2024 (7) TMI 1714 - AT - Income Tax

Assessment under Section 153A read with Section 143(3) void ab initio where no search at assessee premises

ITAT held assessment framed under section 153A read with section 143(3) to be invalid and void ab initio because, although a search was initiated, no ... Validity of assessment framed u/s. 153A - search proceedings u/s 132 were initiated against an assessee but no search was actually conducted on the assessee's business premises - HELD THAT:- It is obvious from the Panchanama that there was no search on the business premises of the assessee and consequently, though there was a valid initiation of search against the assessee but the premises belonging the assessee was not searched. We find merit in the contentions of the Ld. AR that where there was no conduct of search on the premises of the assessee, the assessment u/s. 143(3) of the Act r.w.s. 153A of the Act cannot be framed. In our opinion, in the worst case scenario, if there has been any seizure of any incriminating material relating to assessee from the premises of the partner then the right course would be to frame assessment u/s. 143(3) read with sec. 153C of the Act after following the procedure as laid down under the Act i.e. after recording the satisfaction of the searched person as well as the satisfaction of the AO of the other person. But the facts of the instant case before us are quite different. In our opinion, virtually no search is conducted on the assessee and therefore, the assessment framed u/s. 153A read with sec. 143(3) is invalid and void ab initio. The case of the assessee finds support from the decision of J.M. Trading Corpn. [2007 (9) TMI 447 - ITAT MUMBAI] Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed under section 143(3) read with section 153A of the Income-tax Act is valid where search proceedings under section 132 were initiated against an assessee but no search was actually conducted on the assessee's business premises. 2. Whether, upon seizure of incriminating material from premises of a third party (e.g., a partner or associated premises), the correct procedure is to proceed under section 153A or under section 153C, and what jurisdictional and procedural prerequisites must be satisfied before invoking section 153A. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of assessment under section 143(3) read with section 153A where search was initiated but not conducted on assessee's premises Legal framework: Section 132 prescribes initiation and conduct of search and seizure by an authorised officer; section 153A permits assessment proceedings for six assessment years where a search has been conducted under section 132. Section 143(3) relates to completion of assessment. The two-step requirement for section 153A is initiation of search and conduct of search. Precedent treatment: The Tribunal relies on the reasoning in a Coordinate Bench decision (treated as persuasive) and on the Special Bench of Bangalore in C. Ramaiah Reddy, which holds that the Tribunal must be satisfied that a search was not merely initiated but was actually conducted on the assessee before notices under the block/search-related provisions can validly be issued. That Coordinate Bench decision has been confirmed by the High Court in the referenced proceedings and is followed by the Court. Interpretation and reasoning: The Court distinguishes between mere initiation (issuance of warrant/authorization and mentioning of assessee's name in Panchnama) and the substantive conduct of search (entry, acts and deeds enumerated under section 132 at the premises where the assessee is found to be carrying on business). The Panchnama in the record showed search at premises belonging to a partner (206, Central Point...) and not at the business premises declared by the assessee (Asansol/Raniganj). Although a survey under section 133A was conducted at the assessee's business premises and some documents were impounded, there was no entry/search under section 132 at those premises. The Court reasons that the 'conduct' of search entails the procedural steps in section 132 (entry, seizure, recording statements, etc.) and that mere mention of the assessee in the Panchnama, or ownership of premises that happen to be searched but were rented out, does not suffice to show a conducted search against that assessee. Ratio vs. Obiter: Ratio - A valid search under section 132 must be actually conducted on the assessee (not merely initiated) before section 153A can be invoked; if no search is conducted on the assessee's premises, assessment under section 153A read with section 143(3) is invalid. Obiter - Observations on the policy or broader implications of 'invasion of privacy' and the need for strict compliance with section 132 procedural requirements serve as explanatory context but the core holding is the jurisdictional requirement of a conducted search. Conclusion: Where the search was not conducted on the assessee's business premises (despite initiation and inclusion of the assessee's name in the Panchnama for premises of a partner), the assessment framed under section 143(3) read with section 153A is null and void ab initio and must be quashed. The Assessing Officer is directed to cancel such assessments. Issue 2: Proper procedure when incriminating material relating to an assessee is found at third-party premises - applicability of section 153C vs. section 153A Legal framework: Section 153C provides procedure for assessment of a person other than the searched person where books of account or documents belonging to such other person are seized during search of a searched person; it requires recording of satisfaction by the AO of the searched person and the AO of the other person as per statutory procedure. Section 153A applies where a search has been conducted against the assessee. Precedent treatment: The Tribunal applies and follows prior rulings holding that where incriminating material of an assessee is seized from another person's premises, the correct statutory route is to proceed under section 153C after satisfying prescribed satisfaction/recording requirements; an assessment under section 153A is inappropriate unless a search has in fact been conducted on the assessee. Interpretation and reasoning: The Court reasons that if incriminating material of the assessee had been seized from the premises of a partner or third party during a valid search of that third party, the Assessing Officer's correct course - in the 'worst case' posited by the Court - would have been to frame assessment under section 153C, following the statutory procedural safeguards (recording of satisfaction, etc.). Since those procedural prerequisites were not followed, and no search was conducted on the assessee's premises, recourse to section 153A was unlawful. The Court distinguishes scenarios where the searched premises legitimately encompassed the assessee from those where only third-party premises were searched and the assessee was not actually searched. Ratio vs. Obiter: Ratio - Seizure of incriminating material of an assessee from third-party premises does not permit invocation of section 153A in lieu of section 153C; the latter procedure must be adopted if the procedural conditions are met. Obiter - Remarks about departmental practice of conducting surveys as part of a larger operation are explanatory and do not alter the statutory requirement. Conclusion: Where incriminating material pertaining to an assessee is found at third-party premises, the Assessing Officer should, if appropriate, proceed under section 153C after complying with its procedural requirements; invoking section 153A without an actual search on the assessee's premises is improper and leads to invalid assessment proceedings. Cross-reference and consolidated conclusion Both issues are interrelated: the jurisdictional precondition for section 153A is the conduct of search on the assessee under section 132. If that condition is not met, but material is found at third-party premises, section 153C is the appropriate statutory route. Applying these principles to the facts (search conducted at partner's premises, no search on assessee's business premises, mere survey and limited impounding at assessee's premises), the Court concludes that assessments under section 143(3) read with section 153A are void and must be quashed; the correct procedure, if any incriminating material of the assessee was found at third-party premises, would have been section 153C after recording statutory satisfactions.