In ACIT v. K.G Finvest Pvt Ltd, the division bench of the Delhi ITAT held that block assessment u/ss 153A/153C of the Income Tax without serving a proper and valid search warrant is invalid.
In the instant case, the department carried out block assessment against the assessee. Assessee challenged the validity of the proceedings on ground that no warrant was issued against the assee-Company. It was therefore, contended that no search was initiated on it and hence notice u/s 153A of the Act is bad in law.
While pointing out the defect, the AO said that a warrant was issued in the name of ‘K.G. Finvest and Trade Ltd’ in which one of the Director of the assessee-Company is included. However, assessee contended that none of its directors had any directorship in the companies named in the warrant of authorization and its annexure, which was not controverted by the Assessing Officer.
Analyzing the provision, the bench noticed that unless a search is initiated on a person u/s 132, the Assessing Officer cannot acquire jurisdiction for issuing notice under Section 153A of the Income Tax Act.
The department, before the Tribunal, contended that it `intended search’ on the assessee. Rejecting the contention, which “unknown to the law”, the bench said that “There is either a search or no search on a person. Not being searched, a person cannot suffer the consequences of an `intended search’, which is not initiated.”
Relying on the decision of ITAT Jodhpur bench, in the case of Suraj Prasad Soni vs. ACIT, the department contended that there is no need to establish that any search was actually conducted on the assessee because section 153A uses the word `initiation’ of search. With regard to this contention, the bench noted that for the issue of notice u/s 153A of the Act, initiation of serach is a necessary requirement. “In common parlance, ‘Initiation’ means the beginning of a process or, in other words, a first step in the entire process. Search commences with the issue of authorization by the competent authority. Thus, the ‘initiation’ of search commences with the issue of authorization by the DIT. ‘Execution’ of search warrant, which is a step after the initiation of search, takes place later on, which leads to the actual conduct of the search at the premises of the person searched. Going by the contention of the ld. DR, seen in the context of section 153A, there remains no doubt that notice u/s 153A can be issued where a search is initiated u/s 132 or, in other words, a warrant of authorization is issued. Per contra, in the absence of a warrant of authorization on the assessee, no notice u/s 153A can follow. We have gone through the copy of Warrant of authorization in this case, from which it is apparent that neither the assessee is named therein nor its address is given in it. Even, there is no mention of any permanent account number of the assessee in that.”
Read the full text of the Order below.