In a significant ruling, the division bench of the Delhi High Court held that Block Assessment under Section 153C of the Income Tax Act is not sustainable if it was made on the basis of Statement of an employee of assessee under Section 133A of the Income Tax Act alone and no other “incriminating material” was present with the department. While dismissing the departmental appeal, the Revenue upheld the decision delivered by it in the case of Kabul Chawla.
Assessee made a statement disclosing her undisclosed income during the course of search, on the basis of which block assessment was carried out by making addition in respect of “undisclosed franchise commission.” Assessee challenged the assessment by stating that it was made without any incriminating material as mandated under section 153A/153C of the Income Tax Act. They pointed out that the only material available is the disclosure made by the assessee, and that too for one year only. It was claimed by the assessee that “no such disclosure was made for earlier years, nor was there, any evidence unearthed during the search by the Department that such franchise income was not disclosed by the appellant during these years.”
Both the CIT(A) and the ITAT accepted the above contentions and held in favour of the assessee.
Before the High court, the Revenue contended that the order of the Tribunal is incorrect both factually and legally. It was contended that they have produced several documents along with the seized undisclosed cash, which was confirmed by one of the employee of the Respondent-assessee while giving statement u/s 133A. They further challenged the decisions of the division bench of the same Court in Commissioner of Income Tax (Central-III) v. Kabul Chawla wherein the Court held that assessment under section 153A cannot be made in the absence of incriminating materials found during search.
After hearing the both sides, the bench found that the seized cash was added to the income during the year of search and not in relation to any of the other AYs i.e., AYs 2000-01 to 2004-05.
Rejecting the contentions of the department, the division bench comprising of Justice S.Muralidhar and Justice Chander Shekhar said that “any and every document cannot be and is in fact not an incriminating document. The legal position, as will be discussed shortly, is that there can be no addition made for a particular AY without there being an incriminating material qua that AY which would justify such an addition. Therefore, the mere fact there may have been document pertaining to the above AYs does not satisfy the requirement of law that there must be incriminating material.”
While distinguishing the statements made under sections 133A and 132(4) of the Act, the bench said that the statement of the employee made under s. 133A cannot be treated as an “incriminating material” for the purpose of assessment. It was also pointed out that no statement was made by the assessee under section 133A of the Act.
“The incriminating material had to be in relation to any income that was not disclosed in the earlier returns. There was no such incriminating material to show that there was a failure by the Assessee to disclose any franchisee income for those earlier years. The disclosure by the Assessee on account of “undisclosed franchisee commission‟ was relevant only for the year of search and not for the earlier years,” the bench said.
“Section 153A of the Act is titled “Assessment in case of search or requisition”. It is connected to Section 132 which deals with ‘search and seizure’. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified.” It added.
Upholding the decision in Kabul Chawla’s case, the Court noted that various other High Courts have been concurred with the said decision.
Read the full text of the Judgment below.
