2021 (4) TMI 920 - HC - Income Tax

Assessment u/s 153A r.w.s. 153C - as per assessee seized material do not incriminate either of the petitioners. The seized materials are commercial documents relating to medical equipments purchased by MMHRC, Madurai. Depreciation was claimed in respect of those equipments and the same was also granted. Therefore, it is not open to the assessing officer to reopen such concluded matters - HELD THAT - The learned counsel appearing for the petitioners took immense pains to drive home his contention that since the documents in question pertain only to the AY 2014-15, the assessment order of M/s.S.R.Trust cannot be reopened in respect of other years. This contention appears to be very attractive but on a deeper scrutiny, we are not able to accept the same. It is true that the seized material bears the dates for the period from January 2014 to March 2014. But again these dates cannot be taken at their face value. Only after enquiry one can come to the conclusion regarding the actual period to which they relate. We may refer to 'chaos theory' in this regard. The hypothesis of Edward Lorenz is that the mathematical models for weather systems can be extremely sensitive to initial conditions and that small changes in these initial conditions can result in big effects. The flapping of butterfly in Toronto can cause a typhoon in Tokyo. Correspondence between the two is revealed only with the benefit of hindsight. It is true that while taking action under Section 153C of the Act, the assessments can be reopened only for the period that correspond to the seized material. The question of correspondence with the assessment period has to be borne in mind when final order is passed. At the initial stage, the correspondence cannot be formulated with precision. Things may appear fuzzy at the beginning. Only an enquiry can unearth the entire truth. At the initial stage, certain leeway has to be given to the authorities. The statute itself prescribes the ceiling limit. The long arm of the department cannot extend beyond a point. I am therefore of the view that it would be against public interest to abort the efforts taken by the department to unearth the escaped income. Initiation of the impugned action cannot be said to be without basis. They are grounded on solid material. In fact, immediately after the seizure of the material, the impugned action was not taken. The officials examined many other persons and statements were also recorded. Only after fully satisfying himself, the assessing officer chose to issue the impugned notices. If the petitioners have nothing to fear, they can as well place all the materials before the assessing authority for consideration. We are satisfied with the jurisdictional facts exist for assumption of jurisdiction under Section 153A as well as Section 153C of the Act. I do not find any illegality or infraction of procedure in the action initiated by the respondents. The writ petitions lack merit.

Issues Involved:
1. Validity of notices issued under Sections 153A and 153C of the Income Tax Act, 1961.
2. Jurisdictional facts for initiating proceedings under Sections 153A and 153C.
3. Reopening of assessments based on seized materials.
4. Constructive possession of incriminating materials.
5. Statutory limitations and procedural compliance.

Detailed Analysis:

1. Validity of Notices Issued Under Sections 153A and 153C:
The notices under Section 153A were issued to Dr. S.Gurushankar for the assessment years 2010-11 to 2016-17, and under Section 153C to M/s. S.R.Trust for the assessment years 2012-13 to 2016-17. The petitioners challenged these notices, arguing that the seized materials did not incriminate them and that the reassessment should be confined to the year to which the seized material pertained.

2. Jurisdictional Facts for Initiating Proceedings:
The petitioners contended that the absence of incriminating material invalidated the initiation of proceedings under Sections 153A and 153C. They cited several Supreme Court judgments to support their claim that even at the notice stage, it is open to the petitioner to challenge the jurisdictional facts. The court noted that the legal position requires that the assessment under Section 153A can only be based on material seized during the search, and for Section 153C, the material must pertain to the assessment years in question.

3. Reopening of Assessments Based on Seized Materials:
The petitioners argued that the seized materials, which were commercial documents related to medical equipment purchases, did not justify reopening concluded assessments. They emphasized that the documents pertained only to the assessment year 2014-15. However, the court found that the seized materials, which included documents from fictitious entities and statements from various individuals, were indeed incriminating and justified the reopening of assessments for the specified years.

4. Constructive Possession of Incriminating Materials:
The court rejected the petitioners' argument that the materials seized from Dr. S.Gurushankar's personal assistant, Sachithananth, could not be attributed to them. The court applied the principle of constructive possession, noting that Sachithananth, as the personal assistant to Dr. S.Gurushankar, was not alien to the transactions. Therefore, the possession of incriminating material by Sachithananth was attributed to both petitioners.

5. Statutory Limitations and Procedural Compliance:
The petitioners contended that the reassessment proceedings should have abated in terms of the Second Proviso to Section 153A(1) of the Act. The court noted that the petitioners did not seek abatement of the first search assessment proceedings and allowed the assessment officer to pass the final assessment order. The court also emphasized that the correspondence between the seized materials and the assessment period must be borne in mind when the final order is passed. However, at the initial stage, some leeway must be given to the authorities.

Conclusion:
The court concluded that the initiation of the impugned action was based on solid material and that the jurisdictional facts for assuming jurisdiction under Sections 153A and 153C existed. The writ petitions were dismissed, and the interim orders earlier granted were vacated. The court found no illegality or procedural infraction in the action initiated by the respondents.

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