TaxTMI 
TaxTMI 
2026 (8) TMI 36
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....investment in unorganized/unregistered chits by the assessee. 3. The Ld. CIT(A) has erred in not considering the fact that the interest payment of Rs. 16 crores made during the F.Y 2010-11 falls within the ambit of 6 years and hence added for taxation as unexplained sources towards the interest paid. 4. The Ld. CIT(A) has erred in not considering the fact that the assessee him-self has admitted in the sworn statement that these transactions were not reflected in his personal books of account. 5. The Ld. CIT(A) erred in not appreciating the fact that the assessee has given admission in the statement recorded based on the impounded material marked as Ann/VP/B&D /Imp/03 (pages 01 to 192) which consists the details of interest payments and chit subscriptions made by the assessee with Sri. J. Srinivasan and his business concerns. 6. Any other ground that may be urged at the time of hearing." 3. The Revenue has raised two common issues in all these five appeals i.e., (i) whether the learned CIT(A) has erred in deleting the addition made by the Assessing Officer on account of unexplained investment in subscription of chit and (ii) unexplained expendi....
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....y divided the total amount of Rs. 100 crores in nine years arriving to the average amount of chit subscription of Rs. 11 crores per year and that after extending a benefit of doubt having received a dividend @ 20%, the differential chit subscription amount comes to Rs. 9 crores for the assessment year 2011-2012 and proportionately in the subsequent assessment years. Thus, the learned DR has submitted that once the assessee has not disputed the subscriptions to the chits for a period of nine years then, in the absence of explaining the source of the said subscription of chit the Assessing Officer has rightly made the additions on account of chit subscription for these assessment years. Similarly, for the addition on account of interest payment on borrowed fund the assessee has not disputed the borrowed amount of Rs. 100 crore and repayment of Rs. 196 crore in his statement recorded during the survey. Hence, the Assessing Officer has taken an average amount of Rs. 16 crores per year towards the interest payment on the borrowed fund. The learned CIT(A) has deleted the additions without considering the admitted facts that the assessee has subscribed to the chit and also repayment of th....
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....ive of the Assessee then relied upon the Judgment of Hon'ble Madras High Court in the case of CIT vs. S. Jayalakshmi Ammal [2017] 390 ITR 189 (Mad.) and submitted that a mere statement without there being any corroborative evidence should not be treated as conclusive evidence against the maker of the statement. He has also referred to the CBDT's Instruction in File No. 286/2003 dated 22nd March, 2003 and submitted that the CBDT has advised the Tax Authorities not to obtain a confession of the undisclosed income rather the Authorities focus on collecting the evidence of income which lead to information. Thus, the CBDT has clearly stated that confession during the course of search and seizure and survey operation do not serve any useful purpose in the absence of corroborative evidence. Thus, the learned Authorised Representative of the Assessee has submitted that even during the course of search and seizure operation at the residential premises of Sri J Srinivasan the details found were regarding the outstanding liability of the assessee and no evidence or record was found or seized to show any other transactions of payment by the assessee or repayment of loan or interest. The learne....
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....d to chits were received from various family members and friends and that when the bids were taken the same were distributed among your family members and friends. You have reiterated that the entire transactions with Sri. J Srinivasan are not reflected in the books of accounts of any of your family members. Finally, you have stated that you have contributed to the tune of about Rs. 100 crores in around 200 chit groups run by Sri. J Srinivasan for the last 9 years out of which the bid amounts was about Rs 65 to 70 Crores. vi) You have stated in January 2015 that you have contributed to chits with Sr. J Srinivasan worth about 100 crores for over 9 years as on the day of survey. The number of chit groups mentioned by you was 200 thus averaging about 20/25 chit groups in a year. By averaging the chit subscriptions of 100 crores for 9 years it works out to Rs 11 crores approximate per year. In other words the chit subscriptions made by you during the Assessment year 2011-12. which falls within the ambit of 9 years of chit subscription as claimed by you, which has been contributed by you entirely in cash and out pertinent to mention here that though the bid amount for all chits....
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....ked the assessee to explain the details about the subscription made to the chits based on the statement of the assessee recorded during the course of survey and post survey proceedings. The Assessing Officer has not even referred to any incriminating material either found during the course of search and seizure action in the case of Sri J Srinivsan or during the survey conducted u/sec. 133A of the Act in the case of M/. SV Milk and Milk Products Limited in which the assessee is a Managing Director. The entire addition was made by the Assessing Officer on the basis of the statement and assumption that the assessee has made the investment to the tune of Rs. 100 crores during the 09 years. However, as per the details found during the search/ survey proceedings the only outstanding liability amount of the assessee was recorded to the tune of Rs. 39.48 crores. The Assessing Officer has even not referred the said document in the assessment order while making this addition. Further, the learned CIT(A) has called for a remand report from the Assessing Officer and in the remand report the Assessing Officer has reiterated its stand as reproduced by the learned CIT(A) in Para nos. 6 and 6.1 a....
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.... was added as the unexplained source of investment in unorganized/unregistered chits by the assessee. 1. Loan & Interest repayment: The assessee in the statement recorded on 25.02.2015 has categorically stated that he has borrowed a sum of Rs. 100 crores from Sri J. Srinivasan during the last 6 years and also repaid a sum of Rs. 196 crores being repayment of loan along with interest. Due to non-furnishing of details/explanation, the amount of Interest paid is assessed at Rs. 16 crores per year (Rs. 96 cr/Rs. 6 cr). The interest payment of Rs. 16 crores made during the F.Y 2010-11 falls within the ambit of 6 years and hence added for taxation as unexplained sources towards the interest paid. The assessee had admitted in the sworn statement that these transactions were not reflected in his personal books of account. 5.1. Appeal Proceedings: It was contended that addition cannot be made solely by relying on the statement of the assessee. In support of this, he relied upon the following decisions of various appellate authorities. (i) Decision of Hon'ble High Court of Andhra Pradesh in G. China Yellappa Nizamabad Vs ITO 370 ITR 6....
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....s to what prevented him from obtaining the copies of required seized material. The same fact also not put forth before the Assessing Officer during the course of assessment proceedings in the absence of which the assessment was completed ex-parte u/s. 144 of the I.T. Act. 6. I once again submit that the notice u/s. 148 was issued on 28.03.2018 after obtaining necessary approval from the competent authority. In response thereto, the assessee has filed the return of Income on 17.11.2018 viz after a long period of more than 10 months after issue of notice u/s. 148 which displays his disinclination towards statutory notices issued. Further, the assessee had not requested for supply of reasons for Issue of notice u/s. 148 and not raised objections for issue of such notice u/s. 148. Notice u/s. 143(2) was issued on 29.11.2018, a letter dated 18.12.2018 along with a notice u/s. 142(1) was issued on 18.12.2018 posting the case for hearing on 24.12.2018. On 21.12.2018, the A.R of the assessee filed a letter requesting time till 28-12-2018 on the ground that the Information is not readily available to submit. The assessment proceedings get time barred by 31.12.2018. Hence, the asses....
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....tion 69 of the Act. 7.3.1. The basis for this addition made by the AO lies in the sworn statements of the appellant recorded u/s. 131 on 28.01.2015 and 25.02.2015 during the course of survey under section 133A conducted at his premises, consequent to a search in the case of Shri J. Srinivasan. In those statements, the appellant had indicated that over a period of about nine years he would have subscribed to chit groups conducted by Shri J. Srinivasan to the extent of Rs. 100 crores in the aggregate. The Assessing Officer, in the absence of detailed records, averaged the figure of Rs. 100 crores over nine years, arriving at an annual chit subscription of approximately Rs. 11 crores, and after allowing a notional benefit of 20% towards dividends (only for AY 2011-12), treated Rs. 9 crores as unexplained investment in the year under consideration. It was emphasized in the assessment order that the transactions were admittedly carried out outside the books of account, largely in cash, and hence attracted the deeming provisions of section 69. 7.3.2. The appellant, however, has challenged both the methodology adopted by the Assessing Officer and the conclusions drawn. I....
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....usive. Reliance has also been placed on the CBDT Instruction dated 10.03.2003 cautioning Assessing Officers against basing additions solely on confessions obtained during survey operations. Further, the appellant relied on the decision of the Hon'ble Supreme Court in M/s Sriram Chits & Investments v. Union of India [AIR 1993 (SC) 2063] wherein it affirmed that a chit fund transaction is not a loan or investment but a mutual arrangement among subscribers, where the foreman merely acts as a trustee holding funds on behalf of members. There exists no debtor creditor relationship; each subscriber both contributes to and benefits from a common pool, and the prize amount arises as a contractual right, not as borrowing. The Hon'ble Supreme Court approved the Hon'ble Andhra Pradesh High Court's view in Dhoosa Narasimloo v. Yelala Rajanna that chit funds are essentially organizations for mutual benefit. Hence, the appellant argues, such payments cannot be treated as unexplained "investments" under section 69, as they neither create assets nor yield income. Applying the ratio of this judgment in the backdrop of facts of the case, the appellant submitted that his part....
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....1 to 193) stating these to have supported the additions made in the assessment order while admitting that no year wise quantification of the amounts of loan & interest repayment and subscription to chits was made out of the said impounded material. Refuting the appellant's reliance on CIT v. S. Khader Khan Son (2008) 300 ITR 157 (Mad.), the AO maintained that the ruling was inapplicable since the present additions were not based merely on confession but also on documentary support. In his rejoinders, the appellant emphasized once again that estimation on averages cannot substitute for the statutory requirement of identification of specific investments in a given year. The appellant reiterated that the additions were made only on assumptions and surmises, without even a rudimentary attempt to gather independent evidence, reconcile seized papers, or confront the appellant with year-wise details. 7.3.7. Thus, the controversy on this ground revolves around whether the broad statement of the appellant, lacking in year-wise specificity and uncorroborated by seized material, could form the sole basis for estimating and attributing Rs. 9 crores of unexplained investme....
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.... When the above questions and replies are read in their entirety, it becomes evident that the chit transactions were not independent investments made out of undisclosed income, but rather formed part of a continuous cycle of borrowing and repayment undertaken in a financially strained business environment. The appellant, in his sworn statement, categorically explained that the chit instalments were met out of the very bid amounts received, and that no separate or unaccounted source of funds existed for such payments. The same pool of money rotated between bids, repayments, and settlement of business liabilities. A combined reading of the appellant's statement and the seized documents enclosed with the Assessing Officer's remand report unmistakably shows that the chit dealings were driven by an effort to generate liquidity to sustain the financially distressed company, M/s. S.V. Milk and Milk Products Pvt. Ltd. In this context, it is pertinent to note the appellant's response regarding the seized document depicting the consolidated outstanding balances between the appellant and Shri J. Srinivasan as on the date of search in the latter's case. The said ....
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..... I concur with the view that where the source of payments is traceable to borrowings and bid receipts, and the resultant position is that of a liability rather than an asset, the provisions of section 69-which presuppose an unexplained investment-have no application in such circumstances. The appellant's explanation that the chit dealings constituted cyclical cash movements without any element of unexplained investment stands fully supported by the sworn statements as well as the material on record. Consequently, the inference drawn by the Assessing Officer in treating an estimated sum of Rs. 9 crores as fresh chit "investment" is devoid of factual or evidentiary basis. 7.3.9. The AO's assertion of non-applicability of appellant's reliance on judicial precedents of Hon'ble Andhra Pradesh High Court in G. China Yellappa v. ITO (370 ITR 671), that of the Hon'ble Madras High Court in CIT v. S. Jayalakshmi Ammal (390 ITR 189) and that of Hon'ble Jharkhand High Court in Shree Ganesh Trading Co. v. CIT [2013] 30 taxmann.com 170 (257 CTR 159) is taken note of. The only basis relied upon by the Assessing Officer is the statement of the appellant. However, ....
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....o note that if these are the amounts relating to the amounts outstanding for unpaid chit instalments and loan taken by the assessee then, the question of investment in subscription of the chit does not arise. If the assessee has taken the money by bidding the chit then, the money received by the assessee has to be repaid in the form of chit instalments in the subsequent period and the document which was found during the course of search reveals that the assessee could not pay the chit instalments and hence, the non-payment of chit instalments does not constitute any unexplained investment or undisclosed income of the assessee. Accordingly, in the facts and circumstances of the case and in view of various binding precedents as referred and relied upon by the learned CIT(A) we do not find any error or illegality in the impugned order of the learned CIT(A) and the same is upheld. Issue no. 1 of the Revenue is dismissed. 8. As regards the second issue i.e., addition made by the Assessing Officer towards unexplained expenditure for payment of interest the Assessing Officer has issued show cause notice u/sec. 142(1) of the Act and then made the addition summarily as under: "L....
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....rch/survey proceedings or otherwise brought on record. The learned CIT(A) has deleted the addition on this account in Para nos. 7.4 to 7.4.7 as under: "7.4. Ground No. 4 concerns the addition of Rs. 16,00,00,000/- made by the Assessing Officer under section 69C of the Act towards unexplained expenditure. 7.4.1. Facts and evidences relating to this addition is almost identical to that of the chits and narration of evidences and statements cited at paragraph 7.3 supra is equally applicable here. The Assessing Officer relied upon the sworn statement of the appellant dated 25.02.2015, wherein it was admitted that borrowals of about Rs. 100 crores had been taken from Shri J. Srinivasan over a period of six years and that total repayments including interest aggregated to about Rs. 196 crores. Since no break-up was provided and no supporting evidence was filed, the Assessing Officer allocated the difference of Rs. 96 crores evenly over six years, and brought to tax Rs. 16 crores in the year under appeal as unexplained expenditure on interest repayment. It was also noted that though the appellant mentioned RTGS transactions, he simultaneously admitted that no such borrowa....
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....oney ranging from Rs 10 lakhs to Rs one crore at various intervals of time during the last six years totaling to approximately about Rs 100 Crores excluding interest. Besides this amount borrowed, I have not borrowed any sum of money from Mr J. Srinivasan. 7.4.4. In support of these submissions, the appellant has relied on judicial pronouncements in G. China Yellappa v. ITO (370 ITR 671), CIT v. S. Jayalakshmi Ammal (390 ITR 189), Shree Ganesh Trading Co. v. CIT [2013] 30 taxmann.com 170 (257 CTR 159) and CBDT's Instruction F. No. 286/2/2003-IT(Inv.) dated 10.03.2003. As narrated at para 7.3.6 supra, the AO has distinguished these case laws stating that here the appellant gave the statement himself and has also mentioned clearly that it was out of his own volition. 7.4.5. When the facts of the present case are examined along with seized material, it becomes clear that the addition made by the AO does not rest on any documentary evidence of interest payment in FY 2010-11. What is relied upon is only an aggregate figure mentioned in a statement recorded u/s. 131, applied mechanically over six years. Section 69C requires a finding that "expenditure has been incur....
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.... authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated March 10, 2003, issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements." The same principle was echoed by the Hon'ble Madras High Court in Commissioner of Income-tax, Tiruchirapalli vs. Smt. S. Jayalakshmi Ammal [2016] 74 taxmann.com 35 (Madras)/[2016] 242 Taxman 449 (Madras)/[2017] 390 ITR 189 (Madras) [01-08-2016), where it was observed that unless the Revenue demonstrates that the assessee had no means to meet t 69C cannot be invoked. 7.4.7. In light of the above that the addition of Rs. 16,00,00,000/- under section 69C is not supported by any year-specific material evidencing an actual outgo of interest in FY 2010-11. The Assessing Officer's estimation rests solely on a broad admission without corroboration, contrary to the settled legal position laid down in G. China ....
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....r 2011-2012 is dismissed. 10. Our findings for the assessment year 2011-2012 in Revenue's appeal shall follow mutatis mutandis for the remaining Revenue's appeals i.e., for the assessment years 2012-2013, 2013-2014, 2014-2015 and 2015-2016 and therefore, these Revenue's appeals are dismissed. 11. In the result, all the Revenue's appeals are dismissed. A copy of this common order be placed in the respective case files Order pronounced in the open Court on 03.06.2026. ============= Document 1 20.09.2013 திர௠மà¯à®©à®¿à®šà¯‡à®•à®°à®¨à®¾à®¯à¯à®Ÿà¯ AF Geurteilt . 1.00,00,000 2 -19 மொதà¯à®¤à®®à¯ 12,00,000 : 18.07.13 Lịch LITd. 88,00,000 : மொதà¯à®¤à®®à¯ 41.00,000 = 47,00.000 சà¯à®œà¯†à®•à¯à®·à®©à¯ பாகà¯à®•à®¿ : 1.95,000 மொதà¯à®¤à®®à¯ = 45.05.000 7/9.14/0.20/9 Line.c : 12.00.000 மொதà¯à®¤à®®à¯ = 33,05.000 Hand Loan : 20.00,000 மொதà¯à®¤à®®à¯ : 13.05,000 New Loan Goon eos = ....