DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. KAG INDIA PRIVATE LIMITED, CHENNAI

आयकर अपीलीय अधिकरण ’सी’ न्यायपीठ, चेन्नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
‘C’ BENCH: CHENNAI

माननीय श्री मनु कुमार गिरि, न्यागयक सदस्य एवं माननीय श्री एस.आर.रघुनाथा ,लेखा सदस्य के समक्ष ।
BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.322/Chny/2025, A.Y.: 2014-15
आयकर अपील सं./ITA No.323/Chny/2025, A.Y.: 2015-16
आयकर अपील सं./ITA No.324/Chny/2025, A.Y.: 2017-18
आयकर अपील सं./ITA No.325/Chny/2025, A.Y.: 2018-19
आयकर अपील सं./ITA No.321/Chny/2025, A.Y.: 2019-20
आयकर अपील सं./ITA No.632/Chny/2025, A.Y.: 2021-22

Deputy Commissioner of Income
Tax,
Central Circle-2(1),
Chennai v.
KAG India Private Limited,
No.264/15-1, Sathiyanathan
Complex, Velachery Road
East, Tambaram,
Chennai-600 059. [PAN: AADCK5381Q]
(अपीलार्थी/Appellant)

(प्रत्यर्थी/Respondent)

अपीलार्थी की ओर से/ Appellant by :
Mr.Bipin C.N, CIT
प्रत्यर्थी की ओर से /Respondent by :
Mr.Y.Sridhar, FCA,
सुनवाईकीतारीख/Date of Hearing
:
08.07.2025
घोषणाकीतारीख /Date of Pronouncement
:
29.08.2025

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. ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
(AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22)
KAG India Private Limited
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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

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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 juri iction 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 ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
(AY 2014-15, 2015-16, 2017-18, 2018-19, 2019-20 & 2021-22)
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“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.

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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

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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

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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 ITA No.2346/CHNY/2024
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

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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 Juri ictional 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.

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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.

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.

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minimal assets and no credible sources of funds that could justify these investments.

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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

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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 sales as per books
Estimated unaccounted sales
Estimated GP on unaccounted sales to 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. ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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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.

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Juri ictional 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 Juri ictional 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 ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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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,

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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.

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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 ITA No.617 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 ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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been found during the search to correlate with the undisclosed income.
In support of his arguments the ld.AR relied upon the following decisions:
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M/s.Pullangode Rubber Produce Co. Ltd.v.State of Kerala(1973)91ITR18. -
CIT Vs. Kabul Chawla [2016] 380 ITR 573 (Delhi HC)
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PCIT Vs.Soumya constructions pvt. Ltd. (Guj HC)
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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 ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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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 Juri ictional 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. ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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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.
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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

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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]

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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.

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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 Juri ictional 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 ITA No.322, 323, 324, 325, 321 & 632/Chny/2025
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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