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Facts
The revenue filed appeals against the orders of the CIT(A) for assessment years 2014-15, 2015-16, 2017-18, 2018-19, 2019-20, and 2021-22. The core issue revolves around additions made by the Assessing Officer (AO) concerning share capital from M/s. Devanayagam Finance Pvt. Ltd. (M/s.DFPL) and M/s. Bholenath Merchants Pvt. Ltd. (M/s.BMPL), and the estimation of income from suppressed sales. The CIT(A) had deleted these additions.
Held
The Tribunal held that the additions made by the AO were not sustainable. For the share capital additions, the Tribunal found that the assessee had established the identity, creditworthiness, and genuineness of the transactions. The revenue failed to discharge its burden to prove otherwise. Regarding the suppression of sales, the Tribunal noted the absence of incriminating evidence and the principle that confessions require corroboration, and a mere estimate based on subsequent years' data is not sufficient. The Tribunal upheld the orders of the CIT(A) in deleting the additions.
Key Issues
Whether the additions made by the AO on account of share capital and suppressed sales were justified without sufficient incriminating evidence, and if the CIT(A) was correct in deleting them.
Sections Cited
68, 143(3), 144A, 147, 153A, 132, 139(1), 142(1), 115BBE, 69A, 28, 145(3)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER BENCH: These appeals by the revenue are filed against the orders of the Commissioner of Income Tax (Appeals), Chennai - 19, for the assessment years 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 and 2021-22 vide separate orders all dated 26.11.2024.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 2. The Facts of the Case: The assessee is a resident company is engaged in trading of tiles and sanitary wares under the brand name “KAG”. It is an undisputed position that the facts as well as the intriguing issues are substantially the same for A.Ys. 2014-15 and 2015-16, except for slight deviations in respect for A.Ys. 2017-18, 2018-19 and 2019-20, the issue is common but distinct from that of the other years under adjudication and finally for A.Y.2021- 22 being the year of search, is on a different footing. As is evident, the impugned issues arise out of search conducted by the revenue in the case of the assessee group on 26.02.2021. The Ld.AR advanced arguments and supported the case of the assessee with various case laws and furnished various documents containing workings / computations etc. The Ld. CIT-DR also advanced arguments and supported the findings rendered by the AO and likewise, relied on various case laws. Having heard rival submissions and upon perusal of case records, our adjudication would be as under:
3.1 First, we take up the appeal for Assessment Year 2014-15, out of an order passed by the Ld. Commissioner of Income-tax (Appeals), Chennai- 19 on 26.11.2024, in the matter of an assessment framed by the AO u/s.153A r.w.s 143(3) of the Act on 31.03.2022. The assessee filed its regular return of income u/s.139(1) on 30.09.2014 for A.Y.2014-15 by admitting an income of Rs.1,63,11,670/-. The said return of income was taken up for scrutiny by issue of notice u/s.143(2) and for verification in the assessment proceedings related to the investments made by M/s.Devanayagam Finance Pvt. Ltd. in the assessee company.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Consequent to the issue of notice u/s.142(1) by the Assistant Commissioner of Income-tax, Corporate Circle – 4(1), Chennai,(AO) questioning the genuineness of the transaction, the assessee had sought directions in terms of Section 144A from the Joint Commissioner of Income-tax, Corporate Range-4, Chennai (hereinafter referred to as the ‘JCIT’) to treat the transactions with M/s.Devanayagam Finance Pvt. Ltd. as a proven, genuine transaction. As a consequence, the JCIT, vide Order No.31/144/CR-4/2016-17 dated 31.12.2016, passed the order u/s.144A, after examining the materials brought on record by the assessee. In the said order, the JCIT had appreciated the following: a) That the identity of the Creditor M/s.Devanayagam Finance Pvt. Ltd. was proven beyond doubt, while the company was in existence from 1997 and had also registered as a ‘Non-Banking Financial Company’. b) The identity of the shareholders was also proved as the financials of the company show the shareholders and the shareholding pattern and the identity is not difficult to establish. c) On examining the bank statements, financials, etc. submitted by M/s.Devanayagam Finance Pvt. Ltd., it was seen that the company had a share capital and reserve of Rs.49,00,00,000/-, sufficient enough to fund the investment in the assessee company and therefore the ingredient of the creditworthiness of the creditor also stood established. d) M/s. Devanayagam Finance Pvt. Ltd. had invested in shares and not in the share capital of the company and continues to hold more than 50% shareholding even as on date. During the Financial Year 2016-17, the dividend declared by the assessee company to the extent of Rs.17,00,000/- was received by the investor.
Therefore, when all the ingredients of identity, creditworthiness, explanation with regard to the nature and source, purpose of investment, etc. were substantiated, the JCIT concluded that no materials were available on record to show the transactions between M/s.Devanayagam , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Finance Pvt. Ltd and M/s.KAG India Pvt. Ltd. to be a sham transaction. Therefore, the AO was directed by the JCIT not to treat the same as ‘Unexplained Credit’ u/s.68 of the Act, as the transactions were proven to be genuine. Based on the directions of the JCIT u/s.144A, the assessment was concluded by the AO u/s.143(3) on 31.12.2016 by accepting the income returned. While the order of assessment has been passed u/s.143(3) by the AO based on the directions of the JCIT, the assessment was reopened by issuing a notice u/s.148 on 25.03.2019 after obtaining the approval of the JCIT. Subsequently, the assessment u/s.143(3) r.w.s 147 on 19.11.2019, by treating the investment received from M/s.Devanayagam Finance Pvt. Ltd. to be bogus and thus brought to tax as an unexplained credit u/s.68 of the Act. Though the infusion in the form of share capital received during the year is Rs.22,23,00,000/-, a wrong value of Rs.8,83,73,142/- was adopted as addition. This value relates to the ensuing year. Irrespective of the quantum, the crux remains that the share capital received from M/s.Devanayagam Finance Pvt. Ltd.(M/s.DFPL) according to the finding of the AO is an ‘Unexplained Credit’ and not a genuine transaction. The assessee challenged the treatment by invoking the writ jurisdiction of the Hon’ble High Court at Madras and by the order in W.P.No.34483 of 2019 dated 03.09.2020, the assessment was set aside to be undertaken afresh and such order shall be passed within a stipulated time. Such time limit ended on 31.10.2020 and no order u/s.147 was passed afresh by the AO. In the meantime, an action u/s.132 of the Act was undertaken in the case of the assessee Group on 26.02.2021 and as a consequence notice u/s.153A was issued. Subsequently, the order u/s.143(3) r.w.s 153A on , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 31.03.2022 for the A.Y.2014-15, arriving at a taxable income of Rs.23,86,11,670/-, by making addition of Rs.22,23,00,000/-. The said value of Rs.22.23 crores pertains to the share capital received from M/s.DFPL treated as an unexplained credit and brought to tax u/s.68 of the Act. Aggrieved by the said addition, the assessee preferred an appeal before the ld.CIT(A) and filed elaborate grounds of appeal and statement of facts, to impress that the transaction undertaken with M/s.DFPL is genuine. Furthermore, the addition was also challenged on its procedural infirmities being that the addition in respect of this unabated assessment has been made without drawing any support from any seized material containing incriminating evidence. Considering the Grounds of Appeal and Statement of Facts, the learned Commissioner of Income Tax (Appeals-19), Chennai vide Order u/s.250(6) of the Act dated 26.11.2024 allowed all the substantive grounds of appeal of the assessee and granted complete relief, directing the AO to delete the addition of Rs.22,23,00,000/-. The ld.CIT(A) appreciated that the transactions are genuine, for the reason that the issue had been dealt at length and precisely by the JCIT, in the order u/s.144A and in the absence of any contradictory or adverse version to the finding of the JCIT, such finding does not require any further interference. It was also expressed by the ld.CIT(A) that no investigation or further inquiries were conducted by the AO and the addition was solely based on the surmise that the transactions are not genuine without attributing any reference to any incriminating evidence found in the seized records. Accordingly, following the decision of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. in Civil Appeal No. 6580 of 2021 dated 24.04.2023, wherein it was held:
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited “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.” While the appeal was adjudicated by the ld.CIT(A) in favour of the assessee, the Department has preferred this appeal and fostered the grounds of appeal as detailed below.
GROUNDS OF APPEAL
1. The Order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts and in law.
2. The Ld.CIT(A) has erred in deleting addition of Rs.22,23,00,000/- without adjudicating on the genuineness of transactions by stating that assessment was unabated after six weeks from 18.09.2020 consequent to the Order of the Madras High Court and the assessment u/s.153A rws 143(3) was completed without any Incriminating material found during the course of search.
3. The Ld.CIT(A) has erred in not considering the fact that as per Notification No.60/2020 dt 13/08/2020 read with the order issued by the Central Board of Direct Taxes in F.No.187/3/2020-ITA-I, after 13/08/2020 all assessment orders (except in cases assigned to central charges, International tax charges) have to be passed by National e-Assessment Centre through the Faceless Assessment Scheme, 2019.
4. The Ld.CIT(A) has erred in not appreciating the fact that since the assessment u/s 143(3) rws had to be completed by NeFAC, and the fact that the search took place on 26/02/2021, the proceedings initiated u/s.148 stood abated.
5. The Ld.CIT(A) has erred in not giving weightage to the findings made during the search which revealed the layers of transaction undertaken to infuse the unaccounted money in the assessee company through share capital.
6. The Ld.CIT(A) has erred in not appreciating the fact that M/s. Devanayagam Finance Pvt. Ltd. lacked the financial capacity to invest such a substantial amount of ₹22.23 crore in M/s.KAG India Pvt. Ltd. The company's financial statements showed negligible revenues, minimal assets, and no credible sources of funds that could justify these investments.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 7. The Ld.CIT(A) has erred in relying on the earlier assessment completed in the case of assessee since the same was completed prior to the search u/s 132 of the Act and the evidence unearthed during the search were not at the disposal of the then Assessing Officer.
For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the Order of the Ld.CIT(Appeals) may be set aside and that of the Assessing Officer may be restored. 3.2 The ld.CIT – DR Mr. Bipin.C.N submitted that the ld.CIT(A) has committed a serious error in law and on facts by deleting the addition of Rs.22,23,00,000/- without examining the genuineness of the underlying transactions. The ld.CIT(A) relied on the premise that the assessment was unabated after six weeks from 18.09.2020, pursuant to the Order of the Hon'ble Madras High Court, and that the assessment u/s.153A r.w.s.143(3) was concluded without reference to any incriminating material found during the search. This conclusion overlooks key factual and legal considerations. The ld.DR submitted the two paper books consisting of 1 to 90 and 1 to 92 pages in support of the arguments for all the six appeals. He further submitted that the ld.CIT(A) failed to consider the implications of Notification No. 60/2020 dated 13.08.2020 and the subsequent order of the CBDT in F.No.187/3/2020-ITA-I. As per the said directions, all assessments (except those assigned to Central Charges and International Taxation) post 13.08.2020 are mandatorily required to be completed by the National e-Assessment Centre (NeAC) under the Faceless Assessment Scheme, 2019. The order under appeal was thus procedurally flawed and passed in contravention of statutory directions. The ld.DR further contends that the ld.CIT(A) erred in not appreciating that the assessment u/s.143(3) r.w.s.147 ought to have been completed by NeAC, and that given the search conducted on , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 26.02.2021, the reassessment proceedings initiated u/s.148 of the Act stood abated. The ld.CIT(A)’s failure to examine this legal position vitiates the appellate order. It is further submitted that the ld.CIT(A) has also failed to accord due weight to the findings uncovered during the course of search proceedings, which clearly demonstrated to introduce unaccounted money into the assessee company in the guise of share capital. The ld.CIT(A) further erred in ignoring the critical fact that M/s.DFPL, the entity alleged to have invested Rs.22.23 crore in M/s.KAG India Pvt. Ltd., had no financial capacity to make such a substantial investment. The financials of the said company revealed negligible business activity, minimal assets, and no credible or verifiable sources of funds to justify the alleged transactions. Lastly, reliance placed by the ld.CIT(A) on the earlier assessment proceedings in the assessee’s case is wholly misplaced, as those proceedings were concluded prior to the search conducted u/s.132 of the Act. The incriminating evidence unearthed during the said search was not available to the AO at the time of the original assessment, and therefore, the ld.CIT(A)'s order suffers from a material oversight in this regard. In view of the above submissions, the ld.DR prays that the appellate order of the ld.CIT(A) be set aside, and the addition made by the AO be restored. 3.3 Per contra, the ld.AR Mr. Y.Sridhar, FCA for the Assessee submitted the financials of M/s.DFPL, a NBFC already submitted during the course of assessment proceedings u/s.143(3) of the Act and the availability of sufficient funds with the M/s.DFPL was also established. In support of the order of ld.CIT(A), the ld.AR submitted a separate written submissions for all the impugned six assessment years. Further No incriminating evidence was found at the time of search and this year pertains to the , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited period beyond 6 years as contemplated as per explanation 2 to section 153A of the Act. Hence, the genuineness of the transaction had been proved beyond the doubt during the assessment proceedings. It is also submitted that the reassessment ought to have been passed on being set aside by the Hon’ble High Court, by the AO within six months from 18.09.2020 and having failed to pass such order as directed, the original assessment becomes unabated and therefore the ld.CIT(A) was right in bringing the case within the scope of the Hon’ble Supreme Court decision in the case of Abhisar Buildwell (supra). The ld.AR submitted that the impugned issue of addition of Rs.22.23 crores was completely verified during the assessment proceedings u/s.143(3) of the Act, based on the directions of the ld.JCIT u/s.144A of the Act in pursuance of the assessee’s application. Unless the direction u/s.144A of the Act passed by the JCIT is unsettled by the higher forum, it is binding on the AO. Further, on the assessment proceedings for the same issue, the Hon’ble High Court of Madras had directed the AO to pass an order afresh within the stipulated time and the AO has chosen to be silent. Furthermore, the ld.AR submitted that the assessee furnished confirmation letter, source of fund, books of accounts, bank statements, cash flow statement, RBI compliance report etc., and proved the ingredients of section 68 of the Act during the 143(3) r.w.s. 144A proceedings. In light of the above arguments the ld.AR prayed for confirming the order of the ld.CIT(A). 3.4 We have heard the rival contention perused the materials available on record and gone through the order of the lower authorities along with the paper book filed by the assessee and case laws relied on. On the first aspect, the revenue attempts to emphasize that consequent to the order , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited of the Hon’ble Madras High Court dated 08.09.2020, the original assessment u/s.147 of the Act was set aside and while the assessment was due for completion, the action u/s.132 of the Act was undertaken and hence, the assessment is an abated assessment and therefore the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell (supra.) would not apply. On the contrary, the ld.AR, stated that the assessment ought to have been passed on being set aside by the High Court, by the AO within six months from 18.09.2020 and having failed to pass the order, the original assessment becomes unabated and therefore the ld.CIT(A) was right in bringing the case within the scope of the decision of Abhisar Buildwell (supra). Therefore, on the aspect of procedural infirmity, the solitary intrigue is whether the assessment u/s.147 of the Act was an abated assessment or an unabated assessment as on the date of search. In case it is an unabated assessment, the revenue should not have any qualms against the order passed by the ld.CIT(A) and if it were otherwise, the relief extended on the aspect of procedural infirmity is incorrect. On hearing the case, the AR of the assessee stated that while the original reassessment proceedings is by itself bad in law and has no legs to stand, the question whether such assessment is abated or unabated does not arise, since consequent to the order passed u/s.143(3) dt.31.12.2016 which is a valid order, the assessment for the A.Y.2014-15 is unabated as on the date of search. We have carefully considered the rival submissions and find that the reopening of assessment u/s.147 of the Act on being approved by the JCIT of an assessment which is passed after the approval of the JCIT 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited u/s.144A of the Act is allowed, provided fresh material are brought on record before the reassessment. In principle, an order can be passed u/s.147 of the Act because there is no statutory bar to reopen merely because 144A directions were issued earlier. However, it can be undertaken only if fresh tangible material comes to light later. In the case under consideration, the original assessment order u/s.143(3) was passed based on the direction u/s.144A, in which it was categorically opined by the JCIT that the transactions with M/s.DFPL is genuine, not a sham transaction and therefore the AO was directed not to treat the same as unexplained credit u/s.68 of the Act. While the direction u/s.144A of the Act is pivoted to the transactions involving M/s.DFPL, the assessment was reopened on the same issue and the contents of the assessment order is self-explanatory with regard to the fact that no fresh tangible information was available with the Department, subsequent to the passing of order u/s.143(3) of the Act. We note that the Coordinate Bench of the Tribunal at Chennai in the case of Shri Pachamuthu Ravi v. DCIT, Circle-1(3) in dated 15.07.2025 for A.Y. 2014-15 had been held in favour of the assessee on a finding as follows: “…we note from perusal of reasons recorded that there was no whisper about the AO receiving any fresh information/tangible material from external sources which would have been the foundation on which AO would have formed his belief that income chargeable to tax has escaped assessment. In the absence of fresh tangible material, the AO couldn't have resorted the reopening as held by the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd [320 ITR 561]” The case of the assessee stands on a similar footing and the source of fresh tangible information has not been cited in the reassessment order dated 19.11.2019, which goes to prove that the reassessment , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited proceedings is by itself bad in law. When the reassessment order dated 19.11.2019 is proven to be invalid, the order that assumes significance as on the date of search is the original order u/s.143(3) dated 31.12.2016. Further, we also note that not passing reassessment order within a stipulated time as directed by the Hon’ble Jurisdictional High Court, we take adverse inference against the AO, which further proves that the department did not have any tangible material beyond the evidence produced during the assessment proceedings u/s.143(3) of the Act. Therefore, when there was no valid assessment proceedings pending as on the date of search, the assessment for the A.Y.2014-15 is an unabated assessment as on the date of search and therefore, the law laid by the Hon’ble Supreme Court in the case of Abhisar Buildwell (supra) takes precedence and therefore, in the absence of any incriminating evidence found during the course of search in the case of the assessee, the addition made u/s.68 of the Act without reference to any such material in the seized record, is void-ab-initio. Regarding incriminating material, the submissions of the ld.DR is found to be incongruous since the contents of the entire assessment order does not speak about any evidence unearthed as a result of search which proves that the transactions with M/s. DFPL is sham in nature. If it were so, the AO ought to have incorporated the relevant page/sheet number of the annexure which describes the seized record, in the assessment order. On the contrary, the entire content of the assessment order dwells on the doubtful characteristics of the transaction, without drawing any adverse inference other than by way of suspicion, surmises or reference to any particular incriminating material.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Since the order u/s.143(3) r.w.s 153A, as stated earlier, the assessment only delves on the nature of transaction forming a reason to doubt a transaction but had failed to corroborate as to why the said transaction has to be graded as not genuine. Though the order u/s.144A by the JCIT, had categorically classified the impugned transaction to be a genuine transaction unworthy of addition u/s.68 of the Act, there is not even a whisper about the counter to such finding of the JCIT. In the absence of any appropriate counter to the finding of the JCIT, in this order passed with approval u/s.153D of the Act, it is duty-bound to presume that the assessment has been concluded merely on surmises and suspicion. It is pertinent to rely on the decision of the Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC), under the Indian Income Tax Act, 1922, wherein the Hon’ble Supreme Court cautioned that"…There must be something more than bare suspicion to support the assessment…” and it is abundantly proven that the AO failed to cross this barrier and establish that the finding and direction of the JCIT in the order u/s.144A is baseless. 3.5 Therefore, while the finding of the JCIT, and that of the ld.CIT(A), hold that M/s.DFPL is not a shell company. In view of our above discussion and reasoning, the grounds of appeal of the Revenue are dismissed. As a result, the order of the ld.CIT(A) which is directed to delete the addition of Rs.22.23 Crores made u/s.68 of the Act in the Order u/s.143(3) r.w.s 153A dated 31.03.2022 is hereby upheld.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Rs.2,71,83,770/-. Unlike that of A.Y.2014-15, the assessment for the year was not reopened u/s.147 of the Act. However, consequent to the action u/s.132 of the Act, the assessment was reopened for the first time by issue of notice u/s.153A of the Act. Subsequently, the order u/s.143(3) r.w.s 153A was passed arriving at a taxable income of Rs.11,55,56,912/- after making an addition u/s.68 of Rs.8,83,73,142/-. The addition related to the Share Capital infused by M/s.DFPL and similar to that of A.Y.2014-15, the same was treated as a sham transaction and the corresponding credit was treated as unexplained. In the order u/s.250 of the Act passed by the ld.CIT(A) dated 26.11.2024, reiterating the conclusion drawn in order u/s.250(6) for A.Y. 2014-15, the appeal of the assessee was allowed by deleting the addition made u/s.68 of the Act. 4.2 Aggrieved by the relief granted in favour of the assessee, the Revenue preferred an appeal and has raised the following grounds of appeal:
1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law.
2. The Ld. CIT(A) erred in deleting addition of Rs.8,83,73,142/- without adjudicating on the genuineness of transactions by stating that the assessment was unabated and the assessment u/s.153A rws 143(3) was completed without any incriminating material found during the course of search.
3. The Ld. CIT(A) has erred in not giving weightage to the findings made during the search which reveal the layer of transaction undertaken to infuse unaccounted money in the assessee company through share capital.
4. The Ld. CIT(A) has erred in not appreciating that M/s.Devanayagam Finance Pvt. Ltd. lacked the financial capacity to invest such a substantial amount of Rs.22.23 crores in M/s.KAG India Pvt. Ltd. The company’s financial statements showed negligible revenue, , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited minimal assets and no credible sources of funds that could justify these investments.
5. The Ld. CIT(A) has erred in relying on the earlier assessment completed in the case of the assessee since the same was completed prior to the year of search u/s.132 of the Act and the evidence unearthed during the search were not at the disposal of the then assessing officer.
For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored. 4.3 On careful consideration of the facts of the case, it is evident that the issue under consideration, is exactly similar to that of A.Y. 2014-15, except for the fact that a reassessment u/s.147 is not prevalent in the interregnum between the original assessment and the assessment u/s.153A of the Act. 4.4 On appreciating the aforesaid fact, without any doubt it is clear that the assessment for the A.Y.2015-16 at the time of search is an unabated assessment and therefore unless incriminating evidence are found as a result of search, no addition can be made in a generic manner. Therefore, all other factors which had determined the course of adjudication in A.Y.2014-15 is squarely applicable in the instant year and guided by the findings in the order passed for the A.Y. 2014-15 (supra). Further, we find that the grounds raised by the revenue for the instant assessment year under consideration which is akin to that of A.Y.2014-15 and hence following the order for the A.Y.2014-15(supra) we affirm of the ld.CIT(A) which directed to delete the addition of Rs.8,83,73,142/- made u/s.68 of the Act in the Order u/s.143(3) r.w.s 153A dated 26.11.2024. Therefore, the grounds of appeal of the Revenue are dismissed.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited :: 16 ::
A.Y.: 2017-18: 5.1 Now, we take up the appeals for Assessment Year 2017-18, out of an order passed by the Ld.CIT(A) on 27.11.2024, in the matter of an assessment framed by the AO u/s.153A r.w.s 143(3) of the Act on 25.03.2022. The grounds raised by the revenue are as under:
1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law.
2. The Ld. CIT(A) erred in deleting the addition of Rs.7,46,97,580/- made towards the suppression of the sales on the ground that the AO wrongly extrapolated the date for a period to make addition for A.Y.2017-18 and addition was not based on any incriminating material even when the case of the assessee was already assessed u/s.143(3) of the Act. 2.1 The Ld. CIT(A) erred in not appreciating the fact that the Managing Director and employees of assessee had admitted that suppression of sales was a regular practice. 2.2 The Ld. CIT(A) erred in holding the retraction of statement as valid although the retraction was not based on any proven reason. 2.3 The Ld. CIT(A) erred in not appreciating the fact that in Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560, the Supreme Court observed that a confession, even if retracted, is an admission and it binds the maker. 2.4 The Ld. CIT(A) erred in not appreciating the fact that Unaccounted Cash had also been found and seized during the search further corroborating the above findings.
3. The Ld. CIT(A) erred in deleting addition of Rs. 9,90,00,000/- regarding Share Capital received from M/s. Bholenath Merchants Pvt. Ltd. u/s 68 of the Act. 3.1 The Ld.CIT(A) erred in not appreciating the fact that AO had spelt out clear reasons for his inference that the company, M/s. Bholenath Merchants P Ltd. was a shell company and the assessee had introduced a structure for routing unaccounted money back in the form of unexplained capital.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 3.2 The Ld. CIT(A) erred in not appreciating the fact that the AO had pointed out that the assessee had not furnished any financial statements of M/s. Bholenath Merchants P Ltd, as claimed in its reply. 3.3 The Ld. CIT(A) erred in not appreciating the fact that when the search teams visited their addresses, none of the companies were found to exist at these places, which is an incriminating evidence in itself. 3.4 The Ld. CIT(A) erred in not appreciating that the Directors of M/s. Bholenath Merchants P Ltd, M/s. Anilabh Vinimay Pvt. Ltd, M/s. Wakeeta Vyapaar Pvt. Ltd. were found to be salaried employees of the KAG group of concerns and were not aware of the fact that they were directors in such companies.
For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored.
5.2 The assessee company incorporated in the year 2009 filed the Return of Income for A.Y.2017-18 u/s.139(1) of the Act admitting a total income of Rs.5,93,66,040/-. The return of income was taken up for scrutiny and the order u/s.143(3) was passed accepting the income returned on 27.06.2019. 5.3 Assessment Proceedings under Section 153A An action u/s.132 of the Act was undertaken in the assessee group of cases on 26.02.2021 and subsequent to the centralization, notice u/s.153A of the Act was issued on 03.09.2021. In response to the same, the assessee filed the ROI on 28.09.2021 without any modification in the quantum of total income. Subsequently, notices u/s.142(1) of the Actr were issued and the order of assessment u/s.143(3) r.w.s 153A of the Act was passed on 25.03.2022 by the AO arriving at a total income of Rs.23,31,14,952/-. The additions to total income included the undisclosed income on account of undisclosed sales determined based on an estimate of , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Rs.7,46,97,580/- and share capital received from M/s.Bholenath Merchants Pvt. Ltd., added u/s.68 of the Act of Rs.9,90,00,000/- on it being treated as an unexplained credit. Minor additions u/s.56(2)(x)(c) of the Act were also made and the bone of contention made at present by the revenue that requires adjudication relates to the two major additions. Addition of profit on unaccounted sales determined on an estimate basis:
The search revealed, as per the confirmations made by the employees at various branches of the assessee company and also affirmed by Shri G.Muralidharan, Managing Director in the sworn deposition u/s.132(4) of the Act dated 22.04.2021 that the assessee company has been engaged in suppression of sales covering the period from F.Y.2016-17 to F.Y.2020- 21. The cash to the extent of Rs.8,62,22,740/- was also found and seized and substantial portion of such cash was sourced out of such unaccounted sales. A sum of Rs.31,26,70,853/- was accepted as ‘Undisclosed Income’ for the period from A.Y.2017-18 to A.Y.2021-22 and the quantum of such income that corresponds to the year under consideration was offered to be Rs.5.00 crores. The breakup of year-wise income from unaccounted sales as disclosed by the assessee is tabulated below: S. No. FY AY UDI accepted 1. 2020-21 2021-22 9,17,07,058 2. 2019-20 2020-21 7,09,63,795 3. 2018-19 2019-20 5,00,00,000 4. 2017-18 2018-19 5,00,00,000 5. 2016-17 2017-18 5,00,00,000 Total 31,26,70,853 , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited While the income for A.Ys.2020-21 and 2021-22 were offered to tax in the ROI filed in response to the notice u/s.153A with slight modifications, the disclosure of income for the A.Y.2017-18 to 2019-20 of Rs.5.00 crores each was retracted. The AO applying the component of unaccounted sales as percentage of the total sales in A.Y.2020-21, and the gross profit for that year, estimated the unaccounted sales for these three assessment years 2017- 18 to 2019-20. In A.Y.2020-21, the total accounted sale was Rs.165 crores and the unaccounted sales were Rs.32 crores. By extending the same proportion on the accounted sales for these three assessment years and the GP for A.Y.2020-21, the estimated gross profit on the estimated unaccounted sales was determined as per the tabulation below: Sl. No. AY Total accounted Estimated Estimated GP on sales as per books unaccounted unaccounted sales to sales the total sales (23% on unaccounted sales) 1. 2019-20 1,73,80,88,113 33,84,81,030 7,78,50,637 2. 2018-19 1,55,96,17,183 30,37,25,010 6,98,56,752 3. 2017-18 1,66,76,93,177 32,47,72,087 7,46,97,580 When the above proposition was appraised to the assessee in the SCN dated 10.12.2021 and 23.02.2022, the assessee objected, expressing that it is a settled legal proposition that a confession needs corroboration with evidence. Therefore, in the absence of any incriminating material, the confession cannot be taken as the sole basis for making the addition and relied on the decision of the Hon’ble Supreme Court in the case of M/s.Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Furthermore, it was contended that in the absence of incriminating evidence found in any seized record to support the addition made, the addition is not sustainable and various decisions were relied upon rendered by the Hon’ble High Courts which were precursors to the decision of the Hon’ble Supreme Court in the case of M/s.Abhisar Buildwell (supra). However, the contention of the assessee was not acceptable to the AO as according to the AO, any admission made based on the findings during the course of search constitutes valid evidence and that there is no provision to restrict assessments only to the seized materials found. Therefore, all the judicial decisions relied upon by the assessee, were rejected and the addition to total income as proposed for the year of Rs.7,46,97,580/- was made based on a fair estimate. The AO, suspected the source of capital introduced as ‘Subscription by M/s.Bholenath Merchants Pvt. Ltd.’(M/s.BMPL) and describing the schematic transactions involving the final infusion of capital, treated the contribution to capital as an unexplained credit u/s.68 and thus a sum of Rs.9,90,00,000/- was brought to tax under MMR rates. The assessee in the letter dated 15.03.2022 responded that M/s. Bholenath Merchants Pvt. Ltd. is identifiable and having creditworthiness, and no incriminating material/documents were found to support that the transactions are a sham. Therefore, the addition u/s.68 of the Act, according to the assessee was unsustainable. However, the AO on a finding that the directors of the investor company are the employees of the investee company and also other facts brought on record, made this addition of Rs.9,90,00,000/- u/s.68 r.w.s 115BBE of the Act.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 5.4 Aggrieved by these additions, the assessee preferred an appeal before the ld.CIT(A) and had submitted elaborate grounds of appeal and statement of facts. After examining the issues raised by the assessee against the order of assessment, the ld.CIT(A) found favour with the assessee and granted substantial relief, deleting all the additions made in the said assessment order. In respect of the first addition of GP on unaccounted sales though there were confessions about the existence of unaccounted sales, the retraction made by the assessee in respect of assessment years for A.Y.2020-21 and 2021-22 were not appropriately countered with corroborative evidence. Moreover, the ld.CIT(A) found that the concept of extrapolation is applicable only when corroborated with independent evidence and cannot be based on mere confession. Therefore, on the aspects of retraction and absence of independent evidence, the ld.CIT(A) relied on the decision of the Hon’ble Supreme Case of M/s.Pullangode Rubber Produce Co. Ltd. (supra.) which held that a statement even if retracted can be relied upon only if it is corroborated by independent evidence. According to the ld.CIT(A) though they were evidence to such effect in the form of loose sheets and WhatsApp messages indicating suppression of sales and unaccounted cash sales, the same are confined to one particular period only and not for the year under consideration. The loose sheets were unsigned and undated and therefore cannot be classified to possess credible corroborative evidence. The ld.CIT(A) also appreciated the fact that the AO is not empowered to estimate the taxable income, without rejection of books of accounts and having undertaken in contravention to the law laid down by the Hon’ble , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Jurisdictional High Court in the case of PCIT v. M/s. Marg Limited (2017)
7. TMI 1150 – Mad HC, the addition made on an estimated basis without rejection of the books of accounts is arbitrary. Finally, based on a finding that incriminating evidence pertaining to this addition is absent and thus placing reliance on the decision of the Hon’ble Apex Court in the case of M/s.Abhisar Buildwell (supra), the addition made of Rs.7,46,97,580/- computed on an estimated basis applying the principle of extrapolation, was directed to be deleted. On the issue of the unexplained credit u/s.68 of the Act relating to the share capital received from M/s.BMPL, appreciating the financial performance of the company, regular tax filings and ROC submissions consistent disclosure of profits, payment of taxes, genuine expenses being incurred, takeover of the Management by the assessee company, absence of any red flags raised by CBDT or Enforcement Directorate, the investor company was found to be creditworthy. The Ld.CIT(A) found that the investor is identifiable, creditworthy and the transactions are found to be genuine, supported by banking records and shareholder’s documents. Therefore, relying on the judicial precedent set by the Hon’ble Jurisdictional High Court in the case of M/s.Lalitha Jewellery Mart P Ltd. v. DCIT IN TCA Nos. 435-436 of 2013 dt.11.08.2017 which emphasized that when identity, creditworthiness and transaction genuineness are established, the burden shifts to the Department to investigate the investor. In the case under consideration, no evidence suggested that share transactions were a sham or involved black money and no further enquiries or investigations were made to establish the allegation made and therefore in the absence of any incriminating material, relying on the , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited decision of Abhisar Buildwell (supra.), rendered by the Hon’ble Apex Court, this addition u/s.68 of Rs.9,90,00,000/- was directed to be deleted. Accordingly, the assessee succeeded in gaining complete relief and aggrieved by such adverse decision of the ld.CIT(A) in favour of the assessee, the revenue filed this appeal and had submitted the grounds of appeal. 5.5 The ld.DR submitted that the Ld.CIT(A) has erred in law and on facts by deleting the addition of Rs.7,46,97,580/- made towards suppression of sales. The ld.CIT(A) held that the AO had wrongly extrapolated data to compute suppression for A.Y.2017-18 and that the addition was not supported by any incriminating material, particularly since the case was originally assessed u/s.143(3) of the Act. This finding is factually incorrect and legally unsustainable. The ld.CIT(A) failed to appreciate the key fact that the Managing Director and certain employees of the assessee had, during the course of the search, categorically admitted that suppression of sales was a regular and continuing practice in the business operations of the assessee. This admission was corroborated by material evidence and thus cannot be ignored. Further, the ld.DR stated that the ld.CIT(A) erred in accepting the retraction of these statements by the assessee without any cogent, credible, or legally acceptable basis. The retraction was not substantiated by any evidence, documentation, or plausible explanation, rendering it unreliable and self-serving. Further the ld.DR submitted that the ld.CIT(A) failed to consider the binding legal principle laid down by the Hon’ble Supreme Court in Surjeet Singh Chhabra v. Union of India [AIR 1997 SC 2560], wherein it was held that a confession, even if retracted, , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited continues to be an admission in law and binds the maker unless proven to be extracted through coercion or duress. No such claim was established in the present case. The ld.DR also submitted that ld.CIT(A) failed to consider the crucial fact that unaccounted cash was found and seized during the search, which further corroborates the suppression of sales. This physical evidence lends further credibility to the admission made by the assessee and its employees. In relation to the other ground, the ld.DR contended that the ld.CIT(A) had erred in deleting the addition of Rs.9,90,00,000/- made u/s.68 of the Act. This addition pertained to share capital allegedly received from M/s.Bholenath Merchants Pvt. Ltd. According to the ld. DR, the ld.CIT(A)’s decision was inconsistent with the evidence on record and failed to address key findings made by the Assessing Officer (AO). The ld.DR submitted that the ld.CIT(A) overlooked the detailed analysis provided by the AO, who had established that M/s. Bholenath Merchants Pvt. Ltd. functioned as a shell company. The AO had further shown that the assessee employed a multi-layered structure with the intent of channelling unaccounted funds into the company’s books in the form of share capital. Although the assessee claimed to have received genuine investment, the ld.CIT(A) failed to note the absence of any financial statements of M/s.Bholenath Merchants Pvt. Ltd. This lack of documentation cast serious doubt on both the genuineness and the creditworthiness of the investor company. Additionally, during on-site verification, the authorities found that the addresses provided for the relevant entities did not correspond to any actual operational premises— strongly suggesting that these companies were non-existent, thereby serving as direct and substantive evidence against their legitimacy. , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Furthermore, the investigation revealed that the directors of M/s.Bholenath Merchants Pvt. Ltd., M/s.Anilabh Vinimay Pvt. Ltd., and M/s.Wakeeta Vyapaar Pvt. Ltd. were merely salaried employees of the KAG Group. Alarmingly, they were unaware of their directorships, indicating that these entities were merely front companies used to provide accommodation entries. The actual source of the funds, therefore, remained undisclosed and unexplained. In light of the above, the ld.DR prays that the findings of the ld.CIT(A) be set aside, and the additions made by the AO be restored in full. 5.6 Per contra the ld.AR for the assessee submitted that without rejecting the books of accounts u/s.145(3) of the Act, the AO cannot proceed to estimate the GP based on the succeeding years’ admission of income. The audited books furnished by the assessee was not challenged by the AO. The AO erred in extrapolating the sales for the year without any corroborative evidence and only on the basis of sworn statement made during the search operations. The decision of this Tribunal in the case of Mr.A.Sivashankar Vs.DCIT in to 620/Chny/2017 held that although the extrapolation may be permitted to extrapolate for the month or the year based on broken period information. However the AO is strictly prohibited to extrapolate it for other period covered in the block. Further the ld.AR stated that no details of unaccounted sales for the year under consideration was found. It is a settled legal position that the confession needs corroboration with evidence. The ld.AR stated that though the admission is an important piece of evidence, but it is not conclusive. It is sine qua non that some incriminating material must have , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited been found during the search to correlate with the undisclosed income. In support of his arguments the ld.AR relied upon the following decisions: - M/s.Pullangode Rubber Produce Co. Ltd.v.State of Kerala(1973)91ITR18. - CIT Vs. Kabul Chawla [2016] 380 ITR 573 (Delhi HC) - PCIT Vs.Soumya constructions pvt. Ltd. (Guj HC) - CIT Vs.Jayaben Ratilal Sorathia [2014] 222 taxman 622 (Guj HC) The ld.AR further contended that the original assessment u/s.143(3) had already been completed on 27.06.2016 and the search took place in February 2021, which clearly reflects that no assessment was pending on the date of search operations and no proceedings have abated on the date of search. Therefore, in the case under consideration, as stated earlier, there is no incriminating evidence to support that a portion of the sales made during the year is unaccounted. In such a situation, the decision rendered by the Delhi High Court in the case of Principal Commissioner of Income-tax, Delhi-2 vs. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi) together with the decision of the Hon’ble Supreme in the case of M/s.Abhisar Buildwell (supra.) rally in favour of the assessee. The ld.AR on the issue of share capital of Rs.9.90 Crores received from M/s.BMPL made an addition u/s.68 of the Act, submitted the details of address, bank statement showing the fund flow, share transfer register, financial performance of the company, source of funds have been submitted before the lower authorities. The ld.AO failed to understand the meaning of shell company and the fully operative company. Furthermore the ld.AR submitted no new information/data, evidence were found during the course of the search to treat the same as not genuine transaction to consider it as incriminating. The Ld.CIT(A) has , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited rightly found that the investor is identifiable, creditworthy and the transactions are found to be genuine, supported by banking records and shareholder’s documents. Therefore, relying on the judicial precedent set by the Hon’ble Jurisdictional High Court in the case of M/s.Lalitha Jewellery Mart P Ltd. v. DCIT IN TCA Nos. 435-436 of 2013 dt.11.08.2017 which emphasized that when identity, creditworthiness and transaction genuineness are established, the burden shifts to the Department to investigate the investor. In the case under consideration, no evidence suggested that share transactions were a sham or involved black money and no further enquiries or investigations were made to establish the allegation made and therefore in the absence of any incriminating material, relying on the decision of Abhisar Buildwell (supra), rendered by the Hon’ble Apex Court, this addition u/s.68 of Rs.9,90,00,000/- was directed to be deleted by the ld.CIT(A). Therefore, ld.AR prayed for confirming the decision of the ld.CIT(A) held in favour of the assessee. 5.7 We have heard the rival contention perused the materials available on record and gone through the order of the lower authorities along with the paper book filed by the assessee and case laws relied on. On examining the contents of the assessment record, it remains undisputed that despite lack of incriminating evidence relating to the issue under consideration, the addition has been determined based on an estimate applying the concept of ‘extrapolation’ and also that evidence of having suppressed sales supported by incriminating evidence is available for assessment years 2020-21 and 2021-22.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited - Firstly, even in the absence of any incriminating evidence, whether the confession made u/s.132(4) is sufficient to make the addition and can the retraction made subsequently be ignored by the AO. - Secondly, further intrigue in the case under consideration is whether the principle of determining the taxable income based on an estimate by applying the principle of extrapolation from the statistics of the subsequent years is untenable under the provisions of the Income- tax law or otherwise. It is undeniable that from the statements of employees at various branches of the assessee company and affirmed by the MD, that the assessee was engaged in suppression of sales and the profits earned had got translated into cash found and seized at the time of search. However, the admission was reaffirmed through the ROI filed only for A.Ys.2020-21 and 2021-22, while the disclosure made in respect of the three preceding years were retracted. On verification of the contents of the branch-wise description which showcases the unaccounted sales, it is evident that the same is confined to A.Y.2020-21 and 2021-22 only and not before. Therefore, when the retraction was made, the AO is duty-bound to controvert the statement of retraction, by examining the assessee and countering the claim through appropriate corroborative evidence, against the assessee. This principle has been laid down to be an essential feature to be followed in case of retraction by the Hon’ble Supreme Court in the case of M/s.Mehta Parrikh (1956) 30 ITR 181. However, the facts stated in it were neither controverted nor disproved by the AO and an examination of the assessee was never undertaken. Therefore, the retraction made by the assessee gets sanctified. However, the addition made is capable to withstand the test of this appeal, if the same finds , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited support from incriminating evidence unearthed as a result of search, to corroborate the finding of the AO. It is also an admitted fact that no such evidence was detected as a result of the search to accentuate the claim of the AO and therefore, the order of assessment is impoverished. Further, in the light of the circular of CBDT vide F.No.286/98/2013-IT (Inv.II) dated 18.12.2014 “Admissions of Undisclosed Income under coercion/pressure during Search/Survey, Government of India, Ministry of Finance Department of Revenue, Central Board of Direct Taxes”, duly acknowledge the plight of the assessee during the course of search and subsequent retraction is an example of deemed coercion. Therefore, we are of the considered view that the action of the revenue authorities in obtaining surrender of income that too under duress is against the circulars of the CBDT which are binding upon them. This has been considered and judicial noticed by the various Hon’ble courts and Tribunals. Hence the surrender obtained from the assessee was illegal and addition made on the basis of such surrender is unlawful and deserves to be deleted. On the issue of applying the principle of extrapolation from evidence available in the latter years, the courts have repeatedly rejected the idea of estimating income for earlier years based solely on later year evidence, unless there is a clear nexus between the seized material and the earlier year and the seized material covers that period or shows continuity. We find that in the case under consideration, these factors are absent and furthermore, the incriminating evidence relevant for the year under consideration is grossly missing. The facts are similar to that of the decision of the Hon’ble High Court of Gujarat in the case of Principal Commissioner of Income-tax vs. Shri Pushkar Construction Co. [2023] , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 154 taxmann.com 22 (Gujarat) wherein it upheld the decision of the Tribunal as under: "No clinching evidence of receipt of on-money on the entire sales made by the appellant is found in the absence of which extrapolation of income simply based on few flimsy instances is not sustainable."
Further we note that the cash found at the time of search have been disclosed and offered to tax in the ROI filed in response to the notice u/s.153A for A.Y. 2021-22 sourced out of profits on unaccounted sales for that year and therefore the existence of unaccounted cash found at the time of search has no bearing on the addition made on an estimated basis during the year under consideration applying the principle of extrapolation. Moreover, we observed that in the case under consideration, as stated earlier, there is no incriminating evidence to support that that a portion of the sales made during the year is unaccounted. In such a situation, the decision rendered by the Delhi High Court in the case of Principal Commissioner of Income-tax, Delhi-2 vs. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi) together with the decision of the Hon’ble Supreme in the case of M/s. Abhisar Buildwell (supra.) rally in favour of the assessee. When the principle of extrapolation is objected at its core, we are of considered view that the principle of estimating the income does not arise and therefore there is no reason to interfere with the conclusion drawn by the ld.CIT(A). Therefore, we are dismissing the grounds of appeal in Nos. 2, 2.1 to 2.4 of the Revenue.
5.8 The next ground before us is addition of Rs.9.90 Crores u/s.68 of the Act deleted by the ld.CIT(A). The assessee during the assessment , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited proceedings had submitted the details of address, bank statement showing the fund flow, share transfer register, financial performance of the company, source of funds in support of the capital invested by M/s.BMPL. We note that the AO, in treating M/s.BMPL as a shell company and the corresponding investment in share capital as a sham transaction, failed to appreciate the distinction between a non-operational (shell) company and a fully functional business entity. Merely describing the structure of a transaction without corroborating incriminating material does not meet the threshold required under law to invoke section 68 of the Act. The ld.AR rightly submitted that no fresh material, evidence, or incriminating data was unearthed during the course of the search that would render the share capital transaction non-genuine or constitute incriminating evidence. The ld.CIT(A), after due consideration, correctly held that the investor company is identifiable, creditworthy, and the transaction is genuine, as supported by banking records, corporate filings, and shareholder documentation. We find that the reliance was appropriately placed by the ld.CIT(A) on the binding precedent laid down by the Hon’ble Jurisdictional High Court in M/s.Lalitha Jewellery Mart Pvt. Ltd. v. DCIT [TCA Nos. 435–436 of 2013, dated 11.08.2017], wherein it was held that once the assessee discharges the initial burden by establishing identity, creditworthiness, and genuineness of the transaction, the onus shifts to the Department to make further investigation into the source of funds with the investor. In the present case, we are of the view that the revenue has failed to discharge the shifted burden. No concrete evidence has been brought on record to demonstrate that the share subscription received from , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited M/s.BMPL was not genuine or that the funds were from unexplained sources. The AO’s conclusion branding M/s.BMPL as a shell company is not supported by any cogent evidence. On the contrary, the ld.CIT(A), after evaluating the cash flow statements, ledger accounts of current assets for the period 01.04.2016 to 31.07.2016, and the pattern of investments during the relevant period, found that M/s.BMPL was engaged in actual financial activity, thereby negating the shell company allegation. The ld.CIT(A) has also placed reliance on the decision of the Mumbai Bench of the ITAT in ITO v. Sringeri Technologies Pvt. Ltd. [ITA No. 3924/Mum/2014, A.Y. 2010–11], wherein it was held that when an investor company is active on the records of the Registrar of Companies, has not been struck off, and its balance sheet reflects substantial reserves and surplus, such a company cannot be mechanically classified as a shell entity. Additionally, the absence of any adverse findings or action initiated by regulatory or investigative agencies such as the CBDT, ED, further substantiates the ld.CIT(A)’s conclusion that there exists no adverse inference against M/s.BMPL. We find that no reason to interfere with the well-reasoned findings of the ld.CIT(A), especially in light of compliance with the tripartite test of identity, creditworthiness, and genuineness laid down by the Hon’ble High Court in Lalitha Jewellery (supra). Once these conditions are fulfilled, and the burden shifts to the revenue, which has not been duly discharged, any addition u/s.68 of the Act becomes unsustainable in law. The AO’s failure to establish a direct nexus between the credit entry and any unaccounted income further weakens the foundation of the impugned addition. We also draw the support from the judgment of the Hon’ble Supreme Court in CIT v. Orissa , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Corporation (P.) Ltd. [(1986) 25 Taxman 80 (SC)], where it was held that once the assessee provides basic evidence and the revenue fails to pursue further inquiries, the burden of proof stands discharged as detailed below: “The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise.”
In the present case, by providing detailed financials, cash flow analysis, and other supporting records, the assessee has successfully demonstrated that BMPL possessed the financial capability to make the investment in question. Finally, it is noted that no material found during the search, nor any document seized, has been shown to contain evidence classifying BMPL as a shell entity. In the absence of such incriminating material, and in view of the principle laid down by the Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (supra), the impugned addition u/s.68 of the Act must necessarily fail on legal grounds as well.
5.9 In view of the above reasoning and findings we dismiss the ground Nos.3, 3.1 to 3.4 of appeal of the revenue. 6.
A.Y.: 2018-19: For the year under consideration, the assessee had filed Return of income u/s.139(1) of the Act admitting a total income of , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Rs.4,42,15,740/-. Consequent to the action u/s.132 of the Act, the assessment was reopened for the first time by issue of notice u/s.153A of the Act. Subsequently, the order u/s.143(3) r.w.s 153A of the Act was passed arriving at a taxable income of Rs.11,40,72,492/- after making an addition of Rs.6,98,56,752/-. The search action revealed that there were suppression in sales which resulted in undisclosed profits. Initially, based on the deposition of the employees, the MD of the assessee company had disclosed an additional income of Rs.5.00 crores for the year but the same was later retracted since the same was not backed by any evidence unearthed as a result of search. During the course of scrutiny proceedings, the AO did not accept the retraction and applying the component of unaccounted sales as percentage of the total sales in A.Y.2020-21, and the gross profit for that year, estimated the unaccounted sales for these three assessment years (2017-18 to 2019-20). In A.Y.2020-21, the total accounted sales was Rs.165.00 crores and the unaccounted sales was Rs.32.00 crores. By extending the same proportion on the accounted sales for these three assessment years and the GP for A.Y. 2020-21, the estimated gross profit on the estimated unaccounted sales was determined as per the tabulation below: Sl. No. AY Total accounted Estimated Estimated GP on sales as per books unaccounted unaccounted sales to sales the total sales (23% on unaccounted sales) 1. 2019-20 1,73,80,88,113 33,84,81,030 7,78,50,637 2. 2018-19 1,55,96,17,183 30,37,25,010 6,98,56,752 3. 2017-18 1,66,76,93,177 32,47,72,087 7,46,97,580 , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited When the above proposition was appraised to the assessee in the SCN, the assessee objected, expressing that it is a settled legal proposition that a confession needs corroboration with evidence. Therefore, in the absence of any incriminating material, the confession cannot be taken as the sole basis for making the addition and relied on the decision of the Hon’ble Supreme Court in the case of M/s. Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18. Furthermore, it was contended that in the absence of incriminating evidence found in any seized record to support the addition made, the addition is not sustainable and various decisions were relied upon rendered by the High Courts which were precursors to the decision of the Supreme Court in the case of M/s. Abhisar Buildwell (supra). However, the contention of the assessee was not acceptable to the AO as according to the AO, any admission made based on the findings during the course of search constitutes valid evidence and that there is no provision to restrict assessments only to the seized materials found. Therefore, all the judicial decisions relied upon by the assessee, were rejected and the addition to total income as proposed of Rs.6,98,56,752/- was made based on a fair estimate. 6.1 Aggrieved by these additions, the assessee had preferred an appeal and had submitted elaborate grounds of appeal and statement of facts. After examining the issues raised by the assessee against the order of assessment, the ld.CIT(A) found favour with the assessee and granted substantial relief, deleting all the additions made in the said assessment order, implementing the exact finding on the identical issue in the order passed u/s.250(6) for A.Y. 2017-18.
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 6.2 Aggrieved by the relief granted in favour of the assessee, the Revenue preferred an appeal before us with the following grounds of appeal:
1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law.
2. The Ld. CIT(A) erred in deleting the addition of Rs.6,98,56,572/- made towards the suppression of the sales on the ground that the AO wrongly extrapolated the date for a period to make addition for A.Y. 2018-19. 2.1 The Ld. CIT(A) erred in not appreciating the fact that the Managing Director and employees of assessee had admitted that suppression of sales was a regular practice and not restricted to two years. 2.2 The Ld. CIT(A) erred in holding the retraction of statement as valid although the retraction was not based on any proven reason. 2.3 The Ld. CIT(A) erred in not appreciating the fact that in Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560, the Supreme Court observed that a confession, even if retracted, is an admission and it binds the maker. 2.4 The Ld. CIT(A) erred in not appreciating the fact that Unaccounted Cash had also been found and seized during the search further corroborating the above findings.
3. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored. 6.3 On careful consideration of the facts of the case, it is evident that the issue under consideration, is exactly similar to that of A.Y.2017-18. In A.Y.2017-18, the same concept of determination of income on an estimated basis applying the principle of extrapolation was adopted by the AO, which has been subsequently deleted by the ld.CIT(A). Therefore, all other factors which had determined the course of adjudication in A.Y.2017-18 are squarely prevalent for the year under consideration and guided by the findings in the order passed for that 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited year. Hence, the order of ld.CIT(A) which directed to delete the addition of Rs.6,98,56,572/- made u/s.68 of the Act in the order u/s.143(3) r.w.s 153A of the Act dated 27.11.2024 is upheld by dismissing the corresponding grounds raised by the revenue.
7. A.Y.: 2019-20 7.1 For the year under consideration, the assessee had filed its return of income u/s.139(1) of the Act admitting a total income of Rs.7,58,09,480/-. Consequent to the action u/s.132 of the Act, the assessment was reopened for the first time by issue of notice u/s.153A of the Act. Subsequently, the order u/s.143(3) r.w.s 153A of the Act was passed arriving at a taxable income of Rs.15,39,26,882/- after making an addition of Rs.7,78,50,637/-. The search action revealed that there were suppression in sales which resulted in undisclosed profits. Initially, based on the deposition of the employees, the MD of the assessee company had disclosed an additional income of Rs.5.00 crores for the year but the same was later retracted since the same was not backed by any evidence unearthed as a result of search. During the course of scrutiny proceedings, the AO did not accept the retraction and applying the component of unaccounted sales as percentage of the total sales in A.Y.2020-21, and the gross profit for that year, estimated the unaccounted sales for these three assessment years. In A.Y.2020-21, the total accounted sale was Rs.165.00 crores and the unaccounted sales was Rs.32.00 crores. By extending the same proportion on the accounted sales for these three assessment years and the GP for A.Y.2020-21, the estimated gross profit on the estimated unaccounted sales was determined as per the tabulation below:
, 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Sl. No. AY Total accounted Estimated Estimated GP on sales as per books unaccounted unaccounted sales to sales the total sales (23% on unaccounted sales) 1. 2019-20 1,73,80,88,113 33,84,81,030 7,78,50,637 2. 2018-19 1,55,96,17,183 30,37,25,010 6,98,56,752 3. 2017-18 1,66,76,93,177 32,47,72,087 7,46,97,580 When the above proposition was appraised to the assessee in the SCN, the assessee objected, expressing that it is a settled legal proposition that a confession needs corroboration with evidence. Therefore, in the absence of any incriminating material, the confession cannot be taken as the sole basis for making the addition and relied on the decision of the Hon’ble Supreme Court in the case of M/s. Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18. Furthermore, it was contended that in the absence of incriminating evidence found in any seized record to support the addition made, the addition is not sustainable and various decisions were relied upon rendered by the High Courts which were precursors to the decision of the Supreme Court in the case of M/s. Abhisar Buildwell (supra). However, the contention of the assessee was not acceptable to the AO as according to the AO, any admission made based on the findings during the course of search constitutes valid evidence and that there is no provision to restrict assessments only to the seized materials found. Therefore, all the judicial decisions relied upon by the assessee, were rejected and the addition to total income as proposed for the year of Rs.7,78,50,637/- was made based on a fair estimate. Aggrieved by these additions, the assessee had preferred an appeal and had submitted elaborate grounds of appeal and , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited statement of facts. After examining the issues raised by the assessee against the order of assessment, the ld.CIT(A) found favour with the assessee and granted substantial relief, deleting all the additions made in the said assessment order, implementing the exact finding on the identical issue in the order passed u/s.250(6) for A.Y.2017-18. 7.2 Aggrieved by the relief granted in favour of the assessee, the Revenue had preferred an appeal before us with the following grounds of appeal:
1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law.
2. The Ld. CIT(A) erred in deleting the addition of Rs.7,78,50,637/- made towards the suppression of the sales on the ground that the AO wrongly extrapolated the date for a period to make addition for A.Y.2019-20. 2.1 The Ld. CIT(A) erred in not appreciating the fact that the Managing Director and employees of assessee had admitted that suppression of sales was a regular practice and not restricted to two years. 2.2 The Ld. CIT(A) erred in holding the retraction of statement as valid although the retraction was not based on any proven reason. 2.3 The Ld. CIT(A) erred in not appreciating the fact that in Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560, the Supreme Court observed that a confession, even if retracted, is an admission and it binds the maker. 2.4 The Ld. CIT(A) erred in not appreciating the fact that Unaccounted Cash had also been found and seized during the search further corroborating the above findings.
3. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored. 7.3 On careful consideration of the facts of the case, it is evident that the issue under consideration, is exactly similar to that of A.Y.2017-18. In A.Y.2017-18, the same concept of determination of income on an estimated basis applying the principle of extrapolation was adopted by , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited the AO, which has been subsequently deleted by the ld.CIT(A). Therefore, all other factors which had determined the course of adjudication in A.Y.2017-18 are squarely prevalent for the year under consideration and guided by the findings in the order passed for that year. Hence, the order of ld.CIT(A) which directed to delete the addition of Rs. 7,78,50,637/- made u/s.68 of the Act in the order u/s.143(3) r.w.s 153A of the Act dated 27.11.2024 is upheld by dismissing the corresponding grounds raised by the revenue.
8.1 Now, we take up the appeal for Assessment Year 2021-22 (Assessment relating to the year of search), out of an order passed by the ld.CIT(A) on 05.12.2024, in the matter of an assessment framed by the AO u/s.143(3) of the Act on 25.03.2022. The grounds as raised by the revenue are as under:
1. 1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law.
2. The Ld. CIT(A) erred in deleting addition of Undisclosed Income from undisclosed sales amounting to Rs.76,42,254/- on the ground that the assessing officer estimated the profits arbitrarily at 26% for Financial Year 2020-21 relevant to Assessment Year 2021-22 as against GP rate of 24% based on assessee’s own projections without taking into account the undisclosed sales and expenses found during the search.
3. The Ld.CIT(A) erred in deleting the addition of Undisclosed cash u/s.69A of the Act Rs.8,62,22,740/- without appreciating that the assessee failed to establish beyond doubt that cash balances were available in the books of accounts on the date of search. & in the absence of clear evidence that cash was out of undisclosed sales, the cash of Rs.8,62,22,740/- found has to be assessed as income from unexplained sources and attracts higher tax rate u/s.69A.
4. The Ld. CIT(A) erred in deleting the addition on account of share capital of Rs.5,58,00,000/- received from M/s. Bholenath Merchants Pvt. Ltd. u/s.68 , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited without appreciating that M/s.Bholenath Merchants Pvt. Ltd. added a shell company and the assessee had introduced a structure for routing unaccounted money back in the form of unexplained capital.
The Ld. CIT(A) erred in recording the finding that there was no incriminating evidence found during search leading to the addition made u/s.68 of the IT Act in the case of the assessee is also incorrect as during the course of search and seizure u/s.132(1) of the IT Act in the case of M/s. KAG India P Ltd and others, search warrants were issued to the companies, M/s.Bholenath Merchants P.Ltd, M/s.Anilabh Vinimay Pvt. Ltd. and M/s.Wakeeta Vyapar Pvt. Ltd. but with the search teams visited their addresses, none of the companies were found to exist at these places.
6. The Ld. CIT(A) erred in not observing that the findings in the case was arrived at was on account of search proceedings & ratio of the decision of the Hon’ble Madras High Court in the case of Lalitha Jewellery Mart P Ltd. v. DCIT in TCA nos.435 & 436 of 2023 dated 11.08.2017 is not applicable in the case of the assessee.
For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored.
The assessee company was covered by a search action u/s.132 of the Act and the return of income u/s.139(4) was filed on 02.03.2022 admitting a total income of Rs.25,28,73,334/-. The return of income was taken up for scrutiny and the order u/s.143(3) of the Act was passed on 25.03.2022 arriving at a taxable income of Rs.40,25,38,328/-. An action u/s.132 of the Act was undertaken in the assessee group of cases on 26.02.2021 and subsequent to the centralization, the Return of Income filed on 02.03.2022 was taken up for compulsory scrutiny. Subsequently, notices u/s.142(1) were issued and the order of assessment u/s.143(3) of the Act was passed on 25.03.2022 by the DCIT, Central Circle-2(1), Chennai arriving at a total income of Rs.40,25,38,328/-. The additions to total income included the undisclosed cash found at the time of search of Rs.8,62,22,740/- brought to tax u/s.69A of the Act, , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited additional undisclosed income in respect of ‘unaccounted sales’ of Rs.76,22,254/- and share capital received from M/s.Bholenath Merchants Pvt. Ltd., added u/s.68 of the Act of Rs.5,58,00,000/- on it being treated as unexplained credit. In the course of search, cash was found and seized at different premises covered by the action u/s.132 of the Act and the sum of all such seizures sums up to Rs.8,62,22,740/- and the same is not in dispute. The assessee by providing the extracts from the regular books of accounts, attempted to explain that the book balances of the company as on the date of search stands at Rs.1,37,30,612/-. In respect of the balance, the assessee explained that the same is accumulated out of income generated from unaccounted sales made during F.Y.2019-20 and 2020-21, and the particulars of such additional income offered to tax in the return filed subsequent to the search action are as under: S. No. FY AY Undisclosed Income accepted 1. 2020-21 2021-22 9,17,07,058 2. 2019-20 2020-21 7,09,63,795 Having offered the same to tax as undisclosed income for A.Ys.2020-21 and 2021-22, according to the assessee, the source in respect of the entire cash found is explained. However, the AO did not accept the claim, graded the same as an afterthought and brought the entire sum of Rs.8,62,22,740/- to tax u/s.69A r.w.s. 115BBE of the Act. For the year under consideration, the total quantum of unaccounted sales unearthed as a result of search is Rs.38,21,12,742/-. Applying a GP , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Margin of 24%, the value as per the financials an additional income of Rs.9,17,07,058/- was determined and offered to tax in the return of income filed for A.Y.2021-22. The AO estimated the GP Margin on such unaccounted sales by substituting the value of 26% instead of 24% and the differential sum of Rs.76,42,254/- was additionally brought to tax. The introduction of capital by M/s.BMPL has been added as income which is a repeat of a similar addition made for the A.Y.2017-18 by treating the investor M/s.BMPL as shell company. Following the details made to classify the transactions to be sham in the order of assessment passed for A.Y.2017-18, by exactly reproducing the content of that order, the quantum of capital infused during the year of Rs.5,58,00,000/- was brought to tax by treating the same as unexplained credit u/s.68 r.w.s 115BBE of the Act. 8.2 The ld.CIT(A) found that the assessee was in possession of accounted cash balance as per book as on the date of search of Rs.1,37,30,612/- and provided credit towards the same, the quantum to such extent was classified as ‘explained’ and excluded the same from the purview of taxation u/s.69A of the Act. In respect of the balance sum of Rs.7,24,92,128/- the ld.CIT(A) appreciated the fact that the additional income offered for the year being a sum of Rs.9,17,07,058/- stands higher and including that of the disclosure made for A.Y.2020-21 of Rs.7,09,63,792/-, it stands even higher and therefore the source of cash found at the time of search is explained for the purpose of Income-tax and therefore directed the AO to delete the addition of Rs.8,62,22,740/-. Further, on the issue of estimating the profit on unaccounted sales by applying the margin of 26% instead of 24% (as per regular books of the , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited assessee), relying on the decision of the Madras High Court in the case of Marg Limited (supra), the ld.CIT(A) held that estimation without rejecting the books of accounts of the assessee is not permitted u/s.143(3) of the Act and hence the computation of additional income by enhancing the GP to 26% as against 24% adopted by the assessee did not find favour and the differential sum added on this account by the AO of Rs.76,42,254/- was directed to be deleted. On the last issue of treating the investor M/s.BMPL as a shell company and the transaction to be a sham, the ld.CIT(A) reproduced their finding in the order u/s.250(6) passed for A.Y.2017-18 in verbatim, and directed the AO to delete the addition of Rs.5,28,00,000/- made u/s.68 of the Act. Aggrieved by the relief granted by the ld.CIT(A), the revenue preferred an appeal. 8.3 The ld.DR assailing the action of the Ld.CIT(A) submitted that the ld.CIT(A) has erred in deleting the addition of Rs.76,42,254/- towards undisclosed income from unreported sales. The AO’s estimation of profit at 26% for F.Y.2020-21 (A.Y.2021-22), though marginally higher than the assessee’s projected GP rate of 24%, was based on material found during the search revealing undisclosed sales and expenses. The Ld.CIT(A) failed to appreciate that the AO’s estimation was not arbitrary but was grounded in seized evidence, and that the GP rate derived from disclosed books is not automatically applicable to undisclosed transactions involving unaccounted income and expenditure. Further the ld.DR submitted that the Ld.CIT(A) erred in deleting the addition of Rs.8,62,22,740/- made u/s.69A of the Act without duly considering that the assessee failed to establish with credible and corroborative evidence that such cash was recorded in the books of , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited account as on the date of search. In the absence of a direct nexus between the seized cash and the alleged undisclosed sales, the entire cash should be assessed as unexplained income u/s.69A, warranting higher taxation as per law. In respect of deleted addition of Rs.5,58,00,000/- made u/s.68 of the Act, the ld.DR prayed for adopting the same arguments made for the addition in the A.Y.2017-18 (supra). 8.4 Per contra the ld.AR relied on the submissions made before the ld.CIT(A) and findings in the order of the ld.CIT(A) and prayed for affirming the findings of the ld.CIT(A). 8.5 We have heard the rival contentions perused the material available on record and gone through the orders of lower authorities along with the paper books and case laws relied on. With regard to the treatment of cash found and seized of Rs.8,62,22,740/-, it is an undisputed fact that the quantum of undisclosed income offered as a result of search for A.Y.2020-21 and 2021-22 that corresponds to the profit earned on unaccounted sales is exceeds the quantum of cash found. Therefore, the benefit of telescoping of income has to be provided and by doing so, when such income is already offered to tax, the necessity to tax the application of such income represented in the form of cash found and seized, does not arise. The said argument of the ld.AR is judicially accepted in the case of Anantharam Veerasinghaiah & Co. v. CIT (1980) 123 ITR 457 (SC), is in effect, a theory of probability or inference which is applied in order to avoid taxing the same income twice – once on earning and then on utilizing / expending it. The theory of telescoping is applied keeping in view the well-established canon of taxation that the same income cannot be taxed twice. Accordingly, the direction of the 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited ld.CIT(A) to delete the addition made by the AO of Rs.8,62,22,740/- cannot be found faulted and hence the same is upheld. On the aspect of whether such cash found and seized is to be brought to tax under the normal provisions of tax or under the tax applicable as per the provisions of Section 115BBE, while it is evident that the cash was sourced out of income generated from unaccounted sales, now offered to tax, there is no principle to apply the provisions of Section 69A r.w.s 115BBE and this additional income has to necessarily be brought to tax under the head income from business i.e. u/s.28 of the Act only. The Hon’ble Delhi High Court in the case of Radhika Creations dated 30/04/2010 had held that when the transactions relate to business affairs, there is no question of invoking the special provisions substituting the application of normal provisions of the Act. Therefore, when the direct nexus between the source of cash as out of business activity although unaccounted with that of the cash found is established, the income offered to tax has to be taxed as business income only and not otherwise. Accordingly, the corresponding grounds of appeal of the Revenue are dismissed. In respect of the other addition on account of estimating the income by applying the GP Margin @ 26% instead of 24% adopted by the assessee, the assessment order does not even attempt to throw light on the reason to substitute a higher margin as compared to the margin adopted by the assessee. In all the preceding assessment years, the AO has applied a GP Margin of 23% and for the year under consideration the assessee has offered a higher profit applying a GP margin @ 24% in the return filed. Therefore, there is no reason to substitute the same. , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited Furthermore, even if the AO finds some rationale to disturb the gross profit percentage, the same cannot be undertaken without rejecting the books of account. In the case in hand, the books of accounts have not been rejected and therefore the ld.CIT(A) was right in upholding the grounds of appeal of the assessee, while the law laid by the jurisdictional High Court in the case of M/s.Marg Limited (supra) stood violated. In light of the above discussion and reasoning, the corresponding grounds of appeal of the Revenue are rejected by confirming the order of the ld.CIT(A). 8.6 The next addition made u/s.68 treating M/s.BMPL as a ‘shell company’, the issue has been elaborately dealt with in this order, while adjudicating the issue on the similar facts and circumstances for the A.Y.2017-18. Since the facts and issues are identical to that of A.Y.2017- 18, the principle and rationale followed in that finding (supra) are enforced for the year under consideration (A.Y.2021-22) and accordingly, the corresponding grounds of appeal of the Revenue are dismissed by upholding the order of the ld.CIT(A). 8.7 In the result, all the six appeals being to 325 and 632/Chny/2025 of the revenue are stands dismissed. Order pronounced on the 29th day of Aug 2025, in Chennai.
Sd/- Sd/- (मनु कुमाि गिरि) (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) (MANU KUMAR GIRI) न्याययक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनांक/Dated: 29th Aug 2025. KB/- , 323, 324, 325, 321 & 632/Chny/2025 (AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22) KAG India Private Limited 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकरआयुक्त/CIT, Chennai / Madurai / Salem / Coimbatore. 4. विभागीयप्रविविवि/DR 5. गार्डफाईल/GF