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Facts
During a search conducted under section 132 of the Income Tax Act, 1961, on 22.04.2016, several account books and cash amounting to Rs.4.77 crores were seized. The assessee initially admitted that the account books related to his real estate and finance business. However, during subsequent statements, the assessee made various claims and retractions regarding the ownership of the transactions and the amounts involved, including admissions of unaccounted income and disclosures.
Held
The Tribunal observed that the assessment orders were based on the assessment framed in the matters of Shri NRV, which was later quashed. The Tribunal found that the AO had mechanically reproduced findings and failed to independently examine evidence. The lower authorities also lacked complete discussion and examination of facts. Therefore, the protective additions made in the assessee's hands were set aside, and the matters were remitted back to the AO for a fresh assessment.
Key Issues
The primary issue was the validity of the assessment orders and the subsequent additions made due to the quashing of the assessment in the case of Shri NRV, along with procedural lapses by the AO and CIT(A). There were also disputes regarding the quantification of unaccounted income and investment, and the applicability of telescoping.
Sections Cited
132, 153A, 131, 153C, 143(3), 153D
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER BENCH: These appeals preferred by the Revenue arise from the orders passed by the Learned Commissioner of Income Tax (Appeals)-18 (hereinafter referred to as ‘Ld.CIT(A)‘), Chennai, dated 29.03.2025 for Assessment Years (hereinafter referred to as ‘AY‘) 2014-15 to 2017-18 u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). The assessee has preferred appeals and cross objections in relation to the order(s) passed by the Ld. CIT(A) for AYs 2015-16 & 2016-17.
Since issues involved are common, all the appeals for all the AYs were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of convenience and brevity, we dispose all the appeals by this consolidated order.
Before we advert to the grounds taken in the cross-appeals, it would first be relevant to cull out the basic background facts of the case.
Search was conducted u/s 132 of the Act upon the assessee on 22.04.2016 in the course of which, inter alia, six (6) account book(s) were found and seized vide ANN/FAY/CPA/B&D/S-1 and also cash of Rs.4.77 crores was found. When enquired regarding the contents of these account books, the assessee, in his statement u/s 132(4) of the Act had admitted that, these account books related to his real estate and finance (AY 2015-16) & Others Periyasamy Anbunathan :: 3 :: commission business, and that the cash found was also generated in his own business, which was not shown in his books of accounts. In his subsequent statement dated 02.07.2016, the assessee was enquired about the monies received by several finance firms controlled by him, to which, he is found to have stated that, these were business loans taken by him from the entities of one Shri Parasmal Lodha [in short ‘PLA’] against his personal guarantee. Reading of his several statements recorded in the course of search and the post-search enquiries, it is seen that, the assessee had, at all times, maintained that, he was engaged in real estate & finance business and that, the account book(s) ID marked ANN/FAY/CPA/B&D/S-1 seized from his premises contained entries of his business activities. Thereafter, much later (after a gap of one year) on 03.04.2017, the assessee is noted to have been again summoned by the Revenue u/s 131 of the Act. In his statement recorded on 03.04.2017, the assessee is first noted to have partially retracted all his previous statement(s) and, this time around, he stated that, the account book(s) and the amounts mentioned against ‘RV’, ‘RV-I’, ‘RV-III’, ‘RV-IV’, ‘RV Gopi’, ‘RV Wife’ denoted one Shri Natham R Vishwanathan [in short ‘NRV’]. The assessee further stated that, the transactions conducted through the bank accounts of the 38 finance firms binds him entirely.
Though having said so, he further averred that, after deducting the transactions with RVS institutions and inter-banking transactions, the (AY 2015-16) & Others Periyasamy Anbunathan :: 4 :: balance amount of Rs.205 crores transacted in these finance firms actually belonged to Shri NRV, which was withdrawn by him in cash, and paid directly at NRV’s residence. In the same statement, the assessee further admitted to unaccounted income from finance business of Rs.34 crores qua certain entries found noted in the account books ID marked ANN/FAY/CPA/B&D/S-1. It is seen that, another statement was given by the assessee on 10.04.2017. The assessee, in this statement, is found to have provided the details of his unaccounted income. The assessee also gave year-wise break-up of his unaccounted investment and interest income found noted in these account books, which according to him, totaled to Rs.40.77 crores. Apart from the foregoing, the assessee also admitted to additional unaccounted income of Rs.30.90 crores relating to the cash paid for the purchase of Hind Mercantile Corp Pvt Ltd. However, on 09.05.2017, the assessee is found to have retracted his statements dated 03.04.2017 & 10.04.2017 to the extent that the entries of Rs.205 crores (which he earlier claimed related to Shri NRV) represented cheques/RTGS received by his 38 finance firms in their own proprietary capacity and offered that these firms will pay appropriate taxes thereon.
The assessee is noted to have filed a duly sworn affidavit reiterating his original statement that, the entries found in the account book(s) related to his business activities. The assessee is also noted to have filed affidavits from the partners of these finance firms and a separate letter (AY 2015-16) & Others Periyasamy Anbunathan :: 5 :: explaining the manner of disclosure of additional income of Rs.205 crores.
It is seen that, upon this retraction, the assessee was again summoned by the Revenue u/s 131 of the Act and in his cross-examination recorded on 06.06.2017, he is found to have confirmed his original statement recorded u/s 132(4) of the Act. The assessee also categorically affirmed that, the account book(s) and the loans received by his finance firms belonged to him and that he had voluntary disclosed income of Rs.205 crores to tax. Overall, therefore the assessee is found to have admitted unaccounted income of Rs.71.67 crores [Rs.40.77 crores + Rs.30.90 crores] in his own hands and unaccounted income of Rs.205 crores in the hands of the respective finance firms. [Then assessee by a letter dated 28.12.2018 inter alia is noted to have again retracted his statement dated 09.05.2017 and reiterated his earlier statement dated 03.04.2017 & 10.04.2017 that the entries of Rs.205 crores related to Shri NRV, which facts will be discussed infra]
In the meanwhile, the case of the assessee was centralized and the AO is noted to have issued notice(s) u/s 153A of the Act all dated 05.02.2018 inter alia for AYs 2014-15 to 2017-18. It was brought to our notice that, the assessee had admitted and offered to tax unaccounted income of Rs.40,77,13,731/- in the returns of income filed u/s 153A of the Act. The details of the additional income declared in the income-tax return(s) filed by the assessee is noted to be as follows:-
(AY 2015-16) & Others Periyasamy Anbunathan :: 6 :: Asst Year Additional Income offered u/s 153A 2014-15 32,81,86,787 2015-16 6,39,58,781 2016-17 1,55,68,163 2017-18 - Total 40,77,13,731
The summary of the additions/disallowances in Rupees made by the AO which are in dispute in the cross appeals for AYs 2014-15 to 2017-18 are as follows:
Particulars 14-15 15-16 16-17 17-18 Notings found in account 273,96,25,060 247,31,20,000 book(s) ID marked ANN/FAY/CPA/B&D/S-1 on protective basis Unaccounted income from - 12,82,07,552 - - finance & commission business Unaccounted investment in - - 39,78,00,000 - property from HMCPL Addition on account of cash - - - 4,87,33,820 found and seized
We first take up the appeal filed by the Revenue in AY 2014-15 in . The AO vide notice u/s 142(1) of the Act dated 12.11.2018 and show cause dated 26.02.2019 & 22.07.2019 had required the assessee to reconcile the amounts appearing in the ledger accounts of the seized books ID marked ANN/FAY/CPA/B&D/S-1 and show proof of (AY 2015-16) & Others Periyasamy Anbunathan :: 7 ::
handing over the said sum of money to Shri NRV. It is seen that, the assessee had again retracted his statement dated 09.05.2017 & 06.06.2017 vide letter(s) dated 28.12.2018 & 25.11.2019 and he submitted that, the transactions conducted through his finance firms totaling to Rs.205 crores belonged to Shri NRV and that he had only received the same on his behalf and handed it over to him. The assessee thus claimed that, the amount(s) found noted against code names ‘RV’, ‘RV-I’, ‘RV-III’, ‘RV-IV’, ‘RV Gopi’, ‘RV Wife’ belonged to Shri NRV. Taking note of these submissions put forth by the assessee, the AO observed that, the AO of Shri NRV in his income-tax assessment(s) framed u/s 153C/143(3) of the Act dated 31.12.2018, had already brought to tax the entries found noted against code names ‘RV’, ‘RV-I’, ‘RV-III’, ‘RV-IV’, ‘RV Gopi’, ‘RV Wife’ aggregating to Rs.498 crores in his hands. The AO accordingly reproduced the entire order passed in the matters of Shri NRV in the impugned order(s) noting that the entries found in the account book(s) had been substantively assessed to tax in the hands of Shri NRV by way of his unaccounted income. The AO however observed that, since Shri NRV had denied such receipts, the said amount was to be protectively assessed to tax in the hands of the assessee across AYs 2014-15 to 2017-18. On appeal, the Ld. CIT(A) observed that, as the substantive addition made in the hands of Shri NRV had been confirmed, the protective addition made in the hands of the assessee did not stand (AY 2015-16) & Others Periyasamy Anbunathan :: 8 :: and therefore deleted the same. Aggrieved, the Revenue in now in appeal before us.
The Ld. DR appearing for the Revenue contended that, if the substantive addition(s) made in the hands of Shri NRV is deleted, then the protective addition(s) so made in the hands of the assessee, be directed to be substantively assessed. The Ld. AR for the assessee, on the other hand, vehemently contended that, the account books maintained by him and found from his premises, actually contained notings belonging to Shri NRV and that it had been rightly brought to tax in the hands of the latter. The Ld. AR thus prayed that the order of Ld. CIT(A) deleting the protective addition(s) be upheld. The Ld. AR also filed written submissions which has been taken on record, wherein inter alia assessee is noted to have justified his action of not naming Shri NRV as the beneficiary of the transactions entered in his seized account-books, since he was a serving minister and the assessee was under pressure not to divulge the name of Shri NRV at the time of search. He further submitted that later on when Shri NRV was not holding any government post, he mustered courage to reveal his name as the beneficiary of coal-commission in his later statements. Therefore no weightage should be attributed to his statement recorded u/s 132(4), instead the statements given on 03.04.2017, 10.04.2017, 28.12.2018 & 25.11.2019 should be considered as his true disclosure regarding the notings made in the seized account books.
(AY 2015-16) & Others Periyasamy Anbunathan :: 9 ::
Therefore, the Ld AR doesn’t want us to interfere with the action of Ld CIT(A) deleting the protective addition.
Heard both the parties. From the facts as culled out above, it is observed that, the order(s) of the lower authorities on the impugned issue is simply based on the assessment(s) framed u/s 153C/143(3) in the matters of Shri NRV dated 31.12.2018 wherein the notings found in the account books ID marked ANN/FAY/CPA/B&D/S-1 was stated to pertain to Shri NRV and added as his undisclosed income. The AO, in the matters of the assessee, is found to have simply reproduced the findings recorded in the assessment order(s) of the Shri NRV and concluded that, no addition was warranted in the hands of the assessee as the same had been substantively assessed to tax in the hands of NRV. However, as because Shri NRV had denied the receipts, the said amount was correspondingly assessed on protective basis in the hands of the assessee by the AO.
We find that, this coordinate Bench in the matters of Shri NRV in issued u/s 153C of the Act against Shri NRV and the consequent proceedings initiated against him u/s 153C of the Act for AYs 2014-15 to 2017-18 was held to be a nullity by order dated 22.01.2026. The Tribunal is noted to have allowed the legal challenge raised by Shri NRV, and inter (AY 2015-16) & Others Periyasamy Anbunathan :: 10 :: alia held that the AO’s assumption of jurisdiction u/s 153C of the Act against him (Shri NRV) was invalid, as neither was there any material found in the course of search which related/pertained to him i.e. Shri NRV nor was there any incriminating material unearthed having a bearing on the total income of Shri NRV. Hence, the satisfaction note(s) recorded by the AO to issue notice u/s 153C against Shri NRV was held to be invalid and unjustified in as much as the material seized from the third parties including that of assessee did not contain any information which could be said to suggest any receipt of coal commission or that any amounts was being collected by Shri NRV from the assessee. Hence, the notice issued u/s 153C of the Act by AO against Shri NRV was held to be without jurisdiction for the reasons given therein and consequent assessment orders framed were quashed being non-est in the eyes of law. Since the substantive assessment(s) framed in the hands of Shri NRV has been quashed, the order(s) passed by the Ld. CIT(A) deleting the corresponding protective addition(s) in the hands of the assessee is set aside.
It is further observed that, as because the impugned addition(s) 10. had already been substantively added in the hands of Shri NRV vide order(s) dated 31.12.2018, the AO of the assessee, did precious little while framing the assessment of the assessee. Rather, he simply followed the assessment order(s) of Shri NRV and mechanically added the (AY 2015-16) & Others Periyasamy Anbunathan :: 11 :: amount(s) protectively in the hands of the assessee. We find that, the AO had clearly failed in his duties to discharge his dual functions of both investigator and adjudicator. The AO did not independently examine or analyze any of the account book(s) seized from the premises of the assessee, while framing his assessment. We find that, the AO had simply brushed aside all these evidences/statements etc. and framed the impugned protective assessment in a copy-paste mechanical manner.
Similarly, the Ld. CIT(A) is also found to have passed a non-speaking order simply deleting the protective addition, without any discussion on the facts of the case.
Having regard to complete lack of discussion and examination of facts & evidences by the lower authorities, in the fitness of the matters and fairness to both parties, we set aside the protective addition(s) made in the hands of the assessee and send back the matters back to the file of the AO to consider the issue afresh, after considering the seized account book(s) and all the several statements given by the assessee u/s 132(4)
& 131 of the Act, affidavits, letters etc. The AO shall pass assessment order after objectively considering the seized material and submissions/evidences filed by the assessee in this matter. We may add that while framing the assessment(s), the AO should not be influenced by any of the observations made by us above and also in the case of Shri NRV by order dated 22.01.2026 (supra). Needless to say, the assessee (AY 2015-16) & Others Periyasamy Anbunathan :: 12 :: shall be afforded sufficient opportunity of hearing, in this regard.
Accordingly, the appeal of the Revenue for AY 2014-15 stands partly allowed.
(Assessee’s Appeal - A.Y 2015-16)
& CO No.45/Chny/2025 (Revenue's Appeal and Assessee’s Cross Objection - A.Y 2015-16)
It is seen that, assessee in his appeal in has inter alia raised legal grounds challenging to the validity of the assessment(s) framed by the AO u/s 153A of the Act and since these legal issue(s) goes to the root of the matter, we deem it fit to adjudicate the appeal of the assessee first.
The first legal challenge raised by the assessee in Ground Nos. 1 & 2 is that, the assessment order dated 31.12.2019 passed by the AO u/s 153A/143(3) of the Act is barred by limitation and therefore deserves to be quashed. According to the Ld. AR, having regard to the date of search i.e. 22.04.2016, the income-tax assessment(s) for AY 2015-16 was barred by limitation on 31.12.2018. The Ld. AR claimed that, though the AO had mentioned in the impugned order that, the time limit stood extended as a consequence of request for Exchange of information under Double Taxation avoidance Agreement (DTAA) and Multilateral Convention on Mutual Administrative Assistance in Tax matters (MAC)
made by the AO with the foreign competent authority, but according to (AY 2015-16) & Others Periyasamy Anbunathan :: 13 :: him, no such reference was made by the AO. The Ld. AR pointed out that, the AO was only able to provide letter dated 22.11.2018 issued by the AO to the Pr.CIT, Central-1 and the letter dated 28.11.2018 sent by Pr.CIT, Central-1 to the Joint Secretary (FT & TR-IV-II), but the copy of the letter addressed to the Competent Authority by FT & TR, Ministry of Finance or any copy of communication received from such foreign authority was not provided by the AO. The Ld. AR accordingly claimed that, in absence of any evidence of reference made / letter issued to foreign competent authority, the AO was not entitled to avail the extended period of limitation, as provided in Explanation 1(x) to Section 153 of the Act. The Ld. AR thus argued that, that the impugned order being barred by limitation deserves to be quashed.
We have heard both the parties and perused the material placed 14. before us. It is observed that, the AO had raised this contention before the Ld. CIT(A) as well, who had rejected the same by observing as under:-
“8.1.1 As per explanation 1(x) of Section 153, the time limit for completion of assessments gets extended by one year or the date of information so received, whichever is less; once a reference u/s 90 / 90A was made to. The relevant clause of explanation 1 of section 153 is reproduced hereunder:
Explanation 1 - (x) the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information (AY 2015-16) & Others Periyasamy Anbunathan :: 14 :: requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever is less; or 8.1.2 As a reference was made u/s 90A in the case of the appellant, the explanation 1(x) comes into play and the assessment of the appellant gets extended by one year. Therefore, the assessment passed on 31.12.2019 in the appellant's case is well within the prescribed time limits. The appellant also contended that any reference u/s 90A should be made before three months from the time barring date as per CBDT Circular and the AO had not mentioned any dates of reference in the assessment order. However, as per the guidelines in the said Circular, there is no bar in making a reference within a period less than three months from the time barring date, and in such circumstances, the reasons should be mentioned by the competent authority. Therefore, the ground No.2, 3 & 4 raised by the appellant in this regard are dismissed.
Before us, the Ld. DR appearing for the Revenue has provided tabulated details of the reference made by the Joint Secretary, FT&TR, New Delhi in the matters of the assessee to various foreign competent authorities along with the dates on which last information was received by PCIT. Having taken note of these contemporaneous facts, we find that, the contention of the assessee that, there was no reference ever made by FT&TR to foreign authority or that no information was received from the competent authorities, is found to be factually erroneous. In light of the evidences furnished by the Revenue, we are of the considered view that, the AO was indeed entitled to avail the benefit of extended period of limitation as set out in Explanation 1(x) to Section 153 of the Act, and thus the time limit for framing the impugned assessment stood extended by one (1) year i.e., 31.12.2019. Accordingly, the impugned order dated 31.12.2019 passed by the AO is held to be within the period of limitation.
Hence, this legal plea of the assessee stands dismissed.
(AY 2015-16) & Others Periyasamy Anbunathan :: 15 ::
The assessee had also filed additional grounds in the course of 16. hearing wherein he has objected to the manner in which the approval was accorded by the Addl/ Jt. CIT u/s 153D of the Act. The assessee has contended that, the approval had been given in mechanical manner and without application of mind and therefore the assessment order(s) passed u/s 153A/143(3) of the Act was required to be quashed ab initio. In support, the Ld. AR has relied on several decisions, which has been cited in his written submissions.
Per contra, the Ld. DR contended that, the assessee had not brought any material on the record to demonstrate that there was non- application of mind by the Range Head while approving the case under section 153D of the Act. The Ld. DR contended that, the claim of non- application of mind must be proven by a finding of fact, for which the assessee must provide the corroboratory evidence to demonstrate the non-application of mind and mere allegation was not sufficient. The Ld.
DR claimed that, the allegation of the Ld. AR that the approval was a mechanical exercise and without application of mind by the Range Head was not correct as in Central Charges all search and seizure assessments were regularly supervised and monitored by the Range Head periodically.
The Ld. DR submitted that, the AO and the Range Head both had followed various instructions/guidelines of the Board for completion of the search and seizure assessments and the assessment order was finalized by the (AY 2015-16) & Others Periyasamy Anbunathan :: 16 ::
AO after obtaining approval under section 153D of the Act from the Range Head, who approved the order after due examination and verification. It was further submitted that, the approval granted by the Addl. CIT was in the nature of administrative power. According to Ld. DR, the Range Head while approving the order under section 153D of the Act was not required to examine or adjudicate upon the rights or obligations of the assessee, but only considers whether the AO had done assessment as per the provisions of section 153A of the Act. The Ld. DR claimed that, the approval accorded by the Range Head u/s 153D of the Act was in accordance with law and therefore the impugned assessment order(s) passed u/s 153A/143(3) of the Act was legally valid and did not warrant any interference.
We have gone through the relevant provisions of law and perused 18. the decisions cited by both the parties. We find that, this legal plea has been raised for the first time by the assessee before us. Apart from making empty allegation, it is seen that, the assessee is unable to show us any evidence or material which would suggest that the approval was granted by the Range Head in a mechanical manner. Further, we agree with the Ld. DR that, the approval granted by the Additional Commissioner of Income Tax is in the nature of administrative power. The Range Head while examining the matter u/s 153D does not examine or adjudicate upon the rights of obligations of the assessee, but only (AY 2015-16) & Others Periyasamy Anbunathan :: 17 :: considers whether the Assessing Officer has fulfilled the requirements of section 153A/153C. The case of the Revenue finds support from the decision of the Hon'ble Karnataka High Court in the case of Rishabchand Bhansali v. DCIT reported in [2004] 267 ITR 577, wherein it was held as under:-
"4.2 thirdly the order passed by the Joint Commissioner granting previous approval under the proviso to Section 158BG is in exercise of administrative power on being satisfied that the order of assessment has been made in accordance with the provisions of Chapter XIV-B. The previous approval is purely an internal matter and it does (SIC-not) Kailash Gahlot decide upon any rights of the assessee. The It. CIT, while examining the matter under the proviso to Section 1588G does not examine or adjudicate ирon the rights or obligations of the assessee, but only considers whether the AD has fulfilled the requirements of Chapter XIV."
We also gainfully refer to the decision of the Hon’ble Delhi High Court in the case of PPC Business & Products (P) Ltd. (2017) 398 ITR 71 wherein it was categorically held that, the approval accorded u/s 153D of the Act is not a quasi-judicial order and the absence of elaborate reasoning in the approval does not by itself vitiate assessment.
It is further observed that the coordinate Bench of this Tribunal at Delhi in the case of Kailash Gahlot Vs DCIT in dated 24.10.2025 has elaborately dealt with this legal issue and answered the same in favour of the Revenue, by holding as under:-
“14. We have heard both parties and have perused the material available on the record. The phrase "application of mind" which is at the core of the controversy here is a well-established expression in jurisprudence. In legal Kailash Gahlot parlance, approval and sanction (AY 2015-16) & Others Periyasamy Anbunathan :: 18 :: are two different words having distinct shades of meaning depending on context wherein they are used (statutory interpretation, administrative law, corporate law, or criminal procedure). Approval is a formal expression of assent, usually given after an act is done, ratifying or confirming it. It is in the nature of post-facto recognition or confirmation. Approval often refers to supervisory/confirmatory consent by the higher authority. Whereas, Sanction is mandatory and jurisdictional without which, the proceedings are invalid. Sanction is more than mere approval. The Hon'ble Supreme court in the cases of Marathwada University v. Seshrao Balwant Rao Chavan, (1989) 3 SCC 132, Life Insurance Corporation of India v. Escorts Ltd., (1986) 1 SCC 264 and Kalpanath Rai vs State (1997) 8 SCC 732 have held that "approval" generally conveys a sense of confirmation of an act already done, while "sanction" conveys a prior permission or authorization before the act is done. The Hon'ble Supreme court in the case of Regional Manager v. Pawan Kumar Dubey, AIR 1976 SC 1766 have held that the approval and sanction are not synonymous. The context and statutory language wherein these words used determine the scope of these words; "sanction" and "approval". The word 'approval' instead of 'sanction' has been used in section 153D of the Act.
The power to make assessment is confined to the AO only. Only directions issued under section 144A of the Act by the Range Head are binding. Therefore, while giving approval under section 153D of the Act, the Kailash Gahlot Range Head does not enter the realm of appellate jurisdiction and hence cannot go into the legal merits of the additions proposed in the draft order or other jurisdictional issues. Hence, the application of mind by approving authority must be ascertained in the limited context only.
The Hon'ble Delhi High Court (Full Bench), in the case of Kelvinator of India Ltd. 123 Taxmann 433 (FB), on the basis of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872, had drawn a presumption in the Income Tax matter that all official actions were performed regularly unless controverted by the corroboratory evidence. Thus; in the present case, the onus is on the assessee to rebut that the Addl. CIT while approving the case had not applied his mind. The Hon'ble Supreme Court, in the cases of State of Bihar vs PP Sharma AIR 1991 SC 1260, State of MP vs Harishankar Bhagwan (2010) 8 SCC 655, CS Krishnamurthy vs State of Karnataka AIR 2005 SC 2790 and State of Maharashtra vs. Ishwar Piraji Kalpatri AIR 1996 SC 722 has held that even in cases where the sanction order does not demonstrate the independent perusal of material and does not carry recital of reasons in view of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872 if it is established that all the relevant material were duly put up for perusal before the authority, then the sanction cannot be (AY 2015-16) & Others Periyasamy Anbunathan :: 19 ::
considered as vitiated. In view of the presumption under 114(e) of the Indian Evidence Act, 1872 and the burden on the person challenging the non-application of mind and requirement of demonstrating the prejudice Kailash Gahlot caused due to such non-application of mind, if any, it is manifest that the validity of any approval must be tested rather than searching for an application of mind in such statuary orders, which is already presumed under 114(e) of evidence Act. Even otherwise, once the burden is on the party claiming non-application of mind, it will be easier to test the non-application of mind in any proceedings rather than ascertaining the reverse. The Ld. AR has not at all been able to rebut the presumption available under 114(e) of Evidence Act, 1872 by demonstrating as to how there has been non- application of mind in the approval order passed under section 153D of the Act. In the instant case, nothing has been placed on record to suggest that the Ld. AO and the Ld. Addl. CIT didn't go through the relevant seized material and other material available in their possession/records including the appraisal reports. The allegation of non-application of mind has been made merely on the basis of absence of recitals of these acts in the body of the approval order under section 153D of the Act.
The Hon'ble Orissa High Court in the case of Sirajuddin & Co. (supra), which in turn had relied upon the decision of the Hon'ble Supreme Court in case of Rajesh Kumar (2007) 2 SCC 181, which was in respect of direction of the AO under section 142(2A) of the Act for special audit and Yum Restaurants Asia Pte. Ltd. 397 ITR 665, which was in respect of sanction under section 151(2) of the Act for initiating proceedings under section 147 of the Act. The orders under sections 142(2A) and or 151(2) of the Act for Kailash Gahlot initiating proceedings under section 147 of the Act are sanction orders issued to confer jurisdiction to the AO, which directly affect the rights & liabilities of the assessee under the Act, unlike the approval under section 153D of the Act which is an administrative approval by the supervisory authority confirming the proposed assessment order of the AO, who has valid jurisdiction. As discussed above, the sanction is quite different than that of approval. Hence, the case laws relied upon by the Ld. AR are in different context; hence, loss relevance.
The dismissal of SLP has no binding force in terms of Article 141 of the Constitution of India. Consequently, it has no binding precedent value, in contradiction with a reasoned order of the Hon'ble Supreme Court or an order passed in appeal. Reliance is placed on the decisions of the Hon'ble Supreme Court in the cases of Kunhayammed 245 ITR 360 and Khoday Distilleries Ltd. 104 taxmann.com 25 (SC)]. The Hon'ble Supreme Court, in the case of State of Orissa and Another v. Dhirendra Sundar Das And Others - [(2019) 6 SCC 270 (SC)] has clarified this position with the following observations at Para 9.27:
(AY 2015-16) & Others Periyasamy Anbunathan :: 20 ::
"9.27 It is a well settled principle of law emerging from a catena of decisions of this Court, including Supreme Court Employees' Welfare Association v. Union of India & Anr. and State of Punjab v. Davinder Pal Singh Bhullar, that the dismissal of a S.L.P. in limine simply implies that the case before this Court was not considered worthy of examination for a reason, which may be other than the merits of the case. Such in limine dismissal at the threshold without giving any detailed reasons, does not Kailash Gahlot constitute any declaration of law or a binding precedent under Article 141 of the Constitution."
The approval under section 153D of the Act is mandatory as the Ld. Approving Authority has no option except to approve it within the statutory time available before the Ld. AO for completion of assessment. At best, the Ld. Approving Authority can only direct the AO to recheck on certain procedural aspects and due consideration of seized material, appraisal reports, etc., etc. The provisions of 153D of the Act are for maintaining the internal checks and balances only within the functioning of Income Tax Department and are not intended to provide any relief or adjudicate the rights of the assessee at that stage.
The Office Procedure Manual is not an/a order/direction under section 119 of the Act, but it is Standard Operating Procedure ('SOP'). Non-proper follow-up of office procedure of the Income Tax Department by its lower authorities may be, at most, misconduct/insubordination. Hence, it may be irregular in office decorum but it will not invalidate any statutory function performed under the Act as it has no legal sanctity under the Act.
The Approving Authority under section 153D of the Act does not act as an Appellate Authority to reduce/enhance/allow/disallow any addition proposed in the draft assessment order while giving approval as the Addl. CIT is not empowered to do so under section 153D of the Act. In other word, the Kailash Gahlot Range Head cannot give any direction which may create any additional liability beyond what was proposed in the draft assessment order. That is why the opportunity of being heard is not mandated under section 153D of the Act. Thus, no prejudice can be caused to the assessee while granting approval under section 153D of the Act; therefore, the assessee cannot claim violation of natural justice. The 'application of mind' of the Range Head under section 153D of the Act has to be seen qua the procedure only as per the SOPs issued by CBDT and not qua the recitals about his own actions in relation to what was seen by him or how did he reach the satisfaction before granting such approval under section 153D of the Act. Nowhere under the Act, any procedure and manner of granting approval under scheme of section 153A to 153D of the Act has been prescribed. This again suggest that these oversight procedures are meant to safeguard the interest of Revenue and not meant to interfere with tax liability.
(AY 2015-16) & Others Periyasamy Anbunathan :: 21 ::
After the search, the search conducting Assistant/Deputy Director of Income Tax (Investigation) goes through the entire seized material and flags the core incriminating seized material with his analysis and proposed course of action to be taken in a very detailed manner in the form of a report known as 'Appraisal Report', which is handed over to the AO along with seized material and copy of the said 'Appraisal Report' is always endorsed to the concerned Principal Commissioner/Commissioner of Income Tax and Range Head/Addl. CIT/Joint CIT as per the SOP. Such 'Appraisal Report' normally Kailash Gahlot contains scanned copies of the core incriminating seized material; Hence, all the relevant core incriminating seized material are always available with the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act whether or not such recital is made in the approval order. Thereafter, the AO and Addl. CIT/Jt. CIT coordinate/communicate with each other in the context of search assessments as per the CBDT instructions mentioned in manual of office procedure as cited above. The entire process of monitoring is a continuous process even before the receipt of draft order seeking the final approval under section 153D of the Act. Even questionnaire issued by the AO are in the knowledge of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act. During meetings between the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act and the AO, the relevant seized material, suggested line of actions in the Appraisal Report, submissions of the assessee, etc., etc. are perused by both Authorities; namely, Range Head and the AO. Hence, there can be no situation where the relevant material is not in the knowledge of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act even if the same has not been specifically recited in the approval order. Thus, the association, formally or informally, of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act are from beginning after receipt of the Appraisal Report as inbuilt in the SOPs and mere absence of its recitals in the order under section 153D of the Act cannot infer otherwise as 'non-application of mind' of the Range Head under section 153D Kailash Gahlot of the Act. Neither the AO nor the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act works in isolation as far as search assessments are concerned. Basically, they work as team during the course of search assessments. It is not a case where the assessment records, other files, investigation folders, etc. of a search case change hands for the first time between the AO and the Addl. CIT at the time of approval of the search assessment.
In cases of Smt. Shreelekha Damani (2019) 307 CTR 218 (Bom), Sunrise Finlease (P) Ltd (2018) 403 ITR 512 (Guj) and PPC Business & Products (P) Ltd. (2017) 398 ITR 71 (Del), the Hon'ble High Court has (AY 2015-16) & Others Periyasamy Anbunathan :: 22 ::
held that the approval under section 153D of the Act is administrative in nature. It does not require elaborate reasoning. The absence of detailed discussion in the approval under section 153D of the Act does not make the assessment invalid, unless it is shown that there was no application of mind at all. The requirement is only that the approving authority applies its mind before granting approval. The Hon'ble Delhi High Court in the case of PPC Business & Products (P) Ltd. (supra) has categorically held that it is not a quasi-judicial order and elaborate reasoning in the approval under section 153D of the Act does not by itself vitiate assessment. Further, Hon'ble Delhi High Court in the case of Pepsi Foods (P) Ltd (2014) 367 ITR 112 (Del) has held that the function of the approving authority under section 153D of the Act is administrative to ensure that assessments framed by subordinate officers are not arbitrary. The Kailash Gahlot Hon'ble Supreme Court in the case of Sahara India (Firm) (2008) 300 ITR 403 has held that where approval is statutory but administrative, it need not record elaborate reasoning. Its purpose is supervisory control, not adjudication. It is equally a well- settled position on the law of precedent that a ruling of a court is to be read, understood and interpreted in the context of not only the issue that was under adjudication but also in the context of the points of arguments canvassed by both the sides. Though there is plethora of judicial precedents on this aspect, it will suffice here to reproduce the relevant part of the judgment of the Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd.; 198 ITR 297, which is self- explanatory:
"It is neither desirable nor permissible to pick out a word or sentence from the judgment of this court, divorced from the context the question under consideration and treat it to be the complete law declared by this court. ....".
In the case of UOI & Ors. v. Dhanwanti Devi & Ors; 6 SCC 44, the Hon'ble Supreme Court observed as under:
"9. .......What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgement. Every judgment must be read as applicable to the particular facts proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found.
Therefore, in order to understand and appreciate the binding force of a decision is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full (AY 2015-16) & Others Periyasamy Anbunathan :: 23 :: exposition of Kailash Gahlot law. Law cannot afford to be static and therefore, Judges are to employ an intelligent interpretation in the use of precedents........."
The Ld. AR has not brought any material before us to demonstrate that the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act had not any occasion to discuss the case at any point of time or peruse the incriminating material including the Appraisal Report which already was endorsed to his office of by the search conducting Assistant/Deputy Director of Income Tax (Investigation). The Ld. AR has also not brought any material before us to demonstrate that the SOP was substantively not followed by the Range Head while approving the assessment under section 153D of the Act and how it led to serious prejudice affecting the rights & liabilities of the assessee. The word 'each assessment year' in section 153D of the Act refers to the AYs mentioned in section 153A(1)(b) of the Act. Hence, once the assessment orders are being made for six AYs under section 153A(1)(b) of the Act, the approval under section 153D of the Act has also to be for each of six years but in no way it is stating that such approvals has to be through separate letters for each AY. The word "each' is not to be read qua approval but it is qua assessment order for each of relevant AYs. It is a many- to-one mapping as many times there may be common/interlacing of issues, both factual and legal running across multiple years of the same assessee or various assessees of the same searched group.
In view of the above discussion and case laws relied by us, we are of the considered view that the approval under section 153D of the Act is administrative in nature and any defect/error having crept therein is a curable one and not fatal. However, in the case in hand no such fact of any 'non-application of mind' and any error in approval under section 153D of the Act has been brought on the record by the Ld. AR. The involvement of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is a continuous process and not a onetime activity. Hence, the claim that the approval was accorded in a very limited time, by itself does not indicate that the approval is given mechanically in haste without application of mind as no prejudice is caused on approving the draft assessment order in a limited time, once the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is fully aware of the background material. Therefore, we hold the action of Range Head/Addl. CIT/Joint CIT justified while approving under section 153D of the Act. In view of the discussion herein before, we are not inclined to interfere with the finding of the Ld. CIT(A) that the approval granted under section 153D of the Act is a valid in the eyes of the law. We therefore, dismiss the jurisdictional/technical ground raised by the appellant assessee. The ground no. 4 stands dismissed accordingly.”
(AY 2015-16) & Others Periyasamy Anbunathan :: 24 ::
Respectfully following the decisions (supra), we reject this legal 21. issue raised by the assessee and hold that the assessment order(s) were passed after obtaining valid approval in terms of Section 153D of the Act.
Hence, the additional grounds raised by the assessee is also rejected.
We now take up Ground No. 3 of assessee’s appeal challenging the Ld. CIT(A)’s action of confirming addition of Rs.12,82,07,552/- by way of unaccounted income from finance & commission business, out of the total addition of Rs.15,23,51,330/- made by the AO. Briefly stated, the AO, in the impugned order, had observed that, the assessee had admitted to undisclosed interest income of Rs.6,39,58,781/- in his return of income filed u/s 153A of the Act. However, on analysis of the trial balance furnished by the assessee vis-à-vis the account book no. 3 of ID mark ANN/FAY/CPA/B&D/S-1, the AO noted that certain amounts were not reflected in the trial balance totaling to Rs.15,23,51,330/-. The AO thus required the assessee to explain the same. In response, the assessee submitted that, few of the entries related to RVS Trust in which he was earlier a trustee and that some of the entries represented hand loans given and received back by him. The AO however was of the view that, the assessee was not able to substantiate his explanation with evidence / confirmation and therefore added the impugned sum of Rs.15,23,51,330/- by way of his unaccounted income from his finance and commission business. On appeal, the Ld. CIT(A) partly confirmed the (AY 2015-16) & Others Periyasamy Anbunathan :: 25 ::
addition to the extent of Rs.12,82,07,552/-. Aggrieved by the order of Ld.
CIT(A), the assessee is now in appeal before us.
We have heard both the parties and perused the material placed before us. It is observed that, before the Ld. CIT(A), the assessee had reiterated the submissions before the AO and pleaded that, some of these transactions did not relate to him but RVS Trust and that some of them were borrowings and repayments of hand loans in the same year. We find that the Ld. CIT(A) elaborately analyzed each of the noting(s) added by the AO in light of the explanation & material furnished by the assessee and rendered the following findings, which are as under:-
“10.2 The quantum of addition made and the reply of the appellant for the difference of entries between the trial balance and the seized books are summarized and discussed point-wise hereunder:
10.2.1. The first claim of the appellant is that the amount appearing in the name of Mathalai Muthu AE at Rs.10,00,000/- is a receipt from the said person and the amount was given to Sri Gopi on the instruction of Sri R. Viswanathan; that he was only an agent for transfer of funds from Mathalai Muthu to Sri Viswanathan. The entry in page 9 of the seized book with name Marutha Muthu shows b/f figure of Rs.10 lakhs and that the same was paid on 26.12.2014. However, in the absence of further details that this entry was part of information furnished by the appellant on 28.12.2018 (based on which the actual receipts in the hands of Sri R. Viswanathan were determined) and any further evidences, the addition made by the AO on this count is confirmed.
10.2.2. The second claim against VLa/c account amount of Rs.5,58,21,222l- is that the sum represents transactions relating to RVS Trust, Trichy in which he is a trustee and the transactions have taken place through banking channels. Page 10 of the seized book show that there are certain transactions with name RVS. There is an opening / brought forward credit balance of Rs.8,71,00,000/- and there are corresponding payments from 06.09.2014 to 17.02.2015 as under:
(AY 2015-16) & Others Periyasamy Anbunathan :: 26 :: Date Narration Amount 06.09.2014 (RVS)… Amt 50,00,000 09.09.2014 RTGS Schools 75,00,000
11.09.2014 -do- 1,00,00,000 -do- 29.09.2014 2,00,00,000 -do- 23.09.2014 1,00,00,000 -do- 24.09.2014 25,00,000 -do- 17.02.2015 8,21,222
Total 5,58,21,222
However, no further evidences in this regard are furnished that the transactions are made through the bank account but submitted that these transactions are not related to him. Therefore, as the transactions and the relevant payments of Rs.5,58,21,222/-are appearing in the seized note books of the appellant, the AO had rightly made the addition in this regard. Accordingly, the same is confirmed.
10.2.3. The next claim of the appellant against addition of Rs.3,75,000/- as appearing in the name of Malleeswaran is that he advanced a sum of Rs.7,30,000/- to Sri Malleeswaran and received back Rs.3,75,000/- on two dates and the outstanding balance is Rs.3,55,000/-. It was also submitted that the total advanced amount of Rs.7.30 lakhs was admitted as additional income for the Asst. Year 2014-15. Page 12 of the seized book evidence the claim of the appellant with regard to total advance, receipt of 1,87,500/- on two occasions and the balance receivable at Rs.3.55 lakhs. Since the gross loan amount was already considered for addition in the Asst. Year 2014-15, no further addition on this count is warranted and the AO is directed to delete this portion of the addition made.
10.2.4. The fourth claim is that he received Rs.5 lakhs from Sakthivel AE (RR) and the entry is a b/f figure from earlier years and on 01.12.2014 the total amount was repaid. Page 13 of the seized note book evidence the b/f figure at Rs.5 lakhs and a payment was made on 01.12.2014, bringing down the closing balance to Nil. Since the amount paid are towards the earlier loan taken, no addition is called for and the addition made with regard to this payment of Rs.5 lakhs is directed to be deleted.
(AY 2015-16) & Others Periyasamy Anbunathan :: 27 ::
10.2.5. Page 24 (inner column out of three columns after the narration column show two figures of Rs.1,23,59,124/- and Rs.8,14,000/-. The AO had considered these two figures as paid by the appellant during the year and made the addition. However, there is an opening balance / brought forward debit balance of Rs.79,49,124/- and the appellant made further payments of Rs.1,00,000/-, 25,10,00,000/- and Rs.18,10,000/- on different dates thereafter, taking the total debit balance to Rs.1,23,59,124/-. This amount was repaid by RVS School on 24.11.2014 and the debit balance has become NIL.
The total payments by the appellant during the year are Rs.44,11,000/- leaving apart the b/f balance of Rs.79,49,124/-. During hearings, the AR contended that that if at all the sources were to be explained for the payments made by the appellant, the same has to be restricted to these payments of Rs.44.11 lakhs, since the subsequent payments would automatically be considered as paid out of balances received back from RVS.
The AO is directed to verify whether the opening balance is the b/f figure as on 31.03.2014, and if so, restrict the addition to Rs.44,11,000/-.
10.2.4. The fourth claim is that he received Rs.5 lakhs from Sakthivel AE (RR) and the entry is a b/f figure from earlier years and on 01.12.2014 the total amount was repaid. Page 13 of the seized note book evidence the b/f figure at Rs.5 lakhs and a payment was made on 01.12.2014, bringing down the closing balance to Nil. Since the amount paid are towards the earlier loan taken, no addition is called for and the addition made with regard to this payment of Rs.5 lakhs is directed to be deleted.
10.2.5. Page 24 (inner column out of three columns after the narration column) show two figures of Rs.1,23,59, 124/- and Rs.8,14,000/. The AO had considered these two figures as paid by the appellant during the year and made the addition. However, there is an opening balance / brought forward debit balance of Rs.79,49, 124/- and the appellant made further payments of Rs.1,00,000/-, 25,10,00,000/- and Rs. 18,10,000/- on different dates thereafter, taking the total debit balance to Rs.1,23,59,124l-. This amount was repaid by RVS School on 24.11.2014 and the debit balance has become NIL.
10.2.6. As regards the addition made towards TNPL at Rs.63,61,330/-, it is the claim of the appellant that these transactions are not related to his business but made between TNPL and another Sri Muthu Krishnan, a contractor running the canteen of TNPL. However, in the absence of any further details, the transaction is treated as belonging to the business of (AY 2015-16) & Others Periyasamy Anbunathan :: 28 :: the appellant and the addition made by the AO on this count is confirmed.
10.2.7. Rs.10,00,654/- was added in the name of Sri Muthusamy. In this regard, it was submitted by the appellant that he borrowed an amount of Rs.10 lakhs on 29.10.2014, repaid Rs.9.50 lakhs on 31.10.2014 and the balance on 01.11.2014. Page 71 of the seized note book evidences that an amount of Rs.10 lakhs was credited on 29.10.2014, as reduced by the amount of Rs.9.50 lakhs on 31.10.2014 leaving the balance Rs.50,000/- as credit balance, which was later reduced to NIL. Since the pattern of entries show that it is a credit balance (loan obtained), the addition made by the AO in this regard is directed to be deleted.
10.2.8. The same is the case with regard to addition of Rs.45,00,000/- in the name of RR Er. The appellant initially obtained a loan of Rs.25 lakhs on 31.10.2014 and repaid the same on 01.11.2014. Likewise, another amount of Rs.20 lakhs was obtained as a loan and repaid later. Since the entries evidence that loans were obtained, showing credit entries, the amount of Rs.45 lakhs be deleted from the overall addition made by the AO.
10.2.9. The next addition of Rs.5,11,20,000/- is against the name of Meenakshi Mission. In this connection, it is the claim of the appellant that the DD received from Meenakshi Mission in favour of others was paid by him and in the process received commission of Rs.25 lakhs and offered the same for taxation. The submissions made by the appellant are considered. Page 79 of the seized book, under the name Meenatchi Mission evidences this transaction of initial payment and later receipt, which raises the question for source for initial payment. Since the appellant had not adduced any sources for such payment, the same is treated as paid out of unaccounted income. Further, the appellant claims that the commission earned is included in the total income admitted. However, no evidences for this inclusion of commission on this transaction were filed by the appellant.
During the course of appeal hearings, the AR of the appellant contended that there is payment of Rs.4,13,00,000/- on 12.11.2014 as per the seized page 79 and further amounts of Rs.73,20,000/- and Rs.25,00,000/- were paid later, which was intervened by receipt of Rs.4,86,00,000/- and therefore the sources have to be explained to the extent of Rs.4,13,00,000/- and not the entire payment of Rs.5,11,00,000/-. This version of the appellant is acceptable and therefore, the addition to the extent of Rs.4,13,00,000/- is confirmed as no sources were explained.
(AY 2015-16) & Others Periyasamy Anbunathan :: 29 ::
The appellant also submitted that he had earned a commission of Rs.25 lakhs on this transaction and the same was already admitted as income. The AO is directed to verify whether the income admitted constitutes this amount and if it is found as not included, the same may be added.
10.2.10. Against the addition of Rs.50,00,000/- it is the claim of the appellant that this amount was received from KCP of Karur and paid to Sri Jayaraman and he is not related to this transaction. Since no evidences were furnished in respect of this transaction except claiming that he is not related to this transaction, the amount of Rs.50 lakhs is treated as amount lent by the appellant out of unaccounted income and accordingly, the addition to this extent is confirmed.
10.2.11. An amount of Rs.20 lakhs is added as unaccounted income, being amount lent to Sri Kathappan Natham. In this connection, the appellant submitted that he has given a hand loan on 12.03.2015 and the same was returned later. However, as the sources for such loan was not explained, the addition made by the AO is confirmed to this extent.
10.2.12 The same is the position with regard to the balance hand loans of Rs.15 lakhs and Rs.1 crore given to Sri Senthilnathan and Sri Ramamoorthy. Except claiming that these are hand loans advanced and later received back, the appellant has not furnished any sources for the same. Therefore, the additions made at Rs.15 lakhs and Rs. 1crore by the AO are confirmed.”
At the time of hearing, the Ld. AR was unable to bring any other independent or tangible material to controvert the above findings of the Ld. CIT(A). Rather, the Ld. AR raised an alternate plea contending that these notings may be telescoped against the undisclosed income of Rs.34,88,17,470/- and Rs.8,57,66,420/- offered to tax in AYs 2014-15 & 2015-16 respectively. According to us, this alternate plea was never raised by the assessee before any of the lower authorities and the same required factual verification. The Ld. DR has rightly contended that, it is required to be verified whether the undisclosed income offered to tax by the assessee in his return(s) of income had already been utilized to (AY 2015-16) & Others Periyasamy Anbunathan :: 30 ::
explain some other noting(s) found in the account book(s) or not, and if that be so, then the same cannot again be telescoped against the impugned addition. Furthermore, we have also set aside the protective addition(s) made by the AO in relation to the noting(s) found in the same account book(s). Overall therefore, we consider it fit to remit this matter back to the file of the AO for factual verification and allow the telescoping sought by the assessee if the same is found to be in accordance with law.
With these directions, this ground raised by the assessee is allowed for statistical purposes.
We now come to the Revenue’s appeal in and cross-objections filed by the assessee in CO No.45/Chny/2025. It is observed that, the Revenue’s appeal and the cross objections of the assessee relates to the Ld. CIT(A)’s action of deleting the protective addition(s) made by the AO in respect of the notings found in the account books ID marked ANN/FAY/CPA/B&D/S-1 seized from the premises of the assessee, which was substantively added in the hands of Shri NRV. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted by the AO for making the protective addition and the Ld. CIT(A) to justify deletion of the same is verbatim same as in AY 2014-15.
(AY 2015-16) & Others Periyasamy Anbunathan :: 31 ::
Following our reasons and conclusions recorded while deciding 26. identical grounds raised by the Revenue in AY 2014
15. (supra), we set aside the order of Ld. CIT(A) and remit the issue back to the file of the AO to consider the same afresh, on the same lines as directed in Para No.11 above. We therefore allow the Revenue’s appeal for statistical purposes and dismiss the cross objections of the assessee.
(Assessee’s Appeal - A.Y 2016-17)
& CO No.46/Chny/2025 (Revenue's Appeal and Assessee’s Cross Objection - A.Y 2016-17)
We first take up the assessee’s appeal in for AY 2016-17. It is seen that, Ground Nos. 1 & 2 and the additional grounds raised by the assessee are challenging the legal validity of the impugned order on the ground of (a) being barred by limitation and (b)
for want of valid approval u/s 153D of the Act. The facts involved and the argument(s) raised by both the sides are identical and common to the grounds raised in AY 2015-16. Following our decision rendered in Ground No. 1 & 2 and additional grounds in AY 2015
16. (supra), we dismiss these grounds raised by the assessee in AY 2016-17 as well.
Ground No. 3 of the asssessee’s appeal and Ground No. (iv) to (vi) 28. of the Revenue’s appeal relates to the addition of Rs.39.78 crores made by way of unaccounted investment in property. The facts as noted are (AY 2015-16) & Others Periyasamy Anbunathan :: 32 :: that, the assessee had entered into a property transaction with Mr. V Duraisamy / M/s Hind Mercantile Corp Pvt Ltd towards which the assessee had paid Rs.39.78 crores. The AO observed that, Mr. V Duraisamy had deposed that, he had received Rs. 2 crores in cheque and balance of Rs.37.78 crores in cash towards purchase of landed property at Yashwantpura, Bangalore which was owned by M/s Hind Mercantile Corp Pvt Ltd. The AO further noted that, the assessee, in his statement(s) recorded on 03.04.2017 & 10.04.2017, had submitted that, sum of Rs.8.8 crores was given in cheque and balance of Rs.30.98 crores in cash and had offered to pay tax on the cash component. The assessee however did not do so in the return of income filed u/s 153A of the Act. When confronted with the foregoing, the assessee is noted to have claimed that, this transaction did not pertain to him but the 32 finance firms who had entered into the agreement with M/s Hind Mercantile Corp Pvt Ltd and therefore no inference could be drawn in his hands. The AO, not being satisfied with the explanation given by the assessee, added the entire amount of Rs.39.78 crores by way of unexplained investment in his hands. On appeal, the Ld. CIT(A) is found to have partly confirmed the addition to the extent of Rs.26,49,71,000/-. Being aggrieved by the order of Ld. CIT(A), both the assessee and Revenue are in appeal before us.
(AY 2015-16) & Others Periyasamy Anbunathan :: 33 ::
We have heard both the parties and perused the material placed 29. before us. Having gone through the facts placed before us, it is observed by us that, the assessee in his statement dated 03.04.2017 had admitted that, he had paid sum of Rs.39.78 crores to HMCPL and Vetridurai of VMD Enterprises Pvt Ltd through his brother-in-law, for purchase of land owned by HMCPL. The assessee further added the aforesaid payment included the loan already given by him to Shri Vetridurai and the interest which had accrued thereupon. The assessee, thereafter, in his statement dated 10.04.2017, is found to have claimed that, Rs.26.40 crores was paid in cheque and balance Rs.13.38 crores in cash. After deducting the sum of Rs.8.80 crores given already as loan, the assessee is found to have offered balance sum of Rs.30.98 crores to tax. The assessee however did not offer the same in his return of income. According to the assessee, the transaction of purchase of property was between HMCPL and the finance firms and that he was not a party to the transaction and therefore no addition was permissible in his hands. We however are unable to countenance this plea of the assessee. The account book(s) wherein the impugned notings were found was seized from the possession of the assessee which contained details of cash amount(s) paid to HMCPL / Vetridurai. The assessee is also found to have admitted to making the payments and the statement(s) were also not retracted. It is also found that, the assessee in his answer to Q No. 9 of his statement dated (AY 2015-16) & Others Periyasamy Anbunathan :: 34 ::
03.04.2017 had categorically asserted that, the transactions happening in these finance firms were at his behest and directions and shall bind him entirely. In view of the foregoing therefore, we are unable to agree with the Ld. AR that, the tax consequence of the impugned unaccounted transaction was to be inferred in the hands of the finance firms and not the assessee.
We now turn our attention to the quantification of unaccounted 30. investment made by the assessee in purchase of property. We countenance the Ld. CIT(A)’s findings to the extent that, the amount of Rs.39.78 crores inter alia included the loan of Rs.2.5 crores advanced to Vetridurai as on 01.04.2013 which along with interest stood at Rs.4,98,29,000/- as on 14.07.2014 (Rs.5 crores approx.) and the said amount was appearing in the balance sheet of the assessee as well.
Accordingly, the amount to the extent of Rs.4,98,29,000/- was rightly treated as explained and hence could not be added in the hands of the assessee. The relevant findings of Ld. CIT(A) taken note of by us is as follows:-
“10.3 …. It is during the course of statement recorded on 03.04.2017, the appellant in response to question No.11, stated that the amounts given in respect of HMCPL property include the loan amounts already given to Sri Vetridurai (S/o Sidhai Duraisamy), including interest. In support of the above, the appellant relied upon page No.154 showing the account of Sri Sidhai Duraisamy. The entries in the said page evidence that there was a bif figure of Rs.2,50,00,000/- as on 01.04.2013, the same has gone upto Rs.4,98,29,000/- as on 14.07.2014, which was rounded off, indicating adjustment (against the (AY 2015-16) & Others Periyasamy Anbunathan :: 35 :: above property transaction), leaving a balance of Rs.5 crores, which was appearing in the Balance Sheet of the appellant, under debtors list as on 31.03.2016. Considering the above evidences, which are part of seized material, the claim of the appellant to this extent is accepted and the amount of RS.4,98,29,000/- is directed to be deleted from the overall addition made by the AO on this count….”
Thereafter, we find that, the Ld. CIT(A) excluded the amount of Rs.8.30 crores which was paid by cheques by the finance firms on the ground that, the source credits had been substantively assessed to tax in the hands of Shri NRV and therefore addition of the said amount in the hands of the assessee amounted to double taxation of the same. The Ld.
CIT(A) is accordingly noted to have confirmed the addition of remaining sum of Rs.26,49,71,000/- [39,78,00,000 – 4,98,29,000 – 8,30,00,000].
As noted by us earlier, the substantive assessment of Shri NRV has been quashed by this Tribunal and the corresponding protective addition(s) made in the hands of the assessee has been set aside back to the file of the AO (infra). However, if the source credits i.e., the amount(s) paid by the finance firm(s) and/or the income embedded therein, are added in the hands of the assessee, then it would result in double taxation of the same amount by way of unaccounted investment as well. Further, if any additional income is brought to tax in the set aside proceedings, the same would also be available for being telescoped against this unaccounted investment. Thus, though in principle, we uphold that the unaccounted investment made in property purchased from HMCPL is liable to be taxed in the hands of the assessee, but, in fitness of the matters, we set aside (AY 2015-16) & Others Periyasamy Anbunathan :: 36 :: the limited issue of quantification of the unaccounted investment back to the file of the AO. The AO is required to be correctly re-compute and ascertain the quantum of unaccounted investment, in light of our aforesaid findings. The AO shall also allow the benefit of telescoping, after considering the facts objectively and if the assessee is found to be entitled to the same as per law. Needless to mention, the assessee shall be given sufficient opportunity to explain his case and would be free to furnish any new evidences or details in support of his claim. Accordingly, the grounds taken by the assessee and the Revenue in this regard, are partly allowed for statistical purposes.
We now come to the Revenue’s appeal in and cross-objections filed by the assessee in CO No.46/Chny/2025 in AY 2016-17. It is observed that, the Revenue’s appeal and the cross objections of the assessee relates to the Ld. CIT(A)’s action of deleting the protective addition(s) made by the AO in respect of the notings found in the account books ID marked ANN/FAY/CPA/B&D/S-1 seized from the premises of the assessee, which had been substantively added in the hands of Shri NRV. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted by the AO for making the protective addition and the Ld. CIT(A) to justify deletion of the same is verbatim same as in AY 2014-15.
(AY 2015-16) & Others Periyasamy Anbunathan :: 37 ::
Following our reasons and conclusions recorded while deciding 33. identical grounds raised by the Revenue in AY 2014
15. (supra), we set aside the order of Ld. CIT(A) and remit the issue back to the file of the AO to consider the same afresh, on the same lines as directed in Para No.11 above. We therefore allow the Revenue’s appeal for statistical purposes and dismiss the cross objections of the assessee.
(Revenue's Appeal - A.Y 2017-18)
Ground No. 1 of the appeal of the Revenue relates to the Ld.
CIT(A)’s action of deleting the protective addition(s) made by the AO in respect of the notings found in the account books ID marked ANN/FAY/CPA/B&D/S-1 seized from the premises of the assessee, which was substantively added in the hands of Shri NRV. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted by the AO for making the protective addition and the Ld. CIT(A) to justify deletion of the same is verbatim same as in AY 2014-
Following our reasons and conclusions recorded while deciding identical grounds raised
by the Revenue in AY 2014
15. (supra), we set aside the order of Ld. CIT(A) and remit the issue back to the file of the AO to consider the same afresh, on the same lines as directed in Para No.11 above. We therefore allow the Revenue’s appeal for statistical purposes and dismiss the cross objections of the assessee.
(AY 2015-16) & Others Periyasamy Anbunathan :: 38 ::
Ground No. 2 of the appeal of the Revenue is against the action of 35.
Ld. CIT(A) deleting the addition of Rs.4,87,33,820/- made in relation to unaccounted cash found and seized in the course of search. As noted earlier, during the course of search conducted on 22.04.2016, cash aggregating to Rs.4,87,33,820/- was found and seized from the assessee, which he had offered as his income. The AO however noted that, the assessee did not admit any additional income towards the cash seized in his return of income and therefore added the same as his undisclosed income in the impugned AY 2017-18. On appeal, the Ld. CIT(A) was pleased to delete the same. Being aggrieved, the Revenue is now in appeal before us.
We have heard both the parties and perused the material placed before us. Before adverting to the facts of the case, we first take note of the principle of telescoping which has since been judicially approved by b the Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. Vs CIT (123 ITR 457). In the decided case, it was held that where the assessee offers any income on ad hoc basis, then such income is commonly described as intangible addition; but it is very much a part of assessee's real income as disclosed in his account books and has the same concrete existence. The Hon'ble Court held that, that the secret profits or undisclosed income of an assessee earned in the same or an earlier assessment year may constitute a secret fund, even though (AY 2015-16) & Others Periyasamy Anbunathan :: 39 :: concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. The intangible additions were held to be available to the assessee as the regular book profits pro could be. The Apex Court thus held when the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing pre existing fund of concealed profits or by reference to concealed income earned in that very year then no addition is warranted on account of such cash deficits or cash credits.
Gainful reference in this regard may be made to the decision of the jurisdictional Hon'ble Madras High Court in the case of S K. Muralidhar Vs CIT (51 ITR 757). In the decided case the AO had initially made an addition by way of inflation of purchases in the hands of the assessee across AYs 1947-48 48 to 1950-51. Thereafter, the AO came in possession of information that the assessee had lent certain amounts in mortgage in the name of his brother and also made investment in name of his wife and daughter in an entity 'S', for which separate additions were made in AYs 1949-50 & 1950-51. On appeal, the AAC is noted to have held that there was no justification in making the subsequent addition as it stood justified out of the addition made on account inflated purchases in AYs 1947-48 1947 to 1950-51. On further appeal, the Tribunal upheld the action of AO. On appeal by the assessee, the Hon'ble High Court is noted to have elaborately discussed the theory of telescoping of income against (AY 2015-16) & Others Periyasamy Anbunathan :: 40 :: investment / expenditure and allowed the assessee's claim by holding as under:-
"The question in issue is quite simple and yet the Tribunal misdirected itself and went wrong. It is a hard fact that for the two years 1947-48 and 1948-4949 a total addition of Rs. 52,230 was made by the department in computing the assessable income. This was, therefore, treated as the real income of the assessee for the years in question. There was nothing notional or fictional about it. However convenient convenient it might be to describe the addition as "intangible" as has been done by the department and the Tribunal, the fact is that it was found to have accrued to the assessee and was not merely supposed to have been earned by him. Once the addition is made the department is fixed to the position that the assessee earned the amount in the relevant year. There can be no relaxation from that position and we have no doubt that the department cannot deviate from or wriggle out of it without departing from ordinary standards andards of justice and fair play. If in such a case the assessee points to that addition as the source from which he got a particular amount which he is called upon to explain, the department is bound to accept it as exceedingly likely and probable, consistent with its previous act in treating the addition as income, unless it be that it is possible to say that the source was not available to the assessee. The onus of proving this would be on the department. Otherwise, it would amount to the departmentt saying, "heads I win, tails you lose".
The decision of the Andhra High Court in Lagadapati Subba Ramaiah v. Commissioner of Income-tax Income tax [1956] 30 ITR 593 is a case in point. In that case the assessee was a shareholder of a private limited company styled the he Nellore Bus Transport Co. Ltd. According to the books of the company its profits for its entire period of existence, that is to say, for the years of account ending with 31st December, 1946, 31st December, 1947, 31st December, 1948, May, 1949, amounted in all to Rs. 34,352. The revenue declined to accept the books of the company and estimated its income at a higher sum on which tax to the tune of Rs. 62,000 was assessed and paid. The company purported to issue the dividend warrants to its shareholders aggregating to a sum of Rs. 1,16,280. The assessee stated that he got the dividends of Rs. 6,800 and Rs. 4,800 for the account years ending with 31st December, 1946, and 31st December, 1947, respectively, the dividends having been declared by the company on 2nd March, 1949. The assessee, however, claimed a refund on the basis of only one dividend warrant dated June 9, 1949, for Rs. 6,800. The department as well as the Tribunal rejected the claim of the assessee. The view taken was that after the payment of income- tax of Rs. 62,000 levied on the company there were no funds available with it out of which, dividends could have been declared and paid. The question before the High Court was whether the assessee was not entitled to a refund of tax in respect of the dividends in question. In dealing with the matter, Viswanatha Sastri J. observes thus at page 599:
"In the present case, it is somewhat difficult to say that there were no profits of the company out of which a dividend could have been paid. When the revenue authority levied a tax of Rs. 62,000 on the company, it proceeded on the basis (AY 2015-16) & Others Periyasamy Anbunathan :: 41 :: that the books of the company which showed a total income of only Rs. 34,532 for all the four years of its existence were unreliable and that the bulk of the company's profits had been kept outside its books. Now those secret profits less the income-tax income paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends.... Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company's books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose."
The order of the Tribunal shows that it has missed the real point for decision. The only question that the Tribunal had to decide was whether the assessee could have derived the amount of Rs. 52,230 from the prior years which according to the department the assessee did earn. The Tribunal does not say, nor would the materials on record enable it to say, that the sum was not available to the assessee either to advance the mortgage loan in the name of Murugesa Mudaliar or for the other advances. If there had been any evidence to show that the assessee devoted that amount for other purposes it may well be that the mortgage loan and other advances were made from an unexplained or undisclosed source. But that is not so in the present case. The Tribunal's conception of "intangible additions" is somewhat queer and we confess our inability to appreciate it. The Tribunal observes in its order :
"Intangible additions, as the name itself suggests, are purely matters of estimate which may err on the wrong side for the department. For wantwa of proper evidence, additions on account of deficiency of gross profit or other defects may be made but this would not mean putting in possession of the assessee their equivalent in hard cash available for expenditure or investment. It may be said that having suffered a harsh assessment in a particular year, the assessee's case should be considered sympathetically in the subsequent year when an investment of the nature we are discussing is brought to light." Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend, that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee. We must point out that the Tribunal is wrong in thinking that an assessee suffers a "harsh assessment" when his income is computed by making additions.
Such an assessment is perfectly within the four corners of the Act and there is no reason to suppose that it is in any way inequitable or unjust. We are also unable to understand the real scope of a sympathetic treatment of the assessee in the matter of assessment to tax. The assessee is either liable to tax or not, and if he is really liable to tax he cannot get rid of it by pleading equity or by invoking the sympathy of the assessing authority. The faulty reasoning of the Tribunal was certainly not conducive to a correct conclusion in the matter. In our opinion, there are no materials for the addition of Rs. 40,000 and Rs. 12,230 in (AY 2015-16) & Others Periyasamy Anbunathan :: 42 :: respect of the two assessment years 1949-50 1949 and 1950-51 51 respectively, and that the order of the Tribunal cannot be sustained."
The above view is noted to have been reiterated by Hon'ble jurisdictional Madras High Court in the case of CIT v. K. S. M Guruswamy Nadar and Sons, [1984] 149 ITR 127. In the decided case also, it was held that when there are two separate additions additions viz., one on account of suppression of profit and another on account of cash credit, then it is open to the assessee to explain that, the suppressed profits had been brought in as cash credits and has to be telescoped into the other.
Gainful reference may also be made to the decision of the Hon'ble Bombay High Court in the case of CIT vs J.J. Gandhi (39 CTR 127). In this judgment also, the Hon'ble High Court had approved the theory of telescoping and held that it could be applied in cases where additions in relation of unexplained money/investment are sought to be made in the hands of the assessee. The Hon'ble Court explained that if an addition towards undisclosed income was made and the AO also seeks to make certain addition in relation to unexplained investment then, it can be treated by the assessee that the unexplained investment is sourced out of the undisclosed income already taxed.
The principle which emerges from the above is that, the same 40. income should not be taxed twice i.e. once at at the time of generation and thereafter at the time of application for making investment or any (AY 2015-16) & Others Periyasamy Anbunathan :: 43 :: undisclosed asset. Having regard to this settled legal position, we now come back to the facts of the case. From the discussions set out above, it is not in dispute that, the assessee had offered income by way of receipts from repayment of cash loans and interest income aggregating to Rs.40,77,13,731/- across AYs 2014-15 to 2017-18. It is not the case of the Revenue that, these items of intangible addition(s) have been telescoped by the assessee against any other unexplained expenditure or asset found in the course of search. Hence, applying the judicially approved principle of telescoping, according to us, the assessee is entitled to telescope the unaccounted income offered to tax in the return(s) of income for AYs 2013-14 to 2017-18 against the seized cash of Rs.4,87,33,820/-. For such reasons, we confirm the order of Ld. CIT(A) deleting the impugned addition. Before parting, it may be clarified that, the amount(s) of undisclosed income which was offered to tax by the assessee, to the extent being telescoped against the seized cash, will not be available for telescoping against any other noting(s) of any unexplained expenditure or investment, if any, found or deduced in relation to the issue(s) set aside back to the file of the AO. With these observations, this ground of the Revenue is dismissed.
Before we part, we hasten to add that while framing the assessment(s) of this assessee, supra, the AO should be untrammeled by any of the observations made by us above and also in the case of Shri (AY 2015-16) & Others Periyasamy Anbunathan :: 44 :: NRV by order dated 22.01.2026 against assessee as well as any observation, if any, made against assessee in the case of Shri R. Gobinath. The AO to independently evaluate the material/evidence and after hearing the assessee to frame the assessment as directed supra in accordance to law.
In the result, all the appeals of the Revenue and the assessee are partly allowed for statistical purposes and the cross objections of the assessee are dismissed.
Order pronounced on the 23rd day of January, 2026, in Chennai.
Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (ABY T. VARKEY) (S.R.RAGHUNATHA) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER