2022 (11) TMI 738 - HC - Income Tax

Assessment u/s 153A - incriminating material is found during search under Section 132 or not? - HELD THAT - It is to be noted that the Appellant-Revenue has not placed reliance or even referred to any statement recorded under Section 132(4) of the Act, 1961. No such statement has been produced before this Court. Therefore, in the facts of the present case, the issue does not arise for consideration unless it can be demonstrated by the Appellant-Revenue that the statements recorded under Section 132(4) disclose some incriminating material on the basis of which orders under Section 153A have been passed. This Court in the case of CIT v. Harjeev Aggarwal 2016 (3) TMI 329 - DELHI HIGH COURT in the context of erstwhile provisions of Block Assessment, has held that the statement recorded during the course of search, on a standalone basis, without any reference to material found/discovered during the search would not empower the AO to make block assessment merely because of any admission made by Assessee during the search operation. Similarly, this Court in CIT v. Sunil Aggarwal 2015 (11) TMI 286 - DELHI HIGH COURT has held that when a statement recorded under Section 132(4) of the Act, 1961 is retracted, then, the AO would require some corroborative material before making any additions/disallowances on the basis of the statement. This Court in the following decisions has considered and distinguished the decision of Dayawanti (supra) holding that the decision of Dayawanti 2016 (11) TMI 211 - DELHI HIGH COURT was rendered in the peculiar facts and circumstances of that case and the ratio of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has not been diluted. EFFECT OF JUDGMENT OF THE PUNJAB HARYANA HIGH COURT AND THE SUPREME COURT - Insofar as the judgment 2004 (7) TMI 359 - HIGH COURT OF PUNJAB AND HARYANA of the Punjab Haryana High Court is concerned, the said judgment is prior to the search.A special audit under Section 142(2A) of the Act, 1961 was also made in the case of Respondent in the original assessment proceedings for AY 1998-99, which has also not been produced by the Appellant citing unavailability. Given the fact that the Assessing Officer has not even referred to the judgment of the Punjab Haryana High Court nor has he relied upon the conclusions of the High Court and that the SEBI Order, High Court judgment and the Special Audit report were made before the date of search, it can be concluded that assessment has not been framed on the basis of incriminating material culled from the decision of the High Court or found during search. Judgment of the Supreme Court 2013 (3) TMI 390 - SUPREME COURT cannot be said to incriminating material found during search conducted on in 2005 and, therefore, cannot form the basis of the assessment order passed in 2007. The Supreme Court in the said decision has only directed the Income tax Department to examine any wrong doings by the respondent. At best, such directions could constitute material for initiating proceedings under Section 148 the Act, 1961 provided some material was found as a result of the enquiry conducted by the Income Tax Department pursuant to the decision of the Supreme Court. However, such findings of the Supreme Court in 2013 cannot constitute incriminating material found during search in 2005 which would validate assessment order under Section 153A passed in 2007. Given the facts and circumstances of the present cases, no substantial question of law arises for consideration of this Court. Accordingly, the present appeals are dismissed.

Summary

Issues Involved:
1. Whether additions/disallowances can be made under Section 153A of the Income Tax Act, 1961 in the absence of any incriminating material found during the search.
2. The relevance of statements recorded under Section 132(4) of the Act, 1961 as incriminating material.
3. The impact of prior judgments and orders, including those of the Punjab & Haryana High Court and the Supreme Court, on the assessment orders under Section 153A.

Issue-Wise Detailed Analysis:

1. Additions/Disallowances under Section 153A in the Absence of Incriminating Material:

The court addressed whether additions or disallowances can be made in the absence of incriminating material found during a search. The court noted that both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) had quashed the assessment orders under Section 153A on the grounds that no incriminating material was found during the search conducted on 22nd September 2005. The court reiterated the legal position established in CIT v. Kabul Chawla, 380 ITR 573, which held that completed assessments can only be interfered with under Section 153A if some incriminating material is unearthed during the search. This principle has been consistently applied by this court and other High Courts in subsequent cases.

2. Relevance of Statements Recorded under Section 132(4):

The court examined whether statements recorded during the search under Section 132(4) could be considered incriminating material. The Revenue had argued that such statements could form the basis for additions or disallowances under Section 153A. However, the court noted that no such statements were produced or relied upon by the Revenue in this case. The court cited CIT v. Harjeev Aggarwal, which held that a statement recorded during the search, without reference to material found, does not empower the Assessing Officer to make a block assessment. Additionally, in cases where statements are retracted, corroborative material is required to make any additions.

3. Impact of Prior Judgments and Orders:

The court considered the relevance of prior judgments, particularly those of the Punjab & Haryana High Court and the Supreme Court, on the assessment orders under Section 153A. The court noted that the Assessing Officer did not refer to or rely upon the judgment of the Punjab & Haryana High Court in the assessment order. Furthermore, the Supreme Court's judgment rendered in 2013 could not be considered incriminating material for a search conducted in 2005. The court concluded that these judgments did not constitute incriminating material found during the search and thus could not validate the assessment orders under Section 153A.

Court's Reasoning and Conclusion:

The court concluded that the issue of whether additions or disallowances can be made under Section 153A in the absence of incriminating material found during the search is no longer res integra, following the decision in Kabul Chawla. The court found that all assessment years in question were "unabated," meaning no proceedings were pending on the date of the search. The court emphasized that the Revenue did not contend that any incriminating material was found during the search. Consequently, the court dismissed the appeals, stating that no substantial question of law arose for consideration.

Appreciation for Amicus Curiae:

The court placed on record its appreciation for the assistance rendered by Mr. Sachit Jolly, learned Amicus Curiae.