SUNDARAM SANKAR ANAND,KARUR vs. ASSISTANT COMMISSIONER, COIMBATORE

Particulars AY AY AY AY AY AY AY (Amount in Rs.) 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Trade creditors 28,75,856 15,05,500 2,20,78,050 2,10,22,826 3,53,73,824 - - treated as unexplained cash credit u/s.68 Gift received from 25,00,000 20,00,00 - - - - - father treated as unexplained cash credit u/s.68 Agricultural income - - - - 7,00,000 - - treated as ‘Income from other sources’ Disallowance of - - - - 2,13,48,672 - wages Unexplained - - - - - - 9,58,885 investment in jewellery Unexplained - - - - - - 73,25,679 investment in immovable property

“7.3.2 Hon’ble supreme court in case of PCIT Vs Abhisar Build well Pvt Ltd, Civil appeal 6580 of 2022 dated 24-04-2023 has adjudicated issue of whether addition on account of ‘other information’/ information in ROI but not linked to incriminating material found during search can be made. Hon’ble Apex court vide para 14 (iii) held that in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; ” Thus Hon’ble supreme court held that if for a particular year, incriminating material is found, then AO can make addition to 2853/Chny/2024, 2911 to 2913/Chny/2024 basing on incriminating material and also other information available in the return of Income. 7.3.3 Coming back to question whether any incriminating material was found during search in case of appellant, Incriminating material need not necessarily be something tangible. Incriminating material includes confession by a person along with corroborative evidence. 7.3.4 It is noticed that in the present case, the AO has found incriminating fact that the appellant is not maintaining regular books of accounts wrt business though turnover of appellant from his civil contracts business for Assessment years 2012-13 to 2016-17 exceeded the limit beyond which books of accounts are to be maintained by appellant as per provisions of section 44AA and books of accounts are to be audited u/s 44AB. Though appellant is taking professional help of Auditor in filing returns of income year after year, it was noticed that he was not maintaining books of account, getting them audited. Books of accounts pertaining to business of appellant could not be found both at business premises of appellant and at the auditor’s office during the course of search. 7.3.5 It is noticed that the fact found during search is that figures mentioned in Profit & Loss account, Balance Sheet filed along with / as part of Returns of Income for Assessment Years 2012-13 to 2016-17 are not backed by regular books of accounts, proper evidence. 7.3.6 This incriminating fact, it is noticed has been corroborated by Sworn Statement of appellant recorded on 23.09.2017 during course of search. In the statement, while replying to question no.9, the appellant stated that he is not maintaining any books of accounts either manually or in electronic form wrt his business and he is not in a position to file details / documents asked from Income tax returns filed so far. Thus, the fact that appellant is not in a position to establish correctness of claims made in the ROI, he can’t provide details wrt figures admitted in the ROI was unearthed during the course of search, which constitutes incriminating evidence. 7.3.8 It is noticed that during search, auditor’s office was also inspected but books of accounts pertaining to appellant were not found. Auditor of appellant also stated that books of accounts are not maintained by the appellant. It is noticed that the appellant has clearly stated while replying to question no.10 which is reproduced above that he is not in a position to produce list of debtors in support of Sundry Debtors appearing in Balance Sheet filed along with ROI for one of the years. 7.3.9 It is also noticed that books were not submitted during post-search proceedings and also during assessment proceedings. During appeal proceedings, appellant was asked to furnish 44AB report, if any, specifically to see whether books of accounts are available or got them audited etc. But he failed to produce the same. 7.3.10 Therefore, it can reasonably be concluded that incriminating evidence found during the course of search is that details filed in return of Income by the appellant for the year are not backed by books of accounts but they are random figures and appellant is not in a position to give details, prove the correctness of claims made in the ROI. This incriminating fact is supported to 2853/Chny/2024, 2911 to 2913/Chny/2024 by incriminating material in the form of sworn statement of Appellant recorded during search in which he admitted non-maintenance of Books of accounts. 7.3.11 It is noticed that in response to notice u/s 153A, the appellant has admitted taxable income of Rs.22,50,840/- which is same as return filed originally for the year. It means appellant filed same details as that of original return which are not backed by Books of accounts. 7.3.12 Therefore, whatever verification made by the AO during assessment proceedings wrt correctness of different claims made in the return filed for the year whether it is Trade Creditors or Gift received from father is based on incriminating evidence found during search. Therefore, I am of considered opinion that AO has jurisdiction u/s 153A to make additions wrt both issues. 7.3.13 In view of the incriminating fact that figures admitted in the ROI filed for the year does not have any solid basis. It appears AO sought to verify correctness of details reflected in Balance Sheet filed as part of ROI. The AO specifically sought evidence for identity, creditworthiness of creditors and genuineness of transactions in case of Trade Creditors 7.3.15 Vide ground of appeal, appellant raised contention that since he is a government contractor, all the funds are released at the year end. The Assessee also has to execute more than 40% of the Annual work in the last month. He can pay the employees & suppliers only in April next year. There are material suppliers & labour suppliers who are ready to wait for long time to collect their dues. They charge more than the Market price, both the Assessee & their suppliers are aware of this. Hence the creditors are true, and can be proved during verification. However, it is noticed that the appellant has not filed any evidence to show that 40% of the work is done in the last month of the Financial year by filing copies of work bills raised in different months of the financial year against State Government wrt work allotted to him. Though appellant claimed that the creditors shown in the ROI are true, partywise breakup of creditors, confirmations from those creditors, details of dates of payments as well as evidence for payments to them in subsequent year could not be filed both during assessment proceedings and appeal proceedings. The appellant could not establish his claim to be true. 7.3.16 It is noticed that appellant during appeal proceedings raised contention wrt addition of trade creditors that the AO has wrongly added trade creditors to make up for perceived low net profit admitted by appellant in the return and such estimation made by AO is incorrect. I have examined this contention of Appellant. It is observed that though the AO made an observation in the assessment order vide para 2.3.1 that net profit disclosed by appellant being less, addition of trade creditors to net profit admitted will take the profit of appellant on par with profit generally made in the line of business of appellant but addition of trade creditors is not made for that reason. The AO twice reiterated in the same para that addition is made for failure on part of appellant to furnish evidence to prove identity, creditworthiness of creditors and genuineness of transaction. 7.3.17 It is noticed that Hon’ble courts held that unsubstantiated trade creditors can be added u/s 68 rws 69C. Hon’ble Karnataka High court in to 2853/Chny/2024, 2911 to 2913/Chny/2024 Sri P.M. Abdulla Vs ITO, 719/2009 & 803/2009 has held that credit purchases are noting but expenditure. If sundry creditors are not proved by the assessee, addition can made by the assessing officer by resorting to section 68 rws 69C. Similar view has been expressed by Honourable Karnataka High Court in Shri Suresh Kumar. T. Jain Vs ITO, ITA No.160 of 201. In this case books of accounts were not found during survey. The assessee could not produce books of accounts during assessment proceedings. The AO asked assessee to furnish details of sundry creditors like complete address of creditors and confirmation letters etc. Some creditors have responded to letters of AO, furnished information. However, the AO found discrepancy in the figures reported by sundry creditors vis-à- vis information submitted by assessee with respect to those creditors. The AO added the amount with respect to which discrepancy is found as well as amount attributable to sundry creditors who have not responded to the notices of AO. When the issue went before Honourable High Court, it upheld addition of AO u/s.41(1) and section 68. 7.3.18 In view of above, I am of considered view that AO has rightly added Rs.28,75,856/- towards Sundry Creditors, in hands of appellant for the year. Consequently, grounds of appeal of appellant related to the issue are Dismissed. 7.4.2 It is noticed that appellant failed to furnish any details with regard to gift as to date of gift, mode of gift, immediate source for gift in hands of father on date of gift or at least confirmation letter from father providing above details if not gift deed. 7.4.3 During appeal proceedings, vide written submissions appellant contended that father is assessed to income tax and has sufficient sources to make gift. Being assessed to Income tax does not automatically lead to presumption that he has sufficient sources for gift. Having returned income more than gift amount for the year also proves nothing unless it is established that the donor had sufficient sources in his hands on the date of gift. It is noticed that the appellant has not filed any evidence to prove sources in hands of donor, confirmation from donor, details of mode of gift etc. 7.4.4 In view of above, I am of considered view that AO has rightly added Rs.25,00,000/- towards gift from father, in hands of appellant for the year. Consequently, ground of appeal of appellant related to the issue is Dismissed.”

14. The ld.AR, while referring to the dates of filing of returns and the date of search, reiterated that the assessments stood completed/unabated for the relevant years. It was submitted that, as per the settled position of law, no addition can be made in proceedings u/s.153A of the Act for unabated assessments unless such addition is based on incriminating material discovered during the search. The ld. AR emphasized that the additions sustained by the ld.CIT(A) are not traceable to any incriminating material, and to 2853/Chny/2024, 2911 to 2913/Chny/2024 that mere admissions or statements, uncorroborated by seized material, cannot form the basis of addition. Reliance was placed on the judgment of the Hon’ble Madras High Court in R.Bhoopathy v. CIT [(2009) 3 TMI 1267], and on the decision of the Hon’ble Delhi High Court in PCIT v. Pavitra Realcon Pvt. Ltd., wherein it was held that undisclosed income cannot be assessed solely on the basis of statements made during search. Such statements, though relevant information u/s.132(4) of the Act, must necessarily be supported by material or evidence found in the course of search to justify an addition.

15. On the strength of the above submissions, the ld.AR prayed for deletion of the additions made by the AO and sustained by the ld.CIT(A) for the AYs 2012-13 to 2015-16.

16. Per contra, the ld.DR strongly supported the order of the ld.CIT(A). It was submitted that the scope of “incriminating material” extends to include statements and confessions recorded during search proceedings. The ld.DR further argued that non-production of books of account during search constitutes an incriminating circumstance which empowers the AO to make additions in proceedings u/s.153A of the Act. Accordingly, the ld.DR contended that the AO was justified in making the impugned additions, and that the ld.CIT(A) rightly confirmed the same. The ld.DR, therefore, urged that the orders of the lower authorities be upheld.

17. We have carefully considered the rival submissions, perused the material available on record, and duly examined the facts of the case in light of the applicable legal position along with paper books filed by the ld.AR. The short controversy before us is whether the additions made by the AO in assessments framed u/s.153A of the Act are sustainable when (i) the assessments for the to 2853/Chny/2024, 2911 to 2913/Chny/2024 relevant years were unabated on the date of search, and (ii) no incriminating material was found during the course of search.

Particulars AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 Date of filing of the 15.11.2012 16.04.2014 30.11.2014 15.09.2015 original return of income Expiry of time limit to 30.09.2013 30.09.2015 30.09.2015 30.09.2016 issue notice u/s.143(2) of the Act Date of search 21.09.2017 Pending assessment or No reassessment proceedings on the date of search Status of the Unabated/completed assessments 19. From the above, it is manifest that the assessments for all the impugned years had attained finality much prior to the date of search on 21.09.2017. Consequently, these assessments are to be treated as unabated assessments.

“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.”

CHNY / 2024 (AY 2016-17): 25. The brief facts are that the assessee originally filed his return of income on 31.03.2017 declaring a total income of Rs.1,55,25,940/-. Subsequently, a search and seizure operation u/s.132 of the Act was conducted on 21.09.2017. Consequent thereto, notice u/s.153A of the Act was issued on 24.09.2019. In compliance, the assessee filed his return of income on 08.12.2019, declaring the same income as returned originally.

“7.3.16 It is noticed that appellant during appeal proceedings raised contention wrt addition of salary and wages payable. The AO has wrongly added trade creditors to make up for perceived low net profit admitted by appellant in the return and such estimation made by AO is incorrect. I have examined this contention of Appellant. It is observed that though the AO made an observation in the assessment order vide para 2.3.1 that net profit disclosed by appellant being less, addition of trade creditors to net profit admitted will take the profit of appellant on par with profit generally made in the line of business of appellant but addition of trade creditors is not made for that reason. The AO twice reiterated in the same para that addition is made for failure on part of appellant to furnish evidence to prove identity, creditworthiness of creditors and genuineness of transaction. Hence, as claimed by the appellant, income for the year is not computed by AO by estimating the income of the assessee. It is clear from the Assessment order that the AO has simply disallowed the claim of appellant towards Sundry Creditors for failure on the part of appellant to back it up with sufficient evidence. 7.3.17 It is noticed that Hon'ble courts held that unsubstantiated trade creditors can be added u/s 68 rws 69C. Hon’ble Karnataka High court in Sri P.M. Abdulla Vs ITO, 719/2009 & 803/2009 has held that credit purchases are nothing but expenditure. If Sundry Creditors are not proved by the assessee, addition can made by the assessing officer by resorting to section 68 rws 69C. Similar view has been expressed by Honourable Karnataka High Court in Shri Suresh Kumar. T. Jain Vs ITO, of 201. In this case books of accounts were not found during survey. The assessee could not produce books of accounts during assessment proceedings. The AO asked assessee to furnish details of Sundry Creditors to 2853/Chny/2024, 2911 to 2913/Chny/2024 like complete address of creditors and confirmation letters etc. Some creditors have responded to letters of AO, furnished information. However, the AO found discrepancy in the figures reported by Sundry Creditors vis-a- vis information submitted by assessee with respect to those creditors. The AO added the amount with respect to which discrepancy is found as well as amount attributable to Sundry Creditors who have not responded to the notices of AO. When the issue went before Honourable High Court, it upheld addition of AO u/s.41(1) and section 68. 7.3.18 In view of above, it is considered view, and it is held that AO has rightly added Rs.3,53,73,824/- towards Sundry Creditors, in hands of appellant for the year. Consequently, grounds of appeal of appellant related to the issue are Dismissed. 7.4.1 It is noticed that appellant though initially claimed that he has not carried out any agricultural activity, subsequently stated that his father carried out agricultural operations which resulted in net agricultural income of Rs.7 lakhs as reflected in the return of income filed for the year. However, it is noticed that the appellant failed to furnish any details with regard to agricultural activities carried on by his father. He has not specified whether agricultural land is given on lease to his father or his father has carried out agricultural activity on his behalf. It is noticed that the appellant has not given details of extent of agricultural land under cultivation for the year, location of the agricultural land, copy of pattadar pass book, copy of adangal register, details of crops sown during the year, number of crops, yield per acre, evidence for input cost, evidence for sale of agricultural produce etc. It is noticed that appellant has not produced any evidence to show ownership of agricultural land during the year. 7.4.2 During appeal proceedings, the appellant claimed that he owns 30 acres of agricultural land at Karur. The lands are being looked after by his parents who are basically agriculturalists. Earning Rs.7 lakhs from 30 acres is normal and very low. It must be allowed on the basis of proof of ownership and cultivation records. Further, since nothing was found during search to prove that the assessee is not doing agriculture, addition cannot be made in the hands of the appellant It is noticed that though appellant claims he owns 30 acres of land at Karur, the appellant has not produced any evidence to show ownership of agricultural land during the year either during assessment proceedings or during appeal proceedings. Hence, it can’t be presumed that appellant has carried out Agricultural operations and earned agricultural income of Rs.7,00,000/-. 7.4.3 In view of above, I am of considered view that AO has rightly added Rs.7,00,000/- towards unsubstantiated Agricultural income, in hands of appellant for the year. Consequently, grounds of appeal related to above issue are Dismissed.”

31. Aggrieved, the assessee is in appeal before us challenging the order of the ld.CIT(A) for confirming the additions made by the AO towards salary & wages payable and agricultural income. to 2853/Chny/2024, 2911 to 2913/Chny/2024 32. Before us, the ld.AR contended that no incriminating material had been found against the assessee, and therefore, the AO could not assume jurisdiction u/s.153A of the Act. On this premise, the learned AR argued that the assessment order itself is bad in law. The ld.AR further submitted that the AO and that of the ld.CIT(A) have erred by disallowing the expenditure and estimating the profit without rejecting the books of accounts of the assessee. It was further submitted that the assessee had duly proved all sundry creditors by establishing that the impugned wages payable is in fact stood discharged in the first quarter of the subsequent assessment year. The said wages pertained to the close of the financial year, coinciding with the period when major government contracts were executed. It was pointed out that out of the total turnover of Rs.51.33 crores, and the labour and wages expenditure was Rs.29.04 crores, out of which only Rs.3.53 crores which has been shown as accumulated expenditure payable as on 31.03.2016. Thus, it was argued that the addition of Rs.3.53 crores was wholly unwarranted and prayed for its deletion.

33. Per contra, the ld.DR supported the orders of the lower authorities and contended that in the absence of confirmations and supporting evidence, the AO was justified in treating the impugned wages payable as unverifiable.

34. We have carefully considered the orders of the authorities below, the grounds raised by the assessee, and the rival submissions and the paper book filed by the ld.AR. We note that the AO, without rejecting the books of accounts maintained by the assessee, has selectively disallowed the wages payable of Rs.3.53 crores purely on the basis of estimation. It is a settled position of law that unless the books of accounts are rejected in terms of section 145(3) of the Act, the AO cannot resort to estimation of profits by disregarding specific items of expenditure in isolation. Further, there is no material on record to suggest that the liability towards wages payable was fictitious. On the contrary, the assessee has demonstrated that liabilities were discharged in the subsequent to 2853/Chny/2024, 2911 to 2913/Chny/2024 year and the AO has accepted the same without dispute. More importantly, if one examines the assessee’s net profit history, it is evident that the assessee’s results are consistent. The net profit ratios for the preceding four assessment years are as under:

AY Net profit (%) 2012-13 4.02 2013-14 4.39 2014-15 3.76 2015-16 2.60 Total for past 4 years 14.77 Average 3.69 35. It is seen that during AY 2016-17, the assessee declared a net profit of 3.09%, which is on par with past performance of the average of preceding years. This fact militates against the allegation of any inflated or bogus wage claim.

38. The next issue is addition of Rs.7,00,000/- made by the AO and confirmed by the ld.CIT(A) on account of agricultural income declared by the assessee. Both the lower authorities found that the assessee has not furnished any documentary evidence in support of the agricultural income and activities carried out by the assessee. to 2853/Chny/2024, 2911 to 2913/Chny/2024 39. The ld.AR submitted that the assessee has furnished the details of agricultural land holding corresponding to the agricultural income declared by the assessee before the AO and hence prayed for allowing the appeal of the assessee.

40. Per contra the ld.DR stated that the assessee has not provided any kind of evidence for having earned agricultural income and hence prayed for confirming the order of the ld.CIT(A).

41. We have carefully considered the orders of the authorities below, the grounds raised by the assessee and the rival submissions. We find that the assessee has declared agricultural income only in the impugned assessment year. However, the ld.AR has failed to provide any documentary evidence even before us during the proceedings. Further, on perusal of the Fixed assets schedule in the financial statements as on 31.03.2016 we find that the assessee has not shown the agricultural land. Therefore, in the present facts and circumstances of the case we do not find any infirmity in the order of the ld.CIT(A) and hence we are inclined to confirm the addition of disallowance of exemption of agricultural income of Rs.7.00 Lakhs by dismissing the grounds of the assessee.

CHNY / 2024 (AY 2017-18): 42. The solitary issue which arises for adjudication in the present appeal pertains to the addition of Rs.2,13,48,672/- made by the AO on account of disallowance of wages payable shown in the balance sheet as on 31.03.2017.

AY Net profit (%) 2012-13 4.02 2013-14 4.39 2014-15 3.76 2015-16 2.60 2016-17 3.09 Total for past 5 years 17.86 Average 3.57 53. It is seen that during AY 2017-18, the assessee declared a net profit of 3.66%, which is not only consistent with past performance but also marginally higher than the average of preceding years. This fact militates against the allegation of any inflated or bogus wage claim.

CHNY / 2024 (AY 2018-19): 56. The brief facts of the case are that the assessee had filed his return of income for the A.Y.2018-19 originally on 30.03.2019 declaring a total income of Rs.73,22,460/-. Pursuant to search, case of the assessee for the impugned assessment year is selected for compulsory scrutiny assessment by issuing notice u/s.143(2) of the Act on 25.09.2019. Thereafter, the impugned to 2853/Chny/2024, 2911 to 2913/Chny/2024 assessment was completed by the AO vide order dated 30.09.2021 making the following additions: i. Unexplained investment in jewellery to the extent of Rs.9,58,885/-; and ii. Unexplained investment in immovable property of Rs.73,25,679/- 57. The facts relevant to the first issue are that during the course of search proceedings, jewellery weighing 1,409 grams, valued at Rs.40,87,363/– was found at the residence of the assessee. The assessee, in the course of assessment proceedings, explained that 520 grams stood duly disclosed in the Balance Sheet, while 500 grams pertained to the jewellery of his spouse, received at the time of marriage. With respect to the balance 389 grams, the assessee submitted that the same represented ancestral jewellery.

64. Coming to the second issue of addition of Rs.73,25,679/- towards investment in immovable property, the limited point for our consideration is whether the same is to be taxed u/s.115BBE of the Act or at normal rates of tax. The contention of the ld.AR is that the assessee is engaged only in business activity having no other source of income. The ld.AR further submitted that no incriminating material was unearthed during the course of search indicating that the investment in immovable property was made from undisclosed sources of income. The ld.AR thus urged that the addition on account of investment in immovable property is to be taxed at normal rates of taxes instead of special rate of tax u/s.115BBE of the Act.

65. Per contra, the ld.DR strongly objected stating that an addition towards unexplained investment is always to be taxed at a special rate as per the provisions of section 115BBE of the Act. to 2853/Chny/2024, 2911 to 2913/Chny/2024 66. We have heard both the sides and perused the material on record and gone through the orders of the lower authorities along with the paper book filed by the ld.AR. We note that in the present case, the Revenue has not brought any material on record to prove that the investment in immovable property was made out of income which was not recorded in the books or was from any unexplained or undisclosed source. Further, there is no allegation that the assessee had any other source of income apart from its disclosed business activity. In the absence of any incriminating material and considering the explanation offered by the assessee and the revenue has not brought out any evidence to prove that the assessee is having any other sources of income, we are inclined to accept the contention of the ld.AR. Therefore, the sustained addition would be liable to be taxed at the normal applicable rates by adding the unexplained investment in immovable property also under the head income from business and not u/s.115BBE of the Act. Accordingly, we allow the ground raised by the assessee and direct the AO to compute the tax at normal rates on the addition of Rs.73,25,679/- on account of immovable properties.

Order pronounced in the open court on 26th August, 2025 at Chennai.