THE PR COMMISSIONER OF INCOME TAX, vs. M/S. HASSAN HAJEE AND CO.,

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ITA/643/2023HC KarnatakaKAHC01054479202312 February 2025Bench: KRISHNA S DIXIT,G BASAVARAJA4 pages
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What did the High Court hold?

The High Court of Karnataka disposed of the appeal on the ground that the amount involved falls below the minimum ceiling limit prescribed in CBDT Circular No. 9/2024 dated September 17, 2024. Consequently, the appeal was deemed not maintainable. The Court reserved liberty to recall the order if the matter falls within one of the exceptions enumerated in the Circular or otherwise. Therefore, the Tribunal's order was not adjudicated on merits. No specific findings were made on any of the substantial questions of law framed by the Revenue. The operative direction was to dispose of the appeal as not maintainable, with liberty to recall. No issue was expressly left undecided, as the appeal was dismissed on a procedural ground.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax and the Assistant Commissioner of Income-Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, before the High Court of Karnataka. The appeal challenges an order dated September 22, 2022, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru, in ITA No. 1358/Bang/2015. The assessment year in question is 2006-2007. The Revenue sought to set aside the ITAT's order, which had confirmed the order of the Appellate Commissioner and upheld the order passed by the Deputy Commissioner of Income Tax, Circle-2(1), Mangaluru. The core of the dispute revolves around additions made by the Assessing Officer (AO) under Section 153A read with Section 143(3) of the Income Tax Act.

What were the issues?

The Tribunal was asked to decide nine substantial questions of law. The primary issue (Question 1) concerns whether the Tribunal was correct in quashing the assessment order framed under Section 153A read with Section 143(3) on the ground that no search and seizure related to these assessment years occurred, despite specific evidence pertaining to these years being seized and used for additions. Question 2 asks if the Tribunal erred in quashing the assessment order by ignoring additions made on account of labour charges based on specific seized material, referencing the Supreme Court judgment in Pr. Commissioner of Income Tax v. Abhisar Buildwell. Questions 3 and 5 relate to the deletion of disallowances of labour charges and 'speed money' claimed as labour charges, respectively, based on inadequate supporting documents and seized material. Question 4 addresses whether the Tribunal was right in holding that it is incumbent upon the AO to reject books of account before making additions for inflated expenditure, when additions were based on seized evidence. Questions 6, 7, and 8 concern the deletion of disallowances related to subcontractors being regular employees, excess claims of 'speed money' based on scientific calculation from seized evidence, and 'speed money' disguised as labour charges to port officials, respectively. Question 9 questions whether the Tribunal erred in not treating a partner's statement recorded during the search as incriminating evidence for additions under Section 153A read with Section 143(3). The Revenue contended that the Tribunal was wrong in quashing the assessment orders, arguing that seized evidence justified the additions made by the AO. They relied on the Supreme Court judgment in Pr. Commissioner of Income Tax v. Abhisar Buildwell. The judgment does not record specific arguments from the Assessee.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 153A,Section 143(3)

AI-generated summary — verify with the full judgment below

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NC: 2025:KHC:6312-DB ITA No. 643 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF FEBRUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 643 OF 2023

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, PLOT NO.5, EDC COMPLEX, PATTO, PANAJI-403 001.

2.

THE ASST. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-1, PRESENT ADDRESS DCIT, CIRCLE-2(1), C.R.BUILDING, ATTAVARA, MANGALURU-575 001. …APPELLANTS (BY SRI. SUSHAL TIWARI N., ADVOCATE)

AND:

M/S. HASSAN HAJEE AND CO., D. NO. 20-8-678, NEAR OLD MUNICIPAL OFFICE, BUNDER, MANGALURU-575 001 PAN NO. AAAFH 8204R. …RESPONDENT (BY SRI. ANNAMALAI S. AND SRI. VENKATESH K. PANI, ADVOCATES)

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 22/09/2022 PASSED IN ITA NO.1358/BANG/2015, FOR THE ASSESSMENT YEAR 2006-2007 PRAYING TO FORMULATE THE SUBSTANTIAL

Digitally signed by LAKSHMINARAYAN N Location: High Court of Karnataka

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NC: 2025:KHC:6312-DB ITA No. 643 of 2023

QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGLAURU IN ITA NO. 1358/BANG/2015 DATED 22/09/2022 FOR ASSESSMENT YEAR 2006-2007 ANNEXURE-A CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), MANGALURU AND ETC.

THIS APPEAL, COMING ON FOR HEARING ON INTERLOCUTORY APPLICATION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and HON'BLE MR JUSTICE G BASAVARAJA

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 questioning the legality of order dated 22nd September, 2022 passed by the Income Tax Appellate Tribunal, "C" Bench, Bengaluru in ITA No.1358/Bang/2015 for the Assessment Year 2006-2007.

2.

The Revenue has framed the following substantial questions of law in the appeal memo:

"1. Whether on facts and in circumstances of the case, the tribunal is right in law in quashing order framed under section 153A R.W.S 143 (3) of the income tax act on the ground that there was no search and seizure relating to these assessment even when specific evidence pertaining to these years has been seized, placed on record and additions has been made on its basis, which is also duly recorded by the Hon'ble ITAT in their order?

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NC: 2025:KHC:6312-DB ITA No. 643 of 2023

2.

Whether on facts and circumstances of the case, the honourable tribunal is right in law in quashing the assessment order framed under section 153A R.W.S 143

(3) of the income tax act, ignoring the additions made on the account of labour charges based on specific seized material which authorise assessing officer to assess "total income" of the Assessee, as envisaged, the Hon'ble Supreme Court judgement in Pr. Commissioner of income tax V Abhisar Buildwell dated 24.04.2023?

3.

Whether on fact and circumstances of the case, the Hon'ble Tribunal is right in law in deleting the disallowance of labour charges claimed on the basis of inadequate supporting document ignoring the fact that the AO has made you duly additions on the basis of seized material, which is duly elaborated in the assessment order.

4.

Whether on facts and circumstances of keys, the Hon'ble tribunal is right in law in holding that is incumbent upon the AO to reject the books of account before making an addition on account of inflated expenditure, ignoring the fact that AO has made addition based on the evidence found in the search, which is duly mentioned in the assessment order and the facts of the case of Shri Ganesh shipping agency are not applicable in Assessee case?

5.

Whether on fact and circumstances of case, the Hon'ble tribunal is right in law in deleting the disallowance of speed money claimed as labour charges through employees sub contractors ignoring evidence found in the course of search and investigations which suggested the said expenses were not genuine?

6.

Whether in facts and circumstances of the case, the honourable tribunal erred in not appreciating the fact the subcontractors were regular employees of the assessee and the facts of the case of Shri Clifford D'Souza notification, are not applicable in the assessee's case?

7.

Whether on fact and circumstance of case, the Hon'ble tribunal is right in law in deleting the disallowance of

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NC: 2025:KHC:6312-DB ITA No. 643 of 2023

excess claim of speed money ignoring the scientific calculation adopted based on seized evidence?

8.

Whether on facts and circumstances of case the hon'ble tribunal is right in law in deleting the disallowance of speed money claimed as labour charge to disguise payment, not authorised by law, made to port officials ignoring the evidence founds during the course of search actions and post search investigations?

9.

Whether in facts and circumstances case the Hon'ble tribunal has erred in law by not treating statement recorded from one of the partners during the course of such as incriminating evidence on the basis of which AO made additions in assessement u/s 153A r.w.s 143(3) for AY?"

3.

Since the amount involved in the case falls below the minimum ceiling limit prescribed in the CBDT Circular No.9/2024 dated 17th September, 2024, the Appeal is not maintainable and accordingly it is disposed off reserving liberty to recall the order in the event matter falls in one of the exceptions enumerated in the Circular or otherwise.

Sd/- (KRISHNA S DIXIT) JUDGE

Sd/- (G BASAVARAJA) JUDGE

LNN/List No.: 1 Sl No.: 19

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