2016 (8) TMI 327 - HC - Income Tax

Court clarifies scope of assessment under Income Tax Act, emphasizes search material necessity. Revenue wins on proviso applicability.

THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN Versus SHRI. PROMY KURIAKOSE

The court ruled in favor of the assessee regarding the scope of assessment under section 153C of the Income Tax Act, emphasizing the necessity of search ... Assessment under section 153C - requirement of a notice under section 143(2) - Held that:- As there is no requirement of a notice under section 143(2) for completing an assessment under section 153C and if that be so, the question of time limit prescribed under the proviso to section 143 (2) does not have any relevance for assessments under section 153C. Therefore, that finding of the Tribunal that the assessments for the years 2001-02, 2003-04, 2004-05 and 2005-06 are terminated/concluded by operation of law and that the assessee cannot be re-assessed under section 153C is untenable and is set aside. Issues Involved:1. Scope of assessment under section 153C of the Income Tax Act.2. Applicability of the proviso to section 143(2) concerning the time limit for issuing notice.3. Telescoping of investment in unaccounted profit.4. Addition of gift, agricultural income, and on-money received on the sale of land.Detailed Analysis:1. Scope of Assessment under Section 153C:The Tribunal questioned whether additions could be made under section 153C in the absence of search material. The Tribunal concluded that for an assessment under section 153C to be sustained, materials must be recovered during the search. The Revenue argued that assessments could be sustained even without incriminating materials, referencing a judgment in ITA.169/15. However, the court clarified that section 153C requires the seizure or requisitioning of assets or documents that belong to a person other than the one mentioned in section 153A. Thus, the Tribunal's finding that proceedings under section 153C cannot be initiated without search material was upheld, as it was consistent with the statutory provisions and precedents.2. Applicability of Proviso to Section 143(2):The Tribunal found that the returns for the assessment years 2001-02, 2003-04, 2004-05, and 2005-06 were filed before the search date, and the 12-month period for issuing notice under section 143(2) had expired. Therefore, the Tribunal held that the assessments for these years were concluded and could not be reassessed under section 153C. The Revenue contended that this conclusion contradicted statutory provisions and judgments from the Delhi High Court and Punjab & Haryana High Court. The court noted that sections 153A and 153C start with non obstante clauses, excluding the restrictive provisions of section 149. Thus, the time limit in the proviso to section 143(2) does not apply to assessments under section 153C. The Tribunal's finding on this issue was set aside.3. Telescoping of Investment in Unaccounted Profit:The Revenue challenged the telescoping of investment in unaccounted profit for the assessment year 2005-06. The Tribunal upheld the first appellate authority's decision to allow telescoping, citing a nexus between the investment and unaccounted income determined during the search. However, the court found that the Tribunal confirmed the order without valid reasons and set aside the Tribunal's order on this issue.4. Addition of Gift, Agricultural Income, and On-Money:The Tribunal's findings on the addition of gift, agricultural income, and on-money received on the sale of land were factual. The Revenue did not frame any question of law regarding these issues, so the court did not address them in detail.Conclusion:The court answered the question of law concerning section 153C in favor of the assessee, while the questions regarding the applicability of the proviso to section 143(2) and telescoping were answered in favor of the Revenue. The orders of the Tribunal were set aside to the extent indicated, and the matter was remitted to the Tribunal for disposal after hearing both sides.