2018 (12) TMI 223 - HC - Income Tax

Income-tax search action and s.153A notice validity: whether s.132 search was initiated; taxpayer sent to AO review

Validity of notice under Income-tax Act s.153A turned on whether a 'search is initiated' u/s 132 in the noticee's case, since mere issuance of search ... Assessment u/s 153A - Held that:- In the present case, we have no hesitation in accepting the petitioner's contention that in order to issue notice under sub-section (1) of section 153A, there must be initiation of search in case of the noticee. Mere search authorization would not be sufficient. There is clear distinction between search authorization and conduct of the search. In sub-section (1) of Section 153A of the Act, therefore, the legislature has advisably used expression “where a search is initiated under Section 132”. Admittedly search authorization was issued against the firm as well as other persons. Actual search was also conducted and carried out at 3 different locations, which included the residential premises of one of the partners of the firm and residential premises of two more persons. Primafacie, we do not find any provision which would restrict the Department's search action only to the registered office of a partnership firm. The conduct of the search at these places in relation to the partnership firm and its business need to be examined in proper perspective keeping in mind the objections of the partnership firm and such exercise should be allowed to be done at the level of the Assessing Officer. At this stage, we do not propose to thwart the assessment pursuant to the impugned notices. Firstly, at this stage, in a writ petition we would not go into the minute factual details when said factual aspects can be and should be considered by the Assessing Officer before whom the proceedings are pending. In this context, we may refer to the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Vijaybhai N. Chandrani [2013 (7) TMI 740 - SUPREME COURT]. It is the case, in which the assessee had approached Gujarat High Court challenging show cause notice under Section 153C of the Act contending that during the search conducted by the Department against another person, no material belonging to the assessee was found and, therefore, action against the assessee under Section 153C of the Act was invalid. Under the circumstances, keeping the petitioner's factual and legal contentions and objections open, we relegate the petitioner before the Assessing Officer. Once the Assessing Officer passes final order pursuant to the impugned notices, it will always be open to the petitioner to pursue the remedy available under the Act. Issues:Challenging Notices under Section 153A of the Income Tax Act, 1961 without conducting search at the premises of the partnership firm.Analysis:The petitioners challenged the Notices issued by the Assistant Commissioner of Income Tax under Section 153A of the Income Tax Act, 1961, contending that no search was conducted at the premises of the partnership firm, and hence, the Assessing Officer had no authority to initiate proceedings under Section 153A. The petitioners argued that the search was carried out at the residential premises of partners and other related persons, not at the firm's premises. The Department, on the other hand, maintained that the search was conducted in the case of the partnership firm and its partners, justifying the validity of the Assessing Officer's actions. The Department also raised an objection regarding the timing of the petitioner's objection to the Assessing Officer's jurisdiction under Section 124 of the Act.The Counsel for the petitioner contended that a search must be initiated against the noticee for issuing a notice under Section 153A, emphasizing the distinction between search authorization and actual conduct of the search. The Counsel argued that a partnership firm and its partners are separate entities, and a search at partners' premises does not equate to a search against the firm. Additionally, the objection of limitation raised by the Department was deemed fallacious, as the time limit under Section 124 of the Act pertains to territorial jurisdiction of the Assessing Officer, not objections to the Assessing Officer's authority.The High Court agreed with the petitioner's contentions, emphasizing that the initiation of search is a prerequisite for issuing a notice under Section 153A. The Court clarified that the time limit for raising objections under Section 124 does not apply when the Assessing Officer's actions are without authority of law and jurisdiction. Despite this, the Court declined to entertain the petition at that stage, citing the need for factual details to be considered by the Assessing Officer. Referring to a Supreme Court judgment, the Court highlighted the importance of exhausting alternative remedies before approaching the writ court. The Court also noted that the search was conducted at various locations related to the partnership firm, indicating that the Department's search action was not restricted to the firm's registered office.In conclusion, the High Court disposed of the petition, reiterating that the petitioner could pursue remedies available under the Act after the Assessing Officer's final order. The Court emphasized the need for a detailed examination of the search action in relation to the partnership firm and its business at the Assessing Officer's level, without thwarting the assessment process pursuant to the impugned notices.