Duraisamy Parameswaran Vs ACIT (ITAT Chennai)
Introduction: The Duraisamy Parameswaran Vs ACIT case is a landmark ruling by the Income Tax Appellate Tribunal (ITAT) in Chennai. It pertains to the taxation of agricultural income under Section 68 of the Income Tax Act. This analysis aims to shed light on the judgment, its implications, and why it is critical for taxpayers involved in agricultural activities.
Key Issues Addressed
Assessment Years and Agricultural Income: The case involved assessments for the years 2013-14 to 2015-16. The main point of contention was the treatment of agricultural income earned by a Hindu Undivided Family (HUF) entity, and whether it should be considered as the income of the individual assessee.
Absence of Incriminating Material: The tribunal emphasized the necessity for incriminating material to validate the addition of agricultural income under Section 68, in line with the Supreme Court’s ruling in the case of DCIT vs. U.K. Paints (Overseas).
Legal Grounds for Appeal: An additional ground of appeal questioned the validity of the added income, claiming it was unsubstantiated by any incriminating evidence.
Detailed Analysis
Why Incriminating Material is Crucial: According to the ITAT, the absence of any incriminating material means that no addition could be made for the years in question. This is in compliance with a Supreme Court decision, which set the precedent for similar cases.
HUF Vs Individual Capacity: The original assessing officer treated the agricultural income as the individual’s unaccounted income. The tribunal, however, noted that if no incriminating material exists that indicates the income belongs to the individual rather than the HUF, it should not be added to the individual’s income.
Implications on Section 68: The ruling clarifies that Section 68 cannot be invoked arbitrarily to tax agricultural income. The income can only be treated as unaccounted income if there is incriminating material to support the claim.
Conclusion: The Duraisamy Parameswaran Vs ACIT ruling is a seminal case that sets a precedent for the treatment of agricultural income under Section 68 of the Income Tax Act. It underlines the importance of incriminating material in making additions to the income for tax assessment and offers clarity on how agricultural income should be treated for HUFs and individual taxpayers alike.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeals by assessee for Assessment Years (AY) 2013- 14 to 2015-16 arises out of common appellate order passed by learned Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)] on 19-09- 2022 in the matter of separate assessments framed by Ld. Assessing Officer u/s 143(3) r.w.s. 1 53C on 16.08.2021. In all the appeals, the assessee is aggrieved by the direction of Ld. CIT(A) that the agricultural income earned by HUF entity was to be considered in the hands of the assessee.
2. The Ld. AR, at the outset, drew our attention to additional ground of appeal no.2 filed in all the captioned years and submitted that in the absence of any incriminating material, no additions could have been made by Ld. AO for unabated years in terms of the recent decision of Hon’ble Supreme Court in the case of DCIT vs. U.K. Paints (Overseas) (150 Taxmann.com 108). The copy of the judgment has been placed on record. The additional ground raised for AY 2013-14 read as under: –
2. Without prejudice to the above, that the addition of Rs.5,25,000/- made u/s 68 of the Act is without reference to any incriminating material found during the course of search, hence the same is not valid and liable to be deleted.
Similar grounds have been raised in other two years. The Ld. CIT-DR, on the other hand, opposed admission of additional ground and pleaded for confirmation of impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
3. So far as the admission of legal ground is concerned, we rely on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (97 Taxman 358) and admit the aforesaid additional Since the legal ground goes to the root of the matter and the same is stated to be covered by the decision of Hon’ble Apex Court, the same is adjudicated first. The assessee being resident individual is stated to be engaged in road transportation business.
Proceedings before lower authorities
4.1 From case records of AY 2013-14, it emerges that a search and seizure operation u/s.132 of the Act was conducted in the case of Shri Danda Brahmanandam and Shri Javvaji Ramanjaneyulu on 21-02-201 9. During those proceedings, the assessee was also subjected to search proceedings and consequently, an assessment was framed u/s. 143(3) r.w.s 1 53C of the Act.
4.2 During the course of search, certain incriminating materials were seized vide Annexure ANN/KAR/PAR/LS/S dated 21-02-2019 which contained details of alleged unexplained investment of Rs.2 Crores by the assessee for purchase of property during Financial Year 2015-16. Accordingly, notices u/s.153C was issued to assessee for various years. In response, the assessee offered income of Rs.2.51 Lacs and filed requisite details as called for by Ld. AO. It transpired that the assessee claimed agricultural income of Rs.10.25 Lacs in hands of HUF entity. The assessee, in his receipts and payments account, claimed agricultural income of Rs.5.25 Lacs and submitted that agricultural income belonged to HUF only. However, in the absence of cogent evidences forthcoming from the assessee, in this regard, Ld. AO held that there was no HUF. The claim of Rs.5.25 Lacs as made by the assessee in individual capacity was not acceptable. Accordingly, this income was treated as unaccounted income u/s 68 and added to the income of the assessee.
4.3 In AY 2014-15, Ld. AO made similar addition u/s 68 for Rs.10.25 Lacs. In this year, Ld. AO made another addition of Rs.2.65 Lacs which represent alleged unaccounted commission earned by the assessee. However, this addition is not subject matter of appeal before us. In AY 2015-16, Ld. AO made sole addition of agricultural income for Rs.15 Lacs in similar manner.
4.4 Upon further appeal, Ld. CIT(A), by way of common order, held that the assessee obtained agricultural land only through settlement deed. Once the settlement deed is executed, the assessee becomes individual owner of the property and therefore, the income arising therefrom has to be assessed in the status of individual only. Accordingly, impugned addition made u/s 68 was to be deleted. The Ld. AO was directed to treat the agricultural income in the individual capacity of the assessee rather than in the hands of HUF and consider the same in computing the tax. Accordingly, the appeals were partly allowed. Aggrieved, the assessee is in further appeal before us.
Our findings and Adjudication
5. From the facts, it emerges that the impugned addition is not based on any incriminating material as found by the department during the curse of search proceedings. Admittedly, on the date of search, no assessment proceedings were pending in any of the captioned years and the assessment had attained finality. In such a case, no addition could have been made by revenue in terms of the cited decision of Hon’ble Apex Court in DCIT vs. U.K. Paints (Overseas) Ltd. (150 Taxmann.com 108). In this decision, Hon’ble Court followed its earlier decision rendered in Pr. CIT vs. Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399) and held that where no incriminating material was found in case of any of assessee either from assessee or from third party, High Court rightly set aside assessment order passed under section 153C. In the present case, the facts are similar. There is nothing on record which would show that any incriminating material was found during search operation which would show that the agricultural income belonged to the assessee instead of HUF. Therefore, respectfully following the biding judicial precedent, we would hold that the aforesaid agricultural income is not to be considered in the hands of the assessee. The additional ground no.2 stand allowed in all the years which render delving into other grounds mere academic in nature.
6. All the appeals stand allowed in terms of our above order.
Order pronounced on 09th August, 2023.
