2022 (7) TMI 294 - HC - Income Tax

Section 153-A Income Tax Act: Court Allows Assessment Beyond Search Material

Pr Commissioner of Income Tax Versus M/s Shri Mehndipur Balaji, Smt Divya Agrawal, M/s Ghata Mehandipur Balaji Griding Works Pvt Ltd., Smt Divya Agrawal, M/s Ghata Mehandipur Balaji Grinding Works Pvt Ltd., M/s Ghata Mehandipur Balaji Grinding Works Pvt. Ltd., Smt Divya Agrawal, M/s Accumen Poly Pack Pvt Ltd, M/s Accumen Poly Pack Pvt Ltd, Sapna Gupta, Manish Kumar Agarwal, Siddarth Gupta, Santosh Kumar Agarwal

The court held that assessment or reassessment under Section 153-A of the Income Tax Act is not limited to incriminating material found during a search ... Validity of Assessment u/s 153A - addition for bogus unsecured loan and bogus LTCG/ STCG - incriminating materials found at the time of search/ survey or not? - HELD THAT:- Facts of the present case show that incriminating materials were available on record, which have been used to make assessment/ reassessment of the respondents-assessees. In the absence of any bar under Section 153A of the Act, 1961, it cannot be said that assessment or reassessment under Section 153A cannot be made if incriminating material itself has not been found in the search but is otherwise available on record or it has been brought on record during the course of investigation. Findings of fact recorded in the assessment order and in the order of the CIT(A) clearly reveal voluminous incriminating materials were not available in the hands of the Assessing Officer and on the basis of such incriminating materials, the Assessing Officer assessed the respondents-assessees under Section 153A of the Act, 1961. Incriminating materials relating to the respondents-assessees were available on record and were also found in the search/ investigation relating to certain other person. It is admitted case of the respondents – assessees that search under Section 132 of the Act, 1961 was conducted in their premises in November, 2015. Another search was conducted on 28.04.2015 on Nikki Global Finance Ltd. Searches were conducted on premises of certain other persons on 24.04.2014 and statement of one Sri Subodh Agarwal was also recorded who appeared to be the real operator of the Success Vyapar Ltd. through his employee Sri Rishikant Awasthi, a nominal Director. Neil Industries Ltd. was also found being run from the same premises at Kanpur. On the basis of certain incriminating materials found regarding accommodation entries, the proceedings under Section 153A of the Act, 1961 was initiated by the Assessing Officer. Bogus unsecured loans and bogus LTCG/ STCG were assessed in the hands of the respondents-assessees. Thus, it cannot be said that either no incriminating materiel was found or that no incriminating material was available on record against the respondents – assessee's on the basis of which assessment orders under Section 153A of the Act, 1961 have been passed - Thus, findings recorded and conclusion drawn by the ITAT, cannot be sustained. As decided in RAJ KUMAR ARORA [2014 (10) TMI 255 - ALLAHABAD HIGH COURT] even though an assessment order has been passed under Section 143(1) (a) or under Section 143(3) of the Act, the Assessing Officer would be required to reopen these proceedings and reassess the total income taking notice of undisclosed income even found during the search and seizure operation. The fetter imposed upon the Assessing Officer under Sections 147 and 148 of the Act have been removed by the non obstante clause under Section 153A of the Act. Consequently, we are of the opinion that in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed, which were subsisting when the search was made, the Assessing Officer would be competent to reopen the assessment proceeding already made and determine the total income of the assessee. The Assessing Officer, while exercising the power under Section 153A of the Act, would make assessment and compute the total income of the assessee including the undisclosed income, notwithstanding the assessee had filed the return before the date of search which stood processed under Section 143(1)(a) of the Act. Thus the reasons given by the Tribunal that no material was found during the search cannot be sustained, since we have held that the Assessing Officer has the power to reassess the returns of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to the material that was available at the time of the original assessment - Also see KESARWANI ZARDA BHANDAR SAHSON ALLD. [2017 (4) TMI 57 - ALLAHABAD HIGH COURT] - Decided in favour of revenue. Issues Involved:1. Whether assessment or re-assessment under Section 153-A of the Income Tax Act, 1961, can be framed only on the basis of incriminating material found during the course of search under Section 132 of the Act.2. Whether assessment or re-assessment under Section 153-A of the Income Tax Act, 1961, can be framed where no incriminating material has been found in the search under Section 132 of the Act.Issue-Wise Detailed Analysis:1. Basis for Assessment or Re-assessment under Section 153-A:The court examined whether assessments under Section 153-A can be based solely on incriminating material found during a search. The appellants argued that the Assessing Officer (AO) could reassess returns not only for undisclosed income found during the search but also based on materials available at the time of the original assessment. The respondents contended that no incriminating material was found during the search, and thus, reassessment under Section 153-A was not justified.The court noted that Section 153-A of the Income Tax Act, 1961, provides for assessment or reassessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted. The court emphasized that Section 153-A does not stipulate that assessment or reassessment must be based solely on incriminating material found during the search. The court referred to the judgments in *Commissioner of Income Tax vs. Raj Kumar Arora* and *Commissioner of Income Tax vs. Kesarwani Zarda Bhandar Sahson Alld.*, which held that the AO has the power to reassess returns based on materials available at the time of the original assessment, not just on incriminating materials found during the search.2. Validity of Assessment or Re-assessment without Incriminating Material:The court addressed whether reassessment under Section 153-A is valid in the absence of incriminating material found during the search. The respondents argued that since no incriminating material was found, the reassessment under Section 153-A was without jurisdiction.The court found that the AO and the CIT(A) had exhaustively dealt with evidence, including incriminating materials found during the search, and recorded detailed findings of fact. The court noted that the findings of fact by the AO and the CIT(A) were based on consideration of relevant evidence and principles of natural justice. The court observed that Section 153-A does not exclude assessment or reassessment on consideration of other incriminating materials, including those available on record or brought on record during the investigation.The court concluded that the findings recorded by the AO and the CIT(A) clearly revealed voluminous incriminating materials, and the assessment orders were based on such materials. The court held that the ITAT erred in assuming that there was no incriminating material found in the search and set aside the orders of the CIT(A) based on this assumption.Conclusion:The court answered the substantial questions of law in favor of the Revenue and against the assessees. It held that assessment or reassessment under Section 153-A is not restricted to incriminating material found during the search but can also be based on materials available on record. The court set aside the impugned orders of the ITAT and restored the appeals before the ITAT for fresh consideration on merits in accordance with law.