ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, TRICHY, TRICHY vs. NEELARAJ VINOTH, PERAMBALUR

आदेश /O R D E R

PER S.R.RAGHUNATHA, AM:

filed by the assessee in ITA No: 2119/Chny/2024 are as under: “1. The order of the CIT(A) dismissing the appeal challenging the order u/s.154 r.w.s.143(3) r.w.s.153C of the Act is erroneous as the same is contrary to the facts of the case and provisions of law.

2. The CIT(A) erred in dismissing the appeal by holding that the levy of interest is only consequential and that no separate order needed to be passed.

3. The CIT(A) erred in failing to see that the appellant had filed his ROI within the due date and thus no interest u/s.234A of the Act could be levied.

4. The CIT(A) ought to have annulled the order dated 21.01.2022 as the same was not in conformity with the directions issued by the CBDT.

5. The CIT(A) has erroneously dismissed the appeal without considering the fact that the rectification carried out by the AO was :-3-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 on a debatable. issue which was not apparent from the order of assessment.

6. The CIT(A) ought to have quashed the rectification order for the reason that the very initiation of the same was illegal in view of the ambiguous notice issued by the AO.

7. The CIT(A) ought to have deleted the interest regarding the levy for the period of delay in filing the original Return of Income as the same cannot be done in the order u/s.143(3) r.w.s.153C of the Act.

8. The CIT(A) ought to have deleted the interest regarding the levy for the period of delay in filing the Return of Income in response to notice u/s.153C of the Act as the appellant was given meagre time to respond.”

1.1 The CIT(A) has rightly deleted the addition of Rs.17,01,00,000/- by holding that the same had been made by the AO in the absence of any incriminating material found during the search. 1.2 The CIT(A) has rightly held that the letter found during the search did not have the character of incriminating materialand no addition can be made on the basis of the same. 2.1 The CIT(A) has rightly deleted the addition of Rs.17,01 ,00,000/- by holding that the appellant had explained the sources for the same. 2.2 The CIT(A) has considered the evidences and rightly held that the appellant had indeed obtained loans for the bid amount and returned the same when the auction sale did not materialize. 3.1 The CIT(A) ought to have held that the very initiation of proceedings u/s.153C of the Act is bad in law in the absence of proper satisfaction being recorded prior to issuance of notice u/s.153C of the Act. 3.2 The AO having failed to record satisfaction on the basis of any incriminating material found during the search, the CIT(A) ought to have held that the satisfaction recorded was invalid and the proceedings u/s.153C of the Act were void ab-initio.

:-4-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 The CIT(A) ought to have set aside the order of assessment also for the reason that no proper approval was obtained by the AO as mandated u/s.153D of the Act prior to passing the order of assessment. The CIT(A) erred in merely stating that approval was obtained u/s.153D of the Act. The CIT(A) ought to have held that the order of assessment was void ab- initio in the absence of a Document Identification Number (DIN) and being in contravention to the directions of the CBDT in Circular No.19 of 2019. Any other ground of Cross Objection that may be taken up at the time of hearing.

:-5-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 During the search in the residential premises of assessee’s father Mr.P.Neelraj, the loose sheet No.2 is a letter from SEBI dated 27.01.2017 in the name of the assessee was also seized. This letter contained the details of the bid value of Rs.17,01,00,000/- paid by the assessee towards purchase of immovable property belonging to M/s.Sahara group and purchased by the assessee on auction. On the basis of material evidence gathered during the search and after recording satisfaction note duly approved by the JCIT, notice u/s.153C of the Act was issued on 25.11.2019 in the case of assessee for the A.Y. 2017-18. Due to no response from the assessee, the notice u/s.142(1) dated 03.12.2019 was issued. The assessee filed return of income on 12.12.2019 and subsequently 143(2) of the Act was issued on 13.12.2019. Since, the assessee did not respond for any of the notices and subsequent proposition notice, the AO passed an order u/s.144 r.w.s.153C of the Act on 24.12.2019 by making an addition u/s.69A of the Act to the tune of Rs.17.01 crores as unexplained money by holding as under:

:-6-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 11. So as to have a further clarity on this matter, bank statements of the above mentioned individuals/entities (from which funds were transferred to Shri Vinoth's account) were called for and analysed. The results of this analysis was revealing" in the true sense of the term. Majority of these accounts show cash deposits of identical amounts (say, 50 lakhs, 60 lakhs etc) on the very same day (or the immediately preceding day) when funds are transferred to the account of Shri Vinoth.

S From whose Amount Date of Cash Date of cash l account funds transferred transfer deposit in deposit N transferred to to Vinoth the said o Vinoth account 1 N. Jayanthi 34,00,000 14/07/2016 34,00,000 14/07/2016 2 P.Neelraj 26,00,000 14/07/2016 26,00,000 14/07/2016 3 Ganesh Traders 12,50,000 25/07/2016 12,50,000 25/07/2016 4 K. Gunasekaran 60,00,000 26/07/2016 60,00,000 26/07/2016 5 R.Rajasekar 27,00,000 26/07/2016 27,00,000 26/07/2016 6 SPT& Co 40,00,000 26/07/2016 40,00,000 26/07/2016 13. From an analysis of these bank accounts, it is seen that in most of these accounts (ordinarily) have only a nominal balance: They could transfer such huge amounts say, 50 lakhs, 60 lakhs etc) only by virtue of cash deposited into their accounts on that same day (or preceding day). For example, one Ms Jayanthi transferred Rs. 34,00,000/- to Shri Vinoth on 14.07.2016. This entire amount of Rs. 34,00,000/- has been deposited into the bank account of Ms Jayanthi between 04.07.2016 and 14.07.2016. Before that the balance in the bank account of Ms Jayanthi was only Rs. 4,830/-

:-7-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024

14. However, there are somne instances, where we do not find cash deposits in the bank account of the donor. That is to say, credits in the donors account may by means of transfer from some "other account. We may presume that loans (atleast to this extent) are genuine. However, once we move on to that "other account, in majority of the cases, we will find that they all belong to some trust or other institution belonging to Dhanalakshmi Srinivasan group.

Sl Who transferred Amount Source No funds to vinoth transferred 1 K MURALIDHARAN 6000000 RECEIVED 1000000 FROM DS COLL OF ENGG + 5000000 FROM SSK EDU. HEALTH CHRTL TRUST 2 AD RAJENDRAN 5000000 FUND TRANSFERRED FROM DS THROUGH RTGS 3 R.RAJASEKAR 6500000 FUND FROM SSK HEALTH CHARRBL TRUST-3000000 AND DS GROUP 3550000 4 K SARAVANAN 1000000 Fund transferred from pr.Ds group 5 R RAJASEHAR 1450000 AMT TRANSFRRED FROM DS GROUP 16. The above discussion can be summarized in the following manner: Shri P.Neelraj's statement that the amount paid by his son for acquisition of property was "money received from his friends and other persons" can be taken only in its (strictly) literal sense. It is true that entire payment has been made to SEBI as bank transfer (in three instalments from bank account 0549360000000499 in the name of proprietary concern of Shri Vinoth). The entire amount, transferred to SEBI came from either of three sources (1) Cash deposits directly in Vinoth's account on or immediately preceding the date of transfer to SEBI - (for example 45 lakhs deposited on 26/07/2016 as discussed above)

:-8-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 (2) Cash deposits in the bank accounts of individuals/entities which are immediately transferred to the account of Vinoth. (3) Funds credited into the account of an individual/entity from the bank account of a concern related to Dhanalakshmi Srinivasan group (whose Chairmnan is Vinoth's grand-father). These funds are immediately transferred to Vinoth's account.

:-9-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 5. Before the ld.CIT(A), the assessee stated the AO has erred in treating the investment as unexplained while the investment itself ceased to exist on the date of search due its cancellation by the allotter. Consequentially the sources from where investment were also returned. Thus, the AO has erroneously brought to tax an investment which does not exist.

:-10-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 6.3.4 The contention of the appellant is that the single addition made in the order passed is an addition of Rs. 17,01,00,000/- being the sum advanced for purchase of land conducted by SEBI. The fact regarding the advancement of Rs. 16,83,99,000/- towards the e- auction after the deduction of TDS of Rs. 17,00,989/- and remittance of the same to the Central government Account was very much disclosed to the department much before the date of search and subsequent recording of satisfaction. The appellant is claiming that the seized letter from SEBI does not constitute incriminating material for the following reasons:- (i) The appellant had paid the auction amount of Rs. 16,83,99,000/- after deducting TDS @ 1% of Rs. 17.00,989/- (ii) The appellant had remitted the TDS deducted to the credit of the Central Government, (iii) The TDS deducted clearly finds place in the Form 26AS of the appellant for this year, (iv) The appellant had filed his ROI 27.10.2017 declaring income of Rs.16,91,070/- and claiming total refund of Rs. 14,00,520/- as he had deducted TDS of Rs. 18,31,395/- inclusive of TDS of Rs. 17,00,989/-. (v) After filing the ROI, the TDS claim of Rs. 17,00,989/- was disallowed by intimation u/s. 143(1) of the Act dated 29.12.2017. (vi) The appellant then filed a revised ROI on 10.02.2018 again claiming the TDS refund 6.3.5 Now the issue before the undersigned is whether the said loose sheet ring sl. No. 2 seized during the course of search, which revealed about the transaction of the appellant with SEBI of having participated in the e-auction be treated as an incriminating material despite the fact that the same transaction was already disclosed by the appellant in his return of income filed u/s 139(1) of the Act on 27.10.2017, (which is prior to the date of search i.e.15.02.2018) or not. 6.3.6 The expression of the term "incriminating material" is not defined in the Income Tax Act, 1961. It generally refers to evidence tending to establish guilt or actions from which a guilt can be established. In taxation it refers to an act of manipulation of accounts by a tax payer by creating evidence in his favour or by excluding certain evidence against him, so as to reduce his tax liability. It may relate to a fact or law. Incriminating evidence by its very nature is secreted and is usually unearthed during the course of search or survey. It may be appreciated that the appellant in the return of income prior to the date of search has duly claimed the refunds by :-11-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 disclosing the fact of the transaction of the appellant with SEBI. The seized material relied upon by the AO reveals the very same fact. On account of this very fact that this seized material did not reveal anything new and undisclosed. Further it cannot be treated as an act of manipulation of accounts by the appellant by creating evidence in is favour so as to reduce his tax liability 6.3.7 Further jurisdictional tribunal in the case of M/s. ACIT V. CMG Steels Pvt Ltd and CO No. 155/CHNYI/2017 dated 09.06.2021 has observed as under :- "In the present case, on perusal of facts available on record, we find that the AO has made additions towards unsecured loans on the basis of regular return of income filed by the assessee for the relevant assessment years without reference any incriminating material found as a result of search. ………. Therefore, said documents cannot be treated as incrimination material found as a result of search to make addition towards unsecured loans take and declared in regular return of income filed for relevant assessment year."

6.3.8 From the above observation of the jurisdictional tribunal, it can be seen that on the basis of the information already in possession with the department by way of the contents disclosed in the return of income filed u/s 139(1) of the Act, any material which co-relates or indicate the same can in no way be treated as an "incriminating material". 6.3.9 Further as relied upon by the appellant the decision of the Hon'ble Karnataka High Court in the case of CIT vs. S. Ramachandran and Co. [2012] 209 Taxman 107 (Karnataka) which squarely applies to the facts of the appellant, the relevant portion of the decision is extracted hereunder; "However, the material on record would, clearly show that the said firms which have made payment according to the Revenue, to the assessee, have deducted the tax at source and the same is intimated to the Department. therefore, when the Department had knowledge about the payment made to the assessee and deduction of tax made at source the said income cannot be said in be undisclosed as held by the decisions on this Court in the case of CIT V. Anil M. Potdar in IT Appeal No. 459 of 2007 dated 22-1-2010 and also in the case of CIT V. Geetha P. Hegde in IT Appeal No. 3043/2005 dated 10-3-2010 and in the case of the CIT V. H.E. Mynuddin Pasha [2011] 202

:-12-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 Taxman/13 taxmann.com 147 (Kar). Wherefore, the said reasoning of the Tribunal is also justified.”

6.3.10 In the present case, the material seized and relied by the AO in recording satisfaction to initiate proceedings u/s 153C of the Act in the case of the Appellant for the year under consideration is a letter from SEBI dated 27.01.2017 received by the Appellant. This letter regarded as the loose sheet Sl No. 2 as brought out by the Assessing Officer in the assessment revealed about the cancellation of the e- auction and return of the bid money. When the appellant has declared the same transaction in his return of income e-filed for the AY 2017-18 dated 27.10.2017 (much before the date of search) and claimed refund of the TDS relating to the said transaction, the undersigned is of the considered view that the seized material relied upon by the Assessing Officer (loose sheet Sl. No. 2) does not partake the character of "incriminating material to invoke the provisions of section 153C of the Act. Consequently the satisfaction recorded by the AO by relying upon such seized material is defective. In this regard the Hon'ble Apex Court in the case of PCIT-3, Pune Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has held that "the nexus between issue of notice u/s 153C and the incriminating material found as a result of search must exist'. Thus, by now, it is a settled law that notices u/s 153C of the Act is ab- initio- invalid in absence of incriminating seized material. From the plain reading of language of section 153C of the Act, it is abundantly clear that in order to reopen the assessment of other person u/s. 153C of the Act for the assessment year under consideration, a direct correlation must exist between existence of incriminating material and relevant assessment year. In the instance case, admittedly, additions are not based on any incriminating document found, as a result of search as the findings of the search in the case of the Appellant were already declared by the Appellant in his return of income. Further, AO has not recorded the satisfaction based on any other incriminating material (other than loose sheet sl.no. 2 of the seized material) for the relevant assessment year, as envisaged u/s 153C of the Act.

6.3.11 As the AO has considered the letter received from SEBI as the incriminating material and recorded satisfaction to invoke the provisions of section 153C of the Act when the same transaction as mentioned in the said letter was already declared in the return of income much prior to the date of search the same letter cannot have the character of an "incriminating material". Accordingly the notice u/s 153C of the Act dated 25.11.2019 for the AY 2017-18 issued by :-13-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 the AO by treating the same an incriminating material has no legs to stand and the order passed based upon such defective satisfaction note cannot survive. Accordingly the ground raised by the appellant upon the issue of recording of defective satisfaction is treated as allowed on legality.”

6.1 Adjudication of ld.CIT(A) on merits of the case : 6.6.7 The undersigned upon careful examination of the bank statements and the order of the AO is of the considered view that the Ao has not established the fact that the Appellant's own unaccounted money was routed through these individuals and entities on account of the following:- (i)The contention of the Appellant is that the lump sum amount was received from various entities and individuals and the same was returned back to them. The AO in the assessment order has brought on record the bank statements from the period 01.04.2016 to 03.10.2016 only. From the action of the Assessing Officer it is understood that the AO has attempted to verify the credits only (ii) During the course of the Appellate proceedings, the AR has made available the copy of the same bank statement for the FY 2016-17. Upon perusal of the bank statement, the undersigned observes that there exits refund of the bid money from SEBI and there were a number of debit entries evidencing the re-payments made by the Appellant to various individuals and entities from whom the credits was received. The remaining portion of the statement from the period 03.10.2016 to 26.12.2016 is appended here under for better understanding. (iii) Thus on examination of the bank statement of the Appellant, which is in the name of his concern viz. M/s. Dhanalakshmi Srinivasan Agencies made available before the undersigned, it is observed that once the auction was cancelled and the refund amount was credited to the Appellant's account, the loan amounts were again repaid to the creditors' who had advanced the loan to the Appellant. (iv) In the event, had the AO examined and analysed the bank statement for the whole financial year, there exists every possibility to appreciate the whole transaction. The AO in the present case has chosen to examine the bank statement only up to a particular period and conveniently omitted the transactions relating to re-payments made in the remaining period. On account of this, the AO has arrived

:-14-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 at an erroneous presumption that the Appellant has introduced his own unaccounted money and the same was routed through various individuals and entities to raise the bid money. 6.6.8 Further if the AO is of the view that the creditors in whose banks accounts the cash deposits were made is in the nature of unaccounted, the natural course open to him is to examine such creditors by way of initiating proceedings in accordance with the law. It is understood that when no such action was contemplated by the AO in the case of the creditors, there can be no case to treat the bid amount as unexplained money in the hands of the Appellant. In this regard the decision of the Hon'ble Guiarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523, is relied upon, the Hon'ble Gujarat High Court has held that the onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors', the proper course Would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor)". 6.6.9 From the above bank statement, it can be seen that the Appellant has repaid the loans taken from the creditors, thus, there exists no question to treat the creditors as bogus and making addition as unexplained as per the provisions of section 69A of the Act. In view of the above findings and the judicial precedents, the undersigned is of the considered view that the Appellant had received loans from his parents, friends and relatives and that the same were utilized to make payment for the bid amount and when such bid did not materialise the same upon receipt was returned to these creditors through banking channels itself. Accordingly. the ground raised by the Appellant upon this issue is hereby treated as allowed and the AO is directed to delete the addition of Rs.17,01,00,000/- as unexplained money us 69A of the Act for the AY 2017-18 on merits also. Aggrieved by the order of the ld.CIT(A) the revenue is before us.

7.1 Further, the ld.DR stated that the Ld.CIT(A) failed to appreciate that the assessing officer had clearly brought out in the assessment order that this amount was brought as cash deposits directly or transfer from others' bank accounts in which cash deposits were there immediately before the transfer from bank accounts of group concerns. Since the assessee had not proved the genuineness of source for the transaction in the seized material, it partakes the character of incriminating material and the AO has rightly initiated proceedings u/s.153C.

7.2 Further, the ld.DR argued that the Ld.CIT(A) erred in observing that on cancellation of transaction, SEBI returned the bid amount and the same was repaid to creditors which proved

:-16-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 genuineness of transaction, without appreciating that refund of amount did not prove the genuineness of source made in the form of cash deposits in the assessee's as well as creditors' bank accounts. Therefore, the ld.DR prayed for setting aside the order of ld. CIT(A) and confirm the order of the AO.

Sl. Date Event 1. 27.10.2017 ROI filed by the Respondent u/s.139(1) of the Act 2. 10.02.2018 1st Revised ROI filed by the Respondent u/s.139(5) of the Act 3. 15.02.2018 Search in the case of Dhanalakshmi Srinivasan Group 4. 30.09.2018 Expiry of limitation to issue notice u/s.143(2) of the Act for the above two ROls 5. 03.09.2018 2nd Revised ROI filed by the Respondent u/s.139(5) of the Act 6. 30.09.2019 Expiry of limitation to issue notice u/s.143(2) of the Act for the 2nd Revised ROI

:-17-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 7. 20.11.2019 Order passed by the PCIT u/s.127 of the Act centralizing the Respondent's case 8. 25.11.2019 Notice u/s.153C of the Act issued by the AO 8.1 The ld.AR further stated that the above dates and events, it becomes clear that the ROls filed by the assessee were neither picked up for scrutiny and the time limit to pick the same for scrutiny had expired prior to the date on which the materials were handed over to the assessee's AO. This makes it clear that additions could have been made by the AO for this year; only if he had any incriminating material. Both in the satisfaction note, extracted at Page 23 of the order of the CIT(A) and in the order of assessment, the AO has considered the seized material "Annexure/SS/Loose Sheet/Seized S.No.1 dated 16.02.2018 Page no.2" alone to be the incriminating material. Only on the basis of this sheet, he has recorded his satisfaction u/s.153C of the Act and made the addition in the order of assessment. It is settled law that the AO can proceed against the "other person" contemplated u/s.153C of the Act only if he is satisfied that "any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than

:-18-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 the searched person". The satisfaction has to be drawn u/s.153C of the Act with a direct nexus to the seized material which is incriminating in nature.

"As regards the TDS remitted by you in terms of Section 194- IA of the Income Tax Act, you are advised to please take up the matter with the authorities concerned for obtaining refund of the same." 1. The assessee is a doctor by profession running a private hospital. He filed his ROI electronically on 26.10.2017 (Pages 3 to 9 of PB).

:-19-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 Since the CPC pointed out certain defects in the ROI, he filed one more ROI on 10.02.2018 (Page 15 of PB) admitting the same income. Again, one more ROI was filed on 03.09.2018 (Page 18 of PB) again admitting the same income returned in the earlier two ROIs.

8.2 The ld.AR stated that the ROI was taken up by CPC Bengaluru and TDS aforesaid was not allowed in an intimation dated 30.06.2019 (Page 19 of PB). Therefore, the assessee filed letter dated 02.07.2019 (Page 24 of PB) with the CIT, TDS, Chennai seeking refund of the entire TDS amount claimed. The assessee had explained the circumstances under which the refund came to be claimed. The assessee has stated that he had purchased in open auction by the Securities Exchange Board of India (SEBI) land at Tiruchirapalli and in accordance with the conditions of the auction he paid Rs.16,83,99,000/- net after deducting TDS @ 1% of Rs.17,01,000/- in accordance with section 194IA of IT Act. This assessee had even approached the Dy CIT, CPC vide his communication dated 21.02.2018.

8.3 The ld.AR further submitted that the information in this seized letter is not something that came to the knowledge of the Department only due to the search and seizure. The fact that the :-20-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 assessee had deducted TDS of Rs.17,01,000/- on the payments made towards SEBI find place in his Form 26AS for this year. Moreover, the assessee had claimed refund of the TDS in his various ROls filed for this year, of which the original ROI and the 1st revised ROI were filed prior to the search. This being the case, the seized letter did not reveal anything new to the Department and thus the same can never be touted as an incriminating material bringing to light some undisclosed income or undisclosed transaction.

8.4 The learned DR had argued that apart from "Annexure/SS/Loose Sheet/Seized S.No.1 dated 16.02.2018 Page no.2", the AO had referred to pages 1,4,5,6,7,8,9 of the same seized material in his order of assessment. The AO had merely stated in the order that these pages also contained the details of the transaction. He had nowhere stated that these pages were incriminating in nature, bringing to light some undisclosed transaction. Even these pages cannot thus be considered as incriminating material.

8.5 The ld.AR stated that in any case, as mentioned above, the AO has only referred to Page no.2 of the seized material in the satisfaction recorded by him. As made clear by the provisions of :-21-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 section 153C of the Act, satisfaction has to be necessarily recorded on the basis of any incriminating material found during the search. The material referred to in the satisfaction note must have a live nexus with the reasoning of the AO that the same will have a bearing on the determination of the income of the assessee. This has been held by the Hon'ble Karnataka High Court in CIT v. IBC Knowledge Park (P) Ltd. [2016] 385 ITR 346 (Karnataka); “Materials such as books of accounts, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C..... Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section 153 of the Act."

8.6 Furthermore, the ld.AR stated that the satisfaction note has to be tested on a standalone basis and no additions or improvements can be made to the same. This has been so held by this Hon'ble Tribunal in ACIT vs.Arunachalm Srinivasan in ITA No.1527/Chny/2023;

“17. It has to be kept in mind that when the challenge is to the validity of the satisfaction note which the AO has recorded to assume jurisdiction, we have to examine the satisfaction recorded as it is. There are case laws which throws light in the context of examining the legal validity of Satisfaction recorded by the AO while re-opening the assessment u/s. 147 of the Act. It is settled law that reasons as recorded for reopening the :-22-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 reassessment are to be examined on a 'stand-alone' basis. Neither anything can be added to the reasons so recorded nor any thing can be deleted from the reasons so recorded. The Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 /TR 332 have, inter alia, held "it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons." Their Lordships added that "the reason recorded should be self explanatory and should not keep the assessee guessing for reasons. Reasons provided the link between the conclusion and the evidence ..... ". Therefore, reasons are to be examined only on the basis of reasons as recorded by the AO. This analogy/ratio decidendi of the Hon'ble High court is applicable to the 'Satisfaction-Note' prepared by the AO when he recorded his satisfaction note in respect of a third person (assessee in this case) against whom he/AO proposed to invoke the special provision and issue notice under section 153C of the Act.

8.7 Thus, the material referred to in the satisfaction note must necessarily be incriminating in nature against the assessee for the same to be legally sustainable. Since Page no.2 of the seized material is in no way incriminating against the assessee, the satisfaction recorded by the AO fails, making the satisfaction and all subsequent proceedings defective. The, addition has also been made in the absence of any incriminating material. Alternatively, if the DR's arguments that the other pages of the seized material (which have not been recorded by the AO in the satisfaction note) are incriminating against the assessee and the satisfaction and addition would sustain on the basis of the same is considered, the same still makes the satisfaction defective, because, the addition has not been made on the basis of the material referred to in the :-23-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 satisfaction note. Similar addition was deleted by this Hon'ble Tribunal in M/s.KP Construction vs. ACIT in by holding as under;

“In the present case, on perusal of satisfaction note recorded by the AO of a searched person, we find that there is no reference to the seized materials considered by the AO to frame assessment and make additions for relevant A Y 2016-17 which is clearly evident from the seized materials referred to by the AO in Page No.4 of the order where he referred Annexure No.ANN/RB/ISPC/B&D/1O, but said material did not find mention by the AO in the satisfaction note. From the above, it is undisputedly clear that there is no live link between the satisfaction arrived at by the AO and incriminating material found during the course of search and thus, in our considered view, the satisfaction note recorded by the AO as required under provisions of Sec. 153C of the Act, is not in accordance with law and further, notice issued by the AO on the basis of said incorrect satisfaction is illegal ab initio and liable to be quashed.”

8.8 The ld.AR submitted that the letter seized merely refers to the purchase consideration advanced by the assessee and the refund of the same. It does not contain anything incriminating in nature. Similarly, in the case of DCIT vs Avinash Singla [2025] 170 taxmann.com 786 (Chandigarh - Trib.), a letter issued by SEBI to the assessee was found which warned the assessee that he had transacted in shares whose prices were manipulated. Based on this letter, the AO added the capital gains from the sale of these shares as bogus income of the assessee. On appeal to the ITAT, the Hon'ble tribunal deleted the addition by stating as under;

"14. With the assistance of the ld. Representatives we have gone through the record carefully. Admittedly, nothing was found during the course of :-24-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 search except a warning letter from the SEBI reproduced in the findings of the CIT(A). This letter in itself does not exhibit that anything which is relevant for the assessment of the income of the Assessee. It is just a caution to the Assessee for avoiding any transaction with such type of shares. It is pertinent to note that returns were filed before 31.03.2015 in all these cases. The time limit to issue notice u/s 143(2) for scrutinizing those returns had expired long back. The search has taken place on 25.04.2018. During the course of search details regarding alleged transactions of penni stock was not found. The Department was only able to lay its hands on the letter of SEBI which was missing in the case of Smt. Meenu Singla. The Assessing Officer, thereafter, he himself has not cross verified anything. He only followed some information available on the portal of the Revenue without cross verifying any circumstance. The Ld.CIT(A) appreciated the controversy in right prospective and rightly concluded that during the search no incriminating material was found demonstrating the alleged transactions as a bogus one. In view of above discussion, we do not find any merit in these appeals and they are dismissed."

8.9 The ld.AR stated that during the arguments, the learned DR had also argued that the deposition of the assessee's father, Mr.Pasupathy Neelraj, in the sworn statement recorded from him on 16.02.2018 contained information incriminating against the assessee. The entire sworn statement has been translated and annexed to these submissions. The DR had specifically referred to the answer of Mr.Neelraj to the 20th question put across to him. The English translation of the 20th question and answer is as under;

Q. No.20: Here is the bank statement of Dhanalakshmi Srinivasan Agencies from 01.04.2016 till 15.02.2018. Many cash deposits have been made in this account. More specifically, cash has been deposited continuously on 26.07.2016 and 08.08.2016. Please explain the same.

:-25-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 Answer: This bank account relates to my son's (Dr. N. Vinoth) petrol bunk by the name Dhanalakshmi Srinivasan Agencies. This bank account is being continuously maintained. I believe that the transactions referred by you have all been declared by my son in the Income Declaration Scheme, 2016. I shall enquire the details about this with my son Dr. N. Vinoth and I shall come to your office and provide an explanation.

8.10 Further, the ld.AR submitted that the declaration under the IDS, 2016 was made way back on 12.10.2016. Nothing deposed by the assessee's father contained any new information, let alone information which incriminated the assessee in any way. In any case, this statement was not even referred to in the satisfaction note and the same also could not have formed the basis for initiation of proceedings u/s.153C of the Act as held by the Hon'ble Delhi High Court in CIT vs. Raj Pal Bhatia [2011] 333 ITR 315 (Delhi):

"In the instant case, admittedly, during the search carried out at the premises of C no books of account or other documents or other assets pertaining to the assessees were found or seized. The entire foundation of the block assessment under section 158BD insofar assessee's were concerned, was the statement of C recorded during the course of search. Admittedly, statement of C was neither 'books of account' nor 'assets'. Statement was not the document which was found during search. In fact, it was the document which came to be created during the search as the statement was recorded at the time of search. Therefore, it could not be said that the statement was 'seized' during the search and, thus, it would not qualify the expression 'documents' having been seized during the search."

:-26-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 8.11 The ld.AR stated that the so-called incriminating material is not really incriminating material but a material which is already in the possession and knowledge of the Department. The Assessee had already made a claim for refund of the TDS that had been remitted while the payments were made to SEBI, which resulted in the cancellation of the e-auction. Even in the balance sheet the "TDS refundable" has been taken as an asset (Page 8 of PB). All the amounts had been paid and received only through bank. The assessee returned the loans through bank. When all these transactions are reflected in the account of the assessee, there's no reason to conclude that the transactions are undisclosed. Only a document which logically leads to a conclusion that there is undisclosed income which has not been reported to the Department, can be treated as an incriminating document. The letter of SEBI returning the money therefore cannot be said to be an incriminating document.

Thus, the summary of our arguments is that; a. The loose sheet "Annexure/SS/Loose Sheet/Seized S.No.1 dated 16.02.2018 Page no.2" is not an incriminating material,

:-27-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 b. The satisfaction note has been recorded without reference to any incriminating material, c. The addition has been made in the order of assessment in the absence of incriminating material, d. Satisfaction note has to be tested on a standalone basis, e. Sworn statement recorded during the search cannot be the basis for initiation of proceedings u/s.153C of the Act, f. Addition has not been made on the basis of the material referred to in the satisfaction note.

8.12 Further, the ld.AR stated that on the merits of the addition, the DR argued that the transfers from the creditors' bank accounts to the assessee's bank accounts were preceded by cash deposits or transfers into the creditors' bank accounts. This is only post search enquiry and not something found at the time of search. It is not as if the ROI was not filed. In fact, 3 ROIs were filed. At best proceedings u/s.148 of the Act could have been resorted to but not an assessment u/s. 153C of the Act. On the basis of the submissions made above, the ld.AR prayed that the order of the CIT(A) be upheld and the Departmental appeal be dismissed.

:-28-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 9. We have heard the rival contentions perused the materials available on record and gone through the orders of lower authorities. A search u/s.132 of the Act was conducted in the case of M/s.Dhanalakshmi Srinivasan Charitable and Educational Trust and its group on 15.02.2018. Offices of various entities connected with the group as well as residence of key individuals were covered in the search including the residence of Mr.P.Neelraj, son in law of the Chairman of the Trust. The assessee is a son of Mr.P.Neelraj. It is admitted fact that the assessee is a doctor and had filed his return of income for the A.Y. 2017-18 on 27.10.2017 and had been revised twice in response to notices issued by the CPC.

Sl. Date Event 1. 27.10.2017 ROI filed by the Respondent u/s.139(1) of the Act 2. 10.02.2018 1st Revised ROI filed by the Respondent u/s.139(5) of the Act 3. 15.02.2018 Search in the case of Dhanalakshmi Srinivasan Group 4. 30.09.2018 Expiry of limitation to issue notice u/s.143(2) of the Act for the above two ROls 5. 03.09.2018 2nd Revised ROI filed by the Respondent u/s.139(5) of the Act 6. 30.09.2019 Expiry of limitation to issue notice u/s.143(2) of the Act for the 2nd Revised ROI 7. 20.11.2019 Order passed by the PCIT u/s.127 of the Act centralizing the Respondent's case 8. 25.11.2019 Notice u/s.153C of the Act issued by the AO

:-29-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 9.1 The Return of income filed by the assessee were neither picked up for scrutiny and the time limit to pick the same for scrutiny had expired i.e. 30.09.2018 prior to the date on which the materials were handed over to the assessee's AO. This makes it clear that additions could have been made by the AO for this year; only if he had any incriminating material.

9.2 We have observed that the satisfaction note the AO has considered the seized material "Annexure/SS/Loose Sheet/Seized S.No.1 dated 16.02.2018 Page no.2" alone to be the incriminating material and the same is extracted at Page 23 of the order of the CIT(A). The impugned addition of Rs.17,01,00,000/- has been made by the AO only on the basis of this sheet, he has recorded his satisfaction u/s.153C of the Act and made the addition in the order of assessment. The document seized in Annexure/SS/Loose Sheet / Seized S.No.1 dated 16.02.2018 Page no.2 is a letter dated 27.01.2017 addressed by SEBI to the assessee herein. The assessee was declared the successful bidder in the auction and he was directed to remit the purchase consideration for the property to SEBI. The assessee remitted a sum of Rs.16,83,99,000/- net of the TDS of Rs.17,01,000/-, to SEBI. Subsequently, the auction came to be cancelled and the money was to be refunded to the assessee.

:-30-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 SEBI had refunded Rs.16,83,99,000/- to the assessee. Vide the letter dated 27.01.2017, SEBI directed the assessee to approach the Income Tax authorities for refund of the TDS amount thus: "As regards the TDS remitted by you in terms of Section 194-IA of the Income Tax Act, you are advised to please take up the matter with the authorities concerned for obtaining refund of the same."

9.3 The assessee filed letter dated 02.07.2019 (Page 24 of PB) with the CIT, TDS, Chennai seeking refund of the entire TDS amount claimed by explaining the circumstances under which the refund claimed. The assessee has stated that he had purchased in open auction by the Securities Exchange Board of India (SEBI) land at Tiruchirapalli and in accordance with the conditions of the auction he paid Rs.16,83,99,000/- net after deducting TDS @ 1% of Rs.17,01,000/- in accordance with section 194IA of IT Act. This assessee had even approached the Dy.CIT, CPC vide his communication dated 21.02.2018.

9.4 Therefore, we agree with the ld.AR that the information in this seized letter is not something that came to the knowledge of the Department only due to the search and seizure. The fact that the assessee had deducted TDS of Rs.17,01,000/- on the payments made towards SEBI find place in his Form 26AS for this year.

:-31-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 Moreover, the assessee had claimed refund of the TDS in his various ROls filed for this year, of which the original ROI and the 1st revised ROI were filed prior to the search. This being the case, the seized letter did not reveal anything new to the Department and thus the same can never be touted as an incriminating material bringing to light some undisclosed income or undisclosed transaction.

9.5 We also note that as argued by the ld.DR, from "Annexure/SS/Loose Sheet/Seized Sl.No.1 dated 16.02.2018 Page no.2", the AO had referred to pages 1,4,5,6,7,8,9 of the same seized material in his order of assessment, but nowhere stated that these pages were incriminating in nature, bringing to light some undisclosed transaction. Further, we observed that these pages have not been referred in the satisfaction recorded.

9.6 It is pertinent to note that the material referred to in the satisfaction note must have a live nexus with the reasoning of the AO that the same will have a bearing on the determination of the income of the assessee. This has been held by the Hon'ble Karnataka High Court in CIT v. IBC Knowledge Park (P) Ltd. [2016] 385 ITR 346 (Karnataka);

:-32-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 “Materials such as books of accounts, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C..... Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section 153 of the Act."

9.7 Furthermore, the satisfaction note has to be tested on a standalone basis and no additions or improvements can be made to the same. This has been confirmed by this Hon'ble Tribunal in ACIT vs.Arunachalm Srinivasan in ITA No.1527/Chny/2023;

“17. It has to be kept in mind that when the challenge is to the validity of the satisfaction note which the AO has recorded to assume jurisdiction, we have to examine the satisfaction recorded as it is. There are case laws which throws light in the context of examining the legal validity of Satisfaction recorded by the AO while re-opening the assessment u/s. 147 of the Act. It is settled law that reasons as recorded for reopening the reassessment are to be examined on a 'stand-alone' basis. Neither anything can be added to the reasons so recorded nor any thing can be deleted from the reasons so recorded. The Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 /TR 332 have, inter alia, held "it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons." Their Lordships added that "the reason recorded should be self explanatory and should not keep the assessee guessing for reasons. Reasons provided the link between the conclusion and the evidence ..... ". Therefore, reasons are to be examined only on the basis of reasons as recorded by the AO. This analogy/ratio decidendi of the Hon'ble High court is applicable to the 'Satisfaction-Note' prepared by the AO when he recorded his satisfaction note in respect of a third person (assessee in this case) against whom he/AO proposed to invoke the special provision and issue notice under section 153C of the Act.

:-33-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 9.8 In the case on hand, the Page no.2 of the seized material is in no way incriminating against the assessee and hence the satisfaction recorded by the AO fails, making the satisfaction and all subsequent proceedings defective. Similar addition was deleted by this Hon'ble Tribunal in the case of M/s.KP Construction vs. ACIT in by holding as under;

“In the present case, on perusal of satisfaction note recorded by the AO of a searched person, we find that there is no reference to the seized materials considered by the AO to frame assessment and make additions for relevant A Y 2016-17 which is clearly evident from the seized materials referred to by the AO in Page No.4 of the order where he referred Annexure No.ANN/RB/ISPC/B&D/1O, but said material did not find mention by the AO in the satisfaction note. From the above, it is undisputedly clear that there is no live link between the satisfaction arrived at by the AO and incriminating material found during the course of search and thus, in our considered view, the satisfaction note recorded by the AO as required under provisions of Sec. 153C of the Act, is not in accordance with law and further, notice issued by the AO on the basis of said incorrect satisfaction is illegal ab initio and liable to be quashed.”

9.9 Further, the letter seized at the residence of assessee’s father merely refers to the purchase consideration advanced by the assessee and the refund of the same. It does not contain anything incriminating in nature. In the similar facts the Tribunal decided the issue in the case of DCIT vs Avinash Singla [2025] 170 taxmann.com 786 (Chandigarh - Trib.), wherein a letter issued by SEBI to the assessee was found which warned the assessee that he had transacted in shares whose prices were manipulated. On :-34-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 appeal to the ITAT, the Tribunal deleted the addition by holding as under;

"14. With the assistance of the ld. Representatives we have gone through the record carefully. Admittedly, nothing was found during the course of search except a warning letter from the SEBI reproduced in the findings of the CIT(A). This letter in itself does not exhibit that anything which is relevant for the assessment of the income of the Assessee. It is just a caution to the Assessee for avoiding any transaction with such type of shares. It is pertinent to note that returns were filed before 31.03.2015 in all these cases. The time limit to issue notice u/s 143(2) for scrutinizing those returns had expired long back. The search has taken place on 25.04.2018. During the course of search details regarding alleged transactions of penni stock was not found. The Department was only able to lay its hands on the letter of SEBI which was missing in the case of Smt. Meenu Singla. The Assessing Officer, thereafter, he himself has not cross verified anything. He only followed some information available on the portal of the Revenue without cross verifying any circumstance. The Ld.CIT(A) appreciated the controversy in right prospective and rightly concluded that during the search no incriminating material was found demonstrating the alleged transactions as a bogus one. In view of above discussion, we do not find any merit in these appeals and they are dismissed."

9.10 Further, in the sworn statement of the assessee’s father Mr.Neelraj to the question No.20, he stated that the assessee is a doctor and running a petrol bunk and the cash deposits were out of the collection of the bunk, as given below;

Q. No.20: Here is the bank statement of Dhanalakshmi Srinivasan Agencies from 01.04.2016 till 15.02.2018. Many cash deposits have been made in this account. More specifically, cash has been deposited continuously on 26.07.2016 and 08.08.2016. Please explain the same. Answer: This bank account relates to my son's (Dr. N. Vinoth) petrol bunk by the name Dhanalakshmi Srinivasan Agencies. This bank account is being continuously maintained. I believe that the transactions referred

:-35-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 by you have all been declared by my son in the Income Declaration Scheme, 2016. I shall enquire the details about this with my son Dr. N. Vinoth and I shall come to your office and provide an explanation. 9.11 We note that the assessee's father statement contained no new information which is incriminating the assessee’s income in any way. It is observed that this statement was not even referred to in the satisfaction note and the same also could not have formed the basis for initiation of proceedings u/s.153C of the Act as held by the Hon'ble Delhi High Court in CIT vs. Raj Pal Bhatia [2011] 333 ITR 315 (Delhi):

"In the instant case, admittedly, during the search carried out at the premises of C no books of account or other documents or other assets pertaining to the assessees were found or seized. The entire foundation of the block assessment under section 158BD insofar assessee's were concerned, was the statement of C recorded during the course of search. Admittedly, statement of C was neither 'books of account' nor 'assets'. Statement was not the document which was found during search. In fact, it was the document which came to be created during the search as the statement was recorded at the time of search. Therefore, it could not be said that the statement was 'seized' during the search and, thus, it would not qualify the expression 'documents' having been seized during the search."

9.12 In the case on hand the addition of Rs.17.01 Crores made by the AO is not justified since there is an absence of incriminating material. Now it is a settled the law based on the decision of the Hon’ble Supreme court in the case of PCIT Vs. Abhisar Buildwell (p) ltd. [2023] 454 ITR 212(SC), their lordship has held that the additions can be made in search assessments only with the :-36-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 incriminating materials in respect of the unabated assessments years.

9.13 Therefore, in the present facts and circumstances of the case on perusal of the satisfaction note and seized material, respectfully following the judicial precedents (supra), we find that undisputedly there is no live link between satisfaction note and incriminating material in respect of the assessee’s transactions for the A.Y. 2017- 18. Thus in our considered view, the satisfaction note recorded by the AO as required under provisions of Sec. 153C of the Act, is not in accordance with law and hence we do not find any reason to interfere in the order of the ld.CIT(A) and hence we dismiss the grounds of appeal filed by the revenue.

10. Since, the appeal filed by the revenue is dismissed, the cross appeal filed by the assessee becomes academic and hence dismissed.

ITA No.: 2119/Chny/2024 for the A.Y. 2017-18. 12. This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals), Chennai-19, for the :-37-: ITA. No: 1982 & 2119/Chny/2024 CO No: 60/Chny/2024 assessment year 2017-18 vide order dated 27.05.2024 in respect of confirming the levy of interest u/s.234A of the Act in the order u/s.154 of the Act passed by the DCIT, Central Circle – 1, Trichy.

15. As a result, the appeal filed by the revenue in and the cross appeal filed by the assessee in Co No. 60/Chny/2024 are dismissed. Order pronounced in the court on 18th February, 2025 at Chennai.