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

PER WASEEM AHMED, ACCOUNTANT MEMBER:

These are set of 2 appeals filed at instance of the assessee for assessment years 2020-21 and 2021-22 arising out of separate orders of Learned Commissioner of Income Tax (Appeals)-15 Bengaluru (hereafter learned CIT-A) under the provision of section 250 of the Income tax
(here after the Act) dated
31st
March
2025
bearing
DIN:
ITBA/APL/M/250/2024-25/1075322373(1) and ITBA/APL/M/250/2024-
25/1075322383(1) respectively.

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2. First, we take up ITA No. 939/Bang/2025, an appeal by the assessee for the 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

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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/-.
6. The aggrieved assessee preferred an appeal before the learned
CIT(A), raising various grounds of appeal 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 ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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.

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Since the statute itself fixes the time limit for completion, any assessment made beyond this period is void and without juri iction.
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

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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

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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.

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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-

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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.
9. On the contrary, the learned DR vehemently opposed the arguments advanced by the assessee on the ground that the assessment orders are not time-barred under section 153B of the Income Tax Act.
The learned DR submitted that the AO has correctly computed the limitation period strictly in accordance with the express provisions of section 153B read with section 132(3) and 132(8A) of the Act. It was emphasized that the computation of limitation is a matter of legislative mandate and not one of subjective interpretation.
9.1
The learned DR explained that section 153B(1) of the Act lays down the time limit for completion of assessment in cases of search. As per clause (a) of section 153B(1) of the Act, in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted, the AO is required to complete the assessment within twelve months from the end of the financial year in which the last of the authorisations for search under section 132 of the Act was executed. Similarly, clause (b) prescribes the same limitation period for the relevant assessment year in which the search is conducted. Further, sub-section (2) of section 153B of the Act clearly provides that an authorisation shall be deemed to have been ITA No.939 & 940/Bang/2025

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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. ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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.

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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 ITA No.939 & 940/Bang/2025

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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.
9.4
With regard to the 4th Limb of argument of the ld. AR, the 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

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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

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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

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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.
10. We have heard the rival contentions of both the parties and perused the materials available on record. We have also perused the relevant panchnamas, prohibitory orders, and statutory provisions of sections 132(3), 132(8A), and 153B of the Act. The short but substantial question before us is whether the assessments made for Assessment
Years (AYs) 2020–21 and 2021–22 are barred by limitation under section 153B of the Act.
10.1 The assessee has advanced four distinct limbs of argument on this issue. We deal with each of them separately in the following paragraphs.
11. First Limb: Date of Conclusion of Search and Execution of Authorisation
11.1 Under this limb, the key issue for adjudication is at what point of time search deemed to be concluded for the purpose of computation of statutory time limit under section 153B of the Act for framing the assessment.

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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

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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 ITA No.939 & 940/Bang/2025

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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 juri iction 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 ?

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(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 ?

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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

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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.

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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

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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 ITA No.939 & 940/Bang/2025
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.

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12. Second Limb – Determination of Search Assessment Year and Relevant Financial Year for Limitation

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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 ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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.
13. Third Limb – Validity and Legal Effect of Prohibitory
Orders under section 132(3) of the Act.
13.1 The assessee has further contended that the prohibitory orders under section 132(3) of the Act were issued mechanically and without recording valid reasons of impracticability to seize the documents. It was argued that such orders were not based on any genuine constraint but were used merely to extend the limitation period. Therefore, the subsequent visits made for revocation and panchnamas drawn thereon cannot be considered for computation of limitation under section 153B of the Act.
13.2 On perusal of the records, we find force in this argument of the assessee. The panchnamas do not disclose any specific reasons explaining why immediate seizure of the documents was “not practicable.” The expression “not practicable” under section 132(3) of the Act must be construed narrowly. It cannot be invoked merely

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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.
72. The life of the authorisation starts with its issue and ends with its execution by the officials resulting in seizure of books, documents, money and so on. The search is to be carried out at one stretch and completed. The search comes to an end when the search party leaves the premises after carrying with them the seized material. As soon as the search party leaves the premises, the authorisation for search is fully implemented upon and execution is complete. They had exhausted the power under the authorisation to carry out the search. Otherwise, it would lead to a situation where once a person is searched, his premises is continuously open for the officers to search despite the fact that the search party is unable to find item that represents undisclosed income. Then the word "search" used in the context loses its meaning. The search pre-supposes that the assessee is in possession of some undisclosed income or other material and the authorities want to lay their hand on such undisclosed income or other material. Once the search commences and if it is adjourned for a later date, without completing the search on the adjourned date if the search recommences, it ceases to be a search in the context in which the said word is used in section 132 of the Act.
73. The second proviso to section 132(1) deals with the "deemed seizure".
When in the course of search, it is not possible to seize for the reasons set out in the aforesaid provisions. It is possible under four circumstances :
(a) where it is not possible or practicable to take physical possession of any valuable article or thing ;
(b) remove it to a safe place due to its volume, weight ;

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(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).

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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.

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14. Fourth Limb: Delay in Revocation of prohibitory order and CBDT Instruction
14.1 The issue raised in this limb of argument pertains to the validity of the panchanamas drawn beyond the one-month period from the date of the prohibitory orders issued under section 132(3) of the Act. The assessee’s contention is that the prohibitory orders revoked after more than forty days from their issue, are in clear violation of the binding instruction of the CBDT, which mandates revocation within one month.
The learned DR, on the other hand, argued that the CBDT instruction was issued in the context of the pre-amended provisions of section 132(8A) of the Act and instruction cannot overrule the express provision of the Act, therefore the CBDT instruction has no relevance to the present case.
14.2 We find that the CBDT Instruction No. F. No. 286/57/2002-IT (Inv-II) dated 03.07.2002 and paragraph 3.117 of the Search & Seizure
Manual, 2007 (Vol.-I), both categorically direct that any restraint order issued under section 132(3) of the Act should be revoked within one month from the date of such order. These instructions were framed to ensure that search and seizure operations are completed expeditiously and that the rights of taxpayers are not prejudiced by prolonged restraint on their property. The circulars and instructions issued by the Board under section 119(1) of the Act are binding on all income-tax authorities, as repeatedly held by the Hon’ble Supreme Court and various Hon’ble High Courts. The Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT reported in 18 taxmann.com 282 held as under:
18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, 'the ITA No.939 & 940/Bang/2025

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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{.

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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 juri ictional 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:
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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 ITA No.939 & 940/Bang/2025

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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.

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1. The first limb of the assessee’s argument—regarding immediate conclusion of search upon leaving the search premises/ drawing the Panchama is hereby accepted.
2. The second limb—relating to identification of search year and computation of limitation from F.Y. 2020–21—is not accepted. But the same become infructuous in the light of finding given for 1st
3rd and 4th limb of argument.
3. The third limb—challenging the validity of prohibitory orders under section 132(3)—is accepted.
4. The fourth limb—relating to CBDT’s administrative time limit—is accepted.
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.

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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

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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 ITA No.939 & 940/Bang/2025

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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

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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.
18. On the contrary, the learned DR strongly opposed the contention of the assessee that the approval granted under section 153D of the Act was mechanical and without application of mind. He submitted that the assessee had completely misunderstood the internal functioning of the Income Tax Department, especially within the Central Circles. The learned DR explained that in search cases, the Additional Commissioner of Income Tax (Addl. CIT) and the AO work in close coordination with the Investigation Wing from the very beginning of the case. All the reports, seized documents, and appraisal reports arising from the search are simultaneously shared with both the AO and the ld. Addl. CIT.
Therefore, the ld. Addl. CIT is fully aware of the facts and developments of the case throughout the entire assessment process.
18.1 The learned DR argued that one of the primary responsibilities of the Range Head or Addl. CIT is to ensure quality assessments within the central range. For this purpose, the ld. Addl. CIT regularly monitors the progress of search assessments, holds periodic meetings with AO, and reviews the materials and evidences gathered during the search. Hence,

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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

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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

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

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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.”

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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.

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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 wi om 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

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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.

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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 ITA No.939 & 940/Bang/2025

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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 ITA No.939 & 940/Bang/2025

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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.

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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.

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21. The issue raised by the assessee through Ground No. 4 of the appeal is that the learned CIT(A) erred in confirming the addition on account of alleged unaccounted receipts of capitation fee/donation.
22. The necessary facts are that during the search at the college premises of Sapthagiri Engineering College certain receipt books were found and seized marked as annexure A/SCE/132/-1 to A/SCE/132/06. The impugned seized receipts showed collection of donations from various parties in cash aggregating for a sum of Rs. 3,38,62,500/- only.
22.1 In this regard, the statement of account head of Sapthagiri
Engineering College namely Smt. Nayana Rangaraj was recorded wherein she admitted that impugned receipt show donation given to assessee trust but she did not know the person. She stated that principal of said college might throw some light on it.
22.2 The statement of principal Shri Dr H Ramkrishna was recorded wherein he admitted those receipts pertains receipt of donation by the assessee trust and He further stated those receipts were filed by HOD mathematic on the instruction of management of trust.
22.3 Thereafter, a statement of the chairman of the trust Shri GD
Dayananda was recorded where he confirmed the receipt relates to engineering college, but he also stated such receipt are properly deposited in the bank account.
22.4 The caretaker of assessee trust Shri Griyappa Dayananda Manoj in a statement recorded under section 131(1A) dated 23-07-2021 (i.e.
after 5 months of the search date) stated that the receipts were prepared at college in the name of parents of students on their request in lieu of actual receipt initially issued in the name of the student and ITA No.939 & 940/Bang/2025

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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

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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.
23. The aggrieved assessee preferred an appeal before the learned
CIT(A).
23.1 The assessee before the learned CIT(A) reiterated that no unaccounted cash was collected from the students. Whatever received was duly accounted in the books. The assessee contented that the AO is unjustified in invoking the provisions of section 13(1)(c) and section 164(2) based on surmises and conjectures and erred in holding the unaccounted receipt which was not utilized for purpose of the object.
23.2 The assessee argued that the amounts deposited in the bank accounts were often recorded before the official receipt dates because students and parents were instructed to deposit funds directly into the bank, after which the challans (deposit slips) were collected and receipts were issued later. Therefore, even if there was a mismatch in the dates between the bank deposits and the receipts, the appellant claimed that all funds were properly accounted for in the trust’s books.
23.3 The learned CIT(A) carefully reviewed the facts and the submissions made by the assessee. However, after examining the materials on record, the ld. CIT(A) noted clear discrepancies in the cash

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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.
24. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
25. The learned AR before us submitted that the addition of ₹3,38,62,500/- made by the AO towards alleged unaccounted donation receipts in cash is unjustified and contrary to the facts and law. He explained that the amount in question represents fees and donations received from students by Sapthagiri College of Engineering (SCE), which is run by the appellant trust. These amounts were duly deposited in the bank accounts of the trust and properly recorded in the books of account. The seized receipt books, which were the basis for the addition, were part of the regular fee collection process of the college and not unaccounted receipts as alleged by the department.
25.1 The learned AR pointed out that during the course of search proceedings, the Managing Trustee and Chairman of the appellant trust,
Sri G. Dayanand, had clearly stated in his sworn statement that the receipts found during the search were related to the regular fee

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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 ITA No.939 & 940/Bang/2025

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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,

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arbitrary, and contrary to facts. He prayed that the Hon’ble Tribunal be pleased to delete the said addition in the interest of justice.
26. On the other hand, the learned DR vehemently supported the finding of the Revenue authorities.
27. We have heard the rival contentions of both the parties and perused the materials available on record. The sole issue before us is whether the AO was justified in treating ₹3,38,62,500 as unaccounted cash donations received by the assessee trust, and consequently invoking sections 13(1)(c) and 164(2) of the Income Tax Act, 1961. 27.1 It is undisputed that during the course of search at the premises of Sapthagiri College of Engineering, certain receipt books were seized, showing entries for various sums received from students and parents.
These receipts formed the basis for the addition made by the AO. The AO concluded that these were cash donations not recorded in the regular books of account. However, on a detailed examination of the seized records, the statements recorded, and the reconciliation furnished, we find that such conclusion is not borne out from the facts on record.
27.2 The Managing Trustee of the appellant trust, Shri G. Dayanand, in his sworn statement recorded during the search, had clearly admitted that the receipts pertained to the normal course of fee collections made by the college. He also stated that all such amounts were deposited in the bank account of the trust and properly accounted for. This statement, which was recorded at the time of the search, has not been retracted, supports the stand of the assessee. It is relevant to note that the AO himself has extracted this statement in the assessment order, yet has failed to assign any reasons for discarding it.

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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 ITA No.939 & 940/Bang/2025

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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.

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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 ITA No.939 & 940/Bang/2025

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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.
28. The next issue raised by the assessee through Ground Nos. 5
& 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
&
Research centre
38,26,50,000
27,82,47,050
66,08,97,050
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

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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,

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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:

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-
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.

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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 juri iction 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.

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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 juri iction, 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,

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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,

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(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

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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. 28. It may be seen on perusal of the balance sheet as on 31.03.2020 that the Capital work-in-progress is shown at Rs.64,28,44,828/- as on 31.03.2020 and at Rs.42,14,06,628/- as on 31.03.2019 under the non-current assets. Further,
It may be seen on perusal of Note No.19 to the financial statements containing the depreciation statement that “Building under construction” is shown therein with an opening balance as on 01.04.2019 at Rs.42,14,06,628/-, additions during the year at Rs.72,33,46,682/-, deletion during the year at Rs.50,19,08,482/- and closing balance as on 31.03.2020 at Rs.64,28,44,828/-.
It is evident therefrom that the “Building under construction” shown in the depreciation statement is reflected as “Capital work-in-progress” in the balance sheet.
29. The deletion of Rs.50,19,08,842/- shown in “Building under construction”
in the depreciation statement represents the amount capitalised and added to the “Buildings” asset during the year out of the amount available in the Capital work-in-progress, on completion of the construction. It may be seen that the ITA No.939 & 940/Bang/2025

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“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”.
30. Thus, it may be seen that as against the addition of Rs.72,33,46,682/- made to building under construction (capital work-in-progress) during the year, the appellant capitalised and added an amount of Rs.50,19,08,482/- to the “Buildings” asset of the trust.
31. The appellant submits that the building under construction expenditure, which is constitutes capital expenditure, has not been claimed as “application of income” by the appellant in the return of income for the purpose of claiming exemption u/s 11 of the Act. Further, the depreciation on assets (including the depreciation on buildings) debited to the Income & Expenditure Statement
(“I&E Statement”) also has not been claimed as “application of income” by the appellant in the return of income.
32. The same is evident on perusal of the computation of income for A.Y 2020-
21 submitted at Page Nos.62 to 66 of PB-2. It may be seen that the application of income claimed during the year amounted to Rs.146,10,77,596/- which comprised of expenditure on revenue account of Rs.121,54,16,086/- and loan repayment of Rs.24,56,61,510/-. The amount of expenditure on revenue account was arrived at by excluding the depreciation and amortization expenses of Rs.21,18,58,654/- debited to the I&E Statement and CSR expenditure of Rs.84,65,000/- which is forming part of “Other expenses”
debited to the I&E Statement (the break-up of which is furnished in Note
No.18) from the aggregate expenditure of Rs.143,57,39,741/- debited to the I&E Statement.
33. It is therefore evident that the “building under construction” expenses of Rs.72,33,46,682/- debited to the capital work-in-progress account during the year as well as depreciation claimed on amount capitalised to the “buildings”
asset during the year from such capital work-in-progress has not been included in the amount claimed as “application of income” for the purpose of claiming exemption u/s 11. 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.
35. Notwithstanding the same, the appellant submits that the reasons cited by the AO for making disallowance of the said expenditure and for concluding that the income of the trust has been diverted to the trustees by booking bogus expenditure towards building under construction thereby attracting the provisions of section 13(1)(c) of the Act are unsustainable on the facts of the case.
36. The appellant submits that the conclusion of the AO that there is no evidence to establish that building under construction expenditure has been incurred is arbitrary and without regard to the evidences available on record.
The appellant submitted self-made vouchers for cash expenditure and bills/invoices for expenditure incurred through banking channel on a sample

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basis to the DVO as well as the AO, in support of the building under construction expenditure.
37. The same is acknowledged by the DVO in his valuation reports dated
26.09.2023 and by the AO at Para 6.9 (II) of the assessment order. Copies of the DVO valuation reports of SCE, SIMS & RC and NPS are submitted at Page
Nos.166 to 175, 176 to 186 and 187 to 195 of PB-2 respectively.
38. However, the AO doubted the genuineness of the bills/invoices submitted by the appellant by pointing out certain discrepancies in few bills. Such discrepancies noticed in some of the bills issued by the third parties can at best give rise to doubt/suspicion regarding the genuineness of the concerned expenditure and they cannot be the starting point for making further enquiries with the concerned parties to ascertain the truth. However, the AO did not conduct any enquiries with the parties who issued such bills in order to ascertain the reasons for the discrepancies and the genuineness of the concerned transactions.
39. The appellant submits that it is not justified to draw any conclusion regarding the genuineness of the expenditure without making such enquiries and without bringing any adverse evidence on record. Moreover, the discrepancies in few bills cannot warrant rejection of the entire expenditure debited towards building under construction.
40. It is also relevant to submit that the expenditure incurred towards building under construction through cash mode and bank mode is 55% and 45% of the expenditure respectively for the A.Y 2020-21. The appellant submits that the AO did not make any enquiries with the concerned vendors and did not bring any material on record to prove that the expenditure incurred through bank mode is not genuine. Further, it is undisputed that no evidence of any cash trail was found during the search that the payments made to the vendors through banking channel have been routed back to the appellant, which could prove that such expenditure is bogus as alleged by the AO.
41. The expenditure incurred through cash, which is supported by self- vouchers, is mainly towards labour expenses and purchase of sand, jelly etc., which are procured from the un-organized sector. Incurring of expenditure in cash for the said purposes is unavoidable in the prevailing business environment. In the said circumstances, incurring of said expenditure in cash and maintenance of self-made vouchers in support of the same is inevitable and the said feature does not justify the inference of the AO that whole of such expenditure is bogus or fictitious.
42. In his appellate order, the CIT(A) observed while concurring with the findings of the AO that the hand writing of the person who prepared the self- made voucher and the signature of the recipient in the voucher appears to be that of the same person in many self-made vouchers for expenditure incurred in cash. The CIT(A) cited four instances of such cases. The CIT(A) also cited one instance of purchase of electrical items and one instance of purchase of sanitary items in cash and observed that the recipients have affixed their thumb impression in the corresponding self-made vouchers, which normally happens when purchase is made from casual laborers.
43. In this regard, the appellant submits that the inference drawn by the CIT(A) that the hand writing of the person preparing the voucher and the recipient of the amount is same in some of the self-made vouchers is ITA No.939 & 940/Bang/2025

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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.
46. In this regard, it is pertinent to mention that the books of account of the appellant have been audited under the provisions of section 12A(b) of the Income-tax Act and audit report in Form 10B has been submitted. Since the appellant trust is registered as a company with non-profit objectives under section 8 of the Companies Act, 2013, the accounts of the appellant have also been audited under the provisions of the said Act also. The appellant submits that no deficiencies in the maintenance of the books of account and bills/vouchers have been pointed out in the audit report. The copies of the audit reports under the IT Act and under the Companies Act for the A.Y 2020-
21 are submitted at Page Nos.79 to 81 and 82 to 97 of PB-2 respectively.
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.

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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.
52. The appellant submits that the said reason given by the AO is also untenable. The self-construction discount factor considered by the Registered valuer is 10% for the valuation of cost of construction as on 01.04.2014. The Registered valuer has clearly explained the basis for arriving at the said discount factor in his statement dated 08.09.2021 which is extracted in the assessment order itself. He explained that the CPWD rate is inclusive of the profit of the contractor. He explained that since the assessee trust has employed the labour directly without assigning the construction work to a contractor, the self- construction discount factor was applied after arriving at the cost of construction as per CPWD rates in order to compensate for the profit of the contractor. He stated that the said discount factor is usually 8 to 10% of the cost of construction. Hence, the adoption of 10% as the discount factor by him cannot be regarded as arbitrary since the same is in consonance with the profit margin in a construction contract.
53. As regards the non-consideration of self-construction discount factor by the registered valuer in the valuation of the cost of construction for the period
2014 to 2021, the registered valuer has explained in his statement that the same was inadvertently missed out. The AO could have considered the registered valuer’s report after making necessary adjustment of self- construction discount factor of 10% instead of rejecting the said report altogether.
54. The appellant accordingly submits that the rejection of the registered valuer’s reports by the AO is not justified in the facts of the case. The evidentiary value of the registered valuer’s report has been disregarded by the AO by citing reasons which are not tenable.
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.
56. Though approved plans and structural drawings were provided to the DVO, as acknowledged by the DVO himself in the valuation reports, the DVO did not make any valuation of the cost of construction of the physically

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available buildings merely on the reasoning that the commencement and completion certificates could not be produced by the assessee.
57. In this regard, the appellant submits that the DVO valuation reports are not in accordance with the requirements of law as they have not made any valuation of the cost of construction of the physically available buildings, particularly when section 142A(5) provides for making estimate of the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions.
58. The DVO could have made the valuation considering the physically available extent of constructed area and the average cost of construction for the relevant period when the details of commencement and completion of construction could not be furnished by the appellant. However, the DVO has not made any such attempt and has given findings which are outside the scope of his powers. The DVO valuation reports of such a nature are not legally tenable and they do not have any evidentiary value in the eyes of law.
59. Further, the AO has completely disregarded various corroborative evidences submitted by the appellant with regard to the construction of buildings vide letter submitted on 10.11.2023 in response to the show-cause notice dated 18.10.2023 issued by the AO, which include the Letters of Permission issued by Government/MCI for starting various para clinical and clinical PG courses in 2015 and 2019 and loan sanction letters in respect of term loans obtained to the trust in 2015 and 2019 for the purpose of construction of buildings. Copy of the acknowledgment for submission of the said letter and copy of the letter are submitted at Page Nos.7 to 17 of PB-3. The copies of the relevant letters of permission issued by the Government/MCI and copies of the relevant loan sanction letters are submitted at Page Nos.68
to 80 and Page Nos.81 to 93 of PB-3 respectively.
60. Further, it is relevant to submit that the AO made a reference to the DVO u/s 142A of the Act subsequently seeking the valuation of the cost of construction of the buildings of the appellant trust for F.Y 2021-22 relevant to A.Y 2022-23. In response to the said reference, the DVO submitted valuation report dated 23.05.2025. Copy of the DVO valuation report dated 23.05.2025
for the period from 01.04.20221 to 31.03.2022 is submitted at Page Nos.196 to 211 of PB-2. 61. On perusal of the said valuation report, it may be seen that the DVO has valued the gross construction cost of buildings of the appellant trust up to 31.03.2022, apart from valuation of the cost of construction of buildings for the F.Y 2021-22. It is seen that the gross construction cost of buildings up to 31.03.2022 has been valued by the DVO at Rs.536,45,04,381/- and the cost of construction of buildings for the F.Y 2021-22 has been valued at Rs.41,18,93,995/-.
62. On the basis of the same, the gross construction cost of buildings up to 31.03.2021 can be worked out backwards at Rs.495,26,10,386/- (Gross construction cost of Rs.536,45,04,381/- up to 31.03.2022 less the cost of construction for the F.Y 2021-22 of Rs.41,18,93,995/-)
63. Compared to the same, the gross block of buildings shown in the balance sheet of the appellant as on 31.03.2021 is Rs.492,89,29,417/- and the capital work- progress shown is Rs.5,54,21,128/- as on 31.03.2021. This clearly shows that the genuineness of the building under construction expenses

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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.
64. In view of the aforesaid reasons, the conclusion of the AO that the assessee could not substantiate the expenditure towards building under construction with documentary evidences is contrary to the material on record and not justified on facts of the case.
65. Besides the above, it is pertinent to submit that that the AO has erroneously concluded that the amounts represented by the building construction expenditure were diverted to the trustees in violation of the provisions of section 13(1)(c) of the Act on the ground that there are no evidences to prove that the said expenditure has been utilized for the objects of the trust. The AO did not advert to any incriminating material unearthed during the search which revealed diversion of the amounts debited in the books towards building under construction to the trustees for their individual benefit. There is no such evidence available on record.
66. The appellant submits that the conclusion 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, which is legally not permissible as per the settled law. The AO is not entitled to make an addition based on surmise or pure guess, without reference to any evidence or material. There must be something more than ‘bare suspicion’ to support the addition made in the assessment. Suspicion, however strong, cannot be a substitute for evidence.
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).”
68. Further, the appellant places reliance on the decision of the Hon’ble
Supreme Court in the case of Umacharan Shaw & Bros v. CIT [1959] 37 ITR
271 (SC) (Copy submitted at Page Nos.37 to 44 of PB-3), wherein it was held that suspicion cannot take the place of proof and conclusion based on surmises and conjectures is not tenable. The appellant also places reliance on similar decision of Hon’ble Supreme Court in the case of CIT Vs. Daulatram Rawatmull
[1964] 53 ITR 574 (SC) (Copy submitted at Page Nos.45 to 49 of PB-3).
69. The ratio laid down by the Hon’ble Apex court in the afore mentioned cases is squarely applicable to the facts of the appellant’s case. The appellant

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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.
70. In view of the aforesaid submissions, the appellant submits that the disallowance of building under construction expenditure of Rs.72,33,46,682/- made by the AO is unsustainable on facts of the case and in law. The appellant prays that the Hon’ble tribunal may be pleased to allow the grounds of appeal and delete the said disallowances.

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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

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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

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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

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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 ITA No.939 & 940/Bang/2025

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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.

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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