepted, the same cash withdrawals cannot again be treated as diversion of funds for the personal benefit of the trustees without any corroborative evidence. 42.3 The so-called seized Excel sheets are nothing but dumb documents which do not establish either the identity of the recipient or the purpose of the payment. No independent inquiry or evidence was brought on record by the AO to link these entries to any personal benefit of the trustees. The presumption that the amounts represented .

Page 105 of 145 repayment of personal loans of the trustees is entirely based on conjecture and not supported by any material evidence. The Hon’ble Delhi High Court in CIT v. D.K. Gupta (2008) 174 Taxman 476 (Del) has held that dumb documents, without corroboration, cannot form the basis for making additions. The same principle squarely applies in the present case. 42.4 It is also a matter of record that the entire building construction expenditure, including the impugned withdrawals, has already been examined and found genuine. Therefore, making a separate addition on the same amount results in double taxation of the same expenditure, which is legally impermissible. The AO has not demonstrated that the cash withdrawals were utilized for any purpose other than the construction of the trust buildings. The explanation of the assessee that the withdrawals were used for labour and material payments in cash, due to local constraints, remains uncontroverted. 42.5 In view of the above facts and circumstances, we are of the considered opinion that the addition of ₹20,92,65,800/- was made merely on suspicion and without any credible evidence of diversion of funds. The seized Excel sheets do not prove any unaccounted payment or personal benefit to the trustees. Since, the impugned payments have been duly recorded in the regular books as building construction expenses whose genuineness stands accepted, no separate addition is warranted. Hence the ground of appeal raised by the assessee is hereby allowed.

43. The issue raised by the assessee through Ground Nos. 10 & 11 of its appeal is that the learned CIT(A) erred in confirming the addition .

Page 106 of 145 made by the AO for Rs. 25.52 crores on account of alleged repayment of cash loan of propriety concern of trustees.

Page 107 of 145 Hence, once the partial transaction through bank found genuine, the repayment of cash loan also held to genuine and authentic as per the same excel sheet. The AO noted that in February 2021, out of cash loan of Rs. 59.80 crores a sum of Rs. 52.64 crores were repaid to the respective parties. 44.2 Furthermore, the AO found that during the course of search and after search proceedings, the caretaker of the assessee trust namely Shri GD Manoj was confronted with the seized materials but failed to explain the sources of repayment of cash loan. Hence, the AO inferred that the cash loan was taken by the chairman in individual capacity but repayment of the same made from trust fund by generating cash on account of receipt of capitation fee, /donation/ development fee etc which are not recorded in the books of accounts. The AO based on the seized materials quantified the repayment of cash loan during the year under dispute (A.Y. 2020-21) at Rs. 25.52 crores. Thus, the AO made an addition of Rs. 25.52 crores to the total income of the assessee trust on account of alleged generation of unaccounted receipts and diversion of same for the personal benefit of chairman.

Page 108 of 145 repayment of the loans are from appellant Trust fund and has been repaid by the appellant Trust on behalf of Shri G Dayanand, hence the AO has considered the amount paid from the appellant Trust as diverted of Trust’s fund for personal use of Sri G. Dayanand not for the purpose of the Trust. 13.2 The appellant in grounds of appeal has stated that, The Negative burden cannot be placed on Appellant to prove non receipt of cash loan and repayment in cash. The Ld. AO has failed to lay foundation fact that the Appellant Trust has received Cash Loan prior to Search. Also, the Ld. AO has failed to establish that there is outflow of money as repayment in the books of Trust. 13.3 These contentions of the appellant are not maintainable because of the facts of the case and detailed reasoning based on evidence in the assessment order. The AO has made this addition on the basis of incriminating material seized during the course of Search in the form of cloned and seized accounts data in Annexure A/SECT/BVB/2/17. This seized material contains details of loans taken and repaid both in cash and cheque from various parties namely Kishore Suresh Lal, Kozar Finco Rishab Enterprises etc. Analysis of this seized material shows that interest on these cash loans obtained in F.Y. 2018-19 are being paid in cash. The appellant has raised the following objections which are dealt with as under:- i. The document are dumb documents: However it is seen that these documents contain payments both in bank and by cash. The payments through banking channels are cross verified in the individual ledgers and are matching exactly. The cash payments details are entered against each entities name and the amount to be paid every month is also mentioned. The excel sheet is reproduced below: Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx Therefore, since the seized material has been derived from the backup of the accounts in the systems of the appellant and since it has independently verifiable data along with cash payments details in the same sheet the authenticity of the same cannot be doubted. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 13.5 Finally the appellant makes without prejudice contention by stating that this cash payments towards loan taken should be telescoped from the cash generation from building construction and covid expenses that have been disallowed by the AO. This contention of the appellant is a little premature as the nexus between the generation of cash and its application for cash loan repayment has not been established. Therefore, this ground of appeal is dismissed.

46. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 46.1 The learned AR before us submitted that the addition made by the AO towards repayment of cash loans is unjustified and .

Page 109 of 145 unsustainable. He stated that the AO has made an addition of ₹25,52,00,000/- on the presumption that the assessee trust had diverted its unaccounted funds for repayment of cash loans taken by its trustee, Shri G. Dayanand, who is the proprietor of M/s. Srinivasa Enterprises. The learned AR pointed out that this finding has no basis in fact or evidence and is purely based on suspicion, surmises, and conjecture. 46.2 He argued that the seized excel sheet referred to by the AO was only a dumb document containing general data and no concrete proof of actual cash transactions made by the assessee. The learned AR explained that the loans taken through banks were duly recorded in the books of M/s. Srinivasa Enterprises, while the alleged cash loans were neither found recorded in the books nor supported by any verifiable details like lender names, confirmations, or receipts. He added that the AO has relied only on this seized data without any corroborative material. The learned AR further clarified that the repayment of loans, if any, was done by the proprietary concern of Shri G Dayanand in his individual capacity, not by the trust. 46.3 The learned AR further contended that there is no evidence in the seized material to show that the trust’s funds were used for repayments of loan accepted by the trustee’s proprietary concern. He argued that the AO has drawn an inference merely based on surmise and conjecture that the trust is involved in educational activities and handles large sums of cash by way of capitation fees, development fees, or donations. However, there is no material on record to suggest that there were unaccounted receipts which used for personal purposes. The learned AR emphasized that such a general assumption cannot replace concrete proof and cannot justify the addition.

Page 110 of 145 46.4 The learned AR referred to the principles of law that the burden of proof lies on the Revenue to establish that the conditions for taxability are fulfilled. The appellant cannot be expected to prove a negative fact, such as that it has not made any repayment out of its trust funds. He relied on the judgment of the Hon’ble Supreme Court in K.P. Varghese v. ITO (1981) 131 ITR 597 (SC), wherein it was held that the onus is on the Revenue to prove the existence of taxable income and not on the assessee to disprove it. He argued that the AO has failed to bring any material to show that the repayment of loans was actually made from the trust’s accounts. 46.5 The learned AR submitted that the findings of the AO are based on conjectures and not supported by any evidence. He also contended that the AO’s assumption that the trust had diverted funds for the personal use of the trustee is contrary to the facts and without legal foundation. The ld. AR pointed out that the trust’s accounts were duly audited and there was no indication of any such diversion in its books. He argued that the conclusion of the AO is based solely on assumptions arising out of seized data which itself is unreliable. 46.6 He also submitted that the conclusion of the AO and the Ld. CIT(A) that the appellant had used trust funds for repayment of cash loans is without any evidence. The learned AR stressed that the burden of proving such diversion lies on the department, and the AO has not discharged this burden. He further added that no statement of Shri G. Dayanand recorded during search to confirm that the repayment of cash loans was made from the trust’s funds. 46.7 Accordingly, the learned AR concluded that, in the absence of any documentary evidence, the addition of ₹25,52,00,000/- made by the AO .

Page 111 of 145 is unsustainable in law. He urged that the finding is based purely on suspicion and general allegations, which cannot be a substitute for proof. He relied on the settled principle laid down by the Hon’ble Supreme Court in Dhakeswari Cotton Mills Ltd 26 ITR 775 (SC)., Umacharan Shaw & Bros. 37 ITR 271 (SC), and Daulatram Rawatmull 53 ITR 574, that no addition can be made merely on the basis of surmises and conjectures. 46.8 In the light of these submissions, the learned AR prayed to delete the addition of ₹25,52,00,000/- and hold that there is no evidence of diversion of trust funds for repayment of cash loans. 46.9 On the other hand, the learned DR vehemently supported the finding of the authorities below.

Page 112 of 145 47.1 We also note that the excel sheet does not mention the names of lenders against the alleged cash payments. The AO himself admitted that the names of the parties could not be identified from the document and were only “correlated” by comparing EMI amounts and dates with entries in Tally data of proprietary concern. Such correlation of data of proprietary concern of Shri G Dayanada, without independent confirmation, cannot be treated as conclusive evidence for holding the trust generated unaccounted fund which utilised for repayment of the personal loan of trustee. Further, the transactions through banking channels have been duly accounted for in the books of M/s. Srinivasa Enterprises. However, there is no record in the books of the assessee trust showing any outflow or repayment of loan amounts. Thus, the conclusion of the AO that the repayment was made out of trust funds is based on assumption and inference rather than on verifiable facts. 47.2 The law is well settled that the burden of proving that income has arisen or that any expenditure has been incurred out of undisclosed sources lies on the Revenue. The assessee cannot be asked to prove a negative fact. In holding so, we draw support and guidance from the judgment of Hon’ble Supreme Court in the case of K.P. Varghese vs. ITO (supra). The Hon’ble Supreme in para 13 of the said order observed that “It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no under-statement of the consideration on the assessee would be to cast an almost impossible .

Page 113 of 145 burden upon him to establish a negative”. Applying this principle, we find that the AO has not demonstrated the flow of funds from the trust’s accounts to the alleged lenders. There is also no evidence of any cash withdrawal from the trust or any statement by Shri G. Dayanand confirming the diversion of trust funds for personal benefit. In the absence of such evidence, the addition cannot be sustained in the hand of the assessee trust. 47.3 In our considered view the reliance of the AO and the ld. CIT(A) on general allegations that the trust collects large sums in cash by way of capitation or development fees is misplaced. Such an assumption cannot substitute for evidence. The Hon’ble Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT (26 ITR 775, SC), Umacharan Shaw & Bros. v. CIT (37 ITR 271, SC), and Daulatram Rawatmull v. CIT (53 ITR 574, SC), has held that the suspicion, however strong, cannot take the place of proof. 47.4 Applying these principles, we find that the addition made by the AO is entirely based on surmises and conjectures. There is no cogent material linking the trust with the repayment of cash loans allegedly undertaken by its trustee in his individual capacity. The seized material, even if accepted as genuine, only reflects the data of M/s Srinivasa Enterprises and not of the assessee trust. Therefore, no adverse inference can be drawn in the hands of the trust merely because the trustee’s proprietary concern had separate business transactions or borrowings. 47.5 We further note that the accounts of the trust are duly audited, and no defect or discrepancy has been pointed out by the AO. There is no evidence of any unrecorded income or expenditure in the trust’s .

Page 114 of 145 books which utilised for the repayment of personal loan of the trustee. In such circumstances, treating the repayment of loans by the trustee’s proprietary concern as diversion of trust funds is without legal foundation and contrary to the settled accounting position. 47.6 In light of the above discussion, we hold that the addition of ₹25,52,00,000/- made on account of alleged repayment of cash loans from unaccounted trust funds is without any basis. The findings of the AO and the CIT(A) rest on conjectures and assumptions unsupported by any reliable material evidence. Accordingly, we hereby set aside the finding of the learned CIT(A) and direct the AO to the delete said addition. Hence the ground of appeal of the assessee is hereby allowed.

48. In the result, the appeal of the assessee is hereby partly allowed. an appeal by the assessee for A.Y. 2021-22

49. The Grounds Nos. 1, 17 and 18 of the assessee’s appeal are general in nature and therefore, the same do not require any separate adjudication. Hence, we hereby dismiss the same as infructuous.

for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be .

Page 115 of 145 applicable for the assessment years 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph Nos. 10 to 15 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020-21 shall also be applied for the assessment years 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be applicable for the assessment years 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 20 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020- 21 shall also be applied for the assessment years 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

52. The issue raised by the assessee through Ground No. 4 of the appeal is that the revenue authorities erred in framing the assessment by the treating assessee’s status as a company instead of AOP(Trust).

53. Regarding the captioned ground, the learned AR before us submitted that the appellant had filed its return of income for A.Y. 2021- 22 in Form ITR-7 under the status of an AOP with the sub-status of a .

Page 116 of 145 Public Charitable Trust, since it was duly registered under section 12AA of the Act. The income was computed strictly in accordance with sections 11 to 13 of the Act. 53.1 During the course of assessment proceedings, the AO referred the matter to the PCIT under the second proviso to section 143(3) by letter dated 06.03.2023, proposing the withdrawal of registration under sections 12AA/12AB of the Act on the ground that the trust had allegedly violated conditions mentioned in Explanation to section 12AB(4) of the Act. Acting on this, the ld. PCIT passed an order under section 12AB(4)(ii) of the Act dated 29.09.2023 cancelling the registration of the trust from A.Y. 2021-22 onwards. 53.2 The learned AR contended that once the registration was cancelled, the AO proceeded to assess the appellant in the status of a company merely because it was a non-profit organisation registered under section 8 of the Companies Act, 2013. On this basis, the AO denied the benefit of exemption under section 11 of the Act and computed the total income of the appellant as a commercial entity, treating it as a company and assessing income under the heads “Profits and Gains of Business or Profession” and “Income from Other Sources.” 53.3 The learned AR argued that this approach is contrary to law and facts. It was claimed that the appellant’s registration under section 12AA/12AB of the Act was subsequently restored by the Hon’ble ITAT, Bangalore, vide order dated 24.03.2025 in ITA No. 835/Bang/2023. The Tribunal categorically held that the cancellation of registration was bad in law and directed the PCIT to restore the registration with immediate effect. A certified copy of this order was placed on record.

Page 117 of 145 53.4 The AR pointed out that in light of the Tribunal’s order restoring registration, the assessment made by the AO in the status of a company automatically becomes invalid. The appellant’s status as an AOP (Trust) stands reaffirmed, and therefore, the total income of the appellant must be recomputed in accordance with the provisions of sections 11 to 13 of the Act. 53.5 The AR further submitted that the Hon’ble Tribunal in its order has specifically observed that the cancellation of registration was based on legally unsustainable grounds and the reference made by the AO to the ld. PCIT suffered from procedural infirmities. Hence, once the registration is restored, the denial of exemption under section 11 of the Act cannot survive. 53.6 In conclusion, the learned AR prayed us to hold that the assessment made by the AO in the status of a company as bad in law and that the appellant’s correct status is that of an AOP (Public Charitable Trust). It was urged that the total income be recomputed as per the restored registration under section 12AA/12AB of the Act, granting the eligible exemption under sections 11 to 13 of the Act.

54. On the other hand, the learned DR vehemently supported the order of the authorities below.

Page 118 of 145 12AA/12AB of the Act stood cancelled by the order of the ld. PCIT dated 29.09.2023. Due to this cancellation, the AO treated the assessee as a company on the ground that it was registered under section 8 of the Companies Act, 2013. Consequently, the AO denied the exemption available under section 11 of the Act and computed the income under the heads “Profits and Gains of Business or Profession” and “Income from Other Sources.” 55.2 However, it is also a matter of record that the said cancellation of registration was later set aside by the Hon’ble ITAT, Bangalore, in vide order dated 24.03.2025. The Tribunal held that the cancellation of registration was not justified in law and directed the ld. PCIT to restore the registration of the assessee trust with immediate effect. 55.3 In light of the restoration of registration, the foundation on which the AO proceeded to assess the assessee as a company no longer exists. Once the registration under section 12AA/12AB of the Act stands restored, the assessee regains its charitable status and is to be treated as an AOP (Public Charitable Trust) for all purposes of the Act. Therefore, the computation of income and determination of tax liability must be made in accordance with the provisions of sections 11 to 13 of the Act. 55.4 Accordingly, we hold that the assessment made by the AO in the status of a company was correct only at the time of its completion, as the registration stood cancelled at that point of time. However, since the registration has now been restored by a subsequent binding judicial order, the AO is directed to treat the assessee in the correct status of an AOP (Public Charitable Trust) and the total income of the assessee shall .

Page 119 of 145 be computed in accordance with the provision of sections 11 to 13 of the Act. 55.5 In the result, this ground of appeal is allowed for statistical purposes, with a direction to the AO to modify the assessment accordingly considering the restored registration of the assessee trust.

56. The issue raised by the assessee through Ground Nos. 5 & 6 of appeal is that the learned CIT(A) erred in confirming disallowances of building construction expenses. 56.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be applicable for the assessment years 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 32 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020- 21 shall also be applied for the assessment years 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

57. The issue raised by the assessee through Ground No. 7 of the appeal is that the learned CIT(A) erred in confirming the disallowances of Covid Expenses of Rs. 17,05,46,680/- only.

58. The issue raised by the assessee through Ground No. 7 of the appeal is that the learned CIT(A) erred in confirming the disallowances of Covid Expenses of Rs. 17,05,46,680/- only. 58.1 The relevant facts are that the AO during the assessment proceedings verified the documents and Tally data found and seized .

Page 120 of 145 from the assessee’s premises during the search. On such verification, it was noticed that the assessee had claimed a substantial expenditure of ₹17,05,46,680/- as “Covid Expenses” during the financial year 2020–21. The Tally ledger extracted from the seized data clearly reflected that these expenses were recorded under the head “Covid Expenses” and incurred in cash. 58.2 The AO found that when the authorised officered confronted the seized materials, to the accountant of the Trust, Shri Balakrishna, he admitted the expenses were booked under the instructions of Shri G. Dayananda. However, he expressed his inability to produce supporting bills or vouchers for the claimed expenditure. Shri G Dayananda was also confronted with the seized materials in relation to covid expenses, but he also expressed inability to produce supporting bills. 58.3 It was also noticed that during the post-search, the assessee was called upon to substantiate the claim of Covid-related expenditure. The assessee submitted certain hand-made and self-prepared documents on sample basis, describing the same as bills and vouchers, purportedly for the expenditure on food, PPE kits, masks, and other materials distributed during Covid relief activities. However, these so-called bills were found to be written by hand on plain paper, without any proper invoice format, seal, or signature of any supplier. Many of the documents appeared to have been prepared subsequently to give an impression of genuineness. Further, photographs submitted by the assessee depicting distribution of food and items during Covid did not contain any date, stamp, or identification to link them with the claimed expenditure. Therefore, the AO did not accept the same as evidence for incurring the impugned expenses. Therefore, the AO through various notices issued during the .

Page 121 of 145 assessment asked the assessee to furnish necessary documentary evidence in support of claim of covid expenses. But the assessee failed to furnish the required supporting documents and only stated all the detail already furnished to the investigation wing. 58.4 Accordingly, the AO held that the assessee failed to furnish authentic third-party evidence, such as original bills, supplier details, receipts, or proof of actual purchase of goods or availing of services. In light of these facts, the AO concluded that the assessee had booked bogus, false, and fictitious expenses in the name of Covid relief. The AO further observed that the cash withdrawn against these expenses appeared to have been utilized for the purposes other than the stated charitable objects of the assessee’s trust deed. The entire amount of ₹17,05,46,680/- claimed under the head “Covid Expenses” was therefore disallowed and added back to the total income of the assessee under the head “Business or Profession.”

59. The aggrieved assessee preferred an appeal before the learned CIT(A), who confirmed the finding of the AO by observing as under: 10.1 The appellant trust has claimed Covid Expenses to the tune of Rs.17,05,46,680/- during the F.Y. 2020-21 and the entire expenses incurred in cash. The AO has disallowed the entire Covid Expenses stating that, during the search proceedings and post search proceedings, the seized material from the tally backup containing ledger of Covid Expenses for F.Y. 2020-21 was confronted to the appellant and sworn statements have been recorded. Shri Balakrishna, Accountant of the Trust, in his statement recorded has stated that, these expenses were booked with the direction of Shri G.D. Dayananda and he stated his inability to produce the supporting vouchers/bills with respect to the above said expenses. Further, during the assessment proceeding before the AO, the appellant has submitted self-made handwritten bills for food, masks, PPE etc., however, the appellant trust has not submitted any evidence of purchase of goods and services for distribution during Covid. The AO has held that, the appellant has booked bogus, false/fictitious expenses in the books of account under the head covid expenses and has withdrawn the cash for diverting the same for purposes other than the objects of the appellant trust. Further, the AO has pointed out that only hand made documents have been provided to claim these covid expenses of such huge quantum which are not verifiable independently.

During appellate proceedings, the appellant submitted 2 volumes of covid expenses related supporting evidences on 05.03.2025. One volume contains photographs purportedly evidencing the services provided by the appellant during covid. The photographs depict the following: i. Pictures of food preparation and distribution ii. Food being prepared communally in one place/kitchen iii. Some pictures show Balaji Bar and Restaurant and its kitchen from where food is distributed iv. Only a handful of pictures depicts PPE kit and fruits distribution v. Very few pictures of provision kits being distributed vi. People queueing up to receive food from a central place

What the pictures do not show: i. No date stamp ii. No indication as to for how many days these activities were undertaken iii. Volunteers each of them individually procuring or preparing food The second volume contains— i. Affidavits from volunteers stating that they all have volunteered to work alongside the appellant during covid period ii. List of volunteers along with the amounts received by them and the purposes for which the amounts were received iii. The purposes for which the amounts were received by the volunteers was for— a. Distribution of Provision kits b. Food distribution c. Ambulance d. Travel assistance e. Fruits & Vegetables Discrepancies noted in the second volume: i. All the 185 no. of volunteers have signed before the Notary Public on a single day i.e., 03.03.2025 ii. The volunteers have affirmed in the affidavit that they have performed voluntary activities without any financial gain or personal benefit iii. However, in the attached excel sheet, various sums have been mentioned against the name of each volunteer for having done the aforementioned work/services iv. The excel sheet shows that the covid expenses have been done over a period of six months April 2020 to September 2020 On careful appraisal of the submission of the appellant, the assessment order and material available on record the following key points emerge— A. First is that the appellant other than giving evidences for having enlisted some volunteers and having distributed food and amenities has not provided any bills for the purchase of— .

Page 123 of 145 i. Food ii. Provisions iii. PPE Kit iv. Fruits and Vegetables etc. B. No bills have been submitted for any purchases. For an expenditure purportedly undertaken to the tune of Rs.17,05,46,680/-, which does not include any cash payment to volunteers, it is inconceivable that no purchase bills for any item for such volume are available with the appellant. C. All the photographs that have been submitted show that food has been prepared communally in one kitchen or at best a few kitchens. However, the excel sheet showing expenses against the name of volunteers shows that each of them have received cash ranging from Rs.400/- to Rs.8,500/- towards food distribution. When the food is shown as prepared in a common kitchen(s) and that the volunteers have affirmed that they have not received any cash compensation, it is not explained as to what use this cash was put to. D. For Rs.17,05,46,680/- to be spent in six months, on an average Rs.10 Lakhs have to be spent on a single day approximately. It is very strange that, there are no purchase bills except some food purchase bills from hotels like Vikrant, Punarvika, Annapurneswari etc. Even these are hand made vouchers and since as discussed earlier, many of the photographs submitted show food being prepared centrally and then distributed, there is no scope for purchase of food as such. Further, most photographs show that people are usually in a big group receiving food. All the photographs show that food was prepared and distributed in bulk, therefore, purchase bills depicting purchase of few packets of “Food” (as mentioned in the hotel bills, not meals or any of the food items names) is not acceptable. 10.2 Therefore, these contentions of the appellant are not based on facts or evidence and are therefore not sustainable. Therefore, the addition on this issue made by the AO is upheld and appellant’s grounds of appeal no.13 is dismissed.

60. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 60.1 The learned AR before us made extensive argument by filing written submission which is extracted as under: 72. The covid pandemic was an unprecedented human crisis and relief works had to be undertaken by the Government and voluntary organisations in a swift manner in an emergency mode with no time to lose. The appellant trust is one such voluntary organisation which undertook extensive social service activities for providing urgent and timely covid relief to the needy and affected persons. 73. The relief activities were undertaken by the appellant by enlisting the services of large number of volunteers from various localities spread all over the city of Bengaluru and the procurement of food, PPE or masks for distribution to the needy persons by the volunteers had to be made in the respective localities in a decentralised manner to facilitate quick and timely .

Page 124 of 145 delivery. In the said circumstances, cash was distributed to the volunteers to afford them the flexibility to incur the expenditure at any time at the local level in accordance with the contingencies of the situation which was constantly undergoing change.

77. During the appellate proceedings, the appellant submitted the affidavits of 185 volunteers affirming the fact that the appellant trust has carried out the covid relief works through them. Copies of sample affidavits of volunteers are submitted at Page Nos.340 to 349 of PB-2.

80. However, the CIT(A) observed in the appellate order that the claim of giving cash to the volunteers for the purpose of distribution of food is not acceptable since the photographs submitted by the appellant have revealed that food has been prepared communally in one kitchen or a few kitchens and there is no scope for purchase of food. The said observation of the CIT(A) does .

Page 125 of 145 not reflect the correct appreciation of facts and is not justified. As already mentioned earlier, the volunteers have either purchased the food packets or got the food prepared in a local kitchen after buying the provisions with the cash distributed to them. The photographs revealing the food preparation in kitchens pertain to such preparation only and the CIT(A) has wrongly understood that the food preparation was done centrally in a community kitchen/few kitchens.

81. Further, the CIT(A) observed that all the 185 volunteers have signed before the notary public on a single day i.e., 03.03.2025. He also observed that though the volunteers have affirmed in the affidavits that they have performed the voluntary activities without any financial gain/personal benefit, the assessee has shown distribution of cash to them for various works/services. The said view of the CIT(A) again represents an erroneous appreciation of facts since the cash was distributed to the volunteers to facilitate buying of provisions, food etc. for onward distribution to the beneficiaries and not as their remuneration. Hence, there is no contradiction with the affirmation in their affidavits that they have performed the voluntary activities without any financial gain/personal benefit.

60.2 On the contrary, the learned DR vehemently supported the finding of the revenue authorities.

61. We have heard the rival contentions of both the parties and perused the materials available on record. The central issue before us is the disallowance of Covid expenses of ₹17,05,46,680/- claimed by the assessee trust for the financial year 2020–21. The Assessing Officer disallowed the same on the ground that the entire expenditure was incurred in cash without any verifiable supporting documents such as genuine third-party bills or vouchers. The learned CIT(A) confirmed the disallowance holding that the evidences furnished by the assessee were self-made, unverified, and incapable of establishing the genuineness of such huge expenditure. 61.1 At the outset, it is not in dispute that the appellant is a registered charitable trust engaged in philanthropic activities. It is also not denied that the period in question coincided with the peak of the Covid-19 pandemic when the nation faced severe disruptions in supply chains and mobility. During such a crisis, several charitable institutions and volunteers undertook relief operations in an emergency mode. The assessee has claimed to have done similar humanitarian work involving food distribution, supply of provisions, masks, PPE kits, and other essentials to needy persons. 61.2 The appellant has explained that, given the unprecedented situation, cash was distributed among 185 volunteers to enable quick .

Page 127 of 145 procurement of food and materials locally and to ensure decentralized and timely delivery to beneficiaries. It has also been explained that many small and unregistered vendors were involved, and due to the nature of the operations, the volunteers procured items against handwritten bills or self-vouchers. The appellant also submitted numerous photographs and affidavits from volunteers affirming their participation in Covid-relief work. 61.3 We observe that the AO has rejected the claim mainly because the supporting bills are self-prepared, handwritten, and not verifiable. The photographs, according to the AO and the ld. CIT(A), do not bear date stamps and hence cannot be conclusively linked with the Covid period. Further, it was noted that while volunteers stated that they worked voluntarily without monetary benefit, the excel sheet reflected payments in cash to them, creating inconsistency. However, the assessee has clarified that the said payments were not in the nature of remuneration but were cash advances meant for incurring local-level expenditure on food and provisions. 61.4 We also note that the trust’s accounts were duly audited under section 12A(b) of the Act, and no discrepancies were pointed out by the auditors regarding the maintenance of books or vouchers. The authorities below have not found any inflation or suppression of income in the books, nor have they rejected the books of account. Therefore, outright disallowance of the entire claim merely on the basis of imperfect or self-generated documentation appears excessive in the given facts and circumstances. 61.5 It is also relevant to consider that the charitable activities undertaken during an emergency situation like the Covid pandemic .

Page 128 of 145 cannot be expected to have perfect documentation. In such exceptional circumstances, procedural lapses or informal evidence cannot alone negate the substance of charitable work performed. The existence of photographs, affidavits of volunteers, and overall consistency of the ledger entries in the seized Tally data lend reasonable support to the assessee’s claim that relief activities were indeed carried out. 61.6 It is also pertinent to note that the presumption provided under section 132(4A) of the Act goes favouring assessee that the contents of the books and other documents found during search to be true which has also not been controverted by the ld. DR for the Revenue. Indeed, the presumption provided therein is rebuttable but the same was to be rebutted by the Revenue. As such the argument raised by the ld. AR has not been controverted by the DR appearing for the Revenue. 61.7 Considering the totality of circumstances, the peculiar conditions prevailing during the pandemic, and the nature of the assessee’s charitable operations, we are of the view that a fair approach is required to be adopted in the given facts and circumstances. The disallowance made by the AO and confirmed by the ld. CIT(A) in its entirety is based on surmise and conjecture and without making detailed inquiry. Hence, the same is not sustainable. We, therefore, set aside the finding of the learned CIT(A) and direct the AO to delete the disallowance. Hence the ground of appeal of the assessee is hereby allowed.

62. The issue raised by the assessee through Ground 8 of its appeal is that the learned CIT(A) erred in disallowing the renovation/civil work expenditure of Rs. 92,04,908/- only.

63. The relevant facts are that during the search proceedings, at office of the assessee at GD House, several loose documents in relation .

Page 129 of 145 expenses incurred on renovation of hotel namely “Hotel Vividus” were found and seized as annexure A/SECT/BVB2/12. This hotel is run by the trustee and his family members and its business operation are look after by Shri Giriyappa Dayananda Balaji S/o Chairman of trust Shri Griyappa Dayananda. 63.1 The seized material was confronted to the purchase-in-charge of the assessee trust namely Shri Vijay Kumar H who admitted that payment of renovation hotel was paid from the account of the trust for Rs. 92.05 lakh. Further, these seized materials and statement of Shri Vijay Kumar H was confronted to the caretaker of the assessee trust Shri Giriyappa Dayananda Manoj who admitted that the expenses were incurred in relation to the renovation of the Hotel Vividus. He further explained that impugned payment from the trust account was made as repayment of loan from Chairman Shri Giriyappa Dayananda. But the accountant erroneously debited the same as expenses of the trust. However, the mistake was rectified by debiting the loan account of Shri Giriyappa Dayananda. 63.2 Further, the assessee trust during the assessment proceedings, in response to notice under section 142(1) of the Act submitted that it has not booked expenses incurred on renovation of hotel/bar/restaurant. 63.3 However, the AO in light of seized documents, statement of various stakeholder recorded during the search and post search proceedings held the submission of the assessee as contradictory. As such, the AO observed that the examination of tally backup data of the trust established that the impugned expenses of Rs. 92,04,098/- has been claimed in the books of the assessee trust. Accordingly, the AO by .

Page 130 of 145 invoking the provision of section 37 of the Act disallowed impugned amount by holding the same as personal expenditure.

64. The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the finding of the AO.

65. Being aggrieved by the order of the authorities below, the assessee is in appeal before us. 65.1 The learned AR before us argued that AO had disallowed the renovation and civil work expenses of ₹92,04,908/- incurred in respect of Hotel Vividus on the ground that the expenditure was not connected with the charitable activities of the assessee trust and was wrongly debited in its books of accounts. The learned AR contended that this finding was factually and legally incorrect. He explained that the relevant renovation and civil work expenses were initially debited to the books of the trust by mistake, but were later rectified by crediting the same to the account of the concerned trustee, and hence, there was no actual claim of such expenses in the accounts of the trust for the purpose of exemption under section 11 of the Act. 65.2 The learned AR further submitted that the seized material and the statements of responsible persons of the trust had clarified the position. Shri G.D. Manoj, the caretaker of the trust, in his statement recorded under section 131(1A) of the Act, explained that Shri G. Dayanand, who was temporarily out of station, had instructed the accountant to make payment for the renovation of Hotel Vividus from the trust account and to treat the same as repayment of his unsecured loan by the trust. However, the accountant had inadvertently debited the amount to construction expenses of the trust. This error was subsequently identified and rectified by transferring the amount to the unsecured loan .

Page 131 of 145 account of Shri G. Dayanand. The learned AR pointed out that this fact was supported by books of account of the trust. 65.3 He drew attention to the balance sheet of the appellant trust, which showed that as on 31 March 2021, the unsecured loan of Shri G. Dayanand stood at ₹12,50,35,605/- with an amount far higher than the disputed renovation expenditure of ₹92,04,908/-. This clearly establishes that the said amount had been adjusted against the unsecured loan and was never claimed as expenditure by the trust. Thus, there was no question of disallowance under section 37(1) of the Act, since the expenditure was neither laid out for the purpose of business nor claimed in the income and expenditure account. 65.4 The learned AR argued that even on legal grounds the disallowance was untenable. The trust’s assessment had been made as if it were a company, and section 37(1) was wrongly invoked. He also emphasized that the Hon’ble Tribunal had already restored the registration of the appellant trust under section 12AA of the Act by order dated 25 March 2025, and therefore, its income was now to be computed in accordance with sections 11 to 13 of the Act. Consequently, the disallowance of renovation expenses under section 37(1) automatically ceased to survive. 65.5 The learned AR finally submitted that the expenditure in question had no impact on the computation of income eligible for exemption under section 11 of the Act, since it was never included in the “application of income” and claimed in the return. Therefore, the addition made by the AO and confirmed by the CIT(A) was wholly unjustified and unsustainable in law and on facts.

Page 132 of 145 65.6 On the contrary, the learned DR before us supported the finding of the AO and the learned CIT(A).

66. We have heard the rival contentions of both the parties and perused the materials available on record. The issue involved relates to the disallowance of renovation and civil work expenses amounting to ₹92,04,908/- incurred in respect of Hotel Vividus. The AO treated the expenditure as personal in nature and not connected with the objects of the assessee trust, thereby invoking section 37(1) of the Act and disallowing the same. The learned CIT(A) upheld this view by concurring with the reasoning of the AO. 66.1 On a careful examination of the record, it is evident that the seized materials referred to during the assessment were mainly loose sheets showing certain renovation expenses pertaining to Hotel Vividus, which is owned and managed by the trustees and their family members. During search proceedings, the purchase-in-charge of the trust, Shri H. Vijaya Kumar, had admitted that the payments for renovation were made from the account of the trust. However, the caretaker of the trust, Shri G.D. Manoj, clarified that these payments were made on the instruction of Shri G. Dayanand, the Chairman of the trust, to meet the hotel’s renovation expenses temporarily, as he was out of station. The caretaker further stated that the said payment was intended to be treated as repayment of the unsecured loan of Shri G. Dayanand by the trust and not as an expenditure incurred for the trust’s own purposes. He also confirmed that the accountant had inadvertently debited the amount to the construction account of the trust, which was later rectified by crediting the same to the unsecured loan account of Shri G. Dayanand.

Page 133 of 145 66.2 We find merit in the explanation furnished by the assessee. The balance sheet of the trust as on 31 March 2021 shows an unsecured loan of ₹12.50 crore standing in the name of Shri G. Dayanand, which is far higher than the disputed amount of ₹92.04 lakh. This fact substantiates that the expenditure in question was not claimed by the trust as an application of income for charitable purposes but was duly adjusted as part of the loan account. No material evidence has been brought on record by the Revenue to controvert this explanation or to demonstrate that the trust had derived any benefit or incurred this expenditure for non-charitable purposes. 66.3 We also note that the assessment was framed by invoking section 37(1) of the Act as if the assessee were a company carrying on business activity. However, the appellant is a registered charitable trust, and its income is to be computed in accordance with sections 11 to 13 of the Act. The application of section 37(1) is therefore misplaced. Moreover, the Tribunal has already restored the registration of the appellant under section 12AA by its order dated 25 March 2025. Consequently, any disallowance made under section 37(1) loses its relevance once the computation of income falls under the provisions governing charitable institutions. 66.4 In light of the above discussion, we hold that the disallowance of ₹92,04,908 made towards renovation and civil work expenses of Hotel Vividus is unsustainable on both facts and law. The authorities below have failed to appreciate the explanation and evidences placed on record. The mistake in accounting was a clerical error subsequently rectified, and the amount was never claimed as an allowable expenditure by the trust. Accordingly, we hereby set aside the finding of the learned .

Page 134 of 145 CIT(A) and direct the AO to delete the disallowance. In the result, Ground No. 8 of the appeal is allowed in favour of the assessee.

68. The issue raised by the assessee through Ground No. 10 of the appeal is that the learned CIT(A) erred in confirming the addition of Rs. 19,17,64,623/- towards alleged unaccounted receipt of capitation fee. 68.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be applicable for the assessment year 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 27 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020- 21 shall also be applied for the assessment year 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

69. The issue raised by the assessee through Ground No. 11 of the appeal is that the learned CIT(A) erred in confirming the disallowance of the donation to Chief Minister’s fund for Rs. 3,54,443/- only.

70. The AO observed that the assessee had claimed an amount of ₹3,54,443/- as “Expenditure on Donations” under the head “Other Expenses” for the financial year 2020-21. It was further noted that the .

Page 135 of 145 assessee had not disallowed this expenditure while computing its total income. 70.1 In response to the query raised, the assessee submitted that the donations were made towards the objects of the trust and hence were allowable under section 11 of the Act. The assessee also contended that the computation mechanism of a trust is different from that of business entities and that sections 28 to 41 of the Act apply only to business entities and not to trusts. 70.2 However, the AO did not accept this explanation. He pointed out that the registration of the trust had been cancelled with effect from the previous year 2020-21 and therefore, for the relevant year, the assessee was to be assessed as a business entity. Consequently, the taxable income had to be computed under the provisions applicable to companies or business concerns. The AO also noted that the assessee failed to furnish supporting details or documentary evidence regarding the donations made, such as the breakup of amounts, mode of payment, or the names of recipients. 70.3 The AO further referred to section 37(1) of the Act, which provides that only those expenditures incurred wholly and exclusively for the purposes of business or profession are allowable. Since the donations made by the assessee were not connected to the business activity and were not incurred for business purposes, the AO held that the expenditure on donation did not qualify as an allowable business expense. He therefore concluded that the amount of ₹3,54,443/- claimed as expenditure on donations was to be disallowed. Accordingly, the AO added this sum back to the total income of the assessee.

72. Being aggrieved by the finding of the learned CIT(A), the assessee is in appeal before us. 72.1 Before us, the learned AR of the assessee submitted as under: 11.2 In this regard, the appellant submits that the disallowance of donation made u/s 37(1) of the Act as applicable to company is not tenable since the assessment was made in the status of a company consequent to the cancellation of registration of the appellant trust by the PCIT. However, the said reason is no longer relevant as the registration of the trust has been subsequently restored by the Hon’ble ITAT. 11.3 With regard to the observation of the AO that the appellant failed to submit the details of the donations and mode of payment, it is submitted that the appellant trust paid sum of Rs.5 lakhs to CM Relief fund which consisted of Rs.3,54,443/- and employees contribution of Rs.1,45,557/-. The amount was paid through cheque and the said payment is reflected in the UBI bank account No.16381 of NPS unit of the trust on 26.05.2020. 11.4 The donation of Rs.3,54,443/- is included in the amount of “application of income” for the objects of the trust shown in the return of income. Since the said amount of “application of income” is duly certified in the Audit report in Form 10B, the genuineness of the expenditure cannot be doubted. 11.5 In view of the aforesaid submissions, the appellant prays that the Hon’ble ITAT may be pleased to allow this ground of appeal and delete the disallowance of donation.

72.3 On the contrary the learned DR vehemently supported the finding of the revenue authorities. 73. We have heard the rival contentions of both the parties and perused the materials available on record. It observed that the AO had disallowed the donation of ₹3,54,443/- made by the assessee trust to .

Page 137 of 145 the Chief Minister’s Relief Fund, under section 37(1) of the Act. The AO proceeded on the premise that the trust’s registration stood cancelled during the relevant year and therefore assessed the income in the status of a company. The learned CIT(A) also confirmed the disallowance on the ground that the assessee did not furnish sufficient documentary evidence of the donation. 73.1 We note that the registration of the assessee trust under section 12AA of the Act had since been restored by the Hon’ble ITAT, and therefore, the assessment status as a company no longer survived. Once the registration of the trust is restored, the computation of income has to be governed by sections 11 to 13 of the Act. The provisions of section 37(1), which apply to business entities, could not be invoked in the case of a charitable trust. 73.2 We further find merit in the submission of the learned AR that the donation was made out of the trust’s bank account by cheque and the transaction was duly reflected in the UBI Bank account No. 16381 of the NPS unit of the trust. The trust had made a total contribution of ₹5,00,000/- to the Chief Minister’s Relief Fund, of which ₹3,54,443/- represented the trust’s share and ₹1,45,557/- was the contribution of employees. The payment was made during the COVID-19 pandemic as a measure of public relief, which clearly falls within the charitable objectives of the trust. 73.4 We also observed that the said donation was included in the “application of income” for the year as disclosed in the return of income. The amount was duly certified in the audit report furnished in Form No. 10B, and no defect or inconsistency was pointed out by the revenue .

Page 138 of 145 authorities. Hence, the genuineness of the expenditure could not be doubted merely for want of further confirmation. 73.5 In view of these facts, we hold that the disallowance made by the AO and upheld by the ld. CIT(A) was unjustified. The payment to the Chief Minister’s Relief Fund was a genuine and verifiable expenditure made towards the charitable purpose of the trust. Therefore, it constituted a valid application of income under section 11 of the Act. Accordingly, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the disallowance of ₹3,54,443/- only. Hence, the ground of appeal raised by the assessee is hereby allowed.

74. The issue raised by the assessee through Ground Nos. 12 & 13 of the appeal is that the learned CIT(A) erred in confirming the addition of Rs. 16,68,00,000/- made on account alleged repayment of personal loan of trustee from unaccounted receipt of the trust. 74.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be applicable for the assessment years 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 37 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020- 21 shall also be applied for the assessment years 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

75. The issue raised by the assessee through Ground No. 14 of the appeal is that the learned CIT(A) erred in confirming the disallowance of .

Page 139 of 145 interest expenses of Rs. 1,68,00,000/- made on account alleged diversion of fund in the form of lease payment. 75.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2021-22 is identical to the issue raised by the assessee in 2020-

21. Therefore, the findings given in shall also be applicable for the assessment years 2021-22. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 47 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020- 21 shall also be applied for the assessment years 2021-22. Hence, the ground of appeal filed by the assessee is hereby allowed.

76. The issue raised by the assessee through Ground No. 15 & 16 of the appeal is that the learned CIT(A) erred in sustaining the disallowances of deprecation of Rs. 13,41,15,998/- though the depreciation has not been claimed as application of income.

77. The relevant facts are that the assessee during the year under consideration has shown addition of Rs. 98,76,56,760/- to the fixed assets under the building block. The AO found that the assessee has booked bogus building construction expenses during year as well as in preceding 6 assessment years. Hence, the AO held that once the building construction is itself bogus, the depreciation on the same is not eligible. Hence AO disallowed the corresponding depreciation of Rs. 13,41,15,998/- and added to the total income of the assessee.

78. On appeal by the assessee, the learned CIT(A) confirmed the finding of the AO by observing as under:

The AO has disallowed the depreciation of Rs.13,41,15,998/- claimed during the F.Y.2020-21 on the asset, as building of Rs.98,76,56,576/- holding that the appellant booked bogus expenses under the head building under construction. 19.2 These contentions of the appellant on this issue are not maintainable because of the facts of the case and detail reasoning based on evidence in the assessment order. Since, the AO has assessed the appellant as on AOP, the addition towards depreciation on buildings held as bogus is justified and is based on facts. The AO has rightly made this disallowance in its order on depreciation claim on the bogus assets. Hence, the disallowance made by the AO on this issue is upheld and the ground of appeal no.22 is dismissed.

79. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 79.1 The learned AR before us submitted that disallowances of depreciation of ₹13,41,15,998/- was made on the ground that the assessee had allegedly booked bogus expenses under the head “Building under Construction” during the year and preceding six years and later claimed the same as addition to the building. The ld. AR submitted that this finding is contrary to the facts on record and based on wrong appreciation of law. 79.2 The learned AR explained that the assessee trust had constructed its buildings over several years and had duly accounted for the expenditure in its books. The additions to building prior to 2014 had already been treated as application of income for charitable purposes under section 11 of the Act. The depreciation claimed during the year relates only to genuine assets used for the purposes of the trust. Therefore, there was no question of treating any part of the expenditure as bogus or disallowing depreciation on that basis. 79.3 The learned AR further submitted that the AO had assessed the assessee as a company after cancellation of registration under section 12AB by the PCIT. While making this assessment, the AO took the net profit as per the Income and Expenditure (I&E) statement and made several disallowances, including the present one. However, the order of .

Page 141 of 145 the ld. PCIT cancelling the registration was subsequently quashed by the Hon’ble ITAT, and the registration under section 12AB was restored. Therefore, the assessee has to be assessed as a charitable trust, and the computation of income has to be made in accordance with the provisions of section 11 of the Act. 79.4 The learned AR emphasized that in the case of a charitable trust, the question of disallowance of depreciation arises only if the same expenditure has been claimed earlier as application of income for exemption under section 11 of the Act. In the present case, the depreciation claimed in the I&E statement has not been included in the amount claimed as application of income. The ld. AR referred to the computation of income for A.Y. 2021–22, which shows that the total “application of income” claimed during the year amounted to ₹173,31,13,902/-, comprising revenue expenditure of ₹148,25,88,940/- and loan repayment of ₹25,05,24,962/-. The depreciation and amortisation expenses of ₹24,40,91,858/- debited to the I&E statement were specifically excluded from the computation of application of income. Hence, there was no double deduction of the same amount. 79.5 The learned AR also pointed out that no exemption under section 11 of the Act was claimed by the assessee in respect of depreciation, including depreciation on buildings, for the purpose of determining total income. Thus, the AO’s finding that depreciation results in double deduction is factually incorrect and legally untenable. When the depreciation debited to the I&E statement is not part of the application of income, there is no basis for disallowing it. 79.6 The learned AR also contended that the AO’s assumption that additions to the building were bogus is without any supporting evidence.

Page 142 of 145 The assets are physically existing and used for the educational activities of the trust. The AO’s conclusion is based merely on surmise and not on any tangible material. Moreover, depreciation is allowable on actual assets owned and used by the assessee, irrespective of the timing of the expenditure incurred for their construction. 79.7 In view of these facts, the learned AR submitted that the disallowance made by the AO and sustained by the ld. CIT(A) is unsustainable both in law and on facts. The ld. AR reiterated that the assessee’s financial statements, computation of income, and the application of income under section 11 clearly establish that the depreciation claimed was not considered as part of exemption computation. Therefore, there is no violation of law or any case of double deduction. 79.8 The learned AR concluded by stating that the AO has wrongly treated genuine expenditure as bogus and made unwarranted disallowance of depreciation. The claim of depreciation on building is fully supported by accounting records and the provisions of section 11 of the Act. Hence, the disallowance of ₹13,41,15,998/- deserves to be deleted in full.

Page 143 of 145 81.1 It is noted that the AO disallowed the claim of depreciation on the ground that the assessee had allegedly booked bogus building construction expenses during the year and the preceding six assessment years. Based on this assumption, the AO held that since the building itself was not genuine, the corresponding depreciation could not be allowed. The ld. CIT(A) sustained this disallowance by relying upon the reasoning of the AO and by stating that the appellant had failed to justify the genuineness of the building expenditure. 81.2 However, on careful examination of the records, we find that this finding of the AO and CIT(A) cannot be sustained. During adjudication of earlier grounds of appeal in this very case, we have already held that the building construction expenses incurred by the assessee were genuine. The expenditure was incurred for the legitimate purposes of the trust and has been accepted as genuine. Once the genuineness of the building construction expenditure has been upheld, the consequential claim of depreciation on such genuine assets cannot be denied. 81.3 It is also a fact that the assessee had duly accounted for the additions to its buildings in the fixed assets register. The depreciation was claimed only on actual assets used for charitable purposes. The AO has not disputed that the building exists or that it was used for the objects of the trust. The disallowance is based merely on suspicion that the expenditure was bogus, which we have already found to be untrue. Hence, the foundation of the disallowance itself does not survive. 81.4 We also find merit in the submission of the learned AR that the depreciation claimed in the Income and Expenditure account was not included in the computation of income as “application of funds” for the purpose of claiming exemption under section 11 of the Act. The .

Page 144 of 145 computation of total income clearly shows that the depreciation amount was specifically excluded while calculating the total application of income. Therefore, there is no question of any double deduction or violation of section 11 of the Act. 81.5 It is also pertinent to note that the assessee is a registered charitable trust whose registration under section 12AB stands restored by the order of the Tribunal. The assessment is therefore required to be made in the status of an AOP (Trust), and income must be computed in accordance with sections 11 to 13 of the Act. Under these provisions, depreciation is allowable on genuine assets used for the objects of the trust, provided the same amount is not treated as application of income in the same year. 81.6 In view of these facts, we hold that the disallowance of ₹13,41,15,998/– made by the AO and sustained by the ld. CIT(A) is unjustified and contrary to the settled legal position. The assessee has demonstrated that the building construction expenses are genuine, the assets are used for charitable purposes, and the depreciation has been claimed properly in accordance with law. Accordingly, we direct the AO to delete the disallowance of depreciation in full. Hence the ground of appeal raised by the assessee is hereby allowed.

82. In the result, the appeal of the assessee is hereby partly allowed.