ACIT, CENTRAL CIRCLE-3(2), CHENNAI vs. STN PROPERTIES PRIVATE LIMITED, CHENNAI

Consequent to search, notice under section 153C of the Act was issued in case of assessee. The assessee has filed letter on 09.10.2018 stating that return filed on 22.08.2018 may be treated as return filed in response to notice under section 153C of the Act. The Assessing Officer has issued notice under section 143(2) of the Act on 10.10.2018. The assessee has not admitted any additional income consequent to search, admitted by S.T. Nedunselian vide his sworn statement dated 07.01.2017. During assessment proceedings, the assessee company has simply replied that no cash transaction was made by the assessee company. Thus, Assessing Officer finalized assessment under section 144 rws 153C of the Act, inter alia, making various additions such as unaccounted investment, unaccounted expenditure and unexplained cash deposits.

Against the above additions made in the assessment order, the assessee filed an appeal before the ld. CIT(A). After considering the written submissions of the assessee and analysis of the facts, material brought on record and by following the judgement of the Hon’ble Supreme Court in the case of PCIT v. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC), the ld. CIT(A) deleted various additions made by the Assessing Officer. The relevant findings of the ld. CIT(A) are reproduced herein below for better understanding: 7.20. In view of the fact that transactions based on which additions are made during the year in the hands of appellant company are actually carried out by Sri T.S. Nedunselian, unexplained investment/ unaccounted expenditure/ Undisclosed Business income, arising if any, is to be taxed in hands of Sri T.S Nedunselian but not in hands of appellant company. Therefore, I am of considered view that additions made by AO during the year are not sustainable in hands of appellant. The AO is directed to delete addition made towards 1. Unaccounted investment Rs.2, 14.05,000/-wrt M/s. Kumaralayam Properties Ltd., 2. Unaccounted investment Rs.99,00,000/- wrt Mr. Basker, 3. Unaccounted Expenditure to Mr. Fernando of Rs. 15,00,000/-, 4. Unaccounted Expenditure to Mr. Lakshmanan of Rs.51,00,000/- , 5. Unaccounted Expenditure to Mr. Ravi of Rs.2,12,45,000/-, 6. Unaccounted Expenditure to Mr. Gopi of Rs.33,00,000/- in hands of appellant. Consequently, Grounds of appeal of appellant relating to the issues are Allowed. 7.21 Addition towards cash deposit: 7.21.1 The AO has noticed that there are cash deposits to the extent of Rs.11,47,500/- in Bank account of appellant (M/s. STN Properties Pvt Ltd) company during the year. The AO has made addition of Rs.11,47,500/- as appellant failed to explain source for the same in its hands. 7.21.2 Vide written submissions filed wrt general ground, the appellant has raised objection that additions which are not based on seized documents should not have been made in hands of appellant. 7.21.3 Therefore, question that arises for consideration is whether AO can make regular additions in case of assessments u/s 153C, if the assessment under consideration is an abated assessment like in case of assessment u/s 153A. 7.21.4 Therefore it is important to refer to provisions of section 153C. Relevant provisions of section 153C are reproduced as under.

Aggrieved by the above order of the ld. CIT(A), the Appellant- Revenue is in appeal before the Tribunal for AY 2012-13.

The ld. DR Ms. E. Pavuna Sundari, CIT submits that the Id. CIT(A) erroneously deleted the additions made by the Assessing Officer which are based on seized material by incorrectly holding that the transactions belong to the individual Shri T.S. Nedunchelian and his proprietary concern, M/s STN Properties and not to the assessee company. She submits that the ld. CIT(A) wrongly concluded that in the sworn statement recorded from him, Shri T.S. Nedunchelian admitted the undisclosed incomes in his individual hands not stated as to in whose hands he was specifically admitting the undisclosed income. The ld. DR vehemently argued that the Id. CIT(A) has erred in deleting the additions by placing reliance on the sworn statement of Shri T. S. Nedunchelian without taking note of the fact that he had retracted his sworn statement vide letter dated 20.08.2018 and it cannot be said that undisclosed income had to be assessed in his hands and not in the hands of the assessee company. She argued that the Id. CIT(A) erred in not verifying from the records, before directing to delete the additions made in the case of the assessee company, whether Shri T. S. Nedunchelian had admitted the undisclosed income admitted in his individual hands before coming to the conclusion that the said incomes belonged to him in his individual capacity.

The ld. DR further submits that the Id. CIT(A) erred in not considering the sworn statement of Shri M. Mohanraj employee of Shri T. S. Nedunchelian in which he has stated that he had maintained the accounts/notings in the seized material commonly for all the entities including the assessee company and he argued that the transactions contained in the seized material related to the assessee also. The ld. DR further submits that the Id. CIT(A) has erred in deleting the addition made towards unexplained money with respect to cash deposits in bank accounts on the ground that under section 153C of the Act, the additions have to be made based on incriminating materials only without appreciating that the other additions have been made based only on the details in the seized incriminating material which are wrongly deleted by the CIT(A), prayed to set aside the order of the ld. CIT(A) and restore that of the Assessing Officer.

The ld. AR Shri K.G. Raghunath, Advocate submits that the search was conducted at the office-cum-residence of an individual Shri T.S. Nedunselian and warrant was issued in his individual name. He submits that during the search, real estate deals and the bank accounts of his proprietorship concern were examined and recorded sworn statements. The ld. AR vehemently argued that all transactions of the proprietorship are, in law, transactions of the individual himself and the assessments must be made only in the hands of the individual. He submits that the provisions of section 153A of the Act applies to the ‘searched person’, whereas, section 153C of the Act applies to ‘other persons’, if incriminating material belonging to them is found. He vehemently argued that the material seized belong to Shri T.S. Nedunselian (through his proprietorship) and not other person, further, argued that there is no existence of undisclosed/unexplained asset or incriminating seized documents against the assessee as a result of search and relied on the judgement of the Hon’ble Supreme Court in the case of PCT v. Sinhgad Technical Education Society (supra). He strongly supported the order passed by the ld. CIT(A) on merits.

We have heard both the parties, perused the material available on record. A search under section 132 of the Act was conducted on 16.11.2016 in the case of Shri S.T. Nedunselian, during course of search, two pen drives containing alleged cash transactions of payments and receipts to various individuals and few concerns were found. Consequent to search, statement under section 132(4) of the Act has been recorded from Shri S.T. Nedunselian on 09.01.2017. On perusal of the impugned order, the ld. CIT(A) has noted the fact that Shri S.T. Nedunselian is conducting real estate business in his individual status in the name of proprietary concern M/s. STN Properties, which is supported by the statements of Shri Mohanraj dated 16.11.2016 and Shri S.T. Nedunselian dated 17.11.2016. The relevant portion of statements are reproduced at pages 25 and 26 of the impugned order and further noted that the sworn statement is given in the status of Chairman of STN Group, but, not as Managing Director of assessee-company. The ld. CIT(A) further noted that in both sworn statements recorded [on 17.11.2016 & 09.1.2017] Shri S.T. Nedunselian admitted that “he has carried out transactions”, “he made payments”, “he has not recorded in books” and “ I admit the amount”. Since the statement is not recorded in the status of Managing Director of assessee-company and for non mentioning of assessee’s name, the ld. CIT(A) observed that it cannot be presumed that transactions under consideration for the year were carried out by the assessee-company and Shri S.T. Nedunselian has admitted the fact in the sworn statement referred to in the assessment order. The ld. CIT(A) further observed that combined reading of sworn statement of Shri S.T. Nedunselian with seized material shows that except in one instance, whenever he referred to STN, he meant M/s. STN Properties, his proprietary concern, but, not assessee-company.

The Assessing Officer noticed that transactions relating to Appur land project are recorded in seized sheets extracted from electronic device vide ANN/SP/STN/LS/S page 76-93. When they are shown to Shri S.T. Nedunselian, he again identified them as transactions between KPPL and STN. The relevant portion of the statement is reproduced at page 30 of the impugned order. With regard to the question as to whether STN refers to M/s. STN Properties or M/s. STN Properties Pvt. Ltd. (assessee), the ld. CIT(A) noticed that the seized document vide ANN/SP/STN/LS/S-11 is identified as ‘cost profit analysis of Appur Project’ by Shri Mohan Raj while replying to question number 11 of his sworn statement dated 16.11.2016. The relevant portion of statement of Shri Mohan Raj is reproduced at page 31 and the seized document of page 11 of Cost Profit Analysis of Appur Project is extracted at page 32 of the impugned order. Upon perusal of the above said seized document, the ld. CIT(A) observed that the parties to Appur land project are M/s. STN Properties [Prop: S.T. Nedunselian], M/s. Srivatchaa Shelters [Partner Sri V. Rajaiah], M/s. Kumaralayam Properties Pvt. Ltd. [Dir: Nanda Gopal Reddy] and noted that the cash payments with reference to the above transaction found in seized sheets pertain to Shri S.T. Nedunselian, but, not to assessee-company. During the course of appellate proceedings, the assessee filed copies of ledger accounts of M/s. STN Properties, which are part of seized documents, where transactions pertaining to the above projects are recorded. By reproducing the concerned ledger account at page 33 of the impugned order, the ld. CIT(A) has noted that the transactions are recorded in the books of M/s. STN Properties, propriety concern of Shri S.T. Nedunselian. Therefore, the ld. CIT(A) has inferred that the payments are made by Shri S.T. Nedunselian in his individual capacity, but, not by the assessee-company and therefore, the source for such cash payments are to be verified in the hands of Shri S.T. Nedunselian and not in the hands of the assessee company.

With regard to the unexplained expenditure towards payments made to Sri Gopi, the copies of ledger accounts produced before the Investigating Officer, referred to as Annexure D in statement as well as part B of assessment order, while recording statement on 07.01.2017 in support of his claim, Shri S.T. Nedunselian stated that cash payments to Shri Gopi are properly recorded in his books of account, extracting ledger account copies at page 37 of the impugned order, the ld. CIT(A) noticed that the transactions are recorded in the books of M/s. STN Properties, proprietary concern of Shri S.T. Nedunselian and the same is acknowledged by the Assessing Officer in the assessment order. But, however, the contention of the ld. DR is that nowhere in the statement, Shri S.T. Nedunselian has not stated as to in whose hands he was specifically admitting the undisclosed income. We are unable agree with the contention of the ld. DR for the reason that admittedly, in reply to question No. 12, which is reproduced at pages 34 & 35 of the impugned order, Shri S.T. Nedunselian admitted that “The said transactions are properly accounted in my books of accounts. I am producing the relevant proof as Annexure D.” Further, upon perusal of the ledger account reproduced at page 37 of the impugned order, we note that the said ledger account pertains to STN Properties, which is a proprietary concern of Shri S.T. Nedunselian. In view of the above clear facts, the observation of the ld. CIT(A) at para 7.15.4 of the impugned order that the source for such cash payments are to be verified in the hands of Shri S.T. Nedunselian, is fully justified and we find no infirmity in the above observations of the ld. CIT(A).

With regard to the unexplained expenditure towards payments made to Sri Fernando, the copies of ledger accounts produced before the Investigating Officer, referred to as Annexure E in statement as well as part C of assessment order, while recording statement on 07.01.2017 in support of his claim, Shri S.T. Nedunselian stated that cash payments to Shri Fernando are properly recorded in his books of account, extracting ledger account copies at page 41 of the impugned order, the ld. CIT(A) noticed that the transactions are recorded in the books of M/s. STN Properties, proprietary concern of Shri S.T. Nedunselian and the same is acknowledged by the Assessing Officer in the assessment order. But, however, the contention of the ld. DR is that nowhere in the statement, Shri S.T. Nedunselian has not stated as to in whose hands he was specifically admitting the undisclosed income. We are unable agree with the contention of the ld. DR for the reason that admittedly, in reply to question No. 12, which is reproduced at pages 34 & 35 of the impugned order, Shri S.T. Nedunselian admitted that “The said transactions are properly accounted in my books of accounts. I am producing the relevant proof as Annexure E.” Further, upon perusal of the ledger account reproduced at page 41 of the impugned order, we note that the said ledger account pertains to STN Properties, which is a proprietary concern of Shri S.T. Nedunselian. In view of the above clear facts, the observation of the ld. CIT(A) at para 7.16.4 of the impugned order that the source for such cash payments are to be verified in the hands of Shri S.T. Nedunselian, is fully justified and we find no infirmity in the above observations of the ld. CIT(A).

With regard to the unexplained expenditure towards payments made to Sri Bhaskar, Sri S.T. Nadunselian vide his sworn statement explained that the payments to Sri Bhaskar are ‘land advance for purchase of property’ at Valayakarnai village. Sri S.T. Nadunselian explained before the Assessing Officer that the project could not be realized and could not receive back advance made to Sri Bhaskar. He further explained that he is not able to explain the sources for land advance made to Sri Bhaskar for AYs 2011-12, 2012-13 & 2013-14 of ₹.99,00,000/-, ₹.10,00,000/- and ₹.10,00,000/- respectively, he offered ₹.1.19 crores as his unaccounted expenditure for respective years. The relevant statements of Sri S.T. Nadunselian are reproduced under Part B of the assessment order as well as pages 42 & 43 of the impugned order. We note that in reply to question No. 18, which is reproduced at pages 42 of the impugned order, Shri S.T. Nedunselian admitted that the project at Valayankarnai has not taken off and payments to Sri Bhaskar are made out of his real estate income. The ld. CIT(A) noted that Shri S.T. Nedunselian nowhere in his sworn statement referred to the name of the assessee. While offering the income on account of unaccounted investment also, he clearly stated that he is offering it as his unaccounted expenditure. Further, the ld. CIT(A) observed that no evidence is found showing that the assessee company has actually transacted with Valayakarnai lands. In view of the above clear facts, the observation of the ld. CIT(A) at para 7.17.3 of the impugned order that the addition cannot be made in the hands of the assessee company for admission made by Shri S.T. Nedunselian in his own hands, is fully justified and we find no infirmity in the above observations of the ld. CIT(A).

With regard to the unexplained expenditure towards payments made to Sri Ravi alias Shanmuga Sundaram, Sri S.T. Nadunselian vide his sworn statement explained that the amounts mentioned in the seized material refers to payments and receipts towards Project Samvruthi. In the sworn statement, he explained that he is not able to explain source for ₹.2,12,45,000/- and ₹.11,00,000/- for AYs 2012-13 and 2011-12 respectively and the relevant portion of statement is reproduced at pages 46, 47 & 48 of the impugned order. The ld. CIT(A) noted that Shri S.T. Nedunselian nowhere in his sworn statement referred to the name of the assessee. While offering the income on account of unaccounted investment also, he clearly stated that he is offering it as his unaccounted expenditure. Further, the ld. CIT(A) observed that no evidence is found showing that the assessee company has actually undertaken the ‘Project Samvruthi. In view of the above clear facts, the observation of the ld. CIT(A) at para 7.18.3 of the impugned order that the addition cannot be made in the hands of the assessee company for admission made by Shri S.T. Nedunselian in his own hands, is fully justified and we find no infirmity in the above observations of the ld. CIT(A).

With regard to the unexplained expenditure towards receipt from Sri Keshavraj, Sri S.T. Nadunselian vide his sworn statement explained that the amounts mentioned in the seized material refers to ‘repayments of land advances’ received from Sri Keshavraj. In reply to question No. 14, reproduced under Part D of the assessment order and page 49 of the impugned order, Sri S.T. Nedunselian admitted that the except transactions dated 19.05.2011, 06.08.2011 and 04.11.2012 for ₹.51 lakhs, ₹.18 lakhs and ₹.20 lakks, rest of transactions are accounted in his books and offered the same as unaccounted expenses as per Annexure F. We note that as per copies of ledger accounts produced before the Investigating Officer, referred to as Annexure E and F, while recording statement on 07.01.2017, Shri S.T. Nedunselian stated that cash payments to Sri Keshavraj are properly recorded in his books of accounts and ledger account extract is reproduced at page 50 of the impugned order. After analysing the ledger account, the ld. CIT(A) observed that the transactions based on which additions are made during the year in the hands of the assessee company are actually carried out by Sri S.T.

With regard to the addition towards cash deposit, the Assessing Officer noted that there are cash deposits to the extent of ₹.11,47,500/- in the bank account of the assessee, Ms. STN Properties Pvt. Ltd. The Assessing Officer made addition of ₹.11,47,500/- as the assessee failed to explain source for the same in its hands. Before the ld. CIT(A), the assessee raised an objection that additions which are not based on seized documents, should not have been made in the hands of the assessee. Considering the provisions of section 153C of the Act and by following the decision of the Hon’ble Supreme Court in the case of PCIT v. Sinhgad Technical Education Society [2017] 397 ITR 344 (SC), the ld. CIT(A) directed the Assessing Officer to delete the addition of ₹.11,47,500/-.

The contention of the ld. DR that other additions made based only on the details in the seized incriminating material, the addition with respect to cash deposits in assessee’s bank account should have been deleted, is not acceptable for the reason that the provisions of section 153C of the Act is abundantly clear that direct co-relation must exist between the existence of incriminating material for assumption of jurisdiction under section 153C of the Act. The ld. CIT(A) noted that the bank accounts were not found during the course of search and the cash deposits in bank accounts were found only during the proceedings initiated under section 153C of the Act. Therefore, the ld. CIT(A) held that the addition on account of deposits found in bank account of the assessee cannot be said to have emanated from seized material. Upon perusal of the decision in the case of PCIT v. Sinhgad Technical Education Society (supra), we note that the Hon’ble Supreme Court, at para 13 of the order, observed that one of the jurisdictional conditions precedent to the issue of a notice under section 153C of the Act is that “money, bullion, jewellery or other valuable article or thing” or any ‘Books of account or document” must be seized or requisitioned for the relevant assessment year for issue of notice under section 153C of the Act. In present case, admittedly, bank account of the assessee was not found during the course of search, but, however, cash deposits in bank accounts were found only during the course of proceedings under section 153C of the Act and thus, the addition on account of deposits found in bank account cannot be said to have been emanated from seized material. Under the above facts and circumstances of the case, we find no infirmity in directing the Assessing Officer to delete the addition and the same is justified. Thus, the ground raised by the Appellant-Revenue is dismissed.

The only basis for making various additions in the assessment order is purely based on the statement recorded from Shri S.T. Nedunselian, proprietor of M/s. STN Properties, but, however, if we accept the contention of the ld. DR that vide letter dated 20.08.2018, Shri S.T. Nedunselian has retracted his sworn statement and cannot be relied on, then also there would not be any material against the assessee enabling the Assessing Officer to make addition in the hands of the assessee for the reason that in his individual capacity as well as in the capacity of proprietor of M/s. STN Properties, Shri S.T. Nedunselian made various admissions of transactions carried out by him, but, not in his capacity as Managing Director of the assessee company. Considering the facts and circumstances of the case, the ground Nos. 2 to 6 raised by the appellant Revenue are dismissed.

In the result, both the appeals filed by the Revenue are dismissed. Order pronounced on 10th December, 2025 at Chennai.