2015 (10) TMI 1018 - HC - Income Tax

Proceedings under Section 153C - Jurisdiction of assessing officer to initiate the proceedings under Section 147 read with Section 148 on the basis of the same material that was discovered during the search operation - whether in case of a valid search under Section 132 the assessment, if any, was only permissible under Section 153A or under Section 153C and that no assessment or reassessment was permissible under Section 147 read with Section 148? - Held that - There were two sets of incriminating documents seized against the appellant. One set of documents, so seized, were found at the appellant s premises and the other set of documents was found at the premises of Anurag Pandey. The materials found at the premises of Anurag Pandey were used to initiate proceedings under Section 153C of the Act, but, were subsequently dropped. These materials have not been used for initiating proceeding under Section 147 of the Act. The materials so used under Section 147 of the Act are the materials which were found at the assessee premises, pursuant to which proceeding under Section 153A of the Act was initiated, but was subsequently dropped on account of the fact that the warrant of authorisation was issued against a wrong person. The materials, so seized, at the appellant premises could be utilised for the purpose of assessment. In Dr.Sarad B. Sahai and another vs. Commissioner of Income Tax and others 2010 (9) TMI 383 - ALLAHABAD HIGH COURT held it is a settled principle of law that even if a search is declared illegal the material found at the time of search can be utilized for the purposes of assessment. Therefore, the co-ordinated post-search investigation and meaningful assessment has to take place. It may be that on account of search being declared illegal, the block assessment under s. 158BC of the Act cannot be made but the regular assessment or the reassessment contemplated under the Act can be made In the light of the aforesaid, the contention that once proceeding under Section 153C of the Act was dropped, proceeding under Section 147 could not be initiated, is patently erroneous. We find that proceeding under Section 153C was initiated on different set of documents and on separate satisfactory note recorded whereas the proceedings which were initiated against the assessee-appellant under Section 147 of the Act was based on different set of documents.

Summary

Issues Involved:
1. Validity of proceedings under Section 153A and Section 153C of the Income Tax Act.
2. Jurisdiction to initiate proceedings under Section 147 read with Section 148 of the Income Tax Act.
3. Use of seized material for reassessment under Section 147 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153A and Section 153C of the Income Tax Act:

The appeals pertain to assessment years 2003-04 to 2006-07, involving a search and seizure operation under Section 132 of the Income Tax Act on 19.04.2006 at the premises of the Pandey Group and the factory premises of the assessee-appellant. Incriminating material was found at both locations. Proceedings under Section 153A were initiated but dropped because the warrant of authorization was issued in the name of "Shivam Gram Udyog Sansthan Pvt. Limited" instead of "M/s Shivam Gram Udyog Sansthan". Subsequently, proceedings under Section 153C were initiated based on documents found at Anurag Pandey's premises, but these were also dropped by the assessing authority on 31.12.2008 due to the incorrect naming of the entity in the warrant of authorization.

2. Jurisdiction to Initiate Proceedings under Section 147 read with Section 148 of the Income Tax Act:

The assessing authority believed that some income had escaped assessment based on incriminating material seized at the appellant's factory premises. Consequently, proceedings under Section 147 were initiated. The appellant contended that assessment should only be permissible under Section 153A or Section 153C in case of a valid search, and no reassessment should be permissible under Section 147 read with Section 148. The appellant relied on case law to argue that the provisions of Chapter XIV-B, which provide for assessment in special cases, should be resorted to in case of a search.

3. Use of Seized Material for Reassessment under Section 147 of the Income Tax Act:

The appellant argued that material seized under Section 132 should not be used in reassessment proceedings under Section 148. However, the court found that there were two sets of incriminating documents: one set found at the appellant's premises and another at Anurag Pandey's premises. The materials found at Anurag Pandey's premises were used to initiate proceedings under Section 153C, which were dropped and not used for initiating proceedings under Section 147. The materials seized at the appellant's premises were used for assessment under Section 147. The court cited a Division Bench decision, which held that even if a search is declared illegal, the material found can be utilized for assessment purposes.

Conclusion:

The court dismissed the appeals, stating that the appellant's contention that proceedings under Section 147 could not be initiated after proceedings under Section 153C were dropped was erroneous. The court found that the proceedings under Section 153C and Section 147 were based on different sets of documents, and thus, the initiation of proceedings under Section 147 was valid. No substantial question of law arose for consideration, and all appeals were dismissed.