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Facts
The Revenue appealed against the deletion of additions made by the AO concerning unaccounted deposits, interest, an unaccounted loan, and unexplained cash. The additions were primarily based on a sworn statement given during a search and seizure operation.
Held
The Tribunal held that additions based solely on an uncorroborated sworn statement are not sustainable. The AO failed to establish a nexus with the assessee and relied on presumptions. The CIT(A) rightly deleted the additions as they lacked legal and factual merit.
Key Issues
Whether additions made by the AO based solely on a sworn statement without corroborative evidence are valid. Whether income can be taxed in an assessment year to which it does not pertain.
Sections Cited
132, 132(4), 143(3), 153A, 143(2), 139(4), 69A
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
These appeals have been preferred by the Revenue against the orders passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [hereinafter referred to as the "Ld. CIT(A)"]. The orders under challenge arise from the assessment orders passed by the Deputy Commissioner of Income Tax, Central
:-2-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 Circle-2, Trichy [hereinafter referred to as the "AO"] u/s.143(3) r.w.s 153A of the Income-tax Act, 1961 [hereinafter referred to as "the Act"].
The appeals pertain to:
Substantive additions made in the hands of the assessee M/s.No.1 Auto Finance for the Assessment Years [hereinafter referred to as the “AY/AYs”] 2012-13, 2015-16 and 2018-19; and Protective additions made in the hands of the assessee M/s.Help Line Motor Finance for the AYs 2012-13 and 2018-19. 3. The relevant details of each appeal are as under:
Appeal against the order of the Ld.CIT(A) dated 26.12.2024 [DIN & Order No.ITBA/APL/S/250/2024-25/1071587377(1)], arising from the assessment order dated 29.12.2019 passed u/s.143(3) r.w.s. 153A of the Act for the AY 2012-13 in the case of M/s.No.1 Auto Finance; ii. Appeal against the order of the Ld.CIT(A) dated 26.12.2024 [DIN & Order No. ITBA/APL/S/250/2024-25/1071589720(1)], arising from the assessment order dated 29.12.2019 passed u/s.143(3) r.w.s. 153A of the Act for the AY 2015-16 in the case of M/s.No.1 Auto Finance; iii.
Appeal against the order of the Ld.CIT(A) dated 26.12.2024 [DIN & Order No. ITBA/APL/S/250/2024-25/1071593412(1)], arising from the assessment order dated 29.12.2019 passed u/s.143(3) r.w.s. 153A of the Act for the AY 2018-19 in the case of M/s. No.1 Auto Finance; iv.
Appeal against the order of the Ld.CIT(A) dated 26.12.2024 [DIN & Order No. ITBA/APL/S/250/2024-25/1071597324(1)], arising from the assessment order dated 29.12.2019 passed u/s.143(3) r.w.s. 153A of the Act for the AY 2012-13 in the case of M/s. Help Line Motor Finance; and v. Appeal against the order of the Ld.CIT(A) dated 26.12.2024 [DIN & Order No. ITBA/APL/S/250/2024-25/1071597888(1)], arising from the assessment order dated 29.12.2019 passed u/s.143(3) r.w.s. 153A of the Act for the AY 2018-19 in the case of M/s. Help Line Motor Finance.
Since the issues involved in all the above appeals for the various assessment years are substantially common, the appeals were heard together. Both the parties presented their arguments jointly, raising similar contentions on these common issues. Accordingly, for the sake of convenience and to avoid repetition, all the appeals are being disposed of by this consolidated order. With the consent of both
:-3-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 the parties, orders passed for the AY 2012-13 in the case of M/s.No.1 Auto Finance is taken as a lead case.
Sans unnecessary details, the brief facts of the case are that the assessee firms, viz., M/s.No.1 Auto Finance and M/s.Help Line Motor Finance, are partnership concerns engaged in the business of money lending, operating from the premises situated at TAM Complex, NRMP Street, Covai Road, Karur. In total, 74 such partnership firms, including the assessee firms, operates from the said address. Each firm has a separate PAN, maintains separate bank accounts, and files its return of income. The late Mr.K.Murgesan was the principal architect behind the establishment of all 74 firms. His son, Mr.M.Vivek, is a partner in each of these entities. Mr.R.Kathiresan serves as the Coordinator and Managing Partner of the assessee firms.
A search and seizure action u/s.132 of the Act was conducted in the case of the assessee firms on 10.08.2017. During the course of the said search, the following seizures were made and duly recorded in the panchnamas drawn on the respective dates:
i. Panchnama dated 11.08.2017 bearing reference ANN/GK/RK/Cash/S – Cash amounting to Rs.1,10,10,000/- was seized. ii. Panchnama dated 13.09.2017 bearing reference ANN/SM/RK/LS/S-1 & S-2 – Two folders containing loose sheets comprising discharged promissory notes relating to the Financial Year 2015–16, pertaining to the assessee firms and certain other constituent concerns. iii. Panchnama dated 13.09.2017 bearing reference ANN/SM/RK/B&D/S-1 – One long- sized register titled “STL Notes,” containing entries reflecting loans advanced by certain constituent entities of the No.1 Auto Finance Group. iv. Panchnama dated 13.09.2017 bearing reference ANN/SM/RK/ED/S – Two compact CPUs containing the server data of M/s. No.1 Auto Finance and M/s. Help Line Motor Finance, respectively.
:-4-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 7. In relation to the above, a statement u/s.132(4) of the Act was recorded from Mr. R. Kathiresan, the Managing Partner of the assessee firms.
In addition to the aforementioned facts, a search u/s.132 of the Act was conducted in the case of M/s.Viswas Promoters Private Limited, Madurai on 29.11.2017. During the course of the said search, a pen drive was seized, which contained an Excel sheet reflecting entries pertaining to a cash loan of Rs.1,00,00,000/- alleged to have been advanced by M/s. No.1 Auto Finance to Shri S.Seetharaman during the period from March 2015 to June 2016. The said Excel sheet also contained entries indicating payment of interest by Shri S. Seetharaman to M/s. No.1 Auto Finance.
Based on the findings emanating from the aforementioned search proceedings, the AO initiated assessment proceedings u/s.153A of the Act for the AYs 2012-13 and 2015-16 by issuing a notice u/s.153A of the Act. Further, the case for AY 2018-19 was selected for scrutiny assessment by issuing notice u/s.143(2) of the Act.
Subsequently, the assessments in respect of the assessee firms were completed by the AO on 29.12.2019.
The AO made the following substantive additions in the hands of M/s. No.1 Auto Finance (Amount in Rs.): - S. No Issues AY 2012-13 AY 2015-16 AY 2018-19 1 Addition of unaccounted 6,83,07,000 - - deposits 2 Addition of interest on alleged 1,22,95,260 1,22,95,260 1,22,95,260 deposits 3 Addition of unaccounted loan - 1,00,00,000 - to M/s.Viswas Promoters Private Limited 4 Addition of interest on - 2,48,000 - unaccounted loan 5 Addition of unexplained cash - - 1,10,10,000
:-5-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 12. Further, the following protective additions were made in the hands of M/s. Help Line Motor Finance (Amount in Rs.):-
S. No Issues AY 2012-13 AY 2018-19 1 Addition of unaccounted 6,83,07,000 - deposits 2 Addition of interest on alleged 1,22,95,260 1,22,95,260 deposits 3 Addition of unexplained cash - 1,10,10,000 13. Aggrieved by the aforementioned additions, the assessee firms preferred appeals before the Ld.CIT(A), who vide orders dated 26.12.2024, deleted both the substantive and protective additions in their entirety, except to the extent of confirming an addition of Rs.5,34,732/- on account of unexplained cash found in the hands of M/s No.1 Auto Finance.
Aggrieved by the orders of the Ld.CIT(A), Revenue is in appeal before us challenging the relief given by the Ld.CIT(A), whereas in respect of the sum of Rs.5,34,732/- confirmed by the Ld.CIT(A), the assessee firms challenged the same placing reliance on Rule 27 of the Income Tax Appellate Tribunal Rules, 1963.
Upon due consideration of the grounds of appeal advanced by the Revenue, and upon a thorough appraisal of the factual matrix in the present matters, we are of the considered view that, in the interest of judicial discipline, consistency, and effective disposal, it would be appropriate to adjudicate the appeals on an issue-wise basis, encompassing all the assessment years under consideration in a consolidated manner.
16. Issue No.1 & 2: Addition of unaccounted deposits and interest on alleged deposits 16.1 During the course of the search proceedings, a statement u/s.132(4) of the Act was recorded from Shri R.Kathiresan, Managing Partner and Coordinator of the :-6-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 assessee firms. In response to Question No.11 posed by the Authorized Officer on 11.08.2017, Shri R. Kathiresan stated that the assessee firms had accepted cash deposits amounting to Rs.6,83,07,000/- during the FY 2010-11, relevant to the AY 2011-12. It is pertinent to note that the assessment year under consideration is AY 2012-13. The relevant question and answer are reproduced below:
Question:
Answer:
16.2 Further, Shri R. Kathiresan, in his statement dated 10.08.2017 in response to Question No.20, deposed that the financial concerns associated with him predominantly received deposits in cash, with occasional receipts through cheques. He further undertook to furnish the list of such depositors before the AO. He also sought additional time to submit details of further cash deposits received during the FYs 2010-11 to 2016-17. However, it is noted by the AO that no such details or :-7-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 response had been furnished by Shri R.Kathiresan as on the date of completion of the assessment proceedings.
16.3 The AO observed that the total loan claim of M/s.No.1 Auto Finance and M/s.Help Line Motor Finance for the FY 2010-11, relevant to the AY 2011-12, amounted to Rs.26,64,88,483/-, as against the sum of Rs.6,83,07,000/- stated by Shri R. Kathiresan, Managing Partner of M/s.No.1 Auto Finance, during his deposition in the course of search proceedings. The AO further noted that the amount of Rs.6,83,07,000/- represents cash deposits alone, whereas the figure of Rs.26,64,88,483/- represents the aggregate of all deposits. Shri R.Kathiresan, in his statement recorded u/s.132(4) of the Act, deposed that the majority of the deposits were made in cash, with occasional instances of deposits made via cheque. In view of the above, the AO concluded that the overall financial statements submitted by the assessee are liable to be viewed with suspicion, particularly in light of the inconsistencies revealed during the search proceedings and the deposition u/s.132(4) of the Act.
16.4 Based on the sworn depositions of Shri R. Kathiresan, the AO formed the opinion that all the deposits in question were received exclusively from the partners of the assessee firms. Further, the AO noted that all interest payments on the said deposits were also made solely to the partners. It was further observed by the AO that the assessee firm failed to furnish any documentary evidence to substantiate its claim that the deposits were obtained from third parties for the purpose of conducting its finance business. Additionally, the AO recorded that field enquiries conducted by the Department's Inspectors revealed that no such depositors were found to be residing at the addresses provided in the list submitted by the assessee.
16.5 In the absence of sufficient evidence establishing the identity of the depositors as well as the genuineness and creditworthiness of the transactions, as detailed hereinabove, the AO concluded that the deposits purportedly received by the assessee firms amounting to Rs.6,83,07,000/- during the AY 2011-12, relevant to the previous year 2010-11, are in excess of the amount of Rs.26,29,79,744/- already disclosed in the Return of Income filed u/s.139(4) of the Act. Consequently, the AO proposed to assess the said sum of Rs.6,83,07,000/- as taxable income in the hands
:-8-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 of M/s No.1 Auto Finance on a substantive basis and, in the alternative, in the hands of M/s Helpline Motor Finance on a protective basis for the impugned assessment year i.e., AY 2012-13 notwithstanding that the amount pertained to FY 2010–11 relevant to AY 2011–12.
16.6 Furthermore, pursuant to the response provided to Question No.8 in the statement recorded on 11.08.2017, wherein an interest rate of 18% per annum was stated, the AO computed the interest payable on the disputed deposits at Rs.1,22,95,260/- for each of the relevant assessment years. The said amount was accordingly proposed to be brought to tax, both substantively and protectively, in the hands of the respective assessee firms for the assessment years under consideration.
16.7 In response to the show cause notice issued by the AO, the assessee firms submitted that all 74 firms operating from the searched premises are distinct and independent assessable entities. It was further submitted that the hard disk seized during the course of the search operation contains detailed records pertaining to each of the said firms, including particulars of opening balances, fresh deposits received and repaid during the relevant year, and the corresponding closing balances.
16.8 Accordingly, the assessee firms raised a specific objection to the proposal of the AO to make a substantive addition in the hands of a single firm, contending that such an approach is legally untenable and without justification, as each firm operates as a separate legal entity with independent books of account.
16.9 The assessee firms further submitted that, in the normal course of trade prevalent in their line of business, deposits are mobilized by the individual partners of the respective firms. Fresh deposits are accepted exclusively through such partners, and upon maturity, the repayment of the said deposits is also effected through them. Monthly interest is paid on these deposits. It was specifically submitted that there is no material on record to suggest that any unaccounted income has been introduced into the books under the guise of such deposits.
:-9-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 16.10 The assessee firms also submitted that the AO’s proposal for addition is solely based on the alleged incorrect statement of Shri R.Kathiresan, while disregarding the evidentiary value of the seized materials. It was contended that such uncorroborated and allegedly erroneous statement cannot override the documentary evidence retrieved during the search. In the absence of any corroborative material to substantiate the statement made by Shri Kathiresan, reliance placed thereon by the AO to effect the impugned additions are without legal merit and is therefore liable to be rejected.
16.11 In view of the foregoing submissions, the assessee firms asserted that the opening balances of the deposits stand duly explained and substantiated. Accordingly, it was submitted before the AO that no addition be made on account of the said opening deposits and consequential interest payment on such alleged deposits.
16.12 The AO, however, did not find the explanation offered by the assessee firms to be satisfactory. Consequently, the AO proceeded to make an addition of Rs.6,83,07,000/- on account of unaccounted deposits, assessed substantively in the hands of M/s. No.1 Auto Finance and protectively in the hands of M/s. Help Line Motor Finance for the AY 2012–13.
16.13 Further, the AO made an addition of Rs.1,22,95,260/- on account of interest payments attributable to the said alleged deposits, for each of the Assessment Years from AYs 2012-13 to AY 2018-19, again assessed substantively in the hands of M/s.No.1 Auto Finance and protectively in the hands of M/s.Help Line Motor Finance. However, in respect of the additions made towards interest payments on the alleged deposits, the appeals for AYs 2012-13, 2015-16, and 2018-19 in the case of M/s. No.1 Auto Finance, and AYs 2012-13 and 2018-19 in the case of M/s.Help Line Motor Finance, are presently under consideration before us at the instance of the Revenue. For the remaining years, no appeals have been preferred by the Revenue owing to the low tax effect involved.
16.14 Aggrieved of the above additions, assessee firms preferred appeals before the Ld.CIT(A), who vide orders dated 26.12.2024 deleted both the substantive and protective additions observing as under: -
:-10-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025
“6.2.6 The undersigned after careful examination of the facts and records of the case, the statement recorded u/s 132(4) of the Act, and submissions made by the appellant, the key findings and observations are as under. 6.2.7 The AO observed that deposits amounting to Rs.6,83,07,000/- were unaccounted and unexplained. These deposits were primarily in cash and were allegedly introduced without complying with proper KYC norms or maintaining depositor details. The AO's finding is based on the sworn statement of Shri R. Kathiresan, the Managing Partner of M/s. No. 1 Auto Finance and Helpline Auto Finance. However, the appellant claims that these deposits were fully accounted for and supported by the seized computer disc, which contains detailed information on deposits accepted, repaid, and outstanding across the 74 firms associated with the No. 1 Auto Finance Group. Shri R. Kathiresan, in his sworn statement u/s 132(4) of the Act, admitted that most deposits were collected in cash and were routed through fictitious depositor names. He also stated that these deposits were primarily introduced by partners of the group firms, with no external deposits being made for the finance business. This admission raises doubts about the genuineness of the deposits. However, the appellant has challenged the reliability of this statement, arguing that it was misinterpreted and not corroborated by any tangible evidence or seized records. 6.2.8 The AO relied on seized documents, including the 'STL Notes' register, promissory notes, and loose sheets, to substantiate the allegation of unaccounted deposits. The 'STL Notes' documented loan details for the 74 concerns from 30.04.2009 to 12.07.2017, indicating structured operations under the No. 1 Auto Finance Group. However, no concrete evidence was found to support the AO’s claim that the deposits of Rs.6,83,07,000/- were unaccounted, beyond the sworn statement of Shri Kathiresan. The appellant highlighted that the seized computer disc contained detailed and accurate records of deposits for all 74 firms. The AO failed to reconcile this information with the allegations made in the assessment order. 6.2.9 The AO consolidated the deposits from all 74 firms and assessed them substantively in the hands of the appellant firm, M/s. No. 1 Auto Finance, for the "sake of convenience." This approach disregards the distinct legal status of each firm as a separate assessable entity under the Act. The appellant contended that the AO’s action lacked justification, especially when detailed deposit records for each firm were available in the seized materials. 6.2.10 The AO concluded that the deposits lacked genuineness, identity, and creditworthiness, citing the absence of depositor details, field inquiries revealing non-existent depositors, and the introduction of funds under fictitious names. However, the appellant argued that these conclusions were drawn without verifying the information in the seized computer disc or conducting thorough inquiries into the records maintained by the group firms. 6.2.11 The AO also added interest payments at the rate of 18% per annum on the alleged unexplained deposits, amounting to Rs.1,22,95,260/- for :-11-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 each assessment year from AY 2012-13 to AY 2018-19. This addition was based on the presumption that interest was paid only to the partners of the group firms. The appellant challenged this finding, asserting that the AO failed to substantiate the interest payments with any evidence from the seized materials. 6.2.12 The appellant submitted that the AO relied heavily on the sworn statement of Shri R. Kathiresan, ignoring the detailed records available in the seized computer disc. The appellant also claimed that the AO misinterpreted and mistranslated the statement, leading to incorrect conclusions about the nature and quantum of deposits. 6.2.13 The appellant provided detailed submissions, including Annexure III to the reply dated 24.11.2019, which outlined the opening deposits, deposits accepted during the year, deposits repaid, and closing balances for all 74 firms. The appellant maintained that the deposits were genuine and supported by adequate documentation. Additionally, the appellant pointed out the AO’s failure to independently verify the details furnished in the seized records. 6.2.14 The AO conducted field inquiries and concluded that many depositors listed in the seized records were non-existent. However, the appellant countered that such inquiries were limited and inconclusive, failing to consider the detailed records maintained by the group firms. 6.2.15 The undersigned after a comprehensive review of the facts and circumstances of the case, as well as a careful analysis of the submissions made by the appellant, the core issue of addition of Rs.6,83,07,000/- and interest income upon it amounting Rs.1,22,95,260/- per annum is adjudicated as under: 6.2.15.1 The AO assessed the entire deposits of Rs.6,83,07,000/- and interest income upon it amounting Rs.1,22,95,260/- per annum in the hands of the appellant, consolidating the amounts from all 74 firms under the No. 1 Auto Finance Group. This assessment, made for the sake of convenience, is legally unsustainable as it disregards the individuality of each firm as a separate legal entity under the Income Tax Act, 1961. It is appropriate to bring on record that the jurisdictional tribunal in the case of M/s. Cholan Auto Finance Vs DCIT Central Circle-2. Trichy in & 1156/Chny/2024 dated 13.12.2024 has categorically held by relying upon the ruling of the Hon’ble Apex court in the case of ITO Vs Ch. Atchaiah [1996] 218ITR 239 to support the contention that the income of some other person cannot be added in the hands of one person has held in the case of M/s. Cholan Auto Finance that when all the 77 firms carried on business under their respective PAN, assessing the entire income earned by the group of the firms, in the hands of the assessee alone is impermissible. 6.2.15.2 The undersigned is of the view that the facts and circumstances will squarely apply to the case of the appellant too. Therefore, the action of the AO in attempting to tax the income of 74 firm (37 selected by the AO in the present case) in the hands of the appellant firm is not permissible. Accordingly, all the grounds raised by the appellant upon this issue are hereby treated as allowed.
:-12-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.2.15.3 Further, The AO failed to establish any evidence that unequivocally linked the deposits and interest solely to the appellant firm. Given the absence of any corroborative evidence, the substantive assessment in the appellant’s hands is inappropriate. Accordingly, all the grounds raised by the appellant upon this issue are hereby treated as allowed. 6.2.15.4 The AO dismissed the deposits as unexplained due to the alleged non-existence of depositors. However, the appellant provided detailed records extracted from the seized computer disc, showing the deposits' acceptance, repayment, and outstanding balances. These records were not adequately reconciled with the AO’s findings. The principles of natural justice demand that the AO conclusively prove that the deposits are unaccounted, which the AO failed to do. The findings of the AO, based on presumptions and incomplete inquiries, are legally untenable. Therefore, the addition on account of deposits requires to be deleted. Accordingly, all the grounds raised by the appellant upon this issue are hereby treated as allowed. 6.2.15.5 The undersigned has carefully examined the relevant portion of the statement which was also brought on record by the AO in the assessment order at page no. 25, the same is again reproduced here as under.
:-13-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.2.15.6 The undersigned on examination of the above assertion of the appellant observes that the addition of Rs.6,83,07,000/- made by the AO for the (AY) 2012-13 primarily rests on the statement recorded u/s 132(4) of the Act, from Shri R. Kathiresan during the course of search. The statement alleged unaccounted deposits amounting to Rs.6,83,07,000/- as income. However, a closer examination of the facts reveals a fundamental flaw in the AO's action. 6.2.15.7 The observations made are as under: Shri R. Kathiresan in response to Question No. 11 as brought out supra, he unequivocally stated that the amount of Rs.6,83,07,000/- was the cash deposit made during the Financial Year (FY) 2010-11, which corresponds to AY 2011-12. This statement is crucial as it explicitly identifies the period in which the cash deposits were made, thereby attributing the income to FY 2010-11 (AY 2011-12). Despite the clear assertion in the recorded statement, the AO proceeded to make the addition of Rs.6,83,07,000/- in the assessment for AY 2012-13. At no point, in the statement recorded, Shri. R. Kathiresan has deposed that the amount of Rs. 6.83 crores is unaccounted. It only constitutes the cash deposits during the FY 2010-11. He never stated the cash deposits were unaccounted. The AO failed to substantiate why an amount explicitly pertaining to FY 2010-11 was brought to tax in AY 2012-13. There is no material on record or justification provided by the AO to shift the timeline of the cash deposit to a subsequent year. 6.2.15.8 The undersigned is of the view that income can only be taxed in the relevant assessment year to which it pertains. Since the cash deposits clearly relate to FY 2010-11 (AY 2011-12), taxing the same in AY 2012-13 is legally invalid in the eyes of law. Further, the Appellant has stated that the above cash deposit of Rs.6,83,07,000/- is part of the total deposit of Rs.26,47,41,000/- which is recorded in the books of account relating to 74 Firms functioning in that premise. The details of the 74 Firms which are functioning at the premise are as under:
:-14-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025
:-15-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025
Hence, the cash deposit may be from the depositors of various firms and it constitutes less than Rs.20,000/- from each depositor and the entire cash deposit were accounted in the books of account of the Appellant.
:-16-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.2.15.9 The failure on the part of the AO to correlate the addition to the proper assessment year undermines the validity of the assessment for AY 2012-13, rendering the addition untenable in law. However, it is a settled principle in tax jurisprudence that such statements, unless corroborated with concrete evidence, cannot form the sole basis for additions. The appellant's retraction of the statement, combined with the Assessing Officer's failure to conduct independent verification, considerably undermines the validity of the addition made by the AO. 6.2.15.10 In this regard the Hon’ble Chennai Tribunal in the case of ACIT v. Saveeta Institute of Medical and Technical Sciences [2012] 25 taxmann.com 138 (Chennai -Trib) has held that addition made on the basis of the sworn statement recorded u/s 132(4) of the Act cannot be sustainable and further held that the admission made u/s 132(4) by the Special Officer of the College could not even be treated as a valid piece of evidence. 6.2.15.11 In the case of Shri. Ganesh Trading Company v. CIT [2013] 30taxmann.com170/214 Taxmann 262 (Jharkhand), the Court has held that a statement made u/s 132(4) of the Act is a piece of evidence but the same is not conclusive particularly because it is self-incriminating. Accordingly, it was concluded that no liability could be fastened solely on the basis of sworn statement. In arriving at this decision, the Court followed the judgement in the case of Kailashben Manharlal Choski v. CIT [2010] 174 Taxmann 466( Guj) . Further the Apex Court in the case of Pullangode Rubber Produce Co Ltd v State of Kerala [1973] ITR 18 (SC) has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and further observed that it is open to the person who makes the admission to show that it is incorrect. 6.2.15.12 In the back drop of the above discussion, the undersigned is of the view that without corroborative evidence from seized materials or field inquiries, the reliance only on the sworn statement is unjustified, and the addition on this account is devoid of merits. Accordingly all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO is directed to delete the addition of Rs. 6,83,07,000/- made for AY 2012-13. 6.2.15.13 The AO has attempted to compute interest on the principle amount of Rs. 6,83,07,000/- and proceeded to add the same uniformly for the AY(s) 2012-13 to 2018-19. This addition contemplated is not based upon any seized material found during the course of search, it can only be the extrapolated computation made with the understanding that the appellant has derived from the unaccounted deposit made amounting Rs. 6,83,07,000/-. The undersigned in this order has discussed supra about this principle amount and allowed the grounds raised by the appellant upon the addition of Rs. 6,83,07,000/- and directed the AO to delete the same. When the principle amount itself is deleted the consequent computation of interest and adding the same as unaccounted interest income have be come redundant. Therefore, all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO is directed to delete the addition of Rs. 1,22,95,260/- made for AY 2012 13, AY 2013-14, AY 2014-15, AY 2015-16 , AY 2016-17, AY 2017-18 & AY 2018-19.”
:-17-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 16.15 Aggrieved by the deletion of the aforementioned additions by the order of the Ld.CIT(A), the Revenue is in appeal before us.
16.16 The Ld.DR, Ms.E.Pavuna Sundari, CIT, placed substantial reliance on the findings recorded by the AO and contended that the Ld.CIT(A) has erred in deleting the additions made. The Ld.DR, therefore, prayed that the additions made by the AO be upheld and the grounds of appeal raised by the Revenue be allowed.
16.17 Per contra, the Ld.AR, Shri R. Venkata Raman, Chartered Accountant, contended that the addition of Rs.6,83,07,000/- made by the AO on account of alleged unaccounted cash deposits was not based on any incriminating material found during the course of search proceedings, nor was it supported by any evidence of actual deposits having been received during the AY 2012-13. Instead, the said addition was solely predicated upon the sworn statement of Shri Kathriesan, wherein he purportedly deposed that a sum of Rs.6,83,07,000/- constituted cash deposits allegedly received during the FY 2010-11, relevant to AY 2011-12.
16.18 It was further submitted by the Ld. AR that the AO has erroneously made the impugned addition in AY 2012-13 in respect of transactions which, even as per the sworn statement relied upon, pertained to AY 2011-12. In this context, reliance was placed on the judgment of the Hon’ble Delhi High Court in PCIT v. Best Infrastructure (India) (P.) Ltd. (2017) 397 ITR 82 (Del), to submit that the uncorroborated statement of Shri Kathriesan, in the absence of any supporting evidence, cannot constitute incriminating material for the purposes of making an addition under the provisions of the Act.
16.19 Accordingly, the Ld. AR argued that there was no tangible or credible incriminating material available before the AO to justify the addition of Rs.6,83,07,000/- on account of alleged unaccounted cash deposits, nor for the consequential computation of interest thereon.
16.20 The Ld.AR further submitted that the assessee firms had duly filed their original returns of income, and that the assessments in respect of both the assessee firms remained unabated as on the date of the search. In support of this contention, our attention was drawn to the following facts:
:-18-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025
Particulars M/s. No.1 Auto M/s. Help Line Finance Motor Finance Date of filing of the return of income 09.08.2013 09.07.2013 Return filed u/s. 139(4) 139(4) Due date for issuance of notice 30.09.2014 30.09.2014 u/s.143(2) expired on Date of search 10.08.2017 10.08.2017 Pending assessment or No No reassessments as on the date of search Status of the assessment as on the Unabated/Completed Unabated/Completed date of search 16.21 In light of the foregoing table, the Ld.AR submitted that, in respect of unabated assessments, and in the absence of any incriminating material unearthed during the course of the search pertaining to AY 2012-13, the AO was not empowered to make additions in relation to alleged unaccounted deposits and the consequential interest thereon. Such additions, it was argued, fall beyond the permissible scope of assessment u/s.153A of the Act. In support of this contention, reliance was placed upon the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd. (2023) 454 ITR 212 (SC).
16.22 With respect to AYs 2015-16 and 2018-19, the Ld. AR submitted that, as the primary addition on account of purported unaccounted deposits was untenable in law, any consequential additions arising therefrom also merit deletion. Accordingly, it was submitted that the Ld.CIT(A) has rightly deleted the impugned additions, and such action does not warrant any interference. The Ld. AR, therefore, prayed that the orders passed by the Ld.CIT(A) be upheld and the appeals preferred by the Revenue be dismissed.
16.23 We have carefully considered the rival submissions advanced by both the parties, perused the material available on record, and thoroughly examined the orders passed by the lower authorities. It is an undisputed fact that the AO made an addition of Rs.6,83,07,000/- on account of alleged unaccounted cash deposits, along with a further addition of Rs.1,22,95,260/- towards purported consequential interest, for the relevant assessment years in question. The basis of the said additions was solely the sworn statement of Shri R. Kathiresan, who is the Managing Partner of the assessee firms. It is further admitted by the Revenue that Shri R.Kathiresan, in his
:-19-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 sworn deposition, stated that the sum of Rs.6,83,07,000/- represented cash deposits received by the assessee firms and other constituent group entities during the FY 2010-11, relevant to the AY 2011-12. However, despite this clear and specific assertion, the AO proceeded to make the addition in AY 2012-13, ostensibly on the ground that the assessee firms failed to substantiate the identity, creditworthiness, and genuineness of the parties from whom the alleged cash deposits of Rs.6,83,07,000/- were received in the preceding assessment year, i.e., AY 2011-12.
16.24 The AO further categorized the addition as a substantive addition in the hands of M/s No.1 Auto Finance and as a protective addition in the hands of M/s.Help Line Motor Finance. In the course of the first appellate proceedings, the Ld.CIT(A) deleted both the additions. The Ld.CIT(A) categorically held that no addition could be sustained solely on the basis of an uncorroborated sworn statement, particularly in the absence of any independent evidence or material corroborating the said deposition. Furthermore, the Ld.CIT(A) held that, since the impugned cash deposits pertained to AY 2011-12, no addition could be made in AY 2012-13 in respect of the same.
16.25 With regard to the addition towards consequential interest amounting to Rs.1,22,95,260/-, the Ld.CIT(A) held that once the principal addition of Rs.6,83,07,000/- stands deleted, there remains no legal or factual basis to sustain the corresponding interest, rendering the addition on account of interest unsustainable.
16.26 Both parties have advanced detailed arguments before us on the issues under appeal. After considering their respective contentions and examining the materials placed on record, we proceed to decide the issues in light of the foregoing analysis and findings.
16.27 We note that the Revenue has not brought on record any incriminating material or documentary evidence to establish that the assessee firms had accepted cash deposits aggregating to Rs.6,83,07,000/- during the AY 2012-13 in support of the AO’s order. There is a complete absence of any corroborative material, which could support the allegation of unaccounted cash transactions in the relevant year. Furthermore, there is no reference to any evidence direct or circumstantial that could
:-20-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 independently verify the alleged payment of interest amounting to Rs.1,22,95,260/- for each unabated year under assessment. No ledgers reflecting such interest payments, no cash flow statements, and no statements from recipients of such alleged interest payments have been produced by the Revenue in support of its contention. Instead, the AO has placed exclusive and excessive reliance on the sworn statement of Shri R. Kathiresan, who, during the course of search proceedings, stated that the assessee firms had accepted cash deposits of Rs.6,83,07,000/- during FY 2010-11, corresponding to AY 2011-12. Crucially, the deposition makes no mention whatsoever of any annual interest payments of Rs.1,22,95,260 on the alleged cash deposits. Nor does it indicate that such interest payments were made in AY 2012-13 or any subsequent assessment years.
16.28 It is a settled position in law that mere reliance on a sworn statement, in the absence of corroborative evidence, is not sufficient to justify additions under the Income Tax Act, 1961. Judicial precedents have consistently held that statements recorded under oath during search or survey operations must be supported by independent material evidence in order to sustain an addition. The Hon’ble Supreme Court and various High Courts have reiterated that evidentiary value of such statements, in isolation, is limited and cannot form the sole basis for additions unless duly corroborated with contemporaneous documentary evidence.
16.29 In the instant case, the Revenue has failed to discharge its burden of proof by not placing on record any material evidence apart from the uncorroborated statement of Shri Kathiresan demonstrating that (i) cash deposits of Rs.6,83,07,000/- were received by the assessee firms during AY 2012-13, and (ii) consequential interest payments of Rs.1,22,95,260/- on such deposits accepted were made in any year.
16.30 In light of the foregoing, it is manifest that the AO has proceeded to make substantive and protective additions based on presumptions and surmises rather than on legally admissible evidence. Such an approach is contrary to the settled principles of natural justice and the evidentiary standards required under the Act. Accordingly, we are of the considered view that the additions made by the AO on account of alleged unaccounted cash deposits and interest thereon are devoid of any legal or factual merit. We note that the Ld.CIT(A), after duly appreciating the :-21-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 factual matrix and applicable legal principles, has rightly deleted the said additions. Therefore, we find no reason to interfere with the well reasoned findings of the Ld. CIT(A).
16.31 We concur with the submission advanced by the Ld.AR that a sworn statement, in isolation, cannot be construed as incriminating material so as to warrant an addition in the assessment proceedings initiated u/s.153A of the Act. In this regard, reliance is placed on the judgement of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax v. Best Infrastructure (India) (P.) Ltd. [(2017) 397 ITR 82 (Del)], wherein the Hon’ble Court categorically held that statements recorded u/s.132(4) of the Act do not, per se, constitute incriminating material, as elucidated in the earlier judgment in CIT v. Harjeev Aggarwal.
16.32 In the present case concerning the assessee firms, as per the factual matrix stated in para 16.20 supra, we observe that the AY 2012-13 pertains to an unabated or concluded assessment. It is a settled law, as reaffirmed by the Hon’ble Supreme Court in the landmark judgement in PCIT v. Abhisar Buildwell (P.) Ltd. [(2023) 454 ITR 212 (SC)], that in the case of unabated assessments, no additions u/s.153A of the Act can be made in the absence of any incriminating material found during the course of a search conducted u/s.132 of the Act.
16.33 In view of the foregoing legal principles, it is evident that the impugned addition made by the AO on account of purported unaccounted deposits is not founded upon any incriminating material unearthed during the course of the search conducted under the provisions of the Act. Accordingly, such addition falls beyond the ambit of assessment permissible u/s.153A of the Act, in relation to an assessment year that has not abated. As such, the said addition is not sustainable in law and is liable to be deleted.
16.34 We are, therefore, of the considered opinion that the additions made by the AO, both on a substantive and protective basis, lack legal tenability and hence we find merit in deletion made by the ld.CIT(A) on this ground alone. Consequently, the corresponding additions made towards interest for the respective assessment years are also rendered unsustainable, which has been deleted by the ld.CIT(A) as the underlying interest additions have not been upheld.
:-22-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 16.35 Upon a careful and considered examination of the assessment order passed by the AO, it is observed that the AO has made an addition in respect of certain alleged unaccounted cash deposits, treating the same as undisclosed income of the assessee firms for the AY 2012-13. The basis for such addition appears to be the purported failure on the part of the assessee firms to substantiate, with adequate documentary evidence, the identity of the depositors and the genuineness of the said deposits, which are stated to have originally arisen in the preceding AY 2011-12. In this regard, we are of the considered opinion that the impugned action of the AO suffers from a fundamental fallacy inasmuch as it seeks to bring to tax the opening balances of the assessee firms as income of a subsequent assessment year, i.e., AY 2012-13. It is a settled principle of law that only income that is accrued, arisen, or received during the relevant previous year can be subjected to tax in that assessment year. Opening balances, being carried forward from earlier years, cannot, by any stretch of interpretation, be construed as income arising or received during the subsequent financial year, unless there is tangible evidence of concealment or fresh inflow during the relevant previous year. Therefore, the addition made by the AO in AY 2012-13 in respect of deposits allegedly received in AY 2011- 12 is devoid of legal merit and unsustainable in law. Accordingly, such addition, along with any consequential computation of interest under the relevant provisions of the Act, is liable to be deleted. The action of the AO, being contrary to the settled principles of income recognition and lacking in factual and legal foundation, cannot be sustained.
16.36 In light of the foregoing discussion, we are of the considered opinion that the Ld.CIT(A) has rightly and judiciously deleted the substantive as well as the protective additions made by the AO in respect of the alleged unaccounted cash deposits and the interest purportedly paid thereon, in the hands of M/s No.1 Auto Finance and M/s.Help Line Motor Finance. The order passed by the Ld.CIT(A) is well-reasoned, detailed, and has adequately dealt with the contentions of the AO, while also appreciating the evidentiary material placed on record. We do not find any infirmity, either in law or on facts, in the said appellate order which would warrant our interference. Accordingly, we uphold the findings of the Ld.CIT(A), and the relevant
:-23-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 grounds of appeal raised by the Revenue for the assessment years involved are, therefore, dismissed.
17. Issue No.3 & 4: Addition of unaccounted loan to M/s.Viswas Promoters Private Limited and interest on such unaccounted loan: 17.1 The relevant facts apropos to the impugned issue are that during the course of assessment proceedings for the AY 2015-16 in the case of the assessee firm, M/s.No.1 Auto Finance, the AO was in possession of certain information arising out of a search action conducted on 29.11.2017, u/s.132 of the Act in the case of M/s.Viswas Promoters Private Limited, Madurai.
17.2 In the course of the said search, an Excel sheet was seized which contained notings pertaining to cash loans advanced and repayments made thereon, including interest payments by one Shri S.Seetharaman, Managing Director of M/s.Viswas Promoters Private Limited, to various parties. Upon examination of the said document, the AO observed that the assessee had allegedly advanced a sum of Rs.1,00,00,000/- in cash to Shri S.Seetharaman during the month of March 2015. The AO further noted that the outstanding amount was subsequently reduced to Rs.25,00,000/- in June 2016.
17.3 Based on the aforesaid findings, the AO issued a show cause notice to the assessee, proposing to treat the said amount as unexplained loan advanced by the assessee. In response, the assessee contended that the loose sheet, being an uncorroborated third party document found in an unrelated search proceeding, could not be validly relied upon to draw adverse inferences against it, in the absence of independent corroborative evidence.
17.4 The AO, however, rejected the assessee's contention and observed that the seized material found at M/s.Viswas Promoters Private Limited, Madurai clearly contained detailed entries concerning loan transactions involving M/s.CFC and other related entities, including the assessee. It was further noted that in response to Question No.5 of his statement recorded during the search proceedings, Shri S.Seetharaman had affirmed that a loan was arranged from Karur through one Shri D.S.Senthivel, whose name also appeared in the seized records.
:-24-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 17.5 In view of the above, the AO found the assessee's objections to be devoid of merit and held that sufficient opportunity had been provided to the assessee, including access to the seized material, the relevant statements recorded under oath, and the basis for the proposed addition. It was thus concluded that the addition could not be characterized as having been made exparte or in violation of the principles of natural justice.
17.6 With respect to the assessee’s request for cross-examination of Shri S.Seetharaman, the AO took a view that the addition was not based solely on the said individual's statement. Instead, it was substantiated by contemporaneously maintained documents recovered during the course of search, which were self- explanatory and bore direct reference to the assessee’s name and the quantum of loan. The AO opined that the explanatory statement of Shri S.Seetharaman merely supported and clarified the entries already recorded in the seized documents.
17.7 Accordingly, the AO proceeded to make an addition of Rs.1,00,00,000/- as unaccounted loan advanced by the assessee, along with an addition of Rs.2,48,000/- towards accrued interest, for the AY 2015-16 in the hands of the assessee firm.
17.8 Aggrieved by the aforesaid additions, the assessee preferred an appeal before the Ld.CIT(A), wherein after perusal of the documents and submissions of the assessee, ld.CIT(A) in his order dated 26.12.2024, deleted the said additions, observing as under:
“6.3.6 The undersigned has carefully examined the issue under consideration. As brought out supra, the addition contemplated by the AO for the AY 2015-16 is based upon the evidences collected at the third party premise during the course of the independent search conducted in the case of M/s. Visvas Promoters Pvt Ltd, Madurai. The search in the case of M/s. Visvas Promoters Pvt Ltd, Madurai was conducted on 29.11.2017. Consequent to the findings made in this search, no enquiries were made by the AO to confront the evidences collected, with the Appellant Firm and verify its genuineness. In the absence of any such enquiry, there was no occasion neither on the part of the Authorised Officer nor the AO to record any statement from the Appellant in this regard. The issue was highlighted before the Appellant only by way of a show cause notice issued during the course of assessment proceedings and the assessment was completed for the AY 2015-16.
:-25-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.3.7 When the AO is confident about the transaction stated in the assessment order based upon the seized material, he should have made a reasonable enquiries before arriving at a conclusion that the Appellant has actually advanced such loans and received such interests as discussed in the assessment order. The Appellant during the course of Appellate proceedings has strongly contended that the evidence relied upon by the AO is in the nature of a dumb document and cannot be relied upon. The AR strongly argued that the evidences collected from the third party premises cannot be used against the Appellant without providing an opportunity to cross examine the author or the person who has maintained such records. The Appellant had no opportunity to examine the seized material and the same was put forth before the Appellant during the course of assessment proceedings only. Further it has been claimed that the Appellant before understanding the issues involved, the AO completed the assessment by adding the amounts narrated in the seized material gathered from the third party premise. 6.3.8 Now the issue before the undersigned is whether the narration made in the seized material found at the third party premise can be relied upon or not. It may be appreciated that the said evidence relied upon by the AO was neither seized from the premises of the Appellant nor was the same found to be maintained by the Appellant. Such material was seized from the premises of a third party, which is not maintained by the Appellant does not constitute adequate evidence to draw any adverse inference against the Appellant, in the absence of any other corresponding corroborative evidence. This proposition has been laid down by the Hon'ble Delhi High Court in the case of CIT Vs Sant Lal [2020] 118 taxmann com 432 (Del) , wherein it was held that where a diary was seized in search of the premises of a third party allegedly containing entries of hundi transactions on behalf of various parties including the assessee, no addition could be made based on the said entries since the diary was neither found from premises of assessee nor was it in handwriting of assessee and revenue failed to produce any other cogent material to link the assessee to the diary. 6.3.9 The ratio of the said decision is squarely applicable to the case of the Appellant as the AO has not referred to any cogent evidence applicable to the case of the Appellant. As the AO has not referred to any cogent material to corroborate that the entries made in the excel sheet seized from a third party which are purportedly the transactions made by the Appellant. There is absolutely no mention in the seized material regarding the nature of the said transactions of cash payments, the purpose of such payments and the precise identity of such transaction. 6.3.10 A narration made in a excel sheet by a third person with scant details cannot be used to fasten tax liability upon the person. Further in this regard, it is also necessary to refer to the decision of Hon’ble Supreme Court in the case of State of Kerala vs KT Shadulli and Nalla Kandy Yusuf 1977 UPTC 363, where it has been observed that, it is quite possible that the author of the seized documents may have mentioned certain transactions in their books of accounts either to embarrass the assessee or due to animus or business rivalry or such other reasons which could only be established when the department examines such author of the document. In the absence of any corroborative evidence to attribute the :-26-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 entries to such a person. Such seized material is liable to be treated as a flawed document, which does not have any evidentiary value in respect of the entries found therein, unless corresponding corroborative evidence is available which can provide necessary reliable basis for deciphering the nature and character of the said entries. 6.3.11 At this juncture, it would be relevant to refer to the decision of Hon'ble ITAT, Jabalpur in the case of ACIT Vs Satyapal Wassan [TS-5104- ITAT 2007(Jabalpur)-O] (2008) 5 DTR 0202, wherein the Hon'ble ITAT stressed the importance of gathering corroborative evidence in support of the contents of a document, particularly when the document is bereft of necessary details and is not complete in all respects, by stating as under: "For the sake of argument if we accept the submission of the learned Departmental Representative that the learned CIT(A) erred in accepting fresh evidence then what is left after ignoring those affidavits is the bare document No. 7 with the bare details as referred to above. The moot question now arises is whether any addition can be made on the basis of that document. We have already pointed out above that this document is bereft of necessary details about year of transaction, ownership of transaction, nature of transaction, necessary code for deciphering the figures. It may be possible that a document may not be complete in all respects as the businessmen or tax evaders may choose to record minimum details on a document and keep the rest in their memory. It is the duty of the AO to carry out necessary investigations by correlating the impugned document with other documents seized, with regular books of account, with record kept by outside agencies, such as banks or financial institutions or debtors/creditors and finally, by recording the statements of concerned parties so as to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation is necessary unless the document is capable of speaking giving full details so as to enable any intelligent person to find out the nature of transaction, the year of transaction, the ownership of the transaction and quantum thereof. Even in that situation, it is necessary to give opportunity to the assessee to offer his explanation and investigation be carried out to strengthen the direct inference arising from this document.” 6.3.12 The proposition that addition cannot be made merely on the basis of entries in excel sheets found in the premises of a third party without bringing on record independent evidence to corroborate such entries has been reiterated in several decisions. Some of the decisions to this effect are MM Financiers (P) Ltd Vs. DCIT (2007) 107 TTJ (Chennai) 200, Regency Mahavir Properties Vs ACIT [2018] 169 ITD 35 (ITAT-Mumbai), ACIT Vs. Katrina Rosemary Turcotte [2017] 190 TTJ 681 (ITAT-Mumbai), DCIT Vs. Vipin Aggarwal [2017] 83 taxmann.com 6 (ITAT Chandigarh), S.P Goyal Vs DCIT [2002] 82 ITD 85 (TM) IΠΑΤ, T.S Venkatesan Vs ACIT [2000] 74 ITD 298 (Cal) and Monga Metals (P) Ltd Vs ACTT [2000] 67 TTJ 247. 6.3.13 In particular, it is of critical importance that the evidence to corroborate the entries indicating the advancement of loan and interest payments in the seized material found with a third party is available with :-27-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 specific reference to the fact regarding actual transfer of money from the said third party to the recipient named in the said entries in the seized material. The Hon'ble ITAT, Mumbai held in the case of Riveria Properties Private Limited Vs ITO in that the AO is required to bring further evidence on record to show that the money was actually exchanged between the parties in a case where there is no other evidence on record to prove that on-money was paid except the loose sheet found in the premise of a third party and admission made by the third party. The relevant part of the said decision is reproduced as under: "In the present case on hand, except loose sheet found in the premises of third party and admission made by the third party in their assessment proceedings, there is no other evidence on record to prove that on money is paid. The assessing officer, without brought on record any evidence to prove that on money is exchanged between the parties, merely harping upon the loose sheet and the third party admission, which cannot be considered as conclusive evidence against the assessee to bring on money to tax as undisclosed income. The AO is required to bring further evidence on record to show that actual on money is exchanged between the parties, but literally failed to do so. The A.O. did not conduct any independent enquiry relating to the value of the property instead, merely relied upon the statement given by the purchasers of the property, which is not correct. Further, there is no proof of origin and destination of on money. The A.O failed to prove the source of the purchasers as to how the money was arranged and also failed to prove the deployment of unaccounted money by the seller by any form of evidence. Under these circumstances, based on paper jottings as conclusive evidence on money cannot be brought to tax as income from undisclosed sources.” 6.3.14 Further in the case of K.P Varghese Vs. ITO (1981) 131 ITR 597, the Hon'ble Apex Court held that “the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and that throwing the burden of showing that there is no under-statement of consideration on the assesse would be to cast an almost impossible burden upon him to establish the negative, namely, that he did not receive any consideration beyond what has been declared by him. It needs to be held that the burden is on the revenue to adduce proper evidence to corroborate the contents of the seized material for the purpose of establishing that the Appellant was in fact in receipt of the payments as noted in the seized material”. In the present case, upon perusal of the facts as brought out by the AO in the assessment order, such a burden has not been discharged by the revenue in the case of the Appellant. 6.3.15 As per the decisions of the Hon'ble Apex Court in the case of Dhakeshwari Cotton Mills Lids. CIT (1954) 26 ITR 775 (SC) corroborative evidence is essential to support the evidence found in third party premise. In order to properly appreciate the issue, it is useful to refer to the following extract from the decision of Hon'ble Apex Court in the case of Dakeswari Cotton Mills Ltd Vs. CIT (1954) 26 ITR 775 (SC): "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax
:-28-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence, a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh (supra)". 6.3.16 As discussed supra, the seized material relied upon by the AO, more particularly the excel sheet which was found and seized at third party premise when the same was not maintained by the Appellant Firm or its authorised persons, obviously such excel sheet can only be in the nature of a Flawed document. The AO cannot arrive at any conclusion based solely on the said material that the Appellant have actually advanced such loans and received interests upon such loans. Further there is no corroborative evidence to prove that the payments noted in the seized material have actually materialised and transfer of money has actually taken place between the concerned parties. It is pertinent to bring on record that during the course of search at the Appellant’s premises the search team was not able to come across any evidence that the Appellant has actually advanced such loans or received interest upon such loan. 6.3.17 In addition the presumption laid down u/s 132 (4A) and section 292C of the Act will not apply in respect of evidences collected at third party premises. In this regard, it is necessary to refer to the decision of Hon’ble Allahabad High Court in the case of CIT vs Shadi Ram Ganga Prasad, SP Kanodia and Smt. Premlatha Kanodia [2011] 9 Taxmann.com 193 (Allahabad), where it has been held that the loose papers found from the possession of a person during the search can be used to raise a presumption against the said person only. The Hon’ble High Court further held that, contents of the said loose sheets cannot be held against the parties whose names appear therein, unless the person from whose possession it was recovered admits in his statement that the entries in the loose sheet relate to the transaction made by such parties. A similar view has been taken by Hon’ble High Court of Delhi in the case of CIT vs Vivek Aggarwal [2015] 56 Taxmann.com 7, where it has been held that, no efforts were made by the department to establish the nexus of the assessee with the undated and unsigned printout found during the search and to corroborate the contents of the said printout to arrive at a definite conclusion that the assessee derives such alleged income. The Hon’ble High Court of Bombay in the case of PCIT vs Umesh Israni [2019] 108 Taxmann.com 437 held that, the entries of the loose papers which were seized were not corroborated with any other evidence on record and no enquiry or verification was made and thus, no additions can be made u/s. 69A of the Act. The above findings have been affirmed by the jurisdictional tribunal in the case of DCIT vs. M/s. Appu Direct Pvt Ltd in Nos.: 665 & 666/Chny/2023 & CO Nos.: 37 & 38/Chny/2023 dated 24.01.2024.
:-29-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.3.18 In view of the above, the undersigned is of the considered view that as the AO has failed to bring any cogent and corroborative evidence to prove that the narrations made in the seized excel sheet about the advancement of loan and receipt of interest, the addition made by the AO based upon such seized material can only be presumptive or fictious. Accordingly, the additions made by the AO in respect of advance of loan and receipt of interest lacks merits and cannot be sustainable. In this back drop all the grounds raised by the Appellant upon this issue are hereby treated as allowed and the AO is hereby directed to delete the addition of Rs.1,00,00,000/- and the interest of Rs. 2,48,000/- made for the AY 2015- 16 and Rs.19,32,000/- for the A.Y. 2016-17.” 17.9 Aggrieved by the deletion of additions by the Ld.CIT(A), the Revenue is in appeal before us.
17.10 The ld.DR, Ms.E.Pavuna Sundari, CIT, submitted that during the course of the search conducted at the premises of M/s.Viswas Promoters Private Limited, evidence in the form of an Excel sheet containing financial noting was recovered. The said document indicated that the assessee firm had advanced a loan amounting to Rs.1,00,00,000/- and received interest income of Rs.2,48,000/- during the AY 2015-16. It was contended that the AO had rightly made the addition on this basis. The Ld.DR further submitted that the Ld.CIT(A) erred in deleting the said addition without properly appreciating the material evidence relied upon by the AO. Accordingly, it was prayed that the addition made by the AO be upheld and the grounds of appeal raised by the Revenue in relation to the impugned issue be allowed.
17.11 Per contra, the Ld.AR, Shri R. Venkata Raman, Chartered Accountant, contended that there is no corroborative evidence available on record to substantiate or support the entries noted in the alleged Excel sheet relied upon by the AO. It was therefore argued that the additions made by the AO towards the alleged unaccounted loan and the corresponding interest are devoid of any factual or legal basis, and have rightly been deleted by the Ld.CIT(A).
17.12 Further, adverting to the statement of Shri S.Seetharaman, as referred to in the assessment order, the Ld.AR submitted that Shri S. Seetharaman merely stated that the loan arrangement was facilitated through one Shri Senthilvel, but at no point did he name the assessee firm directly in connection with the said transaction. In support of these contentions, the Ld.AR placed reliance on the decision of this :-30-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 Tribunal in DCIT v. Periampillai Nadar Thangavelu Soundarapandian, dated 21.02.2025, wherein, on identical facts, this Tribunal had deleted similar additions made towards unaccounted loans solely on the basis of alleged entries in an Excel sheet recovered during the search proceedings conducted at the premises of Shri S.Seetharaman.
17.13 In light of the above submissions, the Ld.AR prayed for confirmation of the order passed by the Ld.CIT(A) deleting the additions made on account of the alleged unaccounted loan as well as the consequential interest charged thereon in the hands of the assessee firm.
17.14 We have heard the rival contentions, perused the materials available on record and gone through the orders of the authorities below. The sole issue that arises for our consideration is the validity of addition of Rs.1,00,00,000/- and consequential interest of Rs.2,48,000/- made by the AO and deleted by the Ld.CIT(A). The AO made an addition in the hands of the assessee on the basis of excel sheet noting maintained by Shri S.Seetharaman of M/s.Viswas Promoters Private Limited. In his sworn statement, Shri S.Seetharaman has clearly stated that the loan from Karur parties was arranged through Shri Senthilvel. Thus, Shri S.Seetharaman has never deposed that the assessee has advanced loan of Rs.1.00 crore either to him or to M/s.Viswas Promoters Private Limited.
17.15 We have observed that the AO has never conducted any enquiry with Shri Senthilvel, in spite of being named by Shri S.Seetharaman in his sworn statement. The AO has also not conducted an enquiry to ascertain the actual lender. The assessee cannot be expected to prove the negative. Further, it is not the case of the AO with credible evidence to demonstrate that the assessee has actually advanced loan to either Shri S.Seetharaman or M/s.Viswas Promoters Private Limited. Thus, in our considered view that the statement of Shri S.Seetharaman is irrelevant in making an addition in the hands of the assessee.
17.16 The AO has made an addition on the basis of excel sheet found at the premises of third party. The assessee has denied advancing loan to Shri S.Seetharaman. The AO has not brought any other corroborative evidence on record to prove that the assessee has advanced cash loan to Shri S.Seetharaman. The :-31-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 excel sheet was neither authored by the assessee nor found from the premises of the assessee. The name of the assessee in the excel sheet found at third party premises can only trigger the enquiry and that itself is not sufficient to establish the ownership of investment as unexplained. The mere fact that there were certain entries found from the records of third party is not sufficient to make addition on the ground that assessee had made unexplained investments.
17.17 The Ld.CIT(A) has rightly relied upon the decision of the coordinate bench of Tribunal in the case of DCIT v. Appu Direct Pvt Ltd (ITA Nos. 665 & 666 / CHNY / 2023 dated 24.01.2024) for the proposition that cash transactions recorded in excel sheets found during the course of search proceedings cannot be added in the absence of corroborative evidence. We find that the coordinate bench of Tribunal has held as under:
“10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered reasons given by the AO to make additions towards alleged cash transactions as per seized excel sheets found in the possession of Shri. P.Karthikeyan, an employee of Christy group of companies. The three excel sheets based on which undisclosed income of the assessee has been worked out by the AO was found in the electronic devices seized from Shri. P. Karthikeyan, an employee of M/s. Christy Fried Gram Industry, during the course of search conducted in Christy group of cases. The seized material is therefore in the nature of materials seized in case of third party. Further, said material being a typed excel sheets in electronic form, the same is not in the handwriting of any partners or other employees of the assessee firm and the seized material does not contain any acknowledgement of the assessee with regard to the entries found therein, in respect of transactions allegedly made by the Christy group of concerns with assessee firm. Further, no other evidences including sale bills, cash receipts, unaccounted purchase bills etc, were found neither during the course of search of Christy group of concerns or during the course of search in the business premises of the assessee to corroborate the entries found in the excel sheets. Besides the same, it is noticed that no evidences of undisclosed asset, undisclosed expenditure including undisclosed investment etc were found in the course of search in the business premises of the appellant. It is therefore evident that, no documentary or other evidences to corroborate the entries of cash receipts and payments in the excel sheets were found to support the findings of the AO that said transactions are unaccounted transactions and are outside the books of accounts of the assessee. We further noted that, the AO neither during the assessment proceedings has made any reference to statements recorded u/s. 132(4) of the Act during the course of search in Christy group of cases or in the case of the assessee with reference to excel sheets found during the course of search to verify the contents recorded therein. Neither the person from :-32-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 whom said documents was found was examined nor the appellant or its partners was confronted with those evidences to verify the contents therein. From the above, it is clear that the AO has made additions towards cash transactions u/s. 69A of the Act, without there being any corroborative evidence to strengthen the entries recorded in excel sheet found during the course of search on third party. Therefore, we are of the considered view that no additions can be made u/s. 69A of the Act, on the basis of evidences found in the possession of third party, without examining contents of said documents from the person from whom said documents was found and also from the assessee and its partners. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence. This proposition has been laid down by the Hon’ble Delhi High Court in the case of CIT vs Sant Lal [2020] 118Taxman.com 432, where it has been clearly held that the assessee cannot be put to any liability on the action of a third person where the material was not found from the premises of the assessee nor was in the handwriting of the assessee, since, the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather or corroborate evidence in this relation.” 17.18 We also rely on the judgment of the Hon’ble Delhi High Court in the case of CIT v. Sant Lal [2020] 423 ITR 1 (Del), wherein the Hon’ble Court has held that the assessee cannot be fasten with the liability on the basis of third-party material in the absence of any cogent material. In the case of the assessee the AO neither conducted proper enquiry to identify the actual lender nor made an effort to gather or corroborate evidence to establish that the assessee has actually advanced cash loan to either Shri S.Seetharaman or to M/s. Viswas Promoters Private Limited. Respectfully following the same, we are of the considered view that the findings of the Ld.CIT(A) cannot be found faulted with and hence we do not find any reason to interfere with the findings of the Ld.CIT(A).
17.19 In view of the foregoing facts, circumstances, and legal position discussed hereinabove, we are of the considered opinion that the Ld.CIT(A) has correctly appreciated the material on record and has rightly deleted the additions of Rs.1,00,00,000/- and Rs.2,48,000/- made by the AO on account of alleged unaccounted loan and interest respectively, in the hands of the assessee for the AY 2015-16. The Ld.CIT(A)'s findings are based on cogent reasoning which have not been effectively rebutted by the Revenue. In the absence of any perversity or material irregularity in the order passed by the Ld.CIT(A), we find no merit in the grounds of appeal raised by the Revenue with respect to the impugned additions.
:-33-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 Accordingly, the grounds of appeal preferred by the Revenue for the AY 2015-16, insofar as they relate to the addition of the alleged unaccounted loan and the corresponding interest thereon, are hereby dismissed.
18. Issue No.5: Addition of unexplained cash 18.1 The facts relevant to the issue are, during the course of a search operation conducted at the business premises of the assessee firms, cash amounting to Rs.1,10,10,000/- was found and seized. Upon verification of the books of account, the Authorized Officer observed that the aggregate cash balance reflected in the books of all the 74 partnership firms operating from the said premises, as on the date of search, was Rs.2,38,52,901/-. Accordingly, it was noted that the recorded cash balance exceeded the actual physical cash found and seized.
18.2 Shri R.Kathiresan, in his sworn statement dated 10.08.2017, in response to Question No.12, affirmed that the aforesaid cash balance of Rs.2,38,52,901/- was maintained in the office locker. However, only Rs.1,10,10,000/- was physically found at the time of search. Shri R. Kathiresan was unable to provide any explanation for the shortfall in physical cash vis-à-vis the book balance.
18.3 Further, in response to Question No.13, he stated that no funds belonging to third parties were kept at the office, nor were the funds of the assessee firms maintained at any other location. Subsequently, on 11.08.2017, in response to Question No.5, he deposed that the amount of Rs.1,10,10,000/- found and seized pertained collectively to all the 74 partnership firms functioning from the said premises. However, he was unable to furnish a specific break-up of the said cash amount among the individual firms.
18.4 In a further statement recorded on 13.09.2017, Shri R. Kathiresan reiterated his inability to identify the firm-wise bifurcation of the seized cash, citing that only Shri K. Murugesan, who functioned as the coordinator of all the finance firms operating at the premises, would be privy to such details.
18.5 In relation to the foregoing, the AO issued a show cause notice to the assessee firms requiring them to explain why the cash amounting to Rs.1,10,10,000/-, found and seized during the course of the search proceedings,
:-34-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 should not be treated as unexplained cash under the provisions of the Act. In compliance thereto, the assessee firms submitted their objections before the AO on 25.11.2019.
18.6 The assessee firms, during the course of assessment proceedings, submitted before the AO that all the 74 firms operating from the searched premises were independently constituted through separate partnership deeds and are duly reflected in the records of the Income Tax Department. It was further submitted that each of these firms has consistently complied with the statutory requirement of filing returns of income since their respective dates of constitution. Each firm operates a distinct bank account, and there is no interlacing or interlocking of funds among the firms, thereby maintaining the integrity of their individual financial affairs.
18.7 The assessee contended that during the search conducted u/s.132 of the Act, the Department seized cash aggregating to Rs.1.10 crore, a computer hard disk, certain discharged promissory notes, files, and loose sheets. The assessee further explained that the seized hard disk contained contemporaneous business records maintained on a day-to-day basis. It was submitted that Shri M. Kathiresan, at the time of recording his statement, did not have access to the said data and, as such, responded to queries based on his personal recollection and without the aid of the seized materials.
18.8 Subsequently, upon obtaining access to the seized digital data, the assessee submitted that the consolidated cash balance available across all 74 firms as on the date of search aggregated to Rs.2,38,52,901/-. In support of the reconciliation, it was explained that a loose sheet titled “Errattu Bakki”, found during the search, contained a list of payments totalling Rs.99,16,169/-, which, although made, had not been contemporaneously recorded in the books of account. Additionally, a sum of Rs.23,92,000/- was stated to have been withdrawn by Shri Kathiresan for the purpose of settling dues payable to retiring partners, which again had not been recorded in the books as on the date of search. After accounting for these items, the assessee furnished a reconciliation showing physical cash of Rs.1,15,44,732/-, leaving an unreconciled difference of Rs.5,34,732/-. The assessee submitted that :-35-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 this minor difference may be ignored in light of the detailed explanation provided and the overall consistency of the reconciliation.
18.9 Based on the above facts and submissions, the assessee firms urged the AO to refrain from making any addition on account of alleged unexplained cash. However, the AO, not being satisfied with the explanation and reconciliation furnished, proceeded to treat the entire amount of Rs.1,10,10,000/- found and seized at the business premises as unexplained money. Consequently, an addition of Rs.1,10,10,000/- was made substantively in the hands of M/s. No.1 Auto Finance and protectively in the hands of M/s.Help Line Motor Finance for the AY 2018-19.
18.10 The AO made the aforementioned addition on the basis of observation that the single sheet titled "Errattu Bakki" was not a document seized during the course of the search proceedings, but rather voluntarily submitted by the assessee under his signature, along with details of cash and bank balances as on 09.01.2016 and 10.08.2017.
18.11 The AO further noted that no separate books of account had been maintained by the assessee, nor were any rough or subsidiary books produced to substantiate the claim that the funds of the constituent firms within the group were neither interlaced nor intermingled. Upon examination of the printouts of the Trial Balance pertaining to the assessee firms, the AO observed that only the assessee firms were reflected therein, with no indication of any of the other constituent group firms.
18.12 Additionally, the AO referred to the sworn statement of Shri Kathiresan, recorded on 11.08.2017 in response to Question No. 3, wherein he admitted to having withdrawn a sum of Rs.25,00,000/- for the purpose of acquiring a vacant plot in his individual capacity, in addition to acknowledging the Errattu Balance of Rs.99,16,169/-. Shri Kathiresan was unable to reconcile the remaining amount of Rs.22,50,950/- during the course of the search proceedings.
18.13 Consequently, the assessee firms were called upon to furnish the names, addresses, and PAN of the recipients of the "Errattu Bakki" amounts, as well as to identify the partners who had received funds from Shri Kathiresan. In the absence of satisfactory compliance and in view of the above findings, the AO rejected the :-36-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 objections raised by the assessee firms and proceeded to make an addition towards unexplained cash.
18.14 Before the Ld.CIT(A), the assessee firms reiterated the submissions previously made before the AO. The Ld.CIT(A), vide order dated 26.12.2024, deleted the substantive addition to the extent of Rs.1,04,65,268/-, while sustaining an unreconciled amount of Rs.5,34,732/-. Further, the Ld.CIT(A) deleted the protective addition of Rs.1,10,10,000/- in its entirety. The relevant observations of the Ld.CIT(A) are as under:-
“6.4.4 The undersigned has carefully examined the issue under consideration. As evident in the assessment order it can be seen that during the course of search conducted on 10.08.2017 at the premises of M/s. No.1 Auto Finance and M/s. Helpline Motor Finance, an amount of Rs.1,10,10,000/- was found and seized. The books of accounts of the two firms, however, reflected a total cash balance of Rs.2,38,52,901/-. The Appellant in the statement recorded on 10.08.2017 has clearly stated that a cash balance as per the cash book in respect of 74 Firms is Rs.2,38,52,901/-. The relevant question and answer is appended herewith.
:-37-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 6.4.5 During the course of assessment proceedings, the assessee, vide submission dated 24.11.2019, clarified that the 74 firms under their group were constituted separately and maintained individual records, including separate bank accounts, with no interlinking of funds. The assessee also claimed that the data from the seized hard disc, accessed later, contained the cash balance details of 74 firms. The discrepancy between the cash on hand (Rs.2,38,52,901/-) and the cash seized (Rs.1,10,10,000/) was attributed to the settlement of accounts of retiring partners (Rs.23,92,000/- ), and a list of payments totalling Rs.99,16,169/- was provided, which was not recorded in the daybook. After reconciling the data from the hard disc, the assessee stated that the available cash on the date of search amounted to Rs.1,15,44,732/-, which was close to the seized cash, with only a difference of Rs.5,34,732/-. The AO, after reviewing the submissions, rejected the assessee's explanation and made an addition of the seized cash (Rs.1,10,10,000/-) for AY 2018 19 as unexplained income. The AO did not examine or verify the records stored on the seized hard disc, and solely relied on the deposition of Shri Kathiresan. 6.4.6 The AO has brought out the extract question No. 5 and answer to it in the assessment order of the statement recorded from Shri. R. Kathiresan at page no. 27, the same is reproduced here as under once again.
The AO in the Assessment Order brought on record the above statement but failed to bring it on record the statement recorded on 10.08.2017 wherein the Appellant has explained in detail that the cash balance as per the cash book as on 10.08.2017 in respect of the 74 Firms as Rs.2,38,52,901/- 6.4.7 On examining the above statement which was brought out by the AO in the Assessment Order in light of the facts and circumstances, it is evident that the physical cash amount of Rs.1,10,10,000/- relates to deposits, inclusive of the principal and interest received, as stated by Shri R. Kathiresan in his statement recorded u/s 132(4) of the Act. However, several key aspects of the case merit close attention, as they cast doubt on :-38-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 the validity of the addition made by the AO. Shri R. Kathiresann has explicitly stated in his deposition that the physical cash found of Rs.1,10,10,000/- represents deposits, including principal and interest, received over a period of time. More significantly, he clarified that these amounts pertain to all 74 firms collectively, and it cannot be attributed to any specific firm or business concern. This broad association with multiple entities creates ambiguity regarding the true nature and source of the cash. 6.4.8 Further in the recorded statement, at no point did Shri R. Kathiresan explicitly stated that the physical cash was unaccounted or outside the purview of regular books of account. In this regard the AO has not brought on record any corroborative evidence to suggest that the cash was not disclosed in the books of the appellant or the 74 firms mentioned. In the absence of any such findings, the presumption of treatment of the physical cash found as unaccounted cannot hold good. It may be appreciated that on the day of search itself on 10.08.2017 in answer to question No. 11 and 12, Shri Kathiresan has clearly stated that the cash balance available in respect of the 74 Firms which are functioning at the premise stood at Rs.2,38,52,901/-. During the course of the Assessment Proceedings, the Appellant was able to demonstrate on the basis of the material seized during the course of search (from the Hard Disk seized) that the cash balance available in respect of the 74 Firms is Rs.2,38,52,901/-. Therefore, this amount cannot be taken as unaccounted cash generated by the Appellant during the course of its business. 6.4.9 Further, the appellant was able to reconcile the cash balance by explaining the movement of funds, including the Rs. 23,92,000/- used to settle accounts of retiring partners, and the list of payments (Rs.99,16,169/-) that were not entered in the daybook. This clearly demonstrates that the cash on hand as of the date of the search was Rs.1,15,44,732/-, which was in line with the seized amount of Rs.1,10,10,000/-. The appellant pleaded during the course of assessment proceedings that the difference of Rs.5,34,732/- is marginal and can be considered as a minor discrepancy in light of the overall evidence provided. 6.4.10 The legal principles of burden of proof require the revenue to establish the unexplained nature of the seized assets beyond reasonable doubt. The appellant has provided credible evidence through the seized hard disc, which clearly demonstrates the availability of cash and explains the discrepancy in the books of accounts. 6.4.11 In view of the above detailed discussion(s), it is clear that the appellant was not able to reconcile for the balance amount of Rs. 5,34,732/-. The undersigned is of the considered view this unreconciled amount requires to be treated as the unaccounted business income of the appellant firm for the AY 2018-19. In view of this, out of addition of Rs. 1,10,00,000/- made as unexplained money a sum of Rs. 5,34,732/- is hereby sustained. Accordingly, all the grounds raised upon this issue are hereby treated as partly allowed and the AO is hereby directed to delete the addition to the extent of Rs. 1,04,65,268/- for the AY 2018-19.”
:-39-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 18.15 Aggrieved by the relief granted by the Ld. CIT(A), the Revenue has preferred the present appeals, challenging the deletion of both the substantive and protective additions.
18.16 The Ld.DR, Ms.E.Pavuna Sundari, CIT, placing reliance on the respective assessment orders, submitted that no separate or independent books of account were maintained by the remaining 72 partnership firms allegedly forming part of the assessee firms’ group. The Ld.DR contended that the entire business activity of money lending was, in substance and in practice, carried out exclusively by the two assessee entities, viz., M/s.No.1 Auto Finance and M/s.Help Line Motor Finance. Therefore, the Ld.DR submitted that the existence and functioning of the other 72 partnership firms was merely on paper and not supported by any independent financial records.
18.17 The Ld. DR further argued that the reconciliation statement furnished by the assessee, which purportedly contained consolidated cash balances of the group entities, could not be relied upon in the absence of verifiable and contemporaneous documentation evidencing separate business operations or independent cash flows of the said 72 firms. In view thereof, it was submitted that the reconciliation of cash as attempted by the assessee lacks evidentiary value and does not inspire confidence.
18.18 It was also emphasized by the Ld.DR that during the course of search proceedings, a significant mismatch was noticed between the physical cash found and the book balances maintained by the assessee firms. Despite multiple opportunities, the assessee failed to satisfactorily reconcile the discrepancies or substantiate the source and ownership of the excess cash. As such, the inference drawn by the AO that the cash represents unaccounted income of the assessee firms is both reasonable and legally sustainable.
18.19 Accordingly, the Ld.DR contended that the AO was justified in making a substantive addition of the unexplained cash in the hands of M/s.No.1 Auto Finance, being the principal entity engaged in the money lending business, and a protective addition in the hands of M/s.Help Line Motor Finance, to safeguard the interest of the Revenue, pending final determination of the rightful assessee.
:-40-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 18.20 In conclusion, the Ld.DR submitted that the assessment orders passed by the AO is well-reasoned, factually and legally sound, and requires no interference. The Ld.DR, therefore, prayed that the grounds of appeal raised by the Revenue be allowed in full, and that the additions made by the AO be upheld by setting aside the order of the ld.CIT(A).
18.21 Per contra, the Ld.AR, Shri R. Venkata Raman, Chartered Accountant, placed reliance on the order of the Ld.CIT(A), and submitted that the said order is a reasoned, speaking order, passed after due consideration of the facts and materials on record, and therefore does not warrant any interference.
18.22 The Ld.AR submitted that a total of 74 partnership firms, including the assessee firms, were operating from the premises subjected to search u/s.132 of the Act. It was contended that each of these firms possesses a distinct PAN and has been filing its respective return of income independently since inception. The Ld.AR submitted that, for the sake of convenience, the search team had categorized these 74 firms into two groups, consisting of 37 firms each, under the umbrella of M/s.No.1 Auto Finance and M/s.Help Line Motor Finance, respectively.
18.23 It was further submitted that during the course of the search proceedings, a computer hard disk was seized which contained the accounting records of all the said firms, maintained in specialized software. The Ld.AR emphasized that the authenticity and existence of such accounting records have not been disputed by the AO, and that there has been no allegation or finding to the effect that the accounts are fabricated or non-existent. Accordingly, the Ld.AR asserted that the existence and independent functioning of the 74 partnership firms stand duly established and cannot be questioned.
18.24 Referring to pages 5 and 6 of the paper book, the Ld.AR submitted that the cash balance as per the consolidated books of accounts of the 74 firms stood at Rs.2,38,52,901/-, and the same cannot be attributed solely to the assessee firms. It was further submitted that the physical cash found during the course of search amounted to Rs.1,10,10,000/-, which is significantly less than the book balance. Therefore, the Ld.AR argued that addition on account of unexplained cash is not :-41-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 tenable in law, as such addition is permissible only where the physical cash exceeds the recorded book balance. In the present case, since the book balance is higher than the physical cash found, the question of making an addition does not arise.
18.25 The Ld.AR further contended that the physical cash of Rs.1,10,10,000/- found during the course of the search pertains to the operations of all 74 partnership firms collectively and cannot be imputed solely to the assessee firms under consideration. Inviting attention to the reconciliation statement placed at page 7 of the paper book, the Ld.AR submitted that the variance between the book balance and the physical cash found was properly reconciled and was attributable to certain payments which had not yet been recorded in the books of account as on the date of search. It was submitted that such reconciliation is supported by contemporaneous entries and cannot be disregarded summarily.
18.26 Moreover, the Ld.AR submitted that no incriminating material was unearthed during the course of the search to indicate that the physical cash seized represented undisclosed or unaccounted income of the assessee firms. It was argued that the AO has not brought on record any cogent or corroborative evidence to suggest that the reconciliation furnished is an afterthought or a sham. On the contrary, the AO, in the assessment order, has acknowledged that during the course of search proceedings, Shri Kathiresan, in his sworn statement recorded under Section 132(4), had categorically brought to the attention of the Authorized Officer the existence of pending “Errattu Bakki” payments which were yet to be accounted for in the books. Hence, the Ld.AR submitted that the requirement of making any addition on account of unexplained cash does not arise in the case of any of the 74 firms, including the assessee firms.
18.27 Accordingly, the Ld.AR strongly supported the order passed by the Ld.CIT(A) whereby the substantive addition of Rs.1,04,65,268/- made in the hands of M/s.No.1 Auto Finance, and the protective addition of Rs.1,10,10,000/- made in the hands of M/s.Help Line Motor Finance, were rightly deleted. It was prayed that the order of the Ld.CIT(A) on this issue be upheld and the corresponding grounds raised by the Revenue in its appeal be dismissed.
:-42-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 18.28 Invoking the provisions of Rule 27 of the ITAT Rules, the Ld.AR further submitted that since the book balance exceeded the physical cash found during the search, there exists no basis for sustaining even the residual addition of Rs.5,34,732/- and accordingly prayed for deletion of the same. In the alternative, without prejudice to the above submission, the Ld.AR contended that if the Tribunal were to confirm the addition of Rs.5,34,732/-, the same may be directed to be apportioned on a proportionate basis across all the 74 partnership firms, as the cash found during the search pertained to the collective operations of all the said firms and cannot be solely attributed to any single entity, including the assessee firms.
18.29 Hence, the Ld.AR concluded by reiterating his request for dismissal of the appeal filed by the Revenue and for affirmation of the relief granted by the Ld. CIT(A).
18.30 We have duly considered the rival contentions advanced by both parties, perused the material available on record, and carefully examined the orders passed by the authorities below.
18.31 It is an admitted fact that during the course of the search conducted u/s.132 of the Act on 10.08.2017, a sum of Rs.1,10,10,000/- in cash was found and seized from the business premises shared by multiple entities, including the assessee firms. In the course of the said search proceedings, a statement was recorded from Shri R.Kathiresan, the Managing Partner and principal coordinator of the group entities, wherein he stated that the physical cash found represented the aggregate cash balances of all 74 firms operating from the searched premises.
18.32 It was also ascertained during the search that the cash balance as per the books of account maintained by all 74 firms was Rs.2,38,52,901/-. The discrepancy between the book balance and the physical cash was sought to be reconciled before the AO by the assessee firms. It was explained that certain payments amounting to Rs.23,92,000/- made to retiring partners and payments towards 'Errattu Bakki' aggregating to Rs.99,16,169/- had not been recorded in the books as on the date of search. After accounting for the same, the reconciled cash balance stood at Rs.1,15,44,732/-, leaving an unreconciled difference of Rs.5,34,732/- for which no specific explanation was furnished.
:-43-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 18.33 Despite the above reconciliation, the AO was not satisfied with the explanation and proceeded to make a substantive addition of the entire seized cash amounting to Rs.1,10,10,000/- in the hands of M/s.No.1 Auto Finance, and a protective addition of the same amount in the hands of M/s.Help Line Motor Finance, both for the AY 2018-19.
18.34 In the first appellate proceedings, the Ld.CIT(A) deleted the substantive addition to the extent of Rs.1,04,65,268/- in the hands of M/s.No.1 Auto Finance and sustained the unexplained cash to the tune of Rs.5,34,732/- and deleted the protective addition in its entirety from the hands of M/s.Help Line Motor Finance. Both parties advanced their submissions on this issue before us, and the same have been duly considered.
18.35 Upon careful examination, we note that no incriminating material was unearthed during the search to indicate that the cash of Rs.1,10,10,000/- represented undisclosed or unaccounted income of the assessee firms. Furthermore, the statement recorded from Shri R.Kathiresan u/s.132(4) of the Act does not, at any point, admit or imply that the cash was undisclosed or outside the purview of the books of accounts. In fact, the books of account of all 74 firms reflected a cumulative cash balance of Rs.2,38,52,901/-, which remains undisputed.
18.36 It is pertinent to note that the AO has not alleged that the seized digital evidence, including the hard disk containing the accounting records of all the firms, reveals any inconsistency or contradiction to what was deposed by Shri Kathiresan or reflected in the books. Accordingly, the cash found during the search appears to be already recorded in the books of the respective firms.
18.37 Moreover, the explanation offered by the assessee firms regarding the unreconciled items namely, payments to retiring partners and 'Errattu Bakki' payments was supported by specific details. The reference to ‘Errattu Bakki’ payments was explicitly mentioned by Shri Kathiresan in response to Question No.3 of his sworn statement recorded on 11.08.2017, which is also referred to in Paragraph 20 of the AO’s order. In respect of the payments amounting to Rs.23,92,000/-, the assessee firms furnished a detailed list identifying the firms from which the payments had been made.
:-44-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 18.38 It is observed that the AO has neither refuted these submissions with any adverse evidence nor established that the reconciliation is prima facie incorrect or fabricated. In the absence of any material brought on record to discredit the reconciliation submitted by the assessee firms, we find no justification to disregard the same.
18.39 We concur with the finding of the Ld.CIT(A) that the onus lies on the Revenue to establish, beyond reasonable doubt, that the seized cash represents unexplained money. In the present case, the Revenue has failed to discharge such burden. Additionally, we agree with the submission of the Ld.AR that, considering the book balance exceeded the physical cash found, and given that the variance stood reconciled barring a marginal difference, there was no occasion to invoke the provisions for addition of unexplained cash under the Act.
18.40 In view of the foregoing discussion and upon careful perusal of the material on record, we concur with the findings rendered by the Ld.CIT(A). The deletion of the substantive addition of Rs.1,04,65,268/- in the hands of M/s.No.1 Auto Finance, as well as the protective addition of Rs.1,10,10,000/- in the hands of M/s.Help Line Motor Finance, is found to be legally tenable and factually justified. There being no infirmity or perversity in the impugned order, we decline to interfere with the same. Accordingly, the grounds of appeal preferred by the Revenue for the AY 2018-19, in respect of the above additions, stand dismissed.
In the result, the appeals of the Revenue in to 658/CHNY/2025 relating to substantive assessment of M/s.No.1 Auto Finance for the A.Ys. 2012-13,
:-45-: ITA. No:656 to 658/Chny/2025 & ITA 622 & 633/Chny/2025 2015-16 & 2018-19 and & 633/CHNY/2025 pertaining to protective assessment of M/s.Help Line Motor Finance for the A.Ys. 2012-13 & 2018-19 stand dismissed.
Order pronounced in the court on 06th August, 2025 at Chennai.