DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. CHINNARASU VEERAMANI, JOLARPET

The Ld. CIT-DR advanced arguments in support of grounds of appeal and referred to the findings of Ld. AO. The Ld. AR, on the other hand, referred to the findings of Ld. CIT(A) in the impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident individual held interest in various business entities. The assessee filed his return of income u/s 139 on 27-01-2016 declaring income of Rs.266.01 Lacs.

Assessment Proceedings 3.1 The impugned assessment stem from search action carried out by the department u/s 132 on 21-02-2019 in the case of Shri Dhanda Bramanandam and Shri Javvaji Ramanjaneyulu. During search operation at residence of Shri Arun Prasad C, Bengaluru, certain incriminating material was found which was seized vide Annexure ANN/PS/AP/LS/S-1 & 2. These were in the shape of loose sheets which allegedly contained investment made in apartment project at Banasvadi, Bengaluru. The land on which the said apartment project was being constructed belonged to the assessee. The loose papers also contained details of payment made to acquire the shares of M/s Home Designers and Fabricators Pvt. Ltd. (HDFPL) which were stated to be purchased by the assessee along with others. The loose papers also contained details of property purchased by the assessee along with Shri N. Shiva Prasad. 3.2 Another search was conducted in the case of M/s SRS Mining on 08-12-2016 wherein certain incriminating material was seized vide Annexure ANN/MPK/NS/B&D/S-1 to 21 and Annexure ANN/KGAR/MPKSSR/B&D which allegedly contained notings of payments made to the assessee. 3.3 Armed with above material, a satisfaction was arrived at that the seized material had bearing on determination of total income of assessee and accordingly, notice u/s 153C was issued to the assessee on 08-01- 2021. The assessee admitted same return of income as filed on 27-01- 2016. During the course of assessment proceedings, hearing notices were issued o the assessee calling for various details on the issues as identified during search proceedings.

Appellate Proceedings 4.1 The assessee assailed the assessment on legal grounds as well as quantum additions on merits by way of elaborate submissions. The adjudication of Ld. CIT(A) is contained in para 6.3 onwards in its order for AY 2015-16. 4.2 On the issue of alleged investment in purchase of shares of M/s HDFPL for Rs.505.28 Lacs, the assessee claimed that this addition was on mere presumption. It was stated that a statement was recorded form the assessee u/s 131(1A) on 17-06-2019 by the investigation officer, however, no question was posed about this transaction. It was further stated that erstwhile shareholders did not confirm receipt of additional consideration of Rs.7.90 Crores. No enquiry was conducted about the receipt of money. Further, the contents of loose sheets were not proved with corroborative evidence to establish unaccounted transaction. The sole basis of addition was loose sheet. Shri Arun Prasad from whose residential premises the loose sheets were seized did not confirm about the transaction towards purchase of shares in his statement as recorded u/s 132(4). 4.3 The Ld. CIT(A) concurred that in terms of various judicial decisions, Ld. AO was required to bring on record cogent and corroborative evidences to substantiate the additions made particularly when the evidences were found from third-party premises. The Ld. AO merely relied on unsubstantiated loose sheet narrations. No addition could be made merely on suspicion or on the basis of unverified statements. There must be concrete, corroborative evidences to support such additions. The Ld. AO made addition on presumption and assumptions only which could not be sustained. Accordingly, the impugned addition was deleted. 4.4 On the issue of unaccounted investment of Rs.4 Crores in Avathi Village, a finding was rendered that the assessee paid sum of Rs.3 Crores by RTGS and remaining amount of Rs.1 Crores was paid by Cheque and the stamp duty was also paid by way of demand draft. There was no evidence to indicate any cash payment. All the payments were made through banking channels only. The Ld. CIT(A), in terms of Rule 46A(4), directed assessee to submit financial statements and bank statements. The assessee duly furnished the same. Upon perusal of the same, it was observed that the assessee availed loans from two sources i.e., Rs.179.01 Lacs from Shri Danda Bramanandam Rao and another loan of Rs.296.70 Lacs from assessee’s HUF entity. These loans represent substantial portion of the assessee’s financial liabilities. The same was also evidenced by bank statements. Therefore, there was no basis to treat the loans as unexplained income. Accordingly, the impugned addition of Rs.4 Crores was deleted. 4.5 On the issue of alleged receipts from M/s SRS Mining, it was noted by Ld. CIT(A) that this addition was made on the basis of incriminating material in the shape of notebook as found during search on that group. The same contained details of payments made to various persons to facilitate smooth running of sand business by M/s SRS Mining Group. As per the seized material, there were entries about the payments made to "KCV". Since the assessee was minister in state government during the period under consideration, Ld. AO considered that these amounts pertained to the assessee. The Ld. AO made addition on the basis of entries found noted in note books coupled with the statement of Shri K. Srinivasulu recorded u/s 132(4) on 10-12-2016. However, this material was seized from a third-party premises and this material was neither seized from the premises of the assessee nor was the same found to be in the handwriting of the assessee. Such material would not constitute adequate evidence to draw adverse inference against the assessee in the absence of any other corroborative evidence. 4.6 The Hon’ble Delhi High Court in the case of CIT Vs Sant Lal (118 Taxmann.com 432) held that no addition could be made on the basis of such entries since the diary was neither found from the premises of assessee nor was it in the handwriting of assessee and revenue failed to produce any other cogent material to link the assessee to the diary. This decision was applicable to the present case since Ld. AO did not refer to any cogent material to corroborate the entries made in the material seized from a third-party. Further, the alleged entries did not contain complete information to facilitate arriving at such an inference. The information available in the relevant seized material merely contained the date, amount of payment and the post held by the assessee. However, these was no mention regarding the nature of the said transactions of cash payments, the purpose of such payments and the precise identity of the recipient. An entry made in a diary or notebook by a third person with scant details cannot be used to fasten tax liability upon the person whose name does not appear at all or only the post held by the such person appears in the seized material, in the absence of any corroborative evidence to attribute the entries to such a person. Such seized material was to be treated as incomprehensible document which would not have any evidentiary value in respect of the entries found therein unless corroborative evidence was available which could provide necessary reliable basis for deciphering the nature and character of the said entries. Further, there was no acknowledgement of receipt of alleged payment. If a third-party unilaterally makes entries in a diary/note book showing payments to a person to suit his convenience, the payments could not be inferred to have been made to the said person unless there was corroborative evidence to establish the actual making of payments to the said person. There was no reference to such corroborative evidence in the assessment order. Reference was made to the decision of Jabalpur Tribunal in the case of ACIT vs. Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] which mandate collection of corroborative evidences. It was held therein that when the document is bereft of necessary details about year of transaction, ownership of transaction, nature of transaction, necessary code for deciphering the figures then the same could not be relied upon. It is the duty of Ld. AO to carry out necessary investigations by correlating the impugned document with other documents to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation would be necessary unless the document was capable of 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. Further, the proposition that addition cannot be made merely on the basis of entries in loose sheets found in the premises of a third-party without bringing on record corroborative evidence was also supported by various decisions of the Tribunal which have already been enumerated in para 6.5.7 of the impugned order. 4.7 The Ld. CIT(A) also referred to the decision of Mumbai Tribunal in the case of Riveria Properties Private Limited Vs ITO (ITA No.250/MUM/2013) holding that Ld. AO was required to bring further evidence on record to show that the money had actually exchanged between the parties. In a case where there was no other evidence on record to prove that there was actual advancement of loans and receipt of interest, except the loose sheet found at the premises of a third-party, addition could not be made. The Ld. AO was required to bring further evidence on record to show actual exchange of money between the parties. No independent enquiries were conducted and Ld. AO merely relied upon the sworn statements. The Hon'ble Supreme Court in Common Cause Vs. Union of India (2017) 77 Taxmann.com 245 (SC) stressed the need for exercising caution and for bringing on record relevant, reliable and cogent evidence to corroborate the entries found in loose sheets regarding the payments allegedly made to important constitutional functionaries so that the process of law is not abused by unscrupulous persons or business houses in order to achieve ulterior goals. Though the said decision was rendered in the context of ordering criminal investigation, the principle stated therein was broadly applicable to the income tax proceedings also. It was, therefore, all the more important that corroborative evidence was made available on record in support of the entries in the seized material found in the third-party premises which are allegedly indicative of payments made to the assessee. 4.8 It was further observed that that the statement of Shri K. Srinivasulu was found to be contrary to the contents of the seized material. He was neither a partner nor an employee of the said firm. Though the relevant seized material was found in his possession, however, in reply to Q.No.3 of statement dated 08.12.2016, he stated that the entries were made in the seized material by him on the instructions of the partners of M/s SRS Mining. It was very clear that he had no first-hand knowledge of the payments noted in the seized material and he had merely noted whatever had been told to him by partners. Therefore, the said statement would serve a very limited purpose of ascertaining the identity of the person who made the entries and nothing more. Since the entries were made by him on the instructions of the partners, it would be the partners who were required to explain the nature of payments, the purpose of payments and the identity of the recipients. However, there was no reference to any such statement of the partners of M/s SRS Mining in the assessment orders. On these facts, the statement of Shri K. Srinivasulu could barely be considered as corroborative evidence against the assessee with regard to the entries in the seized material. Pertinently, the said statement stood retracted by him vide letters dated 21.03.2017 and 23.03.2017 addressed to the DDIT(Inv) which were submitted by him through the Jail Superintendent when he was lodged in the jail. In the retraction letters, it was claimed by him that the statement made by him u/s 132(4) was given under coercion and duress and that he was under a state of mental shock, depression and physical exhaustion at the relevant point of time due to the continuance of search action continuously for more than 3 days without a break and he not being allowed to sleep or take rest. He stated that he was not allowed to read the typed statement and his signature was obtained by force on the statement. He stated that he never paid any money to various persons as recorded in the typed statement. He also stated that he signed the statement in order to end the prolonged ordeal of intimidation, harassment and mental torture. The Ld. CIT(A) then referred to the decision of Hon’ble High Court of Madras in the case of M/s SRS Mining vs. UOI (141 Taxmann.com, 272) observing that the statement of Shri K Srinivasulu could not be relied upon as he turned hostile by giving specific retraction statement and there was no need to accord permission to cross-examine him in view of the said reason. Considering these observations, it was to be held that the statement of Shri K. Srinivasulu could not be used against the assessee unless some other evidence to corroborate the same was made available on record.

The first addition made for AY 2015-16 is addition of alleged unaccounted investment in M/s HDFPL for Rs.7.90 Crores. The same was on the basis of Annexure ANN/PS/AP/LS/S-2 containing details of receipt of money of Rs.280.03 Lacs by four erstwhile directors / shareholders of M/s HDFPL. However, in statement recorded u/s 131(1A) as recorded from the assessee, no question was posed to him about this transaction. There was no admission by any of erstwhile shareholders of having received any additional consideration other than as mentioned in the documents. No enquiry whatsoever has been conducted by Ld. AO to support the allegations. The sole basis of addition is loose sheet as found from third-party premises. As rightly held by Ld. CIT(A), Ld. AO was required to bring on record cogent and corroborative evidences to substantiate the addition which was not done.

The addition of Rs.4 Crores has been made on the allegation that the assessee had made unaccounted investment in Avathi Project. However, the Ld. CIT(A), upon perusal of assessee’s documents, has rendered a finding that the said amount was paid through banking channels only. The source thereof was the loans obtained by the assessee which was evidenced by bank statements and financial statements. There is nothing before us to contradict these findings. Therefore, we see no reason to interfere in the impugned order, on this issue. The powers of Ld. CIT(A) is co-extensive with the powers of Ld. AO and therefore, the admission of additional evidences by Ld. CIT(A) could not be faulted with.

The addition of alleged receipts from M/s SRS Mining has been made primarily by relying upon the statement of Shri K. Srinivasulu which stood retracted subsequently. The Ld. AO made this addition on the basis of certain material found during the course of search on a third- party premises i.e., M/s SRS Mining. This information was received from Assessing Officer of that entity and notice u/s 153C was issued to the assessee. However, Ld. CIT(A), upon perusal of relevant seized material, rendered factual finding that the name of the assessee was not mentioned anywhere in the seized loose sheets but it contained certain abbreviation viz. “KCV” which had been presumed to be referring to the assessee. However, these is no evidence to support this conclusion. This material was seized from a third-party which could not be considered to be adequate evidence to draw adverse inference against the assessee in the absence of any other corroborative evidence. The various case laws being cited by Ld. CIT(A) in the impugned order duly supports the case of the assessee. The same has already been enumerated in preceding paragraphs. Further, the statement of Shri K. Srinivasulu has been found to be contrary to the contents of the seized material. As clearly brought out by Ld. CIT(A), he had no first-hand knowledge of the payments noted in the seized material and he had merely noted whatever was told to him by the partners. Therefore, the said statement would serve a very limited purpose of ascertaining the identity of the person who made the entries and nothing more. Since the entries were made by him on the instructions of the partners, it would be the partners who were required to explain the nature of payments, the purpose of payments and the identity of the recipients. However, there was no reference to any such statement of the partners of M/s SRS mining in the assessment order. It is another fact that the statement of Shri K Srinivasulu stood retracted by him vide letters dated 21-03-2017 and 23-03-2017. This being the case, the said statement would lose its evidentiary value and the same could not be used to make addition in the hands of the assessee unless corroborative evidences were brought on record to substantiate the same. In the absence of any other credible evidences, the impugned addition is not sustainable.

The aforesaid conclusion would be pertinent in the light of the fact that similar additions were made by revenue in the case of another similarly placed assessee by the name Shri P. Ramamohan Rao. That assessee sought cross-examination of Shri K. Srinivasulu during the course of assessment proceedings. However, Shri K. Srinivasulu became non-cooperative and hostile during the course of preliminary examination of the said person before Ld. AO on 19-12-2018. Since the witness turned hostile, it was concluded that cross-examination would not serve any useful purpose. That assessee preferred Writ Petition before Hon’ble High Court of Madras praying for issue of directions to the AO to permit the assessee to cross-examine the witness being relied upon by Ld. AO. The writ petition was dismissed vide order dated 27-12- 2018. The Hon’ble Court held that there was no infirmity in the order of AO in refusing the request for cross-examination since the witness turned hostile. The Hon’ble Court further observed that if AO was to rely on the statement of Shri K. Srinivasulu which is in favor of the revenue, the AO has to let in other reliable evidence to corroborate the same. Similarly, the Hon’ble Court in the case of M/s SRS mining Vs UOI (141 Taxmann.com 272), at para 9, observed that the statement of Shri K Srinivasulu could not be relied upon as he turned hostile by giving specific retraction statement and there was no need to accord permission to cross-examine him in view of the said reason. Considering these observations, it was to be held that the statement of Shri K. Srinivasulu could not be used against the assessee unless some other evidence to corroborate the same was made available on record. In the present case also, Ld. AO did not rely on any other corroborative evidences except for relying on the statement of Shri K. Srinivasulu since in the sworn statements of three other partners recorded on 08-12-2016, no questions were posed to them at all regarding the seized material allegedly containing the details of incidental charges paid to various persons. It was thus evident that no other corroborative evidence was available on record in respect of notings in the seized material. Therefore, the impugned addition could not be sustained merely by relying on this statement only.

Considering all these facts, the adjudication of Ld. CIT(A) could not be faulted with. By concurring with the same, we reject the corresponding grounds of the revenue as raised in all the three years.

On the issue of addition of unexplained investment in Banasvadi Project for AYs 2016-17 & 2017-18, the Ld. CIT(A) has rendered a finding that this addition was made on the basis of evidence gathered from residential premises of Shri C. Arun Prasad. However, the seized loose sheets do not contain any direct evidence implicating the assessee in making impugned payments towards the construction. The loose sheets were found at the premises of Shri C. Arun Prasad. The statement of Shri Arun Prasad does not indicate that the assessee had made any cash payments. The assessee, in statement made u/s 131(1A), clearly stated that the construction work was given on turnkey basis to Shri Chitrarasu and the amount spent on these projects were sourced by Shri Chitrarasu only. Since Shri Chitrarasu did not complete the said project, no bill was raised for the same. The payment would be made as and when the projects would be satisfactorily completed or progressed. From the said deposition, it was clear that the assessee did not admit to have made any payment towards the construction of apartments at Banasvadi. The project was being handled on a turnkey basis by Shri Chitrarasu and Shri. C. Arun Prasad and the funds were sourced by them only. This fact had not been disproved by the AO. The conclusion Ld.AO was without any cogent and corroborative evidence. There was no evidence that the assessee had actually made any such investment. This addition was purely on assumptions without any supporting evidence. Another uncontroverted finding is that the amount of Rs.10 Crores already stood offered to tax by Shri C. Arun Prasad by way of settlement before Hon’ble IBS wherein vide order u/s 245D(4), the entire amount of Rs. 10 Crores was considered in the hands of Shri. C. Arun Prasad. This being the case, no addition could be made in the hands of the assessee in AYs 2016-17 and 2017-18 since the same would tantamount to double taxation which is impermissible. We order so. This issue has correctly been considered by Ld. CIT(A) and we see no reason to interfere in the same.

In the result, all the appeals stand dismissed. Order pronounced on 08-07-2025.