2021 (1) TMI 90 - AT - Income Tax

Tribunal directs re-examination of cash deposits and interest income, emphasizes verification of account statements

M/s. Saravana Realty Pvt. Ltd Versus The Deputy Commissioner of Income Tax, Central Circle-3 (4), Chennai

M/s. Saravana Realty Pvt. Ltd Versus The Deputy Commissioner of Income Tax, Central Circle-3 (4), Chennai - TMI Issues Involved:1. Jurisdiction and legality of assessment under Section 153C/153A.2. Enhancement of assessment by the Commissioner of Income Tax (Appeals) [CIT(A)].3. Condonation of delay in filing the appeal.4. Addition of unexplained credits and interest income.5. Requirement of incriminating material for additions under Section 153C/153A.Detailed Analysis:1. Jurisdiction and Legality of Assessment under Section 153C/153A:The assessee argued that the enhancement of the assessment by Rs. 15,000 and Rs. 47,053 by the CIT(A) was without jurisdiction, barred by limitation, and contrary to the provisions of law. The CIT(A) should have found that no addition can be made under Section 153C except on the basis of material seized during the search. The jurisdiction to make an assessment under Section 153C read with Section 153A can only be assumed by the Assessing Officer (AO) based on seized documents or books of account. The assessee cited several cases, including decisions from the Kerala High Court and the Supreme Court, to support their claim that the enhancement was without authority of law.2. Enhancement of Assessment by the CIT(A):The CIT(A) enhanced the assessment by adding Rs. 15,000 as unexplained credits and Rs. 47,053 as interest income, which were not based on any material seized during the search. The CIT(A) relied on the bank statement produced before the AO during the remand hearing. The assessee argued that the CIT(A) erred in enhancing the assessment without providing an opportunity to file objections and that the enhancement was based on a new source of income, which is beyond the powers of the CIT(A) under Section 251(1)(b) of the Act.3. Condonation of Delay in Filing the Appeal:The assessee filed the appeals 14 days late, explaining that the delay was due to the appeal papers being mixed up with other documents. The Tribunal condoned the delay, considering it a reasonable cause under the Act, and admitted the appeals for adjudication.4. Addition of Unexplained Credits and Interest Income:The AO made additions towards unexplained credits found in the bank account on a peak credit basis. The CIT(A) deleted the addition of Rs. 8,90,00,000 but enhanced the assessment by Rs. 15,000 for three credits of Rs. 5,000 each and Rs. 47,053 for interest on fixed deposits. The assessee argued that these enhancements were not based on any seized material and were beyond the jurisdiction of the CIT(A). The Tribunal found that the issue of the source for cash deposits and interest income needed further verification by the AO.5. Requirement of Incriminating Material for Additions under Section 153C/153A:The Tribunal noted that the assessee had not taken any specific ground challenging the issue before the AO or CIT(A) when the AO made additions towards cash credit of Rs. 8,90,00,000 based on the same bank account. The Tribunal rejected the assessee's argument that the enhancement was not based on any incriminating material found during the search, as the facts regarding the abatement and unabatement of assessments were not clear from the records.Conclusion:The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the issues regarding the source of cash deposits and interest income. The Tribunal emphasized the need for verification of the account statements and reconciliation provided by the assessee. The appeals were set aside to the file of the AO for further examination and decision in accordance with the law.