S.153C Orders issued Based on Third-Party Search Materials: Madras HC directs Assessee to Approach Appellate Authority [Read Order]

In a recent ruling, the Madurai bench of Madras High Court dismissed writ petitions challenging assessment orders issued under Section 153C of the Income Tax Act, 1961, and directed the petitioner to approach the appellate authority instead.

The case arose following a search operation conducted on 10.11.2020 at the premises of M/s Mohanlal Jewellers, Chennai, during which materials including a software application called “J PACK” and a ledger titled “SMR MD” were allegedly seized, purportedly linking the petitioner to unaccounted transactions.

The petitioner denied any association with the seized materials and asserted that the documents were in the custody of a third party and that he was not granted the opportunity to cross-examine their authors, which violated the principles of natural justice.

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In addition, it was contended that the assessment orders were passed without proper consideration of key evidence, such as financial statements, tax audit reports, and bank records. It was submitted that the authorities relied on unauthenticated and unverified third-party records without issuing summons under Section 131 or allowing the petitioner to rebut the allegations.

The petitioner sought quashing of the impugned orders on grounds of arbitrariness, illegality, and breach of procedural fairness.

The Income Tax Department argued that similar issues had been adjudicated in earlier cases, including the decision in M/s LKS Gold House Pvt. Ltd. v. DCIT, where the Court upheld the validity of such proceedings and directed the petitioners to pursue the statutory appellate remedy.

The bench of Justice Vivek Kumar Singh relying on the precedent, the Court dismissed the current petitions while granting liberty to the petitioner to file an appeal before the appellate authority within one month. The appellate authority has been instructed to entertain the appeal irrespective of the limitation period and dispose of it within three months, ensuring due process is followed.

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