ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, TRICHY, TRICHY vs. RAMASAMY RAJASEHAR, PERAMBALUR

The Ld.CIT(A) order is perverse on account of the fact of his observation in para 6.3.21 of his order that to “assessee the same investments protectively in the hands of the appellant while simultaneously assessing them in the hands of the respective entities in different assessment years other than 2014-185 tantamount to double taxation” without taking cognizance of the facts of the case where this observation is not factually correct vis-à-vis the unexplained investment or the entities of the Dhanalakshmi Srinivasan Group.

At the outset, it is observed that there is a delay of 63 days in the filing of the Cross-Objections by the assessee. Upon due consideration of the submissions made by both the parties, and having regard to the facts and circumstances of the case, we are satisfied that the assessee was prevented by reasonable cause from filing the Cross-Objections within the time prescribed under the statute. Accordingly, in the interest of justice and equity, the delay in filing the Cross-Objections is hereby condoned, and the Cross-Objections are admitted for adjudication on merits.

The brief facts of the case, as emanating from the record, are that the assessee is an individual and was the former CFO of M/s.Dhanalakshmi Srinivasan Charitable and Educational Trust (DS Trust). A search and seizure operation u/s.132 of the Act was conducted in the case of the said trust on 15.02.2018. Consequent thereto, various related entities and key individuals, including the residential premises of the assessee, were also covered under the said search action. During the course of the search, certain documents and loose sheets purportedly indicating investments allegedly made by the assessee in M/s.Vasan Construction Company Private Limited and M/s.Dhanalakshmi Srinivasan Builders Private Limited were found and seized from the assessee’s residence.

On the basis of the seized materials, the AO recorded the satisfaction as contemplated u/s.153C of the Act and consequently issued notice under the said provision on 27.08.2019. In response, the assessee filed his return of income on 20.09.2019. Thereafter, notice u/s.143(2) of the Act was issued on 09.10.2019. Upon request, the AO also furnished to the assessee the reasons recorded for initiating proceedings u/s.153C of the Act.

The AO noted that certain loose sheets, marked as Annexure No.ANN/RR/NS/LS/S, were seized from the residence of the assessee. The AO observed that these loose sheets contained details of investments recorded against the name of the assessee in the aforementioned entities. Based on such seized materials, the AO tabulated the alleged investments as under:

The AO reproduced the relevant seized pages in the assessment order. The AO further observed that in his statement recorded u/s.132(4) of the Act on 17.02.2018, the assessee denied having made any such investments and claimed that his name had been misused by diverting funds from the DS Trust.

In response, the assessee contended that he was merely an employee of the group, without the financial capacity to make such investments. It was submitted that due to differences with the management he was compelled to relinquish his employment, and that during his tenure he was compelled to sign various papers for which he could not take responsibility. The assessee also submitted that the seized papers did not bear his signature and, therefore, no adverse inference could be drawn.

The AO rejected the assessee’s explanation, observing that if the assessee was merely an employee without financial means, it was highly unlikely that the group companies would record such substantial investments in their books in his name. The AO also noted that the assessee had filed proceedings before various judicial forums after his removal from directorship of M/s.Vasan Construction Company Private Limited, wherein he had asserted minority shareholding in the said concerns. According to the AO, these facts contradicted the assessee’s contention that he was compelled to sign the documents relating to the alleged investments.

The AO further held that the seized materials were in fact found at the assessee’s premises, contrary to the assessee’s assertion that nothing was recovered from him. The AO also observed that the absence of the assessee’s signature on the seized papers was not decisive for the purpose of determining the nature of the documents. It was noted that substantive additions in respect of the alleged investments were made in the hands of the respective companies as unexplained cash credits. The AO, therefore, proceeded to make a protective addition of Rs.14,91,00,000/- in the hands of the assessee u/s.69 of the Act towards unexplained investments in the aforesaid concerns.

Accordingly, the assessment was completed u/s.143(3) r.w.s 153C of the Act on 20.12.2019, determining the total income at Rs.9,06,72,400/-, after including the aforesaid protective addition of Rs.14,91,00,000/- to the loss of Rs.5,84,27,600/- declared in the return of income.

Aggrieved of the above assessment order, assessee carried the matter before the Ld.CIT(A) who vide the impugned order dated 10.10.2024 deleted the protective addition of Rs.14,91,00,000/- made by the AO.

During the course of the appellate proceedings before the Ld.CIT(A), the assessee submitted that he was merely an employee of the Dhanalakshmi Group and that his name had been misused by compelling him to sign various documents, the contents of which he was allegedly unaware. It was contended that, as his concerns were disregarded, he was constrained to leave the employment of the group in November 2015. The assessee further stated that he had never received any communication from the concerned companies in the capacity of a shareholder. In view thereof, it was urged that he was not a genuine shareholder and that no investment, as alleged, had been made by him.

The assessee also submitted that his personal immovable property had been furnished only as a collateral security for a bank loan availed by M/s.Vasan Construction Company Private Limited, where he was then serving as a director. According to the assessee, the said company removed him from directorship without releasing the collateral furnished by him. In this regard, the assessee had instituted proceedings before the NCLT seeking to restrain M/s.Vasan Construction Company Private Limited from removing him as a director. It was thus contended that such proceedings had no nexus whatsoever with the alleged investments attributed to him. The assessee further argued that the documents relied upon by the AO were never seized from his premises, were unsigned, and were unsupported by any corroborative material to demonstrate that he had made the impugned investments.

The assessee additionally contended that the issue had already been examined in the assessments of M/s.Dhanalakshmi Srinivasan Builders Private Limited for A.Ys.

The assessee also drew attention to the statement of Shri S.Kathiravan, Vice Chairman of the Dhanalakshmi Srinivasan Group, recorded u/s.132(4) of the Act on 18.02.2018, wherein it was admitted that the investments in the impugned companies were routed through bogus concerns to accommodate the group’s unaccounted income. On the strength of this admission, it was urged that the investments in the shares of the companies represented the group’s undisclosed income and, therefore, could not be assessed as unexplained investment in the hands of the assessee.

In light of the above submissions, the assessee contended before the Ld.CIT(A) that the protective addition of Rs.14,91,00,000/- made in his hands was wholly unwarranted and liable to be deleted.

Upon considering the submissions of the assessee, the Ld.CIT(A) deleted the protective addition of Rs.14,91,00,000/- in the hands of the assessee observing as under: -

The Ld.DR, appearing on behalf of the Revenue, vehemently supported the order of the AO and placed reliance on the grounds of appeal filed by the Revenue.

The Ld.AR, appearing on behalf of the assessee and adverting specifically to Ground Nos.2.2 and 2.3 of the Cross-Objections, raised a jurisdictional challenge to the validity of the assumption of jurisdiction u/s.153C of the Act. The Ld. AR, drawing attention to the satisfaction note recorded by the AO, submitted that the said satisfaction note is a consolidated note covering AYs 2012-13 to 2018-19, and that no independent or separate satisfaction has been recorded for A.Y. 2014-15. It was argued that the absence of a year-specific satisfaction vitiates the assumption of jurisdiction and consequently renders the impugned assessment invalid.

The Ld. AR further submitted that no substantive addition has been made in the case of M/s.Vasan Construction Company Private Limited or M/s.Dhanalakshmi Srinivasan Builders Private Limited in the relevant assessment year. In the absence of any substantive assessment in the hands of the said companies, the protective addition of Rs.14,91,00,000/- made in the hands of the assessee is, according to the Ld. AR, unsustainable in law and has been rightly deleted by the Ld. CIT(A).

Placing reliance on the detailed findings of the Ld.CIT(A), the Ld.AR submitted that the appellate order is not perverse or there is no infirmity and accordingly prayed that the same be upheld.

We have considered the rival submissions and perused the material available on record, as well as the judicial precedents relied upon by the Ld.AR. From the facts emerging on record, it is evident that the assessee was a former employee of the Dhanalakshmi Srinivasan Group and was consequently covered in the course of a :-13-: I.T.A. No.:3336 /Chny/2024 & C.O.No.29/Chny/2025 search operation conducted in the said group. During the search at the assessee’s premises, certain incriminating materials were seized, on the basis of which the AO recorded satisfaction u/s.153C of the Act. The AO noted that the assessee was shown as a shareholder in M/s.Vasan Construction Company Private Limited and M/s.Dhanalakshmi Srinivasan Builders Private Limited. On this premise, the AO proposed to treat a sum of Rs.14,91,00,000/- as unexplained investment u/s.69 of the Act. The assessee objected to the proposed addition, contending that he was merely an employee of the group, that his name had been misused, and that he had never made any such substantial investments. The AO, however, rejected the assessee’s explanation and proceeded to make a protective addition of Rs.14,91,00,000/- u/s.69 of the Act, observing that substantive additions had already been made in the hands of the respective companies in respect of unexplained cash credits. In appeal, the Ld.CIT(A) deleted the impugned addition. We observed that the Ld.CIT(A) found that no substantive addition existed in the hands of the alleged companies for the A.Y.2014- 15, and in the absence of such substantive addition, no protective addition could survive in the hands of the assessee. The Ld.CIT(A) further held that the AO had not demonstrated that the assessee had actual knowledge of, or control over the alleged investments. The Ld.CIT(A) observed that the AO failed to carry out any meaningful or comprehensive investigation, especially considering the assessee’s status as an employee with no substantial financial capacity to make investments of this magnitude. It was also noted that the AO had not brought any corroborative evidence on record to show that the assessee had in fact made the impugned investments. In the absence of such evidence, the conclusions drawn by the AO were held to be speculative and insufficient to sustain the protective addition. In view of the foregoing findings, the Ld.CIT(A) deleted the protective addition made by the AO.

We shall first address the legal issue urged by the Ld.AR on the validity of the consolidated satisfaction note recorded by the AO. On perusal of the satisfaction note recorded by the AO, we find that the AO has recorded the same without specifying the undisclosed income corresponding to each of the assessment years separately. It is only mentioned all the assessment year from 2012-13 to 2018-19. Further, there is no mention about the name of the M/s.Dhanalakshmi Srinivasan Builders Private Limited in the said note.

The recording of satisfaction is not a mere formality. The satisfaction recorded by the AO should be as per the jurisdictional requirement as detailed below:

It is a settled proposition in law that the satisfaction of the AO, as required u/s.153C(1) of the Act, must not only be contemporaneous and in writing, but must also be specifically relatable to each of the six assessment years proposed to be reopened.

This view is further fortified by the Hon’ble Supreme Court in Super Malls Pvt. Ltd. v. PCIT [(2020) 423 ITR 281 (SC)], wherein it was laid down that the satisfaction contemplated u/s.153C of the Act is a sine qua non for the assumption of jurisdiction and must be recorded distinctly for each year. A failure to do so, strikes at the root of the assessment. Moreover, the Hon’ble Delhi High Court in Pepsi Foods Pvt. Ltd. v.

In the present factual matrix, upon a careful and considered examination of the record, we observe that the AO has merely recorded a consolidated or omnibus satisfaction note purporting to cover multiple assessment years in a single stroke, without undertaking the statutorily mandated exercise of correlating the seized material to each specific assessment year. Such a composite satisfaction, bereft of any year-wise delineation or individualized reference to incriminating material, does not satisfy the foundational jurisdictional requirement contemplated u/s.153C of the Act.

It is a settled proposition, fortified by judicial pronouncements, that the satisfaction recorded by the AO must exhibit clear, unambiguous, and year-specific nexus between the seized documents and the income alleged to have escaped assessment for each of the six assessment years. In the instant case, we find that the satisfaction note is wholly common and undifferentiated across the years. There is no indication whatsoever of any independent, year-wise appraisal of the material seized, nor is there any linkage drawn between the documents relied upon and the corresponding assessment years sought to be reopened.

Such a blanket recording of satisfaction, devoid of statutory compliance and contrary to the interpretative principles laid down by various Courts, cannot be regarded as a valid assumption of jurisdiction u/s.153C of the Act. The jurisdictional

In view of the foregoing and respectfully following the judicial precedents (supra), we are constrained to hold that the satisfaction note recorded by the AO u/s.153C of the Act is bad in law. Consequently, the assessment order dated 20.12.2019 passed u/s.143(3) r.w.s 153C of the Act, being founded upon an invalid and unsustainable jurisdictional premise, is void ab initio and liable to be quashed. We accordingly quash the impugned assessment order. Thus, the legal ground raised by the assessee in grounds of Cross-Objections is allowed.

Coming to the next issue regarding the validity of a protective addition made in the hands of the assessee without a corresponding substantive addition in the hands of the alleged investing companies, we note from the assessment orders passed in the cases of M/s.Vasan Construction Company Private Limited and M/s.Dhanalakshmi Srinivasan Builders Private Limited for A.Y. 2014-15, it is evident that no substantive addition of Rs.14,91,00,000/- has been made therein on account of the alleged investment. From these undisputed facts, it is clear that the AO has proceeded to make a protective assessment in the hands of the present assessee, despite the absence of any substantive assessment on the very same transaction in any other case for the relevant assessment year. It is a well-settled legal principle that a protective assessment can be sustained only when there is a corresponding substantive assessment, in the case of another assessee pertaining to the same income or transaction in the same assessment year. The underlying rationale for this principle is that the Assessing Officer, being uncertain as to the person in whose hands a particular

Thus, the existence of a substantive assessment is a condition precedent for making a protective assessment in respect of the same income and for the same assessment year. In the present case, in the absence of any substantive addition in the hands of the alleged companies for A.Y.2014-15, the protective addition made in the hands of the assessee cannot be sustained.

In the instant case, the AO has made a protective assessment in the hands of the assessee for A.Y.2014-15 in respect of the alleged unexplained investment in the share capital of M/s.Vasan Construction Company Pvt. Ltd. and M/s.Dhanalakshmi Srinivasan Builders Pvt. Ltd. It is an admitted position that the corresponding substantive additions were already made in the hands of the aforesaid companies in the preceding assessment years. The Ld.CIT(A) has recorded a categorical finding that, in the case of M/s.Vasan Construction Company Pvt. Ltd. for A.Y. 2013-14, the same AO while framing the assessment, has made substantive additions of Rs.1,95,82,000/- and Rs.1,68,50,000/- on account of alleged unexplained investment in the nature of share application money stated to have been received from the so- called non-genuine concerns, viz., Balaji Traders and Tripathi Traders, which were alleged to be proprietary concerns of the present assessee. Likewise, in the case of M/s.Dhanalakshmi Srinivasan Builders Pvt. Ltd. for A.Y. 2012-13, the same AO in the :-19-: I.T.A. No.:3336 /Chny/2024 & C.O.No.29/Chny/2025 assessment, has made substantive additions of only Rs.2,85,00,000/- and Rs. 2,43,00,000/- on similar grounds.

It is therefore evident that, for A.Y. 2014-15, no substantive addition has been made in the hands of the said companies in respect of any alleged investment relatable to the assessee added in the assessment amounting Rs.14.91 Crores. In the absence of any such substantive assessment in the hands of the companies, the very foundation for sustaining a protective addition in the hands of the assessee does not survive. It is a settled principle that a protective assessment can be justified only when a corresponding substantive assessment exists in another hand.

In view of the above factual matrix, we hold that the protective addition of Rs.14,91,00,000/- made by the AO in the hands of the assessee towards alleged unexplained investment is unsustainable in law. We accordingly endorse the finding of the Ld.CIT(A) in deleting the said protective addition.

Our aforesaid view stands fortified by the decisions of the Coordinate Benches of this Tribunal, wherein it has been consistently held that a protective addition cannot be sustained in the hands of an assessee unless a substantive assessment for the very same assessment year has been validly made in the hands of another person. In this regard, we take the support of the decision of the Delhi Tribunal, in the case of ITO v. Fussy Financial Services Pvt. Ltd. [ITA No. 4227/Del./2014], wherein the Tribunal held as under:

The Mumbai Tribunal Bench, in the case of E.Suresh K. Jajoo vs., ACIT, Cirdcle-4(2), Mumbai [2010] 39 SOT 514 (Mum.) under identical set of facts held as under :

The gist of the conclusion of the Assessing Officer in assessment for assessment year 2001-02 is that he refers to the assessee's submission regarding the date of transfer being on 12-4-2000 when the broker raised the bill dated 12-4-2000 after scheduled pay in/pay-out of securities to Stock Exchange was completed only on 12-4-2000. The Assessing Officer has accepted the above claim of the assessee but expressed a doubt that the transaction could be said to be completed on 30-3-2000 as per the contract note of the broker because the subsequent events like delivery of share certificate and receipt of payment are only formalities and, therefore, when these formalities are completed the date of sale would relate back to the date of the broker's contract note. The Assessing Officer was also satisfied on looking into the ledger account of the assessees as per the books of the broker that payment was made only on 12-4-2000. Finally, the Assessing Officer taxed the capital gain as a long-term capital gain as offered by the assessee. The Assessing Officer made the following observations : "As the assessee has already offered this income in assessment year 2001- 02, the same is assessed in this year to protect the interest of the revenue."

We further observe from the seized documents relied upon by the AO, as reproduced in the assessment order, it becomes evident that apart from a mere mention of the assessee’s name in certain loose sheets, there is no tangible or corroborative material brought on record to substantiate the allegation that the assessee had actually infused cash to the extent of Rs.14,91,00,000/- towards share application money or share capital in the two companies referred to by the AO during the impugned assessment year. In such circumstances, we concur with the findings of the Ld.CIT(A) that in the absence of any supporting evidence, the inference drawn by the AO regarding the alleged investment is purely conjectural and not founded on verifiable facts, and therefore, the protective addition cannot be sustained.

We also take cognizance of a categorical observation recorded by the AO in the assessment order itself, wherein it has been admitted that the assessee was only an employee of the group, and prima facie did not possess the financial wherewithal to make investments of such magnitude in the said companies. Having made such an observation, the AO was duty-bound to conduct a more comprehensive and :-22-: I.T.A. No.:3336 /Chny/2024 & C.O.No.29/Chny/2025 meaningful enquiry to establish that the assessee had either exercised control over, or had knowledge of, the alleged investments routed into the two companies. No such enquiry or verification appears to have been undertaken. In the absence of such investigation, the mere presence of loose sheets cannot, in law, be regarded as sufficient evidence to fasten liability upon the assessee for unexplained investment.

Further, we take note of the sworn statement of Shri S.Kathiravan, recorded u/s.132(4) of the Act on 18.02.2018, wherein he has clearly affirmed that the contributions and investments in the companies were made through certain bogus entities used for channelizing the group’s unaccounted income. The deponent has also referred to certain partnership firms allegedly related to the assessee through which investments were purportedly routed. This statement, in our considered view, militates against the AO’s conclusion and further weakens the foundation for making a protective addition in the hands of the assessee.

We also observe that the assessee had filed petitions before the National Company Law Tribunal (NCLT) to safeguard his personal property, which had been furnished as collateral security, pursuant to his removal from the directorship of the employer companies. The mere filing of such petitions, absence of substantive evidence demonstrating actual investment, cannot, by itself, be construed as proof of the assessee’s financial involvement in the companies, as rightly held by the Ld.CIT(A).

In view of the aforesaid factual and legal analysis, we are of the firm opinion that the AO was not justified in making a protective addition of Rs.14,91,00,000/- in :-23-: I.T.A. No.:3336 /Chny/2024 & C.O.No.29/Chny/2025 the hands of the assessee u/s.69 of the Act, in respect of alleged unexplained investment. The Ld.CIT(A) has rightly evaluated the factual matrix and deleted the impugned protective addition. Therefore, we find no infirmity in the order of the Ld.CIT(A) warranting our interference. Accordingly, the grounds of appeal raised by the Revenue are dismissed, and the grounds of cross-objections raised by the assessee are partly allowed.

In the result, appeal filed by the Revenue is dismissed and the Cross-Objection filed by the assessee is partly allowed.