Introduction
The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in the case of ACIT, Central Circle 3(2)(4), Bangalore vs. Shri Lakkanna Durgappa, delivered a consolidated order on 11 May 2026 for Assessment Years (AYs) 2017-18 to 2020-21. The Revenue’s appeals challenged the Commissioner of Income Tax (Appeals) [CIT(A)] order dated 24 October 2025, which had deleted substantial additions made by the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961. The ITAT dismissed all four Revenue appeals, upholding the CIT(A)’s finding that no incriminating material was discovered during the search conducted on 19 February 2020, and that for AY 2020-21, the capital gains from a Joint Development Agreement (JDA) executed in 2012 could not be taxed under the prospectively applicable Section 45(5A). This commentary dissects the legal reasoning and the binding effect of the coordinate bench’s earlier decision in the assessee’s spouse’s case.
Facts of the Case
The assessee, Shri Lakkanna Durgappa, was an individual who, along with his spouse Smt. Shanthamma, entered into a JDA with SJR Prime Corporation Pvt. Ltd. on 17 December 2012 for developing a residential property under the SJR Plaza City Project. The property was jointly owned, with the assessee holding a 27.8% share and his wife 72.2%. A search under Section 132 of the Act was conducted on 19 February 2020. For AY 2017-18, the assessee had filed a return declaring income of Rs. 13,33,70,540/- on 27 October 2017, which was processed under Section 143(1). Following the search, a notice under Section 153A was issued, and the AO completed the assessment on 30 September 2021, adding Rs. 14.48 crores for undisclosed construction expenses (based on the assessee’s sworn statement under Section 132(4)), Rs. 2,20,20,000/- as unallowable construction costs, and Rs. 30.49 crores as capital gains from the JDA. Similar additions were made for AYs 2018-19 and 2019-20 under Section 153A, and for AY 2020-21 under Section 143(3).
The assessee appealed to the CIT(A), who consolidated the four assessment years. The CIT(A) observed that the documents relied upon by the AO—namely the JDAs and occupancy certificates—were already disclosed by the assessee in a sworn statement recorded under Section 131 on 23 May 2019, well before the search. The CIT(A) also noted that the coordinate bench of the ITAT, in ITA No. 465/Bang/2025 dated 04 September 2025 (Smt. Shanthamma vs. DCIT), had held that no incriminating material was found against the assessee’s wife on identical facts. Applying the Supreme Court’s ruling in PCIT vs. Abhisar Buildwell Pvt. Ltd. (2023) 149 taxmann.com 399, the CIT(A) deleted the additions for AYs 2017-18 to 2019-20. For AY 2020-21, the CIT(A) held that Section 45(5A) (which taxes capital gains from JDAs) was inserted with effect from 1 April 2018 and could not apply to a JDA executed in 2012.
Reasoning of the ITAT
The ITAT, in a detailed order authored by Vice-President Shri Prashant Maharishi, affirmed the CIT(A)’s reasoning on two fundamental legal principles.
1. Absence of Incriminating Material (AYs 2017-18 to 2019-20)
The Revenue argued that the occupancy certificate seized during the search and the assessee’s sworn statement constituted incriminating material under Section 153A. However, the ITAT found that the remand report submitted by the AO recorded that the only documents relied upon were the JDAs and occupancy certificates. Crucially, the assessee had voluntarily disclosed these very documents in his sworn statement under Section 131 on 23 May 2019, i.e., nine months before the search. The ITAT held that documents already in the possession of the Department or which are public records (such as registered JDAs) cannot be termed as “incriminating material discovered during the search.” The coordinate bench’s decision in Smt. Shanthamma’s case was directly binding—the facts were identical, and the same documents were used. Consequently, the Supreme Court’s ratio in Abhisar Buildwell squarely applied: where no incriminating material is found during a search, the assessment under Section 153A for concluded assessment years cannot be sustained. The ITAT thus upheld the deletion of additions of Rs. 47.17 crores (cumulative for three years).
2. Prospective Application of Section 45(5A) (AY 2020-21)
For the year 2020-21, the Revenue sought to tax capital gains from the JDA executed in 2012 under the newly inserted Section 45(5A). The ITAT observed that Section 45(5A) was introduced by the Finance Act, 2017, with effect from 1 April 2018. The JDA was entered into on 17 December 2012, well before the effective date. Applying the settled principle that taxing provisions are presumed to be prospective unless expressly made retrospective, the ITAT held that the capital gains could not be taxed in AY 2020-21 under Section 45(5A). The assessee’s liability, if any, would be determined under the then-existing provisions of Section 45 read with Section 53A of the Transfer of Property Act, but the AO had not made any such alternative addition. Since the Revenue failed to demonstrate any change in facts or that the documents formed incriminating material, the CIT(A)’s order was correct.
Conclusion
The ITAT dismissed all four Revenue appeals, holding that:
– For AYs 2017-18 to 2019-20, the assessments under Section 153A were void ab initio for lack of incriminating material, following the binding precedent of the coordinate bench and the Supreme Court.
– For AY 2020-21, the capital gains addition under Section 45(5A) was unsustainable since the provision applies only prospectively from AY 2018-19.
This decision reinforces the taxpayer-friendly jurisprudence that a search under Section 132 must yield genuinely new material to justify re-opening completed assessments. It also clarifies the temporal application of Section 45(5A), protecting taxpayers who entered into JDAs before 1 April 2018. The Revenue’s attempt to rely on pre-disclosed documents and a prospective tax provision was rightly rejected.