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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 08TH DAY OF FEBRUARY, 2021
PRESENT
THE HON’BLE MR.JUSTICE ALOK ARADHE
AND
THE HON’BLE MR.JUSTICE NATARAJ RANGASWAMY
I.T.A. NO.61 OF 2015
BETWEEN:
SHRI H. NAGARAJA S/O HANUMAPPA, AGED 42 YEARS, R/AT NO.6 & 7, 5TH CROSS, CHUNCHAGHATTA MAIN ROAD, KONANAKUNTE, BENGALURU-560062. ...APPELLANT (BY SRI. M.V.SESHACHALA, SENIOR ADVOCATE FOR SRI. ARAVIND V. CHAVAN, ADVOCATE)
AND:
THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2 (2), C.R. BUILDINGS, QUEENS ROAD, BENGALURU-560001.
THE COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, C.R. BUILDINGS, QUEENS ROAD, BENGALURU-560001.
…RESPONDENTS (BY SRI. E.I.SANMATHI, ADVOCATE)
2 THIS APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 05.09.2014 PASSED IN ITA NO.1150/Bang/2012, FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE (2) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN ITA NO.1150/Bang/2012 DATED 05.09.2014 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER.
THIS APPEAL COMING ON FOR HEARING THIS DAY, ALOK ARADHE, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr.M.V.Sheshachala, learned senior counsel for Mr.Aravind V Chavan, learned counsel for the revenue.
Mr.E.I.Sanmathi, learned counsel for the assessee.
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’ for short) has been filed by the assessee against the order dated 05.09.2014 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the ‘Tribunal’ for short).
The subject matter of the appeal pertains to Assessment Year 2008-09. The appeal was admitted by a
3 Bench of this Court vide order dated 11.09.2015 on the following substantial questions of law.
“1. Whether the Tribunal was correct in holding that telescoping of expenses of Rs.30,00,000/- cannot be allowed against income declared of Rs.50,00,000/- when the Assessing Officer had granted such a relief and the revenue was not in appeal?
Whether the Tribunal was correct in holding that similar telescoping of expenses of Rs.32,50,000/- cannot be allowed against the income declared of Rs.50,00,000/- as held by the CIT(A) as there was no availability of funds without examining the material on record and the order of CIT u/s.263 of the Act disallowing the expenses and consequently recorded a perverse finding?”
Facts giving rise to filing of this appeal briefly stated are that the assessee who is an individual deals with the business of real estate under the name and style of M/s.SLV Housing Development Corporation which is a partnership firm. A search and seizure operation was conducted in the case of the assessee on 06.01.2009 and
4 during the course of search, lot of incriminating materials were seized by the Department. The case of the assessee was centralized vide order passed by the Commissioner of Income Tax dated 16.04.2009 and a notice under Section 153A of the Act was issued on 08.03.2010 requiring the assessee to file return of income for the Assessment Year namely 2008-09 within thirty days. The aforesaid notice was served on the assessee on 09.03.2010. Subsequently, a notice under Section 142(2) of the Act was issued to the assessee. The assessee vide communication dated 23.07.2010 enclosing a copy of the return filed under Section 139 of the Act, requested to treat the same as return filed in response to the notice under Section 153A of the Act. In the original return which was filed by the assessee on 18.06.2010, total income of Rs.8,82,13,948/- was issued. A notice under Section 143(2) of the Act was issued to the assessee on 27.07.2010 inter alia made an addition of Rs.50,000/- towards development expenses, Rs.32,50,000/- towards unexplained investment and Rs.30,00,000/- was made in
5 excess of Rs.20,000/-. Accordingly, the assessment was completed.
The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 15.09.2011 inter alia held that Rs.50,00,000/- was the declaration of income made by the assessee which has to be confirmed. However, it was held that the Assessing Officer has given telescoping benefit to unexplained investment of Rs.30,00,000/-. It was further held that similarly development expenses incurred by the assessee to the extent of Rs.32,50,000/- should also be given the benefit of telescoping. The Commissioner of Income Tax (Appeals) further held in respect of disallowance of Rs.30,00,000/- cash payment made to the purchase of agricultural property, held that Rule 6DD(g) of the Income Tax Rules permitted such a payment and the same cannot be disallowed. It was further held that this amount had not been carried to the stock in trade, but was treated as an investment and therefore, on this ground also it cannot be disallowed. Accordingly, the appeal was partly allowed.
6 The revenue thereupon approached the Income Tax Appellate Tribunal. The Tribunal by an order dated 05.09.2014, inter alia held as follows:
“17. As far as the set off with regard to Rs.30.00 lakhs alleged to have been paid in cash to Shri L. Gopala Krishna is concerned, we find that the CIT (A) has observed that the assessee never claimed it as expenditure. It was an investment. Therefore, section 40A(3) is not applicable. The disallowance u/s 40A(3) is not possible. But again the issue would be from where the assessee has brought this fund. It is claiming that since he has surrendered a sum of Rs.50.00 lakhs out of the expenditure that income should be considered as available in his hands, which can be used for unexplained investment. We are of the view that same logic would be applicable here also as was available with regard to the alleged investment of Rs.32.50 lakhs. The expenses for development had already been incurred, therefore, disallowance is not being made on account of inflated expenses claimed by the assessee. The addition was made on the ground that the assessee failed to explain the source of expenditure towards development. It suggests that the expenditure were incurred already but its source was not known. If that be so, then, how out of that amounts, further investments can be made. Therefore, the credit of alleged availability of the amount cannot be
7 claimed for set off. The findings of the CIT(A) are set aside on this issue also and that of the Assessing Officer is restored.”
Being aggrieved, the revenue as well as the assessee filed the appeals. In the result, the appeal preferred by the revenue was partly allowed and the appeal preferred by the assessee was dismissed. In the aforesaid factual background, this appeal has been filed by the assessee.
Learned senior counsel for the assessee while inviting attention of this Court to the judgment of the Supreme Court in ‘J.K.Industries Limited and Another Vs. Union of India and Others’, (2007) 13 SCC 673 submitted that the assessee is entitled to the benefit of matching principle. However, the aforesaid contention has not been considered neither by the Tribunal nor the assessee has been afforded an opportunity. In this connection, counsel invited attention of this Court to Paragraph 17 of the order passed by the Tribunal. Learned counsel for the revenue could not dispute the aforesaid submission.
8 7. In view of the law laid down by the Supreme Court in J.K.Industries Limited (supra) and in view of the aforesaid decision, the assessee is entitled to take a plea with regard to the matching principle and since the assessee has not been heard on the aforesaid issue, we deem it appropriate to quash the order passed by the Tribunal in so far as it pertains to the appeal preferred by the revenue and remit the matter to the Tribunal to decide the same afresh after affording an opportunity to all the parties on the aforesaid issue.
Needless to state that it will be open for the parties to raise all the contentions which are admissible in law to them. Therefore, it is not necessary for us to answer the substantial questions of law.
In the result, the appeal is disposed of.
Sd/- JUDGE
Sd/- JUDGE GH