Case Law Details
A. Thripurasundari Vs DCIT (ITAT Chennai)
ITAT Chennai held that the scope of assessment after search u/s.153A of the Income Tax Act would be limited to the incriminating material/evidence found during the course of search.
Facts- The first issue raised by assessee in this appeal is against the order of CIT(A) confirming the action of AO in completing assessment u/s.143(3) r.w.s. 153A of the Act in the absence of any incriminating material forming part of the search records indicating generation of undisclosed income.
Conclusion- Hon’ble Bombay High Court in the case of CIT vs. SKS Ispat & Power Ltd. held that the scope of assessment after search u/s.153A of the Act would be limited to the incriminating material/evidence found during the course of search.
As the issue on assumption of jurisdiction on framing of assessment without incriminating material is covered in favour of assessee, respectfully following the decisions of Hon’ble Bombay High Court in the case of SKS Ispat & Power Ltd., and Continental Warehousing Corporation (Nhava Sheva) Ltd., we quash the assessment order and reverse the order of the lower authorities i.e., order of CIT(A) and the order of AO and allow this jurisdictional issue in favour of assessee.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals by the assessee are arising out of the different orders of the Commissioner of Income Tax (Appeals)-19, Chennai in ITA Nos.210, 220, 209 & 211/14-15 of even date 26.09.2016. The assessments were framed by the DCIT, Central Circle III(1), Chennai for the assessment years 2008-09, 2010-11, 2011-12 & 2012-13 u/s.143(3) r.w.s. 153A of the Income Tax Act, 1961m (hereinafter the ‘Act’), vide orders of even date 30.03.2014.
ITA No.3384/CHNY/2019
2. The first issue raised by assessee in this appeal is against the order of CIT(A) confirming the action of AO in completing assessment u/s.143(3) r.w.s. 153A of the Act in the absence of any incriminating material forming part of the search records indicating generation of undisclosed income. For this, assessee has raised following ground Nos.2 & 3:-
2. The CIT(Appeals) erred in confirming the assessment completed u/s 143(3) read with section 153Aof the Act without assigning proper reasons and justification.
3. The CIT(Appeals) failed to appreciate that in the absence of materials forming part of the search records indicating generation of undisclosed income, the search assessment completed by making additions without referring to search materials should be reckoned as bad in law, thereby vitiating the decision/findings rendered /given in para 7.3 of the impugned order.
3. Brief facts are that the relevant assessment year involved is AY 2008-09 and assessee filed original return of income on 30.09.2008 admitting total income at Rs.3,82,06,896/-. The limitation for issuance of notice u/s.143(2) of the Act was expired on 30.09.2009. Subsequently, a search action was conducted in the case of assessee by Income-tax Department on 21.06.2011 u/s.132 of the Act. In response to notice u/s.153A of the Act dated 14.09.2012, the assessee filed return of income on 16.10.2012 admitting total income as originally returned at Rs.3,82,06,896/-. The AO issued notice u/s.142(1) of the Act and the AO proposed to make additions, disallowances in respect of purchase of properties in cash in violation of provisions of section 40A(3) of the Act amounting to Rs.45,50,132/-. Accordingly, the AO completed assessment u/s.153A of the Act and made disallowance of cash payment on account of purchase of properties by invoking the provisions of section 40A(3) of the Act at Rs.45,50,132/-. Aggrieved assessee preferred appeal before CIT(A).
4. The assessee before CIT(A) raised the ground of assumption of jurisdiction by the AO in framing assessment without any incriminating material or seized material since the assessment for the relevant assessment year 2008-09 has abated and hence, the assessment completed u/s. 153A without any incriminating/seized material is bad in law. For this the assessee has raised ground No.3 before CIT(A) which need not be reproduced. The CIT(A) has rejected this ground and dismissed the assessee’s ground by observing in para 7.3 of his appellate order as under:-
“7.3 The Appellant has also raised the issue that the assessment is framed u/s 153A but no incriminating material has been seized and therefore the assessment by making disallowance u/s 40A(3) is not correct. This ground of the Appellant is not admissible as the requirement of Section 153A is to determine the total income of the assessee for the relevant assessment year and the term total income is inclusive of the income determined from seized material and otherwise as well. Therefore, this ground of Appeal is dismissed.”
Aggrieved, now assessee is in appeal before the Tribunal.
5. Before us, the ld. counsel for the assessee stated the bare facts that a search u/s.132 of the Act was conducted on the premises of the assessee on 21.07.2010 and stated that there is no incriminating material unearthed by the Income-tax Department during the course of search which is used for the purpose of framing of assessment u/s.153A of the Act. He argued that the AO has totally placed reliance on the books of accounts for coming to conclusion that the purchases are made in cash whereas these purchases are made by cheque only. The ld. counsel for the assessee drew our attention to the statement of facts filed before CIT(A) which is part of this appeal memo and also the same is reproduced in the order of CIT(A) in para 2.3. The ld. counsel stated that he has filed complete details in regard to payment made by account payee cheque and not in cash. The ld. counsel stated that the CIT(A) on merits has remanded the matter back to the file of the AO for verification but on the issue of assumption of jurisdiction that there is no incriminating material, he has simply brushed aside the total arguments of the assessee.
6. On the other hand, the ld. CIT-DR drew our attention to statement of assessee recorded u/s.132 of the Act, which was also relied on by the ld. counsel for the assessee recorded on 21.07.2010 and subsequently on 21.06.2011. Apart from this, the ld. CIT-DR relied on the judgment of Hon’ble Kerala High Court in the case of CIT vs. Dr. P. Sasikumar, [2016] 387 ITR 8 and particularly drew our attention to the judgment of the Hon’ble Kerala High Court in ITA 169/15 in the case of CIT vs. M/s. ST. Francis Clay Décor Tiles, wherein para 18 last lines and referred to the following “Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke section 153A of the Income-tax Act, 1961.” In view of the above judgment of Hon’ble Kerala High Court in the case of St. Francis Clay Décor Tiles, the ld. CIT-DR stated that even the statement recorded during the course of search of the assessee is a valuable piece of evidence in order to invoke the provisions of section 153A of the Act.
7. We have heard rival contentions and gone through facts and circumstances of the case. Admittedly, this is unabated assessment as the assessment year involved is 2008-09. The assessee filed original return of income on 30.09.2008 and time limit for issuance of notice u/s.143(2) of the Act was expired on 30.09.2009. A search by Income-tax Department was conducted u/s.132 of the Act only on 21.06.2011. The AO issued notice u/s.153A of the Act on 14.09.2012 and subsequently the return filed by assessee in response to notice u/s.153A of the Act was scrutinized and AO from the books of accounts or copies of purchase of properties i.e., property deeds noticed that the assessee has made payments by cash, on presumption basis and made disallowance by invoking the provisions of section 40A(3) of the Act amounting to Rs.45,50,132/- We have gone through the statement recorded from the assessee by the Income-tax Department and the first statement recorded by the Department during the course of search on 21.07.20 10 u/s.132 of the Act, the assessee categorically stated that these purchase of properties and documents found i.e., sale/purchase deed found from the locker No.416 maintained in the Karur Vysya Bank, AC6, LKS Plaza, II Avenue, Anna Nagar, Chennai-40 was accounted for. The relevant question and answer No.4 reads as:-
“4. Now I am showing copy of the documents vide ANN/VK/Locket/S/Sheets1-192 found from Locker No.4 16 maintained in the Karur Vysys Bank, AC6, LKS Plaza, II Avenue, Anna Nagar, Chennai – 40. Kindly explain the same and furnish the details of the source.”
Ans. “These are copies of land documents which have already been accounted”
From the statement recorded on 21.06.2011, the assessee stated that she is partner in partnership firm Emergency Kits India Pvt. Ltd., and Ashok Residency Limited and doing real estate business along with her husband but for maintenance of accounts and details of properties, she stated that she doesn’t know anything, her husband only knows. In such circumstances, whether the details culled out by the AO for making disallowance by invoking the provisions of section 40A(3) of the Act being cash payment for purchase of properties can be called incriminating material. In our view, the AO has entirely based his decision on purchase deeds which are accounted for by the assessee in her books of accounts and it cannot be called that these purchase deeds are unaccounted or incriminating. The assessee while answering to question No.4, she categorically stated that these documents found from locker No.416 maintained in the Karur Vysya Bank, AC6, LKS Plaza, II Avenue, Anna Nagar, Chennai-40 is accounted for.
7.1 This aspect considered by the Hon’ble Bombay High Court i.e., scope of assessment u/s.153A of the Act in the case of CIT vs. SKS Ispat & Power Ltd., [2017] 398 ITR 584 wherein it is held that the scope of assessment after search u/s.153A of the Act would be limited to the incriminating material/evidence found during the course of search and for this, the Hon’ble Bombay High Court placed reliance on CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., 374 ITR 645. The Hon’ble Bombay High Court held in para 5 as under:-
5 We have considered the arguments canvased by the learned counsel for the respective parties. On perusal of Section 1 53A of the Act, it is manifest that it does not make any distinction between assessment conducted under Section 143(1) and 143(3). This Court had occasion to consider the scope of Section 153A of the Act in case of The Commissioner of Income Tax v. Gurinder Singh Bawa and in the case of The Commissioner of Income Tax v. Continental Warehousing Corporation & Anr.(referred to supra). It has been observed that Section 153A cannot be a tool to have a second inning of assessment either to the Revenue or the Assessee. Even in case of The Commissioner of Income Tax v. Gurinder Singh Bawa (referred to supra) the assessment was under Section 143(1) of the Act and the Court held that the scope of assessment after search under Section 153A would be limited to the incriminating evidence found during the search and no further. In the said Judgment, the Judgment of this Court in The Commissioner of Income Tax v. Continental Warehousing Corporation & Anr. (referred to supra) has been followed.
7.2 As the issue on assumption of jurisdiction on framing of assessment without incriminating material is covered in favour of assessee, respectfully following the decisions of Hon’ble Bombay High Court in the case of SKS Ispat & Power Ltd., and Continental Warehousing Corporation (Nhava Sheva) Ltd., supra, we quash the assessment order and reverse the order of the lower authorities i.e., order of CIT(A) and the order of AO and allow this jurisdictional issue in favour of assessee.
7.3 As regards to merits of the case, we are refraining ourselves from adjudicating the same as we have already quashed the assessment order and allowed the appeal of assessee. Therefore, this appeal of the assessee is allowed.
ITA Nos.3385, 3386 & 3387/CHNY/2019
8. The first common issue in these three appeals of assessee is as regards to the orders of CIT(A) confirming the action of AO in assuming jurisdiction u/s.153A of the Act.
9. At the outset the ld.counsel for the assessee firmly admitted that in these three assessment years i.e., assessment year 2010- 11, 2011-12 & 2012-13, the assessments have abated in view of the search conducted by the Income-tax Department on 21.06.2011 as the returns filed originally by the assessee have not attained Hence, this issue is dismissed as the original assessments have abated in term of the search conducted by the Income-tax Department on 21.06.2011 and hence, the Department can frame assessments u/s.153A of the Act. Hence, we find no ground to allow this issue and accordingly this common issue in all these three years is dismissed.
10. The next common issue in these three appeals on merits, is as regards to the orders of CIT(A) setting aside the issue for verification of payments made by cheque or cash on account of purchase of properties in term of section 40A(3) of the Act. For this assessee has raised identically worded grounds in all these three years and issue is exactly identical except the quantum. Even the assessment order for all these three years and the order of CIT(A) is also identical. Hence, we will take the facts from assessment year 2010-11 in ITA No.3385/CHNY/2019 and will decide the issue. The grounds raised on merits are from Ground Nos.6 to 11, which are argumentative, exhaustive and factual and hence, need not be
11. A search u/s.132 of the Act was conducted on the business and residential premises of the assessee on 21.06.2011 and assessee for the relevant assessment year 20 10-11 filed her return of income originally on 11.10.2010 admitting total income of Rs.3,95,430/-. Consequent to search, notice u/s.153A of the Act was issued and in response to notice the assessee filed the same return of income on 16.10.2012 repeating the same total income at Rs.3,95,426/-. The AO on perusal of the copies of purchase of properties noticed that the assessee has paid a sum of Rs.5,46,375/- i.e., purchase of land at Avadi in cash and hence, he proposed to disallow the same u/s.40A(3) of the Act, for the reason that the assessee failed to prove that the payment was made by account payee cheque or account payee DD. The assessee before AO vide letter dated 24.03.2014 replied that the sum of Rs.5,46,375/- was paid for purchase of land at Avadi by cheque and the same can be verified from the documents. Since the assessee failed to provide any evidence, the AO invoking the provisions of section 40A(3) of the Act made disallowance of payment made of Rs.5,46,375/- and added to returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).
12. The assessee before CIT(A) filed details of payments made by cheque in regard to purchase of land at Avadi. The CIT(A) after considering the details of payments made by cheque in regard to purchase of this Avadi land and additional evidences filed before him, noted that the issue needs verification whether the payment in respect to certain payments are made by cash or by cheque and hence, he remanded the matter back simply for verification, whether the payment is in cash or in cheque. For this, he observed in his appellate order as under:-
“From the above report of the Assessing Officer which was also confronted to the Appellant who gave his comments on the Remand Report by still stating that the mode of payment was by cheque in certain cases. In view of the situation, it is observed that the question that whether the payment in certain transactions were made by cash or cheque is a issue of verification and fact. The same can be verified while giving appeal effect in the present case. The Assessing Officer can go through the documents submitted during the course of assessment as mentioned by the Assessing Officer in the assessment order and on carrying out the necessary verification if it is found that the payments are in cheque then obviously the provisions of section 40A(3) would not get attracted and if the payments are by cash then provisions would get attracted and the amount of expenditure would be disallowed as per the provisions of the Act.
It is noted that the exceptions provided under Rule 6DD are not applicable in the case of the Appellant.”
Aggrieved now assessee is in appeal before the Tribunal.
13. We have heard ld. counsel for the assessee as well as ld. CITDR. The ld. counsel for the assessee made one more argument before us that the assessee’s husband has number of vacant lands in the name of assessee for which consideration was paid out of his own funds. The ld. counsel argued that all such vacant lands were transferred to assessee’s account to enable the assessee to carry on the business of the real estate and the assessee has not made payment for such transfer of lands in the assessee’s books of accounts, the cost of lands so transferred were credited to the account of assessee’s husband Shri Asokan. It was contended by ld.counsel for the assessee, that she furnished copies of documents for purchase of real estate stock and also furnished the mode of payment of consideration made by assessee’s husband Shri S. Asokan which was not verified either by the AO or CIT(A). The ld.counsel argued that once this payment is not made by assessee for transfer of such land rather it is a book entry and hence, this cannot be considered as cash purchase in violation of provisions of section 40A(3) of the Act.
14. After hearing both sides and going through facts of the case, we noted that the assessee is able to produce some documents / credits whether the payment is in cash or by cheque. This needs verification. Hence, we find that the CIT(A) has rightly remanded the matter back to the file of the AO for verification whether the mode of payment for purchase of land is by way of account payee cheque or Demand Draft or in cash. If the AO comes to conclusion that the mode of payment is by account payee cheque or account payee DD, he will not make any disallowance, otherwise the disallowance will be as it is in violation of section 40A(3) of the Act. In term of the above, the AO will verify the mode of payment of transaction and will decide the same. Similar are the facts in assessment years 2011-12 & 2012-13 and hence, taking a consistent view we affirm the order of CIT(A) remanding the matter back to the file of the AO on similar directions.
15. The next common issue in ITA Nos.3385 & 3386/CHNY/2019 for assessment years 20 10-11 & 2011-12 is as regards to the order of CIT(A) confirming the action of the AO in making addition of closing stock being fee paid for CMDA approval and development expenses incurred amounting to Rs.4,62,411/- and Rs.6,00,000/- respectively.
16. At the outset, it is noticed that these two issues for assessment year 20 10-11 & 20 11-12 were not at all adjudicated by CIT(A) and for this, both the ld.CIT-DR as well as the ld.counsel for the assessee agreed. Since there is no adjudication of these two issues, these two issues may be referred back to the file of AO instead of CIT(A), hence we remit these two issues back to the file of the AO who will decide afresh after taking evidences from the assessee. Accordingly, this common issue is allowed for statistical purposes.
17. The next issue in ITA No3387/CHNY/2019 for assessment year 2012-13 is as regards to the order of CIT(A) confirming the action of AO in making addition on account of agricultural income of 5,00,000/- treating the same as ‘income from other sources’.
18. We have heard rival contentions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee has declared agricultural income of Rs.5,00,000/- for the first time and amount was deposited in the bank account on single day i.e., 09.2011. The assessee claimed vide letter dated 24.03.2014, before AO, that the assessee owned agricultural land in Kolapakkam, Baraniputhur, Thirupachur, Noombal, Pakkam Village and earned agricultural income from agricultural operations once in a year but AO noted that the land at Kolapakkam and Tirupachur were sold this year and last year and hence, this amount of Rs.5,00,000/- credited on 06.09.2011 in assessee’s bank account was assessed as ‘income from other sources’. The CIT(A) has not adjudicated this issue. Now, assessee before us contended that the assessee is holding 42 acres of agricultural land and hence, this issue be remanded back to the file of the AO for verification of facts and examining the evidences. After hearing both the sides and going through the case records, we feel that to meet the ends of justice, we remit this issue back to the file of the AO who will examine the evidences and after that decide whether the agricultural income is to be assessed as ‘agricultural income’ or ‘income from other sources’. In term of the above, this issue of assessee is allowed for statistical purposes.
19. In the result, the appeals filed by the assessee in ITA No.3384/CHNY/2019 is allowed and ITA Nos.3385, 3386 & 3387/CHNY/2019 are partly allowed for statistical purposes.
Order pronounced in the open court on 14th June, 2023 at Chennai.
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