2024 (10) TMI 1373 - HC - Income Tax

Assessment u/s 153A - incriminating material found in search or not? - addition made as entire payment through paper/ shell companies for purchase of land measuring 430 acres at Manger, Gurugram and it was assessee who is the ultimate beneficiary of such transactions - as per ITAT additions could not have been made in the hands of the assessee, as such additions had already been made in the hands of bogus entry provider M/s Peakwood Reality Private Limited - Whether warrants of authorization issued u/s 132? - HELD THAT - The original file containing satisfaction note for issue of consequential warrant of authorization and the satisfaction note prepared after search was also perused. It is noticed that there were two warrants of authorization issued u/s 132 by the Principal Director of Income Tax (Inv.), Chandigarh. The name of the firm assessee is mentioned in the warrants at (Global 3rd Floor) 106-A, Tower-1, DLF Aralias, DLF Golflinks, Gurugram, which is not the registered office of the assessee. The other warrant which does not contain name of the assessee but contains name of M/s M3M India Holdings Private Limited and registered office of the assessee i.e. C-13, Sushant Lok, Phase-1, Gurgaon. However, the name of the partners of the firm are mentioned. We find ourselves in agreement with learned counsel for the Revenue that mentioning M/s M3M India Holdings Private Limited for the addressee C13, Sushant Lok, Phase-1, Gurgaon would not be a reason to hold that no search operation was conducted at the premises of the assessee because even if the name of other private limited company is mentioned in the warrant, the fact remains that the registered address of the respondent firm was searched and the names of their partners were mentioned. The findings of the ITAT that there was no search conducted at the premises of the respondent-firm is, therefore, found to be erroneous and perverse. Further contention of the appellant with regard to assertion of incriminating material being found in the premises of the respondent, however, is without any basis. We have carefully gone through the Satisfaction Report and found that only incriminating material which has been made the basis for initiating proceedings u/s 153-A of the Act is the so called laptop of one Bina Shah recovered from Mumbai. We also noticed that recovery of the said Laptop is not from the office belonging to the assessee. The search operation in which the laptop was recovered was of different firm and it was not during the course of search operation conducted against the respondent-firm or its partners that incriminating material was recovered. If there was any indication of violation of provisions of the Act or suppression of income or any other incriminating material, which may have been recovered from the premises, the proceedings u/s 153-A of the Act can be said to be justified and legal. However, since no such material was collected or found from the premises of the respondent-assessee, we are unable to sustain the proceedings initiated u/s 153-A of the Act. Substantial question of law to be examined by this Court. All the pleas raised are purely factual.

Issues Involved:

1. Validity of search and seizure operations conducted on the assessee's premises.
2. Legality of additions made under Section 153A of the Income Tax Act, 1961.
3. Interpretation of "incriminating material" in the context of Section 153A proceedings.
4. Relevance of materials found from third parties in initiating proceedings under Section 153A.
5. Applicability of precedents set by higher courts in similar cases.

Issue-wise Detailed Analysis:

1. Validity of Search and Seizure Operations:

The appeal questioned the validity of the search and seizure operations conducted on the premises of the assessee. The Revenue argued that warrants of authorization were executed in the name of the assessee, indicating a valid search. The Court examined the warrants of authorization and noted that they mentioned the assessee's name and registered address, thereby finding the ITAT's conclusion that no search was conducted at the assessee's premises to be erroneous and perverse.

2. Legality of Additions Made Under Section 153A:

The Revenue contended that the ITAT erred in holding that no additions could be made under Section 153A of the Act due to the absence of incriminating material found during the search. The Court, however, found that the only material relied upon was a laptop belonging to a third party, Bina Shah, recovered from a different location, which did not justify the initiation of proceedings under Section 153A against the assessee. The Court emphasized that no incriminating material was found at the assessee's premises to warrant such proceedings.

3. Interpretation of "Incriminating Material":

The Court reiterated the legal position established in the case of Kabul Chawla, which requires that additions under Section 153A should be based on incriminating material found during the search. The Court found that the proceedings initiated against the assessee lacked such material, as the documents relied upon were not recovered from the assessee's premises but from a third party.

4. Relevance of Materials Found from Third Parties:

The Revenue argued that materials found from third parties, such as the laptop of Bina Shah, should be considered for initiating proceedings under Section 153A. The Court disagreed, citing that the search was not conducted at the assessee's premises and the material was not directly linked to the assessee. The Court held that proceedings under Section 153A could not be justified based on materials found from third parties unless they directly relate to the assessee.

5. Applicability of Precedents:

The Court referred to several precedents, including the Supreme Court's decision in Principal Commissioner of Income Tax vs. Abhisar Bhildwell Private Limited, which upheld the principle that no additions can be made in respect of completed assessments without incriminating material. The Court also highlighted the procedural distinction between Sections 153A and 153C, noting that the latter would be applicable if materials relevant to the assessee were found during a search of another entity.

In conclusion, the Court found no substantial question of law warranting further examination and dismissed the appeal, emphasizing the absence of incriminating material to justify the proceedings under Section 153A. All pending applications were disposed of, and no costs were awarded.

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