S. 153A: High Court Explains Importance Of Search Warrant And Panchnama In Search Assessments

MDLR Resorts Pvt. Ltd vs. CIT (Delhi High Court)

S. 132: Copy of search warrant should be given to the searched person. Defects in the panchnama do not invalidate the search or the s. 153A assessment proceedings


A search u/s 132 was conducted on the premises of the assessee and its group concerns. Though a panchnama was prepared, the assessee’s name did not appear therein. An assessment order u/s 153A was passed to assess the alleged undisclosed income. The assessee claimed that as s. 153B imposed a limitation for passing of a s. 153A order by reference to the last panchnama drawn in relation to the searched person, the absence of the assessee’s name in the panchnama meant that the s. 153A assessment order could not be passed. A Writ Petition was filed to challenge the assessment. HELD by the High Court dismissing the Petition:

S. 153A(1) does not make any reference to panchnama or the date of panchnama. A panchnama is not a pre-condition for invoking s. 153A. As regards the argument that the time limit u/s 153B is calculated with reference to the date of the last panchnama, a panchnama was drawn up on the occasion of the search and it referred to documents belonging to the assessee though it did not refer to the assessee by name. The panchnama also does not refer to the conclusion of the search. The non-reference to the name of the assessee and the suspension/ conclusion of the search is a lapse and failure to comply with the requirements of the search and seizure manual. However, this does not affect the validity of the search or the assessment order u/s 153A. The department should take remedial steps and ensure that such lapses do not occur in future. Also, the department should give a copy of the search warrant to the person searched so as to curtail allegations of interpolation, addition of names etc

Sec. 153A/ 153C: ITAT Explains Important Principles Of Search Assessments

V. K. Fiscal Services Pvt. Ltd vs. DCIT (ITAT Delhi)

S. 153A/ 153C: Important principles of law relating to search assessments explained

Pursuant to a search u/s 132 conducted on the premises of another person, the AO issued a notice u/s 153C upon the assessee and thereafter passed an assessment order. The assessee claimed that the said assessment was not valid on the ground that (a) no books of account of the assessee were found in the premises of the other person, (b) though the AO of the searched person & the assessee was the same it was not shown that the satisfaction was recorded in the course of the assessment of the searched party and not of the assessee, (c) as no assessment was pending on the date of search, the assessment could be made only for the incriminating material found in the search & (d) as the satisfaction was recorded on 23.7.2010 and the relevant AY was 2011-12, the AO could issue a notice u/s 153C only for six preceding AYs relevant to this AY (i.e. AY 2005-06 to 2010-11) and the notice issued for AY 2004-05 was barred by limitation. HELD by the Tribunal:
(a) & (b) the satisfaction u/s 153C has to be recorded by the AO of the searched person and not by the AO of the assessee. Even if the AO of both parties is the same, he has to go through the formality of separately recording satisfaction and the record has to show that satisfaction was recorded in the assessment of the searched party. Also s. 153C proceedings can be initiated only if books of account etc which are seized from the searched party belong to the assessee. A mere confirmation of account or a copy of the audited accounts or a copy of the return of income does not constitute “books of account” for purposes of s. 153C (DSL Properties (Del) & Therapeutic India (Del) followed);
(c) the scope of assessment u/s 153A & 153C depends on whether the original assessment proceedings are pending or concluded. If a s. 143(1) intimation is passed and the time limit for issue of a s. 143(2) notice has lapsed, the assessment is concluded. In such cases, the s. 153A/ 153C assessment has to be based only on incriminating material found in the search (All Cargo Global 137 ITD 287 (Mum)(SB), Pratibha Industries 141 ITD 151 (Mum) & Gurinder Singh Bawa followed);
(d) S. 153A/ 153C permits the AO to issue a notice for six AYs preceding the AY in which the search took place. As the satisfaction was recorded on 23.7.2010, the relevant AY was 2011-12 and the AO could issue a notice u/s 153C only for six preceding AYs relevant to this AY (i.e. AY 2005-06 to 2010-11). The notice issued for AY 2004-05 is barred by limitation.