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  • section 143(3) read with section 153A of the Income Tax Act, 1961 ('the Act' for short).
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Citation Codes
Equivalent Citations
citation codes
Case Number
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  • section 143(3) read with section 153A of the Income Tax Act, 1961 ('the Act' for short).
Smart Summary

Factual and Procedural Background

The Revenue challenged the judgment of the Income Tax Appellate Tribunal (the Tribunal) dated 12.02.2016 concerning assessment year 2007-08. The assessee, Jay Infrastructure and Properties Pvt. Ltd, was subjected to search operations and the assessment was framed under section 143(3) read with section 153A of the Income Tax Act, 1961. The Assessing Officer made additions under section 2(22)(e) of the Act. The Tribunal deleted these additions on the ground that no incriminating material was recovered during the search proceedings, which prompted the Revenue to file the present appeal before the High Court.

Legal Issues Presented

  1. Whether the Income Tax Appellate Tribunal erred in law and on facts in deleting the addition made under section 2(22)(e) on the basis that no incriminating material was found during the search proceedings?

Arguments of the Parties

Appellant's Arguments

  • The Revenue contended that the Tribunal erred in deleting the addition under section 2(22)(e).
  • Counsel for the Revenue submitted that different High Courts have taken varying views on the issue.

Respondent's Arguments

  • The assessee argued before the Tribunal that no incriminating material was found during the search to justify the additions made by the Assessing Officer.
  • The Tribunal accepted the assessee’s contention relying on the Delhi High Court decision in Commissioner of Income Tax (Central) III v. Kabul Chawla [2015] 61 Taxmann.com 412 (Delhi).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner of Income Tax (Central) III v. Kabul Chawla [2015] 61 Taxmann.com 412 (Delhi) Deletion of additions under section 2(22)(e) where no incriminating material is found during search proceedings. The Tribunal relied on this decision to accept the assessee’s contention that additions were unjustified without incriminating material.
Pr. Commissioner of Income Tax 4 v. Saumya Construction Pvt. Ltd. (Gujarat High Court Division Bench) Interpretation of section 153A regarding assessment linked to incriminating material found during search or requisition. The High Court held that additions can only be made on material collected during search or requisition and reiterated earlier assessments if no incriminating material is found.
Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax (Rajasthan High Court) Requirement of incriminating material for making additions post search. The Court referred to this precedent to support the principle that absence of incriminating material necessitates reiteration of earlier assessments.
Supreme Court decisions on interpretation of section headings Use of section headings as key to interpretation of operative provisions. The Court applied this principle to interpret section 153A’s heading as indicative of the legislative intent linking assessment to search or requisition outcomes.

Court's Reasoning and Analysis

The Court analyzed the scope of section 153A of the Income Tax Act, emphasizing that assessments made under this provision must relate to material found during the search or requisition, i.e., incriminating material revealing undisclosed income. The Court referred to authoritative precedents, including a Division Bench decision of this Court in Pr. Commissioner of Income Tax 4 v. Saumya Construction Pvt. Ltd., which held that if no incriminating material is found, the earlier assessment must be reiterated. The Court noted procedural facts where the assessee requested to cross-examine witnesses and obtain relevant statements, but the Assessing Officer proceeded to make additions without granting such opportunity. This procedural lapse and the absence of incriminating material led the Court to uphold the Tribunal’s deletion of the additions under section 2(22)(e).

Holding and Implications

The appeal filed by the Revenue is dismissed.

The direct effect of this decision is the affirmation of the Tribunal’s order deleting the addition under section 2(22)(e) due to lack of incriminating material found during search proceedings. No new precedent was established beyond reinforcing the principle that assessments under section 153A must be grounded on material discovered in search or requisition, and procedural fairness must be observed before making additions.

    PRINCIPAL COMMISSIONER OF INCOME TAX- v. JAY INFRASTRUCTURE AND PROPERTIES PVT. LTD

    IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 740 of 2016 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX-2....Appellant(s) Versus JAY INFRASTRUCTURE AND PROPERTIES PVT. LTD....Opponent(s) ========================================================== Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI HONOURABLE MR.JUSTICE A.J. SHASTRI Date : 10/10/2016 (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

    1. Revenue has challenged the judgment of the Income Tax Appellate Tribunal ('the Tribunal for short) dated 12.02.2016 raising following question for our consideration: Whether the Income Tax Appellate Tribunal has substantially erred in law and on facts, in deleting the addition, made u/s 2(22)(e) on a ground that no incriminating material were recovered during search proceedings?

    2. The issue pertains to assessment year 200708. The assessee was subjected to search operations. The assessment was framed under section 143(3) read with section 153A of the Income Tax Act, 1961 ('the Act' for short). The Assessing Officer made additions with the aid of section 2(22)(e) of the Act.

    3. Before the Tribunal, the assessee contended that there was no material found during the search which promoted the Assessing Officer to make such additions. Additions according to the Assessing Officer, therefore, were not justified. The Tribunal accepted the assessee's contention following the decision of Delhi High Court in case of Commissioner of Income tax (Central)III v. Kabul Chawla reported in [2015]

    61 Taxmann.com 412 (Delhi).

    4. Though counsel for the Revenue submitted that different High Courts have taken a view in this respect, we notice that such an issue came up before this Court in case of Pr. Commissioner of Income Tax

    4 v. Saumya Construction Pvt. Ltd. The Division Bench of this Court held the issue in favour of the assessee by making following observations:

    16. Section 153A bears the heading Assessment in case of search or requisition. It is well settled as held by the Supreme Court in a catena of decisions that the heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153, the intention of the legislature is clear viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of subsection (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section

    147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.

    17. In the facts of the present case, a search came to be conducted on 07.10.2009 and the notice was issued to the assessee under section 153A of the Act for assessment year 200607 on 04.08.2010. In response to the notice, the assessee filed return of income on 18.11.2010. In terms of section 153B, the assessment was required to be completed within a period of two years from the end of the financial year in which the search came to be carried out, namely, on or before 31st March, 2012. Here, insofar as the impugned addition is concerned, the notice in respect thereof came to be issued on 19.12.2011 seeking an explanation from the assessee. The assessee gave its response by reply dated 21.12.2011 calling upon the Assessing Officer to provide copies of statements recorded on oath of Shri Rohit P. Modi and Smt. Pareshaben K. Modi during the search as well as the copies of the documents upon which the department placed reliance for the purpose of making the proposed addition as well as the copy of the explanation given by Shri Rohit P. Modi and Smt. Pareshaben K. Modi regarding the onmoney received, copies of the assessment orders in case of said persons and also requested the Assessing Officer to permit him to crossexamine the said persons. The Assessing Officer issued summons to the said persons, however, they were out of station and it was not known as to when they would return. In this backdrop, without affording any opportunity to the assessee to crossexamine the said persons, the Assessing Officer made the addition in question.

    5. In the result, tax appeal is dismissed. (AKIL KURESHI, J.) (A.J. SHASTRI, J.) ANKIT

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    PRINCIPAL COMMISSIONER OF INCOME TAX- v. JAY INFRASTRUCTURE AND PROPERTIES PVT. LTD
    (Oct 10, 2016)