DCIT Vs Shanmugham Thiagarajan (ITAT Chennai)
Summary: The Chennai ‘C’ Bench of the Income Tax Appellate Tribunal dismissed four Revenue appeals concerning Shri Shanmugham Thiagarajan and IG3 Infra Limited for AYs 2019-20 and 2020-21. It upheld complete deletion of substantive additions of ₹3,69,77,575 and ₹9,14,90,284 in Thiagarajan’s individual assessments and confirmed the restriction of corresponding additions in the company’s hands to 25%. The dispute arose from a search under section 132 on 3 November 2020 in the IG3 Group, including Thiagarajan’s premises. Assessments dated 31 March 2022 had been challenged before CIT(A)-19, Chennai, whose orders dated 20 February 2026 granted the relief contested by the Revenue.
At IG3 Infra’s business premises, the search team found an Excel file titled “others” on the computer used by accounts executive R. Ramamoorthi. It contained entries of receipts, payments and running balances across FYs 2017-18 to 2020-21, with aggregate alleged cash receipts of ₹13,51,22,303. Another worksheet, “otherscash(2)”, and loose sheets were also examined. The Assessing Officer inferred that expenditure recorded against payments to vendors had subsequently been received back in cash. Physical cash of ₹71,11,060 was found against the regular book balance of ₹1,02,132; the Excel sheet showed ₹70,50,484 as its closing balance on 21 October 2020. The AO treated the approximate correspondence as corroboration and also relied on WhatsApp conversations retrieved from the Managing Director’s devices.
Ramamoorthi stated that he recorded cash transactions on Managing Director Rukmini Thiagarajan’s instructions. Her search statement acknowledged that cash had been received back against booked expenses, while also explaining that a substantial portion was spent for company purposes. Written explanations dated 3 February 2021 stated that the sheet included disclosed bank withdrawals, loans, routine business receipts and payments, and transactions of different group concerns. The assessees disputed the assumption that every inflow represented an independent vendor refund or taxable receipt. They offered aggregate peak credit of ₹2,72,39,040 across the relevant group concerns and years, while acknowledging difficulty in reconciling every entry. The AO rejected the explanation and peak computation for want of documentary support and made substantive additions in Thiagarajan’s hands under “Income from Other Sources”, with matching protective additions for alleged bogus expenditure in IG3 Infra’s hands.
In the individual’s case, the Tribunal found that the file had been recovered from a company employee’s computer, rather than Thiagarajan’s residence, custody or device, and concerned business transactions of the company and group entities. None of the entries established personal receipt, appropriation or beneficial enjoyment by him. No corresponding undisclosed asset, investment, personal expenditure or cash trail was identified in his hands. Statements referring to his directions for group business did not establish that the funds constituted his income. The Tribunal also agreed that a general section 142(1) enquiry did not adequately confront him with the specific proposal to treat the receipts as his personal income, depriving him of an effective opportunity to answer that allegation. The Revenue failed to displace these factual and procedural findings.
On sections 132(4A) and 292C, the Tribunal recognised that seized documents and electronic records attract statutory presumptions, but held that those presumptions could not automatically identify another person as the beneficial owner of the income. The Revenue still needed evidence connecting the company’s records with Thiagarajan personally. Search statements under section 132(4) remained relevant and potentially substantial evidence, but had to be read as a whole: an admission of business cash transactions could not be converted into an admission of undisclosed personal income belonging to someone else. The principles considered in Common Cause (A Registered Society) v. Union of India and CBI v. V.C. Shukla supported examining reliability and personal nexus; they did not nullify the Income-tax Act’s special presumptions. The Revenue’s reliance on B. Kishore Kumar and Smt. N. Saroja did not overcome the factual absence of personal attribution.
For IG3 Infra Limited, the Tribunal separately examined the Revenue’s contention that CIT(A) arbitrarily reduced the additions and should have sustained the entire receipts as bogus expenditure or undisclosed income. The seized file contained negative balances, formula and arithmetic discrepancies, missing carry-forwards and discontinuities, including a negative balance of ₹20,000 on 8 March 2018 and gaps in balances between June 2018 and February 2019. Nevertheless, its repeated cash entries, search statements and the cash found at the premises prevented its wholesale rejection as meaningless. The approximate cash-balance match was a relevant corroborative circumstance, but it could not establish that every historical receipt was independently taxable or that all the entries belonged exclusively to the company.
The Tribunal emphasised the absence of satisfactory transaction-wise and entity-wise verification. The AO had not established a reliable nexus between the aggregate receipts and specific expenditure actually claimed and found fictitious, nor adequately examined disclosed withdrawals, inter-entity movements or possible cash recycling. CIT(A) had also noted that the regular books had not been rejected under section 145 and that specific bogus or inflated expenditure had not been independently identified. The company’s incomplete reconciliation operated against it, but did not justify automatically treating every inflow as income. Likewise, substantive and protective assessments were permissible where genuine doubt existed over the correct person to be taxed; that mechanism could not cure deficiencies in proving the existence, character and quantum of the underlying income.
Regarding estimation, the Tribunal accepted that 25% was neither a statutory formula nor an established industry profit rate. However, the Revenue had not shown that CIT(A)’s estimate was so unreasonable or inconsistent with the available material that the gross additions had to be restored. It produced no properly segregated alternative computation or identified category of independently taxable receipts wrongly excluded. The retained additions of ₹3,21,16,965 exceeded the claimed aggregate peak of ₹2,72,39,040, which afforded some support for the reasonableness of the relief. The Tribunal expressly declined to treat that peak as a conclusive measure of income because it covered several entities and years and had not been conclusively verified. Its significance lay in the need to examine circulating funds rather than assume a fresh accrual of income for each receipt.
Accordingly, the Tribunal upheld deletion of the full ₹12,84,67,859 substantive additions in Thiagarajan’s hands. In IG3 Infra’s assessments, it upheld substantive additions of ₹92,44,394 for AY 2019-20 and ₹2,28,72,571 for AY 2020-21, and deletion of the balance ₹2,77,33,181 and ₹6,86,17,713, respectively. All four Revenue appeals were dismissed. The Tribunal confined its conclusion to the evidentiary and computational deficiencies of these cases and expressly cautioned against reading it as a general rule that electronic records, loose sheets or search admissions cannot sustain tax additions. Such material remains relevant; the taxable nature, ownership and quantum must be determined through a proper appreciation of the transactions and surrounding evidence.
Cases Discussed
- Smt. N. Saroja v. Assistant Commissioner of Income-tax — T.C.A. Nos. 1395 to 1401 of 2009, dated 18.03.2026 (Madras High Court). The Tribunal accepted the statutory evidentiary principles but distinguished the identified property and jewellery transactions there from the deficient personal attribution and gross-receipt computation here.
- Deputy Commissioner of Income Tax v. Sunil Kumar Sharma — [2025] 180 taxmann.com 293, order dated 27.10.2025 (Supreme Court). Cited by the assessee as a dismissal of the Revenue’s SLP concerning the evidentiary basis for assessment.
- Deputy Commissioner of Income Tax v. Sunil Kumar Sharma — [2024] 469 ITR 271 / [2024] 168 taxmann.com 77 (Supreme Court). Paragraph 35 also gives these Supreme Court references while describing dismissal of an SLP against the Karnataka decision.
- Deputy Commissioner of Income Tax v. Sunil Kumar Sharma — [2024] 159 taxmann.com 179 / 469 ITR 197 (Karnataka High Court). The assessee relied on the requirement for corroboration of informal records; the Tribunal considered the principle without treating all seized material as incapable of supporting additions.
- Common Cause (A Registered Society) v. Union of India — [2017] 394 ITR 220 / 245 Taxman 214; (2018) 9 SCC 382 (Supreme Court). Considered for the reliability of informal entries and the need for independent evidence linking another person to the transactions, subject to the Act’s statutory presumptions.
- B. Kishore Kumar v. Deputy Commissioner of Income-tax — [2015] 62 taxmann.com 215 / 234 Taxman 771, SLP dismissed on 02.07.2015 (Supreme Court). The Revenue relied on the evidentiary value of admissions; the Tribunal held that the statements here did not admit personal income of Thiagarajan or establish the gross quantum alleged.
- B. Kishore Kumar v. Deputy Commissioner of Income-tax — [2014] 52 taxmann.com 449 (Madras High Court). Considered for the significance of a clear sworn admission of undisclosed income, while distinguishing the content and attribution of the statements in the present appeals.
- Central Bureau of Investigation v. V.C. Shukla — AIR 1998 SC 1406 / (1998) 3 SCC 410 (Supreme Court). Considered regarding entries in loose sheets and the requirement of corroboration before liability can be fastened on another person.
