2016 (11) TMI 72 - HC - Income Tax

Validity of assessment u/s 153A - whether it is necessary that incriminating materials should be unearthed in a search under Section 132 of the Act to sustain a notice issued under Section 153A(1)(a)? - Held that - As per the judgment of this Court in St.Francis Clay Becor Tiles s case (2016 (6) TMI 378 - KERALA HIGH COURT ) and Promy Kuriakose s case (2016 (8) TMI 327 - KERALA HIGH COURT ) though the second among them relates to a third person to the search as well; which cases would fall under Section 153C of the Act. We therefore answer the said question stating that for the issuance of a notice under Section 153A(1)(a) it is not necessary that the search on which it was founded should have necessarily yielded any incriminating material against the assessee or the person to whom such notice is issued. Is it necessary that any incriminating material ought to have been unearthed in the search under Section 132 of the Act to make any additions to the returns filed by the assessee following notice under Section 153A(1)(a)? - Held that - Once a return is filed in answer to such a notice the Explanation to Section 153A provides among other things that all provisions of the Income Tax Act will apply to the assessment made under Section 153A of the Act. This is the manner in which the provisions in Sections 153A 153B and 153C of the Act would regulate. Once that is done it is well within the jurisdiction of the a ssessing authority to proceed with any lawful modes of assessment as prescribed in the Act. The Statute nowhere makes it conditional that the department has to unearth some incriminating material to conclude some method against the assessee in events where the assessment is triggered by a notice under Section 153A(1)(a) of the Act. This means that even when such notice is triggered following a search the assessment proceedings can be concluded in any manner known to law including under Section 143(3) or even Section 144 of the Act if need be. Therefore the assessment proceedings generated by the issuance of a notice under Section 153A (1)(a) of the Act can be concluded against the interest of the assessee including making additions even without any incriminating material being available against the assessee in the search under Section 132 of the Act on the basis of which the notice was issued under Section 153A(1)(a) of the Act. We answer this issue accordingly.

Summary

Issues:
1. Interpretation of Section 153A(1)(a) of the Income Tax Act
2. Requirement of incriminating materials for assessment under Section 153A(1)(a)
3. Validity of assessment proceedings without incriminating materials

Analysis:

Issue 1: Interpretation of Section 153A(1)(a) of the Income Tax Act
The appeals involved a challenge to assessments conducted under Section 153A(1)(a) of the Income Tax Act, 1961. The appellant, an individual assessee with various sources of income, had voluntarily filed returns under Section 139 of the Act. Subsequently, a search and seizure operation was conducted at the appellant's premises, leading to assessments under Section 153A(1)(a) based on the returns filed. The main argument raised was whether incriminating materials were necessary for such assessments.

Issue 2: Requirement of incriminating materials for assessment under Section 153A(1)(a)
The appellant contended that assessments under Section 153A(1)(a) should be based on incriminating materials unearthed during the search, as per judgments from various High Courts. On the contrary, the Department argued that incriminating materials were not a prerequisite for issuing notices under Section 153A(1)(a) and that assessments could proceed without such materials. The Court referred to previous judgments to address this issue.

Issue 3: Validity of assessment proceedings without incriminating materials
The Court clarified that for issuing a notice under Section 153A(1)(a), it was not mandatory to have incriminating materials from the search. Section 153A allows for assessments even without such materials, and the assessing authority can proceed with lawful assessment methods under the Act. In the case at hand, the assessing authority had interacted with the assessee, requested a cash flow statement, and concluded the assessment based on rearranging entries in the statement. The Tribunal upheld this assessment, determining it as reasonable and within jurisdiction, leading to the dismissal of the appeals.

In conclusion, the judgment addressed the interpretation of Section 153A(1)(a), the necessity of incriminating materials for assessments, and the validity of assessment proceedings without such materials, providing clarity on the legal aspects involved in the case.