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2026 Supreme(Mad) 1450
IN THE HIGH COURT OF JUDICATURE AT MADRAS
SUSHRUT ARVIND DHARMADHIKARI, CJ, G. ARUL MURUGAN, J.
Principal Commissioner of Income Tax - Appellant
Versus
M.Kiran Kumar – Respondent
TCA No.248 of 2021, CMP N o .6957 of 2021
Decided On : 30-04-2026
For the Appellant : Mr. D.Prabhu Mukunth Arunkumar Senior Standing Counsel
For the Respondent: Mr. N.Murali Kumaran Senior Counsel for M/s.Mc Gan Law Firm
Uncorroborated statements under search cannot sustain additions without evidence; genuine trade advances not deemed dividends u/s.2(22)(e); LTCG exemption upheld absent proof of bogus transactions despite high profits.
Headnote:(A) Income Tax Act, 1961 - Sections 132(4), 153A, 2(22)(e), 10(38) - Search proceedings - Addition of undisclosed income based on statement - Statement recorded during search offered undisclosed income on ad-hoc basis to buy peace, relating to company transactions not individual capacity - No corroborative evidence or incriminating material linking to assessee individually - Department cannot make additions solely on uncorroborated confession, as per CBDT Circulars dated 18.12.2014 and 10.03.2023 - Tribunal correct in deleting addition of Rs.20 crores. (Paras 7, 8, 9)
(B) Income Tax Act, 1961 - Section 2(22)(e) - Deemed dividend - Outstanding balances due to third parties in proprietorship books from genuine purchase-sale transactions of gold jewellery - Running accounts squared off subsequently - Not loans/advances but commercial transactions - No personal benefit to shareholder - Provisions being deeming, to be construed strictly - CBDT Circular No.19/2017 clarifies business transactions outside scope - Tribunal correct in deleting addition. (Paras 13, 14)
(C) Income Tax Act, 1961 - Section 10(38) - Exemption on long-term capital gains - Sale of shares of listed company at high profit - Transactions through banking channels, dematted, STT paid - No evidence of bogus transactions or link to scams - Assessing Officer failed to confront specific evidence - Mere suspicion or abnormal profit insufficient to disallow exemption - Tribunal correct in deleting addition. (Paras 19, 20)
Facts of the case:
Search conducted under Section 132 on business premises including assessee's residence - Assessee, proprietor of gold trading concerns and managing director of jewellery company, offered Rs.30 crores as undisclosed income during search - Assessing Officer added Rs.20 crores for AY 2015-16 as undisclosed income, Rs.76.19 crores as deemed dividend u/s.2(22)(e), disallowed LTCG exemption of Rs.16.24 crores u/s.10(38) - CIT(A) upheld - ITAT deleted additions except unexplained jewellery of Rs.10.17 lakhs - Revenue appealed on substantial questions of law.
Findings of Court:
Tribunal's findings concurred with - No interference warranted as based on facts and evidence - Appeal dismissed.
Issues: Whether Tribunal erred in deleting (1) undisclosed income addition based on uncorroborated statement; (2) deemed dividend u/s.2(22)(e) treating trade advances as loans; (3) LTCG exemption disallowance suspecting penny stock manipulation.
Ratio Decidendi: Additions cannot be made solely on uncorroborated statements without corroborative evidence; genuine business transactions with running accounts not deemed dividends u/s.2(22)(e); LTCG exemption cannot be denied on suspicion alone without specific evidence linking to bogus deals, when statutory conditions satisfied.
Result: Appeal dismissed.
| Table of Content |
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| 1. case background and undisputed facts. (Para 1 , 2) |
| 2. statement u/s 132(4) requires corroborative evidence. (Para 3) |
JUDGMENT :
SUSHRUT ARVIND DHARMADHIKARI, CJ.
This appeal by the Revenue challenges the legality and validity of the order dated 1.3.2021 passed by the Income Tax Appellate Tribunal [ITAT], ‘C’ Bench at Chennai, and the same was admitted by order dated 27.04.2021, on the following substantial questions of law:
“1. Whether the Appellate Tribunal was correct in holding that the admission made by the assessee during the search proceedings is only on an ad-hoc basis, whereas the addition was made on the basis of the statement recorded u/s. 132(4) of the IT Act, and the assessee was unable to reconcile the discrepancies with proper evidences during original proceeding or before appellate authorities?
2. Whether the Appellate Tribunal was correct in deleting the addition of Rs.20 crores without any evidences or records when the assessee has never retracted his statement made u/s.132(4) at any point of time before any authorities?
3. Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in deleting the addition made u/s.2(22)(e) of the Act as a mere trade advances, without appreciating the fact that the two concerns M/s.Marium Creations and M/s. Infinite Jewellers are only paper concerns, doing circular transactions utilized by the assessee with the motive of diverting the funds of M/s. Lalithaa Jewellery Mart Pvt. Ltd to M/s. AK Exports which in turn are ploughed back in the share application money/share premium of the same company i.e., M/s. Lalithaa Jewellery Mart Pvt. Ltd. which is a clear case fall within the ambit of section 2(22)(e) of the IT Act ?
4. Whether the ITAT was right in deleting the disallowance of exempt long term capital gains claim made by the assessee u/s.10(38), when the entire scripts sold belongs to a loss making (penny stock) company having no reserves surpluses/assets and no possibility of earning any dividend income and whose shares were sold by the assessee for 2613% higher than the investment, within a span of 13 months to 21 months, which cannot happen in a normal business transactions, which the ITAT had termed as a genuine transaction?”
2. The undisputed facts of the case leading to filing of the present appeal, which are required to be adverted to, for the disposal of the present appeal are as follows:
(i) The respondent/assessee is an individual and Proprietor of M/s.A.K. Exports and A.K. Jewellers, which is engaged in the business of trading in gold jewellery and bullion. He is also the Managing Director of Lalithaa Jewellery Mart Pvt. Limited.
(ii) A search was conducted on 02.09.2014 under Section 132 of the Income Tax Act in the business premises of Lalithaa Jewellery Mart Pvt. Ltd and Group of Companies, including the residential premises of the respondent/assessee and, consequent thereto, notice under Section 153A of the Act was issued to the respondent/assessee. In response, the respondent/assessee filed his return of income on 14.11.2015, declaring a total income of Rs.1,42,42,750/-, which was the same total income returned in the original return.
(iii) The case was taken up for scrutiny and the Assessing Officer added a sum of Rs.20,00,00,000/- as undisclosed income for the assessment year 2015-16, out of the Rs.30 crores offered by the respondent/assessee during the course of search. The remaining Rs.10 Crores was added in the previous assessment year, i.e., 2014-15.
(iv) The Assessing officer also made an addition of a sum of Rs.76,19,00,000/- as deemed dividend u/s.2(22)(e) of the Act, in the hands of the respondent/assessee, being the cumulative credit balance in the book of M/s.A.K. Exports and due to M/s.Infinity Jewellers and M/s. Mariyam Creations, while holding that the respondent/assessee had indirectly borrowed funds from Lalithaa Jewellery Mart Pvt. Ltd through the books of M/s.Infinity Jewellers and M/s.Mariyam Creat
