ESTATE OF LATE SMT. JAYANTHI KRISHNAMURTHY, REP BY J.THENTRAL KUMAR,CHENNAI vs. ACIT CENTRAL CIRCLE III(4), CHENNAI

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.

The assessee has raised the following grounds of appeal:

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.

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.

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.

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.).

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.

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.

The Ld.DR present for the Revenue supporting the order of the Ld.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.

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.

In the result, appeal filed by the assessee is allowed.