Section 153D Approval, Protective Additions and De Novo Assessment in Search Cases: Analysis of ITAT Chennai’s Decision in Periyasamy Anbunathan Vs DCIT

1. Background of the Case and Procedural History

The Chennai Bench of the ITAT dealt with a group of appeals and cross-objections concerning Assessment Years 2014-15 to 2017-18 in the case of Periyasamy Anbunathan Vs DCIT, arising from a search conducted under Section 132 of the Income Tax Act 1961.

The proceedings involved:

  • Protective additions running into more than ₹200 crore based on notings in seized account books
  • Alleged undisclosed income from finance and commission business
  • Unexplained investment in property
  • Cash discovered during search

The Tribunal passed a consolidated order disposing of:

  • Revenue’s appeals for multiple years
  • Assessee’s appeals
  • Assessee’s cross-objections for specific years

The central controversy revolved around:

  1. Whether the protective additions in the assessee’s hands could survive once substantive assessments in the hands of a third party (Shri N.R. Viswanathan) under Section 153C had been quashed
  2. Whether the assessments were time-barred
  3. Whether the approval under Section 153D was invalid for alleged non-application of mind
  4. The proper treatment of additions relating to unaccounted finance/commission income, property investments and cash

2. Key Facts Emerging from the Search and Statements

2.1 Search and Seizure

A search under Section 132 was carried out at the premises of the assessee on 22.04.2016. During the search, the following were seized/found:

  • Six handwritten/seized account books, ID-marked as ANN/FAY/CPA/B&D/S-1
  • Cash of ₹4.77 crore

In the initial Section 132(4) statement, the assessee:

  • Accepted that these seized books recorded transactions of his real estate and finance/commission activities
  • Admitted that the cash found emanated from his own undisclosed business operations
  • Agreed that this income was not recorded in the regular books of account

Subsequently, in his statement dated 02.07.2016, he:

  • Accepted that multiple finance concerns under his control had received funds
  • Claimed that these were business loans from concerns of one Shri Parasmal Lodha, taken against his personal guarantee

Throughout this initial phase, the assessee consistently maintained that:

  • He was running real estate and finance businesses
  • The notings in the seized account books represented his own business dealings

2.2 Later Statements and Conflicting Versions

On 03.04.2017, the assessee was summoned under Section 131 and gave a substantially different version:

  • He partly retracted his earlier statements
  • He stated that notings against codes such as “RV”, “RV-I”, “RV-III”, “RV-IV”, “RV Gopi”, “RV Wife” actually represented transactions of Shri Natham R Vishwanathan (NRV)
  • He asserted that 38 finance firms controlled by him had received funds which, after excluding internal and RVS-related dealings, left a balance of ₹205 crore allegedly belonging to Shri NRV
  • He claimed that this amount was withdrawn in cash and handed over at the residence of Shri NRV

Simultaneously, the assessee:

  • Admitted to unaccounted finance income of ₹34 crore in relation to specific entries in ANN/FAY/CPA/B&D/S-1

On 10.04.2017, he:

  • Furnished a break-up of his unaccounted interest and investment income allegedly totalling ₹40.77 crore from the seized books
  • Also admitted an additional ₹30.90 crore as unaccounted cash component in the acquisition of Hind Mercantile Corp Pvt Ltd (HMCPL)

Thus, at that stage, the assessee’s own admissions cumulatively covered:

  • ₹40.77 crore – unaccounted investment/interest income from seized books
  • ₹30.90 crore – additional unaccounted income for purchase of HMCPL

Total: ₹71.67 crore admitted in his own hands.

In addition, he stated that ₹205 crore belonged to the various finance firms, offering that those concerns would pay tax on that amount.

2.3 Retractions and Affidavits

On 09.05.2017, the assessee partly rolled back his version of 03.04.2017 and 10.04.2017:

  • He retracted to the extent of earlier saying the ₹205 crore belonged to Shri NRV
  • He now claimed that those entries represented cheques/RTGS transactions of the 38 finance concerns in their own right
  • He submitted that those firms would offer the relevant income to tax

To support this, he:

  • Filed a sworn affidavit reiterating that the notings in ANN/FAY/CPA/B&D/S-1 related to his and his group’s business activities
  • Filed affidavits from partners of the finance firms
  • Filed a detailed letter explaining the disclosure mechanism for ₹205 crore

After this, he was again summoned under Section 131 and, in cross-examination on 06.06.2017:

  • He reaffirmed his original Section 132(4) statement
  • Categorically accepted that the seized books and loans in the names of the finance firms were his
  • Confirmed that he had voluntarily disclosed ₹205 crore for taxation in the hands of the firms

Thus, at that point, the admitted undisclosed amounts were:

  • ₹71.67 crore: in the assessee’s own hands
  • ₹205 crore: in the hands of the respective finance concerns

The Tribunal also recorded that later, by letter dated 28.12.2018, the assessee again sought to revert to his earlier version of 03.04.2017 and 10.04.2017, claiming the ₹205 crore related to Shri NRV.

3. 153A Proceedings and Disputed Additions

3.1 Issue of Notices and Returns under Section 153A

The case was centralized and notices under Section 153A were issued on 05.02.2018 for AYs 2014-15 to 2017-18.

In response, the assessee filed returns under Section 153A, offering additional undisclosed income of ₹40,77,13,731/- across years as under:

  • AY 2014-15 – ₹32,81,86,787
  • AY 2015-16 – ₹6,39,58,781
  • AY 2016-17 – ₹1,55,68,163
  • AY 2017-18 – Nil

3.2 Summary of Major Additions in Dispute

The Assessing Officer (AO) made the following significant additions, which became the subject of the cross-appeals:

  • Notings in seized account books ANN/FAY/CPA/B&D/S-1 – on protective basis
    • AY 2014-15 – ₹273,96,25,060
    • AY 2015-16 – ₹247,31,20,000
  • Unaccounted income from finance & commission business – ₹12,82,07,552 (AY 2015-16 – partly sustained later)
  • Unaccounted investment in property relating to HMCPL – ₹39,78,00,000 (AY 2016-17)
  • Addition towards cash found and seized – ₹4,87,33,820 (AY 2017-18)

The most contentious issue was whether the large notings recorded under various “RV” codes in ANN/FAY/CPA/B&D/S-1 represented income of the assessee or of Shri N.R. Viswanathan.

4. Protective vs Substantive Additions: Impact of Quashing of 153C Proceedings of Shri N.R. Viswanathan

4.1 Basis of Protective Additions in the Assessee’s Case

For AY 2014-15 (and similarly for other years), the AO: