Court’s decision
The Bombay High Court dismissed the income tax appeal filed by the Revenue and upheld the order of the Income Tax Appellate Tribunal which had deleted massive additions made under Section 153A of the Income Tax Act. The Court held that in the absence of any incriminating material found during the course of search under Section 132, the Assessing Officer had no jurisdiction to disturb a completed assessment.
The Court categorically ruled that a foreign “base note” received from overseas authorities, statements recorded under Section 132(4), and material gathered during post-search enquiries cannot substitute the statutory requirement of incriminating material unearthed during search. Relying squarely on the Supreme Court’s ruling in Abhisar Buildwell, the Court held that Section 153A is search-linked and cannot be invoked to reassess completed years unless undisclosed income is found during the search itself.
Facts
The Respondent had filed a return of income for the relevant assessment year declaring modest income, which stood accepted and completed. Several years later, a search and seizure operation under Section 132 was conducted on group entities with which the Respondent was associated. The search was triggered by information received from foreign authorities alleging undisclosed overseas bank accounts with a Swiss bank.
During the search, no documents, records, or materials were seized from the Respondent linking him to any foreign bank account. The Respondent, in his statement recorded under Section 132(4), categorically denied holding or being the beneficial owner of any such account. He also produced a confirmation from the Swiss bank stating that he had no account or transaction relationship with it.
Issues
The central issue before the Court was whether, in proceedings under Section 153A of the Income Tax Act, the Assessing Officer can make additions in respect of a completed assessment year solely on the basis of post-search material such as a foreign “base note,” statements, or enquiries, when no incriminating material was found during the search itself.
Ancillary issues included whether statements recorded under Section 132(4) or material collected after the search could be treated as incriminating material, and whether the Assessing Officer could rely on presumptions of beneficial ownership without a direct evidentiary nexus established during search proceedings.
Petitioner’s Arguments
The Revenue contended that once a search is conducted, Section 153A mandates the Assessing Officer to compute the total income afresh, irrespective of whether incriminating material is found during the search. It was argued that the scope of Section 153A is wide enough to bring to tax undisclosed income from both known and unknown sources.
The Revenue asserted that the foreign base note received from overseas authorities, the Respondent’s statement under Section 132(4), and correspondence with the Swiss bank constituted incriminating material gathered pursuant to the search. It was further argued that secrecy laws prevented full disclosure by the bank, and adverse inference ought to be drawn against the Respondent as the alleged beneficial owner of overseas accounts.
Respondent’s Arguments
The Respondent argued that the assessment year in question was a completed assessment and could not be disturbed in the absence of incriminating material found during the search. It was contended that no document, evidence, or material linking him to any foreign bank account was seized during the search operation.
The Respondent submitted that a base note received post-search is not material “found during search” and cannot confer jurisdiction under Section 153A. He relied heavily on binding Supreme Court precedent holding that completed assessments can only be interfered with under Section 153A if incriminating material is unearthed during the search itself, failing which reassessment can be done only under Sections 147/148.
Analysis of the law
The Court undertook a detailed examination of the statutory scheme of Section 153A, emphasizing its inextricable link with search and seizure under Sections 132 and 132A. The provision is intended to bring to tax undisclosed income discovered as a consequence of a search and not to provide a fresh licence to review concluded assessments.
The Court reiterated that completed or unabated assessments do not automatically abate upon search. Only pending assessments stand abated. For completed assessments, the Assessing Officer’s jurisdiction under Section 153A is triggered solely upon discovery of incriminating material during the search. Any contrary interpretation would render the provisos to Section 153A redundant and lead to impermissible multiple assessments.
Precedent Analysis
The Court placed decisive reliance on the Supreme Court’s judgment in Principal Commissioner of Income Tax v. Abhisar Buildwell, which settled conflicting views across High Courts. The Supreme Court held that in the absence of incriminating material found during search, no addition can be made in respect of completed assessments under Section 153A.
The Court also relied on its own Division Bench ruling in Welspun India, where it was held that once the absence of incriminating material is admitted, no substantial question of law arises. These precedents collectively affirm that Section 153A cannot be used as a review mechanism for completed assessments based on post-search intelligence inputs.
Court’s Reasoning
Applying the settled legal position, the Court noted that it was an undisputed fact that no incriminating material was found during the search linking the Respondent to the alleged Swiss bank accounts. The base note relied upon by the Revenue was admittedly a post-search document and was not recovered during the search operation.
The Court further observed that the Swiss bank itself had confirmed that the Respondent had no connection with the accounts in question. In the absence of a clear and unimpeachable nexus established through search material, the Assessing Officer’s approach of making additions merely on suspicion and inference was held to be legally unsustainable.
Conclusion
The Bombay High Court conclusively held that additions made under Section 153A in respect of completed assessments, without any incriminating material found during search, are without jurisdiction. The Revenue’s appeal was dismissed, and the Tribunal’s order deleting the additions was affirmed. The Court clarified that its findings were confined to the jurisdictional issue, leaving other contentions open.
Implications
This judgment significantly strengthens taxpayer protection against arbitrary post-search reassessments. It reinforces the principle that Section 153A is not a carte blanche to reopen completed assessments and that foreign intelligence inputs or post-search enquiries cannot override statutory safeguards. The ruling brings certainty to search assessments and curbs speculative additions based solely on suspicion rather than evidence found during search.
