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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 ..... was lot of deliberations on draft assessment order passed by the AO, 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 undisclosed income arising out of bogus bought note purchases and sales and undisclosed income arising from bogus purchases through dummy entities. In the note submitted to the AO, 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 assessment years. Likewise, the Addl. CIT had also discussed the issue and gave directions to the Assessing Officer to resubmit the draft assessment order. Therefore, it cannot be said that approval granted u/s. 153D of the Act, is mechanical and without application of mind Internal correspondence between the AO and the investigation officer is confidential and extended part of appraisal report, which cannot be shared with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessment for Asst. years 2010-11 and thus, we reject grounds of appeal filed by the revenue and uphold the order of the CIT(A) for Asst. year 2010-11. Validity of notice u/s. 153C - In this 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. CIT(A) after considering relevant facts in their order clearly held that there is no incriminating material in the possession of the AO to arrive at a satisfaction that there is undisclosed income for these assessment years to issue notice u/s. 153C 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. Validity of notice u/s. 153C and consequent assessment order on the ground that the seized electronic device has been imaged into the hard disk and from the above it is ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice u/s. 153C of the Act for assessment year 2015-16 and annulled consequent assessment order passed by the Assessing Officer for assessment year 2015-16. Accordingly, we allow the grounds of the assessee. Additions towards under reporting of income being difference between net profit as per seized tally data and ITR filed - There is no difference between net profit as per seized electronic device and net profit in ITR filed for the assessment year 2010-11. The CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and direct the Assessing Officer to delete additions towards under reporting of income. Difference between income as per ITR and income as per seized electronic device is due to the depreciation provided as per section 32 of the Act, for assessment year 2015-16 to 2017-18 and for assessment year 2018-19 it was due to disallowance of interest on TDS, EPF and GST - 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69C in the hands of the appellant by the CIT(A) is not permissible in a search assessment u/s 153C without bringing proper evidence on record as to the identity of the persons who incurred the expenditure ? - HELD THAT:- The entries in Erandamthall are not identified to any person or entity. There is no finding as to which financial year said expenditure relates to. In absence of any finding as to nature of expenditure and person to whom such expenditure belongs to, no addition can be made u/s 69C of the Act on suspicious and surmise manner. Further, it is a matter on record that the Assessing Officer has totally ignored second special audit report submitted by the auditor in terms of section 142(2A) of the Act, in respect of Erandam Thall and its contents. If the Assessing Officer had taken into cognizance of second audit report and verified the observations of the auditor with reference to Erandam Thall, in our considered view probably the Assessing Officer would have verified unidentified entries as quantified by the special auditor to quantify unexplained expenditure. Since, the Assessing Officer ignored the special audit report in total and made additions on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. However, if there is no adverse material or adverse circumstances or the findings of the Assessing Officer during assessment proceedings is contrary to the special audit report, then such report has to be considered and relied upon. In our considered view, the Assessing Officer is completely erred in rejecting/discarding the special audit report without any valid reason. The CIT(A) after considering relevant facts, has rightly accepted special audit reports submitted u/s 142(2A) of the Act, and thus, we reject grounds taken by the revenue. - SHRI V. DURGA RAO, HON BLE JUDICIAL MEMBER AND SHRI MANJUNATHA. G, HON BLE ACCOUNTANT MEMBER For the Appellant : Shri. D. Anand, Advocate Mr. R. Gopalakrishnan, Advocate Mr. V R Suresh, FCA For the Respondent : Shri. M. Rajan, CIT ORDER PER BENCH: This bunch of Nine cross appeals filed by the assessee and, as well as the Revenue are directed against common order passed by the ld. Commissioner of income tax (Appeals)-19, Chennai, dated 03-09-2022 and pertains to Asst. Year 2010-11, 2015-16 to 2018- 19. Since, facts are identical and issues are common, for the sake of convenience, these cross appeals filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961, thereby the notice and the subsequent proceedings are illegal. e. When the entire issues are pending before Authority of Advance Ruling, Mumbai, the assessment order has been passed without any jurisdiction and the same is therefore illegal. 5. The learned CIT(A) ought to have held that the entire assessment order is based on the statements of the employees and third parties were recorded during the search proceedings and the same do not carry any evidentiary value and cannot be held against the appellant as the same were retracted within reasonable time on the ground that they were pre-drafted statements obtained under coercion, threat and physical abuse and particulars and facts are contradictory within the statements, hence all such statements relied by the revenue have lost it evidentiary value, thereby the assessment order is illegal. 6. The learned CIT(A) erred in upholding the legality of the assessment order though the assessing officer proceeded to exercise the jurisdiction and pass the assessment order without complying the mandatory provisions of section 124(4) of Income Tax Act, 1961 in response to the objection to his jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961 is against law thereby the approval and the assessment order fails. h. The Addl. Commissioner failed to apply his mind that the Assessment orders have been proposed for approval is nothing but verbatim of appraisal report in terms of analysis and estimation of undisclosed income. The Addl. commissioner failed to appreciate or consider any piece of explanation submitted by the Appellant. It establishes total non-application of mind while giving approval. Hence the assessment order fails. i. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing -Officer have not provided the entry wise undisclosed income of Rs. 2056 Crs as allegedly computed by the employees and confirmed by the Appellant and imposed against the Appellant, thereby the approval and the assessment order fails. j. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing Officer has determined the undisclosed income of Rs. 2056 Crs neither based on mercantile system nor based on cash system, hence the approval fails. k. While giving the approval, the Addi. Commissioner failed to apply his mind that as agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the special audit report in respect of the contents of Erandam Thall without appreciating that the seized electronic record represented by the Erandam Thall is dumb document and it is inadmissible as evidence in view of non- compliance to the mandatory requirement of section 65B of the Evidence Act, 1872 and other mandatory requirements which are also applicable to the proceedings under the Income Tax Act. 11. The learned CIT(A) erred in apportioning the unmatched expenditure as per Erandam Thall of Rs. 211.37 crores for AV 2012-13 to 2018-19 arrived at in the special audit report dated 15.04.2021 to the appellant and three other associate concerns, purely on the basis of estimation and without giving a finding based on evidence as to the person who incurred the said expenditure, which is impermissible for making addition u/s 69C of the Income Tax Act 1961 in the assessment made u/s153C of the Income Tax Act 1961. 12.The learned CIT(A) erred in relying on unmatched entries in Erandam Thall representing the unmatched expenditure Rs. 211.37 crores for AY 2012-13 to 2018-19 quantified in the special audit report dated 15,04.2021, as the said entries were ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumarasamy Vs ACIT (98) 65 ITD 188 (Madras), the Hon'ble High Court held that no ground for coercion or duress or any ground for the involuntary statement was made by the assessee in his retraction, following the decision of the Hon'ble Supreme Court of India in the case of Shri.surjeet Singh Chhabra vs UOI (97) 1 SCC 508. 3. The Ld.CIT(A) erred in holding that the notice u/s.153C issued for this assessment year, in violation to fourth proviso to sec.153A(1) r.w.s 153C, is legally unsustainable and annulling the consequent assessment order u/s. 143(3) r.w.s.153C. 3.1 The Ld CIT(A) erred in failing to appreciate that the assessee group indulged in generating unaccounted income over the years and incurring unexplained expenditure also as a going concern. The income generated over the years was kept in the form of cash, which was evidenced by the fact that the assessee group has offered 261.29 Crores under PMGKY and IDS Scheme. 3.2 The Ld CIT(A) failed to appreciate that the assessee has kept unaccounted income generated over the years in the form of Cash, which is an asset and further as per the explanation 2 to fourth proviso to Sec.153A, definition of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Special Auditor who is not privy to the confidential findings of the search, could not provide a true correct picture, as the assessee's modus operandi of manipulation was not in the domain of knowledge of the Special Auditor. 5.3 The ld.CIT(A) erred in failing to appreciate that the Special Auditor starts with the proposition that the final product as reported by the assessee is a true and correct picture and then proceeds to work out the expenses by applying an estimate of expenses that would have been reasonably incurred to produce that amount of finished product. But it is proved in the findings of search, that the assessee manipulates both qualitative and quantitative part of production and sales. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 4. The Brief facts of the case are that, the appellant was a partnership firm registered under the Indian Partnership Act. The appellant s firm was converted into a Private Limited Company with the same partners as share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor to verify and submit report on voluminous data found during the course of search, including Erandamthall. The special auditor, vide their audit report dated 15-04-2021 has submitted supplementary audit report and commented upon the correctness and authenticity of documents found during the course of search and has also verified entries recorded in Erandamthall and further, identified unmatched/unidentified entries in Erandamthall and suggested those unidentified entries may be treated as unexplained expenditure. The Assessing Officer, has rejected the special audit report submitted by the auditor in terms of section 142(2A) of the Act, and completed the assessment on the basis of various incriminating documents found during the course of search coupled with statements recorded form the assessee and its employees and made additions towards under reporting of income towards difference between net profit as per seized tally accounts and net profit reported by the assessee in ITR Form filed for the assessment years 2010-11, 2015-16 to 2018- 19, on the ground that the assessee has under-reported its income when compared to net profit as per seized tally data. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, where in respect of assessment for assessment year, 2010-11, the CIT(A) held that assessment order passed by the AO for the assessment year 2010-11 is invalid, void, ab-initio and liable to be quashed, because in order to assess the income for a period beyond six years, there should be an undisclosed income of specified amount in terms of forth proviso to section 153A(1) of the Act. Since, the AO fails to make out a case of undisclosed income beyond specified amount in respect of this assessment year, the conditions prescribed under forth proviso to section 153A(1) of the Act are not satisfied and thus, the notice issued u/s. 153C for assessment year 2010-11, in violation of the provisions of forth proviso to section 153A(1) is bad in law and unsustainable. Consequently, the assessment order passed by the AO for assessment year 2010-11 is annulled. Further, the CIT(A), upheld notice u/s 153C and consequent assessment for Asst. year 2015-16, on the ground that satisfaction recorded by the Assessing Officer for issue of notice is valid, because the Assessing Officer had the benefit of seized tally accounts and as per said seized account, there is difference between net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 127 of the Act. In this regard, the attention is invited to the Notification No.17/2018-19 dated 29.01.2019 regarding transferring of Jurisdiction of appellant s case from ACIT, Circle-I, Namakkal to DCIT, Central Circle-2(1), Chennai. The ld. Counsel further referring to sequence of events submits that a proposal was received from Director General Income Tax (Investigation), Chennai an officer of the rank of Chief Commissioners of Income Tax addressed to Chief Commissioner of Income Tax, Trichy for centralization of appellant s case along with connected cases to facilitate co-ordinated investigation. Although, the appellant raised objections for transfer of case, the objections filed by the Appellant was not considered favorably by PDIT (Investigation), Chennai, who subsequently, vide his communication, dated 18.12.2018 addressed to DGIT (Inv), Chennai requested to centralize the appellant s case. Thereafter a Notification dated 29.01.2019 was issued by PCIT, Salem, u/s 127 of the Act, transferring appellant s case. A perusal of the above notification, it is noticed that there was no agreement evidenced in the said notification, as arrived between officers of equal rank for tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 127 of the Act is DCIT, Central Circle 2(1) whereas the person who has recorded the satisfaction and issued the notice u/s 153C of the Act is ACIT, Central Circle 2(1). Although, the assessee challenged jurisdiction of the Assessing Officer, but the CIT(A) dismissed grounds taken by the assessee without any valid reasons. 10. The ld. Counsel for the assessee further submits that the appellant challenged jurisdiction within the time line stipulated u/s 124(3)(c) of the Act. But, despite the fact that the jurisdiction of the assessing officer was challenged u/s 124(3) of the Act, no orders were passed u/s 124(2) of the Act, determining the jurisdiction of the Assessing Officer. The issue of determination of jurisdiction of the Assessing Officer in terms of section 124 of the Act, where the Appellant has specifically sought for determination of Jurisdiction was subject matter before the jurisdictional high court in the case of Abdul Azeez Haroon Vs DCIT reported in 317 CTR 610 (Mad). The Hon ble High Court found that when the Appellant has specifically sought for determination of Jurisdiction and the assessing officer has not bothered to refer the matter to the superior office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in terms of section 127 of the Act. Therefore, he submits that the arguments of the assessee on this issue also without any merits. 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered affidavits filed by the assessee and his employees and counter affidavits filed by the revenue before Hon ble High Court of Madras. The appellant had challenged notice issued u/s. 153C of the Act, in light of provisions of section 127 of the Act and argued that the requirements of section 127(2) of the Act, have not been compiled by the Department while transferring jurisdiction of the assessee from CCIT, Trichy-2, to DGIT(Investigation), Chennai. According to the appellant, the invocation of provisions of section 127(2) of the Act, itself is illegal and void and in absence of any positive agreement being arrived at by the authorities of equal rank, transfer of case to jurisdiction of DGIT(Investigation), Chennai is illegal. We have gone through the arguments advanced by the ld. Counsel for the assessee, in light of relevant provisions of the Act and as per section 127 of the Act, the Princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the counsel for the assessee for the simple reason that, as per the provision of section 153C of the Act, in the case of the person where a search is initiated u/s. 132 of the Act, the Assessing Officer shall issue notice to such person requiring him to furnish within such period the return of income in respect of each assessment year falling within six assessment years to be filed and also assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. From the plain reading of provisions of section 153A/153C of the Act, it is very clear that issuance of notice u/s. 153C and assess and re-assess the total income are not dependent on seized documents or materials. The Assessing Officer acquires jurisdiction to issue notice u/s. 153A/153C of the Act, on the basis of initiation of search and is not dependent on provisions of section 139, 147, 148, 152 153 of the Act. In the present case, the appellant is making out a case on the basis of reply furnished by the Assessing Officer to the objection filed by the assessee that, the Assessing Officer does not have the benefit of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher authorities as laid down in section 124(2) is considered to be inapplicable and thus, ground raised by the assessee on this issue for all the assessment years are dismissed. 15. The next issue that came up for our consideration from assessee and revenue appeal for Asst years 2010-11, 2015-16 to 2018-19 is validity of statement recorded u/s. 131/132(4) of the Act from various employees of the appellant and subsequent retraction and its evidentiary value. The ld. Counsel for the assessee submits that the assessing officer had relied on various statements cited in the assessment order for making the additions and the appellant had questioned the validity of the said statements. The Assessing Officer relied upon the statements of Mr. Gnanasekaran, Mr. Vannakannan, Shri Valeeshwaran, Shri. Harihara Krishnan and Shri. T.S. Kumarasamy to make various additions as basis, but fact remains that the statements from above persons have been obtained contrary to materials available on record which is evident from the fact that Mr. Gnanasekaran in response to question no 9 19 stated that he has gone through the electronic device seized during the course of search, but fact remains that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement with sworn affidavits before the Hon ble High Court of Madras and from the contents of affidavit, it is very clear that the statements have been obtained under coercion and duress. Further, the quantification of undisclosed income was also proved to be wrong. Although, the CIT(A) accepted statements recorded u/s. 132(4) of the Act, are correct wherever the admission made in the statements is shown to be contrary to other facts available on record, but the partial acceptance of statements not permissible in the eyes of law and thus, additions made by the Assessing Officer on the basis of said statements should be deleted and those statements cannot be taken as evidence. 17. The ld. CIT-DR, Shri. M. Rajan, submits that 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 DR further submits that the CIT(A) ought to have appreciated that the assessee has failed to prove that the statements were recorded under duress, coercion and other adverse circumstances. The ld. DR further referring to counter affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Inv) is incorrect and untenable. 19. We further noted that, admission in a statement recorded u/s. 132(4) of the Act, is not conclusive evidence, though it is an extremely important piece of evidence. It is open to the person who made the admission to show that the impugned statement has incorrectly being made. There are cases where the assessee on his own motion gives the disclosure of undisclosed income, however later on such an assessee may realize that such a statement was given under mistaken of facts or at times of nervousness, stress and panic and thereby, the statement so tendered does not reflect the true state of affairs. Therefore, it is very important to consider the statement recorded during the course of search u/s. 132(4) of the Act, in light of their contents with reference to incriminating materials unearthed during the course of search. In a case, where the statement recorded u/s. 132(4) of the Act is supported by corroborative evidences like incriminating material, then those statements needs to be considered on face of it, because the assessee may have given admission after analyzing the material found during the course of search. In a case, where the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut not voluntary, but the circumstantial evidences brought on record by the assessee clearly proves that the statements from various persons appears to have been taken without any reference to incriminating materials and further, even if there is some incriminating materials but those materials are not properly analyzed before taking statement from the employees. Therefore, we are of the considered view that the findings recorded by the ld. CIT(A) on this issue is well reasoned and does not call for any interference from our side. Thus, we reiterate the legal position that the retraction of the appellant and his employees and other associates persons has to be regarded as valid and acceptable, wherever the admission made in the statement is shown to be contrary to the facts available on record or seized material. Therefore, this principle has been followed while adjudicating other grounds of appeal dealing with various additions made by the Assessing Officer in the assessment order on the basis of the statement recorded during the course of search. Thus, for above reasons we reject ground taken by the assessee and as well as the revenue on this issue for all assessment years. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied seized materials and matched them with the Income Tax Returns (ITR) and upon verification, there is a difference between net profit as per seized tally and income reported in ITR filed for the relevant assessment years. It shows that there was no substance in the claim of the appellant that the tally represents the true picture and the same represent accounts relied for filing for ITR. The Addl. CIT further stated that while preparing the Special Audit Report, the special auditor has exceeded the terms of reference by conducting independent enquiries. From the above correspondences, it is clear that the Deputy CIT Central Circle-2(1) was not in agreement with findings given in the Appraisal Report. Whenever the assessing officer is not in agreement with the findings given in the Appraisal Report, the Office Procedure Manual has laid down certain procedure. It is pertinent to note that, the observations made in the Appraisal Report relating to examination/investigation as also issues identified in the course of examination of seized material were carefully considered by Addl. CIT, Central Range-2 before endorsing it to the Addl.DIT, Unit-3, Chennai. The counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings in the appraisal report are based on non-availability of certain records and admission in the sworn statements which have been subsequently retracted. The AO further observed that no discrepancies have been found in the quantitative figures of purchases, consumption and sales in the special audit. The assessing officer finally expressed his opinion in the deviation note that the undisclosed income estimated in the appraisal report on the aspect of the bought notes is not correct. The opinion of the AO, as reflected in the deviation report, is the outcome of his application of mind on all the materials available before him including the seized material, statements recorded during the search and the submissions of the assessee during the assessment proceedings. The assessee submits that the said deviation note dated 22.04.2021 submitted by the assessing officer was forwarded by the Additional commissioner to the investigation wing on 22.04.2021 along with his endorsement. It is submitted that the assessing officer subsequently withdrew the deviation note on 11.05.2021 presumably at the instance of investigation wing by stating that certain other issues and facts are to be lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.08.2021. While seeking approval, the Deputy CIT Central Circle-2(1), categorically stated that the additions has been made as stated in the appraisal report . There should be no iota of doubt that the draft assessment orders have been passed at the instance of the Investigation wing. The approval sought for the draft assessment order is in fact seeking approval of the Appraisal Report. Even the directions given in letter dated 24.06.2021 appears to be in the form of directions u/s 144A of the Act. The Addl. CIT, Central Range-2 has been forced to grant approval u/s. 153D to the assessment orders despite her clear disagreement as per the deviation note of the Deputy CIT Central Circle-2(1). Hence the approval was given in a mechanical manner, without application of mind and own reasoning, in complete defiance to the requirements of law or procedure. Therefore, he submits that entire handing over file may be called for by your good office, from the file of the AO, to verify, whenever the files had been handed over to the Addl. CIT, Central Range-2, which enlightened the truth. Therefore, he submits that the entire search and assessment proceedings are illegal and invalid in lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in section 153A(1)(b) of the Act without prior approval of Addl. CIT/Joint. CIT u/s 153D of the Act. In the present 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, from the arguments of the assessee itself, 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 undisclosed income arising out of bogus bought note purchases and sales and undisclosed income arising from bogus purchases through dummy entities. 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 assessment years. Likewise, the Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue appeal for Asst. Year 2010-11 is issuance of notice u/s 153C of Income Tax Act, 1961, for AY 2010- 11, in violation of 4th proviso to section 153A(1) of the Income Tax Act, 1961. 30. The ld. CIT-DR, Shri. M Rajan, submits that the ld. CIT(A) erred in holding that the notice u/s. 153C issued for the assessment year 2010-11, is in violation of forth proviso to section 153A(1) of the Act, without appreciating the fact that the assessee indulged in generating unaccounted income over the years and incurring expenditure also as ongoing concern. The income generated over the years was kept in the form of cash, which was declared as income amounting to Rs. 124.79 crores under PMGKY and IDS Scheme. Further, during the course of search, total cash of Rs. 16 crores was found and seized. All these evidence goes to prove an undoubted fact that there is an undisclosed income in the form of cash which was rotated in the business even for assessment year 2010-11 and this constitutes asset in terms of forth proviso to section 153A(1) of the Act. The CIT(A), without appreciating relevant facts simply annulled assessment order passed by the Assessing Officer for this assessment years, by hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice u/s 153C of the Act, for the relevant assessment year or years, being the assessment years which falls beyond six assessment years, but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted, is vested with the AO only on fulfillment of conditions laid down in the fourth proviso to section 153A(1) of the Act, which was inserted in the Act with effect from 01.04.2017 by the Finance Act 2017. This becomes very clear when the language employed in the fourth proviso is taken into consideration. The said proviso starts with the phrase that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment years or year unless followed by the enumeration of the specific conditions which need to be fulfilled. Unless the conditions laid down in clauses (a), (b) and (c) specified in the said proviso are fulfilled, the AO does not get the jurisdiction to issue notice u/s 153C for the relevant assessment year or years . 33. In light of above legal position, if you examine the facts of the present case, we find that, the assessing officer reiterated the discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 153C r.w.s 143(3) of the Act. Thus, it is seen that the said factual observation of the assessing officer in the satisfaction note is factually incorrect and not relevant to the issue of income escaping assessment for AY 2010-11. The third observation of the Assessing Officer with regard to cash found during the course of search, we find that the cash found/seized during a search is liable to be treated as income of the assessment year relevant to the previous year in which the search is conducted, in the event of failure of the assessee to satisfactorily explain the sources of such cash. The assessment year in which the taxability or otherwise of the seized cash is required to be considered in the case of the assessee is AY 2019-20 as the search was conducted on 05.07.2018. Thus, it is clear that the fact of cash seizure during the search is no-way related to the detection of undisclosed income, represented by an asset, for the assessment year 2010-11. From the above, it is very clear that the observation of the Assessing Officer with regard to satisfaction of conditions prescribed in fourth proviso to section 153A(1) of the Act, is incorrect and opposed to law. 35. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly held that the reasons recorded by the AO in the satisfaction note do not bring out satisfaction of the mandatory conditions prescribed in the 4th proviso to sec 153A(1) which necessitate issue of notice for assessment years beyond six assessment years and thus, annulled the assessment orders passed by the Assessing Officer for AY 2010-11. Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) to annulled the assessment for Asst. years 2010-11 and thus, we reject grounds of appeal filed by the revenue and uphold the order of the CIT(A) for Asst. year 2010-11. 37. The next issue that came up for our consideration from ground no. 13 of appeal filed by the assessee for assessment year 2015-16 ground no. 3 to 3.2 of appeal filed by the revenue for assessment year 2016-17 to 2018-19 is validity of notice u/s. 153C of the Act, in light of satisfaction note recorded by the Assessing Officer. 38. The Ld. CIT-DR, Shri. M. Rajan, submits that the ld. CIT(A) erred in holding that the notice u/s. 153C of the Act, issued for assessment year 2015-16 to 2018-19 is invalid and annulling the assessment order passed u/s. 143(3) r.w.s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANN/VP/ED/S2, contains tally accounts of the appellant for assessment year 2013-14 to 2015-16, apart from the tally accounts of other group entities. It was further submitted that the Assessing Officer does not have the opportunity to examine the contents of seized electronic device, because it was seized on 07.07.2018 and was opened subsequently only on 09.09.2020. He further submits that as regards the seized electronic device ANN/VP/ED/S16, the device does not contain any tally accounts of the appellant for any assessment year. The said device is a hard disk containing the imaged data pertaining to 10 electronic devices seized from the residence of Shri. P. Karthikeyan. The said hard disk contains the Erandumthall among other things, but does not contain tally accounts either of the appellant or any other group entity. Therefore, the findings of the Assessing Officer in the satisfaction note that there is a difference between net profit as per seized tally data and income reported in ITR is totally incorrect. The ld. Counsel for the assessee further submits that the findings of the Assessing Officer in satisfaction note regarding unaccounted income arising on account of bought n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has not mentioned anything about such a working copy anywhere in his satisfaction note. The ld. Counsel for the assessee further submits that even assuming without admitting that the Assessing Officer had arrived at the satisfaction note based on the working copy, but there is no under reporting of income being the difference between the net profit as per the seized tally in the working copy and income as per the ITR. Therefore, on this very count itself it could be held that notice u/s. 153C for assessment year 2015-16 is without jurisdiction. 41. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered reasons given by the ld. CIT(A) to quash assessment orders for the Asst. years 2016-17 to 2018-19, in light of averments of ld. Counsel for the assessee and ld. DR present for the revenue. After, considering relevant submissions, we find that the seized electronic device vide annexure ANN/VP/ED/S-2 contains tally accounts of the appellant and other group companies for AYs 2013-14 to 2015-16. The said electronic device was seized 07.07.2018 at the office premises of M/s C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year at Rs. 11,90,330/-, instead of Rs. 1,67,37,040/- which is evident from copy of ITR filed by the assessee which is available in paper book. Therefore, from the above it is clear that the Assessing Officer has adopted incorrect figure to arrive at a conclusion that there is a under reporting of income for assessment year 2015-16 which necessitate issue of notice u/s. 153C of the Act. Since, there is no difference between net profit as per seized tally from electronic device ANN/VP/ED/S2 and income as per ITR, in our considered view the satisfaction recorded by the Assessing Officer for issue of notice u/s. 153C of the Act is not based on any evidences and thus, on the very count itself, it could be seen that notice u/s. 153C of the Act for assessment year 2015-16 is without jurisdiction and thus, we are of the considered view that notice u/s. 153C and consequent assessment order passed by the Assessing Officer is invalid in law and liable to be quashed. Hence, we quash notice u/s. 153C of the Act and consequent assessment order for assessment year 2015-16. 43. As regards to AYs 2016-17 to 2018-19, the learned CIT(A) held that the satisfaction recorded by the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich there is no such co-relation. This legal position is further strengthened by the decision of Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd (2023)149 Taxmann.com 399(SC). In our considered view, the above mentioned decisions are squarely applicable to the facts of the appellant s case with regard to the satisfaction notes for AYs 2016- 17 to 2018-19. Since, the seized material available with the assessing officer did not contain any evidence in support of the satisfaction recorded for the said AYs, the satisfaction so recorded is without any basis and legally unsustainable. Since satisfaction regarding the existence of any seized material on the determination of total income of the appellant is the very basis for deriving the jurisdiction to issue notices u/s 153C, the lack of a valid satisfaction to the said effect results in a jurisdictional defect. The CIT(A) after considering relevant facts has rightly held that notice issued u/s 153C for Asst. Years 2016-17 to 2018-19 is invalid and legally not sustainable and consequently, annulled the assessments for Asst. Years 2016-17 to 2018-19. 45. The Hon ble Delhi High Court in the case of PCIT vs. N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court in M/s Calcutta Knitwears. 48. In this view of the matter and considering the facts and circumstances of the case, 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 AY 2016-17 to 2018-19 is on sound footing and does not call for any interference from us. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss grounds taken by the revenue for Asst. years 2016-17 to2018-19. Similarly, we quash notice u/s. 153C of the Act for assessment year 2015-16 and annulled consequent assessment order passed by the Assessing Officer for assessment year 2015-16. Accordingly, we allow the grounds of the assessee. 49. The next issue that came up for our consideration from ground no. 4 to 4.3 of revenue appeal for assessment year 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment year because the assessee has filed relevant details and proved that there is no difference in net profit as per tally and income reported in ITR. The CIT(A) after considering relevant submissions has rightly deleted additions made by the Assessing Officer and their order should be upheld. 53. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The ld. CIT(A), in their order had categorically observed that the Assessing Officer has wrongly extracted the amounts of income as per ITR for assessment year 2010-11 at Rs. 11,90,330/- instead of Rs. 1,67,37,040/- and then compared with net profit as per seized electronic devices which was at Rs. 1,67,37,040/- to arrive at difference of Rs. 1,55,46,710/-. The ld. Counsel for the assessee took us to paper book which contains ITR filed for the assessment year 2010-11 and explained, how the Assessing Officer fundamentally went wrong and from the explanation of the assessee, it is noticed that the Assessing Officer has wrongly considered incorrect amount and assumed that there is a difference in net profit. But, fact remains that there is no difference betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial ANN/VP/ED/S1 to S7. It was observed during the course of search that the assessee was resorted to under reporting of income by inflating bought note purchases. Bought notes are purchase bills containing the name of the seller, bought note no, quantity purchased and amount paid towards the purchase. The assessee group has made two types of bought note purchases namely (a) purchase of commodities directly from the farmers through bought notes in cash. (b) Purchase of commodities from dummy entities using bought notes and making payment through banks. During the course of search, the complete set of bought notes of M/s CFI was seized on 27.08.2018. The bought notes were verified with tally accounts in the electronic device as per Annexure VP/ED/ED/S1 to S7. The seized bought notes and tally extracts were found matching. It was further noted that, in respect of bought note purchases there was no weighment slips, no goods receipt notes (GRN). Further, during the course of post search investigation, it was found that same lorry number was used for number of bought note purchases and instance of such cases has been furnished in the assessment order. During the course of search, on e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounted income arising out of bought note purchases and sales. Thus, The AO made additions of Rs. 62,03,02,732/- Rs. 47,96,78,788/-, respectively for assessment year 2015-16 2016- 17 towards such unaccounted income. 58. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged the additions made by the Assessing Officer towards undisclosed income arising out of alleged bogus bought note purchases and sales in light of various evidences and argued that addition made by the Assessing Officer is not based on seized documents, because the so called bought notes considered by the Assessing Officer does not pertains to the assessee. Further, the Assessing Officer has made additions only on the basis of statements of various employees of the appellant, even though the persons who gave the statements have filed retractions and explained how statements were obtained during the course of search. The assessee had also contended additions made towards difference in bogus bought note purchase and sales and argued that the Assessing Officer has completely disregarded explanation furnished by the assessee with reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the revenue is in appeal before us. 60. The ld. CIT-DR, Shri. M. Rajan, submits that the CIT(A) erred in deleting addition made towards unaccounted income arising out of difference between purchases through bogus bought notes and sales through bogus bought notes, without appreciating fact that the assessee used bought notes for inflation of purchases and reduce profit and same has been confirmed by Smt. R. Anandhi in her statement recorded u/s. 132(4) of the Act, and it has been strengthened by the statement of Mr. Gnanasekaran Mr. Thiruvenkata Prabhu, Manager (Purchases), where they had admitted that for bought note purchases there would not be any supporting documents. The ld. CIT-DR, further submits the CIT(A) erred in accepting the explanation of the assessee with regard to bought note purchases without appreciating fact that the assessee could not explain how a single lorry can be used to transport huge quantity of maize from different places in a single day. The Assessing Officer has brought out various facts in the assessment order about modus operandi of purchases through bought notes and sales through bought notes and the same has been supported by admission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is to directly purchase from farmers. The purchases from farmers has been made through bought note purchases, because farmers do not have any formal system like any other traders. Therefore, bought note purchases does not have necessary supporting evidences like weighment slips, GRN because those purchases are directly made from farmers in their places and on where is as is basis. He further submits that the Assessing Officer has treated even purchases made from APMC as bogus in nature without appreciating fact that it is impossible to even think bogus purchase can be made from regulated markets. The assessee has explained the procedure followed in bought note purchases and also explained various deficiencies noticed by the department during the course of search and the CIT(A) after considering relevant facts has rightly deleted the additions made by the Assessing Officer and their order should be upheld. 62. We have head both the parties, perused materials available on record and gone through orders of the authorities below. We have also, carefully considered reasons given by the Assessing Officer to make additions, in light of various averments made by the counsel of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by them unlike registered dealers/other traders. It is therefore an accepted trade practice to prepare self- made bought notes by the buyer organizations as evidence of the purchases made from farmers. The lorry freight slip is not issued to the buyer, since the freight is borne by the agent of the farmers out of their sales commission. In view of these reasons, documentation such as weighment slip, GRN, lorry freight slip, lab test certificate will not be available in respect of bought note purchases made from farmers, having regard to the nature of said purchases as opposed to the purchases made from registered dealers/manufacturers. Similarly, in the case of purchase of eggs also, the same are procured from the poultry farmers/petty traders in cash. In such cases of bought note purchases of eggs, there is no question of having any weighment slips since weighment of eggs is not at all relevant. Since purchases are made in cash, GRN is also not required for such purchases. Therefore, it is completely wrong to draw inference that the bought notes purchases are bogus purchases on the reasoning that no weighment slip, GRN and lorry freight slip are found in respect of such purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said net figure are conspicuous by their absence in the statement or in the annexure to the said statement of Shri. Gnanasekaran. Further, the details of commodities which were considered for quantifying the bogus purchases and sales are nowhere mentioned in the said statement or in the assessment order. It is noticed that neither the statement of Shri. Gnanasekaran, nor the assessment order contain any details of how the said net amount of bogus purchases and sales has been arrived at. The assessing officer himself stated in the assessment order that income as per seized tally account has not been correctly incorporated by Shri. Gnanasekaran, while quantifying the unaccounted income in his statement dated 08.07.2018. The assessing officer stated that the correct figures of income as per seized tally account have been incorporated after making verification of the seized tally account during the assessment proceedings. This admission by the assessing officer himself in the assessment order is clear evidence of the fact that the statement obtained from Shri. Gnanasekaran is totally unreliable since the said person was unable to furnish correct figures of even simple data regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with various employees, suppliers/agents for the purpose of audit evidence and external confirmation/audit evidences were obtained from the creditors, suppliers, agents, statutory authorities etc., during the course of special audit and that no corroborative evidences were observed/found during the audit, other than the sworn statements recorded during the search, to form an opinion to conclude that the purchases, stock, dispatch, expenditure and income are false. He, further observed that it was noticed during the special audit that the purchases, sales, expenditure have been duly accounted conforming to the volume of turnover, consumption of such raw materials in the finished products and returns filed with other statutory authorities. Further, on analysis of the purchase procedures of the appellant, the special auditor stated that documents such as weighment slip, purchase order, test report etc., that are present for the purchases from a dealer are not of any use in the case of purchases made from farmers/agents through bought notes in view of the different characteristics associated with such purchases. Therefore, from the above, it is very clear that unaccounted income comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by the farmers/ mandis and goods are kept in pre-weighed bags. The goods can be lifted from the farm level / mandis only after making the necessary payment for the goods. The goods are subjected only to physical inspection and no scientific method of inspection is adopted. The appellant claims that purchases from farmers is to the benefit of the organisation as the profit margin of dealers and wholesalers by default gets eliminated and is effective method to reduce the risk of fluctuating prices, which is one of the prime risks of the business. 69. The Assessing Officer made additions towards undisclosed income arising from bogus purchases through dummy entities on the ground that the assessee and its other group have generated unaccounted income by indulging in bogus purchases from dummy entities and bogus sales. It is the case of the assessing officer that the modus operandi of bogus bought note purchases and corresponding bogus sales is substituted in the impugned years by modus operandi of bogus purchases and sale through dummy entities. The assessing officer further observed that M/s CFI and other group concerns have made bogus purchases from 28 dummy entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppliers account as advance or payment to creditors. He further stated that cash is drawn from the banks by using free signed cheques in possession of the assessee and its group concerns. It was further noted that the management of the dummy entities has been handled by Shri. N. Vijayanathan. He was examined during the course of search where he explained modus operandi of dummy entities. He further stated that all dummy entities have maintained books of accounts and also filed their returns with various statutory authorities. However, there was no actual movement of goods. The Assessing Officer on the basis of information gathered during the course of search, coupled with post search enquiries opined that the assessee has created various dummy entities to book bogus purchase and sales in order to reduce profits. The Assessing Officer had discussed the issue in light of examination of more than 1,300 dummy suppliers and their deposition given during the course of assessment proceedings, seizure of free signed cheque books of all dummy entities including images of ATM cards and also on analysis of various bank accounts, finally he came to the conclusion that the assessee has generated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the facts gathered during the course of search, where the department has unearthed the modus operandi of dummy entities in light of huge evidences found and seized during the course of search. He further submits that the department has seized documents from L. Shivakarthi, partner in one of the dummy entities which includes IT returns, cheques books and partnership deed of 28 dummy entities. The electronic devices seized from him included the list of persons of the assessee concern who are put in charge of 28 dummy entities and list of various persons who are relatives of staff members. Further, statement recorded from Shri. N. Vijayananthan clearly established the fact of operating the dummy entities by the assessee to book bogus purchases and to reduce profit. The statement of N. Vijayanathan is confirmed by Shri Vannakkannan, DGM (Accounts) and further strengthened by statement of Mrs. Anandhi, recorded on 07.07.2018. The Assessing Officer has brought out clear facts to the effect that purchases through dummy entities and corresponding sales is bogus in nature and thus, rightly made additions toward unaccounted income being difference between purchases through dummy entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements of employees were recorded during the course of search in a hurried manner and no details as to how and where the purchase and sales figure has been culled out. Therefore, we are of the considered view that in absence of any supporting evidences with regard to computation of unaccounted income out of bogus purchases through dummy entities, the additions made by the Assessing Officer solely on the basis of statement of employees cannot be sustained, because the statements relied upon by the Assessing Officer recorded from various employees does not have any evidentiary value as the persons who gave the statement has filed their retraction along with affidavit and thus, we are of the considered view that there is no evidence with the Assessing Officer to justify additions made towards unaccounted income. Further, the Assessing Officer had also taken support from various facts gathered during the course of search including seizure of bank account details of 28 entities and books of accounts maintained in a common place to draw an adverse inference against the assessee and such adverse inference was solely based on the statement of the person who maintains those details. But, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing manner. The said action of the assessing officer is arbitrary and devoid of any merit. The learned CIT(A) in his order has held that as the assessing officer failed to establish the factum of bogus sales made by the appellant with relevant details and evidences, the very premise on which the inference of generation of unaccounted income by indulging in bogus purchases and sales through dummy entities has completely collapsed. 76. It is also pertinent to observe that the assessing officer did not record any finding in the assessment order regarding any difference in the stock as per books and physical stock as per the inventory prepared at the time of search. This aspect is considered to be very critical in drawing proper conclusion regarding the genuineness of the purchases made from dummy entities. On perusal of the seized tally accounts of the appellant for the relevant assessment years available in ANN/VP/ED/S9 10 and ANN-ERD- SEPL-ED-I-Karthi, it is noticed that the purchases made from alleged dummy entities are being entered in the stock register maintained in the seized tally accounts. In the said circumstances, the physical inventory of stocks taken during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence on record by making necessary enquiries with the bank authorities regarding the identity of the persons who encashed the bearer cheques, even on a sample basis. It is also pertinent to point out that the search did not result in unearthing of any documentary evidence by way of loose sheets, slips etc., containing any notings of handing over of cash and receipt of cash between various persons in the finance department from the time the cash is withdrawn from the bank and it is placed in the locker of the corporate office. This observation needs to be viewed in the context of the statement of Shri. Siddeshwaran that the cash withdrawn from the bank accounts of the individual dummy suppliers by Shri Muthukumar is handed over to Shri Ravichandran and Shri Suresh (finance assistants), they in turn hand over the cash to either Shri Siddeshwaran or Shri Harihara Krishnan and the cash is finally placed in the locker by Shri Siddeshwaran. In the normal course, notings regarding handing over of cash and receipt of cash are expected to be found when cash changes hands to serve as evidence for the same in order to resolve any possible disputes that may crop up given the nature of cash tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees/former employees or their relatives/friends since the appellant is assured of certainty of supplies in the unpredictable agricultural commodity markets in view of the loyalty of the said persons to the appellant concern. Further, it was explained that due to the introduction of demonetization, the appellant was compelled to gradually discontinue the bought note purchases directly from the farmers and explore alternative sources of supply of agricultural commodity through registered dealers. It was considered that it would be mutually beneficial if there are registered dealers owned by persons who are known to the appellant. In this background, some of his employees were encouraged to leave the employment and start their own business ventures for the purpose of carrying on the business of supply of agricultural commodities to the appellant and his group concerns. The said entities in turn found it beneficial to source their supplies from the employees of the appellant having their own agricultural operations, former employees or relatives/friends from their village or nearby areas, since it would give them the benefit of credit facility due to personal acquaintance. The said ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FI. The assessing officer also relied on the statements of 1307 individual suppliers which were claimed to have been recorded during the course of the search u/s 131, wherein they have stated that they have no transactions with the appellant and other group concerns, in support of his finding that the purchases made from the 28 dummy entities which in turn were made from said individual suppliers are bogus. In this regard, the appellant explained that pre drafted statements were recorded from 1317 farmers/traders/suppliers of goods to appellant on four days without even allowing them to read and understand the contents of statements which is evident from date and time of summons issued to them. It was further explained that, they were called on the same date of issuing the summons and their statements were stated to have been recorded on oath by the DDIT/ADIT in the office of T. S Kumarasamy at Trichangode which is evident from the text of the answers by different persons on the same set of questions is exactly the same. Further, the handwriting of the staff of Christy Friedgram Industry on the statements is a proof of the dubious and spurious manner in which evidence was created a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mies and not to Christy Friedgram Industry. It is to be noted here that there were neither any questions as to whether they had supplied any material to the appellant and M/s Suvarnabhoomi Enterprises Pvt Ltd nor were there any answers recorded as they had supplied any material to the appellant and M/s Suvarnabhoomi Enterprises Pvt Ltd. In such a situation, placing any reliance on those statements in the case of the appellant is untenable and any additions based on the transactions with these entities are invalid. 84. We further noted from the submission of the appellant that, on perusal of the copies of the summons issued to the 1307 individual suppliers and their statements recorded on 10.08.2018, 27.08.2018, 28.08.2018 and 29.08.2018, it is noticed that the statements of the said persons are shown to have been recorded on the same date on which the summons were issued to them u/s 131. Further, it is noticed that the date of issue of summons, the date of service of summons and the date of recording the statements are one and the same. In this connection, it is pertinent to observe that the said 1307 individual suppliers are residing in various villages located in different dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the assessing officer that the persons of the 28 entities and the 1317 individual suppliers were forcibly called to the search premises along with their cheque books, bank pass books and ATM cards and they were forced to handover the cheque books after signing the cheque leaves. The appellant stated that the said cheque books and ATM cards were then seized at CFI premises as if they were found with CFI. It was therefore contended that the same cannot be used as evidence against the appellant. It is submitted further that the said persons have filed affidavits wherein they have confirmed that the cheque books and ATM cards were forcibly collected from them by the search team after getting the cheque leaves signed by them and that the submission in the said affidavits was not addressed by the assessing officer in the assessment order. We find that, the averments made by the assessee appears to be correct, because, as already mentioned earlier, the assessing officer himself stated in the assessment order that the seizures made during the course of search at the residence of Shri.Sivakarthi included cheque books. If the cheque books of the dummy entities were found and seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the Special Auditor with regard to the books of accounts maintained by the assessee and its correctness. The Assessing Officer has appointed Special Auditor to prepare financial statement and audit books of accounts of the assessee for the period covered under search having regard to the nature and complexity of accounts maintained by the assessee and incriminating documents found during the course of search. The Special Auditor, in their audit report submitted in light of scope of audit clearly observed that the financial statements including P L account and balancesheet prepared for the relevant assessment years gives true and correct position except as stated in notes of accounts. The Special Auditor had also analyzed quantitative details of purchases of raw materials, production of finished goods and sales made by the assessee and does not expressed any adverse opinion on books of accounts maintained by the assessee including stock registers. In fact, the Assessing Officer never disputed the audit report submitted by the Special Auditor on various factual issues, however, rejected Special Audit Report submitted by the special auditor only for the simple reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. 88. The revenue also contended in the grounds of appeal that the CIT(A) failed to appreciate that the IT returns, partnership deeds and cheques books pertaining to 28 dummy entities, list of persons in-charge of such entities and the list of suppliers of the dummy entities who are relatives of employees of the appellant were found in the possession of Shri. L. Sivakarthi, a partner of one of the dummy entities. In this regard, it is observed that the revenue did not put forth any specific contention as to how the said fact has any conclusive bearing on the inference of dummy nature of the said entities and the bogus nature of the purchases made from such entities. Moreover, after considering the said fact as well as the statement given by Shri. Sivakarthi wherein he stated that the said documents were handed over to him by Shri Vijayanathan CA, and the inference drawn by the AO based on the said statement that the 28 dummy entities are being managed by Shri Vijayananthan, the consultant of the appellant concern, CIT(A) stated that the finding of the AO that the dummy entities are being controlled by the consultant of the appellant is not borne out by other evidences avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the contents of the pen drive are maintained by him and the same represents unaccounted cash expenditure incurred by the appellant and other group concerns. It was further noted that the data contained in the electronic device referred to as ErandamThall seized from Shri. P. Karthikeyan was also contained in the pen drive seized from Shri HariHara Krishnan. During the course of search, it was noticed that the unaccounted cash books contains details of expenditure incurred in cash from financial year 2010-11 to 2018- 19 at Christy, Bangalore and Chennai. The entries contained in ErandamThall has been segregated into transactions made at the head office at Thiruchengode, and receipt and payments at Bangalore and Chennai offices. The Assessing Officer has analyzed the contents of ErandamThall in light of statement recorded from various employees including from Shri Valeeswaran, GM (Finance) and observed that the Shri. Valeeswaran, admitted in his statement u/s. 132(4) dated 06.07.2018 that unaccounted cash expenditure has been computed after eliminating double entries, transfer entries to various branch offices and entries regarding keeping the unaccounted cash in Indian bank locker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d special audit report dated 15-04-2021 and quantification of aggregate unexplained expenditure of the appellant and 3 other associate concerns at Rs. 211.37 cores and apportioned a sum of Rs. 34,69,54,527/- out of the same to the appellant. The said sum was further apportioned to assessment year wise for AYs 2014-15 to 2018-19 and the same was directed to be treated as the addition towards unexplained expenditure u/s 69C of the Act in the assessment orders for the said assessment years. Being aggrieved by the CIT(A) order, the assessee is in appeal before the Tribunal. 93. The ld. Counsel for the assessee, Shri. D. Anand, Advocate submits that the Ld. CIT(A) erred in law and in facts in enhancing the assessment and consequent addition u/s. 69C of the Act on the basis of second special audit report in respect of contents of Erandamthall without appreciating fact that the seized electronic record called Erandamthall is a dumb document and it is inadmissible as evidence u/s. 65B of the Indian Evidence Act, 1872. The ld. Counsel for the assessee further submits that the ld. CIT(A) erred in apportioning the unaccounted expenditure of Rs. 211.37 crores and made addition of Rs. 31,11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of T.S. Kumarsamy should be upheld. 95. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The sole basis for the CIT(A) to enhance assessment and direct the AO to make addition in the hands of the assessee is second special audit report of auditor submitted u/s 142(2A) of the Act. The Special auditor examined Erandamthall and entries recorded in pen drive in light of scope of audit and observed in their audit report dated 15-04-2021 that out of more than 30000 entries in Erandamthall, more than 90% entries are identified/matched with regular books of account of assessee and other three group entities. The special auditor further observed in their audit report that unmatched/unidentified entries and net of such unidentified entries amounting to Rs. 211.37 crores may be considered for addition as unexplained expenditure. The CIT(A) on the basis of special audit report enhanced the assessment and directed the AO to make additions towards unexplained expenditure u/s 69C of the Income Tax Act, 1961 for Rs. 211.37 crores in the hands of Shri. T S Kumarasamy and three other group entities. The CIT(A) dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, 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 working. If at all, the AO is correct in his claim, then nothing prevented the AO to furnish the so called working of unaccounted expenditure furnished by the employees of assessee, when the assessee had repeatedly requested the AO to furnish the working. In our considered view, when a huge addition is sought to be made and a large tax liability is sought to be fastened on the appellant, the principles of natural justice demand that the appellant is made aware of the details of the quantification of the unaccounted expenditure worked out based on the seized Erandamthall, to enable him to examine and verify the same in order to defend itself and furnish necessary explanations with regard to the entries in the Erandamthall which have been taken into account for the purpose of such quantification. However, it is evident that the appellant has not been provided with the entry wise working of the relevant amount of Rs. 2056.76 crores during the assessment proceedings despite the requests made by the appellant and the said details have not been furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of business nor it can be considered as expenditure incurred in the course of business and thus, 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 provision of section 69C of the Act, it is very important to identify the nature of expenditure and the entity to whom said expenditure belongs to, because as per the provision of section of 69C of the Act, in any financial year, if an assessee incurs any expenditure and he offers no explanation about the source of such expenditure, or the explanation if any offered by him is not in the opinion of the AO, satisfactory then said expenditure may be deemed to be income of the assessee for such assessment year. In the present case, there is no findings from the AO as to nature of expenditure incurred by the assessee. Further, the AO has not brought out any reason as to how entries in Erandamthall are considered as expenditure. The entries in Erandamthall are not identified to any person or entity. There is no finding as to which financial year said expenditure relates to. In absence of any finding as to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 file. iii. Since the entries in Erandamthall lack the entity concept , the total inflow and the total outflow of the entries in Erandamthall are cross verified with the total inflow and total outflow of cash in the seized tally books of accounts of the 4 entities put together. The consolidated cash withdrawals from bank accounts of 4 entities as found in the seized tally books of accounts have been furnished in Annexure 5. iv. Based on the entries in the seized tally books of account, some of the entries in Erandamthall are identified and matched on sample basis. Accordingly, the entries in Erandamthall are marked as contra entries, expenses, advances, purchase or supplier payment, cash sales, bank receipts, bank payments, etc. The non-identifiable entries are culled out separately. v. The entries with the same amount in the inflow column and outflow column have been treated as contra entries. The names as mentioned in the entries were filtered and such entries with the same amount of inflow and outflow have been treated as contra ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry , 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 Industry. It is observed that the said nature of entries are matching with APMC/bought note purchases of jaggery, maize, ragi. These entries have been marked as purchase or supplier payment under the column nature of entry in the consolidated file shown in Annexure 4. xiii. After removal of the contra entries, the entries with narration RRM , R.T , egg , dhall , etc were identified and found matching with the nearest date or on the same date of the books of the account of all the 4 entities. On verifying with the seized tally books of account of all the 4 entities, it is observed that the said nature of entries are matching with APMC/bought note purchase or with supplier payment. These entries have been marked as purchase or supplier payment under the column nature of entry in the consolidated file shown in Annexure 4. xiv. After removal of the contra entries, the entries with narration salary , R.V , muthusamy , Rajaram , Balamurugan , PKR were identified and found matching with the nearest date or on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal 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 for each year have been apportioned to the 4 entities in proportion to the share of each entity in the aggregate cash inflows of the 4 entities as per the seized tally books of account of the relevant year. Similarly, the cash outflows in Erandamthall for each year have been apportioned to the 4 entities in proportion to the share of each entity in the aggregate cash outflows of the 4 entities as per the seized tally books of account of the relevant year. 100. Further, the special auditor furnished the following findings as regards the undisclosed income to be considered on the basis of Erandamthall: i. On examination of Erandamthall, it is opined that the same cannot be construed as a cash book. However, on accepting the same at the face of it, the inflow of funds and other transactions do not disclose any additional undisclosed income other than the income arrived under the original special audit. ii. The code names contained in the Erandamthall are not giving any prima facie information of evidence for decoding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accounts of the 4 entities. The special auditor stated that the unidentified entries shown in a separate Annexure-8 to the report represented the entries which were found to be not matching with the seized tally books of account of the 4 entities. Such unidentified entries aggregated to a net sum of Rs. 211,37,37,982/- and the special auditor stated that the said amount of unidentified and unmatched entries represents disallowable expenditure. Since, the entries in Erandamthall did not contain references to the entity to which they pertained to, the special auditor apportioned the year wise amount of such disallowable expenditure to the 4 entities in proportion to the share of each entity in the aggregate cash outflow of the 4 entities for the relevant year as per the seized tally books of accounts. 102. In light of findings of special auditor in their report, the issue arising for consideration is whether the second special audit report dated 15.04.2011, which was submitted with particular reference to examination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined parameters in conformity with accounting principles for such identification and the same were excluded from further consideration. The analysis made earlier has also strongly indicated that the said exercise was carried out during the search in a hurried and adhoc manner within a short span of three hours, when the entries in Erandamthall were numbering more than 30,000. In the said facts and circumstances, the methodical exercise carried out by the special auditor for identification and exclusion of contra and transfer entries deserves to be accepted. 103. The scope of work assigned to the special auditor included identification and matching of sources of the cash inflows in Erandamthall with the sources available in the books of account of the appellant and 3 other entities and the bank accounts of the said persons. The scope also included identification and matching of expenses with the books of account of the 4 entities. The scope of work further required the special auditor to state whether the identified bank accounts and sources for the inflow of funds have been disclosed in the books of account and consequently offered for taxation in the returns. The said scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries 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 the books of account of the 4 entities, with the exception of 2455 entries (out of total 30,654 entries) which represented unidentified entries. The entries which were identified to be matching with the books of account and bank accounts disclosed in the books of accounts are not incriminating in nature as the same are duly recorded in the books account. The amounts pertaining to the said entries are not liable to be considered for computing the undisclosed income or unaccounted expenditure. The unidentified entries, numbering 2455, are the entries which could not be matched with the books of account of the four entities. The said unidentified entries consisted of both cash inflows and cash outflows in Erandamthall. The net effect of such entries was presumed as cash expenditure of Rs. 211,37,37,982/- for FYs 2011- 12 to 2017-18. Since, the said cash expenditure of Rs. 211.37 crores is not recorded in the books of account of the four entities, the special auditor suggests that the same has to be construed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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-relation. This legal position is further strengthened by the decision of Hon ble Supreme Court in the case of Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd(2023)149 Taxmann.com 399(SC). From the ratios laid down by Hon ble Supreme Court, it is abundantly clear that, in case, the AO, had materials in respect of unaccounted sales or expenditure for part of the period, then he can estimate income or expenditure for the remaining period in the financial year, but such estimation cannot be extrapolated to previous years or subsequent years. In this case, basis for the special auditor to suggest estimation for unexplained expenditure is Erandamthall. However, given the fact that seized Erandamthall cannot be equated with regular books of account and the entries therein are not made strictly in accordance with the accounting concepts and principles, there is no question of making estimation of unexplained expenditure and extrapolation of said estimation to all assessment years. 106. Coming ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee could not prove its allegations on procedural aspects of taking images from Erandamthall. Further, the lapses pointed out by the assessee at best can be considered as procedural lapses in taking signature of witness etc. and for this reason the veracity and acceptability of Erandamthall cannot be questioned. Because, as pointed out the special auditor it is a parallel day book maintained by the assessee for combined transaction of all four entities which is evident from entries in Erandamthall which are also recorded in regular book of the assessee. Therefore, the assessee having been accepted the correctness of Erandamthall to the extent it was favorable to the appellant, it cannot question the authenticity of the said documents in respect of entries which are not favorable to the assessee. Therefore, we reject argument of the assessee on this issue. 108. Another issue raised by the appellant in the grounds of appeal is that the apportionment of Rs. 34.70 crores based on estimation for arrivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 whom such expenditure is relates to, because as per the provision of section of 69C of the Act, in any financial year, if an assessee incurs any expenditure and he offers no explanation about the source of such expenditure, or the explanation is any offered by him is not in the opinion of the AO, satisfactory then said expenditure may be deemed to be income of the assessee for such assessment year. In the present case, there are no findings from the AO as to nature of expenditure incurred by the assessee. Further, the AO has not brought out any reason as to how entries in Erandamthall are considered as expenditure. The entries in Erandamthall are not identified to any person or entity. There is no finding as to which financial year said expenditure relates to. In absence of any finding as to nature of expenditure and person to whom such expenditure belongs to, no addition can be made u/s 69C of the Act on suspicious and surmise manner. 110. Further, it is a matter on record that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant and other three entities. Therefore, on this count also there cannot be any addition u/s. 69C of the Act. Since, the unidentified entries are not conclusively established by any evidence or material on record to prove that said entries represents unexplained expenditure of the assessee, and further to any particular financial year, in our considered view enhancement of assessment and consequent additions u/s. 69C of the Act made by the ld. CIT(A) cannot be sustained. In our considered view, the CIT(A) is completely erred in making addition towards unexplained expenditure on the basis of Erandamthall. Therefore, we are of the considered view that the additions aggregating to Rs. 211.37 Crores made u/s 69C and further apportioned to appellant at Rs. 31,11,16,497/- for the assessment years 2015-16 to 2018-19 cannot be sustained. Thus, we reverse the findings of the CIT(A) and consequent enhancement of assessment. The Assessing Officer is directed to delete additions made towards unexplained expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 special audit report. Further, the AO has totally ignored and not even discussed the second audit report submitted by the auditor on Erandumthall found and seized during the course of search. On appeal, the CIT(A) accepted the special audit report and financial statement prepared for relevant assessment year on the ground that the financial statements prepared by the special auditor and reports submitted on correctness of financial statement by the special auditor is based on systematic and scientific method followed for preparation of financial statements and further, the assumptions employed by the special auditor is in accordance with Auditing Standards issued by the Institute of Chartered Accountants of India. Being aggrieved by the CIT(A), the revenue is in appeal before us. 112. The ld. CIT-DR, Shri. M. Rajan, submits that the ld. CIT(A) is erred in holding that the rejection of the first special audit report u/s. 142(2A) of the Act and complete disregarding of the second special audit report b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 special audit report submitted by the auditor and financial statement prepared for the relevant assessment years. Just because the audit report is not in conformity with the opinion of the Assessing Officer or not in accordance with appraisal report, it cannot be said that special audit report is not prepared in accordance with relevant accounting and auditing standards. The CIT(A), after considering relevant facts has rightly accepted the special audit report submitted by the auditor and thus, the grounds raised by the revenue on this issue should be rejected. 114. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered reasons given by the ld. CIT(A) for accepting special audit report submitted u/s 142(2A) of the Act, in light of grounds of appeal filed by the Revenue challenging findings of the CIT(A). In the grounds of appeal, the revenue raised various contentions with regard to the issue of reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prepared for the base year are not acceptable since the appellant himself has reported 0 in opening and closing stock figures in the return of income filed u/s 153C for AY 2009-10. However, the said reason cited by the AO is factually untenable. It is an undisputed fact that the original return of income for AY 2009-10 filed u/s 139 was filed under the category of No account case . As a result, the original return of income does not contain any details of profit and loss account. As per the details relating to P L account required to be furnished in a return filed under category of No Accounts case, the appellant separately furnished the details of gross receipts, gross profit, expenses and net profit in the relevant columns of the return of income. Further, the appellant furnished the details of sundry creditors, sundry debtors, closing stock and cash balance in the relevant columns of the return, which are required to be furnished in a No Accounts case. While filing the return of income in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials 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 quantum of production of finished goods. Similarly, the observation of the AO that the quantum of production as per the records of the appellant is not reliable in view of finding of evidences of bribing of public servants during the search which indicates manipulation of the sale quantity of finished goods by the appellant for the Govt. welfare schemes is seen to be mere surmise and speculation. The search did not reveal any evidence regarding supply of less quantity than the invoiced quantity or raising of invoice without actual supply of goods to the Govt. by the appellant. Based on the evidences found regarding bribing of public servants, the AO appears to have made a presumption that such bribing was for the purpose of manipulating the quantum of supplies made to the Govt. without any basis. In our considered view, the AO did not bring any evidence on record in respect of alleged manipulation of supply quantities by making necessary enquiries with the relevant Govt. departments. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unanimous opinion that the quantification of unaccounted expenditure made during the course of the search based on seized Erandamthall cannot be adopted mechanically on account of the objections of the appellant with regard to the same and that the same needs to be worked out afresh by the special auditor, who is an expert in financial and accounting matters. However, having proposed examination of contents of Erandamthall by the special auditor, the AO completely ignored the special auditor s report dated 15.04.2021 while completing the assessments. The AO did not even mention the fact that a report was called for from the special auditor on this issue in the assessment orders. The AO remained completely silent with regard to the said report and its contents. This is surprising since the AO himself referred the matter for special audit u/s 142(2A) and obtained the report in pursuance thereof. The AO has not made any discussion in the assessment order regarding the reasons for not accepting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose 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 documents found during the course of search. Therefore, in our considered view, the Assessing Officer having appointed special auditor, cannot ignore the audit report unless he makes out a case with reasons that the special audit report is incomplete or the auditor has not carried out the audit as per the standard auditing procedures. In this case, if we go through the reasons given by the Assessing Officer to reject special audit report for all assessment years, we find that the Assessing Officer has rejected said audit report on flimsy grounds without any finding as to how observation of the special auditor is incorrect. Further, it is nowhere provided that special audit report is binding or the assessment shall be made in conformity with special audit report. However, if there is no adverse material or adverse circumstances or the findings of the Assessing Officer during assessment proceedings is contrary to the special audit report, then such report has to be considered and relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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