Smt. N. Sarojini,, Hyderabad vs Assessee

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belonging to the assessee which was observed by the Assessing

Officer in his Assessment Order.

3. In response to notice u/s 153C return of income was filed declaring total income of Rs.2,13,790/-. Assessment was completed on total income of Rs.11,19,779/-.

4. In the course of assessment the AO made addition of the following amounts:

Income Returned: Rs.2,13,790 (i) Undisclosed pension Rs. 1,989 (ii) Difference in SRO valuation Rs.2,04,000

(iii) Disallowance of Renovation exp.Rs.2,00,000

(iv) Unexplained cash Rs.5,00,000 Total Income Rs.11,19,779

Total income assessed: Rs.11,19,779

Total Taxable Income Rs.11,19,779 Tax Thereon Rs.3,09,934 Add: Supreme Court @ 10% Rs.30,993 Total Tax Payable Rs.3,40,927 Less: Tax rebate u/s 88C Rs.5,000 Total tax payable Rs.3,35,927 Add:Interest u/s 234A Rs.5,767 Interest u/s 234B Rs.3,89,187 Interest u/s 234C Rs.5,303 Total Tax Payable Rs.7,36,184 Less: Tax paid u/s 140A Rs.44,986 Net demand payable Rs.6,91,198

5. Aggrieved the assessee filed an appeal before the CIT(A).

6. The CIT(A) deleted the addition of the amount of Rs.2,00,000/- towards disallowance of the cost of improvement. However with respect to addition of Rs.5,00,000/- as

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unexplained cash the CIT(A) observed that the AO had stated in para 2.3 of his order as follows:

""2.3 It is seen that Smt. N.Sarojini was a retired school teacher and was filing return of income offering nominal income from pension and interest income and such returns are also not filed regularly as per the prescribed time limits of I.T.Act. It is observed that she has made substantial investments in the form of lands and bank deposits/FD prior to 01.04.2003. In view of these facts of case, it would not be appropriate and reasonable to claim considerable cash opening balance of Rs.6,70,000/- without any supporting proofs for verification. Apparently this huge cash in hand was claimed after search to explain various investments made by her. Out of this, cash to the extent of Rs.1,70,000/- can be taken as explained and balance cash of Rs.5,00,000/- is brought to tax considering the claim of the assessee as unreasonable."

7. The assessee Authorized Representative before the CIT(A) stated that

"In course of the appellate proceedings, the appellant stated that it had filed cash flow statements from 01.04.2003 to 31.03.2010 explaining the inflow and outflow of cash. Out of the opening cash balance of Rs.6,70,000/- as on 01.04.03, the AO accepted an amount of Rs.1,70,000/- as reasonable and therefore took it as explained, and added the balance amount of Rs.5 lakhs as unexplained cash. It was also stated that the AO perhaps felt that this amount might have been spent by way of investments and outgoings. The appellant claimed that the observation is general in nature without pinpointing any reason for not accepting the claim of the appellant.

The appellant submitted that the disallowance has been done on an estimated basis without pointing out any discrepancy whatsoever in the cash flow statement. It was also submitted that the opening balance, which is a brought forward one, cannot be added. The appellant also cited the following decisions in support of his claim that the opening balance cannot be added.

a) CIT Vs Parmeshwar Bohra 208 ITR 218 (Raj)

b) CIT Vs Smt. M.Sashikala (92) TTJ 1196 (ITAT, Chennai).

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"The learned AO erred in invoking the provisions of section 153C as no incriminating evidence belonging to the appellant was found in the course of search as evidenced in the asst. order."

8. The CIT (A) held at Para 9.7 as follows:

"9.7 From the receipts and payment account, it is seen that the assessee is having two bank accounts since 2001. Copies of the bank accounts were also filed. It is, therefore, surprising that assessee is having substantial cash on hand. It is true that the addition made in the current assessment is out of opening balance but the addition was made as unexplained cash. The origin of the current opening balance of cash actually lies in the earlier year when the appellant had showed an amount of Rs.10,42,568 as cash on hand as on 1.4.2002. Needless to say, financial year 2002-03 relevant to A.Y 2003-04 is beyond six assessment years which the AO can scrutinize u/s 153C. By correlating the balance sheet as on 31.03.2003 and 31.03.2004 and the corresponding receipt and payment account it is seen that the opening cash balance as on 1.4.2003 shown by the assessee, certainly acted as a source for the investment undertaken during the current year i.e. financial year 2003-04 relevant to A.Y 2004-05. The appellant had an income of about Rs.2 to 2.25 lakhs from house property in financial year 2002-03 and financial year 2003-04 as per original returns filed in 2006. The appellant also had pension income and also showed investments in commercial office spare (Rs.7,50,000) at Lal Bangalow, Ameerpet and also fixed deposits (Rs.3,00,000) and investments in Laxmi Finance (Rs.2,00,000) as per capital account as on 31.03.2003 besides cash balance of Rs.6,70,633. The extent of cash availability is not supported by known sources of income. As the appellant had not filed capital account details along with the returns filed originally for A.Y 2003-04 and A.Y 2004-05 and the capital account and the receipt and payment account was constructed and filed after the search, the explanation and source for investment shown through the "opening balance of cash in hand" is not satisfactory".

9. The CIT (A) relied on the decision of the Madras High Court in the case of C.Pakkrisamy vs ACIT (315 ITR 293) and confirmed the addition made of Rs.5,00,000/-

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10. The assessee filed Additional Grounds before the CIT(A) as follows:

"The ld AO erred in invoking the provisions of section 153C as no incriminating evidence belonging to the appellant was found in the course of search as evidenced in the assessment order".

11. With respect to the additional grounds, the Learned Counsel for assessee submitted that a legal issue has been raised regarding the assessment which has been made. Further, the Learned Counself for the assessee also relied on the Special Bench of Al Cargo Global Logistics vs. DCIT (SB 137 ITD 287).

12. The CIT(A) pointed out that in the first paragraph of the Assessment Order itself the AO had stated that in the course of search and seizure operations in the case of Sri V.Anand Prasad & others on 7.10.2009 certain documents belonging to the assessee were found and seized leading to issue of Notices u/s 153C. The CIT(A) observed that the assessee too had admitted certain income which was not returned in her tax returns earlier and offered the same to taxation in her statement. Subsequently the assessee has filed Returns offering this income mentioned earlier. The CIT(A) held that once the AO proceeds to issue Notice u/S 153C r.w 153A based on seized material for one year, issuance of notice and assessment/reassessment of income for six assessment years immediately preceding the Assessment Year relevant to the previous year in which search is conducted becomes mandatory in terms of provision of S.153A(1)(a) and 153A(1)(b) and the AO cannot pick and choose assessment years for issue of this notice. The CIT(A) dismissed the Additional

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Ground relying on the decision of Gopal Lal Bhadruka vs. DCIT (27 taxmann.com 167 AP)

13. Aggrieved the assessee has filed an appeal before us.

14. Firstly with respect to the assumption of jurisdiction u/s 153C we find that in case of the assessee returns for AY's 2004- 05, 2005-06 and 2006-07 were filed prior to search and processed u/s 143(1). In respect of these returns the time limit for issuing notice u/s 143(2) has expired and therefore the same has attained finality.

15. Since there is no incriminating material found prior to AY 2004-2005, the Returns for AY2004-05, 2005-06 and 2006-07 are abated Returns and not pending Returns. In respect of these abated Returns as on the date of search being 7.10.2009, where the time of issue of notice has expired, no addition could be made without the help of seized incriminating documents seized in the course of search. Reliance is placed on the decision of Al Cargo Global Logistics vs. DCIT (supra).

16. The ld Counsel relied on the decision of Jai Steel (India) vs. ACIT (88 DTR (Raj.) 1) and submitted that though the CIT (A) has relied on the decision of C.Pakkrisamy vs ACIT (Supra), the view in favour of the assessee is to be taking the decision in the case of CIT vs. Vegetable Products (88 ITR 192 (S.C). The assessee shown opening balance of Rs.6,70,000 as on 1.4.2003 in the cash flow statement. The assessee also stated that she had explained the source of income and the AO took an amount of Rs.1,70,000 as explained balance cash of Rs.5.00 lakhs was brought to tax. We are of the opinion that opening balance which

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has been explained cannot be taken as incriminating document to be brought u/s 153C. Further, where the investments from opening balance has been accepted by the AO, the AO cannot restrict the relief to Rs.1,70,000. Since the assessee has filed the capital account and balance sheet as on 31.3.2000 to 31.3.2010 we set aside this issue to the file of the AO to verify whether the amount of Rs.6.70 lakhs has been shown as opening balance as on 1.4.2003 in the cash flow statement and if so allow the claim of the assessee following the ratio of the following decisions:

• CIT vs. Parameshwar Bohra, 30 ITR 404 (Raj.) • ACIT vs. Smt. N. Sasikala, 151 Taxmann 042 (Chennai) • DCIT 5(1) Hyd. V. Shri Mohammed Azam Khyan (ITA No.119/Hyd/2011 dated 24.1.2014.

17. In the result, the appeal is allowed for statistical purposes.

Order pronounced in the Open Court on 17th April, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 17th April, 2015.

Vnodan/sps Copy to:

1. Smt. N. Sarojini, Plot No.32, Maitri Nagar, Kukatapally Hyderabad

2. Dy. Commissioner of Income Tax, Central Circle (5) Hyderabad

3. The CIT(A)-VII Hyderabad

4. The CIT (Central) Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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