2016 (3) TMI 976 - HC - Income Tax

Assessment u/s 153A - Held that - As far as TGJ s concerned, there is no denial of the fact that no search took place in its premises. Only a survey was undertaken. Consequently, the Court considers it to be a waste of time to require the Petitioners to now go before the AO. For the search to be undertaken under Section 132 of the Act, there had to be a recording of reasons to believe that the information that may be unearthed cannot otherwise be gathered through a regular enquiry. It appears that the entire search proceeding as far as Mr Jolly was concerned was unnecessary as the information provided by the Petitioners could have been easily gathered without resorting to a search. Additionally, it is plain that no incriminating material qua the Petitioners was found during the search operation. Thus no hesitation in quashing the impugned notices under Section 153 A (1) - Decided in favour of assessee

Summary

Issues:
Quashing of proceedings under Section 153A of the Income Tax Act, 1961 based on search and seizure operation.

Analysis:
The judgment dealt with the quashing of proceedings initiated under Section 153A of the Income Tax Act, 1961, following search and seizure operations. The search was conducted at the premises of an individual and a company, revealing a transaction involving the transfer of shares. Despite a detailed reply explaining the transaction details and the net surplus generated, impugned notices were issued under Section 153A. The petitioners contended that the search was based on a mistaken belief regarding the sale of shares, leading to an alleged loss. The petitioners argued that the initiation of search proceedings was illegal due to this mistaken assumption.

Regarding the company involved, it was highlighted that only a survey was conducted, not a search, questioning the legality of issuing a notice under Section 153A to the company. Despite multiple hearings, no counter affidavit was filed by the respondents, leading to a lack of response from their side. The petitioner's counsel relied on previous judgments to support the argument that the search premise was erroneous and lacked a valid reason to believe for issuing notices under Section 153A.

The Revenue's counsel presented an investigation report post-search, indicating that the sale of shares was at a higher price than assumed earlier. The report advised detailed examination of the share sale. However, the court observed that requiring the petitioners to undergo assessment proceedings would serve no purpose when the basis for the search was proven to be non-existent. The court found that the information provided by the petitioners could have been obtained without a search, rendering the entire search proceeding unnecessary.

Ultimately, the court quashed the impugned notices and all proceedings following them, as it was evident that the search was unwarranted and no incriminating material was found. The judgment emphasized the importance of recording valid reasons before conducting a search under Section 132 and highlighted the futility of subjecting the petitioners to assessment proceedings based on a flawed search premise.

In conclusion, the writ petitions were allowed, and all pending applications were granted in favor of the petitioners, leading to the quashing of the proceedings initiated under Section 153A of the Income Tax Act, 1961.