2013 (10) TMI 972 - AT - Income Tax

Invalid Search Operation Under Section 132 Leads to Quashed Assessment Orders

The assessment orders were quashed due to the invalidity of the search operation under section 132 of the Income Tax Act, as the search was found to be ... Validity of search u/s 132(1) of the Income Tax Act – Validity of assessment order passed on the basis of invalid search – Held that:- Search was conducted only on the basis of the information received from S.P. C.B.I. that undisclosed cash being carried out by the assessee, but no such cash or any other incriminating documents, books of accounts, money, bullion, jewellery or other valuable article or thing were found in the possession of the assessee. Therefore, the authorization to conduct search based on reason under section 132(1) of the Act did not exist and the search became invalid. Therefore, the assessment order based on the said search cannot stand and to be set aside - Assessment orders passed by the Assessing Officer on the basis of invalid search deserve to be set aside and quashed – Decided in favor of Assessee. Issues Involved:1. Validity of the assessment order.2. Legality of the search operation under section 132 of the Income Tax Act, 1961.Detailed Analysis:1. Validity of the Assessment Order:The common issue raised by the assessee relates to the validity of the assessment order. The facts reveal that a search operation was conducted on 29/03/2007 at Hotel Shalimar, Jaipur, where the assessee was staying. Incriminating documents and note books containing details of unexplained payments were claimed to be found and seized. Subsequently, notice under section 153A of the Income Tax Act, 1961, was issued, and the assessments were completed on 23/12/2008 for various assessment years.The assessee challenged the validity of the search, contending that no material or evidence was brought on record to justify the search. The assessee relied on various case laws, including the Hon'ble Delhi High Court's judgment in Ajit Jain Vs. Union of India and the Hon'ble Supreme Court's affirmation of the same. The assessee argued that the search was not valid as no substantial information was provided to justify the search.The CIT(A) dismissed the assessee's appeal, stating that the basic requirement for exercising jurisdiction under section 153A is the initiation of a search under section 132. The CIT(A) found that the search was conducted based on valid authorization issued by the Director of Income Tax (Investigation), Jaipur, and reasons were recorded before authorizing the search. The CIT(A) held that the assessment order was valid and could not be quashed.2. Legality of the Search Operation:The assessee contended that the search was invalid as it was conducted based on false information provided by the CBI, and no cash or incriminating documents were found. The assessee argued that the search was conducted without proper satisfaction of the Assessing Officer.The department, represented by the CIT-D.R., argued that the initiation and conduct of the search is an administrative act and cannot be appealed. The CIT-D.R. produced a satisfaction note recorded by the Assessing Officer, which mentioned that the SP CBI informed about undisclosed cash being carried by the assessee. The search was conducted based on this information.The tribunal examined the provisions of section 132 of the Income Tax Act, which requires the existence of certain eventualities and the reason to believe that a person is in possession of undisclosed income or property. The tribunal found that the information provided by the SP CBI was incomplete and did not substantiate the existence of undisclosed assets or incriminating documents. The tribunal cited the Hon'ble Rajasthan High Court's judgment in CIT Vs. Smt. Chitra Devi Soni and the Hon'ble Supreme Court's judgment in Union of India Vs. Ajit Jain, which held that a search conducted without sufficient information is invalid.The tribunal concluded that the search conducted on the assessee was invalid as it was based on incomplete information. Therefore, the assessment order based on the invalid search was set aside and quashed.Conclusion:The appeals of the assessee were allowed, and the assessment orders were quashed due to the invalidity of the search operation. The department's appeals were dismissed. The tribunal did not provide findings on other issues raised by the assessee or the department, as the assessment orders were quashed based on the invalid search.(Order Pronounced in the Court on 23rd September, 2013).