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TMI Blog2023 (8) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... /Chny/2022 for the Asst. Year 2015-16 are reproduced as under: 1. The order of the learned CIT(A) in so far as it is against the Appellant is contrary to law, erroneous and unsustainable on the facts and in the circumstances of the case. 2. The learned CIT(A) is erred in not appreciating that without reason to believe and without warrant of authorization required to be issued in the case of the appellant, search & seizure and subsequent proceedings including issuance of notice U/s 153C is bad in law. 3. The learned CIT(A) is erred in not appreciating that the illegalities in conducting search and seizure proceedings as against the appellant is bad in law. 4. The leaned CIT (A) ought to have held that issuance of notice u/s 153C of Income Tax, 1961 and subsequent assessment proceedings are without authority and without jurisdiction on any and each of the following grounds; a. The transfer of file from jurisdiction Namakkal to Central Circle, Chennai is not in accordance with law as laid down u/s 127 of income Tax, 1961. b. As per section 132(1) r/w 132(9A) of Income Tax, 1961 the materials handed over to the Assistant Commissioner of Income Tax, Central Circle - 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary to the deviation note endorsed by learned Addl. Commissioner and the approval was given mechanically and without application of mind particularly when the Assessing Officer declined to provide a copy of the deviation note during remand proceedings. b. The approval has not been accorded as per the procedure laid down under F.No: 286/161/2006-IT (Inv.II) dated 22/12/2006. c. The learned Addl. Commissioner neither discussed the illegalities raised by the Appellant nor applied his mind that the Assessing Officer also failed to consider independently the illegalities agitated by the Appellant in the draft assessment order while according the approval, thereby the approval and assessment order fails. d. While giving the approval, the Addl. Commissioner failed to apply his mind that in the draft assessment order, the Assessing Officer has indicted the Appellant based on certain evidence which have not been raised in the Show Cause Notice. This apparent flaw on the part of Addi. Commissioner makes the approval and assessment order illegal. e. Instead of giving approval u/s 153D of Income Tax Act, 1961, after examining the draft assessment order submitted by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing authority who has ordered the Special audit and failed to appreciate reason for rejection is untenable, thereby the approval and the assessment order fails. m. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing Officer has not examined and given any appropriate finding in the draft assessment order (final assessment order) as to who has maintained or made entries in the "Erandaam Thall", which is instrumental for imposing undisclosed income, in a situation where there are contradicting statements recorded u/s 132(4) of Income Tax Act, 1961, in this regard, as detailed above, thereby the approval fails. n. While giving the approval, the learned Addl. Commissioner failed to apply his mind that the electronic devices namely "Erandaam Thaal" which have been the instrumental for arriving undisclosed income have not been vouched by the person namely Karthikeyan from whom the said device has been seized, thereby approval fails. o. While giving the approval by the Addl. Commissioner, there was no application of mind on the part of the Addl. Commissioner in granting approval under sec 153D for each assessment year separately. p. App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that there is under reporting of income in comparison to the net profit as per seized tally account is not borne out by the facts on record as the returned income is higher than the said net profit as evident from the satisfaction note itself. 14. Each ground is requested to be read independently and without prejudice to each other. 15. The Appellant craves leave to add to, alter, amend or vary the aforesaid grounds of appeal at or before the time of hearing. 16. That the appellant prays leave to adduce such further evidence to substantiate its case as the occasion demands." 3. The revenue has, more or less raised common grounds of appeal for the Asst. Year 2010-11, 2015-16 to 2018-19. Therefore, for the sake of brevity, grounds of appeal filed in ITA No. 906/Chny/2022 for Asst. Year 2010-11 are reproduced 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 holding that the retraction of statement made by the assessee, his employees and other associated persons as valid and acceptable, though the retractions were filed after reasonable time of 90 days. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the addition of Rs. 3,10,93,420/- made toward undisclosed income, being the difference of income reported between ITR and total actual income quantified as per tally data seized plus net of bogus purchases and sale through bought notes 4.1 The Ld.CIT(A) erred in failing to appreciate that Smt. R.Anandhi, in her sworn statement u/s. 1324) dated 07/07/2018 admitted that the difference between the income as per tally accounts and income reported in ITRs was the unaccounted income generated. The CIT(A) erred in failing to appreciate that the statements were recorded without any coercion or undue influence. The retractions of statements are merely after thought and without any basis. 4.2 The Ld.CIT(A) failed to appreciate that the use of bought notes for inflation of purchases has been confirmed by Smt. R.Anandhi, CA in her sworn statement and it has been further strengthened by statement of Shri.T.Gnasekaran. 4.3 The Ld.CIT(A) erred in accepting the assessee's contentions in deleting the addition made towards net of bogus purchases and sales. The assessing officer has clearly brought out in the assessment order that same lorry number was used for continuous bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to other buyers. The assessee Company has filed return of income u/s 139(1) of the Income Tax Act, 1961 for all assessment years. 5. A search and seizer, u/s. 132 of the Income Tax Act, 1961 was conducted on 5-7-2018 in the premises of the appellant at Chinnaveppanatham Vasanthapuram Post, Namakkal in connection with the case of Mr T.S. Kumarasamy/K. Nalinasundari. During the course of search on 5-7-2018, a statement u/s 132(4) is said to have been recorded from Mr. T. Gnanasekaran Accounts Manager. Further, the registered office premise of the Appellant situated at Kuttakadu, Rasipuram, Namakkal was searched on 05.07.2018 and a statement u/s 132(4) is said to have been recorded from the same Mr. Gnanasekaran. Subsequently, searches at both the premises were finally concluded on 06.07.2018 as per the panchanama dated 06.07.2018. Based on the Satisfaction note dated 5.07.2019, notices under section u/s. 153C of the Act, dated 9.07.2019 for AY: 2015-16 to 2018-19 and dated 27.07.2021 for AY 2010-11 was issued and called upon the Appellant to prepare true and correct return of total income. In response to the said notice issued u/s. 153C of the Act, the assessee has filed return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s challenged the assessment order passed by the AO u/s. 143(3) r.w.s. 153C of the Act, on various grounds, including legality of search conducted and consequent assessment proceedings, jurisdiction of the AO in assessing the income of the assessee, satisfaction recorded by the AO for issue of notice u/s. 153C of the Act for assessment years 2010-11, 2015-16 to 2018-19. The assessee had also challenged approval granted by the Additional/Joint Commissioner in terms of section 153D of the Act, on the ground that before according approval, the authority did not apply his mind to relevant materials and books of accounts found during the course of search which vitiates the entire assessment proceedings. The assessee had also challenged additions made by the AO towards under reporting of income as per seized tally data and ITR filed for assessment years 2010-11, 2015-16 to 2018-19, additions towards difference between bought notes purchases and bought note sales, for assessment years 2015-16 & 2016-17, and also additions of unaccounted income arising from bogus purchases through dummy entities and sales for assessment years 2017-18 & 2018-19. The Assessing Officer while completing the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment years 2010-11, 2015-16 to 2018-19, by holding that the assessee could able to reconcile difference between total income reported in ITR filed for the relevant assessment year and net profit as per seized tally data. Similarly, the CIT(A) deleted additions made by the AO towards undisclosed income on account of transaction from bought note purchases and bought note sales for Asst. years 2016-17 and 2017-18 on the ground that undisclosed income computed by the assessee is not based on incriminating material found during the course of search, because the seized bought notes does not belong to the assessee. The CIT(A) had also deleted additions towards bogus purchases through dummy entities for assessment year 2017-18 and 2018-19. But, the ld. CIT(A) has enhanced the assessment and directed the AO to make additions towards unexplained expenditure u/s. 69C of the Act, as per supplementary special audit report issued by the auditor and quantified unexplained expenditure in respect of unidentified entries in Erandamthall and apportioned to the appellant and three entities and for all assessment years. Aggrieved by the order of the Ld.CIT(A), the assessee and the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of DGIT and this proves that no agreement existed between officers of equal rank, which is against law and the transfer is non-exist as per law. Even assuming that PCIT, Salem having the jurisdiction there is no agreement among the equals namely PCIT, Salem and PCIT, Central-2., Chennai. In the absence of explicit understanding/agreement, the transfer of the case is lacking jurisdiction. Further, ACIT Circle-1 Namakkal from whom the case is transferred is subordinate to PCIT Salem. The DCIT Central Circle 2(1), Chennai, to whom the case is transferred, is subordinate to PCIT Central 2, Chennai, and not to PDIT (Inv) Chennai. There is no agreement established between PCIT Salem and PCIT Central-2, Chennai. In this regard, reliance is to be placed on the decision of the Hon'ble Supreme Court in the case of Noorul Islam Educational Trust Vs CIT reported in 97 CCH 368 (SC). Since, the condition for invoking transfer of jurisdiction has not been properly exercised in terms of section 127(2) of the Act, the transfer orders passed vide Notification dated 29.01.2019 by PCIT, Salem is non-est in law and not valid and consequently, the assessment orders is required to be quashed since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting order of the CIT(A) submits that the assessee has made various allegations on procedure followed in conducting search and seizure operations in light of certain circulars issued by CBDT and argued that search proceedings and consequent assessment orders passed by the Assessing Officer are illegal. But, if you go through counter affidavit filed by the revenue before the Hon'ble High Court of Madras in reply to Writ appeal filed by the assessee, it is very clear that the Department has followed due procedure in conducting search, impounding incriminating documents and recording statements. Further, various lapses pointed out by the assessee are in the nature of procedural mistakes which can be cured. Therefore, for those procedural lapses, it cannot be held that whole search proceedings are invalid and consequent assessment proceedings are null and void. The CIT-DR, further referring to provisions of section 153A of the Act, submits that the Assessing Officer acquires jurisdiction to issue notice u/s 153A/153C of the Act, in pursuant to search action conducted u/s. 132(2) or requisition u/s. 132A of the Act, but issuance of notice is not at all dependent on availability of incri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Assessing Officer to another Assessing Officer is rest with the Principal Director General or Principal Chief Commissioner and thus, in our considered view the assessee cannot call in question the powers vested with the authorities to transfer the cases in a manner convenient to the Department. However, the only requirement is to give an opportunity to the assessee of being heard in the matter, wherever it is possible to do so. In the present case, it is not even the case of the assessee that the procedure laid down u/s. 127 of the Act has not been followed. Therefore, we are of the considered view that there is no merit in objection raised by the assessee on the issue of transfer of cases u/s. 127 of the Act and thus, grounds of appeal filed by the assessee on this issue are dismissed for all assessment years. 13. In so far as, on the issue of validity of notice issued u/s. 153C of the Act, on the ground that the seized materials are not handed over as per section 132(9A) of the Act, we find that, the appellant has challenged the validity of notices issued u/s. 153C of the Act, in light of CBDT instruction no. 286/161/2006-IT(Inv-2), dated 24.07.2007 and argued that the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years. 14. In so far as the issue of jurisdiction of assessing officer, the assessee challenged the issue in light of provisions of section 124 of the Income tax Act, 1961. The assessee submits that although the appellant has raised the jurisdiction issue before the Assessing Officer, the Assessing Officer has decided the question of jurisdiction contrary to provisions of section to 124(2) of the Act, which is in violation of section 124 of the Act. We find that, provisions of section 124 deals with jurisdiction of Assessing Officer in terms of any direction or order issued under sub-section (1) or sub-section (2) of section 120 of the Act. As per sub-section (2) of section 124 of the Act, where a question arises under this section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Principal DGIT, or Principal Chief Commissioner of Income-tax, as the case may be, notified by the Board in the official gazette. In this case, the grievance of the assessee was that objection filed in this regard, in terms of sub- section (3) has been decided by the Assessing Officer himself without referring the matter to the DGIT or P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for which he stated that the statement recorded from Mr. Gnanasekaran is confirmed. The counsel for the assessee submits that the statement relied by the Assessing Officer for quantification of undisclosed income fails and the other statements does not have any value, as such statement are in no way related to the quantification of any amount of undisclosed income. Thereby, passing order by placing reliance on those statements is unsustainable. 16. The Counsel for the assessee further submits that the sole basis for the Assessing Officer to make additions towards under reporting of income being difference between net profit as per seized tally accounts and net profit as per ITR filed for relevant assessment year is statement recorded from Mr. Gnanasekaran. But, fact remains that Mr. Gnanasekaran, in his statement stated that he had gone through the contents of the electronic device seized during the course of search and had quantified the alleged undisclosed income for the assessment year 2015-16 to 2018-19 based on the tally data available in the seized device. But, on verification of said devices it is found statement of Mr. Gnanasekaran is obtained under coercion and comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rasamy vs ACIT [98] 65 ITD 188 (mad) submits that, when assessee fails to prove coercion or duress or any ground for the involuntary statement then subsequent retraction without any evidence cannot be considered and in this regard relied upon the decision of Hon'ble Supreme Court in the case of Shri. Surjeet Singh Chhabravs. UOI [1997] 1 SCC 508. 18. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We have given our thoughtful consideration to the arguments of the ld. Counsel of the assessee in light of relevant provisions of the Act and facts brought on record. The Assessing Officer has rejected retraction statement of appellant and his employees on the ground that retraction has been filed after lapse of more than 90 days from the date of recording of such statement. In this regard, it is noticed that the CIT(A) had given categorical finding that the appellant had filed retraction within 90 days from the date of search, which is evident from the fact that, the appellant and their employees have filed affidavits before the Hon'ble High Court of Madras on 31.10.2018 and contended that statement have been rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to be successful in the eyes of law, the assessee needs to show as to how the statement recorded earlier does not states the true facts or that there was coercion, inducement or threat while recording the statements. Therefore, from the above, it is very clear that retraction of a statement should not be rejected merely because the assessee has given admission during the course of search. In our considered view, although admission is an important piece of evidence, but it is not conclusive and it is open to the assessee to show that it is incorrect. 20. At this stage, it is relevant to refer to the decision of Hon'ble Supreme Court, in the case of Pullangode Rubber Produce Co. Ltd vs State of Kerala [1973] 91 ITR 18, where it has been clearly held that admission is an extremely important piece of evidence, but it cannot be said to be conclusive and that the maker can show that it was incorrect. The above judgment was followed by the Hon'ble High Court of Delhi in case of S. Arjun Singh vs CWT [1989] 175 ITR 91. The sum and substance of ratios laid down by various courts, including the Hon'ble Supreme Court is that, the whole atmosphere during the search is of utmost pressure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial skill by the Addl.CIT on the application of mind and this exercise should be discernible in the orders of the approval under section 153D of the Act. The obligation of the approval of the Approving Authority is of two folds; on one hand, he has to apply his mind to secure the Department against any omission or negligence by the A.O. in taxing right income in the hands of right person and in right assessment year and on the other hand, approving authority is equally responsible and duty bound to do justice with the tax payer by granting protection against arbitrary or baseless tax liability on the Appellant. The approving authority under section 153D is required to apply his mind to such material on record before granting his approval, otherwise, it will be invalid and bad in Law. 22. The counsel for the assessee, Shri. D Anand, Advocate, submits that the Ld. Addl. CIT, Central Range-2, Chennai, erred in giving prior approval to the orders u/s. 153C read with Sec.143(3) of the Income Tax Act, 1961, to bring to tax the undisclosed income and unexplained expenditure in a mechanical manner, without application of mind and own reasoning, in complete defiance to the requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the manner and the material on the basis of which the approval was granted was mechanical and without application of mind. 23. The counsel for the assessee further submits that the primary duty while granting approval under Sec.153D of the Act, is to see that the draft order does not suffer from legal infirmity and that proper investigation has been conducted to unravel the facts. By doing so, not only the interest of the revenue is to be protected but also with the object of not causing undue tax burden and harassment to the appellant. If there was absence of explanation from Appu Direct Pvt. Ltd in respect of excel sheets, then directions cannot be given to make addition as unexplained expenditure in the hands of the appellant without carrying out verification through issuing summons/commissions. Similarly, when the proposal for conducting a Special Audit was under way, the terms of reference should have been properly taken care to include what is now said to be missing. Even the same could have been done while calling a second report on 15.04.2021. By maintaining silence and not raising objections at the appropriate time and later on saying that the Special Auditor has done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear evidence of extraneous undue influence brought upon him to change his stand. The assessments so framed by the AO cannot be construed as reflective of independent application of mind by the AO and the said orders are liable to be regarded as legally unsustainable for this reason. 25. The Counsel for the assessee further submits that the forced withdrawal of the deviation note amounted to investigation wing directing the AO to frame the assessment in a manner that would protect the revenue's interest. The appellant placed reliance on the decision of Hon'ble Delhi High Court in the case of Agson Global (P.) Ltd [2022] 134 taxmann.com 256 (Delhi), wherein it was held that the assessing officer shifted his position in the assessment order vis-à-vis the deviation note and that the revenue cannot dictate the manner in which the AO frames the assessment order since the assessing officer discharges quasi-judicial function in passing the assessment order. The assessee submits that the act of the Additional Commissioner endorsing the deviation note dated 22.04.2021 submitted by the assessing officer by forwarding the same to the investigation wing on 22.04.2021 and the very same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in this case, there is no dispute with regard to the fact that the assessment order has been passed with prior approval from the Range head in terms of section 153D of the Act. Further, the Counsel for the assessee claims that there is no proper approval as required u/s. 153D of the Act and such argument has been placed on the basis of correspondence between the Assessing Officer and the Addl. CIT, Range Head. From the arguments of the assessee, it appears that there was lot of deliberations on draft assessment order passed by the Assessing Officer, in light of various incriminating material found during the course of search and appraisal report submitted by the DDIT-(Inv.) on various issues including additions to be made towards undisclosed income on account of difference in net profit as per seized tally and net profit as per ITR filed for relevant assessment year and also additions towards unexplained expenditure u/s. 69C of the Act on the basis of seized Erandamthall. In the note submitted to the Assessing Officer, the Addl. CIT categorically observed that on verification of seized material with ITR filed by the assessee there is a difference in income reported for various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner on said deviation note before forwarding the same to the Investigation Wing for their comments. But, fact remains that the assessee could not produce so called deviation note submitted by the Assessing Officer, to the Range head to prove their claim. Further, during appellate proceedings, the CIT(A) called for remand report on the issue and in response, the Assessing Officer submitted that deviation note being extended part of the appraisal report, is confidential in nature and thus, same cannot be shared with the assessee or any appellate authority. In our considered view, internal correspondence between the Assessing Officer and the investigation officer is confidential and extended part of appraisal report, which cannot be shared with the assessee. The CIT(A), after considering relevant facts and also taken note of provisions of section 153D of the Act, came to the conclusions that in absence of availability of any documentary evidence, in respect of claim of the appellant with regard to deviation note, the arguments of the assessee can be said to be unsubstantiated. In our considered view, the findings of the facts recorded by the Ld. CIT(A) on appraisal of relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to conditions for imposing fourth proviso to section 153A(1) of the Act, and held that income declared under PMGKY and IDS scheme cannot be construed as asset and further cash seized during search pertains to assessment year in which date of search falls, but same cannot be extrapolated to previous assessment years. The Counsel for the assessee further submits that apart from issuing notices u/s 153C for six AYs immediately preceding the AY relevant to the previous year in which search was conducted, the AO issued notices u/s 153C for AY 2010-11 which is beyond the said 6 AY and completed the assessment for assessment year 2010-11 u/s 153C r.w.s 143(3) and made addition towards underreporting of income without there being any evidence with the Assessing Officer to prove that the income represented in the form asset is escaped assessment for the assessment years. The legality of assumption of jurisdiction and issue of notices u/s 153C for AY2010-11 was challenged by the appellant before the CIT(A) as the satisfaction of the conditions prescribed in the 4th proviso to sec 153A (1) is the sine qua non for such assumption of jurisdiction for "relevant assessment year or years". The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment years. On careful examination of reasons given by the Assessing Officer to assume jurisdiction for Asst. year 2010-11, we find that as per the "Erandamthall" found during the search, the assessee has been making undisclosed/inadmissible expenditure over the years regularly and there has been generation of undisclosed income through bogus bought note and dummy entities. The unaccounted cash has been kept in the business of the assessee, which is a going concern and its group as working capital which is an investment/ asset. Therefore, the Assessing Officer opined that the threshold limit of Rs 50 lakhs is met for the assessment year or in the assessment years. 34. As regards the reference made to the "Erandamthall" which was seized during the search, it is noticed that the same contained details of unexplained expenditure as per the assessing officer's own remarks and admittedly, there is no information/ details in "Erandamthall" regarding undisclosed investment in any asset. Though, the assessing officer stated that the unaccounted cash has been kept in the business of the assessee as working capital, which is an investment/ asset, it is noticed that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement also under PMGKY. As regards the declaration made under IDS, it is noticed that the same was made for AY 2015-16 alone. Moreover, it has been clearly laid down in section 199-1 of Chapter IX-A of The Taxation Law (Second Amendment) Act, 2016 dealing with the tax and investment regime under PMGKY that the amount of undisclosed income declared under PMGKY shall not be included in the total income of the declarant for any assessment year under the Income Tax Act, 1961. In view of the said specific statutory prohibition, the action of the assessing officer in relying on the declaration made by the appellant under PMGKY to draw inference regarding income escaping assessment for assessment year 2010-11 is in violation of the specific provisions of PMGKY and the same is not legally sustainable. 36. We further noted that in the satisfaction note recorded by the assessing officer prior to issue notice u/s 153C for AY 2010-11, he does not bring out the fulfillment of the conditions laid down in the fourth proviso to section 153A(1) of the Act. The mandatory conditions that the seized material and other documents and evidences in the possession of the assessing officer should revea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f undisclosed income for assessment year 2015-16 to 2018-19 and thus, notice issued u/s. 153C is on sound footing. Further, the Assessing Officer has recorded satisfaction in light of incriminating material found during the course of search which includes Erandamthall, which clearly established undisclosed income belongs to the assessee. Further, there is enough material in the possession of the Assessing Officer including the Erandamthall which contains unaccounted expenditure of appellant and other group companies, which is having a bearing on undisclosed income of the appellant for these assessment years. From the above, it is very clear that the Assessing Officer has rightly recorded satisfaction note which is supported by incriminating material found during the course of search and thus, the CIT(A) erred in annulled the assessment orders. The CIT-DR, further submits that the statement recorded from employees of the appellant which are based on incriminating material found during the course of search clearly established undisclosed income on account of bogus purchases through dummy entities and said undisclosed income has been quantified during search itself. Although, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case, if you go through satisfaction note recorded by the Assessing Officer in light of incriminating material referred to in the said satisfaction note, it is abundantly clear that the Assessing Officer does not verified the incriminating material to arrive at a satisfaction that there is undisclosed income for these assessment years. The ld. CIT(A) after considering relevant facts in their order clearly held that there is no incriminating material in the possession of the Assessing Officer to arrive at a satisfaction that there is undisclosed income for these assessment years to issue notice u/s. 153C of the Act and thus, rightly held that notice u/s. 153C of the Act is invalid and consequent Assessment order passed u/s. 143(3) r.w.s. 153C of the Act are void ab initio and liable to be quashed. Thus, the order of the CIT(A) should be upheld. 40. In so far as assessment year 2015-16, the CIT(A) upheld validity of notice u/s. 153C and consequent assessment order on the ground that the seized electronic device ANN/VP/ED/S2 has been imaged into the hard disk VP/ED/S8 and from the above it is evident that working copies have been prepared from the imaged disk. The handing over of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl.No.8 of the same seizure annexure. Once the data available in electronic device is imaged, working copies are prepared for the purpose of accessing the data in the course of recording the statements, it is evident that working copies have been prepared from the imaged disk. The handing over of the seized electronic device ANN/VP/ED/S-2 by the assessing officer of the searched person to the assessing officer of the appellant has to be seen in the said context and such handing over has to be construed as handing over of the working copy of the imaged data of the original seized electronic device. In view of this, we are not inclined to agree with the contention of the appellant that the assessing officer could not have examined and verified the seized electronic device ANN/VP/ED/S-2 as it was seized on 07.07.2018 and was opened subsequently only on 09.09.2020. It has to be construed that the assessing officer has examined and verified the contents of the said seized device by going through the contents of the working copy of the same. We, therefore, reject the contentions of the assessee. 42. Be that as it may, but fact remains that the so called tally data available in electron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not possible for the assessing officer to examine the tally accounts for AY 2016-17 to 2018-19 and bought notes for the above period for arriving at the satisfaction for the purpose of underreporting of income between the returns filed for the said assessment years in comparison to the net profit reflected in the corresponding tally accounts. Further, the assessing officer while recording satisfaction has not referred to any evidence contained in the seized material received by him from the assessing officer regarding booking of bogus purchases and sales by the appellant through dummy entities as listed in the satisfaction note. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Officer does not have any reference to incriminating materials found during search and thus, in our considered view there is no valid satisfaction as required u/s 153C to issue notice. Thus, the findings of the ld. CIT(A) in as much as annulling the assessments for assessment year 2016-17 to 2018-19 is on sound footing and does not call for any interference from our end. 44. As this stage, it is relevant to consider reliance placed on the decision of the J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onged to the assessee in the note that preceded the notice issued under it, vitiates the assessments. 46. The Hon'ble Delhi High Court in PEPSI FOODS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX (90 CCH 0059) (Del HC), while quashing the notice under section 153C held that Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i), whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut said presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction". 47. Further, it is evident from the satisfaction note that apart from saying that the documents belonge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the impugned dispute are that the AO has made additions towards difference in profit as shown in the return of income filed by the appellant and income as per seized tally account on the ground that the assessee has under stated net profit for assessment years 2010-11, 2015-16 to 2018-19. The details of difference computed by the Assessing Officer are as follows: AY Income as per seized tally(In. Rs) Income as per ITR (In. Rs) Unaccounted income (In.Rs) 2010-11 11,90,330 1,67,37,040 1,55,46710 2015-16 6,58,68,130 6,60,00,000 1,31,875 2016-17 8,46,79,820 8,49,99,999 3,20,182 2017-18 7,77,42,660 7,77,00,000 2,57,344 2018-19 11,40,73,496 11,40,99,650 4,596 51. The CIT-DR, submits that the ld. CIT(A) erred in deleting additions made by the Assessing Officer towards unaccounted income, being difference between net profit as per tally and income reported in ITR without appreciating fact that the employees of the appellant in their statement recorded u/s. 132(4) of the Act admitted that there is under reporting of income in the ITR filed for the relevant assessment year. The CIT(A) without appreciating relevant facts simply deleted the additions made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d electronic device and net profit reported in ITR filed for relevant assessment years. The ld. Counsel for the assessee took us to paper book which contains ITR filed for the assessment year 2015-16 to 2018-19 and explained, how the Assessing Officer fundamentally went wrong and from the explanation of the assessee, we find that the difference noticed by the Assessing Officer is on account of providing depreciation and disallowance of certain inadmissible expenses and thus, we are of the considered view that the assessee has explained difference noticed by the Assessing Officer with necessary evidences. The CIT(A) after considering relevant facts rightly deleted additions made by the Assessing Officer. Therefore, we are of the considered view that there is no error in the reasons given by the CIT(A) to delete additions towards difference between net profit as per tally and income as per ITR for assessment year 2010-11, 2015-16 to 2018- 19. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 55. The next issue that came up for our consideration from ground no. 3 to 3.3 of revenue appeal is addition towards undisclosed income arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out keying in the quantitative details. 57. During the course of assessment proceedings, the Assessing Officer analyzed details of consumption of major raw materials taken from Mr. M. Yuvaraj, Deputy Manager (Production) and on analysis, it was noticed that purchases through bought notes in cash were at higher market price and simultaneously sales for the same is also booked at a much lower price. The Assessing Officer on the basis of various incrimination material found during the course of search, coupled with statement recorded from various persons, observed that bogus purchases were booked though bought notes. In order to verify and understand the veracity of bought note seized, a random set of bought notes were selected and compared with tally accounts seized in the case of M/s. CFI for the financial year 2014-15 and it was found that the assessee has booked bought notes purchases under the head exempted purchase category. The Assessing Officer further observed that bought notes purchases were not supported by necessary evidences including GRN, weighment slip etc. Further, there is a huge variation in purchase quantity and quantity consumed in production process. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unsustainable on facts. The CIT(A) directed the Assessing Officer to delete additions made for AYs 2015-16 to 2016-17 towards the unaccounted income arising from bogus bought note purchases and corresponding sales by holding that the observation of the Assessing Officer with regard to weighment slip, GRN and lorry receipt is hypothetical, because if you go through the process employed by the assessee for purchase of raw materials, it was very clear that bought note purchases are directly procured from farmers on 'as is where is' condition which are not supported by documents like weighment slips, GRN and lorry receipts like purchases from traders. The CIT(A) further observed that the observation of the Assessing Officer with regard to bought note purchases from APMC is completely contrary to facts on record, because it is impossible to imagine bogus purchases can be made from APMC which are regulated bodies from various state governments. The CIT(A) had also negated observation of the Assessing Officer with regard to variation in quantities of purchases and consumption and countered the findings of the Assessing Officer with facts on losses in production process including storage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer to make additions towards unaccounted income arising out of bought note purchases and sales is sworn statement of Mr. Gnanasekaran & Mr. Thiruvenkata Prabhu, obtained during the course of search under coercion which were all subsequently retracted and said statements cannot be considered as valid evidence for making additions. The Counsel for the assessee further submits that the Assessing Officer completely erred in rejecting the purchase made under bought note and AMPC and the sales made through agents in the market without understanding the business model of the assessee. Further, the Assessing Officer has made additions towards unaccounted income from the books of accounts maintained by the assessee for these assessment years without appreciating fact that bought note purchases and sales are accounted in regular books of accounts and purchases and sale has been accepted by the Sales Tax Department. The ld. Counsel for the assessee further submits that the main business of the assessee is to supply nutrition food and other food supplements to various government departments. The Assessing Officer failed to appreciate that but for these purchases, the appellant cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohan pertained to the purchases made from registered dealers/manufacturers only and the same is not applicable to purchases made through bought notes, in view of the fundamental difference in the nature of the said two types of purchases. None of the said steps in the purchase process explained by Shri. Rajaram Mohan are relevant for the purchases made from the farmers at the farm level by making payment in cash, in view of the completely different commercial nature of the said purchases. 63. Further, bought notes are used for making purchases of agricultural commodities from the farmers through their agents at the farm level itself on "as is where is" basis. Since, the weighment of the commodity is made by the farmers/agents themselves at the farm level in the presence of the purchase executives of the appellant, no party weighment slip is necessary for such purchases. It is also explained that as the material is procured on "as is where is" basis and the goods are lifted after making necessary payment in cash, the GRN is not necessary for such purchases and no GRN is prepared by the stores in-charge for such purchases, since the payment has already been made in cash at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the stage of receipt of goods. The "sample for lab test" slip in blue colour is used for sampling of materials purchased from registered dealers & FCI and the "sampling details" slip in pink colour is used when the raw materials are issued for production. Similarly, the pink slip contains details such as shift/batch number, number of batch mixes, number of bags, quantity of total production, quantity taken for sampling etc., which clearly shows that the same is used for testing the raw material at the time of issuing such material for production. Therefore, the observations of the Assessing Officer to drawn adverse inference against the assessee on the basis of different colour slip used for different purposes are devoid of merits. 65. We further noted that no bought notes pertaining to the assessee have been seized during the course of the search and the assessing officer has wrongly generalized his observations in the case of M/s CFI to the assessee. Therefore, the discussion made by the assessing officer is not at all relevant to the assessee in the absence of seizure of bought notes of the appellant. Further, the net amount of bogus purchases and sales for the purpose of qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished by the assessing officer in the remand report. From the above, it is very clear that the addition towards unaccounted income arising from bogus bought note purchase and sales for AYs 2015-16 and 2016-17 is merely based on the statement of Shri. Gnanasekaran and without the verification of its correctness by the assessing officer and without affording opportunity to the appellant to explain the adverse material in violation of principles of natural justice and thus, addition cannot be sustained". We further noted that the assessing officer did not make any enquiries with the suppliers from whom the bought note purchases have been made or the buyers to whom cash sales have been made and did not bring any evidence on record in support of the inference of bogus purchases and sales on the basis of such enquiries. Thus, the addition seems to have been made based only on the suspicion and surmise basis and not on the basis of any concrete enquiry. 67. At this stage, it is relevant to refer to the findings of the special auditor's report in this regard. In the audit findings furnished in the audit note, the special auditor has given a finding that the net profit as per the final ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 and 2018-19. The brief facts of the impugned dispute are that the assessee is engaged in trading of Eggs, Dhal and Sugar etc. and supplies to the Government under the ICDS and Noon Meal Scheme. Apart from the above, the company is into the trading of agro commodities. The Assessee procures eggs from small and medium farmers at the farm gate on as is where is basis, as well as through traders. The eggs so procured are then subjected to grading in order to match the contract specifications. The eggs which do not comply with specifications are removed from the lot and the remaining lot is sent for dispatch. The average percentage of rejection of eggs due to small size eggs, breakage etc., would be in the range of 30-40%. To procure agro commodities the main sources are farmers, traders, commission agents, local market purchases made through executives/staff and through allotment as per tender. For purchases of eggs from farmers/traders, no Purchase order/weighment slip/quality records/ GRN are required and it is not regular trade practice and is on cash and carry basis only. Logistics expenses like transportation, loading and unloading gunny bags, trays for eggs etc., are also invar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk. He furnished a list of dummy entities with which bogus purchases and sale entries are made by the appellant in response to Q.No.18. He was requested to quantify the year wise unaccounted income of the appellant based on the responses given by him regarding bogus purchases and sales and in response to Q. No 19, he furnished the following quantification of undisclosed income with regard to AY 2017-18 and 2018-19 involving purchases and sales through dummy entities: AY Quantum of addition (in Rs.) Remarks 2017-18 88,41,79,695/- Net of bogus purchase & bogus sales using dummy entities 2018-19 95,20,41,762/- Net of bogus purchase & bogus sales using dummy entities 70. Further, Shri. Vannakannan confirmed the aforesaid computation of unaccounted income in his statement recorded u/s 132(4) on 08.07.2018. The excerpts of the said statement of Shri. Vannakannan on this issue were shown to the Shri. T.S. Kumarasamy, Proprietor of M/s CFI and he confirmed the said excerpts in his statements recorded u/s 132(4) on 08.07.2018 and 09.07.2018. Further, the required cash has been arranged by transferring money from the group concerns to the dummy entities as advance/payment to credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering relevant submissions of the assessee and also taken note of various facts deleted additions made by the Assessing Officer towards unaccounted income arising out of purchases and sales through dummy entities by holding that the reasons given by the Assessing Officer to make additions towards difference between purchases and sales through dummy entities is unsustainable on facts. Being aggrieved by the CIT(A) order, the revenue is in appeal before us. 72. The CIT-DR, Shri. M, Rajan, submits that the CIT(A) is erred in deletion of addition made towards unaccounted income in respect of bogus purchases through dummy entities and corresponding bogus sales to suppress income without appreciating fact that the partners of 28 dummy entities and the 1317 individual suppliers of such entities are the employees/ex-employees of the appellant or his group concerns or their friends and relatives. The CT-DR, further submits that the assessee used the names of his employees and their relatives to float dummy entities for the purpose of booking bogus purchases and sales which is evident from the facts gathered during the course of search, where the department has unearthed the modus op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted and thus, same cannot be considered as valid evidences. The CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and their order should be upheld. 74. We have heard both the parties, perused the material available on record, and gone through orders of the authorities below. The Sole basis for the Assessing Officer to make additions towards unaccounted income arising from bogus purchases through dummy entities is statement recorded from Shri. M Karthikeyan on the date of search on 07.07.2018 and computation of unaccounted income from bogus purchases through dummy entities. We have given careful consideration to the reasons given by the Assessing Officer, in light of arguments of the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for simple reason that, except statements from Shri. M Karthikeyan and other employees of the appellant, there is no details with the Assessing Officer with regard to commodity wise breakup of the quantum of bogus purchases and sales through dummy entities. The statements of employees were recorded during the course of search in a hurried manner and no details as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made and the reasons and specific evidences found during the search to hold that the said entities are dummy entities. The assessing officer made a sweeping observation that the said sales were made to dummy entities, without even adverting to who the said dummy entities are and what are the features/characteristics which made them liable to be treated as dummy entities. The assessing officer has solely and merely relied on the statements of employees of the appellant concern that bogus sales are booked for the purpose of matching the quantity of bogus purchases through dummy entities and that such sales are booked at lower value than the purchase cost. However, no material has been brought on record by the assessing officer regarding the persons to whom such bogus sales, if any, are made with necessary evidence. The assessment order does not mention regarding any enquiries made with any of the alleged dummy entities to whom the sales were made. It appears that the assessing officer has treated all the sales other than sales made to Government entities as bogus sales in a sweeping manner. The said action of the assessing officer is arbitrary and devoid of any merit. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is silent regarding the differentiation in the type of lab test report between the actual purchases and bogus purchases, in respect of the purchases made from alleged dummy entities. Therefore, we are of the considered view that no adverse evidence was found during the search in respect of the documentation maintained by the appellant in respect of purchases made from registered dealers, which could reveal that the purchases made from alleged dummy entities are bogus as opposed to the purchases made from other registered dealers. 78. We further noted that it was the claim of the assessing officer that the funds transferred by the appellant to the dummy entities, which are in turn transferred by the dummy entities to the bank accounts of the 1317 individual dummy suppliers are withdrawn by the staff of the finance department from the bank accounts of the individual suppliers by using pre-signed bearer cheques of the said individual suppliers. However, it is noticed that the assessing officer has solely relied on the statements of employees and did not bring any corroborative evidence on record by making necessary enquiries with the bank authorities regarding the identity of the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that on verification of acknowledgement of returns of income of the dummy entities, it is noticed that their returns were also not filed from the said IP address and concluded that the allegation made by the assessing officer in the assessment order in this respect is factually incorrect. 80. With regard to the matter of partners of the 28 entities and the 1317 individual suppliers of such entities are either the employees/ex-employees of the appellant or his group concerns or their friends or relatives, the appellant explained during the course of the assessment proceedings that he has been promoting his employees and others to venture into business for mutual benefit and that the same should not be viewed adversely by the department. During the course of the appellate proceedings, the appellant elaborated the same and stated that he encouraged his employees to start their own business venture which could be beneficial to the employee as well as to the appellant's business. He stated that it is beneficial to his business to have supplier entities owned by his employees/former employees or their relatives/friends since the appellant is assured of certainty of supplies in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons due to their personal acquaintance. Therefore, from the above it is not correct to draw any adverse of the purchases made from the 28 entities based on the fact that former employees of the appellant are the partners of the said entities and those entities are in turn making purchases from individual suppliers who are either employees or former employees of the appellant or their relatives or friends. 82. In the assessment order, the assessing officer placed reliance on seizure of the complete set of pre-signed cheque books of all the 28 entities and 1317 individual suppliers from the corporate office premises of M/s CFI during the course of the search, to state that funds are transferred by the appellant and other group concerns to the 28 dummy entities in the guise of payment for purchases which were in-turn transferred by the said entities to the accounts of 1317 dummy individual suppliers and the cash was withdrawn by the staff of the finance department of M/s CFI using pre-signed cheques of the said individual suppliers, which are in the possession of M/s CFI. The assessing officer also relied on the statements of 1307 individual suppliers which were claimed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of issuing summons u/s 131(1A) is for pre-search enquiries. If after completion of the search the DDIT/ADIT issues summons u/s 131(1A), it means that he suspects that the person has concealed the income. If no action is taken after recording the statement u/s 131(1A), it is to be concluded that there is no reason to suspect that income has been concealed as there cannot be an occasion in law to virtually carry out the same act once again by the same authorities by issuing summons u/s 131(1A), after having exercised the powers as mentioned u/s. 132. In this case, if you go through the manner in which the so called statements are recorded from 1317 persons/entities, it is abundantly clear that the department created fabricated evidences to implicate the appellant. This is further strengthened from the fact that the suppliers in their statements, while replying to the query whether they supplied goods to the Christy Friedgram Industry, all of them stated that they did not supply goods to Christy Friedgram Industry. This was true as they had supplied goods to so-called- dummies and not to Christy Friedgram Industry. It is to be noted here that there were neither any questions as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers, baring the statements recorded on the last day i.e 29.08.2018. Considering the fact that the statements contained 21 questions each, it is not possible to record more than 30 statements by an officer in a day even if it is considered liberally that each statement may consume 20 minutes and the exercise was carried out continuously without a break for 10 hours in a day. The fact that the number of statements recorded by an officer in a day is abnormally high compared to the said reasonable number, the only conclusion that can possibly be drawn is that the statements were recorded in a pre-determined manner without seeking the responses of the deponents to ascertain the true facts. It appears that the answers to various queries were recorded as per the standard templates which were already prepared, except for the personal details of the deponents". 85. As regards, the pre-signed cheque books of all the 28 entities and 1317 individual suppliers seized during the search from the corporate office premises of Christy Friedgram Industry, the appellant contended before the assessing officer that the persons of the 28 entities and the 1317 individual suppliers were forcibly cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd any shadow of doubt. Similarly, the statements of the said 1307 persons to the effect that their bank accounts were being operated by CFI and other group concerns cannot be regarded as voluntary and reliable, particularly for the purpose of drawing any adverse conclusion against the appellant. Having regard to these critical aspects, which have a significant bearing on the integrity and reliability of the relevant seized material and the statements, it is held that the said evidences cannot be taken into cognizance for arriving at any adverse inference against the appellant with regard to the issue of bogus purchases through dummy entities and the modus operandi of withdrawing the amount paid towards such purchases through banking channel from the bank accounts of the individual suppliers (of the dummy entities) using pre-signed cheque books of the said persons. Therefore, we are of the considered view that reliance placed by the assessing officer on the said seized material and statements is not correct. 86. At this stage, it is very important to consider the observations of the Special Auditor with regard to the books of accounts maintained by the assessee and its correctness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er mistaken belief of facts, wherever it was found based on the evidences available in the seized material that the contents of the statements are factually erroneous/contrary to the seized material. The revenue has not specifically rebutted the said findings of the CIT(A). The revenue has also contended in the grounds of appeal that the CIT(A) failed to appreciate that partners of 28 dummy entities and 1317 individual suppliers are the employees/ex-employees/ their relatives/friends and erred in accepting the explanation of the assessee that they were encouraged to start their own business ventures which is beneficial to them as well as the assessee though it is only an afterthought to cover up the bogus transactions. In this regard, it is noted that the CIT(A) has given detailed reasons backed by relevant facts from the financial statements for accepting the explanation of the assessee. The revenue has not disputed the correctness of such reasons with relevant facts and evidences and has merely termed the explanation of the assessee an afterthought without any basis. 88. The revenue also contended in the grounds of appeal that the CIT(A) failed to appreciate that the IT returns, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer to delete the additions of Rs. 88,41,79,695/- & Rs. 95,20,41,762/- for AY 2017-18 and AY 2018-19 respectively, towards the unaccounted income arising from bogus purchases and sales through dummy entities. 90. The next issue that came up for our consideration from assessee appeal for the assessment year 2015-16 to 2018-19 is enhancement of assessment and consequent addition u/s 69C of the Act, towards unexplained expenditure quantified by the special auditor in their second audit report submitted u/s 142(2A) of the Income Tax Act, 1961. 91. The brief facts of the impugned dispute are that during the course of search, at the corporate office of the appellant, two pen drives were found and seized on 06.07.2018 vide Annexure- ANN/VP/ED/S14 from the cabin of Shri Harihara Krishnan, AGM (Finance). On verification of pen drives, it was observed that the pen drives contained data of various receipts and payments of appellant and other group entities. In the statement recorded u/s. 132(4) of the Act on 06.07.2018, Shri. Harihara Krishnan confirmed the contents of the pen drive are maintained by him and the same represents unaccounted cash expenditure incurred by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, unaccounted income from bought note purchases and bought note sales and also unaccounted income arising out of purchases through dummy entities, and the balance amount of unexplained expenditure of Rs. 687.25 Crores (Rs. 2056.76 Cr Minus Rs. 1351.84 Cr) has been added u/s. 69C of the Act, in the hands of Shri. TS Kumarasamy for Asst. Years 2009-10 to 2018-19. Before the first appellant authority, Shri. T S Kumarasamy challenged addition made by the AO towards unexplained expenditure u/s 69C of the Act. The CIT(A), for the reasons stated in their appellate order in the case of Shri. T.S. Kumarasamy, held that the quantification of unaccounted expenditure as per Erandumthall at Rs.2056.76 crores is not sustainable on facts and consequently, the amount of unexplained expenditure of Rs. 687.25 crores assessed in the hands of the Shri. TS Kumarasamy, which is derived from the Erandamthall, is also unsustainable and thus, directed the AO to delete additions u/s 69C of the Act for all assessment years. However, the CIT(A) accepted the findings of the second special audit report dated 15-04-2021 and quantification of aggregate unexplained expenditure of the appellant and 3 other associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has made quantification of unexplained expenditure at Rs. 2056.76 crores and has also made additions of Rs. 687.25 crores in the hands of Shri. TS Kumarasamy. However, the CIT(A) without any valid reason deleted additions made u/s. 69C of the Act in the hands of TS Kumarasamy and enhanced the assessment on the basis of special audit report, where the auditor has quantified unexplained expenditure of Rs. 211.37 crores without any basis. The CIT(A) without appreciating fact that unexplained expenditure quantified by the special auditor is unscientific and on estimation basis, enhanced the assessment to Rs. 211.37 crores and apportioned to the assessee and other three associates. Therefore, he submits that if at all unexplained expenditure needs to be apportioned to all four entities, then total unexplained expenditure quantified at Rs. 2056.76 crores needs to be apportioned to the appellant and other three entities. Therefore, he submits that the directions given by the CIT(A) in this regard should be set aside and additions made by the AO in the hands of T.S. Kumarsamy should be upheld. 95. We have heard both the parties, perused the materials available on record and gone thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) directed the AO to delete addition u/s 69C for the reasons that, when the appellant requested the AO during the course of the assessment proceedings to provide the details of the working of the alleged unaccounted expenditure of Rs. 2056.76 crores from the contents of Erandamthall for necessary verification and explanation, the AO failed to provide the details of working of unexplained expenditure. Further, during appellate proceedings, the CIT(A), called upon the Assessing Officer to furnish necessary workings for arriving at unaccounted expenditure, but the Assessing Officer did not furnish any evidence. From the above, it is clear that there is no working with the AO to substantiate his claim that the assessee and their employees have furnished working of unaccounted expenditure of Rs. 2056.76 crores which is clear from remand report submitted by AO, where the AO shifting onus to the assessee to prove how working arrived at during search is wrong. In our considered view, the primary onus is on the AO to prove the addition with evidence, because it is the AO who made the additions of Rs. 2056.76 crores and claimed that the appellant and their employees had furnished the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile books of the assessee with Erandamthall and where ever possible identified the entries in Erandamthall with books of accounts. For remaining entries in Erandamthall, the special auditor observed that those entries are not identifiable to any individual assessee or entity. The source of debit or receipt of money is not identified, whether it is received in cash or bank. Further, there is no details with regard to nature of debit/receipt whether it is a capital, loan or income. Further, there is no details as to from whom and for what purpose the amount is received. Similarly, in respect of credit or payment entries no details available with regard to nature of payment, whether it is repayment of loan, payment for purchase of any assets or expenditure incurred in the ordinary course of business. Further, there is no details, as to whom and for what purpose the amount is paid. From the above, it is very clear that the unidentified entries in Erandamthall neither can be considered as accounting entries which reflect transaction in the normal course of business nor it can be considered as expenditure incurred in the course of business and thus, based on entries in Erandamthall addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the examination of 'ErandamThall' was carried out in tune with the scope of work specified in the AO's reference. The Auditor further stated that though the entries in the Erandamthall make it fit enough to be treated as a dumb document when examined in the light of accounting principles and widely accepted accounting concepts, he made certain assumptions in order to carry out the scope of work as entrusted by the AO to compare and match the entries of Erandamthall with the books of accounts of the appellant and 3 other group entities. The special auditor stated that the following methodology has been adopted for identification and matching of entries in Erandamthall with the books of accounts of the appellant and 3 other group entities as per the scope of the work: i. In order to compare the entries of Erandamthall with the seized books of accounts of the 4 entities, the cash book from the seized tally was extracted in the case of all the 4 entities and the contra entries therein have been removed. The same have been furnished in annexure 1(a) to 1(d) of the report. ii. Since the entries in 3 different excel sheet are interlinked, the same were compiled into one consolidated f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the inflow entries of Erandamthall such as "Salem Foods", "Elayaperumal", "Waste Sales", "Green Trading & Co", etc., are found matching to the nearest approximation with the cash sales reflected in the books of account. Such entries have been marked as "cash sales" under the column "nature of entry" in the consolidated file shown in Annexure 4. xi. With respect to the entry in Erandamthall with the narration "cash withdrawn: Syn + KVB + IBNallur + IB + SBI" on 28.03.2017 with the figure Rs. 65675, it is observed that the same matches with the sale receipts received through the bank account. Further, the consolidated receipts of such sales of these entities (shown in Annexure 6) and the consolidated entries of the above said nature of narration in Erandamthall were cross verified and were found matching. Such entries have been marked as "cash sales" under the column "nature of entry" in the consolidated file shown in Annexure 4. xii. After removal of the contra entries, the entries with narration "blend supply exps", "Jaggery", "Kavundapadi market" were identified and found matching with the nearest date or on the same date of the books of the account of Christy Friedgram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally extract is higher than the value arrived in Erandamthall for both the cash inflow and cash outflow, which establishes that the entries in Erandamthall are subsumed in the seized tally data. iii. It is observed that there is no separate sources of fund for the Erandamthall, other than the sources available in the books of account of the 4 entities. iv. It is observed that the identified bank accounts and sources of the inflow are disclosed in the seized tally books of account of the respective entities. The identified bank accounts cited in Annexure 5 and other sources of inflow such as cash sales, are reflected in the seized tally books of accounts and the cash sales have been reported in the sales tax returns as well. On verification of income tax returns, it is observed that the sources of inflow as per seized tally accounts and identified bank accounts are reported. v. With regard to the assessee wise sources for the inflow of funds in Erandamthall, it is observed that the entries do not comply with the fundamental accounting principle of "entity concept". The entries do not specify the entity to which they pertain to. In view of this, the cash inflows in Erandamthall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id manner only for the period after the demonetization in November 2016 as the said entities have made disclosures under PMGKY for the earlier period. (The details of the assessment year wise estimation of undisclosed income in respect of each entity made in the first special audit report dt 03.12.2020 are provided in the tables shown below point (d) at para 461 of the appellate order). v. Due to unreliability of Erandamthall, the undisclosed income arrived at in the first special audit report dt03.12.2020 may be accepted. However, if the revenue accepts the Erandamthall, the undisclosed income arrived at and enhanced in this report can be relied for assessing the income of the 4 entities for various financial years. 101. We have carefully considered observations of the special auditor in their audit report dt. 15.04.2021, and we, find that there is no separate source of funds for Erandamthall, other than the sources available in the books of the account of the 4 entities. It was further noted that except for the entries marked as "unidentified", all other entries of cash inflow and cash outflow in the Erandamthall were matching with the entries in the seized tally books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant's contention regarding the mechanical manner of adopting the quantification of unaccounted expenditure made during the course of search, without addressing various objections and contentions of the appellant. The report of the special auditor obtained by invoking the provisions of the Act could not have been ignored and disregarded by the AO, without specifying the reasons for doing so in the assessment orders. Although, the AO had given his own reasons for rejecting special audit report, but in our considered view, the AO rejected special audit report on vague reasons just to substantiate addition made u/s 69C of the Act. In our considered view, the report has been prepared after making a very detailed, thorough, in-depth and scientific examination of the entries in Erandamthall and comparison of the same with the books of account of the appellant and the other three group entities as per the scope of work assigned to him by the AO. The contra entries and transfer entries were identified using well defined parameters in conformity with accounting principles for such identification and the same were excluded from further consideration. The analysis made earlier has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said entities. The special auditor has also identified and matched a large number of cash outflows from Erandamthall with the corresponding business expenses recorded in the books of account by way of purchases, direct expenses and indirect expenses. The special auditor has furnished the identified and matched nature of each entry of cash inflow and cash outflow in Annexure 4 to the special audit report. The special auditor has also cross checked the sources of inflow into Erandamthall including the withdrawals from the bank accounts with the returns of income of the four entities and has given his finding that the same are reported in the said returns, except the unidentified entries. The entries of cash inflow and cash outflow which could not be identified and matched with the seized tally books of account of the 4 entities have been marked as "unidentified" in Annexure 4 and the said entries have been separately extracted in Annexure 8 to the special audit report. 104. We further, noted that all the entries found in Erandamthall (after excluding the contra entries) were found to be matching with the relevant sources of cash inflow, bank withdrawals and expenses recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have carefully gone through arguments of the assessee in light of observations of the special auditor, and we find that although, various assumptions made by the special auditor are logical, reasonable and in tune with normal characteristics associated with cash transactions, but when it comes to treating unidentified entries in Erandamthall as unexplained expenditure, we do not agree with suggestion made by the special auditor for simple reason that, in search assessment, addition can be made only on the basis of incriminating materials found during the course of search. Further, there is no scope for estimation of undisclosed income on adhac basis and also by extrapolating to various assessment years. In order to make additions, incriminating materials qua each assessment year is must and this principle is supported by the decision of Hon'ble supreme court in the case of CIT vs. Sinhgad Technical Educational Society [2017] 397 ITR 344 (SC), wherein it was held that the seized material should have co-relation with the assessment years for which the notices u/s 153C were issued and that the notices are not legally sustainable for the assessment years for which there is no such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.P. Karthikeyan found in the panchnama dated 06.07.2018 and seizure annexures dated 05.07.2018 pertaining to the search at his residence. It is submitted that the said invalid certificate should not be taken into consideration and consequently, the electronic record represented by Erandamthall is inadmissible as evidence due to non-compliance with the mandatory requirements of section 65B of Indian Evidence Act. Therefore, the appellant submits that the unmatched expenditure of Rs. 211.37 crores computed in the special audit report on the basis of such inadmissible evidence in the hands of the appellant and three group entities is unlawful and the reliance placed by the CIT(A) on such finding in the special audit report for the purpose of directing that an amount of Rs. 34.70 crores apportioned to the appellant out of the said amount of Rs. 211.37 crores be treated as unexplained expenditure u/s 69C in the hands of the appellant is also legally invalid. 107. Having heard both the sides, we finds that, there is no merit in argument of the assessee on the issue of correctness of imaging taken from Erandamthall in light of provisions of section 65B of the evidence Act, because the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee or entity. The source of debit or receipt of money is not identified, whether it is received in cash or bank. Further, there are no details with regard to nature of debit/receipt whether it is a capital, loan or income. Further, there are no details as to from whom and for what purpose the amount is received. Similarly in respect of credit or payment entries no details available with regard to nature of payment, whether it is repayment of loan, payment for purchase of any assets or expenditure incurred in the ordinary course of business. Further, there are no details, to whom and for what purpose the amount is paid. From the above it is very clear that, unidentified entries in Erandamthall neither can be considered as accounting entries which reflect transaction in normal course of business nor it can be considered as expenditure incurred in the course of business, and therefore based on entries in Erandamthall addition cannot be made towards unexplained expenditure u/s 69C of the Act. In our considered view, in order to bring any amount within the ambit of provisions of section 69C of the Act, it is very important to identify the nature of expenditure and the entity to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment or expenditure must be conclusively established by evidence and/or material on record by the Assessing Officer. If the revenue cannot, or fails to prove, there cannot be any addition. The primary onus is thus, on the revenue. In the present case, if you go through the findings of the special auditor in their audit report issued u/s. 142(2A) of the Act, coupled with reasons given by the CIT(A) to enhance the assessment and direct the Assessing Officer to make additions u/s. 69C of the Act towards unidentified entries in Erandamthall, we find that there is no conclusive evidence with the department/revenue to allege that the assessee has incurred expenditure and the source for the same has not been explained. As we have already noted in earlier paragraph of this order, unidentified entries in ErandamThall are neither linked to any entity or assessee nor the Assessing Officer or CIT(A) claims that the assessee has not explained the source. From the findings of the special auditor itself, it is very clear that the source for Erandamthall is from withdrawal from bank, receipt of sale proceeds which has been already recorded in the regular books of accounts maintained by appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir report dated 15.04.2021, submitted their audit report on correctness of Erandamthall and also verified the entries recorded therein. The Assessing Officer rejected Special audit report submitted by the auditor by stating that the special audit report suffers from infirmities in so far as the Special Auditor had to rely on the information furnished by the assessee itself which are false and contradictory and as evident from the ITR opening and closing balances and tally data seized during the course of search. The Assessing Officer, further observed that the special auditor who is not privy to the confidential findings of the search could not provide a true and correct picture, as the assessee's modus operandi of manipulation was not in the domain of knowledge of the special auditor. Further, the special auditor has done backward working of the entire accounts, making assessment year 2009-10 as the base year and build the accounts for the rest of assessment years. Therefore, the Assessing Officer rejected special audit report submitted by the auditor and financial statement prepared for the relevant assessment years by stating that the Assessing Officer is not binding on the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect. 113. The ld. Counsel for the assessee Shri. D. Anand, Advocate, supporting the order of the CIT(A) submits that it was the department and the Assessing Officer who had sought the special audit of the books of accounts of the assessee by stating that special audit of books of accounts is required considering the voluminous data and complexity of accounts of the assessee. Further, the special auditor has been appointed by the department from the panel of auditors maintained by the department having considered their expertise knowledge and experience in the field of audit. The scope of audit work has been given by the Assessing Officer. Therefore, it is incorrect on the part of the Assessing Officer to reject the special audit report submitted by the auditor by stating that the special auditor is not having knowledge of modus operandi of manipulation of accounts by the assessee. Further, the observation of the Assessing Officer that he is not bound by the findings of the special audit report is incorrect because when the department has directed the assessee to get its accounts audited in terms of section 142(2A) of the Act, the Assessing Officer is bound to consider the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the powers of the AO to make enquiries and gather any adverse evidences in respect of the said transactions for drawing different conclusions. However, the AO has not conducted a single enquiry with the suppliers of the alleged bogus purchases or the buyers of the alleged bogus sales and has merely sought to rely on the statements of the employees recorded during the search. Having not exercised his powers to make such enquiries, it is not correct on the part of the AO to discredit the report of the special auditor on the ground that he has made independent enquiries beyond the mandate of the special audit. 115. The terms of reference of the special audit included preparation of final accounts for AY 2009-10 to 2018-19 and accordingly the special auditor prepared the final accounts for the assessment years under consideration. While rejecting the special auditor's report, the AO cited one of the reasons that the books of account were prepared by the special auditor by making AY 2009-10 as the base year and by adopting the closing stock AY 2008-09 as opening stock of AY 2009-10 and proceeding to build the accounts for the remaining years. The AO stated that the accounts so prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material for production of weaning food, blend of critically processed material etc., as shown in the seized tally accounts of the assessee was cross verified with the formulations of respective products as per the terms of the tender document. The special auditor stated that the yield of each raw material used in the production has been computed as per the formulation specified in the tender document and the material wastage has been cross verified with the standards provided under Food Safety and Standard Regulation. Thus, it is seen that the remarks of the AO with regard to the backward working of raw material consumption is not in tune with the methodology adopted in the special audit report. Similarly, as regards the observation that the quantum of production of finished goods and sales have been manipulated by the appellant as per the findings of the search and the said quantum could not have been considered by the special auditor for the purpose of working out the quantum of raw materials consumed in production, we find that the said observation of the AO in the assessment order does not contain any references to evidences in the seized material which reveal manipulation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alisation of the accounts of the appellant and 3 group entities. As could be seen from the proposal submitted by the AO, it was considered necessary by him to refer the matter of examination of the contents of Erandamthall with reference to the books of accounts of the appellant and 3 entities of the group to the special auditor, in view of the dispute raised by the appellant with regard to placing reliance on Erandamthall. The same is a clear evidence of the fact that the AO was not satisfied with the correctness of the quantification of unaccounted expenditure made from the contents of Erandamthall during the course of the search on account of the objections of the appellant and he considered it necessary and expedient to refer the matter to the special auditor for fresh examination of the contents of Erandamthall with reference to the books of account. The Pr.CIT too expressed the view, while approving the proposal of the AO, that a correct picture regarding the real undisclosed income would be arrived at once the examination of the contents of Erandamthall is made by the special auditor. These facts leave no doubts in our mind that both the AO and the Pr. CIT were of the unanim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making reference to the special auditor indicates that it is only when complexity in accounts is found, that an expert of accountancy having specialized skill is engaged to examine the books of accounts. The special auditor appointed by the Department is from the panel of special auditors maintained by the Department and such panel has been maintained considering the experience and expertise of the auditors. Further, the special auditor works under the department and carries out the audit work as per the scope of work specified in the appointment letter. Therefore, when the Assessing Officer has sought special audit report on the financial statements of the assessee and books of accounts from their own empanelled auditors, then the Assessing Officer cannot simply reject or discard the special audit report merely for the reason that the findings in the special audit report is adverse/contrary to the appraisal report submitted by the investigation wing. If you see the intention and purpose behind the introduction of special audit in the statue, the purpose is to assist the Assessing Officer to determine correct taxable income of an assessee from the books of accounts and other d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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