Ms.KAVYA KRISHNA vs. DEPUTY COMMISSIONER OF INCOME TAX

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ITA/98/2016HC KarnatakaKAHC01019379201612 September 2022Bench: P.S.DINESH KUMAR,UMESH M ADIGA9 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the recording of satisfaction by the Assessing Officer is a mandatory condition precedent for initiating proceedings under Section 153C. Since this was not demonstrated, the matter required re-examination.

What were the facts?

A search was conducted in the mother's premises, and a declaration of gift of Rs. 1.50 Crore each to the assessees was found. The Assessing Officer treated these gifts as undisclosed income, a view upheld by the CIT(A) and ITAT.

What were the issues?

Whether the proceedings under Section 153C were validly initiated without the Assessing Officer recording satisfaction. Whether a gift can be considered incriminating material for the purpose of Section 153C.

Which sections of the Income-tax Act were involved?

Section 153C,Section 260A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF SEPTEMBER, 2022 PRESENT THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR AND THE HON’BLE MR.JUSTICE UMESH M. ADIGA I.T.A No.447/2014 C/W I.T.A No.450/2014, I.T.A. No.95/2016 AND I.T.A. No.98/2016 IN I.T.A.No.447/2014: BETWEEN: SRI. KARTHIK KRISHNA PRESENTLY RESIDING AT 170/A, TARAKA, 10TH MAIN R.M.V. EXTENSION SADASHIVNAGAR BANGALORE-560 080.

... APPELLANT

[BY SHRI. S.PARTHASARATHI, ADVOCATE FOR SHRI. BALRAM R. RAO, ADVOCATE ]

IN I.T.A.No.450/2014: BETWEEN: Ms. KAVYA KRISHNA

AMENDED V/O SINCE DECEASED

DATED 12.07.2017 REPRESENTED BY LR

SMT.RAJYALAKSHMI D/O LATE SRI. S.R. RAO

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170/A, TARAKA, 10TH MAIN R.M.V. EXTENSION SADASHIVANAGAR BANGALORE-560 080.

... APPELLANT [BY SHRI. S.PARTHASARATHI, ADVOCATE FOR SHRI. BALRAM R. RAO, ADVOCATE ] IN I.T.A.No.95/2016: BETWEEN: SRI. KARTHIK KRISHNA PRESENTLY RESIDING AT 170/A, TARAKA, 10TH MAIN R.M.V. EXTENSION SADASHIVNAGAR BANGALORE-560 080.

... APPELLANT [BY SHRI. S.PARTHASARATHI, ADVOCATE FOR SHRI. BALRAM R. RAO, ADVOCATE ]

IN I.T.A.No.98/2016: BETWEEN: Ms. KAVYA KRISHNA

SINCE DECEASED

AMENDED V/O REPRESENTED BY LR

DATED 07.08.2017 SMT.RAJYALAKSHMI D/O LATE SRI. S.R. RAO 170/A, TARAKA, 10TH MAIN R.M.V. EXTENSION SADASHIVNAGAR BANGALORE-560 080.

[BY SHRI. S.PARTHASARATHI, ADVOCATE FOR SHRI. BALRAM R. RAO, ADVOCATE ]

AND: DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(3) C.R.BUILDING

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QUEEN'S ROAD BANGALORE-560 001.

... RESPONDENT (COMMON IN ABOVE APPEALS)

(BY SHRI. E.I.SANMATHI, ADVOCATE FOR SHRI. K.V.ARAVIND, ADVOCATE)

THIS INCOME TAX APPEAL No.447/2014 IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.06.2014 PASSED IN ITA NO.1017 & 1018/Bang/2011, FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09.

THIS INCOME TAX APPEAL No.450/2014 IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.06.2014 PASSED IN ITA NO.1019 & 1020/Bang/2011, FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09.

THIS INCOME TAX APPEAL No.95/2016 IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.09.2015 PASSED IN MP No. 47/Bang/2014, IN ITA NO.1017 & 1018/BANG/2011 FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09.

THIS INCOME TAX APPEAL No.98/2016 IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.09.2015 PASSED IN MP No.47/Bang/2014, IN ITA NO.1019 & 1020/BANG/2011, FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09.

THESE APPEALS COMING ON FOR FINAL HEARING, THIS DAY P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING:-

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J U D G M E N T

These four appeals have been filed under Section 260A of the Income-tax Act, 1961 ('Act' for short) by assessees viz., Karthik Krishna and his sister Kavya Krishna - since deceased represented by her legal representative - mother viz., Smt.Rajyalakshmi.

2.

Assessees' case is, a search and seizure was conducted in the premises of their mother - Smt. Rajyalakshmi on 26.08.2008. According to the Revenue, the gift deed in the form of declaration whereunder a sum of Rs.1.50 Crore each was gifted in favour of these two assessees. The jurisdictional Officer issued notice under Section 153C of the Act to the assessees and completed assessment holding that a sum of Rs.1.50 Crore each in the hands of the assessees was undisclosed income. The Commissioner of Appeals and Income-tax Appellate Tribunal ('ITAT' for short) accepted the view taken by the Assessing Officer and dismissed the appeals. Assessees' rectification applications filed before the ITAT have also been dismissed. Hence, these appeals.

3.

Shri. Parthasarathi, learned Advocate for the assessees' placing reliance on Commissioner of Income-tax - III Vs.

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Calcutta Knitwears1 submitted that before issuing notice under Section 153C, a satisfaction note must be prepared by the Assessing Officer before transmitting the records to the jurisdictional Assessing Officer. He contended that all three authorities have failed to notice that the satisfaction was not recorded which is sine qua non for initiation of proceedings under Section 153C of the Act. Therefore, assessees' filed rectification application before the Income Tax Appellate Tribunal and the same have also been dismissed.

4.

In substance, the contention of Shri. Parthasarathi is, once any material is found at the time of search and seizure, the Officer in-charge must record his satisfaction and thereafter makeover the particulars to the jurisdictional Assessing Officer for further action. According to him, what was found in the residence of Smt. Rajyalakshmi was a photo copy of a declaration, which at best, indicated that assessees' uncle one Muniswamy had gifted Rs.1.50 Crore each to the assessees herein. A gift by no means can be an incriminating material because the gift in this case is by assessees' uncle, which is exempted from tax. He contended that Muniswamy had

1 [2014] 43 taxmann.com 446 (SC) (Para 44)

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explained the source of income viz., his bank accounts held with Axis Bank, HDFC Bank and Vijaya Bank from where he had transferred money through cheque, in favour of the assessees.

Shri Parathasarathi, concluded his arguments contending that, unless it is demonstrated by the Revenue that the Searching Officer had recorded his satisfaction, the jurisdictional Assessing Officer cannot initiate proceedings under Section 153C of the Act.

6.

Shri E.I. Sanmathi, learned Advocate for the Revenue argued opposing the appeals and submitted that Muniswamy had deposed before the Assessing Officer that he had no source of income. Therefore, nothing remained for consideration by the Assessing Officer. Hence no further inquiry or investigation was warranted.

7.

In reply, Shri Parthasarathi, submitted that Muniswamy has retracted his statement and filed an affidavit sworn to before a Judicial Magistrate and it is permissible in law to retract the statement given before the tax authorities.

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8.

We have carefully considered the rival contentions and perused the records.

9.

Undisputed facts of the case are, a copy of the declaration said to have been prepared by Muniswamy was found in the residence of Smt. Rajyalakshmi. Revenue initiated proceedings under Section 153C of the Act. Assessees' grievance is that the said proceedings are without jurisdiction because recording satisfaction which is a condition precedent before making over it to the jurisdictional Officer even though the Assessing officer and the Searching officer are one and the same, is mandatory. This position of law is not disputed by the Revenue. Admittedly, the assessees have filed rectification application before the ITAT with a prayer to call for records and to examine whether satisfaction as required under Section 153C was recorded. The said applications have been rejected.

10.

In Calcutta Knitwears, (supra), it is held that satisfaction note is sine qua non and must be proved by the Assessing Officer before he transmits the records to the jurisdictional Assessing Officer. The Apex Court, in that case was

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considering Section 158BD of the Act, which is pari materia with Section 153C of the Act.

11.

In view of the law laid down in Calcutta Knitwears (supra) and the facts and circumstances of this case, we are of the considered opinion that the matter requires a re-look in the hands of the Tribunal. Hence the following: ORDER i) ITA No.447/2014 and ITA No.450/2014 are allowed.

ii) The orders passed by the ITAT, Bangalore Bench in CO No. 52/Bang/2014 for the assessment year 2006- 07 and ITA Nos.1017 and 1018/BANG/2011 for the assessment years 2007-08 and 2008-09 vide its common order dated 05/06/2014 and ITA No.1019 & 1020/BANG/2011 for the assessment years 2007-08 and 2008-09 vide its common order dated 05/06/2014 are set aside.

iii) The matter is remitted to ITAT with a direction to call for the records and examine whether satisfaction under Section 153C of the Act was recorded.

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iv) In view of the order passed in ITA No.447/2014 and ITA No.450/2014, the appeals in ITA No.95/2016 and ITA No.98/2016 are rendered infructuous and accordingly stand disposed of.

All contentions of both assessees and Revenue are kept open.

No costs.

Sd/-

JUDGE

Sd/-

JUDGE

Psg*

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