2025 (10) TMI 1293 - AT - Income Tax

Assessments under section 143(3) read with section 153A invalid when no valid search of taxpayer's premises

ITAT KOLKATA - AT held that assessments framed under section 143(3) read with section 153A were invalid because no valid search was conducted on the ... Validity of notice u/s. 153A - whether no valid search on the premises of the appellant? - addition on account of unexplained credit and unexplained expenditure after a search u/s 132 of the Act was conducted - HELD THAT:- We find that undisputedly search action was initiated on 01.12.2015 at 206, Central point, second floor, 21, Hemant Basu Sarani, Kolkata. We note that though in the Panchanama, the name of the assessee was mentioned but the place of the business was at 81 G.T. Road, Asansol, West Bengal-713301, India which was admittedly not searched by the search team. We note that the Kolkata premises were not belonging to the assessee. We further note that the name of the assessee was mentioned in Panchanama but no search was conducted at the given place at Asansol. Therefore, we find merit in the case of the assessee that there is no search on the premises of the assessee and the wrongly framed the assessment u/s 143(3) read with section 153A of the Act. We further find that the case is squarely covered by the decision of Room Alankar [2024 (7) TMI 1714 - ITAT KOLKATA] as held mere search of the premises owned by the assessee but rented to another concern does not by any implication prove the conduct of search against the assessee in view of the fact that the assessee was not available at the address searched upon. Mere mentioning of name in the panchnama does not lead to the conclusion that a valid search was conducted against the assessee. In the totality of circumstances, where no search has been conducted against the assessee there is no merit in the issue of notice under section 153A of the Income-tax Act under which the jurisdictional area of operation is six assessment years immediately preceding the assessment year relevant to the previous year, in which search was conducted. In case, no search is conducted against a person, the period of operation to which the provisions of section 153A would apply, cannot be determined and the invoking of provisions of section 153A of the Act is baseless. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance of notice under section 153A read with section 143(3) is valid where a search under section 132 was initiated against a person but no search was actually conducted at that person's business/premises. 2. Whether the Tribunal has power to examine and determine the jurisdictional fact of whether a search was conducted on the assessee for purposes of entertaining proceedings under section 153A (and by analogy section 158BC) despite inability to probe the propriety of the authorization for search. 3. Whether materials/documents seized from premises of related/group concerns (or from premises not belonging to the assessee) can justify framing assessment under section 153A against a person who was not searched, or whether the proper course would be invocation of section 153C when documents of another person are seized. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 153A when search was not conducted at assessee's premises Legal framework: Section 153A prescribes the procedure for assessment where a search under section 132 or requisition under section 132A has been made; it applies to the person on whom the search is conducted and opens up six assessment years preceding the relevant assessment year. Section 132 defines acts constituting the conduct of a search (entry, search, seizure, etc.). Section 153C deals with assessment of a person other than the searched person when incriminating material belonging to that person is found during a search of another person. Precedent treatment: Coordinate-bench decisions and higher court orders (as relied upon in the judgment) have held that initiation of a search (issuance of authorization/warrant) and conduct of a search are distinct; the Tribunal may verify whether a search was in fact conducted on the assessee (Special Bench in C. Ramaiah Reddy applied; coordinate bench in J.M. Trading Corpn. and subsequent affirmations noted). Interpretation and reasoning: The Court emphasized that mere mention of an assessee's name in the panchnama or initiation of a search against a person does not by itself establish that a valid search was 'conducted' on that person. Conduct of search entails actual acts under section 132 at the premises of the person searched. Where the panchnama and records show that the premises searched were different (belonging to another/group concern) and the assessee's business premises were not entered or searched, there is no compliance with the jurisdictional condition precedent necessary to invoke section 153A against that assessee. In such circumstances, framing an assessment under section 153A read with section 143(3) is invalid and void ab initio. Ratio vs. Obiter: Ratio - A valid search under section 132 must be actually conducted on the assessee's premises (not merely initiated or the assessee's name mentioned in panchnama) before section 153A can be validly invoked; absence of such conduct renders assessments under section 153A null and void. Obiter - Observations on the invasiveness of search and the need for strict compliance with statutory procedure to protect privacy and rights may be considered explanatory but reinforce the primary ratio. Conclusions: The assessment framed under section 143(3) read with section 153A, where no search was conducted on the assessee's premises, must be quashed. If incriminating material of the assessee is seized from others' premises, the appropriate route is assessment under section 153C after following the prescribed procedure, not invoking section 153A without a conducted search. Issue 2 - Tribunal's power to verify the jurisdictional fact of whether a search was conducted on the assessee Legal framework: While courts/tribunals generally cannot adjudicate the propriety of the executive satisfaction for issuing search authorization (i.e., validity of authorization), they have jurisdiction to verify whether the jurisdictional fact required to trigger specific assessment provisions (e.g., that a search was indeed conducted on the assessee) exists. Precedent treatment: The Special Bench in C. Ramaiah Reddy and coordinate bench decisions applied the distinction between initiation and conduct of search and held that the Tribunal should satisfy itself about the existence of the jurisdictional fact that a search was conducted on the assessee before a notice under provisions like section 158BC/153A can be sustained. Interpretation and reasoning: The Tribunal cannot inquire into the merits of the recorded satisfaction for issuance of the search warrant but may and should examine documentary evidence (panchnama, seizure lists, place of search, persons present, and other contemporaneous records) to determine whether acts comprising a search under section 132 were performed in relation to the assessee. If evidence shows the searched premises belonged to others and the assessee's premises were neither entered nor searched, the requisite jurisdictional fact is absent. Ratio vs. Obiter: Ratio - The Tribunal possesses inherent power to verify whether a search was actually conducted on the assessee (the jurisdictional fact) though it cannot ordinarily test the propriety of the authorization for search. Obiter - Comments on the limits of judicial review of executive satisfaction are explanatory. Conclusions: The Tribunal properly examined the panchnama and related materials and was entitled to conclude that no search was conducted on the assessee; accordingly, it could quash the assessment under section 153A. This power is distinct from reviewing the validity of the search authorization itself. Issue 3 - Treatment of incriminating material seized from premises of related/group concerns and applicability of section 153C v. section 153A Legal framework: Section 132 authorizes search and seizure at premises where the authorized officer believes incriminating material is kept. Where documents/ materials belonging to a person other than the searched person are found at the premises searched, section 153C provides procedure for assessment of that other person. Section 153A is applicable to persons on whom the search is conducted. Precedent treatment: Coordinate bench and Special Bench authority cited hold that seizure of incriminating material of a person from premises of another does not convert a search of the latter into a conducted search of the former; procedural safeguards of section 153C must be followed where applicable. Interpretation and reasoning: If incriminating material pertaining to the assessee is found at premises of a third party (including related/group concerns), the correct statutory route is to invoke section 153C against the assessee after following the prescribed satisfaction/recording and procedural steps. Framing assessment under section 153A against an assessee who was not the subject of the conducted search misconstrues the statutory scheme and expands the period of operation of the special assessment provisions without statutory basis. Ratio vs. Obiter: Ratio - Seizure of materials belonging to an assessee from premises of another person does not substitute for an actual search on the assessee; assessments must proceed under section 153C where appropriate. Obiter - Practical observations on survey actions and incidental impounding do not alter this legal distinction. Conclusions: The impounding of records at premises of third parties cannot validate assessment under section 153A against a person whose premises were not searched; where materials of the assessee are found elsewhere, the assessing authority should act under section 153C following statutory procedure. Cross-references Issue 1 and Issue 2 are interrelated: the Tribunal's power to verify the jurisdictional fact (Issue 2) underpins the determination that section 153A cannot be validly invoked where no search was conducted on the assessee (Issue 1). Issue 3 clarifies the remedial channel when incriminating material of the assessee is found at third-party premises and explains why section 153A cannot be used as a substitute for section 153C.