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Facts
A search and seizure operation was conducted on the premises of the assessee and a connected trust. Subsequently, reassessments were framed under Section 153A of the Income Tax Act. The assessee challenged the additions made, arguing they were not based on any incriminating material found during the search.
Held
The Tribunal held that in the absence of incriminating material found during the search, no additions could be made under Section 153A for completed or unabated assessments, even if the return was filed after the search date. The additions made by the AO were therefore quashed.
Key Issues
Whether additions made under Section 153A are sustainable in the absence of incriminating material found during search, particularly when the original return was filed after the search date and the assessment was not pending.
Sections Cited
153A, 143(3), 68, 115BBE, 37, 54F, 132, 143(2), 234A, 234B, 234C, 271(1)(c)
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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
The captioned appeals filed by the assessee are directed against order of the Ld. Commissioner of Income Tax (Appeals), Chennai-20 [‘CIT(A)’ in short] dated 30.04.2024 & 25.05.2024 for Assessment Years 2016-17 & 2015-16.
2. Grounds of appeal raised by the assessee in for AY 2016-17 are as under:
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) :: 2 ::
1. 1. On the facts and circumstances of the case the order of First appellate authority dated 30.04.2024 in dismissing the appeal of the appellant is bad in law and is not legally justified.
2. On the facts and circumstances of the case the additions made by the AO which has been sustained by the First Appellate Authority are not arising out of any incriminating materials found in the course of search and the assessment has been completed under section 153A r.w.s. 143(3) of the Act. The framing of assessment u/s 153A without any incriminating materials found in the course of search is bad in law.
3. On the facts and circumstances of the case the order of the First Appellate Authority in sustaining the action of the AO in disallowing the total interest claimed to an extent of Rs.14,94,644/- against the professional income of the assessee is against the facts case and is not justified.
4. On the facts and circumstances of the case the order of the First Appellate Authority in sustaining the action of the AO in assessing a sum of Rs.38,79,163/- which has been offered under the head other sources in the original return and also in the return filed in response to notice u/s 153A of the Act as unexplained credit u/s 68 of the Act and bringing the same to tax u/s 115BBE of the Act.
5. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals) Chennai-20, may be cancelled and justice rendered.
3. Grounds of appeal raised by the assessee in AY 2015-16 are as under:
1. On the facts and circumstances of the case the order of First appellate authority on 25.05.2024 in dismissing the appeal of the appellant is bad in law and is not leg justified.
2. On the facts and circumstances of the case an assessment U/s 143(3) r.w.s 153 of the Ac can be framed only on the basis of materials seized in the course of search and not otherwise. All the additions made by the AO which is under appeal is not on the basis of any materials found in the course of search and the action of the First Appellate Authority in sustaining such additions is bad in law.
On the facts and circumstances of the case the First appellate authority is not justified in sustaining the action of the AO in disallowing the interest payment of Rs.8,93,642/- by resorting to provisions of section 37 of the Act.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) 4. On the facts and circumstances of the case the First appellate authority is not justified sustaining the action of the AO in assessing a sum of Rs.10,65,970 offered under the head other sources as income u/s 68 r.w.s.115BBE.
5. On the facts and circumstances of the case the First appellate authority is not justified in sustaining the action of the AO in assessing a sum of Rs.24,80,636/- being marriage gifts received by the Appellant's daughter on 30.10.2014.
6. On the facts and circumstances of the case the First appellate authority is not justified in sustaining the action of the AO in assessing a sum of Rs.50,50,000/- which represents amount received from friends and relatives and assessing the same U/s 68 r.w.s. 115BBE of the Act.
7. On the facts and circumstances of the case the First appellate authority is not justified sustaining the action of the AO in disallowing improvement expenses to an extent Rs.50,00,000/- whereby the Long Term Capital Gains of Rs.1,32,78,187/- admitted by the assessee has been modified by the AO at an figure of Rs.1,88,57,487/-.
8. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250(6) passed by Commissioner of Income Tax (Appeals) may be cancelled and justice rendered.
Brief facts are that the search u/s 132 of Income Tax Act (‘Act’ in short) was conducted in the residential premises of Shri.V.Natarajan at 64-C, Rotary Nagar, Rasipuram and simultaneously the search u/s 132 of the Act was also carried out in the premises of M/s Pavai Varam Educational Trust on 27.12.2016. The search u/s 132 of the Act was commenced at 11.45 AM on 27.12.2016 and the search proceedings u/s 132 of the Act was concluded at 11.45 AM on 28.12.2016 in the residential premises of Shri.V.Natarajan. The search proceedings u/s 132 of the Act was commenced at 11.45 AM on 27.12.2016 and the search proceedings u/s 132 of the Act was temporarily concluded at 05.30 AM on 28.12.2016 in the premises of M/s Pavai Varam Educational Trust. The continuance of the proceeding u/s 132 of the Act dated 27.12.2016 was again commenced on 23.02.2017 at 5.00 PM and the proceedings was & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) concluded on 23.02.2017 at 8.20 PM. The books and documents were seized on 27.12.2016 in the residential premises of Shri.V.Natarajan and the books & documents were also seized in the premises of M/s Pavai Varam Educational Trust on 27.12.2016. The statements u/s 132(4) of the Act were recorded from Shri.V.Natarajan, Chairman, M/s Pavai Varam Educational Trust and Smt. Mangairkarasi, w/o V.Natarajan (Trustee of M/s Pavai Varam Educational Trust) on 28.12.2016. Subsequently, the statement u/s 132(4) was again recorded from V.Natarajan on 23.02.2017 and the statement u/s 132(4) was also recorded from Shri.K.Palanivel, Chief Accountant of M/s Pavai Trust on 28.12.2016. During the course of search, it was found that the amount of Rs.33,02,05,959/- was recorded in the name of fees receipts during the month of November 2016 by M/s.Pavai Varam Educational Trust whereas the fees receipt in respect of other months from April 2016 to December 2016 was recorded as very less. When pointed out about the issue to explain, Shri.V.Natarajan, Chairman of the trust has deposed in the sworn statement dated 27.12.2016 that the amount of Rs.23 crores out of 33.02 crores was introduced by the trustees into the fee collection accounts for clearing the bank overdues and Rs.23 crores was admitted as the unaccounted source of the trustees. Further, Shri.V.Natarajan, chairman of the trust has deposed in the sworn statement dated 23.02.2017 that the amount of Rs.23 crores was admitted as the unaccounted cash introduced by Shri.V.Natarajan & Smt.Mangairkarasi, w/o V.Natarajan (both are trustees) and the same was introduced and recorded in the Fees Account of the Trust. Shri.K.Palanivel, Chief Accountant of the Trust has deposed the following facts in the sworn statement dated 27.12.2016:
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) :: 5 ::
1. 1. The details of Fee collection for the period 01.11.2016 to 08.11.2016 has been furnished in the Annexure 3 and stating that the details of number of students who have remitted fees during the said period could not be ascertained.
2. The two circulars dated 22.10.2016 & 05.11.2016 in respect of the collection of arrear fees from students have been typed during the first week of December 2016 and the back dated circular was recorded as issued on 22.10.2016 & 05.11.2016. The same was confirmed by Shri.M.Pushpakaran, typist of the Trust. These back dated circulars were prepared as per the direction of Shri.K.K.Ramasamy, Director (Admin) of the Trust.
3. When compared the fees receipts amounting to Rs.33.02 crores, which has been recorded as deposits in the bank account for the period after 08.11.2016, with the supporting evidence of Fees receipt copies furnished by the cashiers of the Trust, it was found that the number of students actually paid fees during the period does not match with the huge cash deposit in the bank amounting to Rs.33.02 crores. When questioned about the discrepancy, Shri.K.Palanivel has deposed that the entries were made as per the direction of Shri.V.Natarajan, Chairman of the Trust. During the post search, Shri.V.Natarajan, Chairman of M/s Pavai Varam Educational Trust has filed the affidavit on 30.12.2016 before the Director of Income tax (Investigation), Chennal and the Joint Director of Income tax (Investigation), Coimbatore by declaring the undisclosed income to the tune of Rs.13 crores for the AY 2017-18. Smt.Mangairkarasi, w/o V.Natarajan (Trustee of M/s Paval Varam Educational Trust) has also filed the affidavit on 30.12.2016 before the Director of Income tax (Investigation), Chennai and the Joint Director of Income tax (Investigation), Coimbatore by declaring the undisclosed income to the tune of Rs.10 crores for the AY 2017-18. In the affidavit dated 30.12.2016, Shri.V.Natarajan has given affirmation in the affidavit as below:
"I have lent a loan of Rs.13 Crores to the trust from my unaccounted cash income which was deposited by the trust in its bank a/c for the term loan repayment etc., after demonetization.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) Now, I offer voluntarily the said amount of Rs.13 Crores which I lent to the trust from my unaccounted cash income under Prime Minister Garib Kalyan Yojana Scheme on my hands in the capacity of individual".
In the affidavit dated 30.12.2016, Smt. Mangairkarasi has given affirmation in the affidavit as below:
I have lent a loan of Rs.10 Crores to the trust from my unaccounted cash income which was deposited by the trust in its bank a/c for the term loan repayment etc., after demonetization. Now, I offer voluntarily the said amount of Rs.10 Crores which I lent to the trust from my unaccounted cash income under Prime Minister Garib Kalyan Yojana Scheme on my hands in the capacity of individual The Assessee, Individual, is a Chartered Accountant and he is the Chairman of M/s Pavai Varam Educational Trust. A search and seizure operation u/s 132 were carried at residential and premises of M/s Pavai Varam Educational Trust on 27.12.2016. The Assessee filed his return of income originally for A.Y 2016-17 on 21.07.2017 declaring income of Rs.35,28,520/-. Notice u/s 153A was issued to the Assessee on 13.06.2018. In response, the Assessee filed return of income u/s 153A on 20.07.2018 admitting same income as per original return of income. The Assessing Officer after verifying has finalized assessment by noticing by disallowing of interest payment of Rs.14,94,644/- and applied tax rate as per 115BBE to other income of Rs.38,79,163/-.
Aggrieved with the order u/s.143(3) r.w.s. 153A, the Assessee filed appeal before the ld.CIT(A). The ld.CIT(A) analysed the facts and given a finding as under: & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) 6. Analysis of the facts and adjudication of the grounds: 6.1 The Assessee has raised only 7 grounds of appeal in his Form
35. Ground of appeal No. 1 & 7 are general in nature. Grounds of appeal No.2 is related to additions are not based on incriminating documents. Grounds of appeal No.3 is related to the disallowance of Interest expenditure u/s.37. Ground of appeal no. 4 is related to income from other sources. Ground No.5 is related to levy of interest. Grounds of appeal no. 6 is related to penalty levied. Accordingly, the ground of appeal is disposed of in the subsequent paragraphs. 6.2 During appeal proceedings, the Assessee has filed written submission. Relevant portion of submission is reproduced below: "b) The entire interest payment has been claimed in the P&L A/c against professional receipts. The similar interest payments for the earlier Financial Years have been claimed and has been allowed. Applying the rule of consistency there is no change of facts for the year under Appeal and AO is not justified in disallowing above interest.
2. Assessing a sum of Rs.38,79,163/- u/s 115 BBE of the Act. The above income was offered under the head Other Sources in original return filed on 21.07.2017 and also in the return filed in response to notice u/s 153A of the Act."
7. Decision: 7.1 I have gone through order u/s 143(3) r.w.s. 153A and written submission filed by the appellant. 7.2 Ground of Appeal
No 2: 7.2.1 Vide above Ground, appellant has challenged jurisdiction of AO to make additions which are not based on incriminating documents found during search. 7.2.2 In the present case, the only addition made by AO is Disallowance of interest expenditure u/s 37 as appellant failed to prove that it is incurred wholly and exclusively for earning of professional income which obviously is not based on any incriminating material. Disallowance made by AO is based on information available in return filed u/s.153A. 7.2.3 It is the contention of appellant as far as assessment u/s 153A is concerned, no addition apart from additions based on incriminating material can be made. The appellant has relied on Hon'ble Chennai tribunal decision vide to 398/Chny/2020 dated 09.11.2021 in & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) appellant's own case for Assessment years 2011-12 to 2014-15 in support of his contention. 7.2.4 I have carefully considered decision of Hon'ble Chennai tribunal. The years that were under consideration of Hon'ble tribunal were those where assessment proceedings are completed by the date of search since time to issue 143(2) has expired as on date of search. But for the year under consideration, no return of income was filed by appellant by the date of search. 7.2.5 In the present case search u/s 132 was conducted on 27-12-2016. As on that date, no return of income was filed for the year by appellant as due date to file return of income for the year is 31-07-2017 which was extended to 05-08-2017. The Appellant has filed original return for the year on 21-07-2017 i.e. subsequent to search. In response to notice u/s 153A dated 12-06-2018, return was filed on 20-07-2018. Thus, by the date of search, time to file return has not expired. Hence, it can't be treated as completed assessment. No proceedings were pending for the year by the date of search. Therefore, this case does not fall under either category of completed/unabated assessments or Abated assessment consequent to search, Hon'ble supreme court in PCIT Vs Abhisar BuildWell Ltd on which Hon'ble Chennai tribunal has relied dealt with kind of additions that can be made in case of completed assessments which do not abate consequent to search. The question that was before Hon'ble Supreme Court is as follows. "whether in respect of completed assessments/unabated assessments, whether the jurisdiction of Assessing Officer to make 4/25/24, 6
26. PM 1/21 assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, ie, whether any addition can be made by the Assessing Officer in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A or not". Entire discussion was w.r.t whether addition can be made in completed assessments which are unabated in the absence of incriminating material or not. There was no discussion by Hon'ble court w.r.t those cases where return of income itself is filed subsequent search which do not fall under category of either completed assessments or abated assessments. Hence it is considered decision of Hon'ble Chennai tribunal which is rendered based on Supreme court decision cited supra is not applicable to the year under consideration. However, Hon'ble Delhi High Court in case of Amit Arora Vs DCIT, has adjudicated this issue and held as under: "When the assessee has filed original return after the date of search, the Assessing Officer has the jurisdiction to make additions in the assessment order under section 153A, regardless of whether any incriminating materials were & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) found/seized in the course of search action under section 132. There is nothing in law under section 153A to prohibit the Assessing Officer from making additions in assessment order under section 153A, even if no incriminating materials were found/seized during search action under section 132; when the original return under section 139 has been filed after the date of search. Therefore, in the facts and circumstances of the case, these grounds of appeal have no merits." 7.2.6 Thus Hon'ble Delhi High Court has taken view that there is no bar in making regular additions while making assessment u/s 153A for those years where return has not been filed by the date of search in absence of incriminating material found during search. Since the year under consideration is duly covered by decision of Delhi High court, it is held that AO has jurisdiction to make regular additions. Consequently, Ground of Appeal 2 of Appellant is Dismissed. 7.3 Ground of Appeal No 3: 7.3.1 Vide above Ground, appellant has challenged disallowance of interest payment Rs.14,94,644 u/s 37 of IT Act. 7.3.2 The Appellant in the return of income filed u/s 153A has disclosed an amount of Rs.9,45,750/- as 'Professional Income' received from working as Charted accountant. Further it is noticed that appellant has claimed interest against above income apart from other Expenditure which resulted in net loss of Rs.10,68,972/- on account of professional income. Details of interest income claimed by appellant is as under: Sl.NO. Particulars Amount 1. SBI Mortgage Loan Interest Rs.6,50,176 2. Jewell Loan Interest Rs.2,10,000 3. Tata Capital Loan Interest Rs.2,33,028
4. LIC Loan Interest Rs.4,01,440 Total Rs.14,94,644 7.3.3 The AO noticed that entire loan received on account of SBI Mortagage Loan, LIC Loan, Jewel Loan and Tata Capital Loan has been transferred by appellant towards investment in M/s Pavai Varam Educational Trust. Further appellant in his sworn statement recorded on 7-12-2018 while replying to question 5 stated that Jewel loan and Tata Capital loan are taken for investment in House property. The AO also noticed that appellant already claimed interest paid on borrowed capital to the extent of Rs.1,50,000/- as deduction while computing income from house property. The AO held that same expenditure again can't be allowed as deduction against professional receipts.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) 7.3.4 During appeal proceedings, appellant claimed that the AO has allowed interest payment for Assessment years 2011-12, 2012-13 and 2013-14, Rs.7,91,581/-, Rs.5,27,230/- and Rs.5,33,164/- respectively. Therefore, following principles of consistency, same disallowance can't be made during the year. Therefore, following principles of consistency, same disallowance can't be made during the year. Hon'ble Supreme Court in Radhasoami Satsang Vs CIT (1992) 193 ITR 321 has stated that if a manifestly wrong decision has been taken by AO in one year or number of years, it will not bind the assessing officer in assessment of subsequent year because there can't be any estoppel against the law. 7.3.5 In Municipal Corpn. of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688, Hon'ble Supreme Court held that "the strict rule of res judicata as envisaged by section 11 of C.P.C. has no application, their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years. because it determines the tax for a particular year." 7.3.6 In S. Nagaraj v. State of Karnataka 1993 Supp. (4) SCC 595, Sahai, J. stated: "15. Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. The order of the Court should not be prejudicial to anyone. Rule of stare decisis is adhered for consistency but it is not as inflexible in Administrative Law as in Public Law. Even the law bends before justice. Entire concept of writ jurisdiction exercised by the higher courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principle be precluded from rectifying the error. 7.3.5 In the present case, it is noticed that issue of allowability of Interest was not examined by AO for Assessment Years 2011-12, 2012-13 and 2013-14. It is also not the case of appellant that this issue was examined and AO chose to not make disallowance. It is also not case of appellant that loans taken were not used for purposes other than earning of professional receipts i.e for investment in M/s Pavai Varam Educational Trust and Investment in House property. Therefore, claim of appellant that just because AO happened to not make disallowance during previous year, same disallowance can't be made for current year does not sound reasonable. Therefore, I am of considered view that AO has correctly made disallowance of interest Rs.14,94,644/- which has no nexus with earning & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) of Professional income as provisions of section 37 Allow only expenditure incurred wholly and exclusively for purpose of business. Consequently, Ground of Appeal
No.3 is Dismissed. 7.4 Ground of Appeal
No 4: 7.4.1 Vide above Ground, appellant has challenged treating income offered Rs.38,79,163/-under the head 'Income from other sources' as unexplained credit u/s 68, applying higher tax rate u/s 155BBE of IT Act. 7.4.2 The AO noticed that appellant has admitted 'Income from other sources amounting to Rs.38,79,163/- in return filed u/s 153A on 20-07- 2018. In consolidated receipts and payments account filed during assessment proceedings, the appellant has termed it as 'Tuition fee'. However, while replying to question no 4 of sworn statement recorded on 7-12-2018, the appellant agreed that he has wrongly mentioned that it was 'Tuition fee'. He also stated while replying to question number 6 that evidence for earning of income from other sources are not properly maintained, were never produced before AO. The AO noticed from bank statement of appellant there were cash deposit during the period 01-04- 2015 to 31-03-2016 major portion of which were transferred to M/s Pavai Varam Educational Trust. It is noticed that AO concluded that cash credits in bank account actually acted as source for investment in M/s Pavai Varam Educational trust. Since appellant failed to offer any explanation for source cash deposits in bank account, the AO has treated the amount Rs..38,79,163/- as unexplained cash credit u/s 68 and applied tax rate u/s 155BBE of IT Act. 7.4.3 During appeal proceedings, though appellant has raised the Ground against treating the amount as unexplained cash credit, no specific submissions are made except stating that the same amount was offered as income both in original return filed for the year as well as in return filed u/s 153A. He filed copy of computation statement filed along with original return as a proof for admission of Rs.38,70,800/- as income from other sources even in original return filed. However, the fact remains that appellant failed to explain nature of cash deposits in bank accounts and also source for such cash deposits both during assessment and appeal proceedings. Mere admission of income in return filed originally does not relieve appellant from discharging onus of proving source cash credit in books of appellant. Once the amount held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide finance Act, 2012 and applicable in case income added u/s 68. Consequently, Ground of Appeal No 4 is Dismissed. 7.5 Vide Grounds of appeal No.5, the appellant has challenged correctness of interest levied u/s 234A, 234B and 234C. The appellant has not made & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) any specific submissions. Since it is consequential in nature, it is not adjudicated separately. Consequently, Ground of appeal is Dismissed. 7.6 Vide Grounds of appeal No. 6, the appellant has challenged correctness of initiation of penalty proceedings u/s 271AAB. The appellant has not made any specific submissions. Penalty proceedings u/s 271AAB are independent proceedings can't be adjudicated here. Consequently, Ground of appeal is Dismissed.
8. As a result, appeal of Appellant is Dismissed. Now assessee is in further appeal before us.
6. The grounds raised in both years 2016-17 and 2015-16 primarily challenge the validity of additions/disallowances made in assessments framed under section 153A r.w.s. 143(3) of the Income Tax Act, 1961, in the absence of any incriminating material found during the course of the search conducted under section 132 of the Act on 27.12.2016. In for A.Y. 2016-17, the assessee, a Chartered Accountant by profession and Chairman of M/s Pavai Varam Educational Trust, filed his original return for A.Y. 2016-17 on 21.07.2017, declaring income of Rs.35,28,520. Notice u/s 153A was issued post-search, and the assessee filed a return declaring the same income. In the assessment completed u/s 153A r.w.s. 143(3), the AO made the additions viz; Disallowance of interest expenditure of Rs.14,94,644/-, Treating Rs.38,79,163/- offered under "Other sources" as unexplained cash credit u/s 68 and taxing under section 115BBE.
7. The counsel for the assessee contended that the order of the ld.CIT(A) is bad in law and is not legally justified. He further contended that the additions made by the AO which has been sustained by the ld.CIT(A) are not arising out of any incriminating materials found in the course of search and the assessment has been completed under section 153A r.w.s.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) 143(3) of the Act. He pleaded that the framing of assessment u/s 153A without any incriminating materials found in the course of search is bad in law. He furthermore, stated that the ld.CIT(A) erred and not justified in sustaining the action of the AO in disallowing the total interest claimed to an extent of Rs.14,94,644/- against the professional income of the assessee. He furthermore, pleaded that the ld.CIT(A) erred and not justified in sustaining the action of the AO in assessing a sum of Rs.38,79,163/- which has been offered under the head other sources in the original return and also in the return filed in response to notice u/s 153A of the Act as unexplained credit u/s 68 of the Act and bringing the same to tax u/s 115BBE of the Act.
Per contra, ld.DR-CIT relied upon the orders of the authorities below and pleaded for the dismissal of the appeal. The ld. DR vehemently pleaded that in the facts of the case, the AO was empowered to make additions/disallowances in the absence of any incriminating material found during the course of search. The Revenue relied on the decision of the Hon’ble Delhi High Court in Amit Arora v. DCIT.
Our Findings and Decision: The central legal issue is whether additions not based on incriminating material found during search can be made in assessments u/s 153A, particularly when the original return was filed after the date of search. We note that the search was conducted on 27.12.2016. The original return for A.Y. 2016-17 was filed on 21.07.2017, i.e., after the date of search. No incriminating material relating to the additions was found in the search proceedings against the assessee. The Revenue has sought to rely on the decision of the Hon’ble Delhi High Court in Amit Arora v. DCIT, suggesting & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) that in such cases, AO has full jurisdiction to assess all issues under 153A, even without incriminating material. The central issue that arises is whether the AO was empowered to make additions/disallowances in the absence of any incriminating material found during the course of search, when the original return had already been filed post-search but before the issuance of notice under section 153A. The Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 178 (SC) has categorically held that no additions can be made under section 153A in the absence of incriminating material in respect of completed or unabated assessments. While the Revenue relied on decisions such as Amit Arora v. DCIT (Del HC) to argue that post-search returns confer wider jurisdiction to the AO. However, the Kolkata Income Tax Appellate Tribunal (ITAT) in the case of Mani Square Ltd. v. Asstt. CIT [2020] 118 taxmann.com 452 which the Hon'ble Calcutta High Court has affirmed, addressed the threshold for "incriminating material" in both unabated and abated assessment years, by emphasizing the necessity of tangible, cogent and co-relatable evidence discovered during the search qua the assessee qua each assessment year. The Tribunal categorically held that evidence gathered in a search against other group entities or third parties (be it simultaneous, prior or subsequent) was held inadmissible for additions in the assessee's unabated years and affirmed that only material "found or discovered as a result of such search" on the assessee's own premises qualifies as incriminating material under Section 132(1)(c) and triggers jurisdiction under Section 153A. Scribblings, rough notings or loose papers without a demonstrated nexus to undisclosed income cannot be straightaway classified as incriminating material. Furthermore, the Tribunal disallowed additions based solely on third-party statements when the same was uncorroborated by any such seized documents or assets & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) found during the assessee's own search. The same thereby underscores that statements under Section 132(4) are not incriminating material absent of tangible corroboration by material specified under Sec.132(1)(c) of the Act. The Hon'ble Supreme Court reaffirmed this in CIT v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64/266 Taxman 461/418 ITR 315 by holding that disallowances based solely on unilateral third-party statements, without cross-verification, are legally invalid. Adverse evidence must therefore always be testable and confronted, for the same otherwise violates the assessee's fundamental rights and renders the assessment null and void. In the lead case of Gulshan Investment (P.) Ltd. v. JCIT (OSD), [ITA No.3872/Del/2024, dated 16.04.2025] the Delhi Tribunal recently adjudicated a batch matter emanating from a search action under Sec.132 of the Act, and passed its decision on the question of whether additions under Section 153A could rest on third-party statements absent any incriminating material seized from the assessee's own premises. We also find more persuasive force in the ratio laid down by various coordinate benches of the Tribunal and the Chennai Tribunal in the assessee’s own case in to 398/Chny/2020 for earlier assessment years. We find that in this case the notice u/s.153A was issued on 12.06.2018, however, the assessee has filed the original return of Income for the AY 2015-16 on 13.08.2016. Further, the notice u/s.153A was issued on 12.06.2018, however, the assessee has filed the original return of Income for the AY 2016-17 on 21.07.2017. Therefore, from the above dates, we find that both the assessment years are abated as no assessment has attained finality. However, we note that in the present case, the additions made (interest disallowance and Section 68) are solely based on information already available in the return filed by the assessee and are not supported by any incriminating documents & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) unearthed during the search. The CBDT Circular No. 24/2015 also clarifies that assessments u/s 153A should be based on seized material. Respectfully following the above referred cases of the Hon’ble Supreme Court and High Court and consistent legal view that on third-party statements absent any incriminating material seized, no addition can be made u/s 153A, we hold that the impugned additions in A.Y. 2016-17 are unsustainable in law. Accordingly, the disallowance of Rs.14,94,644 towards interest and the addition of Rs.38,79,163 u/s 68 taxed under 115BBE are deleted.
AY 2015-16: A search u/s 132 of IT Act was conducted in the residential premises of Shri V.Natarajan and simultaneously a search u/s 132 was also carried out in the premises of M/s Pavai Varam Educational Trust on 27.12.2016. Statements u/s 132(4) were recorded from Shri V.Natarajan, Chairman, M/s Pavai Varam Educational Trust and Smt Mangaikarasi, w/o V.Natarajan during the course of search. During the course of search, it was found that an amount of Rs.33,02,05,959/- was recorded in the name of fee receipts during the month of November 2016 by M/s Pavai Varam Educational Trust whereas fee receipts in respect of other months from April 2016 to December 2016 recorded were very less.
Shri V.Natarajan and Smt Mangaikarasi had filed an affidavit on 30/12/2016 before the Director of Income Tax (Investigation), Chennai and Joint Director of Income Tax (Investigation), Coimbatore by declaring undisclosed income to the tune of Rs. 13 Crores and Rs. 10 Crores respectively for the A.Y 2017-18. Shri V.Natarajan had filed retraction letter on 30/03/2017 and 12/04/2017 before the Director of Income Tax & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) (Investigation), Chennai and Joint Director of Income Tax (Investigation), Coimbatore in respect of sworn statement recorded on 27/12/2016 and 23/02/2017 from Shri V.Natarajan and Smt Mangaikarasi. On 30/03/2017, appellant had filed declaration letter before DIT(Investigation), Chennai and CIT(Exemption), Chennai withdrawing affidavits filed and sworn statements given and had disclosed Rs.13 crores and Rs.10 crores in the hands of himself and his wife respectively, under the PMGKY Scheme.
Notice u/s 153A was served to the appellant on 13/06/2018, in response to which appellant, on 20/07/2018 had asked to treat the original return filed on 13/08/2016 as return filed in response to notice u/s 153A. Notice u/s 143(2) r.w.s 153A was issued on 20/07/2018. Notice u/s 142(1) was issued on 10/08/2018, 24/10/2018, etc calling for details. The appellant had filed integrated receipts and payments accounts for A.Y 2015-16 on 14/11/2018, based on which show cause notice was issued to the assessee on 19/11/2018. Based on the impounded materials, sworn statement recorded and response of appellant to various notices, AO concluded the assessment as under: Gross professional Income Rs. 9,39,970/- Less: 1. Salary and other Rs. 2,86,583/- - expenses- 2. Depreciation Rs. 1,18,895/- - 3. Interest expenses Rs. 8,93,642/- Rs. 12,99,120/- Net professional income (-)Rs. 3,59,150/- Add: Disallowance of interest unrelated to Rs. 8,93,642/- profession Income assessed u/s 143(3) r.w.s 153A Rs. 5,35,492/- Tuition income as undisclosed income u/s 68 Rs. 10,65,970/- Gift received as undisclosed income u/s 68 Rs. 24,80,636/- Receipts from friends and relatives u/s 68 Rs. 50,50,000/- Long Term Capital gain Rs. 1,88,57,487/- Total income Rs. 2,78,28,580/- & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) The facts and legal issues in A.Y. 2015-16 are identical. The return for A.Y. 2015-16 was also filed after the date of search. The additions made, including Disallowance of interest Rs.8,93,642/-, Addition u/s 68 of Rs.10,65,970 and Rs.50,50,000/-, Addition of Rs.24,80,636/- (marriage gifts) and Disallowance of LTCG improvement cost Rs.50 lakhs.
Aggrieved with the order u/s 143(3) r.w.s 153A, the Assessee filed appeal before the ld.CIT(A). The ld.CIT(A) analysed the facts and given a finding as under:
6. Analysis of the facts and adjudication of the grounds: 6.1 The appellant has raised only 10 grounds of appeal
in his Form
35. Ground of appeal
No. 1 & 10 are general in nature. Grounds of appeal No.2 is related to additions are not based on incriminating documents. Grounds of appeal No.3 is related to the disallowance of Interest expenditure u/s 37. Ground of appeal no. 4 is related to income from other sources. Ground No.5 is related to disallowance of marriage gifts. Ground No.6 is related to unexplained cash credit u/s 68 received from friends and relatives. Ground No. is related to long term capital gain. Ground No.8 is related to interest u/s 234A/B/C. Ground No.9 is related to penalty levied. Accordingly, the ground of appeal is disposed of in the subsequent paragraphs. 6.2 During appeal proceedings, the appellant has filed written submission. Relevant portion of submission is reproduced below:
3. The following case laws are relied upon where in it has been held that a search assessment has to be framed only on the basis of materials impounded. Legal decision relied upon: a) PCIT Vs Meeta Gutgutia Prop: M/s Ferns "N" Petals (2017) 395 ITR 526 (Delhi) b) PCIT Vs Kabul Chawla 380 ITR 573 (Delhi) c) CIT Vs Continental Warehousing Corporation Ltd., 374 ITR 645 (Bombay) d) CIT VS SKS Ispat and Power Ltd 398 ITR 584 (Bombay) e) CIT Vs Gurinder Singh Bawa 386 ITR 483 (Bombay) f) PCIT Vs Dipak Jashvnathlapunchal 397 ITR 153 (Gujarat) g) Decision of Gujarat HC in the case of Saumya Construction Pvt Ltd., (387 ITR 529)
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
:: 19 :: h) Jain Steel (India) Vs ACIT in Rajasthan HC 259 CTR 281 i) Decision of ITAT Chennai "B" Bench in the case of ACIT Central Circle-2(2), Chennai Vs RPD Earth MoveRs. Pvt Ltd., reported in (2019) 101 taxman.com89 (Chennai-Trib.) order dated 03.12.2018 J) Decision of ITAT Ahmadabad Bench in the case of Priya Holding Pvt. Ltd Vs ACIT, Central Circle 2(1), Ahmadabad reported in (2018) 90 taxman.com 409 (Ahmedabad-Trib).
4. From the above decision the following propositions emerge: a) In respect of completed assessments either u/s 143(3) or 143(1) there is no scope for addition unless there is undisclosed income and undisclosed assets deducted during the search. b) The scope of section 153A is limited to assessing only search-related income and thus, the AO cannot bring to tax other escaped income that comes to his notice. c) The Scope of section 153A has to be limited only to undisclosed income d) As assessment u/s 153A cannot be made arbitrarily or without any relevance or nexus to the seized material. It implied that an assessment under this section can only be made on the basis of the seized material.
In respect of Marriage gifts and loan from friends and relatives complete details were filed in the course of assessment proceedings. In that event it is the duty of the AO to verify the same as held by the Apex Court in the case of PCIT VS NRA Iron and Steel Pvt Ltd., (412 ITR 161).
There is nothing in law which prohibits a daughter to transfer the gifts received at the time of her marriage to her father which enables him to reduce the financial burden in the marriage event. Even otherwise a gift from daughter to father is exempted under the provisions of the Act.
Decision: 7.1 I have gone through assessment order u/s 143(3) r.w.s 153A and submissions of the appellant. 7.2 Ground of Appeal
No 2: 7.2.1 Vide above Ground, appellant has challenged jurisdiction of AO to make regular additions which are not based on incriminating documents found during search while finalizing assessment u/s 153A. 7.2.2 In the present case, it is noticed that following additions are made by AO while finalizing assessment u/s 143(3) r.w.s 153A which can't be said be based on incriminating evidence found during search. It is clear from assessment order that following additions have been made basing on information available in return filed u/s 153A.
1. Disallowance of interest Rs. 8,93,642 & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
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Tuition fee admitted in Receipts and payments a/c treated as income from other sources u/s 68 Rs.10,65,970/-.
3. Gifts received for daughter's marriage treated as Income from other sources Rs. 24,80,636/- 4. Receipts from friends and relatives treated as Income from other sources Rs. 50,50,000/-. 5. Disallowance of excess claim u/s 54F Rs. 5,79,300/-. 7.2.3 It is the contention of appellant as far as assessment u/s 153A is concerned, no addition apart from additions based on incriminating material can be made. The appellant has relied on Hon'ble Chennai tribunal decision vide ITA 463-466/Chny/2021 in appellant's own case for Assessment Years 2011-12 to 2014-15 in support of his contention. 7.2.4 I have carefully considered decision of Hon'ble Chennai tribunal. The Years that were under consideration of Hon'ble tribunal were 2011-12 to 2014-15 where assessment proceedings are completed by the date of search since time to issue 143(2) has expired as on the date of search. Relevant portion of Hon'bles Chennai Tribunal's order is reproduced as under. 7.2.5 It is noticed from Hon'ble tribunal's decision vide para 8 that Hon'ble tribunal has held that wherever return is processed u/s 143(1) and time to issue notice u/s 143(2) has expired, it is to be treated as completed/ Unabated assessment and in case of completed/ Unabated assessments, no addition can be made in absence of incriminating material found during search. Therefore, as per Hon'ble tribunal's decision, in cases where returns are filed prior to date of search but time to issue notice u/s 143(2) has not expired by the date of search are not treated completed/Unabated assessments and regular additions can be made even in absence of incriminating material. In the present case, the appellant has filed original return of Income on 13-08-2016. The return was processed u/s 143(1) on 3-10 2016.Search u/s 132 was conducted on 27-12-2016. For the year under consideration, time to issue notice u/s 143(2) expires only on 30/04/2017. Therefore, time to issue notice u/s 143(2) has not expired by the date of search. Hence, the yea under consideration is not a completed assessment. Following Hon'ble tribunal's decision in assessee's own case, regular additions can be made. 7.2.6 CBDT Circular No. 549 dated 31st October, 1989, clarified the legal position that when there was a failure to issue a notice to an Assessee under Section 143(2) of the Act within six months from the end of the month in which the return is furnished or during the financial year in which the return is furnished, whichever is later, then the Assessee "can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return." 7.2.7 This CBDT circular was referred to and clarified by the Punjab and Haryana High Court in Vipan Khanna v. Commissioner of Income Tax (2002) 255 ITR 220. In Vipan Khanna v. Commissioner of Income Tax (supra), the Punjab and Haryana High Court held that assessment proceedings come to an end and the matter becomes final the moment there was no scrutiny notice within stipulated period of time. "..... Another important change incorporated in sub- section (2) of section 143 of the Act is that the notice under this sub-section cannot be served on an assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, in a case where a return is filed and is processed under section 143(1)(a) of the Act and no notice under sub-section (2) of section 143 of the Act thereafter is served on the assessee within the stipulated period of 12 months, the assessment proceedings under section 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated." 7.2.8 Hon'ble Delhi High Court in Indu Lata Rangwala v. Deputy Commissioner of Income Tax & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
:: 21 :: 384 ITR 337 held that the "mere processing of a return under Section 143(1) of the Act and the sending of an intimation to the Assessee will not make it an 'assessment". 7.2.9 In Chintels India Ltd Vs DCIT [Delhi High Court] 397 ITR 416, assessment year under consideration was 2008-09, return of income was filed by appellant on 28-101-2008. Time to issue notice u/s 143(2) was available up to 30-09-2009. In that case search was conducted on 25-03-2010. Return was processed u/s 143(1) on 27-03-2010. The issue was whether consequent to search, proceedings for the year were abated or not. In this case, Hon'ble tribunal held that proceedings were pending since return was processed u/s 143(1) subsequent to search but no scrutiny was carried out. Hon'ble Delhi High court in this case specifically noticed that in CIT v. Kabul Chawla 380 ITR 573 and also in Indu latha Ranganathan v. DCIT (supra) cases where returns are filed prior to search but time to issue notice u/s 143(2) has not expired are not considered and discussed (vide para 21 of order). Hon'ble Delhi High court has basing on CBDT circular 549 and Punjab and Haryana High court decision in Vipan Khanna Vs CIT held that proceedings w.r.t return is said to be final when no notice u/s 143(2) is issued by the last date to issue notice u/s 143(2). 7.2.10 ING Therefore, Hon'ble courts have considered that wherever return is filed, proceedings are said to be pending till the date to issue notice u/s 143(2) expires irrespective of date of processing of return of income. 7.2.11 Coming to Hon'ble supreme court decision in PCIT Vs Abhisar Build well Ltd, in that case Hon'ble court has relied dealt with kind of additions that can be made in case of completed assessments which do not abate consequent to search. The question that was before Hon'ble supreme court is as follows. "----". Entire discussion was w.r.t whether addition can be made in completed assessments which are unabated in the absence of incriminating material or not. Vide above decision, Hon'ble supreme court held as under: "14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, In respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 147/148 of the Act and those powers are saved.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
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7.2.12 In view of above it can be concluded that all pending assessments abate consequent to search. The AO has jurisdiction to make regular additions in case of abated assessments even in absence of incriminating material. In view of Hon'ble Delhi high court decision in Chintels India Ltd Vs CIT, Punjab and Haryana High court decision in Vipan Khanna Vs DCIT and Hon'ble Chennai Tribunal's decision in appellant's own case, it is held that proceedings for the year under consideration were pending on the date of search and got abated consequent to search. Therefore, AO has jurisdiction to make regular additions based on return filed even in absence of incriminating material. Consequently, Ground of Appeal 2 of Appellant is Dismissed. 7.3 Ground of Appeal No 3: 7.3.1 Vide above Ground, appellant has challenged disallowance of interest payment Rs. 8,93,642/- u/s 37 of IT Act. 7.3.2 The Appellant in the return of income filed u/s 153A has disclosed an amount of Rs. 9,39,970/- as 'Professional Income' received from working as Charted accountant. Further it is noticed that appellant has claimed interest against above income apart from other Expenditure which resulted in net loss of Rs. 2,30,448/- on account of professional income. Details of interest income claimed by appellant is as under:
S.No Particulars Amount (in Rs.) 1 SBI Mortgage Loan Interest Rs. 8,18,642/- 2 Creditors interest Rs. 75,000/- Total Rs. 8,93,642/- 7.3.3 The AO noticed that entire loan received on account of SBI Mortagage Loan and creditors has been transferred by appellant towards investment in M/s Pavai varam Educational Trust. Further appellant in his sworn statement recorded on 7-12-2018 while replying to question 5 has agreed to disallow interest expenditure Rs. 8,83,642/- 7.3.4 During appeal proceedings, appellant claimed that the AO has allowed interest payment for Assessment years 2011-12, 2012-13 and 2013-14 Rs.7,91581/-, Rs.5,27,250/- and Rs.5,33,164/- respectively. Therefore, following principles of consistency, same disallowance can't be made during the year. 7.3.5 Hon'ble supreme court in Radhasoami satsang Vs CIT (1992) 193 ITR 321 has stated that if a manifestly wrong decision has been taken by AO in one year or number of years, it will not bind the assessing officer in assessment of subsequent year because there can't be any estoppel against the law. 7.3.6 In Municipal Corpn. of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688, Hon'ble Supreme Court while holding that the strict rule of res judicata as envisaged by section 11 of C.P.C. has no application, their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years because it determines the tax for a particular year. 7.3.7 In S. Nagaraj v. State of Karnataka 1993 Supp. (4) SCC 595, Hon'ble court held as under: "15. Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. The order of the Court should not be prejudicial to anyone. Rule of stare decisis is adhered for consistency but it is not as inflexible in Administrative Law as in Public Law. Even the law bends before justice. Entire concept of & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
:: 23 :: writ jurisdiction exercised by the higher courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principles be precluded from rectifying the error. -" 7.3.8 In the present case, it is noticed that issue of allowability of Interest was not examined by AO for Assessment years 2011-12, 2012-13 and 2013-14. It is also not the case of appellant that this issue was examined and AO chose to not make disallowance. It is also not case of appellant that loans taken were not used for purposes other than earning of professional receipts i.e for investment in M/s Pava Varam Educational Trust. Therefore, claim of appellant that just because AC happened to not make disallowance during some of previous years, same disallowance can't be made for current year does not sound reasonable. Therefore, am of considered view that AO has correctly made disallowance of interest Re 8,93,642/- which has no nexus with earning of Professional income as provisions c section 37 Allow only expenditure incurred wholly and exclusively for purpose c business. Consequently, Ground of Appeal
No 3 is Dismissed. 7.4 Ground of Appeal
No 4: 7.4.1 Vide above Ground, appellant has challenged treating income offered Rs. 10,65,970/- under the head 'Income from other sources' as unexplained credit u/s 68, applying higher tax rate u/s 155BBE of IT Act. 7.4.2 The AO noticed that appellant has admitted 'Income from other sources' amounting to Rs. 10,65,970/- in return filed u/s 153A on 20/07/2018.In consolidated receipts and payments account filed during assessment proceedings, the appellant has termed it as 'Tuition fee'. However, while replying to question no 4 of sworn statement recorded on 7-12-2018, the appellant agreed that he has wrongly mentioned that it was 'Tuition fee'. He also stated while replying to question number 6 that evidence for earning of income from other sources are not properly maintained, were never produced before AO. The AO noticed from bank statement of appellant there were cash deposit during the period 1-04-2015 to 31-03-2016 major portion of which were transferred to M/s Pavai Varam Educational Trust. It is noticed that AO concluded that cash credits in bank account actually acted as source for investment in M/s Pavai varam Educational trust. Since appellant failed to offer any explanation for source cash deposits in bank account, the AO has treated the amount Rs. 10,65,970/- as unexplained cash credit u/s 68 and applied tax rate u/s 155BBE of IT Act. 7.4.3 During appeal proceedings, though appellant has raised the Ground against treating the amount as unexplained cash credit, no specific submissions are made except stating that the same amount was offered as income both in original return filed for the year as well as in return filed u/s 153A. Further appellant explained that out of Rs.10,65,970/-, Rs.15,719/- pertains to savings bank interest. He filed copy of computation statement filed along with original return as a proof for admission of Rs.10,65,970/- as income from other sources even in original return filed. Copy of bank statement evidencing receipt of savings bank interest or any other evidence has not been filed in support of claim of appellant. However, the fact remains that appellant failed to explain nature of cash deposits in bank accounts and also source for such cash deposits both during assessment and appeal proceedings. Mere admission of income in return filed originally does not relieve appellant from discharging onus of proving source cash credit in books of appellant. Once the amount held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide finance Act, 2012 and applicable in case income added u/s 68. Consequently, Ground of Appeal No 4 is Dismissed. 7.5 Ground of appeal No 5:
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7.5.1 Vide above Ground, appellant has challenged treating amount received in the form of marriage gift Rs. 24,80,636/- as unexplained credit u/s 68, applying higher tax rate u/s 115BBE of IT Act. 7.5.2 During course of assessment proceedings, the appellant has produced receipts and payments account (produced at page 16 of assessment order) from which AO noticed that 'Gift from daughter marriage' Rs. 24,80,636/- is claimed to have been received. The Appellant's daughter's marriage was claimed to have taken place on 30-10-2014. During assessment proceedings, it appeaRs. that appellant has produced some gift record before AO (1st and last page of which are reproduced vide pages 27,28 and 29 of assessment order) which contained name wise details of gift received. The AO noted that Gift record showed receipt of cash gifts from 836 individuals. Names of Relatives, cash gift given by each individual are found recorded in Gift record submitted by appellant. The AO opined that provisions of section 561(1) are attracted in this case as aggregate of sum received from relatives exceeded Rs. 50,000/- and gifts are received on the occasion of daughter's marriage but not self. 7.5.3 During appeal proceedings, the only contention raised by appellant is that in spite of providing details of persons from whom cash gifts are received, it is incorrect on part of AO to make addition without making any independent enquiry. It is noticed that AO has held that provisions of section 56(1) (vii) (a) are not applicable as it is not Cash gifts are not received on occasion of marriage of self. Therefore, it is credit entry made in books of appellant whose genuineness is to be established by proving genuineness of amount by satisfying three conditions laid down by Hon'ble Courts i.e 1. Identity of creditor, 2. Creditworthiness of creditor and 3. Genuineness of transaction. 7.5.4 It is the contention of appellant once details of persons i.e. names of relatives, amount received list is furnished before AO, onus on appellant to prove genuineness credit is discharged. The AO is under fault for making addition of amount without making further enquiry. The Appellant has placed reliance on Supreme court decision in PCIT Vs NRA iron and steel Ltd (412 ITR 161). 7.5.5 I have examined Supreme court decision in PCIT Vs NRA iron and steel Ltd (412 ITR 161). In this case, Hon'ble court referred to its decision kale khan Mohammed and held as under: "8.1. The issue which arises for determination is whether the Respondent / Assessee had discharged the primary onus to establish the genuineness of the transaction required under Section 68 of the said Act. This Court in the land mark land mark case of Kale Khan Mohammad Hanif v. CIT3 and, Roshan Di Hatti v. CIT4 laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit- worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.
8.3. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. [1963] 50 ITR 1 (SC) [1977] 107 ITR (SC) The Delhi High Court in CIT v. Oasis & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
:: 25 :: Hospitalities Pvt.Ltd.5, held that: The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise." It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established." 7.5.6 Thus Hon'ble supreme court while examining question of when the primary onus on assessee is said to be discharged, has categorically held that primary onus is discharged when documents relating to identity, genuineness of the transaction, and credit-worthiness are furnished before AO. Till the documents relating to three components are furnished, onus of assessee can't be held to be discharged. Only when documents pertaining to thee components are furnished, onus shifts to AO. In the present case, appellant has produced 'Gift record prepared by him before AO which contained names of 836 individuals, amounts claimed to have received from them. However, appellant has not filed any evidence to show that they are actual existing persons. The Appellant has not filed confirmation letters of relatives giving confirmation of gift 1. On occasion of marriage 2. Quantum of cash gift to prove genuineness of amounts recorded in gift record of appellant. Thus appellant has not filed any documentary evidence to prove any of three components mentioned by courts. 7.5.7 Further, gift record maintained by appellant only mentions names of individuals. It does not contain addresses of those individuals. It is noticed that the appellant has not provided addresses of those individuals to AO though it is argued that he opined that onus shifted to AO with submission of gift record. Without addresses or any other details of those relatives, it is not possible for AO to conduct any further Enquiry with regard to genuineness of claim made by appellant. 7.5.8 In view of above, I am of Considered view that primary onus of explaining cash credit has not been discharged by appellant in the present case. Therefore, it is held that AO has rightly made addition of Rs. 24,80,636/- as unexplained cash gift by correctly following provisions of section and legal precedents on this issue. Once the amount is held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide Finance Act, 2012 and applicable in case of income added u/s 68. Consequently, Ground of Appeal
No 5 is Dismissed. 7.6 Ground of appeal No 6: 7.6.1 Vide above Ground, appellant has challenged treating amount received from friends and relatives Rs. 50,50,000/- unexplained credit u/s 68, applying higher tax rate u/s 115BBE of IT Act. 7.6.2 The AO noticed that in Receipts and payments account filed for the year, the appellant has admitted Rs. 50,50,000/- as amount received from friends and relatives. The AO has added the amount as appellant failed to furnish evidence to prove actual receipt of amount from friends and relatives mentioned by assessee. 7.6.3 During appeal proceedings, arguments raised by appellant can be summarized as under.
1. The amount received is duly disclosed in receipts and payment account filed for the year.
2. The amounts received are supported by Documentary evidences.
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
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3. Loan Received from Avanthi Rs. 23,00,000/-, Sri K.Senthil Rs. 7,50,000/- are reflected in income tax return of appellant. Amount received from P.Kavitha is evidenced by SBI Account 10754491337 in which on 28-01-2015, amount Rs. 20,00,000/- is deposited 4. Details received from friends and relatives since already disclosed in original return filed for the year, no addition w.r.t the same can't be made while finalizing assessment u/s 153A. 7.6.4 The appellant has agreed that above amount reflects loans received from friends and relatives. It is well settled law that the initial onus is upon assessee to establish three things necessary to obviate the mischief of section 68. They are 1. Identity of creditor 2. Creditworthiness of creditor and 3. Genuineness of transaction. Only when these three things are established prima facie by placing relevant documentary evidence, the department is required to undertake further exercise. Merely proving identity of lender does not discharge the onus of assessee, if the capacity or creditworthiness has not been established. Proving creditworthiness means assessee should file evidence to show that on date of loan, concerned lender had financial capacity to lend that amount. 7.6.5 In the present case, it is noticed that except stating that credits are appearing in return filed by appellant for the year prior to search, appellant has not filed any evidence to prove any of three conditions stated above w.r.t loans received from Ms Avanthi and Sri K.Senthil. Disclosing loans in return filed prior to search does not discharge duty of appellant in satisfying conditions mentioned above. In case of amount received from Smt P.Kavitha, only evidence filed by appellant is appellant's bank statement in which some cheque in name of P.Kavitha is deposited. Hon'ble court have in several cases held that receipt of loan/amount through bank account does not make the transaction genuine. 7.6.6 In Mayuri P.Patel Vs ITO, ITA 92/Ahd/2020, ITAT Ahmedabad held that mere receipt of amount via banking channel doesn't make the transaction as genuine. Addition u/s 68 of the Income Tax Act sustainable because of non-establishment of identity of creditor, genuineness of transaction and credit worthiness of the parties. 7.6.7 In CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465, Hon'ble Calcutta High court held that the amount is received by account payee cheques is not sacrosanct as was pointed out in. Hon'ble Gauhati Court in Nemi Chand Kothari v. CIT [2003] 264 ITR 254 held the same view. In this case it was held that it cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions, and the creditworthiness of his creditors vis-à-vis the transactions which he had with the creditors his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself. 7.6.8 Therefore, in the present case, it can't be held that the appellant has discharged onus of filing prima facie evidence to prove genuineness of cash credits. Hence, I am of considered view that AO has rightly added Rs. 50,50,000/- as unexplained cash credit u/s 68. Once the amount is held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide Finance Act, 2012 and applicable in case of income added u/s 68 Consequently, Ground of appeal relating to the issue is Dismissed. 7.7 Ground of appeal No 7: 7.7.1 Vide Ground of appeal 8, the appellant has challenged disallowance of improvement cost Rs. 50,00,000/-, and consequent disallowance of deduction u/s 54F to the extent Rs. 5,79,300/- & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual)
:: 27 :: out of total claim of Rs. 1,16,16,519/- 7.7.2 It is noticed that appellant has purchased lands located at Doddabellapur, Bangalore on 11-07-2007 for consideration of Rs. 75,00,000/- which were sold on 7-11-2014 for Rs. 4,83,33,000/-. The appellant has purchased flat and undivided share of land and flat from HRPL on 27-08-2014, 14-07-2014 vide sale deeds 12774/2014, 12773/2014 for Rs.5,97,975/-, Rs.1,48,97,384/- respectively. He also invested in construction of property for Rs.77,58,400/-. Deduction 54F is available if assessee one year before or two years. after the date of sale buy a residential property, or three years, if constructing a new property. However AO noticed that lands sold during the year are jointly owned by assessee along with Sri T.R.Palanivel. The AO has recorded sworn statement of Sri T.R Palanivel as appellant failed to furnish details of capital gains computed. Sri T.R Palanivel has furnished copy of Long term capital gain computation statement for Assessment year 2015-16. On verification of computation filed by him, the AO noticed that he has claimed only purchase cost of Rs.50,00,000/- (date of purchase 24-11-2017) for computation of long-term capital gains on sale of land. However, the appellant while computing capital gains has claimed Rs.50,00,000/- as Development cost. The AO noticed that Sri T.R. Palanivel, joint owner of property has not claimed any Development cost wrt same lands. Further appellant failed to furnish any evidence in support of improvement cost incurred by him. Therefore, AO disallowed improvement cost Rs.50,00,000/- in absence of evidence. 7.7.3 During appeal proceedings, the appellant has not made any specific submissions w.r.t improvement cost disallowance nor made any effort to file evidence in support of actual incurring of expenditure. 7.7.4 W.r.t deduction 54F, the AO noticed that appellant has claimed excess deduction to the extent of Rs.5,79,300/-, The appellant has claimed deduction u/s 54F of Rs.1,61,16,519/- whereas the AO has arrived at cost of investment w.r.t flat purchased from Hiranandani Realtors Pvt Ltd at Rs.1,55,37,219/-. 7.7.5 During appeal proceedings, appellant claimed that AO has made disallowance of 54F to the extent of Rs.5,79,300/- on the ground that assessee purchased two residential properties and claimed exemption. But appellant was not in possession of any other residential property at the time of purchase of two properties. 7.7.6 It is noticed that amendment to section 54F was made by Finance Act, 2014 w.e.f 01.04.2015 wherein deduction u/s 54F is restricted to only one residential house. Relevant provisions of section are submitted as under: 54F. (1) 65[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 67[two years.] after the date on which the transfer took place 66purchased, or has within a period of three years. after that date 68 [constructed, one residential house in India) (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) :: 28 ::
69[Provided that nothing contained in this sub-section shall apply where- (a) the assessee (i) owns 70 more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) 71constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and the income from such residential house, other than the one residential house (b) owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".] 7.8 Deduction u/s 54F is restricted to investment made in one residential house only since assessment year 2015-16. It is noticed that AO has allowed investment made in flat purchased from Hiranandani realtors Pvt Ltd as deduction being highest of two investments made by appellant in residential property. Investment made by appellant in case of flat with Appasamy real estate Ltd was only Rs. 77,58,400/- which was ignored by AO. I am of considered view that AO has rightly restricted deduction 54F to Rs.1,55,37,219/- against Rs.1,16,16,519/- claimed by appellant in view of amendment brought in the provision w.e.f 1-04-2014. Hence, it is held that AO has correctly disallowed 54F to the extent of Rs. 5,79,300/-. Consequently, Ground of appeal relating to the issue is Dismissed. 7.8 Vide Ground of appeal 8, the appellant has challenged correctness of interest levied u/s 234A, 234B and 234C. The appellant has not made any specific submissions. Since it is consequential in nature, it is not adjudicated separately. Consequently, Ground of appeal is Dismissed. 7.9 Vide Ground of appeal 9, the appellant has challenged correctness of initiation of penalty proceedings u/s 271(1) (c). The appellant has not made any specific submissions. Penalty proceedings u/s 271(1)(c) are independent proceedings, can't be adjudicated here. Consequently, Ground of appeal is Dismissed.
8. As a result, appeal of appellant is Dismissed.
12. The assessee contended that all the additions are not based on any seized/incriminating material relating to the assessee. The search was primarily conducted in the premises of the Pavai Varam Educational Trust, and no direct incriminating evidence was unearthed against the assessee individually for A.Y. 2015-16. The assessee challenged the assessments primarily on the following legal and factual grounds:
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) That the additions made were not based on any incriminating i. material found during the course of search. ii. That assessments were made mechanically under section 153A, without any fresh material. iii. That the professional interest expenditure disallowed was genuine and had been allowed in earlier years. iv. That the cash deposits and marriage gifts were duly explained and had already been offered to tax in the return under “Income from Other Sources.” v. That the disallowance of cost of improvement was made without appreciating supporting evidence. The assessee has raised several grounds, the sum and substance of which is that the ld. CIT(A) erred in upholding various additions made by the Assessing Officer in the assessment completed under section 143(3) read with section 153A of the Act, though no incriminating material was found during the course of search, and further erred in confirming disallowances/additions on merits.
Per contra, ld.DR-CIT read out the impugned order and vehemently supported the same. He has adopted similar legal arguments that are taken in for AY 2016-17.
We have heard the rival submissions. A search and seizure operation under section 132 of the Act was conducted on 27.12.2016 in the case of the assessee and connected group cases. The assessee filed return of income in response to notice under section 153A declaring income of Rs. [amount]. The assessment was completed under section 143(3) read with section 153A determining total income at Rs.2,78,28,580/- after making the following additions:
1. Disallowance of interest – Rs.8,93,642 2. Tuition fee treated as income u/s 68 – Rs.10,65,970 & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) 3. Marriage gifts treated as income u/s 68 – Rs.24,80,636 4. Receipts from friends and relatives treated as income u/s 68 – Rs.50,50,000 5. Disallowance u/s 54F – Rs.5,79,300 On appeal, the learned CIT(A) upheld the action of the Assessing Officer holding that since the original assessment was pending on the date of search, the same stood abated and the AO had jurisdiction to make additions even without incriminating material.
Before us, the ld. counsel for the assessee submitted that the assessment year under consideration was not a pending assessment on the date of search, as no notice under section 143(2) was issued prior to the date of search and the time limit for issue of such notice expired on 30.04.2017. The return was processed under section 143(1) and hence, the assessment was a completed/unabated assessment. Therefore, in view of the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd. [2023] 454 ITR 212 (SC), no addition could be made in absence of incriminating material found during search. It was further contended that none of the additions made by the AO were based on any seized material and the same were made merely on the basis of information already on record or explanations in return filed u/s 153A. Therefore, the assessment deserves to be quashed. The ld. Departmental Representative (DR), on the other hand, relied on the order of the ld.CIT(A) and argued that since the time limit for issue of notice u/s 143(2) had not expired as on the date of search, the assessment stood abated and AO had full jurisdiction. We have carefully considered rival contentions and perused the material available on record. The undisputed facts are that:
& 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) The assessee filed the original return of income on 13.08.2016; The same was processed u/s 143(1) on 03.10.2016; Search was conducted on 27.12.2016; and The time limit for issue of notice u/s 143(2) expired on 30.04.2017. Thus, as on the date of search, no notice under section 143(2) had been issued and the return had already been processed u/s 143(1). The issue is whether such assessment can be said to be "pending" so as to abate under section 153A(1). The Hon’ble Delhi High Court in CIT v. Kabul Chawla [2016] 380 ITR 573 (Del) and the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd. (supra) have laid down the settled law that:
In case of completed/unabated assessments, no addition can be made in absence of incriminating material found during search.
Although the ld.CIT(A) has placed reliance on CBDT Circular No. 549 and the decision of Punjab & Haryana High Court in Vipan Khanna v. CIT (255 ITR 220), those authorities predate the binding ratio of the Hon’ble Supreme Court in Abhisar Buildwell (supra) and do not alter the settled position. The mere availability of time to issue notice u/s 143(2) does not by itself make the assessment “pending”. Unless a valid notice u/s 143(2) had been issued prior to search, no assessment proceedings can be said to be pending. In the present case, it is an admitted position that no notice u/s 143(2) was issued prior to the date of search, and no incriminating material was found during the course of search relating to the additions made. Therefore, the additions made by the Assessing Officer are beyond the scope of section 153A and not sustainable in law. Since the very jurisdiction to make additions in the absence of incriminating material fails, all additions sustained by the CIT(A) on & 1801/Chny/2024 (AYs 2016-17 & 2015-16) Varadappan Natarajan/ V. Natarajan (Individual) merits—viz., disallowance of interest, additions under section 68 for tuition fee, marriage gifts, loans from relatives, and disallowance of deduction u/s 54F automatically stand deleted. Having held so, we refrain from going into the merits of individual additions. Levy of interest under sections 234A, 234B and 234C being consequential, and initiation of penalty u/s 271(1)(c) being independent, do not survive in view of the deletion of additions. In view of the foregoing discussion and respectfully following the decision of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd. (supra) and the jurisdictional Tribunal’s decision in assessee’s own case for earlier years, we hold that in absence of any incriminating material found during search, no addition could be made in the assessment framed u/s 153A. Accordingly, the assessment order is quashed and all additions made therein are directed to be deleted.
Order pronounced on the 31st , day of October, 2025, in Chennai.