RAM MOHANA REDDY BADDIGAM,GUNTUR vs. DCIT., CENTRAL CIRCLE-3(4), HYDERABAD

4 ITA.Nos.419, 420, 421 & 422/Hyd./2025 examining the submissions made by the appellant during the course of assessment proceedings and statements recorded from the appellant and Sri. D. Vijaya Krishna, the Assessing Officer concluded that, the loan of Rs.3,00,00,000/- given by the appellant has to be taxed as unexplained money u/sec.69A of the Income Tax Act, 1961 [in short “the Act”] and interest at the rate of 3% per month on the loan was worked-out to be at Rs.1,08,00,000/- also to be taxed as unexplained money u/sec.69A of the Act. Accordingly, the Assessing Officer determined the total income of the assessee at Rs.4,35,18,060/- by making addition of Rs.4,08,00,000/- u/sec.69A of the Act, as against the returned income of the assessee at Rs.27,18,060/- vide order dated 17.10.2022 passed u/sec.153C of the Income Tax Act, 1961.

3. On identical circumstances, similar addition were made by the Assessing Officer for the assessment years 2017-2018, 2018-2019 i.e., interest of Rs.1,08,00,000/- on loan of Rs.3 crores and for the assessment year 2019-2020 interest of Rs.81,00,000/- [for 09 months], advanced to D.

5 ITA.Nos.419, 420, 421 & 422/Hyd./2025 Vijaya Krishna. The Assessing Officer accordingly brought to tax the above sums by making additions of Rs.1.08 crores for the assessment years 2017-2018, 2018-2019 and for the assessment year 2019-2020 and addition Rs.81,00,000/- u/sec.69A of the Act.

4. Aggrieved by the assessment orders passed by the Assessing Officer, the assessee preferred an appeal before the learned CIT(A) by challenging the additions.

5. Before the learned CIT(A), it was the submission of the assessee that, on an invalid satisfaction note recorded, the assessment made u/sec.153C of the Act, cannot be sustained in the eye of law. In support of this contention, he relied on the decision of ITAT, Special bench in the case of All Cargo Global Logistics Ltd., vs., DCIT [2012] 137 ITD 287 (Mum) (SB). The other contention of the assessee before the learned CIT(A) was that, no addition can be made based on digital data belonging to the person searched in the absence of corroborative evidence by relying on the Coordinate Bench decision of ITAT, Chandigadh Bench in the case of DSG Papers (P.) Ltd., vs., ACIT/Dy. CIT

6 ITA.Nos.419, 420, 421 & 422/Hyd./2025 [2023] 147 taxmann.com 195 (Chandigarh-Trib.). He further submitted that, unless and until the digitial evidence found and seized should have any bearing of signature of the person coupled with corroborative material, it cannot be considered as ‘incriminating material’ and make the addition, which the Assessing Officer did in the present case. He also drew the attention of the First Appellate Authority during the course of appellate proceedings the provisions contained in provisions of section 153C of Income Tax Act, 1961 that, based on such search and seizure operation and what to be considered as ‘incriminating material/document’. He submitted that, section 153C should be read in conjunction with the provision contained in section 153A r.w.s 132(1), the reason being that the later deals with search and seizure and assessment of the ‘searched person’ while the former deals with assessment of "other person". Thus, the two provisions are inextricably linked with each other. He further submitted that, the provision in Section 132(1) does not use the word 'incriminating document’. Clauses (a) and (b) of 7 ITA.Nos.419, 420, 421 & 422/Hyd./2025 section 132(1) employ the words 'books of accounts or other documents’. He submitted that, he had satisfied the conditions u/sec.132(1) of the Act i.e., he had filed return of income u/sec.132(1) and the transactions occurred are duly reflected in the return of income (ii) the assessee had filed requisite information as called for by the Assessing Officer during the course of assessment proceedings and (iii) the assessee was not in possession of any money or bullion etc., which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment. The assessee further drew the attention of the learned CIT(A) that, it is a settled law that, the contents of digital credibility and can never gain the characteristics of ‘incriminating document’. He submitted that, the assessee had disclosed books of accounts and other documents. Thus, he submitted that, no addition can be made based on digital data belonging to the person searched in absence of corroborative evidence as held by the Coordinate Bench of Chandigadh Tribunal in the case of DSG Papers (P.) Ltd., vs., ACIT/DY. CIT (supra).

8 ITA.Nos.419, 420, 421 & 422/Hyd./2025 6. The learned CIT(A) after considering the submissions of the assessee during the course of appellate proceedings and being not convinced with the explanation offered by the assessee, sustained the additions made by the Assessing Officer. The relevant observations of the learned CIT(A) are as under :

“6.5. In the ground of appeal no.5, appellant contended that AO erred in making addition of Rs.3,00,00,000/- basing upon the extract of mail found which had no evidentiary value. Further, it was also contended that a statement recorded u/s. 132(4) is not a conclusive sole material for making impugned additions. As discussed above, the heading of the mail is Hand Loan Return, no prudent business man would write a mail to another person stating that he would return a loan in specific period and amounts, unless the loan has been already received. The contents of the mail have been discussed in detail in above paragraphs of this order which reinforces the evidentiary value of the mail indicating that a loan has been received which was to be repaid in a scheduled manner. In the present case, apart from the seizure of incriminating material, sworn statements u/s 132(4) were recorded both from the recipient Sri. D. Vijaya Krishna and giver Sri. Mohan

9 ITA.Nos.419, 420, 421 & 422/Hyd./2025 Reddy (the appellant). From the sworn statements which have been reproduced above, it can be noticed that there is no difference regarding the loan amount given to Sn. D. Vijaya Krishna. It is not a case where just the recipient or the giver had accepted the transaction and the other party denied. Both the parties involved in the transaction had agreed payment and receipt of the loan amount. Further, out of Rs.5.5 crores of loan received by Sri. D. Vijaya Krishna Rs.2.5 crores was said to be received through banking channel which also go to prove that indeed there was loan transaction in which part amount was given by banking channels and remaining in cash. In such facts of the case, appellant's submission that there is no evidentiary value to the impugned mail and AO had merely relied upon the statements recorded u/s. 132(4) are to be considered as empty and without no substance. In view of this, the ground of appeal no. 5 is dismissed. 6.6. In ground of appeal no.6, appellant contended that AO erred in making the addition of Rs.1,08,00,000/- by estimating interest income at the rate of 3% per month on loan of Rs.3,00,00,000/- From the content of the mail, it can be seen that the repayment of the loan is not just Rs.5.5 crores but over and above that. This fact itself shows that the loan was repaid/repayable along with interest. In the sworn

10. ITA.Nos.419, 420, 421 & 422/Hyd./2025 statement recorded from Sri. D. Vijaya Krishna it was clearly mentioned that the interest was at the rate of 3% per month. In the present transaction Sri. D. Vijaya Krishna, MD of M/s Kolors Healthcare India Pvt. Ltd. stated that interest is payable at the rate of 3% per month. The liability of repayment is on Sri. D. Vijaya Krishna. He would not assume an artificial liability which is an out go of his funds unless there is an existence of real liability upon him. Even the appellant in his sworn statement had admitted that the loan given by him is interest bearing loan. In these facts and circumstances of the case, the interest worked out by the AO has to be upheld and the ground raised by the appellant has to be dismissed.

7. In the result, appeal is dismissed.”

7. Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before the Tribunal.

8. CA P. Murali Mohan Rao, Learned Counsel for the Assessee, submitted that, the Assessing Officer has made the impugned addition of Rs.3 crore plus Rs.1.08 crore towards interest @ 3% for the assessment year 2016-2017 based on the search and seizure operation conducted in the case of Sri D. Vijaya Krishna u/sec.153A of the Act that too 11 ITA.Nos.419, 420, 421 & 422/Hyd./2025 by relying on an email. He submitted that, it is the settled position of law that, the contents of email from digital device can never gain the characteristics of incriminating document unless and until the said email is signed by a person and corroborated with cogent evidence, to make the addition in the hands of the assessee. He submitted that, the assessee has filed his return of income u/sec.153C of the Act and also submitted books of accounts, ITRs and also filed a retraction Affidavit to the effect that, the search operation was conducted at 3.00 AM on 24.12.2019 for continuous period of 02 days and out of pressure, due to duress and due to under mistake, he has admitted and that, the assessee was also not medically fit and would not able to cooperate the search proceedings. He submitted that, the assessee could not verify the records and agreed to the incriminating material and after verifying the records, he came to know that, he did not give any unsecured loan to Sri D. Vijaya Krishna. He further submitted that, there is no incriminating material found during the course of search operation conducted at assessee’s residential premises and 12 ITA.Nos.419, 420, 421 & 422/Hyd./2025 the incriminating material found at third party residence, cannot be linked to him. The assessee accordingly submitted that, he had not given any loan of Rs.3 crores to Sri D. Vijaya Krishna as unsecured loan and thus, he had not received any interest on the purported unsecured loan/ advance. Learned Counsel for the Assessee further submitted that, the authorities below made the impugned addition relying on ‘dumb document’ which does not contain signature and that, the Assessing Officer was failed to corroborate with any co-relation of the said document with the assessee with cogent material from the possession of the assessee. The learned CIT(A) also simply sustained the addition without appreciating the fact that, based on email, which is not an incriminating document, addition could not be made in the hands of the assessee. In support of this contention, he relied on the order of the Hon’ble Supreme Court in the case of PCIT, Central-3 vs., Abhisar Buildwell (P.) Ltd., [2023] 454 ITR 212 (SC). Further, the Assessing Officer has failed to record any satisfaction note u/.sec.153A and that, the assessee had filed his return of 13 ITA.Nos.419, 420, 421 & 422/Hyd./2025 income u/sec.132(1) of the Act by filing all the requisite documents for the relevant assessment year 2016-2017 which are part of the record and thereby, the assessee has not evade the tax. Learned Counsel for the Assessee submitted that, the incriminating document is not seized from the possession of the assessee and it was seized from a third party and, therefore, the said document cannot be linked to the assessee, in absence of corroborative evidence and made the addition in the hands of the assessee u/sec.69A of the Act as undisclosed income/money. Therefore, making the impugned addition of Rs.3 crores and interest of Rs.1.08 crores u/sec.69A of the Act, in the hands of the assessee is arbitrary and without any basis. The Learned Counsel for the Assessee further submitted that, the Assessing Officer also failed to record satisfaction note and thereby, the consequential proceedings initiated u/sec.153C of the Act are invalid. Although, the assessee has taken all these grounds before the learned CIT(A), the learned CIT(A) without appreciating the facts, has simply sustained the addition made by the Assessing Officer which 14 ITA.Nos.419, 420, 421 & 422/Hyd./2025 is not in accordance with law. In fact, the learned CIT(A) has failed to appreciate the settled position of law that, addition could not be made on a ‘dumb document’ and that, on the basis of an email retrieved from the Computer, the impugned addition cannot be made in the hands of the assessee in light of Special Bench decision of ITAT in the case of All Cargo Global Logistics Ltd., vs., DCIT (supra) and Coordinate Bench decision of Chandigarh Bench in the case of DSG Papers (P.) Ltd., vs., ACIT/Dy.CIT (supra). The Learned Counsel for the Assessee further drew the attention of the Bench decision of Hon’ble Supreme Court in the case of Common Cause (A Registered Society) vs., Union of India [2017] 394 ITR 220 (SC) on identical circumstances wherein the Hon’ble Apex Court held that, investigation could not have been directed on the basis of legally inadmissible evidence in form of ‘loose papers’ and make addition u/sec.69A of the Act. Learned Counsel for the Assessee further relied on the following decisions in support of the above contentions :

15 ITA.Nos.419, 420, 421 & 422/Hyd./2025 1. DCIT vs., UK Paints (Overseas) Ltd., [2023] 150 taxmann.com 108 (SC).

2. PCIT, Central-3 vs., Abhisar Buildwell (P.) Ltd., [2023] 149.

16 ITA.Nos.419, 420, 421 & 422/Hyd./2025 11. CIT vs., Sunil Aggarwal [2015] 379 ITR 367 (Del.).

12. ITAT, Pune ‘B’-Bench, Pune decision in the case of Mansukh Timbadia, Raigad vs., ACIT, Panvel Circle, Panvel, Order dated 22.07.2022 in ITA.Nos.1713/PUN./2015 and ITA.No.72/Pun./ 2016 [Cross Appeals] 13. Rakesh Babbar vs., ACIT [2025] 174 taxmann.com 347 (Del.) (HC).

14. ITAT, Hyderabad ‘B’-Bench, Hyderabad in the case of ITA.No.1098/Hyd./2024 & ITA.Nos.776 & 1194/Hyd.2024, Order dated 01.04.2025 in the case of Sudhakar Reddy Nalla, Hyderabad vs., DCIT, Central Circle-1(3), Hyderabad [Cross- Appeals].

8.1. The Learned Counsel for the Assessee accordingly submitted that, the addition made by the Assessing Officer based on a ‘dumb document’ i.e., email which does not contain signature of the party, cannot linked to the assessee, in absence of corroborative evidence and this view has been supported by the catena of above decisions of Hon’ble Supreme Court, various High Courts and the Orders of the Coordinate Benches of the Tribunal (supra).

17 ITA.Nos.419, 420, 421 & 422/Hyd./2025 He submitted that, the learned CIT(A) without appreciating the facts, has simply sustained the addition, which is not in accordance with law. He, therefore, pleaded that the addition made by the Assessing Officer to the tune of Rs.3 crores and interest of Rs.1.08 crores should be deleted in the hands of the assessee in the interest of justice in view of the settled position of law referred to in the above cases.

9. Shri Gurpreet Singh, Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, the learned CIT(A) after considering all the objections raised by the assessee before him and also after carefully examining the order of the Assessing Officer, has sustained the addition made by the Assessing Officer, which is in accordance with law. The Learned DR further referring to para 6.2.2 of the learned CIT(A) order submitted that, the learned CIT(A) has given a categorical finding that, the Assessing Officer after considering relevant seized material found during the course of search which is nothing, but, email of an employee of M/s Kolors Healthcare India Pvt. Ltd., to the assessee along with statement recorded from the 18 ITA.Nos.419, 420, 421 & 422/Hyd./2025 said employee and confirmed by the assessee, has rejected the arguments of the assessee that, satisfaction note recorded by the Assessing Officer is invalid and consequently, the assessment order dated 17.10.2022 passed u/sec.153C of the Income Tax Act, 1961, is also void abinitio and liable to be quashed. He further submitted that, the email referred to by the Assessing Officer in the satisfaction note clearly refers to the loan transactions between the assessee and Sri D. Vijaya Kirshna, Managing Director of M/s Kolors Healthcare India Pvt. Ltd., where it has been clearly specified that, “from September, 2019 to January, 2020 we will give you an amount of Rs.1 crore plus in cash every month and between November, 2019 and December, 2019 we will do of loan transfer of Rs.2.5 crore to your account”. Further, on the basis of the said incriminating material, statement was recorded from the assessee where the assessee has clearly admitted to have given Rs.3 crores loan in cash to Sri D. Vijaya Krishna in the year 2016 to 2017 @ 3% interest per month. He further clarified that so far as he has not received any interest from 19 ITA.Nos.419, 420, 421 & 422/Hyd./2025 the assessee. From the contents of the incriminating material coupled with the statement recorded from the persons, it is very clear that, the assessee has paid loan of Rs.3 crores in the financial year 2014-2015 relevant to the assessment year 2016-2017 and, therefore, the satisfaction note recorded by the Assessing Officer is based on evidence collected during the course of search and thus, the arguments of the assessee that, in absence of proper satisfaction note, the assessment order is illegal and devoid of merit, cannot be accepted.

9.1. The Learned DR further submitted that, the assessee failed to prove the source of the income towards unsecured loan given to Sri D. Vijaya Krishna and since the amount advanced is not disclosed in the return of income, the Assessing Officer has rightly made the impugned addition of Rs.3 crores plus interest of Rs.1.08 crores @ 3% on the unsecured loan, in the hands of the assessee. He submitted that, although, the assessee has relied upon various decisions of Hon’ble Supreme Court, High Courts and the decisions of Coordinate Benches of the Tribunal 20 ITA.Nos.419, 420, 421 & 422/Hyd./2025 that the seized document is a dumb document i.e., email and cannot be taken into consideration as incriminating document, but the fact remains that, the assessee has admitted during the course of search that, he had given unsecured loan of Rs.3 crores to Sri D. Vijaya Krishna and subsequently, retracting the said statement, by filing a sworn affidavit, cannot be accepted. Therefore, the Assessing Officer right in bringing to tax the unexplained money u/sec.69A of the Act in the hands of the assessee. Further, the assessee has failed to prove with supporting documentary evidences during the course of appellate proceedings before the learned CIT(A) that, the said amount is already disclosed in the return of income and, therefore, the learned CIT(A) has rightly sustained the addition made by the Assessing Officer, which is in accordance with law. He, accordingly, submitted that, the orders of the authorities below should be upheld.

31 ITA.Nos.419, 420, 421 & 422/Hyd./2025 13. The Learned Counsel for the Assessee relied upon plethora of judicial precedents in support of his arguments referred to above. In the case of CIT vs., Sinhgad Technical Education Society (supra), the Hon’ble Supreme Court on identical set of facts has held as under :

In this belalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid having regard to the provisions of Section 153C of the Act.

18. The question whether a notice under Section 153C of the Act can be issued in respect of an assessment year in respect of which no incriminating 32 ITA.Nos.419, 420, 421 & 422/Hyd./2025 material is found is no longer res integra. The AO does not have any jurisdiction to issue a notice under Section 153C of the Act if the search on which the said notice is premised, has not yielded any incriminating material having a bearing on the assessment of income of the assessee. The jurisdiction of the AO to issue a notice under Section 153C of the Act is predicated on the search under Section 132 of the Act or a requisition under Section132A of the Act, yielding any incriminating material and the AO of the searched person being satisfied that the assets so unearthed, documents, books of accounts or other material found during the search conducted under Section 132 of the Act or pursuant to a requisition made under Section 132A of the Act, belongs to or pertains to the assessee (other than the searched person) or contains any information relating to the assessee. Once this condition is satisfied, the AO can assume jurisdiction subject to being satisfied that the material has a bearing on the income of the assessee. In the present case, the said jurisdictional condition is not satisfied as the search has not yielded any incriminating material, which could confer jurisdiction to the AO to issue a notice under Section 153C of the Act in respect of AY 2018-19 33 ITA.Nos.419, 420, 421 & 422/Hyd./2025 15. In this view of the matter and considering the facts of the case, we are of the considered view that, the assessment order passed by the Assessing Officer u/sec.143(3) r.w.s.153C of the Act on the basis of satisfaction note dated 24.08.2021 is invalid because, the formation of satisfaction is sine qua non for each assessment year in light of relevant material seized during the course of search. In the present case, the said satisfaction is absent going by the contents of the satisfaction note recorded by the Assessing Officer dated 24.08.2021. Therefore, we are of the considered view that, assessment order passed by the Assessing Officer, on the basis of an invalid satisfaction note is void abinitio and thus, we quash the assessment order passed by the Assessing Officer for the assessment years 2016-2017 to 2019-2020. Accordingly, the grounds raised by the assessee are allowed.