SHRI NAINA MOHAMED SEYAD ABDUL KAREEM,VANNARPETTAI vs. ACIT, CENTRAL CIRCLE-1,, MADURAI

The assessee filed the details and other documents called for were filed from time to time during the assessment proceedings. The assessee also filed objections during assessment proceedings. However, the AO after perusal of the submissions and objections filed by the assessee concluded the assessment by making the following additions and passed orders u/s.143(3) r.w.s.153A of the Act dated 24.12.2019.

In this connection, the assessee group filed a rectification application dated 08.12.2023 u/s.245D(6B) of the Act, prima-facie contending that certain facts and details placed before the ITSC has not been considered while making the said addition and then without prejudice to such contention, had prayed for restriction of addition made towards deposits in M/s.Seyad Cotton Mills based on workings furnished. Thereafter, the ITSC, vide Order dated 27.06.2024, had disposed of the said application by rejecting the said rectification on the grounds :-6-: ITA. Nos.: 3267 to 3272/Chny/2024 & ITA Nos.:106 to 114/Chny/2025 that the said issue falls beyond the scope of Section 245D(6B) of the Act and the merits of the case as such had not been adjudicated by them therein.

The Ld. CIT(A), vide his orders passed u/s.250 of the Act, had held that the ITSC in its order had settled the subject issue of the assessees by taxing the entire amount of Rs.4,12,60,000/- at the rate of Rs.51,57,500/- each in the hands of all the eight directors including the three applicants vide its order u/s.245D(4) dated 06.09.2023 and not as per the share holding pattern as assessed by the AO in the case of the assessees and accordingly had enhanced/restricted the additions in dispute (as per the chart enclosed) to Rs.12,73,125/-, Rs.24,18,750/- and Rs. 14,65,625/- for the AYs 2012-13, 2013- 14 & 2014-15 respectively in the assesses’ hands. Aggrieved by the order of the ld.CIT(A), the assessee is in further appeal before us.

Before us, the ld.AR submitted that the ld.CIT(A) had merely followed the order passed by the ITSC in the case of the assessee’s group with respect to the subject issue, applying the same in respect of the assesses before him, without independent application of mind and appreciating the fact that the said ITSC order was passed in case of assesses not before him in appeal in which case he ought to have independently adjudicated the subject issue on its merits.

Further, the ld.AR stated that the following facts were placed before the ld.CIT(A) for consideration on the subject issue that had not been considered in the impugned Appellate order passed by him: - The Assessing Officer had solely relied on the statement of Shri P.K.Meeran Mohideen whereon no explanation was sought from the directors of M/s.Seyad Cotton Mills Ltd. during the course of search or post-search proceedings.

The AO had concluded that investments were made by the assessees’, merely on basis of genuine/bonafide clerical and inadvertent errors in the deposit forms of beedi rollers which is inevitable in manual filing of forms, by stating that “no specific date was mentioned in the KYC form for receipt of deposits and no entry was made in the columns 'FOR OFFICE USE'.” a. The additions were made without controverting the above contentions of the assessee. b. With respect to the rejection of the Rectification Petition filed before the ITSC relating to the subject issue, the relevant extract was reproduced as under:

The Ld.AR submits that only the fresh investment made out of the undisclosed income earned during the respective AYs 2012-13 to AY 2014-15 ought to be taxed in the hands of the assessee as reflected under:

Thus, a total addition of only Rs.36.96 lakhs can be made in the hands of the assessee towards deposits in M/s.Seyad Cotton Mills.”

Further, it was also submitted that the Board had prima-facie rejected the said rectification on the grounds that the said issue falls beyond the scope of Section 245D(6B) of the Act and the merits of the case as such had not been adjudicated by them, by holding as under :

Hence, the ld.AR submitted that the Ld. CIT(A) had merely adopted the order passed by the ITSC and had not considered the assessee’s contentious submissions in this regard in enhancing / restricting the impugned addition on the subject issue.

Further, the ld.AR submitted that, assuming but not admitting, any additions were to be made pertaining to the subject issue on deposits in SCML, in the absence of any substantive evidence to prove that the same was related to the undisclosed investments of the assessees’, it ought to have been made in the hands of SCML which had not been the case as is evident from the respective assessment orders.

Per contra the ld.DR relied on the orders of the lower authorities and hence prayed for confirming the order of ld.CIT(A).

We have heard the rival contentions perused material available on record and gone through the orders of lower authorities along with the judicial precedents relied on by both the parties. It is not disputed that a search was conducted in the case of Seyadu group of concerns at Tirunalveli on 28.06.2017, wherein offices and residences of various entities and individuals related to the group were covered in the search operations along with the residence of the assessee at Tirunalveli. Subsequently the assessees filed their return of income electronically on 17.12.2018 for all these assessment years. During the course of assessment proceedings, the assessee submitted the details called for and objections for the issues raised from time to time. However, the AO after perusal of the submissions and objections filed by the assessee concluded the assessment by making of fixed deposits found in the name the additions of unexplained investment of Rs.15,43,108/- and Rs.11,79,456/- u/s.69 of the Act for the A.Y. 2012-13 on account of beedi rollers in M/s.Seyad Cotton Mills ltd (SCML).

We note that the total amount of fixed deposit received from various beedi rollers as on 31.03.2014 amounted to Rs.4,42,60,000/-. Based on the sworn statements recorded from Shri.P.K.Meeran Mohideen, DGM :-12-: ITA. Nos.: 3267 to 3272/Chny/2024 & ITA Nos.:106 to 114/Chny/2025 (Accounts), the AO concluded that the fixed deposits were all made by the Directors of the Seyad group and that the deposits appearing in the name of beedi rollers were nothing but unaccounted money of the directors. We find that, the AO rejecting the submission of the assessee that they had not invested any amounts in SCML in the name of beedi rollers and had not derived any interest from such deposits, by placing reliance on the statement recorded from Shri.P.K.Meeran Mohideen, made an additions in the Assessment Orders passed u/s.143(3) r.w.s. 153A of the Act, on the basis of the respective assessee Directors’ shareholding pattern in SCML, as ‘unaccounted investments’ u/s.69 of the Act in their respective hands for the A.Ys 2012-13 to 2014-15.

Further we note that the subject issue included in the settlement application filed by three Directors of SCML (i.e.) Shri.F.Sadiq, Shri.T.E.S.Naina Mohammed and Shri.F.Seyad Rabbani, the Income Tax Settlement Commission (“ITSC”), vide its order dated 06.09.2023 passed u/s.245D(4) of the Act had made an addition of Rs.51,57,500/- each in their hands at Rs.12,73,125/-, Rs. 24,18,750/- and Rs.14,65,625/- for the AYs 2012-13, 2013-14 & 2014-15 respectively.

Later the assessees realised that the addition of Rs. 51,57,500/- was made in their hands also, though they are not the parties to the application before the settlement commission.

We find that the Ld. CIT(A), vide his orders passed u/s.250 of the Act, had held that the ITSC in its order had settled the subject issue of the :-13-: ITA. Nos.: 3267 to 3272/Chny/2024 & ITA Nos.:106 to 114/Chny/2025 assessees by taxing the entire amount of Rs.4,12,60,000/- at the rate of Rs.51,57,500/- each in the hands of all the eight directors including the three applicants vide its order u/s.245D(4) dated 06.09.2023 and not as per the share holding pattern as assessed by the AO in the case of the assessees and accordingly, had enhanced/restricted as the case may be, the additions in dispute to Rs.12,73,125/-, Rs.24,18,750/- and Rs. 14,65,625/- for the AYs 2012-13, 2013-14 & 2014-15 respectively in the assesses’ hands.

We find that the ld.CIT(A) had merely adopted the order passed by the ITSC in the case of the assessee’s group with respect to the subject issue, applying the same in respect of the assesses before him, without independent application of mind and appreciating the fact that the said ITSC order was passed in case of other three directors and that to in the back of assessees. Therefore, the reliance placed solely on the order of ITSC by the ld.CIT(A) in respect of the additions made in the case of present assessees will tantamount to grave miscarriage of justice. Any decree passed in the case of two contesting parties which will be binding on parties inter vivos, cannot bind or executable against the third party / unrelated party.

We also find that the AO had solely relied on the statement of Shri P.K.Meeran Mohideen, without seeking explanation from the directors of M/s.Seyad Cotton Mills Ltd. during search or post-search proceedings. It is, also undisputed fact that no incriminating evidence found to show that the funds from the directors were deposited in the name of beedi rollers except relying on assumptions and statement of Shri.P.K.Meeran Mohideen who had also admitted that deposits were also made by beedi rollers. We find that :-14-: ITA. Nos.: 3267 to 3272/Chny/2024 & ITA Nos.:106 to 114/Chny/2025 Shri.P.K.Meeran Mohideen has clearly bifurcated the amount of deposits pertaining to the assesses and their family members and the amount pertaining to beedi rollers vide response to question no.3 of his sworn statement dated 01.08.2017. The relevant extract of the same is as under:

It is evident upon perusal of Shri.P.K.Meeran Mohideen’s sworn statement dated 01.08.2017 in its entirety that he had merely explained the modus operandi of the business functioning and had nowhere stated/admitted that the same pertains to the directors of the company. The AO had relied on thirty party letters without providing an opportunity to the assessee to cross examine the factual veracity of the statement made by the third parties, which is in direct violation of the principles of natural justice. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC) (supra) held that : “Once the assessee has disputed the correctness of the statement and wanted to cross examine the witness which was not given by the AO as well as ld. CIT (A), then the orders passed based on such statement are not sustainable in law.” The Hon'ble Delhi High Court in case of CIT v. Ashwani Gupta, 322 ITR 396 (Delhi) held that “Thus the Hon'ble High Court has held that once there is a violation of principles of natural justice in as much as seized material is not provided to the assessee nor is cross examination of the person on whose statement the AO relied upon, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings.”

We also find that the AO had just concluded that investments were made by the assessees’, merely on basis of genuine/bonafide clerical and inadvertent errors in the deposit forms of beedi rollers which is inevitable in manual filing of forms, by stating that “no specific date was mentioned in the KYC form for receipt of deposits and no entry was made in the columns 'FOR OFFICE USE'.” It is trite law that who alleges the factum of any act has onus to prove. In this case AO has miserably failed to show that the aforesaid deposits were made by the assessees from their coffers instead of the beedi rollers hands.

Further, it is brought to our attention that the assessment was completed u/s.143(3) of the Act in the case of M/s.Seyad Cotton Mills Ltd. for the AYs 2013-14 & 2014-15 without any addition in this regard and further the AO in that Assessment Order relating to A.Y.2011-12 assessed u/s.143(3) r.w.s. 263 of the Act, had specifically acknowledged that details of depositors along with confirmation letter were furnished to the AO, that these were duly verified and found to be in order at the time of assessment proceedings and no adverse findings were made by the AO. Hence, the action of the AO and that of the ld.CIT(A) in making the impugned additions cannot be countenanced.

Since, the facts and circumstances of for A.Y. 2012-13 are identical in the following cases, therefore our adjudication in for A.Y. 2012-13 is applicable mutatis mutandis to all the following cases: Asst. No. Year Shri. Naina Mohamed Seyad Abdul Kareem 2013-14 2 Shri. Naina Mohamed Seyad Abdul Kareem 2014-15 3 ITA No.3269/Chny/2024 Shri. Naina Mohamed Seyad Nawaz 2014-15 4 ITA No.3270/Chny/2024 Shri. Naina Mohamed Seyad Nawaz 2012-13 5 ITA No.3271/Chny/2024 Shri. Naina Mohamed Seyad Nawaz 2013-14 6 ITA No.106 /Chny/2025 Shri. TES Fathu Rabbani 2012-13 7 ITA No.107/Chny/2025 Shri. TES Fathu Rabbani 2013-14 8 ITA No.108/Chny/2025 Shri. TES Fathu Rabbani 2014-15 9 ITA No.109 /Chny/2025 Shri. Kamaludeen Yoosufmeeran 2012-13 10 ITA No.110 /Chny/2025 Shri. Kamaludeen Yoosufmeeran 2013-14 11 ITA No.111/Chny/2025 Shri. Kamaludeen Yoosufmeeran 2014-15 12 ITA No.112/Chny/2025 Shri. Kamaludeen Seyad Abdul Kareem 2012-13 13 ITA No.113 /Chny/2025 Shri. Kamaludeen Seyad Abdul Kareem 2013-14 14 ITA No.114/Chny/2025 Shri. Kamaludeen Seyad Abdul Kareem 2014-15 :-17-: ITA. Nos.: 3267 to 3272/Chny/2024 & ITA Nos.:106 to 114/Chny/2025 30. In the result all the captioned appeals filed by the separate assessees are allowed.