2021 (10) TMI 1217 - HC - Income Tax

Assessment proceedings u/s 153A - whether no incriminating material recovered? - HELD THAT - The exercise u/s 153A is not to be undertaken mechanically - it is not possible to accept the contention of the Department that there was an obligation to initiate the assessment proceedings u/s 153-A of the Act only because a search has been conducted, even though no incriminating materials whatsoever have been found during search. It does not matter that the original assessment was not completed under Section 143(3) of the Act for that purpose. In the present cases, with there being absolutely no incriminating materials found or seized at the time of search, there was no justification for the initiation of assessment proceedings under Section 153A. On this ground therefore the writ petitions ought to succeed. - Decided in favour of assessee.

Issues Involved:
1. Validity of the amendment to Section 132(1) of the Income Tax Act, 1961 with retrospective effect.
2. Legality of the initiation of assessment proceedings under Section 153A of the Income Tax Act, 1961 without incriminating materials.

Issue-wise Detailed Analysis:

1. Validity of the Amendment to Section 132(1) with Retrospective Effect:

The Petitioner challenged the amendment to Section 132(1) of the Income Tax Act, 1961, which authorized the Additional Director or Additional Commissioner to issue a search warrant with retrospective effect from 1st June, 1994. The Petitioner argued that this amendment discriminates between two sets of assessees and violates Article 14 of the Constitution. Additionally, it was contended that the retrospective amendment affects substantive rights and should not be applied retroactively.

The Department countered that the amendment was merely declaratory and clarificatory in nature, as explained in the CBDT circular dated 3rd June, 2010. The Court accepted the explanation provided by the Department, stating that the amendment was intended to clarify that the Additional Director or Additional Commissioner always had the power to issue a warrant of authorization. The Court referred to the explanatory note which stated that the amendment was made to explicitly provide that these officers had the power to issue authorization, and thus, the challenge to the amendment was negated.

2. Legality of the Initiation of Assessment Proceedings under Section 153A:

The Petitioner contended that the initiation of assessment proceedings under Section 153A was ab-initio void as no incriminating materials were found during the search. The Court examined the Panchnama and noted that no materials were recovered during the search, which was a crucial factor in determining the validity of the assessment proceedings.

The Court referred to several precedents, including CIT v. Kabul Chawla, Jai Steel (India) v. Assistant CIT, and CIT v. Chetan Das Lachman Das, which established that the exercise under Section 153A should not be undertaken mechanically and must be based on incriminating materials found during the search. The Court highlighted that the assessment under Section 153A should not be arbitrary and must have relevance or nexus with the seized material.

The Court concluded that in the absence of any incriminating materials found or seized during the search, there was no justification for initiating assessment proceedings under Section 153A. Consequently, the impugned notices issued for the assessment years 2002-03 and 2008-09 under Section 153A(1) read with Section 143(3) of the Act were quashed.

Conclusion:

The writ petitions were allowed, and the impugned notices for the assessment years in question were quashed. The Court held that the amendment to Section 132(1) was valid and clarificatory in nature. However, the initiation of assessment proceedings under Section 153A without any incriminating materials was deemed unjustified, leading to the quashing of the notices. No order as to costs was made.

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