THE PR COMMISSIONER OF INCOME TAX, vs. SRI. PRAKASH BHAJANDAS TALREJA

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ITA/222/2024HC KarnatakaKAHC01042928202425 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
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What did the High Court hold?

The High Court disposed of the appeal with liberty to the Revenue to revive it, as prayed for by its counsel. The Court explicitly stated that the substantial questions of law were kept open to be adjudicated in an appropriate proceeding. This implies that the Court did not decide the merits of the four substantial questions of law raised by the Revenue. The decision was based on the procedural aspect of the tax effect and the applicability of CBDT circulars. Therefore, no finding was reached on whether the ITAT was correct in its holdings regarding the evidentiary value of documents, the basis for additions, the lending of money, or the inference from not cross-examining. The operative direction was to dispose of the appeal with liberty to revive, leaving the substantive legal issues undecided.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax and the Deputy Commissioner of Income-Tax, has filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated March 22, 2024, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench. The appeal pertains to Assessment Year 2016-17 and challenges the ITAT's decision in ITA No. 1063/Bang/2023. The core of the dispute revolves around additions made to the assessee's income based on information obtained during a search conducted on a third party from whom the assessee allegedly received undisclosed payments. The amount in dispute is not explicitly stated, but the appeal is being considered in light of CBDT circulars regarding monetary limits for appeals.

What were the issues?

The Tribunal had to decide four substantial questions of law: 1. Whether the Tribunal was correct in holding that income offered by a searched party under Section 153A cannot be the basis for addition in the hands of the assessee who received undisclosed payments from the searched party. 2. Whether the Tribunal was correct in holding that loose sheets found during a search and statements recorded during the search have no evidentiary value under the Indian Evidence Act, 1872 (now Bharatiya Sakshya Adhiniyam, 2023). 3. Whether the Tribunal was correct in holding that large sums of money could not be lent without loan agreements, promissory notes, cheques, or security papers. 4. Whether the Tribunal was correct in holding that no adverse inference can be drawn against the assessee for not availing the opportunity of cross-examination. The Revenue's contentions are implicit in the framing of these questions. The assessee's counsel argued that the tax effect is less than Rs. 2 Crores, making the appeal unsustainable in view of CBDT Circular No. 09/2024 dated September 17, 2024, which binds the Revenue. The Revenue's counsel sought liberty to revive the appeal if the matter falls within the exceptions of the aforementioned circulars.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 153A

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39913-DB ITA No. 222 of 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 222 OF 2024 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX, CENTRAL, 3RD FLOOR, C.R. BUILDING, QUEEN'S ROAD, BENGALURU - 560 001.

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE - 1(3), 3RD FLOOR, C.R. BUILDING, QUEEN'S ROAD, BENGALURU - 560 001. …APPELLANTS (BY SRI. RAVIRAJ Y.V, ADVOCATE A/W SRI. M. DILIP, ADVOCATE)

AND:

SRI. PRAKASH BHAJANDAS TALREJA, NO.402, 4TH FLOOR, EMBASSY CENTRE, NO.11, CRESCENT ROAD, BENGALURU - 560 001, KARNATAKA, PAN: ABKPT1011B. …RESPONDENT

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 22-03- 2024 PASSED IT A NO.1063/BANG/2023 FOR THE ASSESSMENT YEAR 2016-17 PRAYING I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39913-DB ITA No. 222 of 2024

CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri.Raviraj.Y.V. along with Sri. Dilip.M., learned counsel for appellants/Revenue.

2.

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) questioning the correctness and legality of order dated 22.03.2024 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short ‘Appellate Authority’) in ITA.No.1063/Bang/2023 for the assessment year 2016-17, raising the following substantial questions of law: 1. "Whether on the facts and in the circumstances of the case and in law, the tribunal was right in holding that merely because the searched party offered the income in the return filed under section 153A, the same cannot form the basis for addition in the case of the assesse, from whom the searched party had received the undisclosed payments"?

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NC: 2024:KHC:39913-DB ITA No. 222 of 2024

2.

"Whether on the facts and in the circumstances of the case and in law, the tribunal was right in holding that loose sheets found during the course of search and containing incriminating material and statement recorded during the course of search are of no evidentiary value as per the Indian Evidence act, 1872 (now Known as Bharatiya Sakshya Adhiniyam, 2023)"?

3.

"Whether on the facts and in the circumstances of the case and in law, the tribunal was right in holding that huge amount of money could not be lent without any loan agreement, promissory note, cheque or security papers"?

4.

"Whether on the facts and in the circumstances of the case and in law, the tribunal was right in holding that no adverse inference can be drawn against the assesse for not availing the opportunity of cross examination"?

3.

Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct

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NC: 2024:KHC:39913-DB ITA No. 222 of 2024

Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024.

5.

In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the question of law is kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ List No.: 2 Sl No.: 12

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