₹278.67 Crore Addition on Ex-Andhra CM Y.S. Jagan Mohan Reddy Scrapped by ITAT Over Insufficient Evidence [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) has struck down an addition of ₹278.67 crores imposed on former Andhra Pradesh Chief Minister Y.S. Jagan Mohan Reddy. The tribunal quashed the income tax authorities’ orders due to lack of evidence and jurisdictional errors.

For the Assessment Year 2011-12, Y.S. Jagan Mohan Reddy filed his income tax return, declaring ₹413.36 crores. His case was scrutinized due to a high TDS refund claim, leading to a notice under Section 143(2) of the Income Tax Act, 1961. Initially handled by the Deputy Commissioner of Income Tax ( DCIT ), Hyderabad, the case was later transferred to the Additional Commissioner of Income Tax as part of the Board’s action plan.

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During the assessment, the Assessing Officer (AO) received a report from the Directorate of Investigation, Delhi, alleging unaccounted cash payments from the Dalmia Group to the assessee. The AO issued a notice under Section 142(1), presenting evidence from a search on the Dalmia Group, including account records, emails, SMS logs, and statements of key personnel.

The assessee denied any links with the Dalmia Group, dismissing the allegations as baseless. The AO relied on a search operation conducted in January 2012, which revealed systematic unaccounted cash transactions within the Dalmia Group. A pen drive seized from Joydeep Basu’s residence contained financial data referencing “J.Reddy,” allegedly indicating cash payments of ₹139 crores to the assessee. The AO concluded that Bharati Cement Corporation Ltd.’s shares were sold by Dalmia Bharat Enterprises Ltd. to Parficim (Vicat Group) for ₹146.54 crores, with ₹139 crores allegedly paid to the assessee post-tax deductions. Consequently, the AO assessed ₹95 crores under Section 56(1)(vii) on a protective basis and ₹44.67 crores as taxable capital gains.

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Jagan Mohan Reddy challenged the assessment before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the documents relied upon were found in a third party’s possession and lacked corroborative evidence. The CIT(A) ruled in favor of the assessee, stating that the AO made presumptions without direct evidence. It was noted that the pen drive, which formed the basis of the assessment, was not recovered from the assessee. Additionally, the AO failed to provide an opportunity for cross-examination, violating due process.

The ITAT bench, consisting of K. Narasimha Chary (Judicial Member) and Manjunatha G. (Accountant Member), reviewed the case in detail. It observed that the AO’s claim was based on third-party documents, unverified accounts, and suspicions rather than concrete proof. Employees of the Dalmia Group, including Managing Director Puneet Dalmia, denied knowledge of any such transactions.

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The tribunal noted the observation made by the Supreme Court in A registered Society Vs. UOI, where it has been held that “search material found in any search do not have any evidentiary value and the transactions recorded in such papers etc. would have to be corroborated by independent evidence to proceed against the person, whose names appear as beneficiaries in such documents.”

The ITAT members added that suspicion, however strong, cannot replace evidence. Since the Revenue failed to establish a direct link between the assessee and the transactions, the tribunal upheld the CIT(A)’s decision to delete the additions, dismissing the appeal filed by the Revenue.

To Read the full text of the Order CLICK HERE

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