Pebblebrook Ecoenergies Energy Pvt. Ltd. Vs ACIT (ITAT Chennai)
Seized Tally Records Support Section 68 Addition Despite Disclosure in Audited Accounts: ITAT
Summary: The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), in Pebblebrook Ecoenergies Energy Pvt. Ltd. Vs ACIT and Connected Appeals, ITA Nos. 3319–3322/Chny/2025, dated 26 October 2026, dismissed four connected appeals relating to Assessment Year 2016-17 and upheld additions arising from incriminating material discovered during a search. In the lead appeal, the Tribunal sustained an addition of Rs. 19,50,000 under Section 68 of the Income-tax Act, 1961, holding that merely recording cash receipts in audited books of account did not establish their genuineness or satisfactorily explain their nature and source. The Tribunal further held that where seized documents specifically identified unexplained cash introduced into the assessee company, the addition could be sustained even in an unabated assessment, provided the statutory requirements governing search assessments were satisfied.
The dispute originated from a search conducted under Section 132 on 16 October 2019 in the N.K.V. Krishna Group cases, which included the appellant companies. Pebblebrook Ecoenergies Energy Pvt. Ltd. had originally declared a loss of Rs. 23,057 for Assessment Year 2016-17. Its assessment under Section 153A read with Section 143(3) was completed on 28 September 2021, accepting the returned loss. Subsequently, the Principal Commissioner of Income Tax exercised revisional jurisdiction under Section 263 through an order dated 21 March 2024, directing the Assessing Officer to examine unexplained cash credits reflected in seized records. Pursuant to those directions, the Assessing Officer passed a consequential assessment order dated 11 November 2024, making an addition of Rs. 19,50,000 under Section 68. The Commissioner of Income Tax (Appeals) confirmed the addition, leading to the appeal before the Tribunal.
The addition arose from Tally accounting data maintained by Saravana Kumar, the accounts manager associated with the group, which was seized during the search proceedings. The records contained an entry dated 29 March 2016 for Rs. 19,50,000, described as “Land Advance Received.” The seized annexures recorded cash introduced into various group companies under descriptions such as land advances, share application money and unsecured loans. Statements attributed to Saravana Kumar and N.K.V. Krishna indicated that the relevant entries represented unaccounted cash introduced into group entities. The assessee contended that the amount had already been recorded in its regular books and disclosed in audited financial statements. However, it failed to furnish the identities and addresses of the persons allegedly advancing the money, confirmations from those persons, agreements relating to the proposed land transactions or other supporting evidence establishing the genuineness of the receipts.
A principal argument advanced by the assessee concerned the legality of making additions in an unabated assessment under Section 153A. Relying on the Supreme Court’s judgment in PCIT Vs Abhisar Buildwell Pvt. Ltd., the assessee submitted that additions relating to completed assessments could not be made without incriminating material discovered during the search. The Tribunal accepted the governing legal principle but rejected its application in favour of the assessee. It observed that the search warrant and panchnama established the search proceedings and seizure of records, but their existence alone was insufficient to justify an addition. The incriminating character of the seized material and its connection with the disputed amount also had to be established. In the present case, Annexure III specifically identified the assessee at serial number 43, recording the disputed cash amount for Financial Year 2015-16. The corresponding Tally entries and statements provided further corroboration. Consequently, the Tribunal concluded that the addition was supported by incriminating material having a direct nexus with the assessee and the relevant assessment year.
On the merits of Section 68, the Tribunal emphasised the distinction between disclosure of an accounting entry and satisfactory explanation of the credit. The assessee’s description of the receipt as a land advance did not establish the identity of the person making the advance, the genuineness of the underlying transaction or the actual source of the cash. Although the amount appeared in the company’s audited accounts, the assessee had not produced agreements, confirmations or other independent evidence supporting its explanation. Moreover, the seized records and statements specifically indicated that unaccounted cash had been introduced into group entities through such entries. The assessee did not effectively rebut that material. The Tribunal therefore held that the statutory burden under Section 68 remained undischarged, and the addition of Rs. 19,50,000 was justified.
The assessee alternatively sought telescoping or adjustment of the disputed amount against additional income considered in settlement proceedings involving another group company. It referred to approximately Rs. 13 crore in the case of Golden Shelters Pvt. Ltd., which had been considered before the Interim Board of Settlement. The amount was connected with the disallowance of 10% of unaccounted expenditure aggregating to approximately Rs. 126.96 crore. The assessee argued that the disputed cash credit should be treated as covered by the group’s disclosed or settled income, thereby avoiding further taxation. The Tribunal rejected this contention because the assessee had not demonstrated that its specific receipt of Rs. 19,50,000 formed part of the income considered in those proceedings. It held that additional income assessed or settled in the hands of one group company could not automatically explain cash credits appearing in another company’s books. A clear factual connection between the particular credit and the previously considered income was necessary before telescoping could be permitted.
The Tribunal also rejected the challenge to the validity of the consequential assessment proceedings. It noted that the revisional order passed under Section 263 remained operative and that the assessee had not established any specific procedural or jurisdictional defect sufficient to invalidate the subsequent assessment. The Tribunal further observed that decisions of coordinate Benches relied upon by the assessee could not be applied mechanically without examining the particular seized documents, accounting entries and corroborative statements available in the present case. The existence of incriminating material directly identifying the assessee distinguished the factual circumstances from cases where additions had been made without search-related evidence.
Accordingly, the Tribunal dismissed the appeal of Pebblebrook Ecoenergies Energy Pvt. Ltd. and sustained the addition of Rs. 19,50,000 under Section 68. The findings were also applied to the connected appeals of Hillside Garden Pvt. Ltd., Greenwood Farms Pvt. Ltd. and Avanish Plantations Pvt. Ltd., resulting in dismissal of all four appeals. The decision establishes that, in an unabated search assessment, an addition must be supported by incriminating material connected with the assessee and the relevant year. Once such material exists, disclosure of the receipt in audited accounts does not, by itself, discharge the obligation to establish its nature and source. Similarly, telescoping against income considered in another group entity’s settlement proceedings requires a demonstrable factual nexus and cannot be granted merely because the entities belong to the same business group.
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an addition of Rs. 19,50,000 under section 68 in the lead case concerning cash described as land advances. It held that recording a receipt in audited accounts does not, by itself, explain its nature and source.
The Tribunal found that seized Tally records, annexures and corroborative statements specifically linked the disputed cash to the assessee. It therefore rejected the argument that the addition was impermissible merely because the assessment year was unabated. It also denied telescoping against income considered in another group company’s settlement proceedings because the necessary factual nexus was not established.
Background of Search and Revision
A search under section 132 was conducted on October 16, 2019, in the N.K.V. Krishna Group cases, including the appellant companies.
In the lead case, Pebblebrook Ecoenergies Energy Pvt. Ltd. had declared a loss of Rs. 23,057. Its original assessment under section 153A read with section 143(3) was completed on September 28, 2021, accepting that loss.
The PCIT subsequently passed an order under section 263 on March 21, 2024, directing examination of cash credits aggregating to Rs. 19,50,000 appearing in seized records.
The consequential assessment dated November 11, 2024, treated the amount as unexplained cash credit under section 68. The CIT(A) confirmed the addition.
Cash Was Described as Land Advances
Tally data maintained by the group’s accounts manager, Saravana Kumar, was seized during the search.
The assessee’s bank ledger extracted from that data recorded Rs. 19,50,000 on March 29, 2016, under the narration “Land Advance Received”.
The seized material contained details of cash introduced into group entities under different descriptions, including land advances, share application money and unsecured loans.
Statements attributed to Saravana Kumar and N.K.V. Krishna indicated that amounts in the relevant annexures represented unaccounted cash introduced into group companies.
The assessee relied on disclosure in its books and audited financial statements but did not furnish the identities, addresses, confirmations or agreements of the alleged advance-givers.
Unabated Assessment Argument Rejected on Evidence
The assessee relied on PCIT Vs Abhisar Buildwell Pvt. Ltd., arguing that additions in completed or unabated assessments require incriminating material found during search.
The Tribunal accepted that legal principle. However, it found that the requirement was satisfied here.
The combined search warrant included the assessee, and the panchnama recorded seizure of the identified material. The Tribunal cautioned that a warrant and panchnama alone would not establish an incriminating basis; the contents and their connection with the addition also required examination.
Here, Annexure III identified the assessee at serial number 43 and recorded the disputed amount for financial year 2015-16. The corresponding Tally entries and statements supplied the necessary link.
Book Disclosure Did Not Discharge Section 68 Burden
The Tribunal distinguished between disclosing a credit and satisfactorily explaining its source.
The description “land advance” did not establish who supplied the cash or the underlying proposed transaction. No supporting agreements or other evidence explained the receipts.
The assessee also failed to rebut the specific seized material indicating unaccounted cash.
Accordingly, the Tribunal upheld the Rs. 19,50,000 section 68 addition, finding that the accounting entries alone did not discharge the statutory burden.
Group Settlement Did Not Automatically Permit Telescoping
The assessee alternatively relied on substantial additional income considered before the Interim Board of Settlement, including Rs. 13 crore in Golden Shelters Pvt. Ltd.’s case.
The Tribunal noted that the amount arose in connection with disallowance of 10% of unaccounted expenditure aggregating to approximately Rs. 126.96 crore.
The assessee did not establish that its specific Rs. 19,50,000 receipts were included in the settled income or otherwise covered in a manner warranting relief.
The Tribunal held that income assessed in another group entity does not automatically explain the assessee’s credits. A factual nexus and protection against duplicate relief must be demonstrated.
Other Challenges and Final Decision
The Tribunal rejected the general challenge to the consequential assessment, noting that the section 263 order remained operative and no specific violation establishing invalidity had been demonstrated.
It also held that the cited coordinate Bench decisions could not warrant deletion without examining the specific evidence available in the present appeals.
The lead appeal was dismissed. The same reasoning was applied to Hillside Garden Pvt. Ltd., Greenwood Farms Pvt. Ltd. and Avanish Plantations Pvt. Ltd., whose connected appeals were also dismissed.
All four appeals therefore failed, with the lead addition sustained on both the search-material requirement and section 68 merits.
