In a recent ruling, the division bench of the Bombay High Court held that discovering an incriminatory material during the search is a mandatory requirement to initiate proceedings against the assessee under section 158BC of the Income Tax Act, 1961.
While quashing a notice under section 158BC of the Income Tax Act, the Court observed that in the absence of such a requirement, proceedings cannot be initiated by the Department.
In the instant case, a search under section 132 of the Income Tax Act was carried out on the premises of the assessee. Consequently, the department issued a notice under Section 158BC of the Act to the assessee to file his return of income for the block period covered by the search. The assessee maintained that nothing was found with the assessee during the course of search so as to infer that he was in possession of any undisclosed income either at the time of search or at any time prior thereto. Therefore the assessee impugned the notice before the High Court contending that, in the absence of there being undisclosed income, the Assessing Officer would not have any justification to issue the impugned notice under Section 158BC of the Income Tax Act.
The fact that no incriminating material was revealed as result of the search was not disputed by the Revenue. The same was also not proved by the appraisal report. The Court found that the Respondents-revenue took search and seizure proceedings in respect of the assessee on account of mistaken identity.
Therefore, division bench opined that no notice under Section 158BC of the Act could be issued to the Petitioner-assessee as the condition precedent to issue notice under Section 158BC of the Act, viz. undisclosed income found during the search proceedings, is not satisfied.
Before concluding, the division bench comprising of Justice M.S Sanklecha and Justice S.C Gupte directed the Department to pay costs to the assessee, and added that “We note that this action on the part of the Respondents-revenue to issue the impugned notice ignoring the appraisal report is highly deplorable. We live in a Country governed by laws. The Officers of the Income Tax Department are obliged to proceed in accordance with the statutory provisions and not on their whim and fancy. The Officers hold power in trust and must ensure that no citizen is harassed by sending him notices, when on the basis on its own record, such notices are not sustainable. We trust that the Income Tax Department would adopt a standard operating procedure which would provide for appropriate safeguards before issuing notices under Chapter XIVB of the Act. This alone would ensure that Officers of the Revenue act in terms of the mandate provided in the Act”.
Read the full text of the Judgment below.
