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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकर अपीलीय अिधकरण “बी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय �ी वी. दुगा� राव, �ाियक सद! एवं माननीय �ी मनोज कुमार अ&वाल ,लेखा सद! के सम)। BEFORE HON’BLE SHRI V. DURGA RAO, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकरअपील सं./ ITA No.211/Chny/2023 (िनधा�रण वष� / Assessment Year: 2016-17) DCIT Shri Vivek Papisetty बनाम Central Circle-2(4) No.17/184, Y Block, First Street, 6th Main Road, Anna Nagar, Chennai. / Vs. Chennai-600 040. �थायीलेखासं./जीआइआरसं./PAN/GIR No. BRCPP-6180-N (अपीलाथ�/Appellant) : (!"थ� / Respondent) & 2. Cross Objection No.8/Chny/2023 (In ITA No.211/Chny/2023) (िनधा�रण वष� / Assessment Year: 2016-17) बनाम/ Shri Vivek Papisetty DCIT No.17/184, Y Block, First Street, Vs. Central Circle-1(4) 6th Main Road, Anna Nagar, Chennai. Chennai-600 040. �थायीलेखासं./जीआइआरसं./PAN/GIR No. BRCPP-6180-N (अपीलाथ�/Cross Objector) : (!"थ� / Respondent) अपीलाथ�कीओरसे/ Revenue by : Shri V. Nandakumar (CIT)- Ld. DR !"थ�कीओरसे/ Assessee by : Shri Y. Sridhar (FCA)-Ld. AR सुनवाईकीतारीख/Date of Hearing : 10-01-2024 घोषणाकीतारीख /Date of Pronouncement : 02-04-2024 आदेश / O R D E R Per Bench 1.1 Aforesaid appeal by revenue for Assessment Year (AY) 2016-17 arises out of an order passed by learned Commissioner of Income Tax
(Appeals)-19, Chennai [CIT(A)] on 19-12-2022 in the matter of an assessment framed by Ld. AO u/s 143(3) r.w.s. 153A r.w.s. 153C of the Act on 03-02-2020. 1.2 The Registry has noted delay of 3 days in assessee’s cross- objection, the condonation of which has been sought by Ld. AR. Though Ld. CIT-DR has opposed condonation of delay, however, considering the period of delay, we condone the delay and admit the cross-objection for adjudication on merits. 1.3 The grounds taken by the revenue read as under: 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld.CIT(A) erred in deleting the addition of Rs.4,00,00,000/- for AY 2016-17 made towards payment received from M/s.S.R.S.Mining and associates based on the incriminating materials seized from the premises of SRS Mining and sworn statements recorded from Shri. K. Srinivasulu and the assessee. 2.1. The Ld.CIT(A) erred in observing that that there is no mention anywhere in the seized materials that the assessee was recipient of unaccounted incidental charges from M/s.S.R.S.Mining. Shri. K. Srinivasulu admitted in his sworn statement dated 10.12.2016 that those note books were maintained by him as per the instructions of partners of M/s.S.R.S Mining and the entries found were incidental expenses to various persons. In response to Q.No.5 put up to him with reference to entries in Page No.340 of ANN/KGAR/MPKSSR,'B&D/S-4 (Black colour Calendar Diary), in which payments mentioned under "Temple Son" he has stated that these refer to payments made to Mr. Vivek, S/o.Shri Ram Mohan Rao residing near Ayyappan Temple. 2.2. The Ld.CIT erred in observing that there was no acknowledgement in the seized material by the assessee of receiving the said payments by way of appending his signature/initial against the said payments. As far as question of not writing the name in full but in abbreviated form and not recording acknowledgement for the payments made, the Ld.CIT(A) ought to have appreciated that maintaining clear, unambiguous and formal records of transaction of such nature would not be done for obvious reasons. 2.3. The Ld.CIT(A) erred in holding that such seized material is liable to be treated as dumb document which does not have any evidentiary value in respect of entries found therein without any corroborative evidence, without appreciating that the entries found in the seized materials were in the form maintained systematically on daily basis mentioning the amount and the author of seized material Shri Srinivasulu admitted the nature of payments and reference of code names. 2.4. The Ld.CIT(A) failed to appreciate that the assessing officer has correctly arrived presumption u/s.132(4A) and 292C of the Act in respect of the materials seized during the course of search, which was further strengthened by sworn statement recorded from Shri Srinivasulu and the same has also been admitted by the assessee in his sworn statement dated 21/12/2016.
2.5. The Ld.CIT(A) erred in observing that there was no corroborative evidence in respect of such seized materials with regard to the receipt of incidental charges by the assessee from M/s.SRS Mining. The primary evidence found during the course of search were notebooks maintained by Shri. K. Srinivasulu during the ordinary course of business carried on by the firm, M/s.SRS mining and the statements recorded from Shri. K. Srinivasulu in which he explained the nature of entries and from the assessee in which he accepted the receipt of incidental charges are corroborative evidences. 2.6. The Ld.CIT(A) failed to appreciate that the assessee at the first instance in his sworn statement dated 21/12/2016 recorded u/s.132(4) admitted that he had received facilitation charges of 10 Crores during FYs 2015-16 and 2016-17, which is matching with the statement given by Shri. K. Srinivasulu that "Temple son" mentioned in the seized material refers to the assessee. 2.7. The Ld.CIT(A) has sought to cast doubts on the veracity of entries made in the note book seized from the possession of Shri Srinivasulu. The Ld.CIT(A) failed to appreciate that several of the entries in-the note book denoting expenses and bank deposits have been verified during post search proceedings. This was maintained by the searched firm to arrive at the profits earned from unaccounted business of sand mining carried out by it. 2.8. The Ld.CIT(A) has stated that Shri.K.Srinivaulu has no firsthand knowledge of information as the entries were made by him as per the instructions of partners of M/s.SRS Mining and the partners of the firm should also have been examined to prove the veracity of the entries. It is to state that the partners also agreed with the explanation of Shri Srinivasulu regarding the entries made although they have also withdrawn their statement subsequently. 2.9. The Ld.CIT(A) failed to appreciate that the addition has been made on the basis of sworn statement recorded u/s.132(4) on 10.12.2016 which has evidentiary value. Shri. Srinivasulu retracted his sworn statement after a gap of 106 days, which is only an afterthought. It is held in various decisions that once the statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording the statements under section 132(4) are true and correct and brings out the correct picture, as by that time the assessee is influenced by external agencies. Hence, the retraction of statement by Shri. Shrinivasulu, after a gap of 106 days was not relied upon by the assessing officer. 2.10. The Ld CIT(A) erred in observing that the evidentiary value of statement recorded from the assessee and Shri. Srinivasulu has been eroded on their retraction, without appreciating that the retraction of statements by both Shri. Shrinivasulu and Vivek Papisetty holds no value as they have done so by citing absurd and unfounded reasons like they were subjected to harassment and mental pressure by IT Authorities. They have not brought any evidence to show that they were harassed during search operation through any means. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of Learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
1.4 The grounds of assessee’s cross-objection read as under: 1.The order of the learned Commissioner of income-tax (Appeals)-19, Chennai dated: 19.12.2022 in so far as it is prejudicial to the interest of the Respondent is opposed to law, facts and circumstances of the case.
2.The learned CIT(Appeals) erred in holding that the conclusion of assessment by the learned Deputy Commissioner of Income tax, Central Circle 2(4) (Appellant Assessing Officer for short) pursuant to notice u/s 153C is valid, although the Assessing Officer had initiated the proceedings u/s 153A by issue of such notice on 21.8.2017 and the same was kept open. 3.The learned CIT(Appeals) erred in not appreciating that the Appellant-Assessing Officer was carrying on two parallel proceedings - one under section 153A and the other under section 153C, which is impermissible in law. 4.The learned CIT(Appeals) erred in holding that 153A proceedings abated on the date of receiving the seized material by the Assessing Officer. 5.The learned CIT(Appeals) misinterpreted the first proviso to section 153C, without appreciating that only the assessment or reassessment proceedings pending as on the date of initiation of search shall abate, as the proceedings under section 132 was undeniably initiated in the case of the Respondent-assessee also on 21.12.2016. 6.The learned CIT(Appeals) failed to appreciate that the Assessing Officer Appellant has ultimately completed the assessment u/s "143(3) r.w.s 153A r.ws 153C" as is apparent in the column "Section and sub-section under which the assessment is made" in the face sheet of the assessment order, which clearly indicates that the assessment initiated u/s 153A did not abate even according to the Appellant-Assessing Officer. 7.The learned CIT(Appeals) ought to have quashed the order of assessment as illegal as the completion of assessment under irrelevant section is bad in law. 8.The learned CIT(Appeals) erred in holding that the service of notice u/s 143(2) is not mandatory, after the filing of return of income by the Respondent-assessee in respect of assessment proceedings u/s 153C. 9.The learned CIT(Appeals) ought to have quashed the order of assessment as the Appellant-Assessing Officer failed to serve the notice u/s 143(2) after filing of a letter by the Respondent assessee on 13.12.2018. 1.5 As is evident, the sole issue that arises for our consideration is additions made by revenue based on search findings. The assessee is challenging the jurisdiction of Ld. AO on various legal grounds. Arguments before us 2. The Ld. CIT-DR advanced arguments and submitted that the additions are based on search findings coupled with statements recorded u/s 132(4). The Ld. CIT-DR supported the additions made in the assessment order. The Ld. AR, on the other hand, while supporting the impugned order on merits, assailed the validity of assessment proceedings on legal grounds. To support the submissions, reliance has been placed on various judicial decisions, the copies of which have been
placed on record. The written submissions have also been filed during the course of hearing which has duly been considered while disposing- off the appeal / cross-objection. The Ld. CIT-DR submitted that assessee’s cross-objections have already been considered in the impugned order. 3. Having heard rival submissions, oral as well as written and upon perusal of case records including various judicial pronouncements as cited before us, our adjudication would be as under. The assessee being a resident individual was subjected to an assessment for AY 2016-17 u/s 143(3) r.w.s. 153A r.w.s. 153C of the Act on 03-02-2020 wherein certain addition was made and the same form part of subject matter of present appeal before us. Assessment Proceedings 4.1 The assessment was so framed pursuant to search and seizure action by the department u/s 132 in the case of M/s SRS mining, Shri K. Srinivasulu, Shri M. Prem Kumar & ors. at various places on 08-12-2016. During search proceedings in the case of M/s SRS mining, certain incriminating material was seized which was marked as ANN/KGAR/MPKSSR/LS/B&D/S-1 to S-4, ANN/MPK/NS/B&D/S-19&20, ANN/KGA/SRS/B&D/S-1, ANN/MPK/NS/B&D/S-3 and ANN/KGAR/MPKSSR/LS/S-1 from the premises of M/s SRS mining. The said material, inter-alia, allegedly contained incidental charges paid to assessee’s father Shri P. Mohan Rao in the capacity of then Chief Secretary of Tamil Nadu and certain payment to the assessee as well. In the seized note books, Shri P. Mohan Rao was vaguely described as “Temple” and “S-2” and his son was described as “Temple Son”. These
codes were deciphered by Ld. AO by relying on the statement made by one Shri K. Srinivasulu u/s 132(4) in whose possession those incriminating books and documents were found. Shri K. Srinivasulu is stated to be a trusted aide of Shri J. Sekar Reddy (Managing partner of SRS mining). Shri K. Srinivasulu maintained diaries / note-books on the instructions of partners of M/s SRS mining. During the course of search, his statement was recorded u/s 132(4). In the statement, he stated that code “Temple” was used to refer to Shri P. Mohan Rao as his residence was near the temple of Lord Ayyappan at Anna Nagar, Chennai. He also mentioned that sometimes the code “S2” was used to refer to him since he functioned as Secretary-2 at the office of Chief Minister. The relevant part of the statement has been extracted on Page No. 1 & 2 of the assessment order. On the basis of the same, Ld. AO held an opinion that the assessee and his father were the beneficiaries of cash payment made by M/s SRS mining. 4.2 Subsequently, the case was centralized vide order dated 17-07- 2017. Since warrant was issued in the name of the assessee and the assessee was separately searched on 21-12-2016, a notice u/s 153A was issued to the assessee on 21-08-2017. The assessee filed return of income on 29-09-2018 declaring income of Rs.67.64 Lacs. Since the material seized during search operation on a third-party i.e., M/s SRS Mining was to be used against the assessee and the same had bearing on determination of total income of the assessee, the provisions of Sec.153C were invoked. Accordingly, another notice u/s 153C was issued on 04-12-2018. In response, the assessee offered same return of income as filed on 29-09-2018. During the course of assessment
proceedings, notices u/s 143(2) and 142(1) were issued to the assessee calling for certain details. 4.3 The assessee, vide letter dated 01-04-2019, objected to issuance of notice u/s 153C since the proceeding u/s 153A were already open in his case. However, Ld. AO rejected the same on the ground that assessing officer of M/s SRS mining and the assessee happen to be the same person. The time limit for completing the search assessment was also same and there was no bar in invoking the provisions of Sec.153C while the proceedings u/s 153A was already open and therefore, issuance of notice u/s 153C was a valid one. Once notice u/s 153C was issued, already existing scrutiny assessment proceedings get abated and there is no question of any two parallel proceedings as claimed by the assessee. Therefore, assessee’s objection was overruled. 4.4 Proceeding further, considering the seized material vide Page No.340 of Annexure ANN/KGAR/MPKSSR/B&D/S-4 as seized from business premises of M/s SRS mining at T. Nagar, Ld. AO alleged that the assessee received sum of Rs.400 Lacs during AY 2016-17 and another sum of Rs.600 Lacs in AY 2017-18 as unaccounted incidental expenses / facilitation charges from M/s SRS Mining. The same was on the basis of statement of Shri K. Srinivasulu in whose custody those books were seized and Shri K. Shrinivasulu was questioned about the notings in the seized note book. The relevant part of statement has been extracted on page no.5 of the assessment order. When these evidences were confronted, the assessee also admitted to have received such payment in sworn statement recorded on 21-12-2016. The assessee
offered to disclose unaccounted income of Rs.1729.45 Lacs for FYs 2013-14 to 2016-17 as tabulated on Page No.7 of the assessment order. 4.5 However, the assessee did not declare the said unaccounted income in the return of income. The assessee drew attention to his retraction as made on 23-12-2016. The same was not accepted by Ld. AO considering the provisions of Sec.132(4A) and 292C of the Act. The Ld. AO held that the statement was a valid one whereas the retraction was without any valid reason. The statement was corroborated with seized material along with sworn statement of Shri K. Srinivasulu. The retraction made by Shri K. Srinivasulu was also not accepted by Ld. AO. 4.6 The assessee claimed that no other evidence was seized from his residence in support of the receipt of facilitation charges from M/s SRS Mining. To counter the same, Ld. AO relied on the statement recorded from his father Shri P. Rama Mohan Rao u/s 132(4). Based on the contents of an electronic device, (a Samsung mobile) seized vide Annexure ANN/MS/PRMR/ED/S from this residence, his father was questioned about a deleted whatsapp message during the course of the search in his house on 21-12-2016. As per his statement, “S4” in the message would mean Secretary-4 to CM. Drawing analogy from the same, Ld. AO concluded that the assessee was in receipt of facilitation charges in cash from M/s SRS mining and accordingly, the amount of Rs.400 Lacs was added to the income of the assessee u/s 68 of the Act as unaccounted cash credit. 4.7 In the concluding part of the assessment order, Ld. AO noted that the assessee’s application before Income Tax Settlement Commission was rejected. Finally, the assessment was concluded without making
any other addition. Aggrieved, the assessee assailed the action of Ld. AO before first appellate authority on legal grounds as well as on merits. Appellate Proceedings 5.1 The Ld. CIT(A) rejected the first legal ground of the assessee that the search was not on the basis of any prior information or material considering the Explanation inserted in Sec.132(1) by Finance Act, 2017 with retrospective effect from 01-04-1962 in terms of which legal validity of initiation of search action u/s 132 could not be subject matter of dispute before CIT(A). Another legal ground raised by the assessee was that notice issued u/s 153A was not valid since AO failed to record satisfaction for inference of liability which was sine qua non for initiating proceedings u/s 153A. This ground was also rejected by Ld. CIT(A) by observing that warrant was issued in the name of the assessee and the assessee was searched on 21-12-2016. The condition precedent for assuming jurisdiction u/s 153A was thus duly satisfied. There was no condition of prior satisfaction to assume jurisdiction u/s 153A. The third legal issue urged by the assessee was that no notice was served on the assessee u/s 143(2) of the Act in relation to assessment proceedings u/s 153A. However, Ld. CIT(A) noted that notice u/s 153A was issued on 21- 08-2017 against which the assessee filed return of income on 29-09- 2018. Subsequently, AO issued notice u/s 153C on 04-12-2018. A notice u/s 143(2) was issued on 12-12-2018. In response to notice u/s 153C, the assessee submitted letter on 13-12-2018 requesting that the return filed by him on 29-09-2018 u/s 153A may be treated as return filed in response to notice issued u/s 153C. The assessee’s contention was that no notice u/s 143(2) was issued after 13-12-2018 and notice issued
earlier on 12-12-2018 would not be relevant for assessment proceedings u/s 153C since the letter was filed by the assessee in response to notice u/s 153C on 13-12-2018. The Ld. CIT(A) rejected the same on the ground that proceedings u/s 153C were initiated on 04-12-2018 which was responded to by the assessee on 13-12-2018. Notice u/s 143(2) was already issued on 12-12-2018. The legal issue as raised by the assessee was covered by the decision of Hon’ble High Court of Madras in the case of B. Kubendran vs. DCIT (WP Nos.3023 & ors. of 2020 dated 09.04.2021) wherein it was held that there was no requirement for issue of notice u/s 143(2) for completion of assessment u/s 153A. This decision relied on the decision of Hon’ble Delhi High Court in the case of Ashok Chaddha vs. ITO (337 ITR 399) and various other decisions. Therefore, this ground was rejected. 5.2 The assessee urged another legal ground that satisfaction was not recorded by AO before issuance of notice u/s 153C. However, the same was rejected by Ld. CIT(A) with the observation that AO duly recorded satisfaction for issue of notice u/s 153C in order sheet dated 04-12-2018. The contents of the same were communicated to the assessee along with notice u/s 153C. The AO of the searched person as well as AO of the assessee was one and the same person. As held by Hon’ble Supreme Court in the case of Super Malls Private Ltd. (423 ITR 281), in such case, there could be one satisfaction note prepared by AO qua the searched person and qua the other person. The satisfaction note recorded by AO of the assessee on 04-12-2018 represents such satisfaction note qua the searched person as well as the other person. The AO had recorded his satisfaction that the relevant material seized in
the case of M/s SRS mining and others pertained to and the information contained therein related to the assessee. The said satisfaction represents the satisfaction of AO qua the searched person. Therefore, the ground was held to be untenable. 5.3 Another legal ground as urged by the assessee was validity of parallel proceedings u/s 153A and 153C of the Act. The assessee contended that initiation of proceedings u/s 153C and passing an assessment order without concluding the proceedings initiated earlier u/s 153A was bad-in-law. It was contended by the assessee that he was subjected to search on 21-12-2016 and notices u/s 153A were issued to the assessee on 21-08-2017. However, there was no incriminating material seized during the search which would be relevant for determination of total income for AY 2016-17. Subsequently, pursuant to material seized in the course of search conducted on SRS group on 08- 12-2016 and statement recorded therein, proceedings u/s 153C was initiated on 04-12-2018. Therefore, since earlier proceedings u/s 153A were pending, subsequent notices issued u/s 153C was bad-in-law. However, Ld. CIT(A) held that as per second proviso to Sec.153A, the assessment or reassessment proceedings pending as on the date of initiation of search shall abate. The first proviso to Sec.153C provides that the second proviso to Sec.153A would apply with the modification that the reference to the ‘date of initiation of search’ therein shall be treated as ‘date of receiving the seized material by the AO of the person other than the searched person’. In the present case AO of searched person and AO of assessee being the same, there was no occasion for handing over of seized material to the AO of other person. In such case,
date of recording of satisfaction by AO of other person is required to be considered as the date of receiving the seized material by the AO of the other person for the purpose of first proviso to Sec.153C. In the said view of the matter, the assessment or reassessment pending as on the date of recording of satisfaction by the AO of the other person shall abate as per first proviso to Sec.153C read with second proviso to Sec.153A. The satisfaction note was recorded by jurisdictional AO on 04-12-2018 on which date the proceedings initiated by issue of notice u/s 153A dated 21-08-2017 was pending. Therefore, the said proceedings were abated on the recording of satisfaction and issue of notice u/s 153C. Therefore, there was no parallel proceeding as contended by the assessee. Finally, this legal ground was also rejected. 5.4 The assessee raised the issue of violation of principle of natural justice. The same was also rejected since upon perusal of assessment records, it was noted that the assessee had been afforded adequate opportunities of hearing to substantiate its case. Therefore, this plea was also rejected. 5.5 The assessee vehemently assailed the impugned addition on merits. The written submissions of the assessee have been extracted on page nos. 32 to 39 of the impugned order. The prime argument of the assessee was that the office as well as residential remises of the assessee was searched, however, no asset, either moveable or immoveable which was acquired out of undisclosed income was found. Even the addition made for AY 2015-16 was based on unsubstantiated grounds. No material evidence was brought on record by Ld. AO to conclude that the assessee had received alleged incidental charges. Shri
K. Srinivasulu denied all the transactions with the assessee at the time of cross-examination which make addition unsustainable. The assessee also contended that the seized note books belonged to a third-party where merely had notings regarding alleged payments made to the assessee and others. However, these notings lack the details of nature of the payment and the purpose of payment. Therefore, there was no corroborative evidence to prove that the payments were made. Mere notings in an unauthenticated document could not form the basis of addition. The assessee relied on the decision of Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla (AIR SC 410) holding that loose sheets and entries in diaries could not be considered as account books of a party. Such entries would not have any evidentiary value. Similarly in Common Cause vs. UOI (77 Taxmann.com 245), it was held that dumb documents which are not part of books of accounts do not possess any evidentiary value and liable to be rejected in toto. Similarly, Mumbai Tribunal, in the case of ITO vs Kranti Impex Pvt. Ltd. (ITA No.1229/Mum/2013) held that when the seized papers were undated having no acceptable narration and do not bear the signature of any party, they are in the nature of dumb documents having no evidentiary value and could not be taken to be the sole basis for determination of undisclosed income of the assessee. The onus would be on revenue to collect cogent evidences to corroborate the nothings therein. Similarly, Chennai Tribunal in the case of M.M. Financers Pvt. Ltd. vs DCIT (107 TTJ Chennai 200) held that no addition could be made on the basis of statement made by third-party and the unsigned agreement and dumb
loose slips seized, in the absence of any corroborative material to show payment of any undisclosed consideration by the assessee. 5.6 Regarding the provisions of Sec. 132(4A) and 292C, the assessee submitted that such a presumption would be available only in respect of the person from whom the document is seized and the same could not be used against other persons. The Ld. CIT(A) considered these arguments of the assessee and rendered its findings on para 54 to 73 of impugned order. 5.7 The Ld. CIT(A) observed that Ld. AO made addition of unaccounted income represented by the incidental charges received by the assessee from M/s SRS Mining based on the entries found in the note books seized from the office premises of the said firm during the course of search conducted in the cases of M/s SRS group on 08-12- 2016 and the statement of Sri. K. Srinivasulu u/s 132(4) dated 10.12.2016 (from whose possession the material was seized) with regard to the contents of the said seized material. The Ld. CIT(A), upon perusal of seized material, concurred that the name of the assessee did not appear in any of the entries as considered by AO to be pertaining to the assessee. All the entries contained only code name “Temple Son”. The Ld. AO relied on the statement of Shri K. Srinivasulu to conclude that such code would refer to the assessee. Shri K. Srinivasulu explained in his statement that the code “Temple Son” refers to Shri Vivek (assessee) son of Shri P. Rama Mohan Rao whose residence was near to the temple of Lord Ayyappan at Anna Nagar, Chennai. The said explanation was given by Sri. K. Srinivasulu in his answer to Q.No.5 of his statement, when he was requested to explain the entries appearing
under “Temple Son” account. He stated in his reply that that “Temple Son” refers to Shri Vivek, son of assessee residing near Ayyappan Temple. Based on the same, AO had treated all the entries reflected in the seized material with the code name “Temple son” as pertaining to the assessee. The pertinent issue would be whether such entries found against the code name of the assessee in the material seized from a third-party could be used to draw adverse inference against the assessee without there being anything more on record in corroboration of the same. 5.8 The Ld. CIT(A), in para 57 of impugned order, noted that the said material was seized from the premises of a third-party during the course of search conducted in the case of the said third-party. The said material was neither seized from the premises of the assessee nor was the same found to be in the handwriting of the assessee. Therefore, such material, unless backed by corroborative evidence, would not constitute adequate evidence to draw any adverse inference against the assessee as held by Hon'ble Delhi High Court in the case of CIT Vs Sant Lal [2020] 118 Taxmann.com 432 (Del). It was held therein that where a diary was seized in search of premises of a third-party allegedly containing entries of hundi transactions on behalf of various parties including the assessee, no addition could be made based on the said entries since the diary was neither found from premises of assessee nor was it in the handwriting of assessee and revenue failed to produce cogent material to link the assessee to the diary. The ratio of the said decision was squarely applicable to the case of the assessee as the AO has not referred to any cogent material to corroborate the entries made in the material seized
from a third-party which are purportedly the transactions made by the said third-party with the assessee. 5.9 The Ld. CIT(A) also concurred with the argument of the assessee that presumption u/s 132(4A) r.w.s. 292C would arise qua the searched person or qua the person who was found in the possession or control of such documents. Such a presumption was not applicable to a person other than the searched persons as held by Hon’ble Bombay High court in the case of ACIT vs. Latha Mangeshkar (97 ITR 696) and various other decisions of Tribunal as enumerated in para 58 of the impugned order. Therefore, the observation of AO that the provisions of Sec.132(4A) and 292C support the veracity of the seized document vis- à-vis the assessee was untenable in law. 5.10 The Ld. CIT(A) further held that the seized material did not contain complete information to facilitate drawing of such an inference. The information available in the relevant seized material merely contained the date, amount and the code name of the recipient. There was absolutely no mention in the seized material regarding the nature of the said transactions and the purpose of the payments made. There was no mention whether the payment was made to a particular person in his own right, or it was made to him on behalf of another person. In the absence of such essential and critical information, it could not be inferred with a reasonable degree of certainty that the payments were made to a person whose name (or code name) appears therein and that the said amounts represent the income of the said person. An entry made in a diary or notebook by a third-person with scant details could not be used to fasten tax liability on the person whose name appears therein, in the
absence of corroborative evidence. Further the assessee did not acknowledge receipt of any such payment by way of appending his signature / initial against the said payments. If a third party unilaterally makes entries in a diary / note book showing payments to a person to suit his convenience, the payments could not be inferred to have been made to the said person unless there is corroborative evidence to establish the actual making of payments to the said person. There was no reference to such corroborative evidence in the assessment order. To support these conclusions, Ld. CIT(A) referred to the decision of Jabalpur Bench of Tribunal in the case of ACIT vs Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] and also various other decisions which have been enumerated in paras 61 and 62 of the impugned order. 5.11 The Ld. CIT(A) also concurred that the statement of Shri K. Srinivasulu would not serve as corroborative evidence in respect of the entries in the seized material which allegedly have shown cash payments made to the assessee. This was clearly evident from his answer to Question No.3 of the statement wherein he gave a general statement that the entries in the seized note books represent incidental expenses paid to various persons. When there are numerous pages and entries in the seized material, such a general statement would not inspire confidence for drawing any conclusions in respect of specific entries appearing therein allegedly with the code name of the assessee. There was no specific reference in the statement to the entries in the seized note books appearing allegedly with the code name of the assessee. There was nothing in the statement even to remotely suggest that the entries appearing with the code name of the assessee actually represent
payments made to the assessee, the details of services rendered by the assessee for which the impugned payments were made and the identity of the person(s) who actually made the payments to the assessee. The statement of Shri K. Srinivasulu merely mentioned that the entries were made by him on the instructions of the partners of M/s SRS Mining. It was very clear that he had no first-hand knowledge of the payments noted in the seized material and he had merely noted whatever had been told to him by partners. In such an event, the statement of Shri K. Srinivasulu would serve a very limited purpose of ascertaining the identity of the person who made the entries and nothing more. Since the entries were made by him on the instructions of the partners, it is the partners who were required to explain the identity of the recipients, the nature of payments, the purpose of payments and the identity of the person who made the payments. However, the material available on record does not suggest that the partners were examined on oath u/s 132(4) with regard to the relevant entries of cash payments allegedly made to the assessee. There was no reference to any such statement in the assessment order. In the said facts and circumstances, the statement of Sri. K. Srinivasulu could barely be considered as corroborative evidence against the assessee with regard to the entries in the seized material. 5.12 Pertinently, the statement made by Shri K. Srinivasulu was retracted by him vide his letters dated 21-03-2017 and 23-03-2017 addressed to the DDIT(inv.), which were submitted by him through the Jail Superintendent when he was lodged in the jail. In the retraction, it was claimed by him that the statement u/s 132(4) was given under
coercion and duress and that he was under a state of mental shock, depression and physical exhaustion at the relevant point of time due to the continuance of search action continuously for more than 3 days without a break and he not being allowed to sleep or take rest. He stated that he was not allowed to read the typed statement and his signature was obtained by force on the statement. He stated that he never paid any money to various persons as recorded in the typed statement. He stated that he signed the statement in order to end the prolonged ordeal of intimidation, harassment and mental torture. As against this, Ld. AO has held that the statement was required to be treated as a truthful statement since he was not under the influence of his employers while giving the said statement and that he deposed without any fear or favour at that time. The Ld. AO observed that retraction was under fear. Therefore, Ld. AO disregarded the retraction and relied on the statement made by him u/s 132(4) to hold it against the assessee. As the statement of third person was being used against the assessee, the assessee sought his cross-examination vide letter dated 01-04-2019. 5.13 In the meanwhile, the assessee preferred Writ Petition before Hon’ble High Court of Madras praying for issue of directions to the AO to permit the assessee to cross-examine the witness being relied upon by Ld. AO. The writ petition was dismissed vide order dated 10-04-2019. The Hon’ble Court directed Ld. AO to afford cross-examination prior to finalization of the assessment proceedings. Pursuant to the same, Ld. AO afforded opportunity of cross-examination of Shri K. Srinivasulu on 20-09-2019 by issuing summon u/s 131. A statement u/s 131 was recorded from Shri K. Srinivasulu on 20-09-2019 and the authorized
representative of the assessee was allowed to cross-examine the said witness. In the cross-examination, Shri K. Srinivasulu answered in the negative to the questions posed by the counsel of the assessee whether he knew the assessee and whether he met the assessee at any time. Shri K. Srinivasulu also denied having paid any money to the assessee. On being questioned as to why he stated in the course of his statement on 10-12-2016 that some monies were paid to “Temple Son”, he stated that this statement was already retracted vide letters dated 21-03-2017 and 23-03-2017 which were sent through the Jail Authorities wherein the circumstances for the retractions had been explained. Under such circumstances, the Ld. CIT(A) concurred with assessee’s submissions that statement of Shri K. Shrinivasulu as recorded on 10-12-2016 lost its evidentiary value and that statement could not be considered as reliable and unimpeachable evidence unless it was supported by any other corroborative evidences. 5.14 So far as the assessee’s own admission was concerned, Ld. CIT(A) noted that this statement was retracted by the assessee vide his letter dated 23-12-2016 addressed to the DDIT(inv.), Chennai. In the said letter, the assessee stated that the statement was recorded from 9.00 pm to 11.30 pm on 21-12-2016 and from 2.00 am to 5.00 am on 22- 12-2016 (though signed as 21-12-2016) and that he was completely drained out and dizzy by that time and he was put under extreme mental duress, pressure and harassment to sign the statement prepared by the officer, especially related to some entries of "Temple son" and "son a/c" in a paper which was not found in his premises. He stated that he was also worried about his wife at that time, as she was admitted in hospital
on 20-12-2016 due to pregnancy complication and she was alone in the hospital. He stated that he did not have any business connection or any cash transactions with Shri Sekar Reddy or any of his associates. The Ld. AO did not accept the retraction on the ground that it was made without valid reasons. However, Ld. AO did not elaborate as to why the retraction was without valid reasons. The retraction was made by the assessee within two days of the recording of statement from him. The fact regarding hospitalization of the wife of Shri Vivek Papisetty at the time of search in his residential premises was not disputed by the AO in the assessment order. The mental stress and anxiety suffered by the assessee on account of such hospitalization was therefore required to be taken in to cognizance in evaluating the genuineness of the retraction made by him. Further, no evidence was brought on record by Ld. AO in the course of the assessment proceedings with regard to the purchase of properties at Ennore by him by way of utilization of his unaccounted receipts from M/s SRS mining as stated by him in the statement u/s 132(4) dated 21-12-2016, in order to discredit the subsequent retraction of the said statement. No evidence of any business association with SRS mining or rendering of any services to SRS mining by the assessee was brought on record by Ld. AO which necessitated the payment of incidental charges to the assessee. In view of all these reasons, it was to be held that the said statement of the assessee, which had been retracted immediately after it was recorded, would not constitute corroborative evidence to conclude that the assessee was in receipt of unaccounted incidental charges from M/s SRS mining as per the entries
found in the seized material and the statement of Shri K Srinivasulu with regard to the said entries. 5.15 The Ld. CIT(A) took a view in favor of the assessee considering the fact that the assessee was also subjected to search action wherein no incriminating material was found to show that the assessee had received any unaccounted cash either from the said parties or from any other source. Further, no incriminating material was found during the search to show that the assessee had made any unaccounted investments or unaccounted expenditure from undisclosed sources of income. When this crucial fact is taken into consideration in the background of incompleteness of the entries in the seized material to establish any nexus between the payments mentioned therein with the assessee and lack of proper corroborative evidence in respect of such seized materials, the only conclusion that could reasonably be drawn was that there was no adequate and reliable material to infer that the assessee was in receipt of alleged unaccounted cash by way of incidental charges from M/s SRS mining which was sought to be taxed in his hands. Accordingly, the impugned addition was held to be not sustainable and Ld. AO was directed to delete the same. Aggrieved, the revenue is in further appeal before us whereas the assessee has filed cross- objections against the same. 5.16 The assessee also disputed invoking the provisions of Sec.68 for making impugned addition of unaccounted receipts. The Ld. CIT(A) concurred that the provisions of Sec.68 has no application to any sum which is not found credited in the books of accounts as maintained by the assessee. There was no finding by Ld. AO that the assessee had
maintained books of account and had credited the impugned amounts. Thie being so, the aforesaid provisions were not applicable to the case of the assessee and accordingly, this legal ground as urged by the assessee was allowed. 5.17 The assessee also contended that prior approval was not taken u/s 153D which was found to be factually incorrect. The findings, in this regard, are given in para-79 of the impugned order. It was noted that the Additional CIT, Central Range-2, Chennai had duly accorded prior approval for draft assessment orders submitted by Ld. AO. The assessee’s ground that the assessment was barred by limitation was also rejected since the same could not be substantiated by the assessee. 5.18 Aggrieved as aforesaid, the revenue is in further appeal before us whereas the assessee has filed cross-objections. Our findings and Adjudication 6. From the detailed facts and discussions as enumerated by us in the preceding paragraphs, it emerges that the impugned additions have been made by Ld. AO in the hands of the assessee pursuant to the search and seizure action by the department u/s 132 in group cases of M/s SRS mining and its partners on 08-12-2016. During the course of search action, certain incriminating material was found from the premises of M/s SRS Mining which was used against the assessee to make the impugned addition. The seized material, inter-alia, allegedly contained details of incidental charges paid by that group to the assessee. In the seized note books, the assessee was vaguely described as “Temple Son”. This code was deciphered by Ld. AO by
relying on the statement made by one Shri K. Srinivasulu u/s 132(4) in whose possession those incriminating books and documents were found. Shri K. Srinivasulu is stated to be a trusted aide of Shri J. Sekar Reddy (Managing partner of SRS mining). Shri K. Srinivasulu maintained diaries / note-books on the instructions of partners of M/s SRS mining. During the course of search, his statement was recorded u/s 132(4). On the basis of the same, Ld. AO held an opinion that the assessee was the beneficiary of cash payment made by M/s SRS mining. 7. The assessee was also subjected to separate search u/s on 21-12- 2016. However, no addition has been made on that basis since no incriminating material was found from the assessee for this year. However, a statement was recorded from the assessee wherein he confirmed having received sum of Rs.10 Crores from M/s SRS Mining towards facilitation charges. This statement, however, was retracted within two days and the assessee denied having received any such payment. The Ld. AO held that the retraction was not valid and the same was not acceptable. 8. Initially, a notice u/s 153A was issued to the assessee on 21-08- 2017. However, since the material found in the course of a search operation on M/s SRS Mining was to be used against the assessee and the same had bearing on determination of total income of the assessee, provisions of Sec.153C were invoked and another notice u/s 153C was issued on 04-12-2018. In response, the assessee offered same return of income as offered earlier on 29-09-2018. Rejecting assessee’s explanations and relying on the seized material coupled with sworn
statement of Shri K. Srinivasulu, Ld. AO made impugned addition u/s 68 of the Act. 9. It is a fact on record that the statement made by Shri K. Srinivasulu was retracted by vide letters dated 21-03-2017 and 23-03-2017 addressed to the DDIT(inv.) which were submitted by him through the Jail Superintendent when he was lodged in the jail. It was claimed by him that the earlier statement was given by him under coercion and duress and that he was under a state of mental shock, depression and physical exhaustion at the relevant point of time due to the continuance of search action continuously for more than 3 days without a break and he not being allowed to sleep or take rest. Thus the witness turned hostile and non-cooperative. As the statement of third person was being used against the assessee, the assessee sought his cross-examination vide letter dated 01-04-2019. At the same time, the assessee preferred Writ Petition before Hon’ble High Court of Madras praying for issue of directions to the AO to permit him to cross-examine the witness being relied upon by Ld. AO. While dismissing the Writ Petition, the Hon’ble Court directed Ld. AO to afford cross-examination prior to finalization of the assessment proceedings. Pursuant to the same, Ld. AO afforded opportunity of cross-examination of Shri K. Srinivasulu on 20-09-2019 by issuing summon u/s 131. A statement u/s 131 was recorded from Shri K. Srinivasulu on 20-09-2019 and the authorized representative of the assessee was allowed to cross-examine the said witness. In the cross- examination, Shri K. Srinivasulu answered in the negative to the questions posed by the counsel of the assessee whether he knew the assessee and whether he met the assessee at any time. Shri K.
Srinivasulu also denied having paid any money to the assessee. On being questioned as to why he stated in the course of his statement on 10-12-2016 that some monies were paid to “Temple Son”, he stated that this statement was already retracted vide letters dated 21-03-2017 and 23-03-2017 which were sent through the Jail Authorities wherein the circumstances for the retractions had been explained. Under such circumstances, no credence could be placed on such statement as rightly held by Ld.CIT(A). This statement had lost its evidentiary value and that statement could not be considered as reliable and unimpeachable evidence unless it was supported by any other corroborative evidences. We concur with such findings of Ld. CIT(A). 10. So far as the assessee’s own statement is concerned, we find that this statement was recorded u/s 132(4) on 21-12-2016 during the course of search at his residence. However, this statement stood retracted by him within two days on 23-12-2016. The circumstances under which the statement was given by him has also been enumerated in detail in preceding para 5.14. The Ld. CIT(A) held that the mental stress and anxiety suffered by the assessee on account of hospitalization of his wife was required to be taken in to cognizance in evaluating the genuineness of the retraction made by him. In our considered opinion, Ld. CIT(A) has correctly accepted the retraction considering the fact that no evidence was brought on record by Ld. AO during the course of his assessment proceedings with regard to the purchase of properties at Ennore by him by way of utilization of his unaccounted receipts from M/s SRS mining as stated by him in the statement u/s 132(4) dated 21-12-2016, in order to discredit the subsequent retraction of the said statement. Therefore,
such a statement would not constitute corroborative evidence to conclude that the assessee was in receipt of alleged unaccounted incidental charges. We confirm the findings given by ld. CIT(A) as enumerated in para 5.14 of this order. 11. Proceeding further, we also concur with the findings of Ld. CIT(A) that the name of the assessee did not appear in any of the entries as considered by Ld. AO to be pertaining to the assessee. All the entries contained only code name like “Temple Son” The only material to decode the same was the sworn statement of Shri K. Srinivasulu wherein he stated that such code would refer to the assessee. However, the statement of Shri K. Srinivasulu, as held earlier was a retracted statements and therefore, no credence could be placed on the same. The fact of retraction stood reinforced during his cross-examination by assessee’s counsel on 29-09-2019. 12. We find that the addition has been made merely on the basis of certain vague entries as found in the material seized from a third-party premises. The said material was neither seized from the premises of the assessee nor was the same found to be in the handwriting of the assessee. Therefore, such material, unless backed by corroborative evidence, would not constitute adequate evidence to draw any adverse inference against the assessee as held by Hon'ble Delhi High Court in the case of CIT Vs Sant Lal [2020] 118 Taxmann.com 432 (Del). The Hon’ble Court, in similar situation, held no addition could be made merely on the basis of such entries. The ratio of the said decision was squarely applicable to the case of the assessee as the Ld. AO has not referred to any cogent material to corroborate the entries made in the
material seized from a third-party which are purportedly the transactions made by the said third-party with the assessee. The other decisions including the decision of Jabalpur Bench of Tribunal in the case of ACIT vs Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] further supports this proposition. We concur with these findings of Ld. CIT(A). We also concur with the findings of Ld. CIT(A) that the seized material did not contain complete information to facilitate drawing of such an adverse inference against the assessee. The information merely contained the date, amount and the code name and nothing more. In such a situation, it could not be inferred with a reasonable degree of certainty that the payments were made to a person whose name (or code name) appears therein and that the said amounts represent the income of the said person. As rightly held by Ld. CIT(A), an entry made in a diary or notebook by a third person with scant details could not be used to fasten tax liability on the person whose name appears therein, in the absence of corroborative evidence. If a third-party unilaterally makes entries in a diary / note book showing payments to a person to suit his convenience, the payments could not be inferred to have been made to the said person unless there is corroborative evidence to establish the actual making of payments to the said person. We, therefore, endorse the findings of Ld. CIT(A) as contained in preceding paras 5.8 to 5.11 of this order. 13. Another fact borne out of case records is that the assessee was also subjected to search action wherein no incriminating material was found to show that the assessee had received any unaccounted cash either from the said parties or from any other source. Further, no
incriminating material was found during the search to show that the assessee had made any unaccounted investments or unaccounted expenditure from undisclosed sources of income. When this crucial fact is taken into consideration in the background of incompleteness of the entries in the seized material to establish any nexus between the payments mentioned therein with the assessee and lack of proper corroborative evidence in respect of such seized materials, the only conclusion that could reasonably be drawn was that there was no adequate and reliable material to infer that the assessee was in receipt of alleged unaccounted cash by way of incidental charges from M/s SRS mining which was sought to be taxed in his hands. We concur with these findings of Ld. CIT(A). 14. The last aspect of the matter is that impugned addition has been made by invoking the provisions of Sec.68. As rightly held by Ld. CIT(A), Sec.68 has no application to any sum which is not found credited in the books of accounts as maintained by the assessee. There is no finding by Ld. AO that the assessee had maintained books of account and had credited the impugned amounts. Therefore, the adjudication in the impugned order, to that extent, also finds our concurrence. 15. Finally, considering the entirety of facts and circumstances of the case, we endorse the adjudication of Ld. CIT(A) that there was no adequate and reliable material to infer that the assessee was in receipt of alleged unaccounted cash by way of incidental charges from M/s SRS mining which was sought to be taxed in his hands. Accordingly, the impugned additions have rightly been held to be unsustainable. The appeal of the revenue stands dismissed.
Assessee’s Cross-Objections 16. Ground No.1 is general in nature. In ground Nos.2 to 7, the assessee assails the issue of notice u/s 153C when the proceedings u/s 153A was already initiated. In Ground Nos.8 & 9, the assessee contest issue and service of notice u/s 143(2). We do not find any substance in the same and concur with the adjudication of Ld. CIT(A) which is contained in preceding para 5.1 of the order. All the grounds stand dismissed. The cross-objections stand dismissed. Conclusion 17. The appeal as well as cross-objection stand dismissed in terms of our above order.
Order pronounced on 2nd April,2024 Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद!/JUDICIAL MEMBER लेखासद! / ACCOUNTANT MEMBER चे8ई Chennai; िदनांक Dated :02-04-2024 DS आदेशकी_ितिलिपअ&ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. !"थ�/Respondent 3. आयकरआयुA/CIT 4. िवभागीय!ितिनिध/DR 5. गाडFफाईल/GF