ITAT Chennai on Pen Drive Data and Section 153C: Additions Deleted for Lack of Jurisdiction and Evidence

1. Background and Case Overview

The Chennai Bench of the Income Tax Appellate Tribunal in Rangamani Krishnan Vs DCIT (ITAT Chennai) (ITA Nos. 453, 454, 455, 456 & 457/Chny/2025, order dated 17/07/2025) dealt with five connected appeals for Assessment Years 2015-16 to 2019-20.

The dispute arose from additions made under Section 69 of the Income Tax Act 1961 pursuant to proceedings initiated under Section 153C, based entirely on entries recovered from a pen drive seized from the residence of a third party, Mr. Badri Narayan Kota (also referred to as Badri Narayana Choudhary).

The assessee, Rangamani Krishnan, is an individual, a chartered accountant by profession, engaged in audit and consultancy, including income-tax advisory services. He had been filing returns of income regularly and had declared his professional income in all relevant years. His premises were covered during a search under Section 132 conducted on 16.10.2019 in the group case of M/s. Golden Shelters Pvt. Ltd. and NKV Krishna Group.

Although no incriminating material was directly found from the assessee’s premises, the Revenue relied on data in a pen drive seized from Mr. Badri Narayan Kota, an associate of Shri N.K.V. Krishna, to allege that the assessee had received large sums of unaccounted cash. These entries contained brief notings such as “Krishnan Sir” with remarks that the money was given to “Krishnan who is an auditor”.

On this basis, the Assessing Officer invoked Section 153C, issued notices for AYs 2015-16 to 2019-20, and treated the alleged cash receipts as unexplained income under Section 69. The Commissioner of Income Tax (Appeals), Chennai-18, confirmed the additions.

The assessee carried the matter to the Tribunal, raising:

  • a jurisdictional challenge to the very initiation of Section 153C proceedings, and
  • a merits-based challenge to the additions founded solely on pen drive entries seized from a third party.

The Tribunal ultimately allowed all five appeals, holding that:

  1. The Section 153C satisfaction was legally defective and invalid, and
  2. Even on merits, the alleged entries in the pen drive constituted an uncorroborated “dumb document” and could not support the additions.

2. Facts Material to the Dispute

2.1 Assessee’s Regular Returns

The assessee had filed returns under Section 139(1) declaring, inter alia, the following incomes:

  • AY 2015-16 – Rs. 28,19,760
  • AY 2016-17 – Rs. 13,24,410
  • AY 2017-18 – Rs. 32,19,950
  • AY 2018-19 – Rs. 24,62,150
  • AY 2019-20 – Rs. 4,39,170

These returns were already on record prior to the search.

2.2 Search and Seizure and Pen Drive Entries

A search under Section 132 was undertaken on 16.10.2019 in the group case of M/s. Golden Shelters Pvt. Ltd. and **NKV Krishna Group`. The assessee’s premises were covered as part of this operation.

Crucially, the impugned material relied upon for addition was not seized from the assessee but from the residence of Mr. Badri Narayan Kota, an associate of Shri N.K.V. Krishna. A pen drive found there allegedly contained details of cash transactions, with entries such as:

  • “Feb-18 – To Krishnan Sir Income Tax – 2500000 – This is money given to Krishnan who is an auditor”
  • “Jun-16 – Krishnan Sir – 32000000 – This is money given to Krishnan who is an auditor”
  • “Oct-16 – Bharathi-Omr – Krishnan Sir – 17400000 – This is money given to Krishnan who is an auditor”
  • “Oct-16 – Krishnan Sir Income Tribunal – Prajit – 10000000 – This is money given to Krishnan who is an auditor”
  • Other similar lines mentioning “Krishnan Sir” and cash purportedly “given to auditor Krishnan”

The assessee’s full name, PAN, address, or any unambiguous identifier was not present in these digital entries.

2.3 Section 153C Notices and Additions

The case was centralized to Central Circle 1(2), Chennai. Notice under Section 153C was issued on 12.02.2021 for AYs including 2015-16 to 2019-20. The assessee, in response, filed returns under Section 153C reiterating the same incomes as originally filed under Section 139(1).

During assessment, the Assessing Officer issued a show cause notice dated 23.09.2021, confronting the assessee with alleged cash transactions based on the pen drive data. The assessee:

  • categorically denied receipt of any such cash,
  • asserted that he had only rendered legitimate professional services to the N.K.V. Krishna group and had ceased professional association from 2018 onwards, and
  • pointed out the absence of any corroboration like bank entries, investments, asset acquisition, or confirmations.

Despite this, by separate orders dated 29.09.2021 under Section 153C, the Assessing Officer treated the pen drive entries as unexplained income under Section 69 for respective years. Illustratively, the assessed unexplained income included: