2013 (9) TMI 749 - HC - Income Tax

Search and seizure - basis of additions Whether the Hon ble ITAT was legally correct in deleting the addition made by the AO on the basis of seized documents found during the search and seizure operation and deciding the appeal by relying on the valuation of stock made by the Excise department though the same was done two days after the date of search. - Held that - Even if an illegal search does not vitiate the discovery of incriminating document during search and the department may rely on such material, the findings of fact recorded by ITAT based on the inventory prepared by the Central Excise Department and the Court Commissioner satisfied the Tribunal with the stocks reported in the inventories. The satisfaction recorded by ITAT, on such reports does not raise any question of law to be considered by the Court.

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act, 1961 against ITAT's judgment for the assessment year 2000-01; Consideration of stock valuation by different authorities post search operation; Legality of deletion of addition by ITAT based on seized documents and valuation by Excise department; Relevance of stock inventory prepared by Central Excise Department and Court Commissioner; Impact of High Court's quashing of search operation on assessment.

Analysis:
The appeal before the Allahabad High Court involved challenging the ITAT's decision on the legality of deleting an addition made by the AO based on seized documents and the valuation of stock by the Excise department. The department raised questions regarding the correctness of relying on the Excise department's valuation post-search and the High Court's quashing of the search operation. The ITAT's findings emphasized the importance of considering stock inventories prepared by different authorities, such as the Central Excise Department and the Court Commissioner, over the one hastily prepared by the Income-tax Department during the search.

The High Court noted that the ITAT's factual findings on the excess stock, disclosure, and inventories by independent authorities like the Court Commissioner and the Central Excise Department rendered the department's questions of law irrelevant. The Court highlighted the meticulous stock inventory conducted by the Excise Department post-search, which led to the quashing of the search operation by the High Court. The Court emphasized the independence and credibility of the authorities involved in preparing the stock inventories, which ultimately influenced the decision in favor of the assessee.

The Court also addressed the argument that the legality of the search did not affect the validity of the incriminating documents discovered during the search. However, the Court found that the ITAT's reliance on the inventories prepared by the Central Excise Department and the Court Commissioner was justified based on the satisfaction derived from those reports. Consequently, the Court concluded that the questions of law raised by the department were not pertinent to the appeal, leading to the dismissal of the income tax appeal.

In summary, the Allahabad High Court upheld the ITAT's decision to delete the addition based on the stock valuation by independent authorities post-search, emphasizing the importance of credible stock inventories prepared by entities like the Central Excise Department and the Court Commissioner. The Court's analysis focused on the factual findings and the legality of the search operation, ultimately dismissing the department's appeal based on the satisfaction derived from the reports of the independent authorities involved in the stock valuation process.