ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, TRICHY, TRICHY vs. RAMASAMY NATARAJAN, TRICHY

The Ld. CIT-DR advanced arguments and referred to the findings given by Ld. CIT(A) in the first round of proceedings. The Ld. AR also advanced arguments and submitted that first round order has already been set-aside by the Tribunal. The Ld. AR relied on the findings rendered in the impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 As assessment was framed against the assessee u/s 153C pursuant to search action u/s 132 in the case of M/s Dhanalakshmi Srinivasan Charitable and Educational Trust on 15-02-2018. During that search, the residence of key individual Smt. R. Ezhilarasi was also covered wherein certain incriminating documents were found and seized. After recording satisfaction note duly approved by the JCIT, notice u/s 153C was issued to the assessee on 04-09-2019. The assessee filed return of income admitting income of Rs.6.65 Lacs. The Ld. AO made addition on account of unexplained income / investments for Rs.625.84 Lacs in an assessment order passed on 23-12-2019 which was confirmed in first appeal vide order dated 25-01-2020. The Tribunal restored that matter back to the file of Ld. AO in 207/Chny/2021 dated 18-01-2023 with a direction to AO to provide the copies of seized material as well as copies of sworn statements. In the second round, these directions were complied with and another assessment has been framed which is in further challenge before us. 3.2 In the assessment order, Ld. AO has alleged that the assessee had advanced cash loan of Rs.6 Crores to Shri P. Mani (Director of Dhanalakshmi Srinivasan Group) during the year from 2012 to 2017. The assessee’s friend Shri M. Jayaraman also gave similar cash loan of Rs.4 Crores to Shri P. Mani through the assessee. The assessee as well as Shri Jayaraman has allegedly received interest on these loans at the rate of 18%. The year-wise calculation of loan given and interest received by the assessee has been tabulated in para-3 of the assessment order. The details of cash loans were stated to be gathered during the course of search at the residence of Smt. R. Ezhilarasi (a trusted employee of Dhanalakshmi Srinivasan Group) as per the loose sheet which was seized vide Annexure ANN/PV/RE/LS/S-1. The relevant portion of the same has been extracted in the assessment order. 3.3 During the course of search on 16-02-2018, cash of Rs.7.50 Lacs was seized from the residence of the assessee. The assessee stated that it was the interest amount in respect of loans given by him and his friend Shri M. Jayaraman to Shri P. Mani, In the statement recorded on 16-02-2018, the assessee made admission of cash loan of Rs.6 Crores to Shri P. Mani. It was further admitted that Shri P. Mani had taken another loan of Rs.4 Crores through him from Shri M. Jayaraman. It was stated that the loan was given on interest at the rate of 15%. The amount of Rs.12.50 Lacs was given to him in cash through Shri A. Sekar (working with DS group) out of which he had given Rs.5 Lacs to Shri M. Jayaraman as interest on his investment of Rs.4 Crores. The balance amount of Rs.7.50 Lacs was found and seized from assessee’s residence during the course of search. The statement of Shri M. Jayaraman was also recorded on 17-02-2018 wherein he admitted to have given cash loan of Rs.4 Crores to Shri P. Mani through the assessee at interest of 15%. On 16-02-2018, statement u/s 131 was recorded from Shri A. Sekar wherein he admitted that he used to carry cash being interest on loan to the assessee. On the basis of aforesaid facts, Ld. AO proceeded to make impugned addition of unexplained investment in the hands of the assessee. 3.4 During assessment proceedings, the assessee refuted the allegation of Ld. AO and stated that the proposed addition was based on dumb document and not on the basis of any credible evidences. The loose sheets of papers could not be classified as books of accounts unless the evidence was available in the form of books of accounts. The assessment could not be made on mere suspicion. The assessee also filed retraction of the statement on 14-01-2019. It was also stated that the loose sheets were undated and unsigned bearing no signatures of any of the party. 3.5 However, Ld. AO held that the seized document contain financial transaction in the form of loan advanced by the assessee and the interest received by the assessee. The employee also explained entries in the documents, modus operandi and sequence of transactions. In the satisfaction note, it has clearly been brought out by Ld. AO that the said document had bearing on determination of total income of the assessee. Therefore, assumption of jurisdiction u/s 153C was correct. The addition was based not only on the basis of statement of the assessee and Shri M. Jayaraman but also on the basis of detailed working as emanated from speaking documents which matched with the admission made by the assessee and Shri M. Jayaraman. The allegation that the statements were given under stress or duress was not acceptable since assessee did not give any evidences thereof at the time of retraction. The retraction was filed after lapse of 11 months from the date of search which was unacceptable. Finally, the loan amount of Rs.517.84 Lacs pertaining to this year was added as unexplained investment u/s 69 whereas interest amount of Rs.108 Lacs as allegedly received by the assessee was added as ‘Income from other sources’. Similar assessment was framed in the case of other assessee. Appellate Proceedings 4.1 During appellate proceedings, the assessee assailed the impugned additions on legal grounds as well as on merits by way of elaborate written submissions which have already been extracted in the impugned order. The Ld. CIT(A) noted that the case of the assessee emanates from a search u/s 132 carried out in the case of M/s Dhanalakshmi Srinivasan Charitable and Education Trust on 15-02-2018. The offices of various entities connected to the group as well as the residences of key individuals were covered in the search including the residence of Smt. R. Ezhilarasi. During search at her residence, incriminating material in the form of loose sheets was found. Upon examination of the same, it was revealed that the sheets contain the details of loans received from several individuals including the assessee. On the basis of noting contained in the seized loose sheet, Ld. AO inferred that the assessee had advanced cash loan to Shri P. Mani, one of the directors of M/s Dhanalakshmi Srinivasan Group over a period from 2012 to 2017 and received interest on loan at the rate of 18%. Similar loan was advanced by assessee’s friend Shri M. Jayaraman, The year-wise computation of loan given and interest received was tabulated by Ld. CIT(A) in para 6.2.1 of the impugned order. As a sequel to the above search, the assessee was also subjected to search wherein physical cash of Rs.7.50 Lacs was found. In the recorded statement, it was admitted that the cash represent interest amount in respect of loan given by the assessee and his friend Shri M. Jayaraman. It was also admitted that amount of Rs.12.50 Lacs was given through Shri A. Sekar (employee of DS group) and out of this amount, an amount of Rs.5 Lacs was given to Shri M. Jayaraman towards interest on his investment of Rs.4 Crores and the balance of Rs.7.50 Lacs was the physical cash found and seized from the residence of the assessee. Shri A. Sekar admitted that he used to carry cash to the assessee. Accordingly, notice u/s 153C was issued to the assessee and impugned additions were made. The Ld. AO rejected the submission of the assessee and held that loose sheets could not be characterized as the dumb document as alleged by the assessee. It was also concluded that the statement of Shri A. Sekar matched with the deposition made by the assessee and seizure of physical cash of Rs.7.50 Lacs validates the specificity of the transaction that lend credence to the seized material. 4.2 The Ld. CIT(A) observed that the document as relied upon by Ld. AO was seized at third-party premises. Upon perusal of the loose sheets, it could be observed that this document per se do not contain any substance to substantiate the fact that the assessee had actually advanced a sum of Rs.6 Crores as loan to receive interest upon such loan. The same was not supported by any corroborative evidences. The Ld. CIT(A) referred to the decision of Jabalpur Tribunal in the case of ACIT vs. Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] which mandate collection of corroborative evidences. It was held therein that when the documents is bereft of necessary details about year of transaction, ownership of transaction, nature of transaction, necessary code for deciphering the figures then the same could not be relied upon. It is the duty of Ld. AO to carry out necessary investigations by correlating the impugned document with other documents to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation is necessary unless the document is capable of giving full details so as to enable any intelligent person to find out the nature of transaction, the year of transaction, the ownership of the transaction and quantum thereof. Even in that situation, it is necessary to give opportunity to the assessee to offer his explanation and investigation be carried out to strengthen the direct inference arising from this document. Further, the proposition that addition cannot be made merely on the basis of entries in loose sheets found in the premises of a third party without bringing on record corroborative evidence was also supported by various decisions of the Tribunal which have been enumerated in para 6.4.6 of the impugned order. 4.3 The Ld. CIT(A) also referred to the decision of Mumbai Tribunal in the case of Riveria Properties Private Limited Vs ITO (ITA No.250/MUM/2013) holding that Ld. AO was required to bring further evidence on record to show that the money had actually exchanged between the parties. In a case where there was no other evidence on record to prove that there was actual advancement of loans and receipt of interest, except the loose sheet found at the premises of a third-party, addition could not be made. The Ld. AO was required to bring further evidence on record to show actual exchange of money between the parties. No independent enquiries were conducted and Ld. AO merely relied upon the sworn statements. In the case of K.P Varghese (131 ITR 597), it was held by Hon'ble Apex Court that the onus of establishing that the conditions of taxability were fulfilled would always be on the revenue and that throwing the burden of showing that there is no under-statement of consideration on the assessee would be to cast an almost impossible burden upon him to establish the negative, namely, that he did not receive any consideration beyond what has been declared by him. It needs to be held that the burden is on the revenue to adduce proper evidence to corroborate the contents of the seized material for the purpose of establishing that the assessee was in fact in receipt of the payments as noted in the seized material. Similarly, in the case of Dhakeshwari Cotton Mills Ltd. (26 ITR 775), it was held by Hon’ble Apex Court that corroborative evidence is essential to support the evidence found in third- party premises. From these judicial decisions, it could be culled out that Ld. AO was not entitled to make a pure guess and make an assessment without reference to any evidence / material. It follows that no addition could be made unless there is corroborative evidence to validate the noting found in the material seized from a third- party. 4.4 In the present case, Ld. AO merely relied upon loose sheet which was found and seized at third-party premises. Such loose sheets were to be categorized as dumb document only. Merely by relying on this material, no conclusion could be made that the assessee actually advanced loan and received interest on such loan. There was no corroborative evidence to prove that the noting in the seized material had actually materialized and transfer of money has actually taken place between the concerned parties. 4.5 It was further agitated by the assessee that during the course of search proceedings in the case of the assessee, no Promissory note, Cheque, Bond or any document was seized by the officer from the assessee. The assessee also pleaded that the statement of Shri A. Sekar was very vague and no credence could be placed on the same.

Proceeding further, it could be seen that the additions have been made pursuant to notings in the seized material as found from the premises of a third-party. Though the assessee, in recorded statement, admitted that it advanced loan to the other group, however, the said statement has been retracted within a short span of 11 months only. It could also be seen that in the set aside proceedings, the assessee has demanded cross-examination of other party which has not been provided to the assessee. The same run contrary to the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE (281 CTR 0241) holding that not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses form the basis of impugned order, amounts to serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice. Viewed from this angle, the assessment is to be considered as nullity and the impugned additions would be unsustainable on this legal ground alone.

Proceeding further, upon perusal of satisfaction note u/s 153C, it has duly been noted by Ld. CIT(A) that the same has proceeded on wrong assumption of facts. In column No.5, Ld. AO assumed that the seized material was seized from the residence of the assessee and in column no. 6, it was stated that the assessee was one of the directors of Dhanalakshmi Srinivasan Group. The correct facts were that the loose sheets were seized from the residence of Smt. R. Ezhilarasi (employee of searched group) and the assessee was not a director of Dhanalakshmi Srinivasan Group. Thus, Ld. AO arrived at mandatory satisfaction upon incorrect appreciation of facts and proceeded on a wrong notion. It was further noted that Ld. AO did not bring out the specific financial year in which the transaction had actually taken place. The AO had referred the amount(s) of Rs. 6 Crores for the AY(s) 2012- 13 to 2018-19 and Ld. AO was not specific as to financial year in which the amount of Rs.6 Crores was advanced by the assessee. Further, Ld. AO had recorded satisfaction for the AY(s) 2012-13 to 2018-19 in a common satisfaction note and not year-wise. As per the decision of Hon'ble Supreme Court in the case of CIT Vs. Calcutta Knitwear (362 ITR 676), to initiating proceedings u/s 153C, recording of satisfaction note is mandatory and in the absence of the same, the entire proceedings would be void-ab-initio. In the present case, Ld. AO without specifically mentioning the relevant year(s), had initiated proceedings by issuing notice u/s 153C for years under consideration. On similar facts, Pune Tribunal quashed the search assessments u/s.153C in the case of Sinhgad Technical Education Society vs. ACIT [2011] 140 TTJ 233 (Pune) for the reason that the seized material mentioned in the satisfaction note did not relate to the specific AY under consideration. The above decision has finally found concurrence of Hon'ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society [2017] 397 ITR 344 (SC). Under such a scenario, it could be concluded that there was no prima facie satisfaction for this year and therefore, the consequential proceedings would not be valid. The jurisdiction as assumed by Ld. AO u/s 153C was without a valid satisfaction note and therefore, the impugned additions could not be sustained on this legal ground also. We concur with all these findings of Ld. CIT(A) and see no reason to interfere the same, in any manner.

On merits also, it could be seen that the additions have been made merely on the basis of loose sheets only which could not be classified as books of accounts. The loose sheets were undated and unsigned bearing no signatures of any of the party. As rightly noted by Ld. CIT(A), the document per se does not contain any substance to substantiate the fact that the assessee had actually advanced the impugned sum to receive interest upon such loan. The said fact was not supported by any corroborative evidences. Therefore, the ratio of decision of Jabalpur Tribunal in the case of ACIT vs. Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] as well as the decision of Mumbai Tribunal in the case of Riveria Properties Private Limited Vs ITO (ITA No.250/MUM/2013) would apply. In these cases, it was held that corroborative evidences would be required and Ld. AO would be required to bring further evidence on record to prove that there was actual advancement of loans. No independent enquiries were conducted in this regard and Ld. AO merely relied upon the statement. The statement of the assessee already stood retracted. The copy of sworn statement of Smt. R. Ezhilarasi has been placed on page nos. 177 to 192 of the paper-book. The seized material Page Nos. 273 to 309 of loose sheets vide ANN/PV/RE/LS/S were confronted to her in Q. No.28. She replied as under: -

Facts as well as issue in is quite identical. The assessment has been framed on similar lines and the adjudication of Ld. CIT(A) is similar. Facts being pari-materia the same, our adjudication as above, would mutatis-mutandis, apply to this appeal also 10. In the result, both the appeals stand dismissed. Order pronounced on 22nd January, 2025 Sd/- Sd/- (MANU KUMAR GIRI) (MANOJ KUMAR AGGARWAL) �ाियक सद3 / JUDICIAL MEMBER लेखा सद3 / ACCOUNTANT MEMBER चे2ई Chennai; िदनांक Dated :22-01-2025 DS आदेशकीYितिलिपअ/ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. � थ�/Respondent 3. आयकरआयु;/CIT, Madurai 4. िवभागीय�ितिनिध/DR 5. गाड@फाईल/GF