2007 (9) TMI 447 - AT - Income Tax

Assessment u/s 153A - search on requisition - validity of search conducted u/s 132 - search conducted in the premises in which the assessee may not be carrying on the business - HELD THAT - The perusal of the panchnama reveals that the search was conducted in respect of SSKI Group wherein the search warrant was served on Mr. Hitesh M. Desai who is the Manager of SSKI Group his statement was recorded during the course of search. The books of account as per the Annexure A-1 and other valuables locker FD as per Annexure O-1 belonging to SSKI Group were found and seized. Other valuable articles including money as per note in 1 2 3 4 were found but not seized. The assessee claims that none of his books of account were found or seized and in respect of the valuables also the assessee clarifies that none of his valuables were available at the above said address as the said premises were rented out to SSKI group by the assessee and its sister concerns. In the body of order under section 143(3) read with section 153A of the Income-tax Act the Assessing Officer also observes that there was search and seizure action under section 132 of the Income-tax Act on SSKI Group and by warrant dated 1-8-2003 the assessee was also covered under the search. The premises whereas the assessee was found was not searched. The fact that search u/s 132 of the Act have been conducted on the assessee is a condition precedent to be satisfied before start of any proceedings against the assessee. Section 158BC of the Income-tax Act provides the procedure for block assessment in all such cases where search has been conducted u/s 132 or books of account or other documents requisitioned u/s 132A of the Income-tax Act for searches conducted upto 31-5-2003. Thus the jurisdictional fact of a search being conducted prior to issue of notice u/s 158BC of the Act need to be satisfied. In the present case before us no search was conducted against the assessee as the premises occupied by the assessee were not entered upon and searched by the Authorised Officer. Mere search of the premises owned by the assessee but rented to another concern does not by any implication prove the conduct of search against the assessee in view of the fact that the assessee was not available at the address searched upon. Mere mentioning of name in the panchnama does not lead to the conclusion that a valid search was conducted against the assessee. In the totality of circumstances where no search has been conducted against the assessee there is no merit in the issue of notice u/s 153A of the Income-tax Act under which the jurisdictional area of operation is six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. In case no search is conducted against a person the period of operation to which the provisions of section 153A would apply cannot be determined and the invoking of provisions of section 153A of the Act is baseless. Though the provisions of section 158BC of the Act are not applicable to searches conducted after 31-5-2003 but the provisions of section 132 of the Income-tax Act are continuing on the statute implying thereby that the provisions of section 153A of the Act are only applicable in case valid search is conducted against the assessee u/s 132 of the Act. Accordingly we declare the assessments made against the assessee under the provisions of section 143(3) read with section 153A of the Income-tax Act are null and void and direct the Assessing Officer to cancel the same. Thus the issue related to the validity of search raised by the assessee is allowed. In view of our decision with regard to the validity of search we are not adjudicating upon the issues relating to the merits of the case. In the result all the five appeals filed by the assessee are partly allowed.

Issues Involved:
1. Legality of Notice under Section 153A.
2. Validity of Search under Section 132.
3. Disallowance of Interest under Section 14A.
4. Disallowance of Business Administrative Expenses.
5. Disallowance of Electricity Expenses.

Issue-wise Detailed Analysis:

1. Legality of Notice under Section 153A:
The assessee contended that the Notice under Section 153A issued by the ACIT was illegal, arguing that no search action under Section 132 was conducted on the appellant firm, and no warrant was issued in its name. However, the CIT(A) verified that the warrant was indeed issued in the name of the assessee firm, J.M. Trading Corporation, making the notice under Section 153A valid. The Tribunal upheld the CIT(A)'s finding that the notice was validly issued.

2. Validity of Search under Section 132:
The core issue was whether a valid search was conducted on the assessee. The assessee argued that the search was conducted on the SSKI Group, who were tenants of the premises owned by the assessee, and no search was conducted at the premises where the assessee operated. The Tribunal noted that while the search warrant included the assessee's name, the search was conducted on the premises occupied by the SSKI Group, and no books of account or valuables belonging to the assessee were found or seized. The Tribunal emphasized that the conduct of search involves entering and searching the premises where the assessee's assets are believed to be kept. Since no search was conducted at the premises occupied by the assessee, the Tribunal concluded that no valid search was conducted against the assessee. Consequently, the assessments made under Section 143(3) read with Section 153A were declared null and void.

3. Disallowance of Interest under Section 14A:
The assessee challenged the disallowance of interest paid on loans and advances under Section 14A for various assessment years. The CIT(A) had upheld these disallowances. However, since the Tribunal found the search and subsequent assessments invalid, it did not adjudicate on the merits of these disallowances.

4. Disallowance of Business Administrative Expenses:
For assessment years 1999-2000 and 2004-05, the assessee contested the disallowance of other business administrative expenses such as electricity charges, staff salary, motor car expenses, and telephone expenses. The CIT(A) had upheld these disallowances. Similar to the interest disallowance, the Tribunal did not address these issues due to the invalidity of the search.

5. Disallowance of Electricity Expenses:
In assessment year 2001-02, the assessee argued that electricity expenses crystallized during the year for an earlier period should be allowed as a deduction. The CIT(A) had disallowed these expenses. As with the other disallowances, the Tribunal did not rule on this issue because the search was deemed invalid.

Conclusion:
The Tribunal concluded that the search conducted under Section 132 was invalid as it was not conducted at the premises occupied by the assessee. Consequently, the assessments made under Section 143(3) read with Section 153A were declared null and void. The Tribunal did not address the merits of the disallowances due to the invalidity of the search. All five appeals filed by the assessee were partly allowed.

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