Smt. Jami Nirmala V. The Principal Commissioner of Income Tax, Bhubaneswar and others

WP(C)/2857/2018

AI Insights

The case involves Smt. Jami Nirmala, the sole proprietor of M/s. Cashew Home, who challenged an assessment order passed by the Assistant Commissioner of Income Tax under Sections 143(3) and 153A of the Income Tax Act, 1961 for the assessment year 2015-16. A search conducted at her premises and a bank locker did not yield any incriminating material, yet the assessment order was based on alleged cash payments violating Section 40A(3) of the Act. The court found that the assessment was made without any legal basis as no incriminating material was found during the search, leading to the setting aside of the assessment order and demand notice.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 685363 (HC-ORISSA)
• Appeal Type: Others
• Pronouncement Date: 10-08-2021
• Assessment Year: misc
• Other Referred Cases: CIT v. Kabul Chawla (2016) 380 ITR 573 (Del), Smt. Dayawanti v. CIT (2017) 390 ITR 496 (Del), Principal CIT v. Mita Gutgutia (2017) 395 ITR 526 (Del), CIT v. Anil Kumar Bhatia (2013) 352 ITR 493 (Del), CIT v. Chetan Das Lachman Das [2012] 254 CTR 392 (Del), Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj), Jai Steel (India), Jodhpur v. ACIT (2013) 36 Taxman 523 (Raj), CIT v. Jayaben Ratilal Sorathia (2013 (7) TMI 850 \\u2013 Guj), Principal Commissioner of Income Tax-1 v. Devangi alias Rupa 2017-TIOL-319-HC-AHM- IT, CIT v. IBC Knowledge Park P. Ltd. 385 ITR 346 (Kar), CIT-2 v. Salasar Stock Broking Ltd. 2016-TIOL-2099-HC-KOL- IT, CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom), CIT v Mahesh Kumar Gupta 2016-TIOL-2994-HC-Del, The Pr. Commissioner of Income Tax-9 v. Ram Avtar Verma (decision dated 7th February, 2017 in ITA Nos. 61/2017 and 62/2017), Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd. order dated 6th July 2015 in ITA No. 369 of 2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R S CHIMANKA
• Assessee Lawyers: SIDHARTHA RAY
• Keywords: Assessment Order; Cash payments; Incriminating material; Jurisdiction; Search and seizure
• Section: 143(3); 142(1); 132; 153A; 40A(3)

Judgement Text

" W.P.(C) No.2857 of 2018 Page 1 of 12 IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No.2857 of 2018 Smt. Jami Nirmala …. Petitioner Mr. Sidhartha Ray, Advocate -versus- The Principal Commissioner of Income Tax, Bhubaneswar and others …. Opposite Parties Mr. R. S. Chimanka, Senior Standing Counsel CORAM: THE CHIEF JUSTICE JUSTICE B. P. ROUTRAY ORDER 10.08.2021 Order No. 03. Dr. S. Muralidhar, CJ. 1. The challenge in this writ petition is to an assessment order dated 29th December, 2017 passed by the Assistant Commissioner of Income Tax (ACIT), Central Circle-I, Bhubaneswar (Opposite Party No.2) under Section 143 (3) read with Section 153A of the Income Tax Act, 1961 (‘the Act’) for the assessment year (AY) 2015-16. 2. The background facts are that the Petitioner is the sole Proprietor of M/s. Cashew Home. She filed a return of income for the AY in question on 29th September, 2015 disclosing a total income of Rs.7,98,240/-. W.P.(C) No.2857 of 2018 Page 2 of 12 3. A search was conducted under Section 132 of the Act at the Assessee’s residential premises and at a locker No.87 with the State Bank of India in Jeypore, which she jointly held with Smt. J. Kavita on 26th February, 2016. The Panchanama prepared for the said search and seizure shows that nothing was found or seized. 4. After the search, the Assessee’s case along with other cases in the group was centralised with the ACIT, Central Circle-I, Bhubaneswar and notice was issued to her under Section 153A of the Act on 27th January, 2017. In response to the notice the Assessee informed the Department on 10th August, 2017 that her original return be treated as a return under Section 153A of the Act. Thereafter notice was issued to her under Section 143 (2) of the Act. A questionnaire was also issued under Section 142 (1) of the Act on 10th July, 2017. 5. Although nothing was found during the course of the search, it was observed in the assessment order that “during the course of search operation it was found that the assessee company had made expenditure amounting to Rs.64,86,371/- during the year which paid in the mode of cash of Rs.20,000/- or above in a single day to a single party.” The assessment order also sought to disallow the payments made to the cultivators and Hamalis in the sum of Rs.64,22,721/-. The total assessed income was revised as Rs.72,20,961/- and the tax along with interest was recomputed on that basis. On 29th December, 2017 a demand notice for the revised tax amount was issued to the Petitioner. W.P.(C) No.2857 of 2018 Page 3 of 12 6. On 13th February 2020, this Court stayed the operation of the aforementioned assessment order and the consequential demand notice dated 29th December, 2017. 7. In the counter affidavit filed on behalf of the Department, it is not disputed that nothing incriminating was found in the course of search. It is stated in para 9 that the Assessing Officer “duly analysed and examined the cash book found during the course of survey on 12th February, 2016 and found that the assessee paid cash of Rs.20,000/- or above in a single day to a single party in violation of provisions of Section 40A (3) of the Act.” It is also submitted that in terms of the law explained in CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) and Smt. Dayawanti v. CIT (2017) 390 ITR 496 (Del) even in respect of those AYs years for which no incriminating materials are unearthed during the search, there was no obstacle in making additions under Section 153A of the IT Act “provided some incriminating material … is unearthed as a result of the search under Section 132 of the IT Act.” 8. Mr. Sidhartha Ray, learned counsel appearing for the Petitioner, points out that the admitted position in the present case is that during the search nothing incriminating was unearthed. The payment in cash of Rs.20,000/- or above was detected in respect of a single party on a single day and that too during the course of survey on 12th February, 2016 and not during the search on 26th February, 2016. W.P.(C) No.2857 of 2018 Page 4 of 12 9. Mr. Chimanka, learned Senior Standing Counsel for the Income Tax Department, on the other hand, sought to defend the assessment order which was in turn based on the position found in the cash book and books of account. He submitted that since the impugned assessment order was an appealable, the Petitioner should be relegated to that statutory remedy. 10. The above submissions have been considered. It is seen that in the counter affidavit filed by the Opposite Parties no objection as to the maintainability of the petition is taken. Moreover, the present petition has been pending in this Court for over three years and the Court does not consider it expedient at this stage to relegate the Petitioner to the statutory remedy of an appeal. In any event, for the reasons explained hereafter the Court finds that impugned assessment order is entirely without jurisdiction. Therefore, this Court is not precluded under Article 226 of the Constitution of India from interfering with it. 11. Turning to the merits, the legal position in respect of the search conducted under Section 153A of the Act is well settled. The assessment made pursuant to the search has to be on the basis of incriminating materials gathered or unearthed during the course of the search. In CIT v. Kabul Chawla (supra), the Delhi High Court summarized the legal position thus: “iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related W.P.(C) No.2857 of 2018 Page 5 of 12 to the evidence found, it does not mean that the assessment \"can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material.\" 12. Subsequently, in Principal CIT v. Mita Gutgutia (2017) 395 ITR 526 (Del), the legal position was further elaborated as under: “56. Section 153A of the Act is titled \"Assessment in case of search or requisition\". It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified. 57. The question whether unearthing of incriminating material relating to any one of the AYs could justify the re-opening of the assessment for all the earlier AYs was considered both in CIT v. Anil Kumar Bhatia (2013) 352 ITR 493 (Del) and CIT v. Chetan Das Lachman Das [2012] 254 CTR 392 (Del). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla (supra). As far as CIT v. Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that \"we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation\". That question was, therefore, left open. As far as CIT v Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: W.P.(C) No.2857 of 2018 Page 6 of 12 \"11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or Information available with the Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material.\" ……… 61. It appears that a number of High Courts have concurred with the decision of this Court in Kabul Chawla (supra) beginning with the Gujarat High Court in Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj). There, a search and seizure operation was carried out on 7th October, 2009 and an assessment came to be framed under Section 143(3) read with Section 153A(1)(b) in determining the total income of the Assessee of Rs. 14.5 crores against declared income of Rs. 3.44 crores. The ITAT deleted the additions on the ground that it was not based on any incriminating material found during the course of the search in respect of AYs under consideration i.e., AY 2006-07. The Gujarat High Court referred to the decision in Kabul Chawla (supra), of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (2013) 36 Taxman 523 (Raj) and one earlier decision of the Gujarat High Court itself. It explained in para 15 and 16 as under: \"15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section W.P.(C) No.2857 of 2018 Page 7 of 12 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub- section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have W.P.(C) No.2857 of 2018 Page 8 of 12 effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub- section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding. 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 or 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 sub-section (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 W.P.(C) No.2857 of 2018 Page 9 of 12 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) v. Asst. CIT (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. xxx 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this W.P.(C) No.2857 of 2018 Page 10 of 12 court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CIT v. Jayaben Ratilal Sorathia (2013 (7) TMI 850 – Guj wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.\" 62. Subsequently, in Principal Commissioner of Income Tax- 1 v. Devangi alias Rupa 2017-TIOL-319-HC-AHM- IT, another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Principal Commissioner of Income Tax v. Saumya Construction P. Ltd. (supra) and of this Court in Kabul Chawla (supra). As far as Karnataka High Court is concerned, it has in CIT v. IBC Knowledge Park P. Ltd. 385 ITR 346 (Kar) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in CIT-2 v. Salasar Stock Broking Ltd. 2016-TIOL-2099-HC-KOL- IT, too, followed the decision of this Court in Kabul Chawla (supra). In CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom), the Bombay High Court held that: \"6...once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during W.P.(C) No.2857 of 2018 Page 11 of 12 proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings.\" 63. Even this Court has in CIT v Mahesh Kumar Gupta 2016-TIOL-2994-HC-Del and The Pr. Commissioner of Income Tax-9 v. Ram Avtar Verma (decision dated 7th February, 2017 in ITA Nos. 61/2017 and 62/2017) followed the decision in Kabul Chawla (supra). The decision of this Court in Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd. order dated 6th July 2015 in ITA No. 369 of 2015 which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015.” 13. In the present case, the impugned assessment order does not refer to any document unearthed during the course of the search on 26th February, 2016. Therefore, the assumption of jurisdiction under Section 153A of the Act for reopening the assessment for the AY 2015-16 was without legal basis. The impugned assessment order refers only to the cash book found during the survey purportedly conducted on 12th February, 2016 i.e. two weeks prior to the date of search. The Panchanama of the search proceedings unambiguously shows that nothing incriminating was recovered in the course of the search. Even in the counter affidavit of the Opposite Parties does not dispute this position. 14. In view of the settled legal position the Court has no hesitation in concluding that the impugned assessment order is entirely without jurisdiction. W.P.(C) No.2857 of 2018 Page 12 of 12 15. For all of the aforementioned reasons, the impugned assessment order and the consequential demand notice (Annexures-1 and 2) are hereby set aside. The writ petition is allowed, but in the circumstances, with no order as to costs. 16. An urgent certified copy of this order be issued as per rules. (Dr. S. Muralidhar) Chief Justice (B.P. Routray) Judge M. Panda "