No Incriminating Material Was Found During Search: Delhi High Court Quashes S. 153A Proceedings

The Delhi High Court has held that the assessment for the assessment year 2011–12 was finalized on January 20, 2012, and no notice under Section 143(2) of the Income Tax Act was issued. As such, no assessment was pending on the date of the search action, i.e., October 29, 2013.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that during the search action against the respondent or assessee, no incriminating material was found, and the material in the form of a statement now sought to be relied upon by the appellant or department was recorded subsequent to the search action.

The respondent or assessee was engaged in the development of a Special Economic Zone (SEZ) for information technology-enabled services in Noida, U.P. On September 30, 2011, the respondent or assessee filed its return of income for the assessment year 2011–12, and it was processed under Section 143(1). On October 29, 2013, a search and seizure action under Section 132 was carried out at the premises of the assessee, and a notice under Section 153A was issued, calling upon the assessee to file a return of income consequent to the search action. On March 22, 2016, the assessee requested that the department treat the original return of income as the return filed in response to notice under Section 153A of the Income Tax Act.

The assessee declared net profit, which was claimed as a deduction under Section 80IAB. The Assessing Officer disallowed the deduction claimed under Section 80IAB to the extent of Rs. 13,30,50,000 and added it back to the income declared in the return of income. The assessing officer also initiated penalty proceedings under Section 271(1)(c) against the assessee.

The assessee challenged the order of the assessing officer by way of appeal before the Commissioner of Income Tax (Appeals). In the course of appellate proceedings before CIT(A), the assessee raised additional ground, contending that since no incriminating material belonging to the assessee was found during the course of the said search proceedings, the initiation of proceedings under Section 153A of the Act was bad in law, especially because the assessment proceedings stood closed under Section 143(1).

The CIT(A) partly allowed the appeal, holding that according to the settled legal position, invocation of Section 153A would not be sustainable in law where no incriminating material pertaining to the assessee was recovered during the search action.

The department assailed the order of CIT(A) by way of appeal before the Tribunal, which appeal was dismissed by way of the order.

The department contended that, although during the search action, no incriminating material against the respondent or assessee was recovered, a statement was later recorded in post-search proceedings, which formed the basis of the disallowance of deduction claimed under Section 80IAB.

The court, while dismissing the department's appeal, held that where no assessment proceedings are pending on the date of the initiation of the search, the assessing officer may consider only the incriminating material found during the search and is precluded from considering any other material derived from any other source.

Counsel For Appellant: Ruchir Bhatia

Counsel For Respondent: Ajay Vohra

Case Title: PCIT Versus Oxygen Business Park Pvt. Ltd

Citation: 2023 LiveLaw (Del) 1266

Case No.: ITA 680/2023

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