CHOWDADENAHALLI RANGASWAMY MANOHARA ,BANGALORE vs. DCIT, CENTRAL CIRCLE-2(1), BANGALORE

I. Background and Context of the Appeal The appellant, Shri C.R. Manohara, is engaged in film production under the proprietary concern Golden Lion Films and also in real estate consultancy as a partner in Lion Estates and Properties. For AY 2014-15, the appellant initially filed a return under section 139 declaring an income of ₹13,49,560/-. Pursuant to a search conducted on 15.03.2016, an assessment came to be completed under section 143(3) r.w.s. 153A on 29.12.2017, wherein additions were made towards agricultural income, self-made vouchers, and disallowance under section 37. Subsequently, on 03.01.2019, a fresh search under section 132 was conducted. Consequent thereto, the case was centralized, and a fresh notice under section 153A dated 23.09.2019 was issued, in response to which the appellant filed a return on 15.02.2021 declaring income of ₹3,75,21,020/-. This return inadvertently incorporated the very same additions which had been made in the earlier assessment for AY 2014-15, not based on any incriminating material found during the second search but solely due to an inadvertent mistake and lack of proper legal guidance at the time. The Assessing Officer completed the second 153A assessment on 17.09.2021 by merely accepting the returned income without recording any finding as to whether such items of income were related to the second search, whether they were supported by incriminating material, or whether the earlier additions had any bearing on the second round of proceedings. The CIT(A), by order dated 28.02.2025, dismissed the appeal by relying on the decision of the Hon’ble Supreme Court in CIT v. Sun Engineering Works (P.) Ltd., without appreciating that the appellant was not attempting to reopen or revise an earlier concluded assessment but was merely seeking to correct an inadvertent and bona fide error while filing the return in response to the second search. The present appeal is against this erroneous conclusion, supported by documentary records and factual narration contained in the paper book filed before this Hon’ble Tribunal.

Page 4 of 13 II. Legal Scheme of Section 153A and the Requirement of Incriminating Material The legal position is now well-settled that an assessment under section 153A cannot be sustained in the absence of incriminating material found during the relevant search, particularly where the assessment for the relevant year has already reached finality before the date of search. The Hon’ble Supreme Court in Sinhgad Technical Education Society and other High Courts including Delhi High Court in Kabul Chawla and Meeta Gutgutia have laid down that concluded assessments cannot be disturbed unless incriminating material pertaining to that year is discovered during the search. In the present case, the assessment records unequivocally show that the Assessing Officer did not make any fresh additions but merely “accepted” the return filed by the appellant. There is no reference in the assessment order to any seized material discovered during the search dated 03.01.2019 that pertained to or justified the inclusion of the additions which were originally made in 2017 and which formed part of the original assessment. The absence of incriminating material thus renders the second 153A assessment unsustainable in law, and the CIT(A) erred in failing to appreciate this fundamental jurisdictional requirement. III. Search Framework under Section 132 and its Limited Presumptions The statutory presumptions under sections 132(4A) and 132(5) operate only with respect to books, documents, or assets found and seized during the search. These presumptions do not authorise the wholesale adoption of past additions or earlier assessments into a new search proceeding. The second search must stand on its own legs, and the Assessing Officer must independently examine whether the material found therein has any nexus with the year under consideration. In the present case, the second search did not unearth any material that would support the additions earlier made in the 2017 assessment. The Assessing Officer, rather than discharging his statutory duty of applying the law established under section 132 read with section 153A, mechanically accepted the return filed by the assessee which inadvertently repeated the earlier disallowances. The jurisdiction exercised by the Assessing Officer is thus vitiated for want of a search-linked foundation as mandated under the scheme of section 132 and section 153A.

IV. CBDT Circular No. 14 (XL-35) of 1955 – Department Not to Take Advantage of Ignorance The CBDT Circular No. 14 (XL-35) dated 11.04.1955 is a binding administrative instruction that mandates that the Income Tax Department should not take advantage of a taxpayer’s ignorance of his rights. It obligates the Assessing Authorities to assist taxpayers in claiming legitimate reliefs and to ensure that no taxpayer is assessed at a higher figure merely because he is unaware of the legal position. In the present case, the appellant mistakenly included certain items of income which had been previously disputed and which did not arise from the second search. The Assessing Officer, despite being fully aware of the history of earlier assessments and appeals, failed to guide the assessee or even to verify whether the income offered was legally taxable in the second 153A proceeding. The revenue authorities not only failed to discharge the obligation imposed by the circular but also derived an unintended advantage from the assessee’s inadvertent error. This conduct is contrary to the spirit and letter of the Circular, which has consistently been held by courts, including the Supreme Court in K.P. Varghese and UCO Bank, to be binding on the Department. V. Bona Fide Error, Reasonable Cause and the Principle Underlying Section 271BB Though section 271BB specifically relates to subscription to eligible issues, the jurisprudence behind this section, as consistently interpreted, establishes that where a taxpayer demonstrates reasonable cause for a procedural or bona fide mistake, no adverse consequence should follow. The present case presents a textbook example of a bona fide and innocent mistake where the assessee, without adequate legal guidance, repeated earlier additions while filing the second 153A return. The Department was obligated to recognise this as a reasonable cause and not to adopt a hyper-technical approach in taxing an income that was never intended or legally required to be offered. The CIT(A)’s refusal to accept the bona fide nature of the error is therefore inconsistent with the statutory philosophy and judicial precedents that protect taxpayers from unintended and innocent errors.

Page 6 of 13 VI. Violation of Principles of Natural Justice and Lack of Application of Mind The assessment order does not record a single finding as to whether the items declared in the return had any connection with the second search or whether any material was found to justify their inclusion. The order merely accepts the return without inquiry, without evaluation of seized material, and without affording an opportunity to the assessee to clarify the inadvertent inclusion of earlier additions. The absence of reasoned findings and the failure to apply mind constitute a violation of natural justice, rendering the assessment order invalid. The Hon’ble Supreme Court has repeatedly held that an assessment made without independent application of mind is liable to be quashed. The CIT(A), instead of correcting this fundamental flaw, erroneously endorsed the assessment by relying on an inapplicable precedent. VII. Misapplication of the Decision in Sun Engineering Works The reliance placed by the CIT(A) on Sun Engineering Works (P) Ltd. is wholly misplaced as the said decision pertains to reassessment proceedings under section 147. The Supreme Court in that case specifically held that reassessment is not an avenue for taxpayers to seek fresh relief unrelated to escaped income. However, proceedings under section 153A are materially different and arise only in consequence of search. The appellant did not seek a review or reopening of the original assessment; he sought only to correct an inadvertent and bona fide mistake committed while filing the second 153A return. The CIT(A)’s application of the Sun Engineering ratio to a 153A proceeding is therefore legally untenable and reflects an incorrect appreciation of the statutory scheme. VIII. The Revenue Cannot Take Advantage of an Assessee’s Mistake The Hon’ble Supreme Court in Price Waterhouse Coopers Pvt Ltd v CIT and multiple High Courts, including Gujarat High Court in Koshti, have held that the Revenue cannot take advantage of inadvertent or technical mistakes committed by the assessee. Taxation must be founded on law, not on accidental or mistaken disclosures. In the present case, the income offered by the assessee under the second 153A return was not legally taxable; the Revenue was fully aware of the prior assessment history and the absence of Page 7 of 13 fresh material yet proceeded to assess the income solely because the assessee mistakenly offered it. Such an approach undermines fairness, equity and the statutory duty of the Department. IX. Prayer In view of the factual background, the statutory framework under section 153A, the settled judicial principles requiring incriminating material for sustaining additions, the binding nature of CBDT Circular No. 14 of 1955, the bona fide and innocent error committed by the assessee, and the violation of principles of natural justice in the assessment process, the appellant most respectfully prays that this Hon’ble Tribunal be pleased to delete the additions erroneously included in the return filed in response to the second notice under section 153A and to grant full relief as prayed. The appellant further prays for any other relief that this Hon’ble Tribunal deems fit in the interest of justice and equity.

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