2012 (8) TMI 368 - HC - Income Tax

Search and Seizure assessment application of Section 153A if incriminating material is found during search even if assessments are completed - Tribunal deleted the addition made on various ground for reason that no material was found during the search carried out u/s 132 and also on the ground that for all the six years under consideration, the returns filed by the assessee before the search had been processed u/s 143(1)(a) and Section 153A was not a de novo assessment and have to be necessarily restricted to the undisclosed income unearthed during the search Held that - AO has the power u/s 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed returns before the date of search which stood processed u/s 143(1)(a). Where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included. The other reason given by the Tribunal that no material was found during the search is factually unsustainable since the entire case and arguments had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. If a document is found in the course of the search, Section 153A is triggered & it is mandatory for the AO to issue notices u/s 153A calling upon the assessee to file returns for the six AYs prior to the year in which the search took place Decided in favor of Revenue.

Summary

Issues Involved:
1. Validity of invoking Section 153A of the Income Tax Act, 1961.
2. Deletion of addition of Rs.1,50,000/- made in the assessment year 2003-04 on account of unexplained unaccounted loan to Mohini Sharma and interest thereon of Rs.27,000/- in the assessment years 2004-05 and 2005-06.

Issue-Wise Detailed Analysis:

1. Validity of Invoking Section 153A of the Income Tax Act, 1961:
The Tribunal held that the Assessing Officer (AO) wrongly invoked Section 153A since no incriminating material was found during the search except an unsigned undertaking for a loan. The Tribunal reasoned that the returns for the assessment years involved were processed under Section 143(1)(a) before the search, and no pending assessments existed to abate. The Tribunal cited several orders from Coordinate Benches supporting its view that additions under Section 153A should be restricted to undisclosed income unearthed during the search.

However, the High Court found this reasoning flawed. Section 153A mandates the AO to issue notices and assess or reassess the "total income" for six assessment years preceding the search, irrespective of whether any incriminating material was found. The High Court clarified that the AO has the power to reopen and reassess the total income, including both disclosed and undisclosed income, without the limitations imposed by Sections 147, 148, and 151. The High Court noted contradictions in the Tribunal's order, as it acknowledged the recovery of a document during the search but still held that no material was found. The High Court concluded that the AO rightly invoked Section 153A, answering the first substantial question of law in favor of the Revenue.

2. Deletion of Addition of Rs.1,50,000/- and Interest of Rs.27,000/-:
The AO added Rs.1,50,000/- as unexplained loan given to Mohini Sharma, based on a document recovered during the search. The CIT(Appeals) confirmed the addition, citing the document as an undertaking acknowledging the loan, along with a General Power of Attorney executed by Mohini Sharma in favor of the assessee. The CIT(Appeals) held that the assessee failed to rebut the evidence found during the search.

The Tribunal deleted the addition, stating that the document was unsigned, Mohini Sharma was not examined, and there was no corroboration. The Tribunal also deleted the notional interest of Rs.27,000/- for the assessment years 2004-05 and 2005-06.

The High Court disagreed with the Tribunal, emphasizing that the primary duty was on the assessee to explain the possession of the documents. The High Court noted that the assessee did not bring Mohini Sharma before the AO or provide an affidavit denying the transaction. The recovery of the General Power of Attorney corroborated the loan transaction. The High Court found the Tribunal's findings unreasonable and unsupported by evidence. It restored the addition of Rs.1,50,000/- and the notional interest of Rs.27,000/- each for the assessment years 2004-05 and 2005-06, answering the second substantial question of law in favor of the Revenue.

Conclusion:
The High Court allowed the Revenue's appeals, holding that the AO rightly invoked Section 153A and the additions of Rs.1,50,000/- and Rs.27,000/- were justified. The Tribunal's order was found to be contradictory and lacking a proper appreciation of evidence.