C. Ramaiah Reddy Vs DCIT (Karnataka High Court)
The Karnataka High Court allowed the assessee Sri C. Ramaiah Reddy’s Income Tax Appeal under Section 260A of the Income Tax Act, 1961, challenging the ITAT Bangalore order dated 10.04.2015 concerning AY 2011-12. A search and seizure action under Section 132 was conducted at the assessee’s premises on 05.07.2011, followed by notice under Section 153A. The assessee had declared income of Rs.23,97,25,550 in the return filed in response. In the assessment under Sections 143(3) read with 153A, the Assessing Officer made an addition of Rs.6,74,320 for unexplained investment in jewellery. The assessee had already offered Rs.50 lakh during the search proceedings under Section 132(4) in respect of jewellery found, while the AO made the further addition based on the valuation report. The CIT(A) dismissed the assessee’s appeal, and the Tribunal partly allowed the appeal but sustained the Rs.6,74,320 addition.
Before the High Court, the assessee submitted that the addition based on the valuation as on the search date could not be made for AY 2011-12 because the search took place on 05.07.2011, corresponding to AY 2012-13. The Revenue supported the Tribunal’s order, relying on the valuation report. The High Court observed that under Section 69B, where an assessee is found to be the owner of a valuable article and the amount expended exceeds the amount recorded in the books, the excess is deemed income for the financial year in which the investment is made or the valuable article is found. Since the search occurred on 05.07.2011, the relevant assessment year was AY 2012-13. Therefore, once the AO proceeded under Section 69B based on the valuation report instead of accepting the Section 132(4) declaration, the addition, if warranted, could only have been made for AY 2012-13 and not AY 2011-12. The Court accordingly held that the Tribunal was not justified in sustaining the addition, set aside the impugned order to that extent, and deleted the Rs.6,74,320 addition for AY 2011-12. Questions relating to jurisdiction and validity of the search were left open as they were not pressed.
