MOHANRAJ,COIMBATORE vs. DCIT, CENTRAL CIRCLE 3, CHENNAI

The CIT(Appeals) 20, Chennai erred in confirming the validity of framing of the assessment under Section 153A of the Act in the absence of seized material during the course of the search made in hands of the appellant and further erred in confirming the addition made in the search assessment order passed in terms of Section 153A of the Act without assigning proper reasons and justification.

The CIT (Appeals) - 20, Chennai failed to appreciate that having assessed the appellant in terms of Section 153A of the Act based on the incriminating materials seized during the search in the premises of Mr. O. Arumugasamy and others in contra distinction to the search in the premises of the appellant herein, wherein no incriminating materials were seized for the purpose of making the disputed addition(s) in the search assessment order(s), the consequential search assessment order passed should be reckoned as bad in law.

The CIT(Appeals) - 20, Chennai failed to appreciate that having used the disputed search materials seized in the premises at Mr. O. Arumugasamy and others for making the disputed addition and further having not seized any incriminating material in support of the disputed addition in the hands of the searched person, the assessment completed by making additions not arising from the search conducted in the hands of appellant should be reckoned as bad in law.

The CIT(Appeals) - 20, Chennai failed to appreciate the law declared by the Supreme Court in the case reported in 454 ITR 212 on the scope of juri iction on the scope of juri iction under Section 153A of the Act in proper perceptive and as a consequence ought to have appreciated that the search assessment order under consideration was invalid, passed without juri iction and not sustainable both on facts and in law.

The CIT(Appeals) 20, Chennai failed to appreciate that the finding rendered with respect to framing of assessment under Section 153A of the Act in the absence of incriminating material in ITA Nos.548 to 552//CHNY/2024

The CIT(Appeals) 20, Chennai failed to appreciate that the findings rendered in para 7.1.3 & 7.1.4 of the impugned order was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The CIT(Appeals) 20, Chennai erred in sustaining the addition of Rs. 1,50,00,000/- being the sum alleged to have been earned as unaccounted interest income for the loan given to Mr. O. Arumugasamy and others as income of the appellant in terms of Section 56 of the Act in the computation of taxable total income without assigning proper reasons and justification.

The CIT(Appeals) - 20, Chennai failed to appreciate that the additions made merely based on the 'dairy statement seized during search in the premises of Mr. O. Arumugasamy and others was wholly unjustified and ought to have appreciated that the subsequent affidavit filed on 04.02.2021 was rejected on superfluous reasons, thereby vitiating the action of the First Appellate Authority in confirming the addition made.

The CIT(Appeals) - 20, Chennai failed to appreciate that the rejection of the affidavits and the explanation provided by the appellant on the ground that no cross examination was sought for was invalid in view of the filing of the affidavits, clarifying the nature of the transactions under consideration.

The CIT(Appeals) - 20, Chennai failed to appreciate that appellant had discharged the onus cast upon in explaining the transaction under consideration by way of affidavits from the person whose statements were relied on and ought to have further appreciated that the action of the First Appellate Authority in not conducting any further enquiry while passing the order impugned is unsustainable in law.

The CIT(Appeals) 20, Chennai failed to appreciate that reasons provided in the affidavit for explaining the transactions under consideration was not understood in proper perceptive while rejecting the same on mere suspicion and surmises.

The CIT(Appeals) 20, Chennai failed to appreciate that the findings rendered from paras 7.2.4 to 7.2.12 of the impugned order was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. ITA Nos.548 to 552//CHNY/2024

The CIT(Appeals) - 20, Chennai failed to appreciate that the entire re-computation forming part of the assessment order was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The CIT(Appeals) - 20, Chennai failed to appreciate that the assessment order under consideration was passed out of time, invalid, passed without juri iction and not sustainable both on facts and in law.

The Appellant craves leave to file additional grounds/arguments at the time of hearing”

Brief facts of the case are as follows:- The assessee is an individual engaged in the business of finance, real estate, manufacturing, hotel and lodging business. A search and seizure operation was conducted u/s.132 of the Act in the case of the assessee on 06.03.2019. Consequent to search, notice u/s.153(A) was issued for assessment years 2013-14 to 2018-19. In response to the same, assessee filed returns for assessment years 2013-14 to 2018-19 which are detailed below:-

Aggrieved by the additions made in the assessments completed u/s.153A of the Act vide order dated 16.04.2021 for assessment years 2014-15 to 2018-19, assessee preferred appeals before First Appellate Authority. The CIT(A) dismissed appeals of the assessee. The CIT(A) held that search was conducted in the premises of the assessee and therefore, necessarily assessment u/s.153A of the Act has to be completed. It was further held by the CIT(A) there is nothing wrong in making addition by the AO based on the material found during the course of search in the case of Shri O.Arumugasamy and Senthil group, since seized material clearly mentions name of the assessee stating that he has advanced loans and received interest both through RTGS and also by cash. It was held by the CIT(A), assessee himself has stated that he had advanced loans to Shri O.Arumugasamy and Senthil Kumar which are reflected in his books of accounts (loans through RTGS) and when seized material clearly disclose that there has been cash payments, which has also been confirmed by Shri O.Arumugasamy in his sworn statement given on 26.08.2019, there is no reason why addition made by the AO should not be ITA Nos.548 to 552//CHNY/2024

Aggrieved by order of the CIT(A) dismissing appeals filed by the assessee for assessment years 2014-15 to 2018-19, assessee has filed present appeals before the Tribunal. The assessee has filed three sets of paper book. In the first set of paper book, the assessee has enclosed panchanama dated 09.03.2019, 17.04.2019 & 22.04.2019, list of books of account found and seized during the search on 06.03.2019 & 17.03.2019, valuation of jewellery found, sworn statements recorded, case laws relied on etc. In the second set of paper book, assessee had enclosed replies to show cause notice’s issued during course of assessment proceedings for AY's 2014-15 to 2018-19; written submissions filed before First Appellate Authority, affidavit of Mr.O.Arumugasamy and Mr.Senthil Kumar retracting their earlier sworn statements. In the third set of paper book, the assessee has filed three Tribunal orders of Chennai in the case of i) M/s.SG Wind Farm Private Ltd. Vs. DCIT in ITA ITA Nos.548 to 552//CHNY/2024

11.2024 and iii) Smt.Chitradevi Ganeshwar Vs. DCIT in ITA No.1218/Chny/2024 dated 19.11.2024. 7. The Ld.AR submitted insofar as assessment years 2014-15 to 2017-18 are concerned, assessments have been concluded and had attained finality, hence addition can be made on the basis of incriminating materials found during the course of search conducted in assessee’s premises. It was submitted that additions were made in the case of assessee in an assessment completed u/s.153A of Act, relying on material seized in the course of search u/s.132 of Act in the case of Shri O.Arumugasamy which is bad in law. The learned AR relying on the judgement of the Hon’ble Supreme Court in the case of PCIT, Central-3 Vs. Abhisar Buildwell Private Limited (454 ITR 212) (SC) submitted that in absence of any incriminating material found during the course of search in the case of assessee i.e., on 06.03.2019, no addition u/s.153A could be made. The learned AR submitted that on identical facts emanating from same search conducted on Shri O.Arumugasamy and Shri Senthil Kumar group (search conducted on 09.11.2017), additions made in the hands of M/s.SG Wind Farm Private Limited, Mr.P.K.Ganeshwar and ITA Nos.548 to 552//CHNY/2024

As regards for assessment year 2018-19 (abated assessment), it was submitted that immediately after search, sworn statements were recorded from the assessee. It is submitted that assessee had clearly stated in the sworn statement that he advanced loans only through banking channels and no cash payments were made. It was further submitted that sworn statements recorded from Shri O.Arumugasamy and Shri Senthil Kumar were retracted and they have confirmed in affidavits that assessee has advanced loans that are routed only through proper banking channels. Therefore, it was submitted that addition made for assessment years 2014-15 to 2018-19 needs to be deleted.

The learned DR, who argued the case, strongly supported orders of AO and CIT(A). The earlier DR’s had filed a written ITA Nos.548 to 552//CHNY/2024

We have heard rival submissions and perused material on record. The solitary issue raised in the present appeals is on the correctness of addition on presumption of undisclosed loans given to Shri O.Arumugasamy & Shri Senthil Kumar group and consequential interest quantified on the same based on loose sheets found in another independent search conducted on 09.11.2017. We shall first adjudicate issues relating to assessment years 2014-15 to 2017-18. A.Y’s 2014-15 to 2017-18: 11. For the aforementioned assessment years, assessee questions issue of assumption of juri iction u/s.153A of the Act and making addition in absence of incriminating materials found in direct search conducted at the premises of the assessee on ITA Nos.548 to 552//CHNY/2024

03.2019. The disputed additions have been made based on loose sheets / daily statements found during the course of search conducted in the case of Shri O.Arumugasamy and Mrs.Sathamani (cashier of Shri O.Arumugasamy) and statements recorded from them. Pursuant to the search conducted in the premises of Shri O.Arumugasamy, a sworn statement was recorded from the assessee. In reply to the same, assessee confirmed there was only transaction made through banking channel with Shri O.Arumugasamy and the same has been duly reflected in his books of account in the regular course. It is an undisputed fact that addition has been based on material found in the course of search conducted in the premises of Shri O.Arumugasamy on 09.11.2017 and not based on search conducted in the case of assessee on 06.03.2019. Therefore, short issue for consideration is validity of addition made in consequence to assumption of juri iction u/s.153A of the Act, in light of dictum laid down by the Hon’ble Apex Court in the case of PCIT, Central-3 Vs. Abhisar Buildwell Private Limited (supra). Further, the undisputed facts are that for assessment years 2014-15 to 2017-18, assessments have attained finality. In other words, for these assessment years assessments were unabated (attained finality). The fact that for ITA Nos.548 to 552//CHNY/2024

In view of the admitted position of non-availability of incriminating seized materials in direct search conducted in the premises of the assessee on 06.03.2019, assessment years namely 2014-15 to 2017- 18, no addition can be made in view of the dictum laid down by the Hon'ble Supreme Court in the case of PCIT, Central-3 Vs. Abhisar Buildwell Private Limited (supra). On identical facts, Chennai Bench of this Tribunal in the case of M/s. SG Wind Farm Pvt. Limited Vs. DCIT, (supra) after considering judicial pronouncements on subject deleted the additions made, since addition was based on incriminating material found during the course of search in the case of Shri O.Arumugasamy and not in the case of above mentioned assessee namely M/s.SG Wind Farm P.Ltd. The relevant findings of the co-ordinate Bench of the ITA Nos.548 to 552//CHNY/2024

On given set of facts, the ratio of recent decision of Hon’ble Ltd. (149 Taxmann.com 399), considering all the earlier decisions holding the field, would squarely apply to the facts of the case settling the impugned issue in favor of the assessee. The adjudication of Hon’ble Court was as under: -

We have heard learned counsel for the respective parties at length. The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the juri iction of AO to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961 or not.

It is the case on behalf of the Revenue that once upon the search under section 132 or requisition under section 132A, the assessment has to be done under section 153A of the Act, 1961 and the AO thereafter has the juri iction to ITA Nos.548 to 552//CHNY/2024

At the outset, it is required to be noted that as such various High Courts, namely, Delhi High Court, Gujarat High Court, Bombay High Court, Karnataka High Court, Orissa High Court, Calcutta High Court, Rajasthan High Court and the Kerala High Court have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. The lead judgment is by the Delhi High Court in the case of Kabul Chawla (supra), which has been subsequently followed and approved by the other High Courts, referred to hereinabove. One another lead judgment on the issue is the decision of the Gujarat High Court in the case of Saumya Construction (supra), which has been followed by the Gujarat High Court in the subsequent decisions, referred to hereinabove. Only the Allahabad High Court in the case of Pr. CIT v. Mehndipur Balaji 2022 SCC Online All 444/[2023] 147 taxmann.com 201/ [2022] 447 ITR 517 has taken a contrary view.

1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of section 153A of the Act, 1961, has summarised the legal position as under: Summary of the legal position 38. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word 'reassess' to completed assessment proceedings. ITA Nos.548 to 552//CHNY/2024

Section 153A bears the heading "Assessment in case of search or requisition". It is well settled as held by the Supreme Court in a catena of decisions that the heading of the, section can be regarded as a key to the interpretation of the operative portion of, the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153, the intention of the Legislature is clear, viz, to provide for assessment in case of search and requisition. When, the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment, should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act."

For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material.

While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment ITA Nos.548 to 552//CHNY/2024

On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132-A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the ITA Nos.548 to 552//CHNY/2024

As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the juri iction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the juri iction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy. ITA Nos.548 to 552//CHNY/2024

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the juri iction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the juri iction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law. 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the juri iction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition ITA Nos.548 to 552//CHNY/2024

Insofar as the aforesaid Civil Appeals preferred by the assessee – M/s Kesarwani Zarda Bhandar Sahson, Allahabad are concerned, these appeals have been preferred against the impugned judgment and order dated 6-9-2016 passed in ITA Nos. 270/2014, 269/2014, 15/2015, TANVI 16/2015, 268/2014 and 17/2015, as also, against the order dated 21-9-2017 passed in the review applications. It is required to be noted that the issue before the Allahabad High Court was, whether in case of completed/unabated assessments, the AO would have juri iction to re-open the assessments made under section 143(1)(a) or 143(3) of the Act, 1961 and to reassess the total income taking notice of undisclosed income even found during the search and seizure operation.

1 In view of the discussion hereinabove, once during search undisclosed income is found on unearthing the incriminating material during the search, the AO would assume juri iction to assess or reassess the total income even in case of completed/unabated assessments. Therefore, the impugned judgment(s) and order(s) passed by the High Court taking the view that the AO has the power to reassess the return of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to material that was available at the time of original assessment does not require any interference. Under the circumstances, the aforesaid appeals preferred by the assessee – M/s Kesarwani Zarda Bhandar, Sahson, Allahabad deserve to be dismissed and are accordingly dismissed. In the facts and circumstances of the case, no costs.

Similar is the decision of Hon’ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation [2015; 374 ITR 645] which has been followed in subsequent decision in CIT V/s Gurinder Singh Bawa (79 taxmann.com 398 05/10/2015) which deals with a situation wherein the original return of income was processed u/s 143(1). The present case before us is on similar fact. It was held by Hon’ble Court that in respect of non-abated assessment, the additions are to be strictly based on the basis of books of account or other documents not produced in the course of original assessment but found in the ITA Nos.548 to 552//CHNY/2024

We find that similar is the view of Hon’ble Delhi High Court in Pr. CIT V/s Meeta Gutgutia (82 Taxmann.com 287) which has primarily followed the decision of Kabul Chawla (supra). We also find that Special Leave Petition (SLP) filed by the revenue against this decision has already been dismissed by Hon’ble Supreme Court on 02.07.2018 which is reported at 96 Taxmann.com 468. The decision of Hon’ble Court was as under: - 1. Delay condoned. 2. We do not find any merit in this petition. The special leave petition is, accordingly, dismissed. 3. Pending application stands disposed of.

Similar is the decision of this Tribunal in the case of M/s Pearl Printers & Publishers Pvt. Ltd. (ITA Nos.1042/Chny/2023 dated 03-06-2024). The bench, under similar circumstances, held that the ratio of decision of Hon’ble Taxmann.com 399) would squarely apply wherein it was held by Hon’ble Court that concluded assessment could not be disturbed in search proceedings u/s 153A and the additions have necessarily to be based on incriminating material found during the course of search.

The facts of the present case would establish that impugned addition of interest income has been made on the basis of incriminating material found during the course of search on a third- party as well as statement recorded therein. In such a case, the proceedings have to be initiated u/s 153C and not u/s 153A which has not been done by Ld. AO. To initiate proceedings u/s 153C, it is mandatory requirement of law that satisfaction should have been recorded by Ld. AO of the searched person as well as the AO of the other person before proceedings u/s 153C. The recording of satisfaction is sine qua non to assume juri iction u/s 153C. Without recording of this satisfaction, no addition could have been made in the hands of the assessee. In the present case, no such satisfaction has been shown to us and in fact, the assessment has been framed u/s 153A which could not be sustained in law considering the mandatory provisions of Sec.153C. ITA Nos.548 to 552//CHNY/2024

Our aforesaid view is duly supported by the decision of Hon’ble Delhi High Court in the case of PCIT vs. Anand Kumar Jain HUF (ITA Nos.23/2021 & ors. dated 12.02.2021). The Hon’ble Court held that additions on the basis of statement recorded in a separate search action in the case of a third-person are not permissible in Section 153A proceedings. The Hon'ble High Court observed that the statement of third person cannot be construed as an incriminating material belonging to or pertaining to the person other than the person searched. Similar is the view of Bangalore Tribunal in ACIT Vs. P. Shyamaraju & Co. India Pvt. Ltd (ITA Nos.978 to 984/Bang/2014 dated 25-04-2022) as well the decision of Kolkata Tribunal in the case of Krishan Kumar 12. Therefore, considering the aforesaid settled position of law, we would hold that the assessment, for all the years, would be bad-in-law and therefore, the impugned addition could not be sustained on this score only. We order so. In other words, the impugned addition of alleged undisclosed interest income stands deleted. The return of income as filed by the assessee stand restored.”

The above decision of the Tribunal has considered material collected in the case of Shri O.Arumugasamy’s search and used the same in the assessment completed u/s.153A of the Act, after conducting independent search on the said assessee namely M/s.SG Farm Wind Pvt.Ltd. The Tribunal in the aforementioned decision had held addition is not based on any incriminating material and deleted additions made. On similar set of facts, co-ordinate Bench of the Tribunal in the case of Mr.Palladam Krishnasamy Ganeshwar in ITA Nos.1222 to 1225/Chny/2024 vide order dated 19.11.2014 and Smt.Chitradevi Ganeshwar Vs DCIT in ITA Nos.1218/Chny/2024 vide ITA Nos.548 to 552//CHNY/2024

Before concluding, it is to be mentioned that learned CIT DR had sought to argue the validity disputed assessments on the premise of direct search being consequential of search conducted in the premises of Shri O.Arumugasamy. The said contention of the learned DR is incorrect, since direct search was conducted after expiry of nearly two years from the date of first search in the case of Shri O.Arumugasamy. It is also to be noted when the search was conducted in the premises of Shri O.Arumugasamy and consequent to the same, the revenue had failed to initiate proceedings u/s.153C of the Act. The CIT DR has also canvassed based on another Tribunal decision in the case of M/s.SG Wind Farm P.Ltd Vs. DCIT in ITA No.1227 to 1230/Chny/2024 vide order dated 19.11.2024 that proceedings initiated in the hands of assessee u/s.153A of the Act, despite no incriminating material found in the case of direct search would justify such proceedings as akin to reassessment proceedings u/s.147 of the Act. In this context, we are of the view that reassessment and its conditions are completely different and distinct for the conditions prescribed by the law laid ITA Nos.548 to 552//CHNY/2024

Both Shri O.Arumugasamy and Shri A.Senthilkumar later has given affidavits retracting sworn statements by stating that loans received by them in cash does not pertain to the assessee, but to third person and in this context, they have referred to persons, who has arranged the said loans. The authorized officer while asking question No.25 referred (supra), had extracted seized document vide annexure ANN/GM/RS/LS/2017-18/A (loose sheet No.110), wherein it can be seen C/o.Prabhu, though assessee’s name is also mentioned. In the affidavit of retractions made by Shri O.Arumugasamy and Shri Senthilkumar, it has been clearly stated their books do not relate to assessee, but to the person referred. The name and address of the person is also mentioned in the affidavit. The relevant portion of the affidavit of Shri O.Arumugasamy clearly spells out that assessee is not known to him, but only through his son. The same is reproduced below: “4. That Mr.S.Mohanraj, S/o. Mr.M.K.Shanmugam residing at No.18, Santhosh Nagar, Nanjundapuram Road, Ramanathapuram, Colmbatore-641036 is known to me anly through my son Mr.A.Senthilkumar and all transactions with Mr.S.Mohanraj were through my son and were through bank only.

That my son A.Senthilkumar had clarified that all the cash transactions mentioned in the name of Mr.S.Mohanraj in our ITA Nos.548 to 552//CHNY/2024

That In fact the amounts were given by B.Saravanakumar residing at 1/447, Avinashi road, Neelambur, Coimbatore- 641062.”

From the aforesaid retraction affidavit filed by Shri O.Arumugasamy, it is clear that address and details who had advanced cash loan is mentioned. In other words, transaction of advancement of loan by cash does not pertain to assessee, but to Shri B.Saravanan residing at 1/447, Avinashi Road, Neelambur, Coimbatore-641 062. Shri A. Senthilkumar S/o. Shri O.Arumugasamy has also given affidavit, wherein it has been stated as follows:- “8. That M/s Senthil Energy Private Limited have given hand loan to Mr.S.Mohanraj on 31.03.2016 amounting to Rs.1,50,00,000/- and received back the same on 04/04/2016. 9. That Mr.S.Mohanraj is a friend of mine and is known to my father Shri.O.Arumugasamy only through me and all transactions between them were only through me.

That Mr.S.Mohanraj has never lent any amount in cash to me or my father or any of our Group concerns at any point of time. All transactions with him were only through Bank.

That When I contacted Mr.S.Mohanraj for money, he said he had no amount and mentioned a name of a person. The amounts were given by such person only. I told our accountant that the loans were given by the person mentioned by Mr.S.Mohanraj. The accountant mistook it as if were lent by Mr.S.Mohanraj and entered his name wrongly. I affirm that those transactions do not ITA Nos.548 to 552//CHNY/2024

That the entries of loan and interest pertain to B.Saravanan residing at 1/447, Avinashi road, Neelambur, Coimbatore-641062

That the statement given by my father stating that amount was received and paid back to Mr.S.Mohanraj is only because of the wrong impression that the amounts were lent by Mr.S.Mohanraj.”

From the narration of the facts, it is clear that there is nothing on record to suggest during the course of search conducted in the premises of the assessee, that he had advanced loans outside books of account to Shri O.Arumugasamy. The assessee in the sworn statement had categorically denied payment of any loan outside books of accounts. The sole basis on which addition was made is on account of certain loose sheets found in the premises of Shri O.Arumugasamy and Mrs.R.Santhamani, (cashier of Shri O.Arumugasamy) during course of search conducted on 09.11.2017. The loans in cash, it has been admitted in the affidavit filed by Shri O.Arumugasamy and Shri Senthilkumar, that they have received the same from Shri B.Saravanan residing in 1/447, Avinashi Road, Neelambur, Coimbatore. The sworn statement given by Shri O.Arumugasamy during search was only on account of wrong impression that amounts were lent by the assessee since he arranged loan given by Shri B.Saravanan. Further, the loose sheets found in the premises of Shri O.Arumugasamy which is the basis ITA Nos.548 to 552//CHNY/2024

"Book" ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as 'book' for they can be easily detached and replaced. In dealing with the work 'book' appearing in Section 34 in Mukundram vs. Dayaram [AIR 1914 Nagpur 44], a decision on which both sides have placed reliance, the Court observed:- " In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book…I think the term "book" in S. 34 aforesaid may properly' be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S.34."

Applying the above test, it must be held that loose sheets seized vide annexures i)GM/RS/LS/17-18/A 1-39; ii) GM/RS/BA /17-18/A & iii)CBE/132/OA/17-18/A 1-6, cannot be regarded as ‘books of accounts’ or ‘documents’ seized in the course of search. We also refer to the judgement of the Hon’ble Supreme Court in the case of Common Cause (A Registered Society) Vs. Union of India (394 ITR 220) (SC), wherein the Hon’ble Apex Court reiterated the principles laid down by its earlier judgement in the case of CBI vs. V.C.Shukla & Ors. (supra). The relevant finding of the Hon’ble Supreme Court reads as follows:- ITA Nos.548 to 552//CHNY/2024

From the above, it is clear that loose papers containing rough scribbling not shown to form part of the books of account regularly maintained by the searched person or its business entities cannot constitute material evidence. Accordingly, an entry made in the aforesaid annexures by third person with scant details cannot be used for tax liability on the person whose name appears therein in absence of corroborative evidence in light of judgement of the Hon’ble Supreme court in the case of CBI Vs. V.C.Shukla & Ors (supra) and Common Cause (A Registered Society) Vs. Union of India (supra). ITA Nos.548 to 552//CHNY/2024

In light of the aforesaid reasoning and relying on judicial pronouncements cited supra, we delete addition made u/s.69 of the Act, since AO made additions merely relying on the entries in the “loose sheets” seized during course of search u/s.132 of Act in case of third person (Shri O.Arumugasamy) without any corroborative evidence. It is ordered accordingly.

In the result, all the five appeals filed by the assessee are allowed.

अपीलाथȸ/Appellant

Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai/Coimbatore 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF.