Case Law Details
Estate of Late Smt. Jayanthi Krishnamurthy Vs ACIT (ITAT Chennai)
The Estate of Late Smt. Jayanthi Krishnamurthy Vs ACIT case by ITAT Chennai brings to light several important legal facets pertaining to the Indian Income Tax Act. Specifically, the ruling touches upon the intricacies of Section 153A, and when additions to income can be made following a search operation. This article aims to provide a comprehensive analysis of the case, its implications, and its alignment with prior legal precedents.
The Core Issue
The primary issue centers around whether additional income can be assessed under Section 153A, particularly if no incriminating material was found during a search operation and if the assessment has been concluded or is ‘unabated’. The assessee argued that the assessment for AY 2005-06 was unabated as of the date of search, which was 16.05.2007. Importantly, the deadline for the issuance of notice under Section 143(2) had expired much earlier on 31.07.2006.
Previous Legal Precedents
The counsel for the assessee relied heavily on the Supreme Court’s ruling in the case of PCIT v. Abhisar Buildwell Pvt. Ltd., which establishes that no addition can be made in the absence of incriminating material if the assessment is unabated.
Counter Arguments from Revenue
On the other hand, the Revenue argued that once a search takes place, the Assessing Officer (AO) has jurisdiction to assess or reassess the total income for six years preceding the assessment year when the search occurred. Thus, according to them, the addition made towards ‘unexplained cash credit’ was legitimate.
Court’s Ruling
The Court, after analyzing all submitted materials and arguments, concurred with the assessee. It cited the Supreme Court’s decision, as well as a similar ruling by the Delhi High Court in the case of PCIT v. Meeta Gutgutia, emphasizing that in the absence of any incriminating material, no addition can be made.
Implications
This ruling reinforces the significance of ‘incriminating material’ in reassessments under Section 153A. It serves as a key reference point for similar cases and clarifies the limitations of the AO’s powers in making additions after search operations.
Conclusion
The case of Estate of Late Smt. Jayanthi Krishnamurthy Vs ACIT adds another layer of understanding to the complexities of Section 153A of the Income Tax Act. It substantiates the view that additional income cannot be assessed in the absence of incriminating material if the assessment is unabated.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-19, Chennai, dated 07.02.2017, and pertains to assessment year 2005-06.
2. The assessee has raised the following grounds of appeal:
1. The order of the learned CIT (A) is contrary to law, facts, evidence on record and circumstances of the case and opposed to fair procedure and principles of legitimate expectation.
2. The learned CIT (A) ought to have appreciated that AO lacks jurisdiction and consent cannot confer jurisdiction and also erred in taking up the case for scrutiny the norms and the AO had not made any detailed enquiry and assumed the “jurisdictional fact” erroneously without any materials.
3. The learned CIT(A) erred in confirming the sum of Rs.10,40,000/-in the previous year relevant to the Asst year 2005-06 without considering the source for the investment and without giving opportunity for the same
4. The learned CIT(A) officer ought to have appreciated the fact that the appellant has requested the AO for the verification of the source for the said capital investment and without considering the details submitted the CIT(A) erred in dismissing the appeal by confirming the addition made by the Assessing Officer.
5. The learned CIT(A) erred in dismissing the appeal by relying on certain judgments which cases are not applicable on the facts of the case since the appellant had proved the source for the investments and the said investment is not in the Asst. year 2005-06.
6. The Id. CIT(A) ought to appreciate that after giving finding that there exists Agriculture Income from the Agriculture activity, he erred in treating the Agriculture Income as Income which finding is against law and facts of the case and beyond the legislative competence of the central Government to tax Agriculture Income.
7. The learned CIT (A) ought to have appreciated that the provisions of section 234B & C is not applicable to the facts of the case.
8. The appellant craves leave to file additional grounds.
3. At the outset, we find that there is a delay of 352 days in appeal filed by the assessee, for which, a petition for condonation of delay along with Affidavit explaining reasons for delay, has been filed. The Ld. Counsel for the assessee referring to petition filed by the assessee submits that the assessee is a daughter-in-law of Late Smt. Jayanthi Krishnamurthy. She passed away on 07.07.2015 leaving behind her son Late K. Thendral Kumar. Further, Mr. K. Thendral Kumar died on 18.03.2017 and present legal heir became heir to the assessee and she came to know about pending Income Tax proceedings through the Counsel representing the case before the authorities. She had taken steps to file appeal and in the process, there was a delay of 352 days, but such delay is neither intentional nor for want of any undue benefit but beyond the situation which arose because of death of the assessee and her son, and thus, requested to condone the delay in filing of the appeal.
3.1 The Ld.DR present for the Revenue fairly agreed that the delay in filing of the appeal may be condoned in the interest of justice.
3.2 We have heard and considered the relevant contents of petition filed by the assessee for condonation of delay and after considering relevant pleadings, we find that there is a reasonable cause for not filing the appeal within due date prescribed under the Act, and thus, in the interest of advancement of substantial justice, the delay in filing of the appeal is condoned and appeal filed by the assessee is admitted.
4. The brief facts of the case are that a search and seizure u/s.132 of the Income Tax Act, 1961 (in short “the Act”), was conducted in the residence of the assessee on 16.05.2007. Consequent to search, notice u/s.153A of the Act, was served on the assessee calling for true and correct return of income for AY 2005-06. In response to notice u/s.153 of the Act, the assessee has filed her return of income on 28.10.2009. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee had filed her return of income u/s.139 of the Act. It was further noticed that the assessee has introduced a capital of Rs.10,40,000/- in Dragon Movies. Since, the assessee could not explain source for capital, the AO has made addition of Rs.10,40,000/- as unexplained cash credit. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeed. The Ld. CIT(A) for the reasons stated in their appellate order dated 07.02.2017, sustained the additions made by the AO towards unexplained cash credit. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
5. The Ld.AR for the assessee, at the time of hearing, referring to ‘memorandum of additional grounds of appeal’ filed by the assessee submits that the assessee has taken a legal ground challenging validity of additions made towards unexplained cash credit in the assessment framed u/s.153A r.w.s.143(3) of the Act, in absence of incriminating material found as a result of search in light of decision of the Hon’ble Delhi High Court in the case of PCIT v. Meeta Gutgutia reported in [2017] 395 ITR 526 (Del.). The Ld. Counsel for the assessee further submits that additional grounds taken by the assessee, is purely legal ground which can be raised at any time of proceedings, including pending proceedings before the Tribunal, and thus, submits that additional grounds filed by the assessee may be admitted to decide the issue on merits.
6. The Ld.DR present for the Revenue opposing the additional grounds filed by the assessee submits that the assessee could not make out a case ‘as to why’ legal ground challenging validity of addition made in the assessment has not been taken before the Ld.CIT(A). Further, the assessee could not explain ‘as to how’ fact related to said issue was before the AO when the assessment has been completed u/s.153A of the Act. Therefore, he submits that additional grounds filed by the assessee cannot be admitted.
7. We have heard both the parties, perused the petition filed by the assessee for admission of additional grounds and after considering relevant facts brought on record, we find that legal ground taken by the assessee in light of certain judicial precedents is purely a legal issue which can be raised at any time of proceedings, including pending proceeding before the Tribunal, and thus, by following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT reported in [1998] 229 ITR 383 (SC) admitted additional grounds for adjudication.
8. The Ld. Counsel for the assessee referring to dates and events submits that the assessment for AY 2005-06 has been unabated/concluded as on the date of search, because, in the present case, search was taken place on 16.05.2007, whereas, the due date for issuance of notice u/s.143(2) of the Act, has been expired on 31.07.2006 i.e. much before the date of search on 16.05.2007. Since the assessment is unabated, no addition can be made in absence of incriminating material found as a result of search. If you go through the additions made by the AO towards capital introduced in Dragon Movies, such addition has been made on the basis of regular return of income filed by the assessee. Therefore, additions made by the AO is unsustainable in law and needs to be deleted. In this regard, the Ld. Counsel for the assessee relied upon the decision of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd., in Civil Appeal No.6580 of 2021 dated 24.04.2023.
9. The Ld.DR present for the Revenue supporting the order of the CIT(A) submits that there is no merit in the arguments of the assessee that no addition can be made in absence of any incriminating material, because, when a search is taken place, the AO shall get the jurisdiction to assess/re-assess the total income of six assessment years immediately preceding to the assessment year, in which, search taken place. Therefore, the AO has rightly re-assessed the income of the assessee, and has made addition towards unexplained cash credit. Thus, he submits that the additional grounds filed by the assessee may be dismissed.
10. We have heard both the parties, and perused the materials available on record. It is a well-established principle of law by the decision of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra) that no addition can be made in absence of incriminating material found as a result of search, if the assessment is unabated/concluded as on the date of search. A similar view has been taken by the Hon’ble Delhi High Court in the case of PCIT v. Meeta Gutgutia (supra), where the Hon’ble Delhi High Court clearly held that in absence of any incriminating material, no addition can be made in the assessment framed u/s.153A/153C of the Act. In the present case, there is no dispute with regard to the fact that additions made by the AO towards cash credit being capital introduced in Dragon Movies is not based on any incriminating material found as a result of search. Therefore, we are of the considered view that the additions made by the AO towards unexplained cash credit is unsustainable under law. Thus, by following the decision of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra), we direct the AO to delete the addition made towards capital introduced in Dragon Movies as unexplained cash credit.
11. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 02nd day of August, 2023, in Chennai.
