TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 166
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.... of search and the assessment has been completed under section 153A r.w.s. 143(3) of the Act. The framing of assessment u/s 153A without any incriminating materials found in the course of search is bad in law. 3. On the facts and circumstances of the case the order of the First Appellate Authority in sustaining the action of the AO in disallowing the total interest claimed to an extent of Rs. 14,94,644/- against the professional income of the assessee is against the facts case and is not justified. 4. On the facts and circumstances of the case the order of the First Appellate Authority in sustaining the action of the AO in assessing a sum of Rs. 38,79,163/- which has been offered under the head other sources in the original return and also in the return filed in response to notice u/s 153A of the Act as unexplained credit u/s 68 of the Act and bringing the same to tax u/s 115BBE of the Act. 5. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals) Chennai-20, may be cancelled and justice rendered. 3. Grounds of appeal raised by the assessee in ITA No.....
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....and simultaneously the search u/s 132 of the Act was also carried out in the premises of M/s Pavai Varam Educational Trust on 27.12.2016. The search u/s 132 of the Act was commenced at 11.45 AM on 27.12.2016 and the search proceedings u/s 132 of the Act was concluded at 11.45 AM on 28.12.2016 in the residential premises of Shri.V.Natarajan. The search proceedings u/s 132 of the Act was commenced at 11.45 AM on 27.12.2016 and the search proceedings u/s 132 of the Act was temporarily concluded at 05.30 AM on 28.12.2016 in the premises of M/s Pavai Varam Educational Trust. The continuance of the proceeding u/s 132 of the Act dated 27.12.2016 was again commenced on 23.02.2017 at 5.00 PM and the proceedings was concluded on 23.02.2017 at 8.20 PM. The books and documents were seized on 27.12.2016 in the residential premises of Shri.V.Natarajan and the books & documents were also seized in the premises of M/s Pavai Varam Educational Trust on 27.12.2016. The statements u/s 132(4) of the Act were recorded from Shri.V.Natarajan, Chairman, M/s Pavai Varam Educational Trust and Smt. Mangairkarasi, w/o V.Natarajan (Trustee of M/s Pavai Varam Educational Trust) on 28.12.2016. Subsequently, the s....
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....res. When questioned about the discrepancy, Shri.K.Palanivel has deposed that the entries were made as per the direction of Shri.V.Natarajan, Chairman of the Trust. During the post search, Shri.V.Natarajan, Chairman of M/s Pavai Varam Educational Trust has filed the affidavit on 30.12.2016 before the Director of Income tax (Investigation), Chennal and the Joint Director of Income tax (Investigation), Coimbatore by declaring the undisclosed income to the tune of Rs. 13 crores for the AY 2017-18. Smt.Mangairkarasi, w/o V.Natarajan (Trustee of M/s Paval Varam Educational Trust) has also filed the affidavit on 30.12.2016 before the Director of Income tax (Investigation), Chennai and the Joint Director of Income tax (Investigation), Coimbatore by declaring the undisclosed income to the tune of Rs. 10 crores for the AY 2017-18. In the affidavit dated 30.12.2016, Shri.V.Natarajan has given affirmation in the affidavit as below: "I have lent a loan of Rs. 13 Crores to the trust from my unaccounted cash income which was deposited by the trust in its bank a/c for the term loan repayment etc., after demonetization. Now, I offer voluntarily the said amount of Rs. 13 Crores which....
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....ntire interest payment has been claimed in the P&L A/c against professional receipts. The similar interest payments for the earlier Financial Years have been claimed and has been allowed. Applying the rule of consistency there is no change of facts for the year under Appeal and AO is not justified in disallowing above interest. 2. Assessing a sum of Rs. 38,79,163/- u/s 115 BBE of the Act. The above income was offered under the head Other Sources in original return filed on 21.07.2017 and also in the return filed in response to notice u/s 153A of the Act." 7. Decision: 7.1 I have gone through order u/s 143(3) r.w.s. 153A and written submission filed by the appellant. 7.2 Ground of Appeal No 2: 7.2.1 Vide above Ground, appellant has challenged jurisdiction of AO to make additions which are not based on incriminating documents found during search. 7.2.2 In the present case, the only addition made by AO is Disallowance of interest expenditure u/s 37 as appellant failed to prove that it is incurred wholly and exclusively for earning of professional income which obviously is not based on any incriminating material. Disallowance made b....
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....her addition can be made in completed assessments which are unabated in the absence of incriminating material or not. There was no discussion by Hon'ble court w.r.t those cases where return of income itself is filed subsequent search which do not fall under category of either completed assessments or abated assessments. Hence it is considered decision of Hon'ble Chennai tribunal which is rendered based on Supreme court decision cited supra is not applicable to the year under consideration. However, Hon'ble Delhi High Court in case of Amit Arora Vs DCIT, ITA No.3482/Del/2015 has adjudicated this issue and held as under: "When the assessee has filed original return after the date of search, the Assessing Officer has the jurisdiction to make additions in the assessment order under section 153A, regardless of whether any incriminating materials were found/seized in the course of search action under section 132. There is nothing in law under section 153A to prohibit the Assessing Officer from making additions in assessment order under section 153A, even if no incriminating materials were found/seized during search action under section 132; when the original return u....
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....lowing principles of consistency, same disallowance can't be made during the year. Therefore, following principles of consistency, same disallowance can't be made during the year. Hon'ble Supreme Court in Radhasoami Satsang Vs CIT (1992) 193 ITR 321 has stated that if a manifestly wrong decision has been taken by AO in one year or number of years, it will not bind the assessing officer in assessment of subsequent year because there can't be any estoppel against the law. 7.3.5 In Municipal Corpn. of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688, Hon'ble Supreme Court held that "the strict rule of res judicata as envisaged by section 11 of C.P.C. has no application, their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years. because it determines the tax for a particular year." 7.3.6 In S. Nagaraj v. State of Karnataka 1993 Supp. (4) SCC 595, Sahai, J. stated: "15. Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. The order of the Court should not be prejudicial to anyone. R....
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....tained, were never produced before AO. The AO noticed from bank statement of appellant there were cash deposit during the period 01-04-2015 to 31-03-2016 major portion of which were transferred to M/s Pavai Varam Educational Trust. It is noticed that AO concluded that cash credits in bank account actually acted as source for investment in M/s Pavai Varam Educational trust. Since appellant failed to offer any explanation for source cash deposits in bank account, the AO has treated the amount Rs. 38,79,163/- as unexplained cash credit u/s 68 and applied tax rate u/s 155BBE of IT Act. 7.4.3 During appeal proceedings, though appellant has raised the Ground against treating the amount as unexplained cash credit, no specific submissions are made except stating that the same amount was offered as income both in original return filed for the year as well as in return filed u/s 153A. He filed copy of computation statement filed along with original return as a proof for admission of Rs. 38,70,800/- as income from other sources even in original return filed. However, the fact remains that appellant failed to explain nature of cash deposits in bank accounts and also source for such ca....
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....minating materials found in the course of search and the assessment has been completed under section 153A r.w.s. 143(3) of the Act. He pleaded that the framing of assessment u/s 153A without any incriminating materials found in the course of search is bad in law. He furthermore, stated that the ld.CIT(A) erred and not justified in sustaining the action of the AO in disallowing the total interest claimed to an extent of Rs. 14,94,644/- against the professional income of the assessee. He furthermore, pleaded that the ld.CIT(A) erred and not justified in sustaining the action of the AO in assessing a sum of Rs. 38,79,163/- which has been offered under the head other sources in the original return and also in the return filed in response to notice u/s 153A of the Act as unexplained credit u/s 68 of the Act and bringing the same to tax u/s 115BBE of the Act. 8. Per contra, ld.DR-CIT relied upon the orders of the authorities below and pleaded for the dismissal of the appeal. The ld. DR vehemently pleaded that in the facts of the case, the AO was empowered to make additions/disallowances in the absence of any incriminating material found during the course of search. The Revenue relied ....
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....h notings or loose papers without a demonstrated nexus to undisclosed income cannot be straightaway classified as incriminating material. Furthermore, the Tribunal disallowed additions based solely on third-party statements when the same was uncorroborated by any such seized documents or assets found during the assessee's own search. The same thereby underscores that statements under Section 132(4) are not incriminating material absent of tangible corroboration by material specified under Sec.132(1)(c) of the Act. The Hon'ble Supreme Court reaffirmed this in CIT v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64/266 Taxman 461/418 ITR 315 by holding that disallowances based solely on unilateral third-party statements, without cross-verification, are legally invalid. Adverse evidence must therefore always be testable and confronted, for the same otherwise violates the assessee's fundamental rights and renders the assessment null and void. In the lead case of Gulshan Investment (P.) Ltd. v. JCIT (OSD), [ITA No.3872/Del/2024, dated 16.04.2025] the Delhi Tribunal recently adjudicated a batch matter emanating from a search action under Sec.132 of the Act, and passed its d....
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....hri V.Natarajan and Smt Mangaikarasi had filed an affidavit on 30/12/2016 before the Director of Income Tax (Investigation), Chennai and Joint Director of Income Tax (Investigation), Coimbatore by declaring undisclosed income to the tune of Rs. 13 Crores and Rs. 10 Crores respectively for the A.Y 2017-18. Shri V.Natarajan had filed retraction letter on 30/03/2017 and 12/04/2017 before the Director of Income Tax (Investigation), Chennai and Joint Director of Income Tax (Investigation), Coimbatore in respect of sworn statement recorded on 27/12/2016 and 23/02/2017 from Shri V.Natarajan and Smt Mangaikarasi. On 30/03/2017, appellant had filed declaration letter before DIT(Investigation), Chennai and CIT(Exemption), Chennai withdrawing affidavits filed and sworn statements given and had disclosed Rs. 13 crores and Rs. 10 crores in the hands of himself and his wife respectively, under the PMGKY Scheme. Notice u/s 153A was served to the appellant on 13/06/2018, in response to which appellant, on 20/07/2018 had asked to treat the original return filed on 13/08/2016 as return filed in response to notice u/s 153A. Notice u/s 143(2) r.w.s 153A was issued on 20/07/2018. Notice u/s 142(1) w....
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....During appeal proceedings, the appellant has filed written submission. Relevant portion of submission is reproduced below: 3. The following case laws are relied upon where in it has been held that a search assessment has to be framed only on the basis of materials impounded. Legal decision relied upon: a) PCIT Vs Meeta Gutgutia Prop: M/s Ferns "N" Petals (2017) 395 ITR 526 (Delhi) b) PCIT Vs Kabul Chawla 380 ITR 573 (Delhi) c) CIT Vs Continental Warehousing Corporation Ltd., 374 ITR 645 (Bombay) d) CIT VS SKS Ispat and Power Ltd 398 ITR 584 (Bombay) e) CIT Vs Gurinder Singh Bawa 386 ITR 483 (Bombay) f) PCIT Vs Dipak Jashvnathlapunchal 397 ITR 153 (Gujarat) g) Decision of Gujarat HC in the case of Saumya Construction Pvt Ltd., (387 ITR 529) h) Jain Steel (India) Vs ACIT in Rajasthan HC 259 CTR 281 i) Decision of ITAT Chennai "B" Bench in the case of ACIT Central Circle-2(2), Chennai Vs RPD Earth MoveRs. Pvt Ltd., reported in (2019) 101 taxman.com89 (Chennai-Trib.) order dated 03.12.2018 J) Decision of ITAT Ahmadabad Bench in the case of Priya Holding Pvt. Ltd Vs ACIT, Central Circle 2(....
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..... 24,80,636/- 4. Receipts from friends and relatives treated as Income from other sources Rs. 50,50,000/-. 5. Disallowance of excess claim u/s 54F Rs. 5,79,300/-. 7.2.3 It is the contention of appellant as far as assessment u/s 153A is concerned, no addition apart from additions based on incriminating material can be made. The appellant has relied on Hon'ble Chennai tribunal decision vide ITA 463-466/Chny/2021 in appellant's own case for Assessment Years 2011-12 to 2014-15 in support of his contention. 7.2.4 I have carefully considered decision of Hon'ble Chennai tribunal. The Years that were under consideration of Hon'ble tribunal were 2011-12 to 2014-15 where assessment proceedings are completed by the date of search since time to issue 143(2) has expired as on the date of search. Relevant portion of Hon'bles Chennai Tribunal's order is reproduced as under. 7.2.5 It is noticed from Hon'ble tribunal's decision vide para 8 that Hon'ble tribunal has held that wherever return is processed u/s 143(1) and time to issue notice u/s 143(2) has expired, it is to be treated as completed/ Unabated assessment and....
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....n 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated." 7.2.8 Hon'ble Delhi High Court in Indu Lata Rangwala v. Deputy Commissioner of Income Tax 384 ITR 337 held that the "mere processing of a return under Section 143(1) of the Act and the sending of an intimation to the Assessee will not make it an 'assessment". 7.2.9 In Chintels India Ltd Vs DCIT [Delhi High Court] 397 ITR 416, assessment year under consideration was 2008-09, return of income was filed by appellant on 28-101-2008. Time to issue notice u/s 143(2) was available up to 30-09-2009. In that case search was conducted on 25-03-2010. Return was processed u/s 143(1) on 27-03-2010. The issue was whether consequent to search, proceedings for the year were abated or not. In this case, Hon'ble tribunal held that proceedings were pending since return was processed u/s 143(1) subsequent to search but no scrutiny was carried out. Hon'ble Delhi High court in this case specifically noticed that in CIT v. Kabul Chawla 380 ITR 573 and also in Indu latha Ranganathan v. DCIT (supra) case....
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....ated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 147/148 of the Act and those powers are saved. 7.2.12 In view of above it can be concluded that all pending assessments abate consequent to search. The AO has jurisdiction to make regular additions in case of abated assessments even in absence of incriminating material. In view of Hon'ble Delhi high court decision in Chintels India Ltd Vs CIT, Punjab and Haryana High court decision in Vipan Khanna Vs DCIT and Hon'ble Chennai Tribunal's decision in appellant's own case, it is held that proceedings for the year under consideration were pending on the date of search and got abated consequent to search. Therefore, AO has jurisdiction to make regular additions based on return filed even in absence of incriminating material. Consequently, Ground of Appeal 2 of Appellant is Dismissed. 7.3 Ground of Appeal No 3: 7.3.1 Vide above Ground, appellant has challenged disallowance of interest payment Rs. 8,93,642/- u/s 37 of IT Act. 7.3.2 The Appellant in the re....
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....en the law bends before justice. Entire concept of writ jurisdiction exercised by the higher courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principles be precluded from rectifying the error. -" 7.3.8 In the present case, it is noticed that issue of allowability of Interest was not examined by AO for Assessment years 2011-12, 2012-13 and 2013-14. It is also not the case of appellant that this issue was examined and AO chose to not make disallowance. It is also not case of appellant that loans taken were not used for purposes other than earning of professional receipts i.e for investment in M/s Pava Varam Educational Trust. Therefore, claim of appellant that just because AC happened to not make disallowance during some of previous years, same disallowance can't be made for current year does not sound reasonable. Therefore, am of considered view that AO has correctly made disallowance of interest Re 8,93,642/- which has no nexus....
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....appellant failed to explain nature of cash deposits in bank accounts and also source for such cash deposits both during assessment and appeal proceedings. Mere admission of income in return filed originally does not relieve appellant from discharging onus of proving source cash credit in books of appellant. Once the amount held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide finance Act, 2012 and applicable in case income added u/s 68. Consequently, Ground of Appeal No 4 is Dismissed. 7.5 Ground of appeal No 5: 7.5.1 Vide above Ground, appellant has challenged treating amount received in the form of marriage gift Rs. 24,80,636/- as unexplained credit u/s 68, applying higher tax rate u/s 115BBE of IT Act. 7.5.2 During course of assessment proceedings, the appellant has produced receipts and payments account (produced at page 16 of assessment order) from which AO noticed that 'Gift from daughter marriage' Rs. 24,80,636/- is claimed to have been received. The Appellant's daughter's marriage was claimed to have taken place on 30-10-2014. During assessment p....
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....ce the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. [1963] 50 ITR 1 (SC) [1977] 107 ITR (SC) The Delhi High Court in CIT v. Oasis Hospitalities Pvt.Ltd.5, held that: The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima fa....
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....ntly, Ground of Appeal No 5 is Dismissed. 7.6 Ground of appeal No 6: 7.6.1 Vide above Ground, appellant has challenged treating amount received from friends and relatives Rs. 50,50,000/- unexplained credit u/s 68, applying higher tax rate u/s 115BBE of IT Act. 7.6.2 The AO noticed that in Receipts and payments account filed for the year, the appellant has admitted Rs. 50,50,000/- as amount received from friends and relatives. The AO has added the amount as appellant failed to furnish evidence to prove actual receipt of amount from friends and relatives mentioned by assessee. 7.6.3 During appeal proceedings, arguments raised by appellant can be summarized as under. 1. The amount received is duly disclosed in receipts and payment account filed for the year. 2. The amounts received are supported by Documentary evidences. 3. Loan Received from Avanthi Rs. 23,00,000/-, Sri K.Senthil Rs. 7,50,000/- are reflected in income tax return of appellant. Amount received from P.Kavitha is evidenced by SBI Account 10754491337 in which on 28-01-2015, amount Rs. 20,00,000/- is deposited 4. Details received from friends and relat....
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....y of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions, and the creditworthiness of his creditors vis-à-vis the transactions which he had with the creditors his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself. 7.6.8 Therefore, in the present case, it can't be held that the appellant has discharged onus of filing prima facie evidence to prove genuineness of cash credits. Hence, I am of considered view that AO has rightly added Rs. 50,50,000/- as unexplained cash credit u/s 68. Once the amount is held taxable u/s 68, no fault can be found with AO in applying tax rate as per provisions of section 115BBE of IT Act as it is inserted vide Finance Act, 2012 and applicable in case of income added u/s 68 Consequently, Ground of appeal relating to the issue is Dismissed. 7.7 Ground of appeal No 7: 7.7.1 Vide Ground of appeal 8, the appellant has challenged disallowance of improvement cost Rs. 50,00,000/-, and consequent disallowance of....
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....s and claimed exemption. But appellant was not in possession of any other residential property at the time of purchase of two properties. 7.7.6 It is noticed that amendment to section 54F was made by Finance Act, 2014 w.e.f 01.04.2015 wherein deduction u/s 54F is restricted to only one residential house. Relevant provisions of section are submitted as under: 54F. (1) 65[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 67[two years.] after the date on which the transfer took place 66purchased, or has within a period of three years. after that date 68 [constructed, one residential house in India) (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the ....
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....ific submissions. Penalty proceedings u/s 271(1)(c) are independent proceedings, can't be adjudicated here. Consequently, Ground of appeal is Dismissed. 8. As a result, appeal of appellant is Dismissed. 12. The assessee contended that all the additions are not based on any seized/incriminating material relating to the assessee. The search was primarily conducted in the premises of the Pavai Varam Educational Trust, and no direct incriminating evidence was unearthed against the assessee individually for A.Y. 2015-16. The assessee challenged the assessments primarily on the following legal and factual grounds: i. That the additions made were not based on any incriminating material found during the course of search. ii. That assessments were made mechanically under section 153A, without any fresh material. iii. That the professional interest expenditure disallowed was genuine and had been allowed in earlier years. iv. That the cash deposits and marriage gifts were duly explained and had already been offered to tax in the return under "Income from Other Sources." v. That the disallowance of cost of improvement was made withou....
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....he basis of information already on record or explanations in return filed u/s 153A. Therefore, the assessment deserves to be quashed. The ld. Departmental Representative (DR), on the other hand, relied on the order of the ld.CIT(A) and argued that since the time limit for issue of notice u/s 143(2) had not expired as on the date of search, the assessment stood abated and AO had full jurisdiction. We have carefully considered rival contentions and perused the material available on record. The undisputed facts are that: * The assessee filed the original return of income on 13.08.2016; * The same was processed u/s 143(1) on 03.10.2016; * Search was conducted on 27.12.2016; and * The time limit for issue of notice u/s 143(2) expired on 30.04.2017. Thus, as on the date of search, no notice under section 143(2) had been issued and the return had already been processed u/s 143(1). The issue is whether such assessment can be said to be "pending" so as to abate under section 153A(1). The Hon'ble Delhi High Court in CIT v. Kabul Chawla [2016] 380 ITR 573 (Del) and the Hon'ble Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd. (supra) have laid down the....