SHANTHA NATARAJAN, HYDERABAD,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-2(4), HYDERABAD

This appeal filed by the assessee is directed against the order dated 22.09.2017 of the learned CIT (A)-12, Hyderabad relating to A.Y.2009-10.

The grounds raised

The assessee has also raised the following additional ground: ““The CIT(A) failed to note that no incrimination material was found during the search on 25/09/2014 as seen from the Panchanama and seized material and therefore erred in making additions under various heads which are totally contrary to the evidence on records and therefore the income returned by the Appellant ought to have been accepted.”

The learned Counsel for the assessee at the outset submitted that the additional ground raised by the assessee is purely a legal ground and no new facts are required to be investigated. Referring to the decision of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and Jute Corporation of India Ltd reported in 187 ITR 688, he submitted that the additional ground raised by the assessee should be admitted for adjudication.

The learned DR, on the other hand, strongly opposed the admission of the additional ground filed by the assessee.

After hearing both sides and considering the fact that the additional ground raised by the assessee goes to the root of the matter and is purely a legal ground and no new facts are required to be investigated, therefore, following the decision of the Hon'ble Supreme Court in the case of NTPC Ltd (Supra) and Jute Corporation of India Ltd (Supra), the additional ground raised by the assessee is admitted for adjudication.

Facts of the case, in brief, are that the assessee is an individual and filed her return of income for the A.Y 2009-10 on 31.07.2010 declaring total income of Rs.1,78,967/-. A search and seizure operation u/s 132 of the I.T. Act was conducted in the residential premises of the assessee on 25.09.2014. In response to the notice issued u/s 153A on 14.09.2016, the assessee filed her return of income on 20.10.2016 declaring the same income. Subsequently, statutory notices u/s 143(2) and 142(1) were issued and served on the assessee to which the AR of the assessee filed the requisite details.

During the course of assessement proceedings, the Assessing Officer observed from the P&L Account submitted that the assessee has converted her capital assets (Silver of 37.20kg, Gold 9000 gms and Diamond 200ct) into stock in trade in the financial year 2008-09 relavant to A.Y 2009-10. However, the assessee has not declared any capital gain to tax. He therefore, issued a show cause notice asking the assessee to explain as to why the capital gain income should not be brought to tax u/s 45(2) of the I.T. Act. Rejecting the various explanations given by the assessee and following the decision of the Mumbai Bench of the Tribunal in the case of CIT vs. Crest Hotels Ltd (2001) 78 ITD 213, the Assessing Officer made addition of Rs.26,52,505/- as capital gain.

Before the learned CIT (A), the assessee apart from challenging the addition on merit challenged the validity of the assessment in absence of any incriminating material found during the course of search. However, the learned CIT (A) rejected the legal ground by observing as under:

She also dismissed the ground on merit by observing as under: “7.1 I have carefully considered the submissions made by the appellant as well as the observations of the Assessing Officer in the impugned order and in the remand report. It is the contention of the appellant's AR that the Assessing Officer adopted no basis for computation of the capital gains. However, it is seen that the Assessing Officer has elaborately worked out at para 4.1 of his order the market value of each item, and after providing indexation for each and every item the Assessing Officer has calculated the capital gains item- wise. It has also been contended that the AO failed to consider the profit declared on sale of stock in the Income Tax Return filed. However, from perusal of Income Tax Return filed by appellant/assessee, it is seen that no capital gains u/s 45(2) has been offered in the said Return. The assessee has failed to submit any detailed working of capital gains or supporting documents regarding rates of the items, either during assessment proceedings or during appellate proceedings. Hence, I do not find any infirmity in the order of the Assessing Officer and the addition of Rs.26,52,505/- is upheld. The grounds No. 1 to 3 raised by the appellant are dismissed”.

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee at the outset submitted that the addition is not based on any incriminating material. He drew the attention of the Bench to the copy of the original return filed and the return filed in response to notice u/s 153A which are same. He submitted that the assessee in the original return of income has declared an income of Rs.1,50,788/- as income from jewellery business. The Assessing Officer on the basis of the original return filed verified the trading & P&L Account submitted by the assessee and made the addition u/s 45(2) of the I.T. Act. Referring to the decision of the Hon'ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Ltd reported in 454 ITR 212, he submitted that no addition can be Page 5 of 8 made in completed assessment in absence of any incriminating material found during the course of search. He submitted that the original return in the instant case was filed on 31.07.2010 and the due date for issuing statutory notice u/s 143(2) has expired much earlier to the search on 25.09.2014. Thus, no assessment was pending on the date of search. Therefore, in absence of any incriminating material found during the course of search, the addition made by the Assessing Officer and sustained by the learned CIT (A) is liable to be deleted.

The learned DR, on the other hand, relied on the order of the Assessing Officer and the learned CIT (A).

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case on the basis of the verification of trading and P&L Account noted that the assessee converted her capital assets as stock-in-trade and has not offered any capital gain. He therefore, invoking the provisions of section 45(2) of the I.T. Act made addition of Rs.26,52,505/- as income from capital gain which has been upheld by the learned CIT (A). It is the submission of the learned Counsel for the assessee that the addition made by the Assessing Officer and sustained by the learned CIT (A) is not based on any incriminating material found during the course of search and therefore, in view of the decision of the Hon'ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Ltd (Supra), the addition is not sustainable.

We find sufficient force in the above argument of the learned Counsel for the assessee. A perusal of the assessment order clearly shows that the addition made by the Assessing Officer was on the basis of verification of trading and P&L Account filed by the assessee and is not based on any incriminating material found during the course of search. Since the original return in the instant case was filed on 31.7.2010 and the search took place on 25.9.2014 the due date for issue of notice u/s 143(2) had expired prior to the date of search. In other words, no assessment was pending on the date of search. Since the addition in the instant case was not based on any incriminating material found during the course of search, therefore, in view of the decision of the Hon'ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Ltd (Supra), no addition can be made u/s 153A in abated assessment in absence of any incriminating material found during the course of search. In view of the above discussion and following the decision of the Hon'ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Ltd (Supra), we set aside the order of the learned CIT (A) and direct the Assessing Officer to delete the addition. The additional ground raised by the assessee is accordingly allowed. Since the assessee succeeds on the additional ground, the grounds challenging the addition on merit are not being adjudicated being academic in nature.