DALAVAI AUDIKESAVULU SRINIVAS L/H OF LATE SMT D A SATHYAPRABHA,BANGALORE vs. DCIT, CENTRAL CIRCLE-2(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE

BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER

ITA Nos. 1049 & 1050/Bang/2025 Assessment Years : 2013-14 & 2017-18

Shri Dalavai Audikesavulu Srinivas, Legal Heir of Late Smt. The Deputy DA Sathyaprabha, Commissioner of No. 7/21, 1st Cross, Income Tax, 9th Main, RMV Central Circle – 2(1), Extension, Bengaluru. Vs. Sadashivanagara, Bengaluru – 560 080. PAN: AFQPS8125K APPELLANT RESPONDENT

Assessee by : Shri H. Siva Prasad Reddy, ITP Revenue by : Shri Shivanand H Kalakeri, CIT-DR

Date of Hearing : 15-10-2025 Date of Pronouncement : 12-01-2026

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

These appeals are filed by the assessee challenging the separate orders of the Ld.CIT(A)-15, Bengaluru both dated 31/01/2025 in respect of the A.Ys. 2013-14 and 2017-18. Both these appeals were heard together and are being disposed of by way of this common order since the assessee is one and the same.

Page 2 of 14 ITA Nos. 1049 & 1050/Bang/2025 2. Both these appeals are filed with a delay of 28 days and the assessee also filed separate applications to condone the said delay. We have considered the reasons given by the legal heir of the deceased assessee and also considered the delay is only 28 days and therefore we are condoning the delay in filing these appeals and proceeded to decide the appeals on merits.

ITA No. 1049/Bang/2025 3. The following grounds are raised by the assessee. “1. The impugned assessment order passed u/s 143(3) r.w.s 153C of the Act dated, 31-12-2018 is opposed to the facts of the case and the law and therefore, the same is liable to be vacated as void. 2. The alleged notings in the seized document in question were made by the assessee as told by her late husband and therefore, the seized document should have been considered only in the assessment of her husband and not in the hands of the assessee. 3. Without prejudice to Ground No.2, the learned AO as well as the Learned CIT(A) ought to have appreciated that an amount of Rs.27,00,00,000/- could not be held as unexplained investment u/s 69B of the Act: (i) Because, the seized document is a dumb document containing no date/or year and it did not indicate any actual transaction or payment or receipt of money by the assessee. (ii) Because, there is no evidence of transfer of funds from one end to another, which is a condition precedent for assessment of undisclosed income based on a seized document, as held by the Hon'ble Jurisdictional High Court and Hon'ble Supreme Court. 4. The learned AO erred in initiating the penalty proceedings u/s 271(1)(c) of the Act. 5. The learned AO erred in levying interest u/s 234A, 234B and 234C of the Act. 6. The Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT.

Page 3 of 14 ITA Nos. 1049 & 1050/Bang/2025 For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble ITAT may be pleased to allow the appeal in the interest of the equity and justice.” 4. The brief facts of the case are that the assessee is Smt. D. A. Sathyaprabha and the appeal has been filed by the assessee’s legal heir Shri D.A. Srinivas who is the son of the assessee. The assessee was an individual and filed her return of income on 27/03/2014 and declared a Nil income consequent to the set off of business loss against income from house property and income from other sources. A search action was conducted on 23/09/2016 in the case of M/s. Srinivasa Trust and in connection with the said search, the assessee’s residence at Chittoor was also searched. The AO of the searched person had informed the AO of the assessee that at the time of search, several documents were seized from the residence of the assessee. The AO of the searched person after recording his satisfaction that the seized documents belonged to the assessee and handed over the said seized materials to the AO of the assessee. The AO of the assessee after satisfying himself that the documents seized would have a bearing on the total income of the assessee, had issued a notice u/s. 153C of the Act on 11/09/2018. Again the assessee filed her return of income on 09/12/2018 by declaring a Nil income. Thereafter notice u/s. 142(1) was issued and assessee’s case was taken up for scrutiny and notice u/s. 143(2) was issued. The assessee through her authorised representative appeared before the AO and submitted the copy of the return filed and the computation statement also.

Page 4 of 14 ITA Nos. 1049 & 1050/Bang/2025 her which was orally informed by her husband before his death.” The assessee also stated that the notings are written based on the memory and therefore she has no knowledge about the transactions and also does not know about the persons’ name mentioned in it. The AO also issued a show cause notice for which also the assessee submitted that the entries are all noted from her memory and does not relate to her transactions. The assessee also relied on the statement given u/s. 132(4) and expressed her inability to identify the persons mentioned therein. The AO not accepted the explanations offered by the assessee and observed that the assessee has to prove the entries are not related to her. The AO also relied on the provisions of section 132(4A) and 292C of the Act for the proposition of presumption. The AO therefore presumed that the details in the loose sheets are the hand loans received or given in cash and added the amounts mentioned in the loose sheets to the total income of the assessee as unexplained investment u/s. 69B of the Act. The AO had also observed that alternatively section 69 would also be applicable since the entries are cash entries. The AO had added the said amounts in the A.Y. 2013-14 since the husband of the assessee died on 24/04/2013 and also the assessee had written the sheets based on the information given by her deceased husband. The AO also proposed to impose the penalty u/s. 271(1)(c) of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had not accepted the ground raised by the assessee that the AO had no jurisdiction to initiate the proceedings u/s. 153C of the Act. Similarly, the Ld.CIT(A) had also not accepted the ground that the proceedings should have been initiated u/s. 153A of the Act since the assessee was searched. The Ld.CIT(A) had also dismissed the other grounds by relying on section 292C of the Act.

Page 5 of 14 ITA Nos. 1049 & 1050/Bang/2025 entries are exibits something it related to her late husband and therefore the assessment made on the assessee is not correct. The Ld.AR further submitted that the entries in the loose sheets would not be treated as an unexplained investment u/s. 69B of the Act since the seized document is nothing but a dumb document and the essential details were not available to fasten the liability on the assessee. The Ld.AR also filed a paper book and enclosed the copy of the seized document, statement of the assessee, copy of the statement of Mr. Rajan Premachander, who is the son-in-law of the assessee. The Ld.AR also enclosed the judgments of the Hon’ble Supreme Court as well as the Hon’ble Jurisdictional High Courts and also a judgment of the Hon’ble Gujarat High Court and prayed that the appeal may be allowed.

Page 6 of 14 ITA Nos. 1049 & 1050/Bang/2025

Page 7 of 14 ITA Nos. 1049 & 1050/Bang/2025 transactions. The AO had not accepted the submissions made by the assessee for the simple reason that the loose sheet was seized from the residence of the assessee and it is in her handwriting. We have also perused the alleged loose sheet seized at the time of search. On going through the said loose sheet, we do not find that the details are not enough to treat the same as transactions and related to the assessee. From the date of search, the assessee had also explined that the entries are based on the information given by her deceased husband and it does not relates to her transactions. The assessee had also stated that she doesn’t know about the persons’ name mentioned in the said loose sheets. The AO had on presumption had treated the figures mentioned in the slip as transactions of the assessee when admittedly, the assessee is having only income from house property and income from other sources. The AO had not established that the amounts were transferred from one person to another in order to treat the said transactions as related to the assessee.

Page 8 of 14 ITA Nos. 1049 & 1050/Bang/2025 has been mentioned and also no signature authenticating the said entries were found. Therefore, as rightly contended by the assessee, we are accepting that the loose sheet seized are nothing but a dumb document and it could not be relied on for making additions. We have also perused the Division Bench judgment of the Hon’ble Jurisdictional High Court reported in (2024) 469 ITR 197 (Karnataka) in the case of DCIT Vs. Sunil Kumar Sharma wherein it was held as under: “22. The entire allegation is made out on the basis of loose sheets of documents, which does not come under the ambit and scope of ‘books of entry’ or as ‘evidence’ under the Indian Evidence Act. ----------- 24. The aforesaid approach is in accordance with good reasoning and we are in full agreement with it. Applying the above tests, it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are "books" within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/91 and MR 73/91).” ------------ 26. It is established in law by the Hon'ble Apex Court that a sheet of paper containing typed entries and in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence. Following the law declared by the Hon'ble Apex Court, we are of the view that the action taken by the respondent / Revenue against the Assessee based on the material contained in the diaries/loose sheets, are contrary to the law declared by the Hon'ble Apex Court. In that view of the matter, impugned notices issued under Section 153C of the Act, based on the loose sheets/diaries are contrary to law, which require to be set aside in these writ appeals, as the same are void and illegal.” 13. The Hon’ble Jurisdictional High Court had relied on the judgment of the Hon’ble Supreme Court reported in (2017) 394 ITR 220 in the case of Common Cause (A Registered Society) vs. Union of India in coming to the said conclusion. The Hon’ble Jurisdictional High Court also relied on the another judgment of the Hon’ble Supreme Court reported in (1998) 3 SCC 410 in the case of CBI vs. V.C. Shukla.

Page 9 of 14 ITA Nos. 1049 & 1050/Bang/2025 14. We have also perused the statement given by Mr. Rajan Premachander in which he has not accepted any such transactions as found in the loose sheet which shows that the notings in the slip could not be relied on for making addition.

ITA No. 1050/Bang/2025 18. The assessee has raised the following grounds: “1. The impugned assessment order passed u/s 143(3) of the Act dated, 31-12-2018 is opposed to the facts of the case and the law and therefore, the same is liable to be vacated as void. 143(3) - Invalid. 2.1. The impugned assessment order made u/s 143(3) of the Act is invalid since it is not the year of search and therefore, it should have been made only u/s 153C of the Act complying the conditions precedent prescribed. 2.2. The learned CIT(A) GROSSLY ERRED in not following the ratio of the judgment of the Hon'ble Supreme Court in the case of Jasjit Singh (2023) 155 taxmann. corn 155 (SC), which cancelled the assessment order made u/s

Page 10 of 14 ITA Nos. 1049 & 1050/Bang/2025 143(3) as it was not the year of search and fell within the block of six assessment years u/s 153C in view of the provisions of section 153A(1)(b) read with section 153C(1) of the Act. On Merits. 3. The learned AO as well as the Learned CIT(A) ought to have appreciated that credit balance of Rs.35,00,000/- could not be added as cessation of liability: (i) Because, the credit balance is not a trade creditor, but loan on capital account and therefore, outside the scope of section 41(1) of the Act. (ii) Because, the credit balance is not written off by the assessee and recognized as income in Profit 86 loss account, in contra-distinction to the cases relied upon by the learned AO. (iii) Because, the credit balances, whether trade creditors or capital account balances, cannot be subjected to tax u/s 41(1) or 28(iv) merely on the ground that the same is barred by limitation. 4. The learned AO erred in initiating the penalty proceedings u/s 270A of the Act. 5. The learned AO erred in initiating the penalty proceedings u/s 271AAC of the Act. 6. The learned AO erred in levying interest u/s 234A, 234B and 234C of the Act. 7. The Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble ITAT may be pleased to allow the appeal in the interest of the equity and justice.” 19. The brief facts of the case are that the assessee is Smt. D. A. Sathyaprabha and the appeal has been filed by the assessee’s legal heir Shri D.A. Srinivas who is the son of the assessee. The assessee was an individual and filed her return of income on 27/03/2014 and declared a Nil income. A search action was conducted on 23/09/2016 in the case of M/s. Srinivasa Trust and in connection with the said search, the assessee’s

Page 11 of 14 ITA Nos. 1049 & 1050/Bang/2025 residence at Chittoor was also searched. The AO of the searched person had informed the AO of the assessee that at the time of search, several documents were seized and unaccounted cash was also found in the residence of the assessee. During the course of search proceedings, the authorities had put Prohibitory order on the wooden almirah available at the residence of the assessee in which the cash was found documents were found and seized in the form of loose sheets with the number marked as 5 in the Folder A-1/SG/DAS/LS/S-1. Based on the search and seizure, a sworn statement u/s. 132(4) was also recorded in which the assessee had stated that his son gave her a sum of Rs.60 Lakhs. The said statement was confronted to the assessee’s son and the assessee’s son in his sworn statement had admitted that the said cash belonged to him. The assessee also submitted that her son also filed an application before the Settlement Commission in which the said Rs. 60 Lakhs was offered to tax. The AO without verifying the said facts had rejected the said explanations and confirmed the addition in respect of the cash seized u/s. 69A of the Act. Similarly, at the time of search proceedings, the assessee’s son also gave a statement that there are long standing sundry creditors and the AO had treated the said sundry creditors as cessation of liabilities and treated the same as additional income for the relevant A.Y. The AO had relied on the question nos. 9 to 11 of the statement given by the assessee’s son and concluded that the assessee had claimed the said sundry creditors as deductions in the earlier years. The assessee objected that the addition could not be made based on the statement of her son since the same is not binding on her and also submitted that the liabilities are not in the nature of trade credit. The AO based on the assumption that the sundry creditors are long standing and therefore the recoveries are barred by limitation and on that basis, the creditors might not have claimed the said amounts which would be in the nature of income for the assessee. The AO had not accepted the explanations since the assessee had not provided any details with respect to the recoverability of such loans by the creditors and therefore treated the trade credits liability to be added as cessation of liability u/s. 41(1) of the Act and therefore added the forfeiture of loan amounts as

Page 12 of 14 ITA Nos. 1049 & 1050/Bang/2025 income u/s. 28(iv) of the Act. The AO had taken the outstanding amount from the creditor M/s. McDowells & Co. Ltd. as stagnant and treated the said balance amount of Rs. 35 Lakhs as the income of the assessee. The assessee challenged the said order before the Ld.CIT(A). Insofar as the seizure of the unaccounted cash seized at the time of search, the Ld.CIT(A) had considered the fact that the assessee’s son Shri D.S. Srinivas had included the said cash of Rs. 60 Lakhs in the application filed before the Settlement Commission and tax was also paid and on that basis deleted the said addition made by the AO. Insofar as the addition made u/s. 41(1) of the Act, the Ld.CIT(A) had confirmed the order of the AO.

Page 13 of 14 ITA Nos. 1049 & 1050/Bang/2025 24. The reason given by the AO as well as by the Ld.CIT(A) to treat the said outstanding liability as profits chargeable to tax u/s. 41(1)of the Act is that the said amount is a long standing amount which could not be recovered because of limitation and other things. We have also perused the relevant provision which dealt with the issue in which it was stated that, if an allowance or deduction has been made in the assessment for any year in respect of the loss, expenditure or trading liability and subsequently, the assessee had the benefit of cessation of the said trading liability or expenditure, it could be treated as profits chargeable to tax. In the case on hand, it was not proved that in the earlier assessment, the liability or expenditure were claimed as allowances or deduction in order to treat the said liability as profit chargeable to tax. Even in the earlier years, the claim was made and allowances or deduction has been granted, then subsequently, if the assessee had received back the said expenditure or trading liability from the creditors by way of cessation, it could be treated as profits chargeable to tax u/s. 41(1) of the Act. From the books of accounts maintained by the assessee, it came to light that the said amounts are still shown as outstanding amounts and therefore because of the long pendency of the said dues, automatically it could not be treated as profits liable to be taxed u/s. 41(1) of the Act. The AO could have ascertained the facts from the creditors and based on that, if he is able to found that the same are not payable to the creditors, it could be treated as profits to be added as income in the hands of the assessee. No other documents were also relied on by the AO to show that the long standing outstanding dues are not claimed by the creditors to treat the same as cessation and therefore it could be added as income u/s. 41(1) of the Act. The outstanding sundry creditors were found place in the books of accounts even during the A.Y. and therefore unless and until it was proved by the AO that there is a cessation of liability, it could not be treated as income in the hands of the assessee. The AO could not be subjected the said amounts as taxable in the hands of the assessee merely on the basis that the claim is barred by limitation. The provision also does not envisage such circumstances to treat the same as liable to be taxed in the hands of the assessee. We, therefore find that the assessment

Page 14 of 14 ITA Nos. 1049 & 1050/Bang/2025 order as well as the order of the Ld.CIT(A) is not in accordance with the provisions of section 41(1) of the Act and therefore the long outstanding due of Rs. 35 Lakhs could not be added as income u/s. 41(1) of the Act.

Order pronounced in the open court on 12th January, 2026.

Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K.) Accountant Member Judicial Member

Bangalore, Dated, the 12th January, 2026. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore