2019 (2) TMI 416 - HC - Income Tax

Assessment u/s 153A - necessity of incriminating material during the course of search - ITAT remanded the back relying upon the decision in Lancy s case 2016 (2) TMI 797 - KARNATAKA HIGH COURT , wherein HC has dismissed the appeal - Held that - A judgment of the court becomes binding only when a question arises for consideration, is contested by both sides and thereafter findings are recorded by the Court. None of these conditions have been fulfilled. There is no notice issued to the other side. No question of law has been determined. The appeal was dismissed, as being bereft of any substantial question of law. Therefore, the judgment reported in Lancy s case cannot be said to be applicable in law or that it is binding for any reason whatsoever. Under these circumstances, when the Tribunal has relied on the judgment in Lancy s case, we are of the view that a grave error has been committed. Therefore, the only issue that Lancy s case has been wrongly followed, the impugned order requires to be set aside. - Matter restored before the ITAT

Summary

Issues:
1. Validity of invoking Section 153A of the Income Tax Act without incriminating material.
2. Tribunal's decision to remand the matter based on the judgment in Lancy Constructions case.

Analysis:

Issue 1:
The assessee, a power generation company, filed income tax returns for assessment years 2007-08 and 2008-09. Following a search under Section 132 of the Income Tax Act, a notice under Section 153A was issued, prompting the assessee to request treating the original returns as responsive. Subsequent notices were served, leading to an appeal before the Commissioner of Income Tax, partly allowed, and further appealed to the Tribunal. The Tribunal focused on whether incriminating material was necessary for invoking Section 153A, referencing the judgment in the Lancy Constructions case. The High Court noted the Tribunal's reliance on Lancy's case was erroneous, emphasizing that the law, as per the Canara Housing Development Company case, does not require undisclosed income for Section 153A application. The High Court concluded that Lancy's case was not binding due to lack of substantial questions of law, remanding the matter to the Tribunal for fresh consideration based on the correct legal position.

Issue 2:
The Tribunal's decision to remand the matter based on the Lancy Constructions case was deemed incorrect by the High Court. The High Court highlighted that Lancy's case was dismissed without notice to the Assessee and lacked a determination of substantial questions of law, rendering it non-binding as a precedent. The High Court emphasized that for a judgment to be binding, both sides must contest the issue, and findings must be recorded. As these conditions were not met in Lancy's case, the High Court concluded that the Tribunal's reliance on it was misplaced. Consequently, the High Court set aside the Tribunal's orders and remanded the matter for fresh consideration based on the correct legal principles, allowing the appeals and keeping all contentions open for further review.

This comprehensive analysis of the judgment from the Karnataka High Court provides a detailed breakdown of the issues involved, the legal arguments presented, and the final decision rendered by the court.