KANDAIAH MUTHUKRISHNAN,CHENNAI vs. DCIR, CC-2(4), CHENNAI

1.3 The Ld. AR advanced arguments and drew our attention to the queries raised by Ld. AO during the course of assessment proceedings. The Ld. AR stated that one of the possible views was taken by Ld. AO and therefore, revision was bad-in-law in terms of various judicial decisions. The Ld. CIT-DR also advanced arguments and submitted that the issues as flagged in the revisionary order were inadequately enquired into by Ld. AO. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Facts leading to Impugned Revision 2.1 The assessee being resident individual was assessed u/s 143(3) on 29-09-2021. The assessment has been framed after considering the outcome of search conducted by the department u/s 132 at the premises of M/s Sri Ram Studios (a partnership firm of the assessee) on 21-01- 2020. On the basis of search proceedings, Ld. AO made addition of cash found and also made addition of jewellery in the hands of the assessee. Upon further appeal, Ld. CIT(A) confirmed addition of cash found but deleted addition of jewellery. The adjudication of Ld. CIT(A) was confirmed by Tribunal in order dated 03-04- 2024. During the course of assessment proceedings, notices u/s 142(1) were issued from time to time calling for various details from the assessee. However, the assessee failed to substantiate its claim and finally, the addition of cash found was confirmed by Tribunal. 2.2 Subsequently, Ld. Pr. CIT, upon perusal of case records, alleged that Ld. AO omitted to consider the incriminating search material evidencing the assessee's money-lending business that had outstanding debtors’ balance of Rs.34.61 Crores on the date of search. The AO failed to make necessary inquiries or verification to suitably assess the sources for investment made in the money-lending business. The same makes order erroneous and prejudicial to the interest of revenue and hence, liable for revision in terms of Explanation 2(a) to Section 263. Accordingly, the assessee was show-caused on 13-03-2024. 2.3 The assessee defended the assessment on the ground that the debit balance of Rs.34.61 Crores was already considered in the hands of firm M/s. Sri Ram Studio by the AO in the assessment proceedings which had been deleted by the CIT(A) in the appellate order of M/s Sriram Studio. Further, it was also stated that the assessee only mediated for arrangement of finance for a commission of 0.1% and cash addition was on account of unaccounted cash generated out of his commission business. The assessee thus stated that this issue was already considered in the assessment proceedings and therefore, revision was not justified. 2.4 The Ld. Pr. CIT noted that an appeal was filed by M/s Sriram Studios against the assessment order passed in their own case. The assessment and appeal proceedings in the case of M/s Sri Ram Studios were entirely independent of any revisionary proceedings u/s 263. In the case of the assessee, the Ld. AO only disputed addition of cash seized and jewellery found. The decision made in the case of M/s Sri Ram Studios will not impact or come in the way of Sec. 263 proceedings in the case of the assessee. Therefore, assessee’s objection was rejected. The issue of debtors balance added in the case of the firm was never a subject matter of appeal in the assessee's own case. In fact, the deletion of the addition in the firm's case clearly reflects and strengthens the fact of non-application of mind by Ld. AO in not assessing the same in the hands of the assessee. 2.5 During the case of search at the premises of M/s Sri Ram Studios, incriminating material evidencing carrying out of unaccounted finance business by the assessee was found. The seized incriminating material was confronted to Shri. V. Balamurugan (Accountant of M/s. Sriram Studio). In the sworn statement recorded u/s 132(4), he affirmed the fact that he was receiving cash on behalf of the assessee in relation to assessee's money-lending business. This fact was affirmed by the assessee in his statement that the debit and credit entries seen in the notebooks and loose sheets were unaccounted cash credit and cash debit entries relating to his money lending business and such entries were not accounted in his regular books of accounts. Further, he deposed that all the transactions narrated in seized material are done out of the unaccounted income derived from finance business. Despite the above information being available that the finance business was carried out only by the assessee, the outstanding debtor balance of Rs.34.61 Crores was omitted to be considered in the hands of the assessee. This matter would have warranted much deeper examination by Ld. AO especially regarding the sources for such amounts, opening and closing balances etc. However, AO failed to look into the issue. The Ld. AO did not make necessary enquiries and verification regarding source of huge investment made in such money-lending business. The same makes the order erroneous and prejudicial to the interest of revenue. Therefore, the revision was justified in terms of various judicial decisions. Finally, Ld. AO was directed to modify the assessment order and assess the outstanding debtors balance of Rs.34.61 Crores in the hands of the assessee after making necessary verification on the issue and after giving suitable opportunity to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 3. Upon perusal of documents as placed in the paper-book, it could be seen that the assessee was searched and his statement was recorded on 21-01-2020 and 22-01-2020. Subsequently, notices were issued u/s 153C to the assessee for AYs 2014-15 to 2016-17. Another notice u/s 142(1) was issued to the assessee for AYs 2014-15 on 20-02- 2021 (Page No.31 of the paper-book). In this notice, the assessee was inter-alia, required to explain the seized documents vide Annexure- ANN/SM/SS/SS/B&D/S1 to S11 and the tally data present in Annexure ANN/SM/SS/ED/S and excel book named as Annexure – SRS daybook ledger. On the basis of the same, it was noted that the assessee was in the habit of sourcing funds by way of cash loan from the persons who are involved in money lending business un-officially and advancing them to various entities including Vellammal Group. In Point No.13, the summary of debit and credit balances as found in SRS day-book from FYs 2011-12 till 2019-20 was tabulated. The assessee was directed to explain the same and these amounts were proposed to be added as undisclosed income of relevant assessment years. In point nos.15 & 16, the assessee was asked to explain as under: - 15. In addition to the above as per the outstanding balance as per the seized tally data is Rs.35 crore on the date of search. It proves to show that the cash funds given to the third parties namely to Vellammal group as loans by Shri Muthukrishnan as on 21.01.2020 is Rs.35 Crores and the source of such fund is from the income earned by way of un- accounted commission and interest earned over the period of years and the amounts received from M/s Vellammal Group 16. Shri Muthukrishnan has submitted a letter to the investigation wing requesting time to go through the seized materials books of accounts and provide source for Rs.35 Crores outstanding Sundry debtors balance. Shri Muthukrishnan is hereby called upon to submit evidence to prove that the sources for such sundry debtors. Since the copy of the seized material is already taken by you the same may be furnished along with the evidence.

Similar queries were raised in notices issued u/s 142(1) for AYs 2015-16 & 2016-17 on 20-02-2021.