Income Tax Act | No Addition U/S 153A Without Incriminating Material Found During Search: Bombay High Court

A Division Bench of Justice G.S. Kulkarni and Justice Aarti Sathe dismissed an income tax appeal filed by the Revenue and upheld the order of the Income Tax Appellate Tribunal (ITAT), Mumbai, which had deleted additions of nearly ₹28 crore made against the assessee, Milan Kavin Parikh. The Bench observed:

“This was an approach in the absence of any incriminating materials / evidence, much less any incriminating evidence and material gathered in the course of search action. In any event, as seen from the facts of the present case, the base note on which the revenue sought to place reliance was in fact a document available post-search and admittedly was not a document recovered under the search action. Further the assessment proceedings in the present case had also stood completed, hence, the base note being a document available post-search could not be considered to be any incriminating document to assess or re-assess the assessee's income.”

The assessee had filed his income tax return for Assessment Year 2006-07, declaring an income of around ₹2.23 lakh. Several years later, the Income Tax Department conducted a search operation under Section 132 based on information received from French authorities regarding alleged undisclosed bank accounts in HSBC Bank, Geneva.

The Revenue relying mainly on a document called a “base note”, argued that the assessee was the beneficial owner of certain foreign bank accounts held in the names of overseas companies and added the alleged peak balances as unexplained income under Section 69, while framing assessment under Section 153A.

The ITAT had set aside these additions, holding that no incriminating material was found during the search, considered that the assessee had consistently denied any connection with the foreign bank accounts and that HSBC Bank, Geneva had issued a letter confirming that the assessee did not hold any account with them

The Tribunal ruled that the “base note” obtained after the search could not be treated as incriminating material for invoking Section 153A.

Section 153A allows the Income Tax Department to reassess past income of an assessee after a search is conducted under Section 132 (search & seizure) or Section 132A (requisition).

Aggrieved by the order of the Tribunal, the Revenue preferred an appeal before the High Court.

The High Court, agreeing with the Tribunal Order, observed that the entire case of the Revenue was based only on post-search information, the alleged base note was not recovered during the search, there was no material found to directly link the assessee with the foreign bank accounts

The Bench emphasized that Section 153A proceedings are valid only when undisclosed income is discovered during the search.

The Bench placed reliance on the Supreme Court's ruling in PCIT v. Abhisar Buildwell (P) Ltd [2023] 149 taxmann.com 399 (SC), wherein it was held that in completed/ unabated assessments, no additions can be made under Section 153A unless incriminating material is found during the search.

The Court noted that if the Revenue wanted to rely on post-search material, it could only do so through re-assessment proceedings under Sections 147/148, subject to statutory conditions.

In view of the above, the Bench dismissed the Revenue's appeal and confirmed that the additions made against the assessee were unsustainable in law.

Case Title: Pr. Commissioner of Income Tax (Central-1) v. Milan Kavin Parikh

Case No.: Income Tax Appeal No. 1827 of 2022

Appearance for Appellant: Mr. Suresh Kumar

Appearance for Respondent: Mr. Atul Jasani

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