ARVIND NANDAGOPAL,CHENNAI vs. ACIT, CC-3(1),, CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as ‘Ld.CIT(A)‘), Chennai-20, all dated 29.06.2024 for the Assessment Years (hereinafter referred to as ‘AY‘) 2014-15 to 2018-19. As the issues involved across all these appeals were common, they were heard together. Both the parties also argued them together raising identical to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 2 ::

Subsequently, the assessee who is the Managing Director of M/s Binny Limited was summoned u/s 131 of the Act and was asked to explain the nature of advances given by M/s Binny Ltd. to these seven (7) concerns, to which he inter alia stated that, the company, M/s Binny Limited was required to incur cash expenses for development of the land parcels, and therefore the company had made these bogus advances to generate unaccounted cash, which was received by the company and utilized to meet their expenses. It was further gathered by the Investigating Officer that similar modus operandi was also undertaken by M/s Binny Limited through another group company, M/s Mohan Breweries & Distilleries to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 4 ::

Limited (in short ‘MBDL’) wherein also the monies received from M/s Binny Limited was allegedly advanced to bogus entities to receive back cash. The assessee is noted to have similarly averred in his statement u/s 131 of the Act that the cash so generated was utilized to meet the incidental expenses of MBDL. On the same date when the assessee was summoned i.e. 07.03.2018, the Investigating Officer also recorded the statement of Shri Bhawarlal Jain, who had purportedly facilitated the aforesaid transactions through these seven (7) concerns and he is noted to have submitted that, the advances received by these seven (7) companies were paid back in cash to M/s Binny Limited and MBDL respectively. The Investigating Officer is also noted to have examined the director/shareholder of one of the seven (7) concerns viz., Shri Shanmugavelu of M/s Sun Bright Designers Pvt. Ltd.

“1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.

2. The Ld. CIT(A) ought to have accepted the information furnished and explanation offered by the appellant in connection with the additions made to the income returned.

3.1 The Ld. CIT(A) erred by upholding the order of Ld. Assessing Officer wherein it was merely stated in the Assessment Order that the Assessing Officer has duly recorded satisfaction from out of material seized that the information contained therein has a bearing on the total income of the appellant, but without establishing such information while making the assessment.

3.2 The Ld. CIT(A) erred in acknowledging the act of Ld. Assessing Officer in considering the books of account in tally software of Binny Limited during the course of search as incriminating material for initiating the proceedings under Section 153C of the Act in the case of the appellant.

3.3 The Ld. CIT(A) erred by upholding the order of Ld. Assessing Officer wherein the assessment was made merely based on the statements obtained under Section 131 of the Act, which is not substantiated by any documentary evidence found during the search, as the statements obtained during the search or post search proceedings do not constitute incriminating material. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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3.4 The Ld. CIT(A) ought to have appreciated the submissions of the appellant that when the statement recorded during the search cannot be made as basis for an addition, statement recorded under Section 131 of the Act post search proceedings cannot be the sole basis of addition when there is no incriminating evidence unearthed during the course of search.

3.5 The Ld. CIT(A) failed to observe that the Assessing Officer erred in making the assessment under Section 153C of the Act on assumptions / surmises / conjectures that the seized material contains information which has a bearing on the total income of the appellant.

3.6 The Ld. CIT(A) ought to have followed the position of law that when there are no seized assets/books of account /documents containing the information having a bearing on the total income of the appellant, the jurisdiction for making assessment under Section 153C of the Act cannot be assumed.

3.7 The Ld. CIT(A) ought to have established the nexus between the evidence contained in the seized material belonging to the third party and the addition made and ought to have brought out how fresh material discovered in the course of search is connected to the undisclosed income assessed under Section 153C of the Act.

4.1 Without prejudice to all the above points, even assuming that the initiation of assessment proceedings under Section 153C of the Act is right in law, the Ld. CIT(A) erred in confirming the addition made by Ld. Assessing officer amounting to Rs.1,54,58,427/-made under Section 56(2) (vii) of the Act [which was later changed to Section 56(2)(x) by the Ld. CIT(A) for AY 2017-18 & AY 2018-19].

4.2 The Ld. CIT(A) failed to appreciate the fact that the Ld. Assessing Officer erred in making the addition under Section 56(2)(vii) of the Act [later changed to Sec. 56(2)(x) by Ld. CIT(A) for AY 2017-18 & AY 2018-19], without specifying in the 'Show Cause Notice,' the section under which the addition is proposed to be made.

4.3 The Ld. CIT(A) erred in confirming that the trade advances given to various companies /concerns by Binny Limited and M/s. Mohan Breweries & Distilleries Ltd. (MBDL) are bogus transactions and are made to generate unaccounted cash, even though the said advances were appearing as receivable in the audited books of account of the respective companies and were subsequently settled.

4.4 The Ld. CIT(A) ought to have appreciated the fact that the receivables of Binny Limited were subsequently settled by way of assignment of the same to MBDL in consideration of redemption of preference capital of Binny Limited held by MBDL and the dividend arrears thereof, vide Resolution passed in the EGM dated 09.10.2021.

4.5 The Ld. CIT(A) erred by upholding the order of Ld. Assessing Officer wherein it was stated that the appellant and Shri. M. Nandagopal being the key persons of Binny Limited and MBDL and that with their active involvement and knowledge the said transactions were made and they have received the unaccounted cash for their personal benefit.

4.6 Even assuming that the said trade advances are not genuine, the Ld. CIT(A) erred in coming to the conclusion that the appellant had received the to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

:: 8 :: alleged unaccounted cash for personal benefit, as the said conclusion is purely imaginary and not substantiated by facts / evidence.

4.7 The Ld. CIT(A) erred in accepting the conclusion of the Ld. Assessing Officer that the alleged unaccounted cash was received by the appellant, when it was categorically stated in the statement obtained from the appellant, Shri. Bhawarlal Jain and Shri. Shanmugavelu that the alleged cash was handed over back to the respective companies.

4.8 The Ld. CIT(A) erred in confirming the action of the Ld. Assessing Officer who considered the submissions of appellant on pick and choose basis i.e., by relying on the statement obtained under Section 131 of the Act from the appellant that unaccounted cash was generated out of the trade advances made by Binny Limited and MBDL, but conveniently omitted that portion of the statement wherein the manner of utilization of cash was mentioned.

4.9 The Ld. CIT(A) erred in rejecting the statement of the appellant that the unaccounted cash was utilized for the purpose of incurring regular business expenditure of the respective companies i.e. Binny Limited and MBDL, merely because the appellant has not produced the detailed proof of utilization of the said unaccounted cash, even though it was categorically stated in the statement under Section 131 of the Act that for the nature of said expenditure incurred out of the unaccounted cash, no documentary evidence could be obtained and maintained and the same was not claimed as expenditure.

4.10 The Ld. CIT(A) erred in arbitrarily adopting 50% of the trade advances made during the year under consideration, as the appellant's income under Section 56(2)(vii) for the year under consideration, without any basis.

5.1 The Ld. CIT(A) erred in confirming the invoking of the provisions of Section 56(2)(vii) of the Act by the Ld. Assessing officer [later changed to Sec. 56(2)(x) by Ld. CIT(A) for AY 2017-18 & AY 2018-19] for making addition in the appellant's hands of the cash received by the companies out of the trade advances made.

5.2 The appellant had not received any sum of money or movable or immovable property during the year under consideration, hence the Ld. CIT(A) erred in invoking the provisions of Section 56(2)(x) of the Act, as the said provisions are applicable only when an Individual or HUF receives during the previous year, any sum of money or movable or immovable property without adequate consideration.

5.3 The Ld. CIT(A) erred in upholding the order of Ld. Assessing Officer wherein the addition was made purely on hypothesis and suspicion, which cannot take form of evidence or proof while making an assessment.

5.4 The Ld. CIT(A) ought to have appreciated the position of law that tax shall be levied on the total income within the meaning of Section 5 of the Act, as per which all incomes which were received or accrued shall be treated as income. Income shall accrue only when the assessee has a right to receive.

5.5 The Ld. CIT(A) erred in ignoring the submissions made by the appellant that though the Income-tax Act takes into account two points of time at which the liability of tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income and if income does not result at all, there cannot be a tax. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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5.6 The CIT(A) failed to consider the fact that the addition under Section 56(2)(x) of the Act of a particular sum [for AY 2017-18 & AY 2018-19], without having received or accrued or earned by the appellant is against the provisions of the Act and Article 265 of the Constitution which states that -'no tax shall be levied or collected except by the authority of law'

5.7 The Ld. CIT(A) ought to have considered the fact that the Ld. Assessing Officer failed to discharge the onus in proving that the 50% of trade advances made by Binny Limited and MBDL during the year under consideration represents the income of the appellant represented in the form of any asset / investment / expenditure.

5.8 The Ld. CIT(A) failed to appreciate the fact that the Assessing Officer nor the Investigating Officers have found any asset / investment / expenditure which was unexplained in the hands of the appellant to presume that the cash was utilized for the personal benefit of the Appellant.

6.1 The Ld. CIT(A) erred in making an addition of Rs.40,84,64,861/- under the head Long Term Capital Gains on sale of Equity Shares of M/s Sagar Sugars and Allied Products Limited (SSAPL) based on the MoU dated 18.10.2011.

6.2 The Ld. CIT(A) erred by not considering that the Ld. Assessing Officer made the addition of Long Term Capital Gains while making the assessment under Section 153C of the Act, even though the said addition is not based on the assets/documents/books found during the search, which has a bearing on the total income of the appellant.

6.3 Without prejudice to the ground nos. 6.1 & 6.2, the Ld. CIT(A) erred in rejecting the quantum of Long Term Capital Gains already computed by the Assessing Officer during the assessment proceedings for the Assessment Year 2012-13 vide order dated 31.03.2015, which is the basis for making the addition for the year under consideration.

6.4 The Ld. CIT(A) ought to have followed the computation as stated in the assessment order dated 31.03.2015 for the Assessment Year 2012-13 by giving effect to the cost inflation index till the year under consideration.

7. The Ld. CIT(A) erred in not considering the judicial pronouncements relied on by the Appellant with regard to the additions made in the assessment order.

8. The appellant craves leave to add, alter, amend or delete any or all of the grounds either at the time of hearing of this appeal or before the hearing of this appeal.”

'8. For that the assessment made under section 153C of the Income Tax Act is bad in law on non-compliance with the applicable provisions of the fourth proviso to section 153A(1) of the Act in the absence of specific appropriate recording in the satisfaction note as provided therein to the effect that the income represented in the form of asset has escaped assessment for the subject AY 2014-15 which is falling beyond the six Assessment Years and forming part of 'relevant assessment year' as per provisions of Section 153A.

9. For that the Learned Commissioner of Income Tax (Appeals) ought to have quashed the assessment u/s 153C of the Act that was made for an Assessment Year beyond the stipulated period of six assessment years as laid down under the applicable provisions of Section 153A/153C of the Act by appreciating that the date of recording satisfaction note in the case of the 'other person' by the Assessing Officer of the 'searched person' must be construed as the date of handing over of documents relating to the other person even where the Assessing Officer is one and the same for both the 'searched person' and the 'other person".

10. For that the Learned Commissioner of Income Tax (Appeals) had erred in upholding the assessment made in violation of the principles of natural justice in that the opportunity to cross-examine the persons, whose sworn statements were relied upon in passing the Assessment Order, was not provided to the appellant.'

9. Ground Nos. 1, 2, 7 & 8 are noted to be general in nature which does not call for any separate adjudication. Perusal of Ground No. 3 and the additional grounds reveals that they are directed towards the legal validity of the jurisdiction of the AO to assess the assessee u/s. 153C of the Act. Having regard to the arguments made before us, we find that the to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) first legal challenge of the assessee in all the AYs is inter-alia to the validity of usurpation of jurisdiction u/s. 153C of the Act, without satisfying the mandatory condition precedent prescribed by Section 153C of the Act i.e. the AO has not recorded a valid satisfaction note before assumption of jurisdiction u/s 153C of the Act. In other words, the AO has issued notice u/s. 153C of the Act against the assessee, which was not subjected to search u/s. 132 of the Act, by invoking special provision of assessment u/s. 153C of the Act without satisfying the requirement of law as stipulated u/s. 153C of the Act, and therefore the action of AO is claimed to be ab-initio void. The second legal challenge of the assessee is inter alia to the validity of the addition(s) made in the impugned unabated AYs u/s 153C/143(3) of the Act sans any incriminating material found in the course of search from the premises of the searched person. The third legal challenge raised in AY 2014-15 was to the usurpation of jurisdiction u/s 153C of the Act by the AO, without first satisfying the essential condition precedent in the fourth proviso to Section 153A read with Explanation (2) of the Act. Without prejudice to these legal grounds, the assessee has raised Ground Nos. 4 & 5 objecting to the merits of the addition(s) made u/s 56(2)(vii) of the Act by the AO. Ground No.6 is against the merits of the addition made by way of long-term capital gain.

We are inclined to first adjudicate the legal issues raised by the assessee, to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) which if found valid, goes to the root of the matter [since it challenges the jurisdiction exercised by the AO u/s 153C of the Act].

Ramakrishnan C.A submitted that, in order to validly usurp jurisdiction u/s 153C of the Act, it was incumbent upon the AO to first identify the relevant material, that was found and seized from the premises of the searched person, which ‘related to’ or ‘pertained to’ the assessee and had a bearing on the determination of his total income. He relied on the decision of the Hon’ble Supreme Court in the case of CIT vs Sinhgad Technical Education Society (397 ITR 344) wherein the Court had held that it was incumbent for the AO to establish cogent correlation between the material seized from the premises of ‘searched person’ with the ‘other person’, document-wise and assessment year-wise, in his satisfaction note to validly assume jurisdiction u/s 153C of the Act. Taking us through the contents of the satisfaction note, the Ld. AR pointed out that, the only seized material referred to by the AO was the regular books of accounts seized from the premises of the ‘searched person’, M/s Binny Limited, which was marked as Annexure – ANN/AA/AEPL/ED/S. It was submitted that, these were regular books of accounts of the said company and did not relate or pertain to the assessee-individual in any manner.

The Ld. AR showed us that, later on in the course of post search to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) enquiries, the Investigating Officer had examined these regular books of accounts and had taken note of the trade advances given by M/s Binny Limited to various concerns, which was tabulated by the AO in the impugned satisfaction note. He submitted that, these regular transactions were also between M/s Binny Limited and other concerns and it did not relate or pertain to the assessee. He therefore claimed that when there was no seized assets or books of accounts or documents found relating or pertaining to the assessee, which contained information having a bearing on his total income, the jurisdiction assumed by the AO u/s 153C of the Act was invalid. In support thereof, he also relied on the decision of the Hon’ble jurisdictional Madras High Court in the case of CIT Vs Late J Chandrasekhar (20 taxmann.com 451).

[assessee], then the condition laid down u/s. 153C(1) cannot be said to have been met, merely on the basis of statement(s) of some third parties which were recorded behind his back, in post search enquiries, cannot justify initiation of proceedings u/s. 153C(1) of the Act. According to him, such statements alone cannot be the basis to justify initiation of proceedings u/s. 153C(1) of the Act. The Ld. AR further emphasized that, the statement(s) referred to by the AO was not recorded u/s 132(4) but u/s 131 of the Act and that a statement made u/s 131 of the Act cannot be equated with a statement recorded under section 132(4) of the Act. He submitted that, a statement recorded under section 132(4) is a valid and relevant piece of evidence but a statement recorded under section 131 doesn’t carry the weight/evidentiary value, and hence cannot form the sole basis to justify adverse view unless corroborative material are unearthed. Nevertheless, according to him, when even a statement recorded u/s 132(4) of the Act alone cannot be used as a basis for making addition in the hands of ‘searched person’, unless it is corroborated by seized material; there cannot be any question of using such bald third party statement(s) u/s 131 of the Act in the matters of ‘other person’ to justify initiation of assessment u/s 153C of the Act. In support, the Ld. AR relied on the following decisions of this Tribunal:- − DCIT vs. VVD & Sons (P.) Ltd [2024] 158 taxmann.com 395 to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) − Saveetha Institute of Medical & Technical Sciences vs. ACIT [2012]

25 taxmann.com 138 − ITO vs. Ramachandra Setty & Sons [2024] 163 taxmann.com 666.

12. The Ld. AR then also took us through the statement(s) of Shri Bhawarlal Jain and Shri Shanmugavelu, which formed the AO’s premise for alleging that the advances given by M/s Binny Limited to various concerns were bogus. He contended that, in none of their statements had they incriminated the assessee in any manner nor had they averred that they have paid cash back to the assessee. Rather, he showed that, Shri Jain was categorical in his answer that, the cash was paid back to the companies. He therefore submitted that, even if their statements are taken at face value, then also it did not contain anything which related to or pertained to the assessee-individual. According to him therefore, the AO had drawn his own whimsical assumption from their statements, though of no relevance, to draw distorted satisfaction against the assessee u/s 153C of the Act. The Ld. AR further argued that the statement(s) of these unrelated persons, which were relied upon by the AO, had also not been examined on the touchstone of cross-examination and therefore they were otherwise also inadmissible and unreliable. In this regard, he relied on the decisions of the Hon’ble Supreme Court in the cases of Andaman Timber Industries Ltd v. CCE [2015] 62 to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) taxmann.com 3/52 GST 355 & CIT v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64/266 Taxman 461/418 ITR 315 and the decision of the jurisdictional Hon’ble Madras High Court in the case of Vetrivel Minerals v. ACIT [2021] 129 taxmann.com 126.

19. The Ld. CIT, DR further submitted that, the case of the AO, as recorded in the satisfaction note, was the receipt of unaccounted cash by the assessee in lieu of bogus advances given through M/s Binny Limited and MBDL, which according to him, constituted ‘asset’ within the meaning of Explanation (2) to the fourth proviso to Section 153A of the Act. He thus claimed that, the AO had validly reopened the assessment u/s 153C of the Act for AY 2014-15 in terms of the fourth proviso to Section 153A of the Act and thus urged us to reject this legal challenge raised by the assessee as well.

20. The Ld. AR in his rejoinder submitted that, the regular books of accounts of M/s Binny Limited cannot tantamount to incriminating material in as much as the transactions referred to therein evidently did not relate or pertain to the assessee. In this regard, he relied on the decision of the Hon’ble Bombay High Court in the case of CIT Vs to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 22 ::

Lavanya Land (P) Ltd (297 ITR 246). He also cited the decision of Hon’ble Delhi High Court in the case of PCIT vs Index Securities Pvt. Ltd. (86 taxmann.com 84) wherein it was held that the regular books of accounts cannot be said to constitute incriminating material unearthed in course of search. He further pointed out to us that, the AO himself had not referred to these books of accounts of M/s Binny Limited in the impugned assessment order to justify the impugned addition and this fact was also categorically taken note of by the Ld. CIT(A) in his appellate order. This material aspect, according to him, evidenced that the Revenue itself did not treat the regular books of accounts as incriminating material qua the assessee.

23. Section 153A of the Act is a special provision for assessment of the ‘searched person’ and Section 153C of the Act is a special provision for assessment of income of 'any other person' which is a third party who is not searched by the Department but will be assessed u/s. 153A of the Act, provided the AO is satisfied that — (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in Section 153A.

As Section 153C is a special provision against an assessee who has not to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) been searched by the department, the safeguard stipulated by the provisions contained in Section 153C has to be scrupulously followed.

(i) Satisfaction of the Assessing Officer who is Assessing Officer of the section 153A notice that money/bullion/jewellery/other valuable article or thing/books of account or documents (incriminating materials) seized/requisitioned belongs to/pertain to or any information contained, relates to, a third party.

(ii) Recording of satisfaction as above.

(iii)Handing over of the incriminating material to the Assessing Officer having jurisdiction over the third party.

(iv) Recording of satisfaction by the Assessing Officer of the third party that the incriminating material has a bearing on the determination of total income of the third party.

(v) Upon condition of recording of the satisfaction of both officers as above, notices be issued to assess/reassess the income of the third party in accordance with the procedure stipulated under Section 153A.

(i) Recording of satisfaction by the Assessing Officer of the searched entities that some of the incriminating materials relate to a third party.

(ii) Recording of satisfaction by the Assessing Officer of the third party that the incriminating materials have a bearing on the determination of the total income of that third party.

to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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The contention of the revenue that a mandate is cast upon the Assessing Officer of the third party to issue notice under Section 153C for all the years comprising the block, mechanically and automatically, is thus rejected.

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(emphasis supplied)

"6. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co- relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefor are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.

9. We are of the opinion that the tribunal's conclusion cannot be termed as perverse and given the above-noted factual background. None of these appeals raises any substantial question of law. They are accordingly dismissed. No costs."

"18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.

time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.” (emphasis supplied)

Section 153C enables and empowers the jurisdictional AO to assess or reassess the six AYs' or the ‘relevant assessment year’. The Act thus sanctions and confers an authority upon the AO to exercise the power placed in its hands for up to a maximum of ten AYs. Despite the conferral of that power, the question which would remain is whether the facts and to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) circumstances of a particular case warrant or justify the invocation of that power. Ultimately, Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment. Therefore, and unless the AO is objectively satisfied that the material gathered relates or pertains to the ‘other person’ and could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all the AYs in question.

“33. The record slip belongs to the assessee and, therefore, the action of the Assessing Officer of the searched persons recording that the same belongs to the assessee cannot be faulted. However, the question then arises is whether the Assessing Officer of the assessee was justified in taking further steps for reassessing the income of the assessee in to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) respect of the assessment years for which the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the Assessing Officer, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income of the assessee for the years in question. Merely because a valuable article or document belonging to an assessee is seized from the possession of a person searched under section 132 of the Act does not mean that the concluded assessments of the assessee are necessarily to be reopened under section 153C of the Act. In our view, the concluded assessments cannot be interfered with mechanically and solely for the reason that a document belonging to the assessee, which has no bearing on the assessments of the assessee for the years preceding the search, was seized from the possession of the searched persons.

….

36. The decision in SSP Aviation (supra) cannot be understood to mean that the Assessing Officer has the jurisdiction to make a reassessment in every case, where seized assets or documents are handed over to the Assessing Officer. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the Assessing Officer after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the Assessing Officer to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an assessee before commencing an enquiry under section 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the assessee for the relevant assessment years.”

32. We also refer to the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell (supra) wherein it has been held in unequivocal terms that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. The same position would prevail in context of Section 153C of the Act as well. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 38 ::

Here too, the AO is mandated to firstly identify the AYs' to which the material gathered in the course of the search may relate to and consequently those assessments would face the spectre of Section 153C of the Act. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. All the above discussed judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY in as much as it reinforces our view that notice u/s 153C can be validly issued only when the AO records his objective satisfaction that he has incriminating material pertaining to or relating to the ‘other person’ for the relevant AYs and which may be concerned with their disclosed and undisclosed income.

Absent any material qua the ‘other person’ that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C of the Act. It would only be consequent to such satisfaction being reached that a notice u/s 153C of the Act would be liable to be issued.

Neither anything can be added to the reasons so recorded nor anything be deleted from the reasons so recorded. The Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 inter alia, held "it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons." Their Lordships added that "the reason recorded should be self explanatory and should not keep the assessee guessing for reasons. Reasons provided the link between the conclusion and the evidence…..". It is a settled law that the reasons recorded cannot evolve or be allowed to grow with age and ingenuity. The reasons which are recorded cannot be supplemented by to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) affidavits. If the reasons are allowed to be added, subtracted or deleted, then by the time the matter reaches the Court/Tribunal, the Assessing Officer would be allowed to change his reasons to believe escapement of income. The Hon'ble Supreme Court in New Delhi Television Ltd. (NDTV), v. DCIT [2020] 116 taxmann.com 151(SC) has held that the Assessing Officer is not allowed to alter his reasons, which must be considered only based on their recordings. In our considered view, this ratio decidendi of the Hon'ble Supreme Court is applicable with equal force to the satisfaction note prepared by the AO for assuming jurisdiction to issue notice under section 153C of the Act.

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“08/02/21 - In connection with search and seizure operation u/s 132 of the I.T. Act, 1961 was initiated in the case of M/s. KLP Projects Pvt. Ltd. On 09.11.2017, the premises of M/s. Binny Ltd at No. 1, Cook's Road, Perambur, Chennai was also covered on 09.11.2017 by executing warrant of authorization u/s 132 of the I.T. Act. Premises of Shri A. Nandagopal, Managing Director and Shri M. Nandagopal, Executing Chairman of M/s. Binny Ltd were also covered by executing warrant of authorization u/s 132 of the I.T. Act, 1961 on 09.11.2017. During the course of search and seizure operation, certain incriminating books / documents and electronic devices were found and seized from the premises of Binny Ltd as well as from the premises of A. Nandagopal and M. Nandagopal.

Shri M.Nandagopal (PAN-AADPN2678L), residing at No 6, 6th street, Rutland Gate road, Chennai-06 is the Executive Chairman of M/s.Binny Ltd and M/s M/s.Mohan Brewaries and Distilleries Ltd (MBDL, in short). He holds nearly 45% shares in Binny Ltd and nearly 71% shares in MBDL. His son Shri Arvind Nandagopal (PAN- AAFPA6259G), also living in the same address is the Managing Director of both the companies. He holds nearly 4% shares in Binny Ltd and nearly 8.7% shares in MBDL.

A search and seizure operation u/s 132 of the I.T. Act, 1961 was initiated in the case of M/s.KLP Projects Private Ltd and others on 09.11.2017 during which the premises of M/s Binny Ltd at No 1, Cook's road, Perambur, Chennai was also covered. During the course of search & seizure operation, certain incriminating books/documents and electronic devices were found and seized.

M/s Binny Limited received an amount of Rs 490 crores (inclusive of Rs 120 crores on-money received in cash) from M/s KLP Projects Private Ltd and others (formerly known as M/s Landmark Barracks Projects Pvt. Ltd towards sale of its land in Barracks road, Perambur, Chennai. The agreement for the deal was signed on 17.10.2013 and the funds were received during the period FY 2013-14 to FY 2016-17. Further, Binny Ltd entered into Joint Venture agreement with SPR group on26.06.2015for developing its another land parcel at Cook's road, Chennai and towards this it received an amount of Rs 250 crores as security deposit.

During the course of search in the premises of Binny Ltd, its books of accounts maintained in Tally server was imaged and seized vide ANN/AA/AEPL/ED/S. On perusal of the seized books of accounts, it was seen that the funds received from M/s KLP Projects Private Ltd and SPR group were immediately advanced to various concerns as tabulated below and the same were accounted as 'textile advance'

S.No Company Name Rs. (In crores) 1 Nurture Traders Private Limited 41.18 2 Premium Steel and Alloys Private Limited 15.00 3 Parshvi Global Interlinks Private Limited 41.15 4 Modest Imperia Trading Private Limited 14.99 5 Glintz Ventures Private Limited 19.00 6 Mass International 56.02 to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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7 Sunbright Designers Private Limited 25.22 Total 212.56

Investigations during the course of search revealed that none of the concerns existed /functioned from the given addresses. Even the Directors of the above concerns were not available in the given addresses. Further during the course of search no supporting documents were found for any movement of goods. This established the fact that none of the above concerns had any real business and there was no actual movement of any goods.

When the facts were confronted with Shri Arvind Nandagopal, MD of M/s Binny Limited, he, in his sworn statement given on 07.03.2018, has admitted that the advances made by both Binny Ltd and MBDL are bogus advances which was used to generated unaccounted cash. The relevant portion of his sworn statement is reproduced below.

Q.No.4 During the course of post-search investigation, it has been found that the above mentioned companies are shell-companies and they did not do any business at all. Please explain what is the reason for payments made to these companies.

Ans. In order to meet unaccounted expenses related to M/s. Binny Limited, We were forced to generate unaccounted cash from the business. I confirm that the Unaccounted cash was generated through the following companies :-

S.No. Rs. Company Name (In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parslivi Global Interlinks P Ltd 41.15 4 Modest Imperia Trading P Ltd 14.99 5 Sunbright Designers P Ltd 25.22 6 Mass International 13.18 Total 150.72

Further in the case of M/s. Mass International, the amount shown as transferred in the books of M/s. Binny Limited is Rs.56.02 crores. However, out of the amount, only Rs.13.18 crores was received back as unaccounted cash and the balance amount of Rs.42.85 crores was actually transferred to our sister company M/s. Mohan Breweries & Distilleries Limited but debited to M/s. Mass International. Ledger copies of M/s. Mass International and" Advance to MBDL (Others)" are submitted.

M/s. Glintz Ventures Private Limited, after receiving Rs.19 crores from M/s. Binny Limited, have transferred back to our sister company M/s.Mohan Breweries & Distilleries Limited. These payments were made as advances. Ledger copies are submitted in separate sheets." to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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Q. No. 5. As stated by you in your reply to previous question, M/s. Binny Limited have incurred unaccounted cash expenses of Rs.150.72 Crores which has been booked as "Trade Advance" in the books of M/s. Binny Limited. Your attention is drawn to Section 37(1) of the Income Tax Act, 1961. As per the Section, unaccounted cash expenses incurred in the business is to be disallowed. Please offer your comment.

Ans. M/s. Binny Limited have given trade advances which has been used to generate unaccounted cash, out of the money / income accounted for which full tax has already been paid. Now, we need to take legal experts advice on the treatment of the expenses in the books of accounts.

Q.No. 6.Who facilitated generation of cash through these shell companies?

Ans. The transactions were facilitated by Shri Bhawarlal Jain, Director of M/s Sanklecha Infr Projects Pvt. Ltd. and Shri Manish Parmar of M/s. KLP Projects Pvt. Ltd. I have transferred the money from m/s. Binny Limited to various companies as per his instruction and received the cash back as per our agreement after deducting his commission.

Q.No. 7. What was the commission allowed to the facilitator for their service?

Ans. We paid commission @ 1% and the commission amount works out to Rs. 1.72 Crores.

Shri Bhawarlal Jain, who facilitated these transactions was also covered during search action and he also in his sworn statement dated 07.03.2018 that unaccounted cash was generated through bogus advances. The relevant portion of his sworn statement is reproduced below:-

"Q.No.3 In his sworn statement, Shri Aravind Nandgopal, M.D. of M/s. Binny Limited has stated that M/s. Binny Limited have given loans to the following companies of yours and your brother Shri Maneesh Parmar and received the cash back.

S.No. Company Name Rs. (In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parshvi Global Interlinks P Ltd 41.15 14.99 4 Modest Imperia Trading P Ltd 5 Sunbright Designers Pvt Ltd 25.22 6 Mass International 13.18 Total 150.72

What do you want to say about this?

Ans. Yes sir. I agree that during the F.Y. 2016-17, the companies shown at Serial Numbers 1 to 5 above, have received loans through banking channel from M/s. Binny Limited to the tune of Rs.137.54 crores which was paid back to M/s. KLP Projects Private Limited as unsecured loans and cash generated from M/s. KLP Projects Private Limited was paid back to M/s. Binny Limited. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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For this arrangement, we have not received any commission. As far as company shown at serial number 6 is concerned, an amount of Rs.13.18 crores was converted into cash through market company and was paid back to M/s. Binny Limited for which I received commission @ 0.5% which works out to Rs.6.59 lakhs and I offer the same for taxation for the Asst Year 2017-18.

Further, the director / share holder of M/s Sun bright Designers Private Limited Shri Shanmugavelu was confronted with the above facts and he has also confirmed the above fund routing and cash generation. The relevant portion of statement taken from Shri Shanmugavelu is given below for ready reference:-

"Q.No.8 Did you enter into any business transaction with Shri Maneesh Parmar and/or with Shri Aravind Nandagopal?

Ans. During the year 2014-15, our company was facing severe financial crisis and I had been frequenting the bank servicing the loan. There, once Shri Maneesh Parmar approached me with a proposal. As per his proposal, crores of rupees would be sent to my bank account at regular intervals and I had to transfer the amount the very same day to the bank accounts of the companies that he would point out and for this service, I would get around 0.1% of the transacted amount, as my commission and I could deduct the commission amount and pass the balance amount to the bank accounts pointed out by him. As our company was dire need of cash, I readily agreed to this proposal. Thus, I had entered into banking transactions with him.

After this discussion, Shri Maneesh Parmar took me to the office of M/s. Binny Limited at Cooks Road, Perambur, Chennal and introduced me to the M.D. of the company Shri Aravind Nandagopal. After a brief meeting, I left their office. From then on, from sth December 2014 to 11th December 2014, six times cash was sent to my company M/s. Sun Bright Designers Private Limited's bank account No.909020039586056 maintained with Axis Bank and every time the amount was transferred into our company's bank account, Shri Krishnamurthy, CFO of M/s. Binny Limited used to call me over phone and inform me about the cash being transferred into our company's above mentioned bank account and request me to transfer the amount, after deducting my commission, to the Current Bank Account of M/s. Nurture Traders Private Limited maintained with State Bank of India (No.33786616000). Accordingly, 1, being the authorized signatory of my company's bank account, transfer the amount to that account through RTGS. Thus, during these six days, our company received totally around Rs.40,65,12,705 from M/s. Binny Limited and then we transferred Rs. 40,24,87,820/- to M/s. Nuture Traders Private Limited and the balance amount of Rs.40,24,879/- was commission received by my company.

For documentation, we raised Fabric Sales Invoice against the amount received from M/s. Binny Limited and against payment to M/s. Nurture Traders Private Limited, we received the Fabric Purchase Invoice."

Further during the post search proceedings various efforts to identify the directors of these shell companies, Shri Dinesh Kumar, Shri Manoj Kumar, Shri Ajit Kumar Ojha proved in vain. Shri Bhawarlal Jain in his sworn statement dated 07.03.2018, has admitted that it was he who had operated these shell companies by obtaining the KYC details of the above mentioned persons and the directors are only name lenders for the purpose of KYC. The relevant portion of his statement figuring in reply to Q.no6, is reproduced below:- to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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"I have tried, in the past, to trace them but all my efforts went in vain. Further, I submit that they were only name lenders and the affairs of the companies were managed by me only. "

It is clear from the above facts that M/s Binny Limited transferred funds to M/s KLP Projects Private Limited through various shell companies and M/s KLP Projects Private Limited, which was generating unaccounted cash by way of on-money received from customers, paid equivalent amount in cash to the promoters of M/s Binny Limited. The fund flow scheme is depicted below:-

In addition to the above, part of the funds received by Binny Ltd from KLP Projects P Ltd and SPR group was transferred to its group concern M/s. MBDL and here also the same strategy was adopted. On receipt of money, MBDL immediately transferred significant part of the funds to various concerns as tabulated below:-

Sr.No. Company Name Rs.(in Crores) 1 M/s.Vetri Solutions 17,23,75,000 2 M/s. Superior Sales Corporation 3,50,00,000 3 M/s.Saheli Exports Private Limited 5,40,000 4 M/s.Padilite Traders 2,82,00,000 5 M/s.Global Imoex I,40,00,000 6 M/s.Premium Steels and Alloys Private Limited 3,52,84,794 7 M/s.Millenium Corporation 6,I1,50,850 8 M/s.GI Exim Private Limited 2,33,I1,369 9 M/s.Parmar Shelters and Infra Private Limited 25,55,43,369 Total 62,54,05,382

Here also enquiries revealed that none of the concerns existed/functioned from the given addresses. Even the Directors of the above concerns were not available in the given addresses. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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When the above facts were confronted with Shri Aravind Nandagopal, he similarly accepted in his sworn statement dated 07.03.2018 that they were bogus advances made for the purpose of generating unaccounted cash. The relevant portion of his sworn statement is reproduced below:-

Q.No. 8. Similaly, in the case of M/s Mohan Breweries and Distilleries Limited also, there is an outflow of Rs.62,54,05,382/- to various companies as shown below:

SI.No. Rs. (in Crores) Company Name 1 M/s.Vetri Solutions 17,23,75,000 2 M/s. Superior Sales Corporation 3,50,00,000 3 5,40,000 M/s.Saheli Exports Private Limited 4 M/s.Padilite Traders 2,82,00,000 5 M/s.Global Imoex 1,40,00,000 6 M/s.Premium Steels and Alloys Private 3,52,84,794 Limited M/s.Millenium Corporation 611,50,850 7 8 M/s.GI Exim Private Limited 2,33,11,369 9 M/s.Parmar Shelters and Infra Private 25,55,43,369 Limited Total 62,54,05,382

What is the basis for transfer of such amount to the above mentioned companies?

Ans. Sir, I confirm that I have made the above payments from m/s. Mohan Breweries and Distilleries Limited to various companies to the tune of Rs.62,54,05,382/-Excepting the companies M/s. GI Exim Private Limited and M/s. Parmar Shelters and Infra Private Limited, payments totaling Rs.34,65,50,644/- were made to generate unaccounted cash to meet out the incidental expenses incurred for running the liquor business.

From the above facts it is firmly established that the Principal officers of Binny Ltd and MBDL namely Shri M.Nandagopal and Shri Aravind Nandagopal have generated unaccounted cash totaling to Rs 185.37 crores (150.72+34.65) by extended bogus advances to various shell companies. However when asked about documentary evidences relating to the utilization of these unaccounted ca.'n. Shri Arvind Nandagopal, MD of the company stated in response to Q.10 of his sworn statement recorded on 07.03.2018, that:

"...In the case of M/s Binny Limited, major incidental expenses were spent for land approval cost paid to the various agencies. Further expenses were incurred in vacating the labourers in Binny Land located in Perambur Barracks Road, Chennai. The company does not maintain any ledger or account for such cash payments."

Similarly, he didn't give any documentary proof for his claim pertaining to MBDL to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

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It is proved beyond doubt that the Principal officers of Binny Ltd and MBDL have generated unaccounted cash and hence the onus is on them to substantiate with documentary/supporting evidence of how the same was spent. However they have failed to discharge their onus and hence the entire unaccounted cash generated amounting to Rs.185.37Crores should be assessed substantively in the hands of the key persons i.e. Shri Arvind Nandagopal, Managing Director and Shri M. Nandagopal, Executive Chairman (in proportion to their shareholding) under the head 'Other Income' and protectively in hands of the companies vis M/s Binny Limited and MBDL. The unaccounted cash received shall the taxed in the respective years in which such bogus advances were made.

I am satisfied that the seized documents (Electronic Device) pertains and information contained therein relates to M/s Binny Ltd and the transaction has tax implication in the hands of Shri A. Nandagopal, Managing Partner of M/s Binny Ltd.

As per the provision of section 153C, where the Assessing Officer is satisfied that:-

• Any money, bullion, jewellery or other valuable article or things, seized or requisitioned belongs to; or • Any books of account or documents seized or requisitioned, pertains or pertain to, on any information contained therein, relates to,

A person other than the person referred to in section 153A, then the books of account, documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person.

Further, as per the amendment made by the Finance Act, 2017 with effect from 01.04.2017 to the section 153C of the I.T. Act, in the case of a person other than the person refer to in section 153A, Assessing Officer shall proceed against each such other person and issue notice and assess or re-assess the income of the other person in according with the provision of section 153A for Six Asst. Years immediately preceding the Asst. Year relevant to the previous year in which search is conducted or requisition is made and for the relevant Asst. Year or Years referred to in sub section 1 of section 153A.

The seized documents received from the ACIT, Central Circle 2(1), are carefully perused. On perusal of the seized material received, I am satisfied that the documents seized pertains to and the information contented there in relates to Shri A. Nandagopal, which have a bearing on the determination of total income of Shri A. Nandagopal and as per the amendment made by the Finance Act, 2017 with effect from 01.04.2017 to the section 153C of the I.T. Act, notice u/s 153C to be issued in the case of the assessee Shri A. Nandagopal for the A.Y. 2014-15.

In view of the facts stated above, notice u/s. 153C is to be issued for the A.Y. 2014-15.”

ANN/AA/AEPL/ED/S seized from the premises of searched person, which in their view, related or pertained to the assessee and contained information which had a bearing on his total income. The legal challenge raised by the assessee is that, the aforesaid seized material which had been referred to by the AO to justify the assumption of jurisdiction under Section 153C of the Act in the case of the assessee, neither related nor pertained to the assessee and therefore the ‘satisfaction note’ recorded by the AO and the consequent issue of notice u/s 153C of the Act stood vitiated in law. From the material placed before us, it is observed that, a search was conducted upon M/s KLP Projects Pvt. Ltd. on 09.11.2017 wherein it was gathered that the said company had entered into an agreement for sale to acquire land parcels from M/s Binny Limited on 17.10.2013. Consequently, a search was also conducted upon M/s Binny Limited on the same date and it was found that the consideration paid through banking channel was recorded in their regular books of accounts.

It was further observed that, M/s Binny Limited had also entered into another joint venture with M/s SPR Group, pursuant to which it was in receipt of security deposit of Rs.250 crores. It was the regular books of accounts of M/s Binny Limited which had been seized by the Investigating Authorities, and was marked as Annexure - ANN/AA/AEPL/ED/S. Later on, the Investigating Officer gathered from these books of accounts that, M/s to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 49 ::

Binny Limited and MBDL had inter alia paid sums to seven (7) entities by way of advance for purchase of fabrics, which was suspected to be bogus.

Based on post search enquiries, which we shall discuss in the later paragraphs, the AO was of the view that, the assessee had received back cash in lieu of the bogus advances given by M/s Binny Limited and MBDL, which was to be brought to tax in his hands. Hence, the first document which is to be examined is the impugned seized material i.e. ‘books of accounts’ of M/s Binny Limited maintained in the tally software, and whether it can be regarded as material which related or pertained to the assessee having bearing on his total income, for the AO to have validly assumed jurisdiction u/s 153C of the Act.

Ltd (supra) against which SLP has been dismissed by the Hon’ble Supreme Court. In the decided case also, the seized documents relied upon by the AO to assume jurisdiction u/s 153C of the Act were not in name of assessee and therefore it was held that no action could have been undertaken against the assessee under section 153C of the Act, more particularly when the alleged amounts inferred from the seized documents were not supported by any actual cash passing hands. The relevant excerpts from the judgment of the Hon’ble High Court are as under:-

“20. The Tribunal noted the grounds of Appeal. It also noted the facts pertaining to the search and seizure action under Section 132 and the statement of Dilip Dherai. The Tribunal noted the fact that the entire land acquisition was looked after by Central Leadership Team of which Mr. Dilip Dherai, Mr. Anand Jain, Mr. Sanjay Punkhia and Mr. Ajit Warthy are key members. The Tribunal also referred to the seized documents. The Tribunal then referred to the order passed by the Commissioner of Income Tax (Appeals). Then the Tribunal noted the arguments of both sides. These arguments were noted in great details. Then, the Tribunal, in paragraph 18 and 19, held as under :

"18. Thus it is clear that before issuing notice u/s. 153C, the primary condition has to be fulfilled and which is that the money, bullion, documents etc., seized should belong to such other person. If this condition is not satisfied, no proceedings could be taken u/s. 153C of the Act. The seized documents marked as page 1 & 2 or our order do not belong to the assessee but were seized from the residential premises of Shri Dilip Dherai. It is not the case of the Revenue that the impugned documents are in the handwriting of the assessee. At this stage, it would be fair to the Revenue that it cannot be in the handwriting of the assessee since the assessee is a legal person, so to to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) extend our observation, the seized documents are not even in the handwriting of any person related with the assessee because Shri Dilip Dherai is neither a Director nor a shareholder/member nor even an employee of the assessee company. We may mention at this stage that the provisions of the Indian Evidence Act are not strictly applicable to the proceedings under the Income Tax Act, but the broad principles of law of evidence do apply to such proceedings. Further an entry in the books of account maintained in the regular course of business is relevant for the purpose of considering the nature and impact of a transaction, but noting on slip of papers or loose sheet of papers are required to be supported/ corroborated by other evidence. There is also a distinction between loose papers found from the possession of assessee and similar documents found from a third person. In the present case, impugned documents were not found from the possession of the assessee but was found from the possession of a third person i.e. Shri Dilip Dherai. Mere mention of the names of the villages where the companies may have purchased lands would not give any basis to assume/presume/surmise that the name of the companies are mentioned in the impugned documents. The very foundation of Sec. 153C has been shaken by not fulfilling the condition precedent for the issue of notice. It is the say of the Ld DR that in the present case there is no need for recording of the satisfaction. If this plea of the DR is accepted then the legislative intent of inserting sec. 153C in the Act would get defeated because the AO will get unstoppable powers to reopen assessments for 6 year in the case of the ' Other Person ' without recording any basis [ satisfaction ] for his action. Therefore this plea of the Ld DR cannot be accepted.

19. Considering the entire facts and circumstances in the light of the impugned seized documents, we have no hesitation to hold that action taken u/s. 153C of the Act is bad in law."

“31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in RRJ Securities and ARN Infrastructure India Ltd. v. Asstt. CIT [2017] 394 ITR 569/81 taxmann.com 260 (Delhi) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.

India Ltd. (85 taxmann.com 87). In the decided case, the search was conducted upon Lodha Group in the course of which the key searched person, Shri Lodha, in his statement recorded u/s 132(4) of the Act had disclosed additional income on account of on-monies received from sale of flats, which he later on also offered before the Settlement Commission and provided the details thereof. Relying on the statement given u/s 132(4) of the Act by the ‘searched person’, the AO of the assessee had invoked jurisdiction u/s 153C of the Act to bring to tax the on-monies allegedly paid by him upon purchase of flat(s). Before this Tribunal, the assessee had inter alia contended that, a ‘statement’ cannot be regarded as ‘books of accounts’ or ‘documents’ seized in the course of search, as referred to in Section 153C of the Act and therefore objected to the validity of jurisdiction assumed by the AO u/s 153C of the Act. Upholding this contention of the assessee, the Tribunal is noted to have held as under:-

under 153C in the case of the assessee company, therefore, the same on the said count also shall in no way go to confer validity to the assumption of jurisdiction by the A.O under Sec. 153C.

13. We thus in light of our aforesaid observations are of the considered view that the A.O had clearly traversed beyond the scope of his jurisdiction u/s. 153C and therein proceeded with and framed assessment u/s. 153A r.w.s. 153C/143(3) in the hands of the assessee company. We thus finding no infirmity in the order of the CIT (A), therefore, uphold the same and dismiss the appeal of the revenue.

"Q.No.3 In his sworn statement, Shri Aravind Nandgopal, M.D. of M/s. Binny Limited has stated that M/s. Binny Limited have given loans to the following companies of yours and your brother Shri Maneesh Parmar and received the cash back.

S.No. Company Name Rs.(In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parshvi Global Interlinks P Ltd 41.15 4 Modest Imperia Trading P Ltd 14.99 5 Sunbright Designers P Ltd 25.22 6 Mass International 13.18 Total 150.72

What do you want to say about this?

Ans. Yes sir. I agree that during the F.Y. 2016-17, the companies shown at Serial Numbers 1 to 5 above, have received loans through banking channel from M/s Binny Limited to the tune of Rs. 137.54 crores which was paid back to M/s. KLP Projects Private Limited as unsecured loans and cash generated from M/s. KLP Projects Private Limited was paid back to M/s. Binny Limited. For this arrangement, we have not received any commission. As far as company shown at serial number 6 is concerned, an amount of Rs.13.18 crores was converted into cash through market company and was paid back to M/s. Binny Limited for which I received commission @ 0.5% which works out to Rs.6.59 lakhs and I offer the same for taxation for the Asst Year 2017-18.” to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 60 ::

The relevant portion of his statement relied upon by the AO (as reproduced in the satisfaction note) reads as under:-

"Q.No.8 Did you enter into any business transaction with Shri Maneesh Parmar and/or with Shri Aravind Nandagopal?

Ans. During the year 2014-15, our company was facing severe financial crisis and I had been frequenting the bank servicing the loan. There, once Shri Maneesh Parmar approached me with a proposal. As per his proposal, crores of rupees would be sent to my bank account at regular intervals and I had to transfer the amount the very same day to the bank accounts of the companies that he would point out and for this to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) service, I would get around 0.1% of the transacted amount, as my commission and I could deduct the commission amount and pass the balance amount to the bank accounts pointed out by him. As our company was dire need of cash. I readily agreed to this proposal. Thus, 1 had entered into banking transactions with him.

After this discussion, Shri Maneesh Parmar took me to the office of M/s. Binny Limited at Cooks Road, Perambur. Chennai and introduced me to the M.D. of the company Shri Aravind Nandagopal. After a brief meeting. I left their office. From then on, from 5th December 2014 to 11 December 2014, six times cash was sent to my company M/s. Sun Bright Designers Private Limited's bank account No. 909020039586056 maintained with Axis Bank and every time the amount was transferred into our company's bank account, Shri Krishnamurthy, CFO of M/s. Binny Limited used to call me over phone and inform me about the cash being transferred into our company's above mentioned bank account and request me to transfer the amount, after deducting my commission, to the Current Bank Account of M/s. Nurture Traders Private Limited maintained with State Bank of India (No.33786616000). Accordingly, I. being the authorised signatory of my company's bank account, transfer the amount to that account through RTGS. Thus, during these six days, our company received totally around Rs.40,65,12,705 from M/s. Binny Limited and then we transferred Rs. 40,24,87,820/- to M/s. Nuture Traders Private Limited and the balance amount of Rs. 40,24,879/- was commission received by my company.

For documentation, we raised Fabric Sales Invoice against the amount received from M/s. Binny Limited and against payment to M/s. Nurture Traders Private Limited, we received the Fabric Purchase Invoice."

"According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected." to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 65 ::

“22. On the next issue of refusal of cross-examination of the persons whose statements were recorded during the time of search under section 132(4) of the Income Tax Act, it is trite law that the person against whom a statement is used, should be given opportunity to counter and contest the same. I am unable to accept the contention of the learned Senior Counsel that since the statements recorded were of persons who were employees of the assessee and therefore the assessee cannot seek for cross-examination of them. The basic principles of jurisprudence governing the law of evidence can in no way interfered and could not be by the Income Tax Act provisions and neither the authorities functioning under the Income Tax Act has any discretion in such matters. The Supreme Court in the judgment Kishan Chand Chellaram 125 ITR 713 at page 720 which is also followed in the judgments cited by the petitioner in the case of Roger Enterprises (P) Ltd. (supra) and in the case of Brij Bhushan Singhal (supra), held as follows:-

"It is true that the proceedings under the Income Tax Act law are not governed by the strict rules of evidence and therefore, it may be said that even without calling the Manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income Tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for the opportunity to cross-examine the Manager of the bank with reference to the statement made by him. ....''

learned counsel for the petitioners, the Assessing Officer should not have discussed the statement of the other group for framing the assessment of the petitioners. This completely vitiates the entire assessment proceedings.”

Hence, the Ld. AR has rightly contended that these statements shall in no way go to confer validity to the assumption of jurisdiction by the AO under Section 153C of the Act to assess/re-assess the income of the assessee. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 67 ::

“Q.No.4 During the course of post-search investigation, it has been found that the above mentioned companies are shell-companies and they did not do any business at all. Please explain what is the reason for payments made to these companies.

Ans. In order to meet unaccounted expenses related to M/s. Binny Limited, we were forced to generate unaccounted cash from the business. I confirm that the Unaccounted cash was generated through the following companies:-

S.No. Company Name Rs.(In Crores) 1 Nurture Traders P Limited 41.18 2 Premium Steel and Alloys P Ltd 15.00 3 Parshvi Global Interlinks P Ltd 41.15 4 Modest Imperia Trading P Ltd 14.99 5 Sunbright Designers P Ltd 25.22 6 Mass International 13.18 Total 150.72

Further, in the case of M/s. Mass International, the amount shown as transferred in the books of M/s. Binny Limited is Rs.56.02 crores. However, out of the amount, only Rs. 13.18 crores was received back as unaccounted cash and the balance amount of Rs.42.85 crores was actually transferred to our sister company M/s. Mohan Breweries & Distilleries Limited but debited to M/s. Mass International. Ledger copies of M/s. Mast International and Advance to MBDL (Others)" are submitted.

M/s. Glintz Ventures Private Limited, after receiving Rs. 19 crores from M/s Binny Limited, have transferred back to our sister company M/s.Mohan Breweries & Distilleries Limited. These payments were made as advances. Ledger copies are submitted in separate sheets. " to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 68 ::

Q. No. 5. As stated by you in your reply to previous question, Mis. Binny Limited have incurred unaccounted cash expenses of Rs. 150,72 Crores which has been booked as "Trade Advance" in the books of M/s. Binny Limited. Your attention is drawn to Section 37(1) of the Income Tax Act. 1961. As per the Section, unaccounted cash expenses incurred in the business is to be disallowed. Please offer your comment.

Ans. M/s. Binny Limited have given trade advances which has been used to generate unaccounted cash, out of the money/income accounted for which full tax has already been paid. Now, we need to take legal experts advice on the treatment of the expenses in the books of accounts.

Q.No. 6. Who facilitated generation of cash through these shell companies?

Ans. The transactions were facilitated by Shri Bhawarlal Jain, Director of M/s Sanklecha Infra Projects Pvt. Ltd. and Shri Manish Parmar of M/s. KLP Projects Pvt. Ltd. I have transferred the money from M/s. Binny Limited to various companies as per his instruction and received the cash back as per our agreement after deducting his commission.

Q.No. 7. What was the commission allowed to the facilitator for their service?

Ans. We paid commission @ 1% and the commission amount works out to Rs. 1.72 Crores.”

It is observed by us that the assessee, in the capacity of the Managing Director of M/s Binny Limited, had admitted to have paid advances to the concerns in question to generate unaccounted cash for the business of M/s Binny Limited in order to meet its requirement of cash expenses.

When further enquired regarding the details of utilization of the cash by the company, the assessee is noted to have stated that the cash was spent for land approval cost, vacating the occupiers on the land etc. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) whose details were not maintained by the company. The Ld. AR has rightly pointed out that, when the assessee himself was interrogated in the post search enquiries, he had never admitted to have received back cash in his own personal capacity or that he utilized the cash for his personal benefit. Recapitulating the entire background facts, the Ld. AR reminded us that, neither did the seized material i.e. ANN/AA/AEPL/ED/S suggested that M/s Binny Limited had paid advances to receive back cash for the personal benefit of the assessee and his father, nor the statements of the third parties viz., Shri Jain and Shri Shanmugavelu, in any manner indicated that they had paid back in cash to the assessee in his personal capacity and even the statement of the assessee showed that, he had not admitted to have received any cash in lieu of alleged bogus advances for his personal gains. According to him therefore, there was no material whatsoever in the possession of the AO basis which he could have objectively inferred that the contents/information therein related or pertained to the assessee or suggested that the assessee had received any personal benefit outside the books, thereby having a bearing on the determination of his total income, to invoke jurisdiction u/s 153C of the Act.

CIT (37 ITR 271). Any addition(s) to income must be based on cogent, credible, and corroborated evidence. We find that, the case made out by the AO in the satisfaction note was actually based on his own subjective notion which did not emanate from any material seized in the course of search from the premises of M/s Binny Limited. Even the statements of third parties and the assessee’s statement, which were recorded in post search enquiries, did not implicate the assessee in any manner.

Accordingly, as there was no tangible & independent material containing information which related/pertained to the assessee found from the premises of the searched person, M/s Binny Limited, having a bearing on the total income of the assessee, in our view, the condition precedent to usurp jurisdiction u/s 153C of the Act was not met by the AO. to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 72 ::

(a) CIT v. Harjeev Aggarwal (290 CTR 263) (Del HC)

"19 In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the Assessee in its statement, under the Provisions of Chapter XIV -B of the Act.

to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) :: 73 ::

(b) PCIT v. Best Infrastructure (India) Pvt. Ltd. (ITA No. 13 of 2017) (Del HC)

“38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”

(c) PCIT v. Anand Kumar Jain (HUF) (ITA No. 23 of 2021) (Del HC)

“7. The preliminary question under consideration before us is whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act. A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the ITAT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A of the Act.”

(d) Saveetha Institute of Medical & Technical Sciences v. ACIT (25 taxmann.com 138) (ITAT Chennai) to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19)

:: 74 ::

“8. The Assessing Officer has opined that the capitation fees so collected cannot tantamount to voluntary contribution or subscriptions to the corpus of the society but are in the nature of donations and capitation fees. However, this addition has been deleted by the learned Commissioner of Income-tax (Appeals) by observing that no such addition can be made solely on the basis of statements recorded under section 132(4) of the Act and there being no related evidence having been found during search showing receipt of such donations. He has also found that no one has really accepted having received donation/capitation fees as has been alleged by the Assessing Officer.

considered view, this addition could not have been made at all in the hands of the assessee-trust on the basis of such evidence. Recording of some questions after verification could be viewed as an involuntary statement, extracted from the deponent. In any case, a possibility of such inference is always there. With regard to such statement, the Central Board of Direct Taxes has issued instructions vide Circular No. 286/2/2003-IT, wherein it has been directed that search party shall not obtain confessions. So, the admission made under section 132(4) by the concerned officer cannot be treated even as a valid piece of evidence. There being no incriminating document having been found or seized during search and the statement also being abstruse, the addition in question has no legs to stand on. Had there been a valid statement, even then, solely on the basis thereof, addition could not have been made. This is a well settled principle of law by now and there are umpteen decisions in support of this view.”

(e) DCIT v. VVD & Sons (P) Ltd. (158 taxmann.com 395) (ITAT Chennai)

“8.5 The addition made by the Assessing Officer was merely on the basis of statement and is not corroborated by any documentary evidence. It is not denying the fact that statement was on oath and can be used as evidence. However, mere statement cannot be the basis of addition. Without credible evidence, the Department cannot make addition purely based on the confessions made during search/survey operation as envisaged by the CBDT vide instruction F.N. 286/2/2003 dated 10-3- 2003 and reiterated by the Board vide its letter dated 18-12-2014.”

Developers v. DCIT (ITA NO. 175/Mum/2010) which has since been upheld by Hon’ble Bombay High Court wherein it was held as under:-

“42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income/profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits, due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such unaccounted evidences is impossibility. Probably, for this reason, the courts have taken conscious view that it is for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not be added as income. Hon’ble High court of Ahmadabad ruled in the case of Panna Corporation that the " assessee ought to have spent reasonable amount for the purpose of receiving such gross profit' (para 14 of Tax Appeal No 325 of 2000 dt. 16.6.2012). Further, Hon'ble High Court OF Madhya Pradesh held in the case of President Industries 258 ITR 654 that ' entire sale proceeds of the assessee should not be added in his income'. Further, from the judgment in case of Panna Corporation (supra), it is settled proposition that there is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO's conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue's appeals are dismissed.”

Limited reiterated their claim that MBDL had transferred lands/properties in satisfaction of the receivables/advances and therefore the impugned advances had been received back by the company. Taking note of this submission, SAT is noted to have stayed SEBI’s order for a period of three months and required M/s Binny Limited to produce the purported title documents for evaluation before the SEBI. According to the Ld. AR, these orders of SEBI/SAT showed that at no given point of time did M/s Binny Limited had claimed that these advances were bogus or no longer subsisting, and even the authorities had not treated these advances as non-existent, but rather directed M/s Binny Limited to ensure that the advances which were subsisting in the books are brought back by the company. The Ld. AR placed before us the details furnished by M/s Binny Limited before SAT to show that the impugned advances had been realized by them later on. According to the assessee therefore these contemporaneous facts shows that, the assessee’s statement was rebuttable on facts and hence unreliable.

the affairs of M/s.Binny Limited basis which they were being regarded as the sole beneficiaries of the alleged cash generated. He also pointed out that the assessee only had a shareholding of 4% in M/s Binny Limited and thus there was no rationale to the AO’s assumption that 50% of the trade advances was attributable to the assessee alone. In so far as assessee’s father is concerned, it is observed that though he held 45% of the shares of M/s Binny Limited, but at the same time, he had nowhere admitted that the advances given by the company were bogus. The Ld.AR took us through his statement which was recorded u/s 132(4) of the Act in the course of search, which was placed at Pages 1 to 6 of Paper Book. It is observed that the assessee’s father had confirmed the transactions with M/s KLP Projects Pvt Ltd & SPR Group and had inter alia only admitted to undisclosed income qua M/s Binny Limited of Rs.120 crores upon sale of land which statement also is noted to have been retracted. The assessee’s father had also furnished the details of utilization of monies received upon sale of land through banking channel. It is seen that the assessee’s father had nowhere stated that, the advances given by M/s Binny Limited was bogus or that it was received back in cash. We agree with the Ld. AR that this statement recorded u/s 132(4) was a valid piece of evidence and stood at a higher pedestal than the assessee’s statement taken u/s 131 of the Act. However the statement of assessee’s father is noted to have to 2274/Chny/2024 Arvind Nandagopal (AYs 2014-15 to 2018-19) been conspicuously avoided by the AO while recording his satisfaction u/s 153C of the Act. Having regard to the foregoing, it is observed that the AO had failed to establish any co-relation either document-wise or on facts for arriving at his opinion that 50% of the impugned advances pertained to the assessee. Hence, in absence of existence of this jurisdictional fact, as held by the Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society (supra), the AO’s assumption of jurisdiction u/s 153C stood vitiated in law.

Order pronounced on the 07th day of November, 2025, in Chennai.