Court quashes tax notices issued without finding any incriminating material during search

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Case Name

Smrutisudha Nayak Vs Union of India & Others (High Court of Orissa)

W.P. (C) Nos. 10587, 10588, 10589, 10659, 10660, 10661 and 10662 of 2009 

Date: 27th October 2021

Key Takeaways

• No incriminating material = No Section 153A (of Income Tax Act, 1961) assessment: Courts cannot allow tax authorities to mechanically issue assessment notices under Section 153A (of Income Tax Act, 1961) just because a search was conducted
• Retrospective amendments upheld: The court accepted that the 2009 amendment to Section 132(1) (of Income Tax Act, 1961) giving Additional Directors power to issue search warrants was merely clarificatory and valid retrospectively
• Burden on tax department: Tax authorities must show some nexus between seized material and proposed assessments - they can’t proceed arbitrarily

Issue

Can the Income Tax Department initiate assessment proceedings under Section 153A (of Income Tax Act, 1961) when absolutely no incriminating material was found or seized during the search operation?

Facts

• November 15, 2007: Income Tax Department searched Smrutisudha Nayak’s residence in Bhubaneswar and prepared a panchnama
• December 6, 2007: Another search warrant was issued under Section 132(1) (of Income Tax Act, 1961) by Additional Director V. Ananda Rajan to search her joint bank locker with her husband at Andhra Bank
• Search results: Nothing was found in the locker - the panchnama showed “NIL” recovery
• July 14, 2009: More than 18 months later, the Assessing Officer issued notices under Section 153A (of Income Tax Act, 1961)/143(3) for assessment years 2002-03 to 2008-09
• September 11, 2009: Court allowed assessment to continue but prohibited final orders

The petitioner was a director of Sambit Resorts Pvt. Ltd., and the searches were conducted as part of an income tax investigation.

Arguments

Petitioner’s Arguments (Smrutisudha Nayak):

1. Constitutional challenge: The 2009 amendment to Section 132(1) (of Income Tax Act, 1961) violates Article 14 (equality) because it discriminates between taxpayers whose search warrants were issued before vs. after October 1, 2009
2. Retrospective effect invalid: Since search and seizure affects substantive rights, Section 132(1) (of Income Tax Act, 1961) couldn’t be amended retrospectively
3. No authority to issue warrant: The Additional Director lacked power to issue search warrants, citing cases like CIT v. Jainson, (2009) 222 CTR (Delhi) 34
4. No incriminating material: Assessment under Section 153A (of Income Tax Act, 1961) is void since nothing was found during search

Department’s Arguments:

1. Amendment was clarificatory: The 2009 amendment merely clarified that Additional Directors always had the power to issue warrants
2. Mandatory assessment: Once search is conducted, there’s an obligation to issue Section 153A (of Income Tax Act, 1961) notices regardless of findings
3. Assessment not finalized: Since original assessment under Section 143(3) (of Income Tax Act, 1961) wasn’t completed, the Kabul Chawla ratio doesn’t apply

Key Legal Precedents

The court extensively relied on several important precedents:

Main precedents supporting the petitioner:

• CIT v. Kabul Chawla, (2016) 380 ITR 573 (Delhi): Established that assessments under Section 153A (of Income Tax Act, 1961) require some nexus with seized material
• Filatex India Ltd. v. CIT, 380 ITR 586: Similar principle
• Jai Steel (India) v. Assistant CIT, (2013) 1 ITR-OL 371 (Raj): Held that in absence of incriminating material, completed assessments can only be reiterated
• Principal CIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del) and Principal CIT v. Kurele Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Del): Reiterated same principles

Key precedent cited by department:

• Government of Andhra Pradesh v. Laxmi Devi (2008) 4 SCC 720: For giving latitude to fiscal statutes
• State of Madhya Pradesh v. Rakesh Kohali (2012) 6 SCC 312: Similar principle

Critical legal principle from CIT v. Chetan Das Lachman Das (2012) 254 CTR (Del) 392:

“Section 153A (of Income Tax Act, 1961) can be arbitrary or made without any relevance or nexus with the seized material”

Judgement

The court ruled in favor of the petitioner on both main issues:

On the constitutional challenge (Section 132(1) (of Income Tax Act, 1961) amendment):

• Rejected: The court accepted the department’s explanation that the amendment was merely clarificatory
• The CBDT circular dated June 3, 2010 explained that Additional Directors always had this power under clauses (28C) and (28D) of Section 2 (of Income Tax Act, 1961)

On the Section 153A (of Income Tax Act, 1961) assessment challenge:

• Allowed: The court held that assessment proceedings under Section 153A (of Income Tax Act, 1961) cannot be initiated when no incriminating material was found
• Key reasoning: “It is not possible to accept the contention of the Department that there was an obligation to initiate the assessment proceedings under Section 153-A (of Income Tax Act, 1961) only because a search has been conducted, even though no incriminating materials whatsoever have been found during search”

Final Order:

• Notices quashed: All impugned notices for AYs 2002-03 to 2008-09 under Section 153A(1) (of Income Tax Act, 1961) read with Section 143(3) (of Income Tax Act, 1961) were quashed
• Writ petitions allowed with no order as to costs

FAQs

Q1: What does this judgment mean for taxpayers who face searches?

A: If the tax department conducts a search and finds nothing incriminating, they cannot automatically issue assessment notices under Section 153A (of Income Tax Act, 1961). There must be some material basis for reopening assessments.

Q2: Does this mean all Section 153A (of Income Tax Act, 1961) assessments are invalid?

A: No, only those where no incriminating material was found. If the search yields incriminating documents or evidence, Section 153A (of Income Tax Act, 1961) assessments can still proceed.

Q3: What about the retrospective amendment to Section 132(1) (of Income Tax Act, 1961)?

A: The court upheld it as valid, accepting that it was merely clarificatory and that Additional Directors always had the power to issue search warrants.

Q4: Can the department appeal this decision?

A: Yes, they can appeal to the Supreme Court, but this judgment creates a strong precedent that Section 153A (of Income Tax Act, 1961) requires some substantive basis beyond just conducting a search.

Q5: What should taxpayers do if they’re in a similar situation?

A: If you faced a search where nothing was found but still received Section 153A (of Income Tax Act, 1961) notices, this judgment provides strong legal grounds to challenge such notices. However, each case depends on its specific facts.

Q6: How does this affect pending Section 153A (of Income Tax Act, 1961) cases?

A: This judgment strengthens the position of taxpayers in similar situations where searches yielded no incriminating material, but each case will be decided on its own merits.

1. These writ petitions arise from a common set of facts involving same questions of law and are accordingly being disposed of by this common judgment. For the sake of convenience the Court is taking up for discussion the facts of the lead case i.e. W.P.(C) No. 10587 of 2009.

2. The background facts of the case are that the Petitioner is a Director of a Private Limited Company in the name and style of Sambit Resorts Pvt. Ltd. On 15th November, 2007 search was conducted by the Income Tax Department at the Petitioner’s residence in Bhubaneswar and a Panchnama was drawn up on that date. Subsequently another search warrant was issued under Section 132(1) (of Income Tax Act, 1961), 1861 (‘the Act’) on 6th December, 2007 by one Sri V. Ananda Rajan, Additional Director of Income Tax (Investigation) (‘ADIT’) authorizing himself and Sri M.L Sardar, Additional Director of Income Tax

(Investigation) to conduct search and seizure operation of the locker standing jointly in the name of the Petitioner and her husband at Andhra Bank, Ashok Nagar Branch, Bhubaneswar.

Though the said search took place, nothing was found in the

locker. The said search was not followed up immediately by a

notice under Section 153A (of Income Tax Act, 1961) initiating search assessment

proceedings.

3. More than 18 months later, the Assessing Officer, i.e., the

Assistant Commissioner of Income Tax, Circle-I (2),

Bhubaneswar issued a notice on 14th July, 2009 commencing

assessment proceedings under Section 153A (of Income Tax Act, 1961)/ 143(3) of the Act for

the Assessment Year (AY) 2002-2003. Identical notices were

issued for each of the AYs of 2008-2009. The Petitioner filed her

returns for the said AYs. Thereafter the present writ petitions were

filed in this Court challenging the initiation of the assessment

proceedings under Section 153A (of Income Tax Act, 1961). On 11th September,

2009 this Court directed that the assessment proceedings may

continue but no final order shall be passed.

4. During the pendency of the writ petition, Section 132(1) (of Income Tax Act, 1961) of the

Act was amended by Finance (No.2) Act, 2009 authorizing the

Additional Director or the Additional Commissioner or the Joint

Director or the Joint Commissioner to issue a search warrant. This

provision was given retrospective effect from 1st June, 1994. At

the same time, a proviso was inserted in Section 132(1) (of Income Tax Act, 1961) wherein it

is stated that in case of a search warrant issued by the Additional

Director or the Additional Commissioner or Joint Director after 1st

October, 2009, he has to take the approval of the Central Board of

Direct Taxes (CBDT). Section 132(1) (of Income Tax Act, 1961) as amended

reads as under:

“132. (1) Where the (Director General or Director) or

the (Chief Commissioner or Commissioner) (or

Additional Director or Additional Commissioner) (or

Joint director of Joint Commissioner) in consequence of

information in his possession, has reason to believe

that—

(a) any person to whom a summons under sub-section (1)

of section 37 (of Income Tax Act, 1961) of the Indian Income-tax Act, 1922 (11 of

1922), or under sub-section (1) of section 131 (of Income Tax Act, 1961) of this

Act, or a notice under sub-section (4) of section 22 (of Income Tax Act, 1961) of

the Indian Income-tax Act, 1922, or under sub-section

(1) of section 142 (of Income Tax Act, 1961) of this Act was issued to produce, or

cause to be produced, any books of account or other

documents has omitted or failed to produce, or cause to

be produced, such books of account or other

documents as required by such summons or notice, or

(b) any person to whom a summons or notice as aforesaid

has been or might be issued will not, or would not,

produce or cause to be produced, any books of account

or other documents which will be useful for, or

relevant to, any proceeding under the Indian Income-

tax Act, 1922 (11 of 1922), or under this Act, or

(c) any person is in possession of any money, bullion,

jewellery or other valuable article or thing and such

money, bullion, jewellery or other valuable article or

thing represents either wholly or partly income or

property which has not been, or would not be,

disclosed for the purposes of the Indian Income-tax

Act, 1922 (11 of 1922), or this Act (hereinafter in this

section referred to as the undisclosed income or

property),then,—

(A) the (Director General or Director) or the (Chief

Commissioner or Commissioner), as the case may be,

may authorize any (Additional Director or Additional

Commissioner or ) (Joint director, (Joint

Commissioner), (Assistant Director (or Deputy

Director), (Assistant Commissioner or Deputy

Commissioner) or Income Tax Officer), or

(B) such Additional Director or Additional Commissioner

or Joint Director, or Joint Commissioner, as the case

may be, may authorise any Assistant Director or

Deputy Director, Assistant Commissioner or Deputy

Commissioner or Income-tax Officer,

(the officer so authorized in all cases being hereinafter

referred to as the authorized officer) to—

(i) enter and search any building, place, vessel, vehicle or

aircraft where he has reason to suspect that such books

of account, other documents, money, bullion, jewellery

or other valuable article or thing are kept;

(ii) break open the lock of any door, box, locker, safe,

almirah or other receptacle for exercising the powers

conferred by clause (i) where the keys thereof are not

available;

(iia) search any person who has got out of, or is about to

get into, or is in, the building, place, vessel, vehicle or

aircraft, if the authorised officer has reason to suspect

that such person has secreted about his person any such

books of account, other documents, money, bullion,

jewellery or other valuable article or thing;

(iib) require any person who is found to be in possession or

control of any books of account or other documents

maintained in the form of electronic record as defined

in clause (t) of sub-section (1) of section 2 (of Income Tax Act, 1961) of the

Information Technology Act, 2000 (21 of 2000), to

afford the authorized officer the necessary facility to

inspect such books of account or other documents;

(iii) seize any such books of account, other documents,

money, bullion, jewellery or other valuable article or

thing found as a result of such search:

Provided that bullion, jewellery or other valuable

article or thing, being stock-in-trade of the business,

found as a result of such search shall not be seized but

the authorised officer shall make a note or inventory of

such stock-in-trade of the business;

(iv) place marks of identification on any books of account

or other documents or make or cause to be made extracts or copies there from;

(v) make a note or an inventory of any such money,

bullion, jewellery or other valuable article or thing :

Provided that where any building, place, vessel,

vehicle or aircraft referred to in clause (i) is within the

area of jurisdiction of any (Chief Commissioner or

Commissioner) but such (Chief Commissioner or

Commissioner) has no jurisdiction over the person

referred to in clause (a) or clause (b) or clause (c),

then, notwithstanding anything contained in section

120, it shall be competent for him to exercise the

powers under this sub-section in all cases where he has

reason to believe that any delay in getting the

authorisation from the (Chief Commissioner or

Commissioner) having jurisdiction over such person

may be prejudicial to the interests of the revenue :

Provided further that where it is not possible or

practicable to take physical possession of any valuable

article or thing and remove it to a safe place due to its

volume, weight or other physical characteristics or due

to its being of a dangerous nature, the authorised

officer may serve an order on the owner or the person

who is in immediate possession or control thereof that

he shall not remove, part with or otherwise deal with it,

except with the previous permission of such authorised

officer and such action of the authorised officer shall

be deemed to be seizure of such valuable article or

thing under clause (iii):

Provided also that nothing contained in the second

proviso shall apply in case of any valuable article or

thing, being stock-in-trade of the business:

Provided also that no authorisation shall be issued by

the Additional Director or Additional Commissioner or

Joint Director or Joint Commissioner on or after the 1st

day of October, 2009 unless he has been empowered

by the Board to do so.”

5. According to the Petitioner the above amendment discriminates

between two sets of Assessees: one to whom a search warrant has

been issued prior to 1st October, 2009 for which due approval of

the CBDT is not necessary and the other for whom a search

warrant is issued after that date where the approval of the CBDT

is mandatory. In the present case the search warrant was issued

prior to 1st October, 2009. According to the Petitioner the

Parliament has failed to provide a safeguard when the search

warrant is issued by the Additional Director or the Additional

Commissioner and therefore it is stated that the amendment

violates Article 14 of the Constitution. It is further submitted that

since the search and seizure operation is an invasion of the rights

and liberty of the citizen, Section 132(1) (of Income Tax Act, 1961) could not have

been amended with retrospective effect since it affects the

substantive rights of the Petitioner.

6. The second ground is against the initiation of the proceedings

under Section 153A (of Income Tax Act, 1961), which is contended to be ab-initio

void.

7. It may be mentioned that on 11th September, 2009 permission

was given to the Petitioner to amend this writ petition to raise the

above contentions. It is submitted by Mr. Sidharth Ray, learned

counsel for the Petitioner that no material has been placed on

record by the Opposite Parties to show the authorization in favour

of Sri Rajan, ADIT authorizing himself or Sri Sardar, ADIT

(Investigation) being authorized with the power to issue a warrant.

In this regard, reliance is placed on the decision of the High Court

of Delhi in CIT v. Jainson, (2009) 222 CTR (Delhi) 34 holding

that the ADIT (Investigation) does not have the power to issue

any authorization or warrant in terms of the proviso to Section

132 (1) of the Act. Reliance is also placed on the decisions of

Delhi High Court in CIT v. Pawan Kumar Garg 334 ITR 240

(Del); and Dr. Nalini Mahajan v. Director IT (Investigation),

(2002) 257 ITR 123. The decision in Raghuraj Pratap Singh v.

Assistant Commissioner of Income Tax 207 ITR 450 (All) is also

referred to.

8. A counter affidavit was filed by the Opposite Parties belatedly

on 5th August, 2021 in the writ petition contending that a search

warrant can be issued by the ADIT (Investigation) in terms of the

amendment with retrospective from 1st June, 1994. It is sought to

be contended that the Additional Director or the Additional

Commissioner always had the power to issue a warrant of

authorization and that the amendment was merely declaratory and

clarificatory in nature. Mr. T.K. Satapathy, Sr. Standing Counsel

for the Department refers to the explanatory note issued by the

CBDT by circular dated 3rd June, 2010 in this context. He relied

on the decision in Government of Andhra Pradesh v. Laxmi Devi

(2008) 4 SCC 720 to contend that the greater latitude is normally

given by the Courts to fiscal statutes or tax measures. Reliance is

also placed on the decision of State of Madhya Pradesh v.

Rakesh Kohali (2012) 6 SCC 312. However on the merits of the

search assessment, there is no reply in the counter affidavit to the

averments in the writ petition.

9. In addition to the above issues Mr. Sidhartha Ray, learned

counsel for the Petitioner also raised the issue of invocation of

Section 153-A (of Income Tax Act, 1961), where no incriminating materials have

been found or seized. He placed reliance on the decisions of the

Delhi High Court in CIT v. Kabul Chawla, (2016) 380 ITR 573

(Delhi) and Filatex India Ltd. v. CIT, 380 ITR 586. Reliance is

also placed on the decision of the Rajasthan High Court in Jai

Steel (India) v. Assistant CIT, (2013) 1 ITR-OL 371 (Raj); and

CIT v. Continental Warehousing Corporation (Nhava Sheva)

Ltd., (2015) 374 ITR (Bom). Reference is also made to the

decisions of the Delhi High Court in Principal CIT v. Meeta

Gutgutia (2017) 395 ITR 526 (Del); and Principal CIT v. Kurele

Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Del).

10. Apart from making submissions on the lines of the counter

affidavit filed, Mr. T.K. Satapathy, Senior Standing Counsel for

the Department has also filed a written note of submissions. It is

sought to be contended therein that the ADIT or the Additional

Commissioner of Income Tax (ACIT) is treated as an authorized

officer in terms of the amendment to Section 132(1) (of Income Tax Act, 1961)

with retrospective effect. It is further sought to be contended that

the assessment in the case of the Petitioner was not originally

completed under Section 143(3) (of Income Tax Act, 1961) prior to the date of the

search. Hence the assessment had not attended finality and

therefore the ratio in Kabul Chawla (supra) is not applicable.

Further it is submitted that on a collective reading of Sections

153A(1)(a) and 153A(1)(b) the requirement of there having to be

incriminating documents/materials is not found. It is submitted

that there was an obligation on the jurisdictional Assessing

Officer to issue notice once a search has taken place.

11. The above submissions have been considered. As regards the

validity of the amendment to Section 132(1) (of Income Tax Act, 1961)

authorizing the ADIT with retrospective effect from 1st June,

1994, the Court is inclined to accept the explanation offered by

the Department, in terms of the clarification issued by the CBDT

that the said amendment is only clarificatory. The said

explanatory note reads thus :

“43. Clarificatory amendment in section 132 (of Income Tax Act, 1961):

43.1 Under clause (B) of the subsection (1) of section

132 such Joint Director or Joint Commissioner may

authorize any Assistant Director or Deputy Director,

Assistant Commissioner or Deputy Commissioner or

Income-tax Officer to conduct search and seizure

operation.

43.2 As per clauses (28C) and (28D) of section 2 (of Income Tax Act, 1961) the

Joint Director or Joint Commissioner are understood to

include Additional Director and Additional

Commissioner. Based on this understanding in the

Department, Additional Directors and Additional

Commissioners have issued warrant of authorization.

However, the courts have held that the Joint Directors

and Joint Commissioners referred to in section 132 (of Income Tax Act, 1961) of

the Income Tax Act do not include “Additional Director

or Additional Commissioner”.

43.3 Therefore, to provide explicitly that Additional

Director or Additional Commissioner always had the

power to issue warrant of authorization, a clarificatory

amendment has been made in clause (B) of subsection

(1) of section 132 (of Income Tax Act, 1961), by inserting the words Additional

Director or Additional Commissioner. The amendment

clarifies that the Additional Commissioner or Additional

Director always had the power to issue authorization.

43.4 Applicability - This amendment has been made

applicable with retrospective effect from 1st June, 1994.

43.5 Sub-section (1) of section 132 (of Income Tax Act, 1961) provides that the

Director General or Director or the Chief Commissioner

or Commissioner, Additional Director or Additional

Commissioner had the power to issue authorization.

43.6 A clarificatory amendment has been made in the

subsection (1) of the section 132 (of Income Tax Act, 1961) to provide that Joint

Director or Joint Commissioner always had the power to

issue authorization.”

12. Consequently this Court negatives the challenge raised by the

Petitioner to the amendment to Section 132(1) (of Income Tax Act, 1961).

However, as regards the substantive challenge to the assessment

proceedings under Section 153A (of Income Tax Act, 1961), a perusal of the Panchnama

shows that there is absolutely no incriminating material recovered.

The Panchnama in fact reveals that the material recovered is

‘NIL’. In other words there were no materials on the basis of

which the assessment proceedings under Section 153A (of Income Tax Act, 1961) could have

been initiated. Section 153A (of Income Tax Act, 1961) reads as under :

“153A. Assessment in case of search or requisition.

(1) Notwithstanding anything contained in section 139 (of Income Tax Act, 1961),

section 147 (of Income Tax Act, 1961), section 148 (of Income Tax Act, 1961), section 149 (of Income Tax Act, 1961), section 151 (of Income Tax Act, 1961) and

section 153 (of Income Tax Act, 1961), in the case of a person where a search is

initiated under section 132 (of Income Tax Act, 1961) or books of account, other

documents or any assets are requisitioned under section

132A after the 31st day of May, 2003, the Assessing

Officer shall—

(a) issue notice to such person requiring him to furnish

within such period, as may be specified in the notice, the

return of income in respect of each assessment year

falling within six assessment years referred to in

clause (b), in the prescribed form and verified in the

prescribed manner and setting forth such other

particulars as may be prescribed and the provisions of

this Act shall, so far as may be, apply accordingly as if

such return were a return required to be furnished under

section 139 (of Income Tax Act, 1961);

(b) assess or reassess the total income of six assessment

years immediately preceding the assessment year

relevant to the previous year in which such search is

conducted or requisition is made.”

13. It is clear that the exercise under Section 153A (of Income Tax Act, 1961) is not to be

undertaken mechanically. In other words, it is not possible to

accept the contention of the Department that there was an

obligation to initiate the assessment proceedings under Section

153-A of the Act only because a search has been conducted, even

though no incriminating materials whatsoever have been found

during search. It does not matter that the original assessment was

not completed under Section 143(3) (of Income Tax Act, 1961) for that purpose.

In CIT v. Chetan Das Lachman Das (2012) 254 CTR (Del) 392,

it was held by the High Court of Delhi as under:

Section 153A(1)(b) (of Income Tax Act, 1961) 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 (of Income Tax Act, 1961) can be arbitrary or made without

any relevance or nexus with the seized material.....”

14. In Jai Steel (India) v. Assistant CIT (supra), the Rajasthan

High Court on analyzing the provision held as under:

“In the firm opinion of this Court from a plain reading of

the provision along with the purpose and purport of the

said provision, which is intricately linked with search and

requisition under Sections 132 (of Income Tax Act, 1961) and 132A of the Act, it is

apparent that:

(a) the assessments or reassessments, which stand abated

in terms of II proviso to Section 153A (of Income Tax Act, 1961), the AO

acts under his original jurisdiction, for which, assessments

have to be made;

(b) regarding other cases, the addition to the income that

has already been assessed, the assessment will be made on

the basis of incriminating material and

(c) in absence of any incriminating material, the

completed assessment can be reiterated and the abated

assessment or reassessment can be made.”

15. The legal position was thereafter summarized by the Delhi High

Court in Kabul Chawla (supra), as under:

“37. On a conspectus of Section 153A(1) (of Income Tax Act, 1961), read

with the provisos thereto, and in the light of the law

explained in the aforementioned of decisions, the legal

position that emerges is as under:–

i. Once a search takes place under Section 132 (of Income Tax Act, 1961),

notice under Section 153 (of Income Tax Act, 1961) A (1) will have to be mandatorily

issued to the person searched requiring him to file returns for

six AYs immediately preceding the previous year relevant to

the assessment year in which the search takes place.

ii. Assessments and reassessments pending on the date of the

search shall abate. The total income for such assessment

years will have to be computed by the assessing officers as a

fresh exercise.

iii. The assessing officer will exercise normal assessment

powers in respect of the six years previous to the relevant

assessment year in which the search takes place. The

assessing officer has the power to assess and reassess the

‘total income’ of the aforementioned six years in separate

assessment orders for each of the six years. In other words,

there will be only one assessment order in respect of each of

the six assessment years “in which both the disclosed and

the undisclosed income would be brought to tax”.

iv. Although Section 153 (of Income Tax Act, 1961) 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 assessing officer which can be

related 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

have to be made under this Section only on the basis of

seized material.”

v. In absence of any incriminating material, the completed

assessment can be reiterated and the abated assessment or

reassessment can be made. The word ‘assess’ in Section 153 (of Income Tax Act, 1961)

A is relatable to abated proceedings (i.e. those pending on

the date of search) and the word ‘reassess’ to completed

assessment proceedings.

vi. Insofar as pending assessments are concerned, the

jurisdiction to make the original assessment and the

assessment under Section 153A (of Income Tax Act, 1961) merges into one. Only one

assessment shall be made separately for each assessment

year on the basis of the findings of the search and any other

material existing or brought on the record of the assessing

officer.

vii. Completed assessments can be interfered with by the

assessing officer while making the assessment under section

153 A only on the basis of some incriminating material

unearthed during the course of search or requisition of

documents or undisclosed income or property discovered in

the course of search which were not produced or not already

disclosed or made known in the course of original

assessment.”

16. The same principles have been reiterated in Principal CIT v.

Meeta Gutgutia (supra) and the Principal CIT v. Kurele Paper

Mills Pvt. Ltd. (supra).

17. In the present cases, with there being absolutely no

incriminating materials found or seized at the time of search, there

was no justification for the initiation of assessment proceedings

under Section 153A (of Income Tax Act, 1961). On this ground therefore the writ petitions

ought to succeed.

18. Accordingly, the impugned notices issued to the Petitioners

for the AYs 2002-03 and 2008-09 under Section 153A(1) (of Income Tax Act, 1961) read

with Sections 143(3) of the Act are hereby quashed. The writ

petitions are allowed but, in the circumstances, with no order as to

costs.

(S. Muralidhar) Chief Justice

( B.P. Routray) Judge