2021 (8) TMI 594 - HC - Income Tax

Invalid assessment order under Section 153A of Income Tax Act due to lack of incriminating evidence

Smt. Jami Nirmala Versus The Principal Commissioner of Income Tax, Bhubaneswar and others

The Court held that the assessment order under Section 153A of the Income Tax Act for AY 2015-16 was invalid as it was based on materials from a survey, ... Assessment u/s 153A - document found during the course of the search or not? - HELD THAT:- In the present case, the impugned assessment order does not refer to any document unearthed during the course of the search on 26th February, 2016. Therefore, the assumption of jurisdiction under Section 153A of the Act for reopening the assessment for the AY 2015-16 was without legal basis. The impugned assessment order refers only to the cash book found during the survey purportedly conducted on 12th February, 2016 i.e. two weeks prior to the date of search. The Panchanama of the search proceedings unambiguously shows that nothing incriminating was recovered in the course of the search. Even in the counter affidavit of the Opposite Parties does not dispute this position. In view of the settled legal position the Court has no hesitation in concluding that the impugned assessment order is entirely without jurisdiction - the impugned assessment order and the consequential demand notice set aside. - Decided in favour of assessee. Issues Involved:1. Legality of the assessment order under Section 153A of the Income Tax Act, 1961 for AY 2015-16.2. Jurisdictional validity of the assessment based on materials found during a survey rather than a search.3. Relevance of incriminating material found during the search for additions under Section 153A.Issue-wise Detailed Analysis:1. Legality of the assessment order under Section 153A of the Income Tax Act, 1961 for AY 2015-16:The challenge in this writ petition is to an assessment order dated 29th December, 2017, passed by the Assistant Commissioner of Income Tax (ACIT), Central Circle-I, Bhubaneswar under Section 143(3) read with Section 153A of the Income Tax Act, 1961 for the assessment year (AY) 2015-16. The Petitioner filed a return of income for the AY in question on 29th September, 2015, disclosing a total income of Rs. 7,98,240/-. A search was conducted under Section 132 of the Act at the Assessee’s residential premises and a locker on 26th February, 2016, but nothing was found or seized. Despite this, the assessment order sought to disallow payments made to cultivators and Hamalis amounting to Rs. 64,22,721/-, revising the total assessed income to Rs. 72,20,961/-. The Court noted that the assessment order was based on the position found in the cash book and books of account, which were not discovered during the search but during a survey conducted on 12th February, 2016.2. Jurisdictional validity of the assessment based on materials found during a survey rather than a search:The Court observed that the assessment made pursuant to a search under Section 153A of the Act must be based on incriminating materials gathered or unearthed during the course of the search. It referenced the legal position summarized in CIT v. Kabul Chawla and Principal CIT v. Mita Gutgutia, which clarified that Section 153A is a potent power that should not be exercised lightly and must be justified by incriminating material found during the search. The Court found that the impugned assessment order did not refer to any document unearthed during the search on 26th February, 2016, but rather to the cash book found during a survey on 12th February, 2016, thus lacking the legal basis for reopening the assessment for AY 2015-16 under Section 153A.3. Relevance of incriminating material found during the search for additions under Section 153A:The Court highlighted that the legal position requires that any additions or disallowances under Section 153A must be based on material collected during the search. It cited several judgments, including Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd., which reiterated that any addition or disallowance can only be made on the basis of material collected during the search or requisition. The Court noted that the Panchanama of the search proceedings showed that nothing incriminating was recovered during the search, and even the counter affidavit of the Opposite Parties did not dispute this position. Therefore, the assumption of jurisdiction under Section 153A for reopening the assessment was without legal basis.Conclusion:The Court concluded that the impugned assessment order was entirely without jurisdiction and set aside the assessment order and the consequential demand notice. The writ petition was allowed with no order as to costs.