VANAVIL ESTATE,CHENNAI vs. PCIT(CENTRAL), CHENNAI

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Sl. No. Particulars Particulars AY 2017-18 AY 2018-19

1. Gross Gross Receipts Receipts as as per per Rs.11,96,19,541 Rs.57,56,06,658 Rs.57,56,06,658 impounded laptop impounded laptop

2. Gross Receipts as per books of Gross Receipts as per books of Rs.3,22,02,272 Rs.5,13,18,170 accounts (according to the AO) accounts (according to the AO)

3. Differential Receipts Differential Receipts Rs.8,74,13,269 Rs.52,42,88,488 Rs.52,42,88,488

4. Profit Profit element element embedded embedded Rs.1.01 crores Rs.6.58 crores therein therein added added to to the the total total (8,74,13,269 x (52,42,88,488 x (52,42,88,488 x income by AO 11.59%) 12.56%)

3. Aggrieved by the action of the AO, the assessee is noted to have Aggrieved by the action of the AO, the assessee is noted to have Aggrieved by the action of the AO, the assessee is noted to have preferred appeals before the Ld. CIT(A) in both the years. During the preferred appeals before the Ld. CIT(A) in both the years. During the preferred appeals before the Ld. CIT(A) in both the years. During the pendency of the appeal, th pendency of the appeal, the Ld. Pr.CIT is noted to have issued notices u/s e Ld. Pr.CIT is noted to have issued notices u/s 263 of the Act, both dated 15.02.2024, proposing to revise the income 263 of the Act, both dated 15.02.2024, proposing to revise the income 263 of the Act, both dated 15.02.2024, proposing to revise the income tax assessments completed u/s 147 of the Act for both the AYs 2017 tax assessments completed u/s 147 of the Act for both the AYs 2017 tax assessments completed u/s 147 of the Act for both the AYs 2017-18 & 2018-19. In the notice, the Ld. Pr.CIT is noted to have observed 19. In the notice, the Ld. Pr.CIT is noted to have observed 19. In the notice, the Ld. Pr.CIT is noted to have observed that the AO’s action of adding only the profit element qua the differential receipts AO’s action of adding only the profit element qua the differential receipts AO’s action of adding only the profit element qua the differential receipts was erroneous. According to the Ld. Pr.CIT, the assessee had already was erroneous. According to the Ld. Pr.CIT, the assessee had already was erroneous. According to the Ld. Pr.CIT, the assessee had already claimed all the expenditure in the Profit & Loss Account and no evidence claimed all the expenditure in the Profit & Loss Account and no evidence claimed all the expenditure in the Profit & Loss Account and no evidence was adduced for any additiona was adduced for any additional expenditure and therefore, according to l expenditure and therefore, according to him, the entire suppressed receipts ought to have been brought to tax. It him, the entire suppressed receipts ought to have been brought to tax. It him, the entire suppressed receipts ought to have been brought to tax. It is noted that while quantifying the value of suppressed receipts, the Ld. is noted that while quantifying the value of suppressed receipts, the Ld. is noted that while quantifying the value of suppressed receipts, the Ld. Pr.CIT had computed the differential receipts at Rs.5,80,42,094/ Pr.CIT had computed the differential receipts at Rs.5,80,42,094/ Pr.CIT had computed the differential receipts at Rs.5,80,42,094/- and Rs.45,43,54,220/- as opposed to the figures of Rs. as opposed to the figures of Rs.8,74,13,269 8,74,13,269/- & & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate :: 4 ::

Rs.52,42,88,488/- adopted by the AO, for AYs 2017 adopted by the AO, for AYs 2017-18 & 2018 18 & 2018-19 respectively.

4. The assessee is noted to have furnished their replies to the show The assessee is noted to have furnished their replies to the show The assessee is noted to have furnished their replies to the show cause notices issued u/s 263 of the Act cause notices issued u/s 263 of the Act for both the AYs on the same for both the AYs on the same lines. The copies of these replies are found to be placed at Pages 78 lines. The copies of these replies are found to be placed at Pages 78 lines. The copies of these replies are found to be placed at Pages 78-83 and 163-168 of the Paper 168 of the Paper-book. The Ld. Pr.CIT however did not agree book. The Ld. Pr.CIT however did not agree with the explanations put forth by the assessee and passed the with the explanations put forth by the assessee and passed the with the explanations put forth by the assessee and passed the impugned revisionary orders u/s 263 of the Act for both the AYs 2017 rders u/s 263 of the Act for both the AYs 2017 rders u/s 263 of the Act for both the AYs 2017-18 & 2018-19 dated 22.03.2024, directing the AO to bring to tax the entire differential dated 22.03.2024, directing the AO to bring to tax the entire differential dated 22.03.2024, directing the AO to bring to tax the entire differential receipts between the total receipts from business as per the impounded receipts between the total receipts from business as per the impounded receipts between the total receipts from business as per the impounded laptop and the declared receipts. Aggrieved by the laptop and the declared receipts. Aggrieved by the orders of the Ld. orders of the Ld. Pr.CIT, the assessee is now in appeal before us. Pr.CIT, the assessee is now in appeal before us.

5. Having regard to the facts taken note of above, both sides agreed Having regard to the facts taken note of above, both sides agreed Having regard to the facts taken note of above, both sides agreed that the appeals for both the years are similar and therefore, ITA that the appeals for both the years are similar and therefore, ITA that the appeals for both the years are similar and therefore, AY 2017 No.925/Chny/2024 for AY 2017-18 is taken as the lead case, decision of d case, decision of which will be followed in the appeal for AY 2018 which will be followed in the appeal for AY 2018-19.

AR further brought to our notice a plethora of judgments wherein it has AR further brought to our notice a plethora of judgments wherein it has AR further brought to our notice a plethora of judgments wherein it has been held that, where details of any undisclosed receipts/sales been held that, where details of any undisclosed receipts/sales been held that, where details of any undisclosed receipts/sales are unearthed in the course of any search/survey, then the whole amou unearthed in the course of any search/survey, then the whole amou unearthed in the course of any search/survey, then the whole amount cannot be brought to tax but it is only the profit element embedded cannot be brought to tax but it is only the profit element embedded cannot be brought to tax but it is only the profit element embedded therein which can be assessed to tax. He accordingly submitted that the therein which can be assessed to tax. He accordingly submitted that the therein which can be assessed to tax. He accordingly submitted that the view adopted by the AO bringing to tax the profit element of the view adopted by the AO bringing to tax the profit element of the view adopted by the AO bringing to tax the profit element of the & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate differential receipts was a permissible view in differential receipts was a permissible view in law and therefore, relying law and therefore, relying upon the decision of the upon the decision of the Hon’ble Supreme Court in the case of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT Industrial Co. Ltd. v. CIT (243 ITR 83),he urged that the impugned he urged that the impugned order passed u/s 263 of the Act was bad in law and therefore ought to be order passed u/s 263 of the Act was bad in law and therefore ought to be order passed u/s 263 of the Act was bad in law and therefore ought to be cancelled.

He further submitted that the assessm He further submitted that the assessment order lacked any detailed ent order lacked any detailed discussion on the impugned issue and that the AO did not record any discussion on the impugned issue and that the AO did not record any discussion on the impugned issue and that the AO did not record any basis as to how he arrived at a conclusion to assess only the profit basis as to how he arrived at a conclusion to assess only the profit basis as to how he arrived at a conclusion to assess only the profit element instead of the gross receipts and therefore, this showed that the element instead of the gross receipts and therefore, this showed that the element instead of the gross receipts and therefore, this showed that the reassessment order was passed without application of mind. The Ld. CIT, der was passed without application of mind. The Ld. CIT, der was passed without application of mind. The Ld. CIT, DR therefore urged us not to interfere with the order of the Ld. Pr.CIT. DR therefore urged us not to interfere with the order of the Ld. Pr.CIT. DR therefore urged us not to interfere with the order of the Ld. Pr.CIT.

10. We first take up the legal challenge of the assessee which is that We first take up the legal challenge of the assessee which is that We first take up the legal challenge of the assessee which is that the Ld. Pr.CIT was prohibited in terms the Ld. Pr.CIT was prohibited in terms of Explanation 1(c) to Section 263 of Explanation 1(c) to Section 263 of the Act, in directing revision of the impugned issued viz., addition of of the Act, in directing revision of the impugned issued viz., addition of of the Act, in directing revision of the impugned issued viz., addition of entire supressed receipts as opposed to the profit element embedded entire supressed receipts as opposed to the profit element embedded entire supressed receipts as opposed to the profit element embedded therein. It is noted that Explanation (1) to Section 263 of the Act lays therein. It is noted that Explanation (1) to Section 263 of the Act lays therein. It is noted that Explanation (1) to Section 263 of the Act lays down certain circumstances in which t certain circumstances in which the power under Section 263 of the he power under Section 263 of the Act is not exercisable by the Ld. Pr.CIT.The relevant E by the Ld. Pr.CIT.The relevant Explanation 1(c) xplanation 1(c) to Section 263, which is in dispute in the present case, which is in dispute in the present case, reads as follows: reads as follows:

"Revision of orders prejudicial to revenue Revision of orders prejudicial to revenue

263(1)...

(a) to (b)** ** **

(c) Where any order referred to in this sub (c) Where any order referred to in this sub-section and passed by the section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or Assessing Officer had been the subject matter of any appeal [filed on or Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the before or after the 1st day of June, 1988], the powers of the before or after the 1st day of June, 1988], the powers of the Commissioner under th Commissioner under this Sub-section shall extend and shall be deemed section shall extend and shall be deemed always to have extended to such matters as had not been considered always to have extended to such matters as had not been considered always to have extended to such matters as had not been considered and decided in such appeal." and decided in such appeal."

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11. It was brought to our notice that the Hon’ble jurisdictional Madras It was brought to our notice that the Hon’ble jurisdictional Madras It was brought to our notice that the Hon’ble jurisdictional Madras High Court in the case of Renuka Philip High Court in the case of Renuka Philip (supra) has held that the above (supra) has held that the above language used in Explanation 1(c) provides that, language used in Explanation 1(c) provides that, when the appeal is when the appeal is pending before the Commissioner pending before the Commissioner (Appeals), then jurisdiction under jurisdiction under Section 263 of the Act Section 263 of the Act cannot be exercised. In the decided case, the In the decided case, the assessee had originally filed the return of income disclosing long term lly filed the return of income disclosing long term lly filed the return of income disclosing long term capital gain and had claimed the entire sum as exempt u/s 54 of the Act. capital gain and had claimed the entire sum as exempt u/s 54 of the Act. capital gain and had claimed the entire sum as exempt u/s 54 of the Act.

The case of the assessee was reopened u/s 147 of the Act and the AO The case of the assessee was reopened u/s 147 of the Act and the AO The case of the assessee was reopened u/s 147 of the Act and the AO found that the assessee was not eligible for exemption u/s 54 o found that the assessee was not eligible for exemption u/s 54 o found that the assessee was not eligible for exemption u/s 54 of the Act and therefore denied the same, however, at the same time, the AO found and therefore denied the same, however, at the same time, the AO found and therefore denied the same, however, at the same time, the AO found the assessee to be eligible for exemption u/s 54F of the Act and thus the assessee to be eligible for exemption u/s 54F of the Act and thus the assessee to be eligible for exemption u/s 54F of the Act and thus allowed proportionate claim. Aggrieved by this action of the AO, the allowed proportionate claim. Aggrieved by this action of the AO, the allowed proportionate claim. Aggrieved by this action of the AO, the assessee had carried the matter in a assessee had carried the matter in appeal before the CIT(A). In the ppeal before the CIT(A). In the meanwhile, and during the pendency of the appeal, the Ld. CIT had and during the pendency of the appeal, the Ld. CIT had and during the pendency of the appeal, the Ld. CIT had invoked revisionary jurisdiction u/s 263 of the Act wherein he held that, invoked revisionary jurisdiction u/s 263 of the Act wherein he held that, invoked revisionary jurisdiction u/s 263 of the Act wherein he held that, the deduction allowed by the AO u/s 54F of the Act was also erroneous the deduction allowed by the AO u/s 54F of the Act was also erroneous the deduction allowed by the AO u/s 54F of the Act was also erroneous and therefore directed the AO to disallow the same. On appeal, the directed the AO to disallow the same. On appeal, the directed the AO to disallow the same. On appeal, the Hon’ble Madras High Court found that the larger issue which was the Hon’ble Madras High Court found that the larger issue which was the Hon’ble Madras High Court found that the larger issue which was the allowability of exemption u/s 54 of the Act as opposed to Section 54F was allowability of exemption u/s 54 of the Act as opposed to Section 54F was allowability of exemption u/s 54 of the Act as opposed to Section 54F was pending before the CIT(A) and therefore the CIT could not hav pending before the CIT(A) and therefore the CIT could not hav pending before the CIT(A) and therefore the CIT could not have exercised the power u/s 263 of the Act for denying the deduction u/s 54F of the Act, the power u/s 263 of the Act for denying the deduction u/s 54F of the Act, the power u/s 263 of the Act for denying the deduction u/s 54F of the Act, & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate which was already in dispute before the CIT(A). The relevant findings of which was already in dispute before the CIT(A). The relevant findings of which was already in dispute before the CIT(A). The relevant findings of the Hon’ble High Court taken note of by us, is as follows: the Hon’ble High Court taken note of by us, is as follows:-

“22. The above explanation makes it “22. The above explanation makes it clear that when the appeal is clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under pending before the Commissioner, the exercise of jurisdiction under pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated Section 263 of the Act is barred. The Commissioner in the order dated Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the 14.03.2012 states that the appeal pertains to the claim made by the 14.03.2012 states that the appeal pertains to the claim made by the assessee under Secti assessee under Section 54 of the Act and it has got nothing to do with on 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. the order passed by the Assessing Officer under Section 54F of the Act. the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, The said finding rendered by the Commissioner is wholly unsustainable, The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re since the assessee went on appeal against the re-assessment or assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 dated 31.12.2009 stating that his claim for deduction under Section 54 dated 31.12.2009 stating that his claim for deduction under Section 54 of the Act should be accepted. of the Act should be accepted.

23. Therefore, in the process of considering as to what relief the 23. Therefore, in the process of considering as to what relief the 23. Therefore, in the process of considering as to what relief the assessee is entitled to, the Assessing Officer held that the assessee is assessee is entitled to, the Assessing Officer held that the assessee is assessee is entitled to, the Assessing Officer held that the assessee is entitled to claim deduction under Section 54F of the Act and assigned o claim deduction under Section 54F of the Act and assigned o claim deduction under Section 54F of the Act and assigned certain reasons for that. Therefore, the larger issue was pending before certain reasons for that. Therefore, the larger issue was pending before certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the the Commissioner of Appeals, and in such circumstances, the the Commissioner of Appeals, and in such circumstances, the Commissioner could not exercise power under Section 263 of the Commissioner could not exercise power under Section 263 of the Commissioner could not exercise power under Section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the account of the statutory bar. Therefore, on this ground also, the account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly assumption of jurisdiction under Section 263 of the Act was wholly assumption of jurisdiction under Section 263 of the Act was wholly erroneous.”

Thereafter, after making enquiries in the reassessment, the AO had Thereafter, after making enquiries in the reassessment, the AO had Thereafter, after making enquiries in the reassessment, the AO had & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate framed the assessment order wherein he had brought to tax undisclosed framed the assessment order wherein he had brought to tax undisclosed framed the assessment order wherein he had brought to tax undisclosed profit embedded in the supressed receipts. It was brought to our notice edded in the supressed receipts. It was brought to our notice edded in the supressed receipts. It was brought to our notice that, the assessee had disputed the reliability of the material found from that, the assessee had disputed the reliability of the material found from that, the assessee had disputed the reliability of the material found from the laptop itself, on the ground that the data therein was not put to the the laptop itself, on the ground that the data therein was not put to the the laptop itself, on the ground that the data therein was not put to the test of the provisions of Section 65A and Sec test of the provisions of Section 65A and Section 65B of the Indian tion 65B of the Indian Evidence Act. The assessee had therefore claimed that no addition could Evidence Act. The assessee had therefore claimed that no addition could Evidence Act. The assessee had therefore claimed that no addition could have been made on the basis of such unreliable material. Accordingly, the have been made on the basis of such unreliable material. Accordingly, the have been made on the basis of such unreliable material. Accordingly, the assessee is noted to have disputed the addition of the undisclosed profit assessee is noted to have disputed the addition of the undisclosed profit assessee is noted to have disputed the addition of the undisclosed profit in relation to the suppressed receipts, before the Ld. CIT(A). In the o the suppressed receipts, before the Ld. CIT(A). In the o the suppressed receipts, before the Ld. CIT(A). In the meantime, it is observed that the Ld. Pr.CIT had exercised power u/s 263 meantime, it is observed that the Ld. Pr.CIT had exercised power u/s 263 meantime, it is observed that the Ld. Pr.CIT had exercised power u/s 263 of the Act and passed the impugned order holding that the addition of of the Act and passed the impugned order holding that the addition of of the Act and passed the impugned order holding that the addition of undisclosed profit was unjustified and that the entire r undisclosed profit was unjustified and that the entire receipts ought to eceipts ought to have been added to the total income. Applying the ratio decidendi have been added to the total income. Applying the ratio decidendi have been added to the total income. Applying the ratio decidendi emerging from the above decision (supra), we find that the larger issue emerging from the above decision (supra), we find that the larger issue emerging from the above decision (supra), we find that the larger issue which was the reliability of the impounded material itself, was in dispute which was the reliability of the impounded material itself, was in dispute which was the reliability of the impounded material itself, was in dispute and pending before the Ld. and pending before the Ld. CIT(A), who having the co-terminus powers of terminus powers of the AO was required to look into the entire gamut of the issue before the AO was required to look into the entire gamut of the issue before the AO was required to look into the entire gamut of the issue before passing the appellate order. Accordingly, we find merit in the plea of the passing the appellate order. Accordingly, we find merit in the plea of the passing the appellate order. Accordingly, we find merit in the plea of the assessee that, in terms of bar set out in Explanation 1(c) to Sec assessee that, in terms of bar set out in Explanation 1(c) to Sec assessee that, in terms of bar set out in Explanation 1(c) to Section 263 of the Act and in light of the above binding decision of the Hon’ble Madras of the Act and in light of the above binding decision of the Hon’ble Madras of the Act and in light of the above binding decision of the Hon’ble Madras High Court (supra), the Ld. Pr.CIT was unjustified in exercising revisional High Court (supra), the Ld. Pr.CIT was unjustified in exercising revisional High Court (supra), the Ld. Pr.CIT was unjustified in exercising revisional jurisdiction u/s 263 of the Act on the impugned issue, which was already jurisdiction u/s 263 of the Act on the impugned issue, which was already jurisdiction u/s 263 of the Act on the impugned issue, which was already & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate pending in appeal, and therefore the impugned order being bad in law is therefore the impugned order being bad in law is directed to be cancelled. directed to be cancelled.

Assessing Officer's order is in violation of the principles of natural justice; Assessing Officer's order is in violation of the principles of natural justice; Assessing Officer's order is in violation of the principles of natural justice; or (iii) if the AO's order is passed without application of mind; or (iv) if (iii) if the AO's order is passed without application of mind; or (iv) if (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him. It is only under these gated the issue before him. It is only under these gated the issue before him. It is only under these circumstances enumerated in the foregoing, that an order passed by the circumstances enumerated in the foregoing, that an order passed by the circumstances enumerated in the foregoing, that an order passed by the Assessing Officer can be termed as erroneous for the purpose of Assessing Officer can be termed as erroneous for the purpose of Assessing Officer can be termed as erroneous for the purpose of Section & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate :: 12 ::

263 of the Act. Coming to the second limb, the AO's erroneous order can Act. Coming to the second limb, the AO's erroneous order can Act. Coming to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is be revised by the Ld. CIT only when it is shown that the said order is be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interests of Revenue. When this aspect is examined, one prejudicial to the interests of Revenue. When this aspect is examined, one prejudicial to the interests of Revenue. When this aspect is examined, one has to understand what is prejudicial to the int has to understand what is prejudicial to the interest of the Revenue. The erest of the Revenue. The Hon'ble Supreme Court in the case of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd Malabar Industrial Co. Ltd (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to held that this phrase i.e. "prejudicial to the interest of the revenue'' has to held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction wit be read in conjunction with an "erroneous" order passed by the Assessing h an "erroneous" order passed by the Assessing Officer. The Hon'ble Supreme Court, held that for invoking powers Officer. The Hon'ble Supreme Court, held that for invoking powers Officer. The Hon'ble Supreme Court, held that for invoking powers conferred by Section 263 Section 263; the CIT should not only show that the AO's ; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above a result of any of the situations enumerated above a result of any of the situations enumerated above but the CIT must also further show that as a result of an erroneous order, but the CIT must also further show that as a result of an erroneous order, but the CIT must also further show that as a result of an erroneous order, some loss is caused to the interests of the Revenue. Their Lordships in some loss is caused to the interests of the Revenue. Their Lordships in some loss is caused to the interests of the Revenue. Their Lordships in the said judgment held that, every loss of revenue as a consequence of an at, every loss of revenue as a consequence of an at, every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests order of Assessing Officer cannot be treated as prejudicial to the interests order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. It was further observed that, when the Assessing Officer of the Revenue. It was further observed that, when the Assessing Officer of the Revenue. It was further observed that, when the Assessing Officer adopts one of the course permissible i adopts one of the course permissible in law and it has resulted in loss to n law and it has resulted in loss to the Revenue, or where two views are possible and the Assessing Officer the Revenue, or where two views are possible and the Assessing Officer the Revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be has taken one view with which the Ld. CIT does not agree, it cannot be has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interests of the Revenue unless the treated as an order prejudicial to the interests of the Revenue unless the treated as an order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. ew taken by the Assessing Officer is unsustainable in law. ew taken by the Assessing Officer is unsustainable in law.

Survey u/s 133A of the Income Survey u/s 133A of the Income-tax Act, 1961 has been conducted in the case of tax Act, 1961 has been conducted in the case of the assessee on 07.08.2019. For the FY 2016 the assessee on 07.08.2019. For the FY 2016-17 (AY 2017-18), the assessee 18), the assessee firm has disclosed receipts of Rs.3.22 Crores but as per the impounded laptop, firm has disclosed receipts of Rs.3.22 Crores but as per the impounded laptop, firm has disclosed receipts of Rs.3.22 Crores but as per the impounded laptop, the gross receipt is Rs.11.96 Crores. gross receipt is Rs.11.96 Crores.

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No entries found regarding expenditures were found in registers / computer / No entries found regarding expenditures were found in registers / computer / No entries found regarding expenditures were found in registers / computer / laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and adopting the net profit @ 11.59% (after deducting the partner's adopting the net profit @ 11.59% (after deducting the partner's salary from the salary from the receipts), the difference in net profit arrived at 1.01 Crore. On perusal of the receipts), the difference in net profit arrived at 1.01 Crore. On perusal of the receipts), the difference in net profit arrived at 1.01 Crore. On perusal of the ITR, it is clear that the assessee has not disclosed the same. ITR, it is clear that the assessee has not disclosed the same.

“1. Please furnish statement of computation of your income from all sources “1. Please furnish statement of computation of your income from all sources “1. Please furnish statement of computation of your income from all sources during the year.

2. Please furnish a copy of audit report, Profit and Loss account along with 2. Please furnish a copy of audit report, Profit and Loss account along with 2. Please furnish a copy of audit report, Profit and Loss account along with schedules/notes to accounts, Balance Sheet. schedules/notes to accounts, Balance Sheet.

No entries found regarding expenditures were found in r No entries found regarding expenditures were found in registers / computer / egisters / computer / laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and laptop. The apparent difference in the receipts worked out to Rs.8.74 Crores and adopting the net profit ® 11.59% (after deducting the partner's salary from the adopting the net profit ® 11.59% (after deducting the partner's salary from the adopting the net profit ® 11.59% (after deducting the partner's salary from the receipts), the difference in net profit arrived at 1.01 Crore. On perusal receipts), the difference in net profit arrived at 1.01 Crore. On perusal receipts), the difference in net profit arrived at 1.01 Crore. On perusal of the ITR, it is clear that the assessee has not disclosed the same. ITR, it is clear that the assessee has not disclosed the same.

As against the income, it is seen that the assessee has admitted only Rs. As against the income, it is seen that the assessee has admitted only Rs. As against the income, it is seen that the assessee has admitted only Rs. 37,33,880/- as income under the head 'profit and gains from the Business' and as income under the head 'profit and gains from the Business' and as income under the head 'profit and gains from the Business' and not the additional receipts amoun not the additional receipts amounting to net profit of Rs. 1.01 Crore which is ting to net profit of Rs. 1.01 Crore which is ascertained based on the average profit percentage. ascertained based on the average profit percentage.

The assessee has not disclosed the additional receipts admitted during the The assessee has not disclosed the additional receipts admitted during the The assessee has not disclosed the additional receipts admitted during the statement recorded u/s 133A. It is also evident from the survey findings that the statement recorded u/s 133A. It is also evident from the survey findings that the statement recorded u/s 133A. It is also evident from the survey findings that the assessee is not maintaining proper books of accounts. Further, the ascertained ssessee is not maintaining proper books of accounts. Further, the ascertained ssessee is not maintaining proper books of accounts. Further, the ascertained net profit to the tune of Rs.1.01 Crores. Therefore, the income chargeable to tax net profit to the tune of Rs.1.01 Crores. Therefore, the income chargeable to tax net profit to the tune of Rs.1.01 Crores. Therefore, the income chargeable to tax & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate of Rs. 1.01 Crores has escaped assessment as the assessee has not disclosed of Rs. 1.01 Crores has escaped assessment as the assessee has not disclosed of Rs. 1.01 Crores has escaped assessment as the assessee has not disclosed the same.”

9. The assessee's arguments are duly cons 9. The assessee's arguments are duly considered and found not to be acceptable idered and found not to be acceptable for the following reasons: for the following reasons:

The impounded materials necessary for arriving at the income has already The impounded materials necessary for arriving at the income has already The impounded materials necessary for arriving at the income has already been handed over to the assessee firm on 23.08.2019. The quantification been handed over to the assessee firm on 23.08.2019. The quantification been handed over to the assessee firm on 23.08.2019. The quantification has been based on the books and documents, ele has been based on the books and documents, electronic devices impounded ctronic devices impounded during the course of survey proceedings. during the course of survey proceedings.

The assessee has not reconciled the apparent difference in receipts which The assessee has not reconciled the apparent difference in receipts which The assessee has not reconciled the apparent difference in receipts which was worked out to Rs. 8.74 crores and net profit of Rs. 1.01 crore has been was worked out to Rs. 8.74 crores and net profit of Rs. 1.01 crore has been was worked out to Rs. 8.74 crores and net profit of Rs. 1.01 crore has been arrived at after adopting the net profi arrived at after adopting the net profit 11.59%, till date, despite the time t 11.59%, till date, despite the time available with the assessee from 23.08.2019 and despite the opportunities available with the assessee from 23.08.2019 and despite the opportunities available with the assessee from 23.08.2019 and despite the opportunities provided during the post survey/ assessment proceedings. Presently, the provided during the post survey/ assessment proceedings. Presently, the provided during the post survey/ assessment proceedings. Presently, the assessee is taking an unfounded prayer that the assessment is based on assessee is taking an unfounded prayer that the assessment is based on assessee is taking an unfounded prayer that the assessment is based on statements, loose sheets/excel sheets/pen drives, etc. tatements, loose sheets/excel sheets/pen drives, etc.

There is no evidence whatsoever that the assessee was under duress during There is no evidence whatsoever that the assessee was under duress during There is no evidence whatsoever that the assessee was under duress during the course of survey proceedings and it has taken more than 4 years for the the course of survey proceedings and it has taken more than 4 years for the the course of survey proceedings and it has taken more than 4 years for the assessee to retract from the findings admitted by t assessee to retract from the findings admitted by the assessee, Shri. he assessee, Shri. C.Balakrishnan (one of the partners of the firm) in statement u/s.133A of C.Balakrishnan (one of the partners of the firm) in statement u/s.133A of C.Balakrishnan (one of the partners of the firm) in statement u/s.133A of the Income-tax Act, 1961. Therefore, the plea of the assessee that Shri tax Act, 1961. Therefore, the plea of the assessee that Shri tax Act, 1961. Therefore, the plea of the assessee that Shri C.Balakrishnan (one of the partners of the firm) was under duress cannot C.Balakrishnan (one of the partners of the firm) was under duress cannot C.Balakrishnan (one of the partners of the firm) was under duress cannot be accepted. In fa be accepted. In fact, the findings are based on impounded materials and ct, the findings are based on impounded materials and not just on mere statements recorded. not just on mere statements recorded.

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Rather, we find that, the AO had made specific enquiries and also Rather, we find that, the AO had made specific enquiries and also Rather, we find that, the AO had made specific enquiries and also recorded his findings for assessing the undisclosed profit. recorded his findings for assessing the undisclosed profit.

books of accounts. According to Ld. Pr.CIT, had the AO applied his mind, books of accounts. According to Ld. Pr.CIT, had the AO applied his mind, books of accounts. According to Ld. Pr.CIT, had the AO applied his mind, then he would have noted that the gross receipts as per b then he would have noted that the gross receipts as per b then he would have noted that the gross receipts as per books of accounts at Rs.6,15,77, ,447/- and not Rs.3,22,02,272/-, as stated in the , as stated in the assessment order. It was brought to our notice that, this particular aspect assessment order. It was brought to our notice that, this particular aspect assessment order. It was brought to our notice that, this particular aspect had been pointed out by the assessee itself in their reply to notice u/s had been pointed out by the assessee itself in their reply to notice u/s had been pointed out by the assessee itself in their reply to notice u/s 142(1) of the Act, wherein 142(1) of the Act, wherein it was submitted before the AO that, it was submitted before the AO that, the gross receipts as per books of accounts was Rs.6 receipts as per books of accounts was Rs.6,15,77,447/ 447/- and not Rs.3,22,02,272/-. The AO is noted to have specifically taken note of this . The AO is noted to have specifically taken note of this . The AO is noted to have specifically taken note of this contention but rejected the same, which have already taken note of contention but rejected the same, which have already taken note of contention but rejected the same, which have already taken note of above. However, for the sake of convenience, the relevant observations . However, for the sake of convenience, the relevant observations . However, for the sake of convenience, the relevant observations made by the AO, in this regard, are being again reproduced made by the AO, in this regard, are being again reproduced made by the AO, in this regard, are being again reproduced hereunder: -

“.. The assessee vide letter dated 26.03.2022 has stated that the Gross .. The assessee vide letter dated 26.03.2022 has stated that the Gross .. The assessee vide letter dated 26.03.2022 has stated that the Gross Receipts declared by the assessee was Rs.6.15 Receipts declared by the assessee was Rs.6.15 Crores and not Rs. 3.22 Crores and not Rs. 3.22 Crores. The assessee has stated that the amount of Rs.3.22 Crores Crores. The assessee has stated that the amount of Rs.3.22 Crores Crores. The assessee has stated that the amount of Rs.3.22 Crores represents the net surplus transferred to the profit and loss account represents the net surplus transferred to the profit and loss account represents the net surplus transferred to the profit and loss account after deducting Land owner payment of Rs.2.93 Crores against the Land after deducting Land owner payment of Rs.2.93 Crores against the Land after deducting Land owner payment of Rs.2.93 Crores against the Land owner receipts of Rs.6.15 owner receipts of Rs.6.15 Crores. However, in the absence of details Crores. However, in the absence of details regarding land owner payments, the argument cannot be accepted.” regarding land owner payments, the argument cannot be accepted.” regarding land owner payments, the argument cannot be accepted.”

AO did not cause any prejudice to the interests of the Revenue, because AO did not cause any prejudice to the interests of the Revenue, because AO did not cause any prejudice to the interests of the Revenue, because he had resultantly computed a higher value of suppressed receipts in the he had resultantly computed a higher value of suppressed receipts in the he had resultantly computed a higher value of suppressed receipts in the relevant AY 2017-18. If 18. If this action of the AO is interfered with, then it this action of the AO is interfered with, then it would result in reduction in the value of suppressed receipts, which would result in reduction in the value of suppressed receipts, which would result in reduction in the value of suppressed receipts, which cannot be done u/s 263 of the Act. For these reasons, we reject this cannot be done u/s 263 of the Act. For these reasons, we reject this cannot be done u/s 263 of the Act. For these reasons, we reject this particular line of contention of the Revenue. particular line of contention of the Revenue.

aspect, and the AO had adopted the view which favoured the assessee, aspect, and the AO had adopted the view which favoured the assessee, aspect, and the AO had adopted the view which favoured the assessee, then such action of the AO cannot be termed as ‘erroneous’ in terms of then such action of the AO cannot be termed as ‘erroneous’ in terms of then such action of the AO cannot be termed as ‘erroneous’ in terms of Section 263 of the Act. This Section 263 of the Act. This proposition is supported by the decision of proposition is supported by the decision of Hon’ble Supreme Court in the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. Malabar Industrial Co. Ltd. v.

CIT (supra).

"3. Having perused the assessment order made by the Assessing Officer, "3. Having perused the assessment order made by the Assessing Officer, "3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tri the order made by the Commissioner (Appeals) and the Tribunal, we are bunal, we are satisfied that the Tribunal was justified in rejecting the application under satisfied that the Tribunal was justified in rejecting the application under satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of section 256(1). It cannot be a matter of an argument that the amount of section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not sales by itself cannot represent the income of the assessee who has not sales by itself cannot represent the income of the assessee who has not disclosed the sales. disclosed the sales. The sales only represent the price received by the The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred seller of the goods for the acquisition of which it has already incurred seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only the cost. It is the realisation of excess over the cost incurred that only the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of forms part of the profit included in the consideration of sales. Therefore, sales. Therefore, unless there is a finding to the effect that investment by way of unless there is a finding to the effect that investment by way of unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made incurring cost in acquiring goods which have been sold has been made incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, by the assessee and that has also not been disclosed, the question, by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed whether entire sum of undisclosed sale proceeds can be treated as sale proceeds can be treated as income of the relevant assessment year answers by itself in the income of the relevant assessment year answers by itself in the income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any negative. The record goes to show that there is no finding nor any negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in material has been referred to about the suppression of investment in material has been referred to about the suppression of investment in acquiring the goods whic acquiring the goods which have been found subject of undisclosed h have been found subject of undisclosed sales."

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"42. Scope of Reasonable Expenditure: Assessee needs to expend in "42. Scope of Reasonable Expenditure: Assessee needs to expend in "42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income/profit and it is basic and universal principle in any order to earn income/profit and it is basic and universal principle in any order to earn income/profit and it is basic and universal principle in any business. This principle applies to both accounted and u business. This principle applies to both accounted and u business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits, due to its very nature of profits. In a case of unaccounted profits, due to its very nature of profits. In a case of unaccounted profits, due to its very nature of unaccounting, normally, the parties do not maintain evidences and unaccounting, normally, the parties do not maintain evidences and unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such unaccounted evidences is impossibility. therefore, evidencing such unaccounted evidences is impossibility. therefore, evidencing such unaccounted evidences is impossibility. Probably, for this reason, the courts have Probably, for this reason, the courts have taken conscious view that it is taken conscious view that it is for the assessing authority to quantify reasonable expenditure for the assessing authority to quantify reasonable expenditure for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the considering the facts of the case and industry. Legally speaking, the considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not judgments are uniform in asserting that entire sale proceeds should not judgments are uniform in asserting that entire sale proceeds should not be added as income. be added as income. Honble High court of Ahmadabad ruled in the case Honble High court of Ahmadabad ruled in the case of Panna Corporation that the " assessee ought to have spent of Panna Corporation that the " assessee ought to have spent of Panna Corporation that the " assessee ought to have spent reasonable amount for the purpose of receiving such gross profit' (para reasonable amount for the purpose of receiving such gross profit' (para reasonable amount for the purpose of receiving such gross profit' (para 14 of Tax Appeal No 325 of 2000 dt. 16.6.2012). Further, Hon'ble High 14 of Tax Appeal No 325 of 2000 dt. 16.6.2012). Further, Hon'ble High 14 of Tax Appeal No 325 of 2000 dt. 16.6.2012). Further, Hon'ble High Court Of Madhya Pradesh held in the case of President Industries 258 ya Pradesh held in the case of President Industries 258 ya Pradesh held in the case of President Industries 258 ITR 654 that ' entire sale proceeds of the assessee should not be added ITR 654 that ' entire sale proceeds of the assessee should not be added ITR 654 that ' entire sale proceeds of the assessee should not be added in his income'. Further, from the judgment in case of Panna Corporation in his income'. Further, from the judgment in case of Panna Corporation in his income'. Further, from the judgment in case of Panna Corporation (supra), it is settled proposition that there (supra), it is settled proposition that there is no need for the assessee to is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure demonstrate the genuineness of the claim of unaccounted expenditure demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted in the cases of this kind. The underlined logic is that the unaccounted in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, expenditure is always unevidenced and never maintained. Therefore, expenditure is always unevidenced and never maintained. Therefore, transferring onus transferring onus on to the assessee in matters of this kind is not on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable approved. Ex consequenti, it is for the AO allow necessarily reasonable approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding deduction towards such unaccounted expenditure without demanding deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences rela evidences, considering the nature of industry and also evidences rela evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above to extents of net profits earned by the assessee. Considering the above to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear legal position on the matter, we are of the clear-cut opinion, the AO's cut opinion, the AO's conclusions on this issue are certainly erroneous. In principle, we uphold conclusions on this issue are certainly erroneous. In principle, we uphold conclusions on this issue are certainly erroneous. In principle, we uphold & 926/Chny/2024 925 & 926/Chny/2024 (AYs 20 2017-18 & 2018-19) Vanavil Estate the views of the CIT(A) in this the views of the CIT(A) in this regard. Therefore, relevant grounds regard. Therefore, relevant grounds raised in the revenue's appeals are dismissed." raised in the revenue's appeals are dismissed."

"Dismissed the special leave petition filed by the Department "Dismissed the special leave petition filed by the Department "Dismissed the special leave petition filed by the Department against the judgment dated January 21, 2002 of the Gujarat High Court in dated January 21, 2002 of the Gujarat High Court in dated January 21, 2002 of the Gujarat High Court in ITA No. 52 of 2002 whereby the High Court dismissed the Department's appeal 52 of 2002 whereby the High Court dismissed the Department's appeal 52 of 2002 whereby the High Court dismissed the Department's appeal on the ground that no substantial question of law arose. The question of on the ground that no substantial question of law arose. The question of on the ground that no substantial question of law arose. The question of law raised in the appeal before th law raised in the appeal before the High Court was whether the e High Court was whether the Appellate Tribunal's finding while directing the Assessing Officer to tax Appellate Tribunal's finding while directing the Assessing Officer to tax Appellate Tribunal's finding while directing the Assessing Officer to tax only 8 per cent of the unaccounted on money receipt instead of fully only 8 per cent of the unaccounted on money receipt instead of fully only 8 per cent of the unaccounted on money receipt instead of fully taxing it, in the absence of any evidence of expenditure, could not be taxing it, in the absence of any evidence of expenditure, could not be taxing it, in the absence of any evidence of expenditure, could not be stated to be perverse." perverse."

In the aforesaid facts and circumstances therefore, the impugned order cts and circumstances therefore, the impugned order cts and circumstances therefore, the impugned order u/s 263 of the Act dated u/s 263 of the Act dated 22.03.2024 is held to be unsustainable. Hence, is held to be unsustainable. Hence, we cancel the same by allowing the appeal of the assessee. we cancel the same by allowing the appeal of the assessee. we cancel the same by allowing the appeal of the assessee.

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Order pronounced on the 12th day of February, 2025, in Chennai. Order pronounced on the , in Chennai.