2024 (4) TMI 976 - AT - Income Tax

Validity of the assessment framed u/s 153A - validity of statement recorded of the assessee u/s 132(4) - whether authorized officer could not go beyond the seized papers u/s 132 in the case of an assessee for recording statement u/s 132(4)? - HELD THAT - In the case in hand the assessee was not found in possession or control of any books of account or other document or any assets as mentioned under the provisions of section 132(4) of the Act. Even no incriminating material was found during the search action at the residential premises of the assessee. Even the statement of the assessee has not been recorded during the search action carried out in his case in individual capacity at his residential premises. As per the record the statement of his wife namely Chitra Badalia who was also covered in the search action was recorded but nothing adverse was found recorded in her statement. The statement of assessee Ravi Badalia was recorded u/s 132(4) during the search action at the business premises of Badalia Gems Pvt. Ltd. however even there he was not found in possession or control of any books of account other documents or assets relevant to the assessment of his income. Even no incriminating material either in the shape of books of accounts/ other documents or in the form of assets representing his any undisclosed income was found during the course of search. Such a statement of his having recorded in contravention of the statutory provisions and without the mandate of the law would not have any evidentiary value and cannot be made basis for the impugned additions. Even the admission if any made during such an statement which is recorded against the mandate of the statute cannot be relied upon. The impugned additions are liable to be set aside on this score. Whether the loose sheet recovered in an unconnected earlier search action from the premises of third party can be brought in and used to confront the assessee during the course of search action? - We find force in the above submissions of assessee. The search party has not been empowered either under the Act or under the Rules to bring any document article or any other thing along with them to the premises to be searched under the warrant of authorization. Rather a right has been given to the person whose premises has to be searched to have personal search of all the members of the search party before the start of the search and even after the conclusion of the search. Even in the Performa warrant of authorisation in Form 45 no such powers have been given to the search party to bring the outside material to the searched premises. In our view the search party was not justified rather has acted in defilement of their jurisdiction to bring the seized material in the case of Kasera Group lying in their office record to the premises of M/s Badalia Gems Pvt. Ltd in separate and subsequent search action carried out u/s 132 of the Act and confront the assessee on the said material especially when no incriminating material was found in relating to the search action in the case of the assessee carried out his residential premises and even no incriminating material was found during the search action carried out in the case of M/s Badalia Gems Pvt. Ltd. at their business premises. Thus the search conducted by the search party is vitiated and no reliance can be placed on the search and seizure reported or even statement recorded of any person during such a vitiated search action as it fails the mandate of law. Reliance upon the material seized during the search in case of third party without adhering to the provisions of section 153C - As per the special provisions u/s 153C of the Act in case of any incriminating material is found during the course of a search action which is relating to a person other than the searched person then the procedure as laid down u/s 153C of the Act is to be followed for making assessment/reassessment of such other person. In that case if the AO of the searched person is satisfied that the assets/material found during the search action relates to other person then the AO of the searched person is supposed to handover/send that material to the AO having jurisdiction over such other person and further that the jurisdictional AO of the said other person will have to record a satisfaction that such material has a bearing on the determination of income of such other person and the six assessment years preceding the date of receipt of such material/books of account gets reopened and the AO of such other person is required to make assessment in accordance with the provisions of section 153C of the Act. It is not open to the Assessing Officer of such other person to use that material in a subsequent assessment carried out u/s 153A of the Act in case of such other person unless the proceedings u/s 153C are pending against such other person on the date of search. Time limit for completion of assessment u/s 153A - The special provisions of sections 153A 153C and 153D of the Act prevail over the general provisions and if the AO/Income Tax Authorities have failed to proceed upon an assessee under such provisions in respect of search cases and the limitation to proceed in such cases against an assessee has expired then the search material in our view cannot be used in any other assessment proceedings as holding to the contrary will make the provisions of section 153C r.w.s. 153B as otiose and redundant. As no incriminating material whatsoever was found during the course of search action in the case of the assessee. The alleged incriminating material found in the case of a past search action in the case of third party i.e. Kasera Group was not acted upon and no proceedings u/s 153C of the Act were initiated or even contemplated and then in our view the AO cannot make basis of such dead material in the subsequent assessment proceedings carried out in the case of the assessee u/s 153A of the Act to make the impugned additions when the limitation to proceed u/s 153C on the basis of said looses sheets/incriminating material has already expired in terms of the provisions of section 153B of the Act. Moreover no incriminating material was found during the search action in the case of the assessee. The assessee was not found in possession or control of any incriminating material or books of accounts. Under the circumstances as per the provisions of section 132 of the Act read with provisions of section 153B of the Act firstly the search party exceeded its jurisdiction in recording of statement of the assessee u/s 132(4) secondly by bringing the documents from its record and thereby confronting the assessee in respect of the said document during the recording of the statement would not infuse life in such dead documents. The assessee succeeds on this legal ground. Abated vs Non-abated Assessment - whether the proposition that no addition can be made in case no incriminating material is found during the course of search action in case of unabated (not pending) assessments for the relevant assessment year would be applicable in this case? - Only those assessments or reassessments shall abate which are pending on the date of initiation of search u/s 132. The term pending means something/some action which has commenced but not concluded. Different interpretation of the term pending cannot be given in relation to assessment and reassessment . Since the word pending has been used in context to both assessment and reassessment therefore it has to be read in the same context for assessment and reassessment . Under the circumstances in our view the word pending would mean those assessments or reassessments which have been initiated but not concluded on the date of search. If no assessment or reassessment has been initiated by issuing the notice u/s 143(2) or u/s 148 of the Act as the case may be then the same cannot be said to be pending on the date of search. In the case in hand neither any assessment proceedings u/s 153C were initiated nor pending on the date of search. Even no other assessment proceedings were initiated hence not pending on the date of search. Since no assessment was pending on the date of search therefore no assessment stood abated on the date of the said search. Since no assessment stood abated hence the assessment year under consideration would fall within the scope of unabated assessment year. Therefore as per law laid down in the case of PCIT vs. Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT AO was not justified to make the impugned additions in the absence of any incriminating material found during the course of the search action. Decided against revenue.

Summary

Issues Involved:
1. Validity of statement recorded under Section 132(4) of the Income Tax Act.
2. Use of loose sheets recovered in an unconnected earlier search action.
3. Justification of the Assessing Officer in relying on material seized during the search of a third party without adhering to Section 153C.
4. Abated vs Non-abated Assessment.

Summary:

A. Validity of Statement Recorded Under Section 132(4):
The Tribunal examined the provisions of Section 132(4) and concluded that the statement of the assessee, recorded during the search of Badalia Gems Pvt. Ltd., was not valid. The assessee was not found in possession or control of any books of account, documents, or assets representing undisclosed income. Therefore, the statement recorded under Section 132(4) lacked evidentiary value and could not be the basis for additions.

B. Use of Loose Sheets Recovered in an Unconnected Earlier Search Action:
The Tribunal found that the search party exceeded its jurisdiction by bringing documents from a prior search action involving the Kasera Group to confront the assessee. The search party was not authorized to bring external materials to the premises being searched. This action violated the rights of the person being searched and rendered the search vitiated, making any reliance on such documents invalid.

C. Justification of the Assessing Officer in Relying on Material Seized During the Search of a Third Party Without Adhering to Section 153C:
The Tribunal held that the Assessing Officer should have proceeded under Section 153C when dealing with materials found in a third-party search. The failure to initiate proceedings under Section 153C within the prescribed limitation period meant that the material could not be used in subsequent assessments under Section 153A. The Tribunal emphasized that special provisions under Sections 153A, 153C, and 153D prevail over general provisions, and failure to adhere to these provisions invalidated the assessment.

D. Abated vs Non-abated Assessment:
The Tribunal referred to the Supreme Court's decision in "Principal Commissioner of Income-tax, Central vs. Abhisar Buildwell (P.) Ltd." and concluded that no additions could be made in the absence of incriminating material during the search for unabated assessments. Since no assessment was pending on the date of the search, the assessment year under consideration was deemed unabated. Therefore, the Assessing Officer was not justified in making additions without incriminating material.

Conclusion:
The Tribunal quashed the impugned assessment orders, deleted the consequential additions, and allowed the appeals of the assessee. The appeal of the revenue was dismissed.