BYSANI ADINARAYAGUPTHA SRINATH,BENGALURU vs. JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL CIRCLE-1(3), BENGALURU

PER WASEEM AHMED, ACCOUNTANT MEMBER:

-410/Bang/2025 Page 2 of 33 an appeal by the assessee Shri Bysani Adinarayaguptha Srinath for A.Y. 2014-15 as a lead case.

-410/Bang/2025 Page 3 of 33 purchases of Maize from unregistered dealer. To support the cash purchases only self-made vouchers were maintained by the assessee which only contained name and amount without any other details. When these facts were confronted to the assessee while recording his statement under section 132(4) of the Act, the assessee admitted the inflation of expenditure to the tune of 25% and agreed to the disallowances of Rs. 7,66,69,033/- and Rs. 15,09,89,853/- in case of M/s Aishwarya Trading Corporation (own case) and M/s Sanjana Trading Corporation (wife case) respectively for different financial years. 2.5 In the post search proceedings, the statement of the assessee was again recorded under section 131 of the Act as on 7th May 2019. At this time, the assessee provided the detail of cash purchases made in case of M/s Aishwarya Trading Corporation and M/s Sanjana Trading Corporation during the F.Y. 2012-13 to 2017-18. As per the detail provided, the cash purchases for the F.Y. 2012-13 to 2017-18 in the impugned proprietary concerns stand at Rs. 48,61,75,579/- and Rs. 63,61,79,887/- respectively. Further, the assessee admitted about 20% of purchases across these two concerns as non-genuine. The assessee explains that at the time of search non-genuine purchase was admitted at 25% but the same was based on unverified books and details. But after post search examination of books, the inflated purchases agreed at 20% which quantified at Rs. 9,72,35,114/- and Rs. 12,72,35,979/- respectively for M/s Aishwarya Trading Corporation and M/s Sanjana Trading Corporation for the F.Ys. 2012-13 to 2017-18. 2.6 However, the AO found that the admitted amount of non-genuine cash purchases was not offered by the assessee in the return of income filed under section 153A of the Act. The AO also noted that the assessee at the time of search admitted non-genuine purchases at 25% and in the .

-410/Bang/2025 Page 4 of 33 post search proceedings substituted the same to 20%. However, the assessee’s explanation for 20% of non-genuine purchase instead of 25% was not supported by the evidence. The AO also observed that the cash generated by the assessee from non-genuine purchases are utilised for giving cash loans and part of undisclosed income invested in jewellery.

2.7 Hence, the AO proposed to make addition on account of cash purchases at 25%. The AO worked the proposed amount of disallowance in case of assessee’s proprietary concern (M/s Aishwarya Trading Corporation) for F.Y. 2012-13 to 2017-18 at Rs. 12,15,43,896/- and out of which Rs. 3,64,13,598/- pertains to the year under consideration i.e. A.Y. 2014-15. In response, the assessee explained that the proposed disallowance of 25% of cash purchases is not correct either in facts or in law. Purchases of maize were paid in cash, but they were properly recorded in the books and supported by vouchers showing quantity and the amount. These purchases were agricultural produce, and the same were sold to well-known registered entities. The assessee also maintained stock records, VAT returns, and books of accounts which were all audited under section 44AB of the Act. 2.8 It was argued that the proposal to make an arbitrary disallowance of 25% has no basis in law. Treating 25% or 20% of the purchases as non-genuine lacks rationality for the reason that if 75% of the purchases are accepted as genuine, there is no reason to treat the balance as bogus. In support of the argument, the assessee relied on ruling in the case of CIT v. Lakshmi Vilas Bank Ltd. 2.9 The assessee relying on the decision of ITAT Delhi in the case of ACIT v. Ganapati Enterprises Ltd. reported in 32 taxmann.com 262 and .

-410/Bang/2025 Page 5 of 33 Hon’ble Supreme Court judgment in the case of PCIT v. R.G. Buildwell Engineers Ltd reported in 99 taxmann.com 284 along with other judicial precedents contended that ad-hoc disallowances cannot be made. The AO must point out specific unverifiable or non-genuine expenses before making any disallowance. Simply, applying an arbitrary percentage without pointing out specific defect and rejecting the books of account is not permitted. 2.10 The assessee further explained that all purchases and sales matched with stock records and there was no evidence of bogus transactions. Sales cannot take place without purchases, and reconciliation of stock showed that no part of purchases could be treated as unexplained. The allegation that 25% of cash purchases were invested in jewellery or cash loans was also incorrect. No such assets were found in the search, and the value of seized jewellery was much lower than the disallowance proposed. 2.11 It was also shown that if 25% of purchases are disallowed, the gross profit percentage becomes abnormally high and unrealistic, which is not possible in the trading of agricultural produce. The average purchase rates from the registered dealer and unregistered dealer were also nearly the same, proving genuineness. Even otherwise, settled law says that at most only the profit element can be added back, and not the entire amount of cash purchases. 2.12 In conclusion, the assessee requested that the proposal to disallow 25% of cash purchases be dropped, since the purchases are genuine, supported by records, and covered by statutory exemption under Rule 6DD of Income Tax Rules.

-410/Bang/2025 Page 6 of 33 2.13 However, the AO did not accept the assessee’s argument and explanation. The AO found that during the course of search at the premises of M/s Shree Gluco Biotech Pvt. Ltd. on 20.02.2019, incriminating materials were seized, including purchase bills and vouchers of M/s Sanjana Trading Corporation (assessee’s wife) and M/s Aishwarya Trading Corporation (assessee), as well as tally server backups. On analysis of these seized materials, it was found that the assessee had made large-scale cash purchases of maize from unregistered dealers and farmers through agents. The assessee was confronted with this evidence, and his sworn statement was recorded under section 132(4) of the Act, in which he admitted that such purchases were made, that part of the expenditure was inflated, and that about 25% of the cash purchases were non-genuine. The assessee further admitted that such inflation was done to reduce taxable profit. Subsequent to the search proceeding (3 months after search), the assessee in the statement recorded under section 131(1) of the Act, again confirmed the non-genuine cash purchases but reduced the ratio from 25% to 20% of cash purchases. 2.14 The assessee later attempted to retract the admission, but the retraction was made after a long delay of over 14 months and was not supported by any corroborative evidence. The AO found that statements recorded under section 132(4) carry strong evidentiary value, and retractions must be immediate and supported by proof of coercion or mistake. In this case, the assessee has not discharged his burden of proof to show that the admission was involuntary or incorrect. In support the AO placed reliance on the ruling of Hon’ble Supreme Court in the case of M/s Bannalal Jat Constructions Pvt. Ltd. v. ACIT (2019) 106 taxmann.com 128 and in case of Surjit Singh Chhabra 1 SCC 508/ .

-410/Bang/2025 Page 7 of 33 509 (1997) SC, Ruling of Hon’ble Rajasthan High Court in case of PCIT v. Roshan Lal Sancheti ( 172 DTR 313/306 CTR 140), (SC), and other binding precedents where it was held that belated and unsupported retractions are meaningless. 2.15 The AO further, on reconciliation of seized data with books of accounts, found that the assessee had recorded only self-generated cash vouchers, without names and complete details of parties from whom purchases were allegedly made. No independent evidence was furnished to substantiate purchases from unregistered dealers. The assessee himself admitted that such vouchers were only created internally to support inflated entries and that approximately 20–25% of cash purchases across the years were non-genuine. Even though the assessee later tried to reduce the disallowance percentage from 25% to 20%, the same is not acceptable since no documentary proof was provided. Accordingly, the AO in the absence of corroboration, relied upon the original admission made during search, and inflation of purchases was quantified at 25%. 2.16 The AO, from seized materials, in the case of M/s Aishwarya Trading Corporation, the total purchases over financial years 2012-13 to 2017-18 amounted to more than ₹139 crores, out of which undisclosed inflated purchases have been worked out year-wise. Similar findings were recorded for M/s Sanjana Trading Corporation, where inflated purchases were also admitted. On this basis, undisclosed income on account of inflated and non-genuine purchases has been computed at ₹3,64,13,598/-, details of which are set out in the assessment order. 2.17 The assessee’s argument based on gross profit ratio over the years has also been considered but rejected, as such ratios are only drawn from accounted entries and cannot be relied upon to explain .

-410/Bang/2025 Page 8 of 33 unaccounted purchases and inflation admitted in the sworn statement. The attempt of the assessee to reconcile figures over a three-month period post-search also resulted in higher totals, further confirming that purchases were inflated. 2.18 It is further noted that the Hon’ble Supreme Court in CST v. H.M. Esufali H.M. Abdulali (90 ITR 271) has upheld the validity of extrapolation in assessment proceedings. In this case, since the assessee failed to substantiate purchases and the seized material established both inflation and diversion of cash, extrapolation of inflation at 25% of purchases is reasonable. Accordingly, the addition of ₹3,64,13,598/- is made to the returned income of the assessee for the relevant assessment years on account of inflated and non-genuine purchases.

-410/Bang/2025 Page 9 of 33 should not be relied upon, and that the correct position should be considered on the basis of books of account, records, and other supporting documents. 3.2 The assessee further submitted that even if any admission is made during the search proceeding, it is not conclusive. It can always be shown to be erroneous when supported by facts and evidence. The AO cannot make additions merely on the basis of admission without verifying the correctness of the same. In the present case, the alleged admission regarding purchases cannot stand, because all purchases are duly recorded in the books, reconciled with sales, and stocks are sold to reputed government and private sector parties without any doubt about their genuineness. Therefore, no part of the purchases can be treated as bogus. The legal position makes it clear that such admissions are not binding and cannot form the sole basis of addition. 3.3 Furthermore, the assessee reiterated that that the disallowance of 25% of cash purchases is unjustified both in fact and law. The purchases mainly consist of maize, an agricultural produce, paid for in cash to farmers. As per Rule 6DD(e)(i) of the Income Tax Rules, such payments are specifically exempt from disallowance under section 40A(3) of the Act. The purchases are properly recorded in the books, audited under section 44AB of the Act, disclosed in VAT returns, and supported by stock statements already filed with the AO. The transactions also attracted RMC cess, further confirming their genuineness. Sales have been made to reputed parties such as Karnataka Milk Federation, Venkateshwara Hatcheries, and Suguna Foods, and the proceeds are mostly received through cheque or bank transfer. Cash sales form only a small percentage of total sales (about 5% in ATC and 12% in STC), .

-410/Bang/2025 Page 10 of 33 which means most cash purchases are matched against bank/cheque sales. 3.4 It is further argued that no defect has been pointed out in the stock records, and in fact, purchases are fully reconciled with sales. All the purchases made in the year were sold in the year itself and any quantity of closing stock remained in some years which is very small in quantity and same sold in next year. Thus, no part of the purchases can be termed as bogus. Therefore, the ad-hoc disallowance of 25% is arbitrary and without basis. Hon’ble Courts and tribunals have consistently held that such arbitrary disallowances are not permissible unless specific defects or unverifiable vouchers are identified, which is not the case here. 3.5 It is also shown that if 25% disallowance is sustained, the gross profit ratio shoots up to abnormal and unrealistic levels, which are impossible to achieve in the assessee’s line of business where purchases are order-based and margins are low. This proves that the addition is commercially absurd. Further, the average price of registered and unregistered dealer purchases per quintal is almost the same, showing there is no inflation or suppression in recording of purchases. 3.6 In view of these facts, legal provisions, and judicial precedents, the assessee contends that the purchases are genuine, fully accounted for, and cannot be disallowed arbitrarily. Therefore, the addition made by the AO deserves to be deleted in full.

-410/Bang/2025 Page 11 of 33 relevant documents and evidence. However, the assessee failed to do so and only now filed an affidavit seeking retraction of the statement made under section 132(4) of the Act. Such additional evidence cannot be admitted as the assessee has not shown any sufficient cause for not producing it earlier. 4.1 The AO emphasizes that the statement recorded under section 132(4) of the Act has full evidentiary value. Once given voluntarily, it cannot be lightly retracted. The Hon’ble Courts and Tribunals have repeatedly held that the burden lies on the assessee to prove that the retraction is genuine and backed by convincing evidence. In this case, the affidavit is a self-serving document without any supporting proof, and hence it cannot be accepted. 4.2 The AO further notes that the assessee had, at the time of recording, confirmed that the statement was voluntary, given with full knowledge, without coercion or undue influence, and in the presence of witnesses. The answers were coherent and clear, showing that the assessee was in a fit state of mind. At the time of hearing also, no force or threat was alleged. Thus, the later claim of mental stress or coercion is an afterthought. 4.3 Relying on judicial precedents such as Bannalal Jat Constructions Pvt Ltd (supra), Avadh Kishore Das vs. Ram Gopal in AIR 1979 SC 861, Sudharshan Amin vs ACIT in [2013] 35 taxmann.com 370 (Gujarat), etc. submitted that such ruling makes it clear that retraction cannot be accepted unless supported by strong and contemporaneous evidence, which is absent in this case. Mere filing of an affidavit months/years after the search cannot displace the evidentiary value of a statement recorded under oath during search, especially when corroborative documents and seized materials support the additions.

-410/Bang/2025 Page 12 of 33 4.4 Therefore, the AO contends that the affidavit and retraction are devoid of merit, constitute an afterthought, and should be rejected. The additions made in the assessment order on the basis of the statement under section 132(4) of the Act together with corroborative evidence are correct and deserves to be sustained. 4.5 In rejoinder to the remand report, the assessee submit that the objections raised in the remand report are not sustainable. The affidavit dated 12.03.2019 was executed within 20 days of the search and was duly notarised. It was sought to be filed before the authority during the post search proceeding as well as before the AO during the assessment, but they dismissed it as a self-serving document and refused to accept it. This fact is clearly stated in the application for admission of additional evidence. The remand report does not dispute either the existence of the affidavit or the date of its execution. 4.6 The affidavit is consistent with the facts already placed before the search party, the AO, and also before the ld. CIT(A). The AO has himself dealt with the retraction in detail in his assessment order by relying on case laws, which shows that the department was aware of the retraction even at the time of assessment. Therefore, the affidavit cannot be treated as a new or afterthought document. Admission of this affidavit will not prejudice the department in any way as it forms part of the assessee’s defence. 4.7 The case laws relied upon by the AO in the remand report are distinguishable. The legal position remains that an admission is not conclusive and can be shown to be erroneous. Admissions made under strained circumstances or during long and odd-hour questioning cannot be treated as voluntary, especially when retracted with supporting evidence. In the present case, there is no seizure or corroborative .

-410/Bang/2025 Page 13 of 33 evidence against the assessee’s explanation. Books of account, VAT returns, stock statements, and other records fully substantiate that the purchases and transactions are genuine. 4.8 However, the learned CIT(A) after considering the facts in totality found that the assessee’s claim that the affidavit dated 12.03.2019 retracting the statement under section 132(4) was refused by the search party is not supported by any evidence. The affidavit only makes general statements that the purchases are genuine, the sales are recorded, and the income was wrongly admitted under pressure. No supporting material such as reconciliation of cash and non-cash purchases, sale agreements, or loan agreements were filed with it. 4.9 It is also seen that in the statement under section 132(4) of the Act, the assessee himself confirmed that the statement was voluntary and without coercion or threat. There is nothing on record to prove that the admission was made under pressure or duress. The burden of proof lies on the assessee to show that the admission was incorrect or forced, but no such proof has been given. Courts have held that retraction must be made with strong reasons, supported by evidence, and within a reasonable time. In this case, the affidavit is a self-serving document without corroboration. 4.10 Furthermore, the learned CIT(A) observed that statement under section 131(1) of the Act was also recorded as on 7th May 2019, where the assessee again admitted that except for self-made vouchers, no proof was available for purchases and that 20% of cash purchases were non-genuine. This was almost two months after the so-called affidavit retracting, creating a contradiction. Through the affidavit, the assessee tried to retract the admission made during search, but the assessee still conceded that 20% of cash purchases were non-genuine while recording .

-410/Bang/2025 Page 14 of 33 the statement under section 131(1) of the Act, thus, creates contradiction in the assessee’s claim. It is also noted that there was enough time to substantiate the retraction with facts and figures, but the assessee failed to do so. Therefore, the learned CIT(A) held that the retraction is without strong supporting evidence and hence, could not be accepted. 4.11 The learned CIT(A) further held that at one hand, the assessee claimed that all purchases were genuine and recorded, while on the other hand, he admitted that around 20–25% of the cash purchases were non-genuine. It was noted that the assessee increased the figure of cash purchases during the post search proceedings while recording the statement under section 131 of the Act claiming such figure arrived after verification of book but did not show how such verification was made. No documentary evidence or proper basis was provided either before the AO or during appellate proceedings to support the claim. The details filed showed that a significant portion of purchases in both ATC and STC were in cash, but these were supported only by self-made vouchers, which were unverifiable. The huge volume of such unverifiable purchases created practical difficulty in confirming their genuineness, especially as they were made from unregistered dealers. 4.12 The ld. CIT(A) observed that the assessee did not prove how the genuineness of cash purchases was established, and merely argued that if disallowance was to be made, it should be restricted to 20%. This argument was rejected since the assessee himself had contended earlier that all purchases were genuine, yet failed to prove them with verifiable evidence. The fact remained that the cash vouchers lacked sufficient details of sellers, quantities, or prices, making them non-verifiable. Considering seized material and the appellant’s own admission, the ld. .

-410/Bang/2025 Page 15 of 33 CIT(A) held that 25% of the cash purchases were non-genuine. The plea that only the profit embedded in such purchases should be added was not accepted, as no conclusive proof of genuineness was shown. Accordingly, the grounds of the assessee on this issue were dismissed. 5. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

5.1 The learned AR before us submitted that the addition made by the AO is wholly untenable in law and on facts. He pointed out that the entire purchases, including the cash component, have been duly recorded in the books of account, supported by regular VAT returns, daily stock statements, audited financial statements, and quantitative reconciliations of purchases and sales. The AO has not rejected the books of account under section 145, nor has he pointed out any defects therein. In such circumstances, it is a settled principle, as laid down in R.G. Buildwell Engineers (Delhi High Court), Diamond Food Products (Kerala High Court), and H.M. Esufali (Supreme Court), that ad hoc disallowances are impermissible. Unless the books are first rejected, no estimation or disallowance can be made. 5.2 The learned AR further argued that the evidence on record clearly establishes the genuineness of the purchases. The quantitative details of stock, purchases, and sales tally with the audited books of account and financial statements. It was also demonstrated that sales were predominantly through non-cash modes, and the negligible portion of cash sales was fully reconciled with the corresponding purchases. This itself shows that no unaccounted purchases could have existed. Reliance was placed on Nitin Lohia (Bombay High Court), Param Dairy (Delhi High Court), and Ramesh Exports (ITAT Bangalore), where it was consistently .

-410/Bang/2025 Page 16 of 33 held that once sales are accepted, corresponding purchases cannot be disallowed. 5.3 The AR submitted that the entire addition was based solely on an admission of Shri Srinath in his statement under section 132(4). That statement itself was contradictory, later retracted, and explained as having been made under mistaken facts during the stress of the search. It is well settled that an admission, unless supported by independent corroborative evidence, cannot be the sole basis of an addition. Reliance was placed on judicial pronouncement like S. Kahder Khan (Madras High Court 300 ITR 157), M. Narayanan & Bros. 339 ITR 192 (Madras), and Pramukh Builders (Third Member decision of ITAT Ahmedabad, 112 ITD 179), which held that a retracted statement without corroboration has no evidentiary value. 5.4 The learned AR further pointed out that the AO himself adopted inconsistent stands—sometimes stating that alleged bogus purchases resulted in jewellery investments, and at other times alleging that they were used for cash loans. No such jewellery or loans were identified or seized. Even additions under the Wealth-tax Act had been partly deleted by the CIT(A), showing contradictions in the Revenue’s case. 5.5 It was also argued that if the addition is sustained even partially, it would lead to absurd results. For example, in the year under consideration, the gross profit margin would artificially inflate to nearly 14% as against the normal 4%. In the line of agricultural trading where margins are very low and purchases are order-based, such a high profit margin is commercially impossible. The jurisdictional Karnataka High Court in Madhu Solanki 100 taxmann.com 266 (Karnataka-HC) has held that where the result of an addition is an abnormally high GP rate, the same cannot be sustained.

-410/Bang/2025 Page 17 of 33 5.6 The AR also argued that the AO adopted arbitrary percentages of disallowance—sometimes 25% and at other times 20%—without any basis. If 75% of the cash purchases are accepted as genuine, there is no logic to disallow the remaining 25%. Such selective reliance on part of a statement while rejecting the other part is impermissible. Reliance was placed on Conor Granito 159 taxmann.com 1209 (ITAT Rajkot), which held that even in fixing a percentage for bogus purchases, there must be a rational basis, and it cannot be arbitrary. 5.7 Finally, the AR submitted that at the highest, if there were doubts about the genuineness of certain purchases, only the embedded profit could be brought to tax, not the entire amount. This principle has been upheld by the Bombay High Court in Jakharia Fabrics 118 taxmann.com 406, Rishabhdev Technocable 115 taxmann.com 333, Rushail Pharmadin 163 taxmann.com, and Mohammad Haji Adam 103 taxmann.com 459. The Delhi High Court in Pushpa Saluja 174 taxmann.com 803 and the Gujarat High Court in Bholanath Poly Fabs 355 ITR 290 have also followed this principle. In conclusion, the AR strongly urged that the addition is excessive, based on suspicion and without evidence, and therefore deserves to be deleted in full.

-410/Bang/2025 Page 18 of 33 of cash purchases can stand in the given facts and circumstances. The record shows: (i) During search, purchase bills/vouchers and tally back-ups pertaining to the assessee’s proprietary concern (ATC) and his spouse’s concern (STC) were found; (ii) In a sworn statement under section 132(4) of the Act, the assessee admitted that about 25% of cash purchases were non- genuine/inflated; (iii) In a later statement under section 131(1) of the Act, he reiterated non-genuineness but sought to restrict the disallowance at 20%; and (iv) An affidavit dated 12-03-2019 purporting to retract was filed allegedly without corroborating books-based reconciliation or third-party evidence.

7.1 The learned CIT(A) therefore rejected the retraction and sustained the 25% of the addition as made by the AO in the assessment order. 7.2 Before going to the issue, we find pertinent to discuss the evidentiary value of statements recorded during the search and during the post search proceeding. The Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala reported in 91 ITR 18 holds that an admission is a very important piece of evidence, but it is not conclusive; the maker can show it was incorrect. On the other hand, where a voluntary statement under oath is clear and later retraction is belated or unsupported, the statement shall be treated as reliable evidence as held by the several courts including Hon’ble Supreme Court in the case of Bannalal Jat Constructions (P) Ltd. v. ACIT (SC) reported in 106 taxmann.com 128, and Rajasthan High Court rulings in PCIT v. Roshan Lal Sancheti reported in [2023] 150 taxmann.com 227.

-410/Bang/2025 Page 19 of 33 7.3 Likewise, the Hon’ble Delhi High Court in CIT vs. Harjeev Aggarwal reported in [2016] 70 taxmann.com 95 Ltd. has clarified that a statement under section 132(4) of the Act, standing alone, does not by itself constitute “incriminating material” for making additions. As such the statement must be backed by some material found as a result of search. The Hon’ble Madras High Court in CIT v. S. Khader Khan & Sons reported in 300 ITR 157 (SLP dismissed by the Supreme Court) also cautions that additions cannot rest merely on a bare confession devoid of supporting material. Read together, these principles suggest that a statement under section 132(4) or section 131(1) on oath carry evidentiary value and can be acted upon but it is not conclusive and can be displaced with credible, contemporaneous, verifiable evidence and there must be incriminating material found in search corroborating the statement. Thus, it is settled position of law that the additions cannot rest only on a statement unless corroborated by incriminating material. 7.4 In the present case, self-made vouchers of cash purchases from farmers or unregistered dealers were found. These vouchers were duly recorded in the books of account, audited under section 44AB of the Act, disclosed in VAT returns, and matched with sales. Hence, these are part of regular books and not independent incriminating documents and such self-generated vouchers, being already part of accounted records, cannot be treated as incriminating material unless they reveal something unrecorded or false. The department has not shown that these vouchers were outside the books or that they represented fictitious entries. 7.5 It is also important to highlight that in wholesale agricultural trade, it is common to purchase maize from farmers or small dealers without formal invoices. The assessee-maintained vouchers for internal control, which were found during search. These vouchers were recorded .

-410/Bang/2025 Page 20 of 33 in books, and corresponding sales were effected. Therefore, these self- made vouchers for cash purchases from farmers are far from being incriminating. As such these vouchers substantiate that purchases were made and accounted. Treating them as evidence of “non-genuineness” is contrary to commercial reality. 7.6 Therefore, in our considered opinion, there was no incriminating material found during the course of search to support the allegation of the bogus purchases. Hence entire basis of disallowing the certain portion (25%) of cash purchases as non-genuine is based on admission made in the statement recorded under section 132(4)/ 131 of the Act only. Hence, considering the judicial precedence as discussed in the preceding paragraph, we hold that such admission cannot be conclusive, and no addition can be made solely based on such statement without bringing corroborative material. The CBDT also vide circular No. No. 286/2/2003-IT (Inv. II), dated 10 March 2003 and Circular No. 286/98/2013-IT (Inv. II), dated 18 December 2014 discourage the AO not to make addition based on statement only. The CBDT underscores that no attempt should be made to obtain a confession of undisclosed income during search operations. Instead, the focus should be exclusively on collecting objective evidence or material of undisclosed income. 7.7 Furthermore, the assessee has retracted from the admission which has been acknowledged by the AO but not accepted for the reason that the retraction has been filed after a gap of 14 months and alleging that same is not supported by the evidence. We also note the assessee before the learned CIT(A) has filed an affidavit dated 12th March 2019 i.e. with-in 20 days from search, claiming the retraction from the statements. Hence, this fact coupled with the fact that no .

-410/Bang/2025 Page 21 of 33 corroborative material found during the search, weaken the case of the AO to make addition on account of alleged bogus purchases. 7.8 Furthermore, the assessee has consistently argued that whatever maize was purchased, whether in cash or through banking channels, was fully sold to reputed buyers like Karnataka Milk Federation and Suguna Foods. The sales are not doubted, nor has any discrepancy in stock or quantitative tally been pointed out. We note that the argument of the assessee has not been controverted by the department. It is a basic principle that sales cannot exist without purchases, and where sales are accepted, the corresponding purchases cannot be disallowed arbitrarily. 7.9 Here, it is also very important to mention that the assessee also produced a price analysis of cash purchases and purchases through banking channel, available at pages 391–392 of the paper book. On perusal, we note that the average price of maize purchased through cash and bank transactions is broadly similar. For instance, the average cost of cash purchases per quintal exceeded that of bank purchases only by ₹40, ₹30, and ₹27 in A.Y. 2013-14, 2016-17, and 2017-18 respectively, while in A.Y. 2014-15 and 2015-16 the average cost of cash purchases was actually lower by ₹39 and ₹49. Although a larger difference of ₹319 is seen in A.Y. 2018-19, the cash purchases then were only 3,474 quintals as against 1,03,427 quintals through banking channels. Hence, in our considered view these variations are nominal and not significant enough to treat 20% or 25% of cash purchases as bogus. In view of the above detailed discussion, facts and judicial pronouncements, we hold that addition made solely based on statement without having corroborative materials cannot be sustained. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO .

-410/Bang/2025 Page 22 of 33 to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.

8. The second issue raised by the assessee through ground Nos. 7 & 8 is that the learned CIT(A) erred in confirming the addition of Rs. 17,84,893/- as interest income. 8.1 The relevant facts are that during the search proceeding at the residence of the assessee certain documents were found marked as page 103, 104 & 105 of the annexure A/SBS/B-4/18-19/01 suggesting that the assessee has advanced cash loan to various parties on interest at the rate of 12-15% per annum compounded every 3 months. The search team confronted the impugned seized materials to which the assessee admitted that he has given cash loan of Rs. 64,37,775/- to various person during the financial year 2011-12 to 2013-14 and earned undisclosed income of Rs. 18,65,704/- out of such undisclosed loan by way of interest thereon. 8.2 During the post search proceedings, the assessee was again questioned regarding the cash loan as discussed above while recording his statement under section 131(1) of the Act. The assessee in reply to the questions stated the sources of the impugned cash loan was gift received from various person including father and wife, personal saving etc. The assessee also admitted that on the impugned loan and advance, an interest for the period from December 2011 to February 2014 was receivable for Rs. 19,77,064/- and he received such interest amount of Rs. 19,77,064/- during the F.Y. 2013-14. However, from F.Y. 2013-14 onwards, he neither received interest nor received back the principal amount. The assessee admitted that he did not remember the person to whom such loans were advanced for reason that considerable period of 8 years has been elapsed.

-410/Bang/2025 Page 23 of 33 8.3 The AO noticed that the undisclosed interest income as admitted has not been offered to the tax in the return filed under section 153A of the Act. Hence, the AO issued show cause notice to the assessee proposing to make addition of undisclosed interest income of Rs. 19,77,064/- to the total income of the assessee for the year under consideration i.e. A.Y. 2014-15. 8.4 In response, the assessee explained that during the search an unsigned handwritten loose sheet was found, which contained two columns being “date” and “amount” with figures ranging from ₹3,000 to ₹40,000 but without having titles or description, and beneath it was a noted mentioning “for every three months – 12% p.a.” with another unclear note. The totals of these figures came to ₹61,37,775/- only. However, the search officials prepared their own computer printout of this data in a different format, added their own titles and calculations of interest, and got his signature on the same. The assessee claimed that this computer printout was not seized during the search but was prepared later by the officials, though it was relied upon in the notice. 8.5 The assessee also pointed out variations between the handwritten sheet and the computer printout, especially in dates and amounts. The handwritten sheet showed a total of ₹61,37,775, whereas the computer printout reflected ₹64,37,775/- and in another place ₹55,37,275/-. Thus, there were clear mismatches in figures. 8.6 Based on these facts, the assessee stressed that this printout is neither comparable to the handwritten loose sheet found during the search nor prepared by him and therefore, the same cannot be relied upon for assessing income. The assessee also pointed out that the nature of the transaction is unclear due to the passage of time. It is claimed that in the statements recorded earlier, he had only admitted to .

-410/Bang/2025 Page 24 of 33 have made payment of interest at 12% without recollecting the other party involved. Thus, the assumption of interest received by him based on computer printout is factually and legally incorrect. 8.7 Further, the assessee highlighted that even if the matter were treated as a loan transaction, his statements confirmed that neither the principal nor interest had been received after FY 2013-14, making it clear that no accrual of interest or repayment occurred. When the principal itself is not repaid, the question of taxing interest does not arise. It was further argued that the handwritten sheet was not part of the books of account, had no names or clear description, and even if considered, would not be corroborative in nature unless independent evidence to establish liability is brought on record. 8.8 The assessee also referred to the Hon’ble Supreme Court’s decision in V.C. Shukla’s case, emphasizing that loose papers cannot by themselves be the sole basis of addition unless corroborated by independent material. He contended that the computer printout shows total interest of ₹ 18,65,704/- whereas the correct total of impugned computer printout is of ₹16,06,951/-. Thus, there is no basis for taxing ₹19,77,064/- as relied upon in the show cause notice. It was further pointed out that assessments under section 153A can only cover six preceding assessment years from the year of search (AY 2013-14 to AY 2018-19 and AY 2019-20), and therefore additions for AY 2012-13 or unrelated years cannot be made. 8.9 Finally, the assessee argued that section 269SS/269ST of the Act also cannot be invoked since the alleged transaction was not proved to be a loan in cash, nor was he the borrower. Moreover, as there was no evidence of repayment, section 269T of the Act also had no application.

-410/Bang/2025 Page 25 of 33 Therefore, the proceedings proposed in the SCN had no legal basis, and the alleged amount was not taxable in his hands. 8.10 However, the AO rejected the assessee’s arguments and held that the seized documents clearly showed that the assessee was engaged in giving cash loans and earning interest. It was noted that the assessee admitted in his sworn statement that he had advanced loans amounting to ₹64,37,775/- during financial years 2011-12 to 2013-14 at an interest rate of 12% per annum compounded every three months. The AO observed that the assessee also admitted undisclosed income of ₹18,65,704/- towards interest on such loans. Since the materials were found from the possession of the assessee, the presumption under section 132(4A) of the Act is applied, and the assessee failed to disprove it. The AO further held that the assessee’s claim that the computer printout was not part of seized documents was not acceptable, as the materials were supported by his own statements under oath. 8.11 The AO also found that the reliance placed by the assessee on V.C. Shukla’s case was misplaced, because in this case the loose sheets were corroborated by statements and other evidence, including unexplained gold seized during the search. The AO rejected the assessee’s contention that the handwritten sheet was a dumb document, observing that the loan amounts and interest calculations were meaningful and related to financial transactions. 8.12 Accordingly, the AO concluded that the assessee had given cash loans and earned interest which was not disclosed to the department. The total undisclosed interest income of ₹19,77,064/- for financial years 2011-12 to 2013-14 was computed and added to the returned income in the hands of the assessee.

-410/Bang/2025 Page 26 of 33

-410/Bang/2025 Page 27 of 33

-410/Bang/2025 Page 28 of 33 Credit Company 127 ITR 572 (Madras). In sum and substance, the ld. AR contended that the addition was based purely on suspicion, contradictory statements, and unsubstantiated documents. As there was no real evidence of interest income, the entire addition deserved to be deleted.

-410/Bang/2025 Page 29 of 33 there was no receipt of either principal or interest after FY 2013-14, and therefore no accrual of income could arise. 12.2 We find merit in the submissions of the assessee. The provision of section 132(4A) of the Act raises only a rebuttable presumption regarding ownership of documents found, but the burden still lies on the Revenue to prove that such entries represent actual taxable income. The loose paper in question does not disclose the names of the parties, nature of the transaction, or any confirmatory evidence of receipt. In the absence of such material, the sheet is at best a dumb document. The Hon’ble Supreme Court in CIT v. V.C. Shukla (1998) 3 SCC 410 has held that loose sheets by themselves, without corroboration, cannot be treated as substantive evidence of undisclosed income. This principle has been followed consistently in several rulings, including Common Cause v. Union of India (394 ITR 220, SC) and various Hon’ble High Courts. 12.3 On the other hand, the Department’s reliance on the assessee’s statement is misplaced. It is trite law that an admission during search must be read as a whole. Here, the assessee clarified that the 12% referred to was interest paid by him and not interest received. The Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala (91 ITR 18) has held that an admission is an important piece of evidence but not conclusive, and it is open to the assessee to explain or rebut the same. In this case, the assessee’s explanation is consistent with the absence of corroborative evidence on record. 12.4 Further, the addition of interest income on a notional basis is contrary to the settled principle that income must accrue or arise with reasonable certainty. The Hon’ble Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT (26 ITR 27) has held that income accrues only when the .

-410/Bang/2025 Page 30 of 33 assessee acquires a right to receive it. The relevant observation of Hon’ble supreme court is extracted as under: Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

12.5 Similarly, in CIT v. Excel Industries Ltd. (358 ITR 295, SC), it was reiterated that hypothetical or contingent income cannot be brought to tax. Where even the principal of the alleged loans has not been received back, there can be no enforceable right to receive interest. We also note that the AO computed interest by compounding every three months on the loose sheet totals, but such working is entirely an inference by the Department. In the absence of a written agreement, identifiable parties, or independent evidence, such estimation is arbitrary and unsustainable In view of the above discussion, we hold that the seized loose paper does not constitute incriminating material evidencing undisclosed income in the hands of the assessee. The reliance on the unsigned sheet and the computer-generated statement prepared by the search official without corroboration is legally untenable. Therefore, the addition of ₹19,77,064/- on account of alleged undisclosed interest income is therefore directed to be deleted. Hence, the ground of appeal of the assessee is hereby allowed.

13. In the result appeal of the assessee is hereby allowed.

-410/Bang/2025 Page 31 of 33 & 401 to 404/Bang2025 in case of assessee Shri Bysani Adinarayaguptha Srinath for the AYs 2013- 14 and 2015-16 to 2018-19.

filed by the assessee is hereby allowed.

16. In the result, the appeals of the assessee for Assessment Years 2013-14 & 2015-16 to 2018-19 are hereby allowed. to 410/Bang/2025 in case of assessee, Smt. B.S. Mamatha for A.Y. 2013-14 to 2018-19.

17. The issues raised in captioned appeals are interconnected and pertain to the disallowance of 25% of cash purchases by the treating the same as non-genuine.

-410/Bang/2025 Page 32 of 33

filed by the assessee for A.Y. 2013-14 to 2018-19 are hereby allowed.

19. In the result, all the appeals of the assessee for A.Ys. 2013-14 to 2018-19 are hereby allowed.

20. In the combined result, all the appeals filed by both the assessee are hereby allowed.