ITAT Chennai Quashes Cash Additions Based on Uncorroborated Third-Party Loose Sheets in Bannari Amman Educational Trust Case

Introduction and Background of the Dispute

In a significant judicial pronouncement, the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has resolved a complex batch of cross-appeals involving the assessee, Bannari Amman Educational Trust, and the Revenue department. The legal dispute, encompassing Assessment Years (AYs) 2015-16 and 2017-18 to 2021-22, primarily revolved around substantial additions made by the Assessing Officer (AO) based on third-party documents.

The assessee operates as a registered charitable organization under Section 12AA of the Income Tax Act, 1961, managing educational institutions, specifically M/s Bannari Amman Institute of Technology and M/s Bannari Amman Vidya Niketan Matric Higher Secondary School. The genesis of the dispute can be traced back to a survey action executed under Section 133A of the Income Tax Act, 1961, on the assessee's premises on February 25, 2020. Subsequently, a full-fledged search and seizure operation under Section 132 of the Income Tax Act, 1961, was carried out at the premises of the Chettinad Group.

During the search at the Chettinad Group, investigating officials confiscated three diaries and a folder of loose sheets. The Revenue department theorized that these seized records contained incriminating evidence suggesting that Chettinad Builders Private Limited (CBPL) had received unaccounted cash from M/s Bannari Amman Sugars Pvt. Ltd. (BASPL). The AO extrapolated these findings to conclude that the assessee trust had returned a 15% construction rebate in cash to CBPL, leading to the initiation of proceedings under Section 153C of the Income Tax Act, 1961.

The Core Controversy: Alleged Cash Rebates in Construction

Search Findings and the Assessing Officer's Allegations

The AO's primary argument rested on the premise that the assessee trust was paying back a 15% discount—initially granted on construction invoices by CBPL—in the form of unaccounted cash. To substantiate this, the AO relied heavily on the seized diaries and loose sheets, which contained entries totaling Rs. 9,26,72,850 across various dates between April 2019 and July 2020. Notably, the entries explicitly mentioned "BANNARI AMMAN SUGARS" or "BANNARI AMMAN SUGARS LIMITED" rather than the assessee trust.

The AO scrutinized the construction bills raised by CBPL from FY 2014-15 to 2020-21, which reflected a consistent 15% rebate on the gross value. According to the AO's calculations, the total discount allowed over these years amounted to Rs. 14,34,06,358 against a gross invoice value of Rs. 95,60,42,392.