AO Fails to Open and Examine Seized Materials: Orissa HC against Appraisal Report

The assessment order of the Assessing Officer (AO) was overturned by the Orissa High Court (HC), which was presided over by a bench that included Chief Justice Dr. S. Muralidhar and Justice G. Satapathy. Also, the bench was against the appraisal report submitted by the AO.

The bench observed that there were clear violations of the legal requirements by the AO and thus upheld the decision of the Commissioner of Income Tax (Appeals)[CIT(A)] and Income Tax Appellate Tribunal (ITAT).

A partnership-owned business, the Assessee, Bishandayal Jewellers, specialises in the sale of jewellery and precious and semi-precious stones. On December 9, 2015, a search of the Assessee’s premises was conducted. On January 10, 2017, a notice under Section 153A of the Income Tax Act of 1961 was issued.

The Section 153A of Income Tax Act lays out a procedure for calculating income in the instance of a person who has been searched. According to the aforementioned provision, the Assessing Officer has the authority to specify a person’s assessment for the six assessment years that immediately precede the year of search.

The background fact is that before the CIT(A), the assessee claimed that the AO had not given copies of the seized materials extracted from the hard disk and the pen drive. The CIT( A) called for a remand report from the AO. By the time, the remand report could be submitted, the AO changed.

The AO had tried to open the hard disk in a standard computer, but he was unable to do so. In the remand report, while stating this fact, the AO provided a soft copy of the hard disk and pen-drive to the CIT (A).

Further, the ITAT has noted in the impugned order that the AO has simply reproduced the appraisal report and has not undertaken any analysis of the seized materials. Even the hard disk with the working copy was not seen by the AO. The seized material had neither been opened nor examined. The expert report also failed to point out that the software was “hardware specific”.

The bench observed that the ITAT’s conclusion that the CIT(A) was right in holding that the additions made in the all three assessment years  was “in total violation of the principles of natural justice”

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