ACIT, CENTRAL CIRCLE-4(3), KOLKATA, KOLKATA vs. SUMANGAL JEWELS PRIVATE LIMITED, KOLKATA

The ld. Counsel for the assessee vehemently submitted before us that the assessment has been framed by the ld. AO u/s 153A read with section 143(3) of the Income-tax Act, 1961 (the Act) vide order dated 31.12.2017 by making an addition of ₹1,22,50,000/- on account of unexplained credit and ₹11,85,000/- on account of unexplained expenditure after a search u/s 132 of the Act was conducted on 01.12.2015 on the assessee. The ld. Counsel for the assessee submitted that the search was never conducted on the assessee’s premises at 81, G.T. Road, Asansol, West Bengal-713301, India. The ld. Counsel for the assessee submitted that the search was only conducted in Kolkata that too on the premises which were not belonging to assessee nor assessee was carrying on any business therefrom. It was also submitted that assessee was not having any office or registered office or corporate office in the premises searched at Kolkata and in fact the premises belonged to other group concerns of the assessee. The ld. AR submitted that the assessee is a private Limited company and carries on business at the above said premises I.e. 81, G.T. Road, Asansol, West Bengal- 713301 and therefore, search conducted by the department u/s 132 of the Act on 01.12.2015, is not applicable to the assessee as the assessee is not covered in the said search though in the Panchnama drawn, a

The ld. DR on the other hand submitted that u/s 132 of the Income-tax Act, 1961 (the Act) powers are conferred on the departments which are very wide in scope and the search team can entire in any premises/place where it is believed that some incriminating material relating to the assessee are kept. Therefore, there is no need to conduct the search at office/business premises of the assessee and the search team rightly conducted the search at Kolkata on the premises which did not belong to the assessee and the documents relating to the assessee were found. Therefore, ground raised by the assessee may kindly be dismissed.

After hearing the rival contentions and perusing the materials available on record, we find that undisputedly search action was initiated on 01.12.2015 at 206, Central point, second floor, 21, Hemant Basu Sarani, Kolkata. We note that though in the Panchanama, the name of the assessee was mentioned but the place of the business was at 81 G.T. Road, Asansol, West Bengal-713301, India which was admittedly not searched by the search team. We note that the Kolkata premises were not belonging to the assessee. We further note that the name of the assessee was mentioned in Panchanama but no search was conducted at the given place at Asansol. Therefore, we find merit in the case of the assessee that there is no search on the premises of the assessee and the wrongly framed the assessment u/s 143(3) read with section 153A of the Act. We further find that the case is squarely covered by the decision of the co-ordinate bench in case of Room Alankar Vs. DCIT (supra), wherein similar issue has been decided by the co-ordinate Bench in the case of the assessee. The operative part of the said decision is extracted below: - “7. The Ld. DR, on the other hand, strongly objected to the arguments presented by the Ld. AR by submitting that the search operation was conducted on the entire group and thepremises belonging to the partners were searched and he duly admitted during interrogation that he was executing business on behalf of the group companies. The Ld. DR admitted that no search was conducted at the premises of the assessee at Asansol. However a survey was conducted and some records were impounded. The Ld. DR submitted that the survey was also part of the larger search operation in order to dig out the information/details/documents/ incriminating material from the assessee and, therefore, the arguments forwarded by the Ld. AR is devoid of any merit and should be dismissed out rightly.

After hearing the rival submissions and perusing the material available on record, we find that undisputedly, the search action was initiated on the assessee on 01.12.2015 and search was conducted at 206, Central Point, Second Floor, 21, Hemant Basu Sarani, Kolkata. The said premises apparently belonged to the partner of the assessee firm whereas the assessee is carrying on jewellery business in Asansol and has been filing its return of income quoting the said address. It is also undisputed that on the business premises of the assessee at Asansol, there was no search conducted though a survey u/s. 133A was conducted on the same date and some records were impounded. Now the issue before us is whether there has been a valid initiation and conduct of search on the assessee. We have examined the records available before us in the form of Panchnama drawn on 01.12.2015 which contained the name of the assessee but the premises searched were mentioned to be 206, Central Point, Second Floor, 21, Hemant Basu Sarani, Kolkata. Thus, it is obvious from the Panchanama that there was no search on the business premises of the assessee and consequently, though there was a valid initiation of search against the assessee but the premises belonging the assessee was not searched. We find merit in the contentions of the Ld. AR that where there was no conduct of search on the premises of the assessee, the assessment u/s. 143(3) of the Act r.w.s. 153A of the Act cannot be framed. In our opinion, in the worst case scenario , if there has been any seizure of any incriminating material relating to assessee from the premises of the partner then the right course would be to frame assessment u/s. 143(3) read with sec. 153C of the Act after following the procedure as laiddown under the Act i.e. after recording the satisfaction of the searched person as well as the satisfaction of the AO of the other person. But the facts of the instant case before us are quite different. In our opinion, virtually no search is conducted on the assessee andtherefore, the assessment framed u/s. 153A read with sec. 143(3) is invalid and void ab initio. The case of the assessee finds support from the decision of the Coordinate Bench in the case of J.M. Trading Corpn. (supra). The relevant part of the order of the Coordinate Bench is extracted as under: “20. The perusal of the section reveals that in case a person against whom search is initiated under section 132 of the Act or books of account or other document are requisitioned under section 132A of the Act, then notwithstanding anything contained in sections 139, 147, 148, 149, 151 & 153 of the Income-tax Act, the Assessing Officer shall issue a notice to such a person requiring him to furnish Returns of Income in respect of six assessment years preceding the assessment year relevant to the previous year in which such search was conducted or requisition made. Section 153A of the Act thus talks of two steps i.e., (i) initiation of search and (ii) conduct of search. The question of validity of search i.e., the satisfaction recorded before issue of search warrant cannot be looked into by the Tribunal as held by the Hon’ble Delhi High Court in M.B. Lal v. CIT [2005] 279 ITR 2981 . Thus, in the facts of the present case, where the Panchnama was issued in the name of SSKI Group and the name of the assessee is also mentioned at the bottom of the list, the search is initiated against the assessee.

The question for our determination is whether search was though initiated against the assessee was conducted on the assessee. The initiation of search and conduct of the search are two different aspects of search and seizure proceedings. In the present case, the search was initiated by issue of warrant of authorization. The conduct of search proceedings is an elaborated procedure enumerated under section 132 of the Income-tax Act, which in clause 1 categorically authorizes the officer to enter and search any building, place, vessel etc. where he has a reason to believe that the books of account, money, bullion, jewellery or things belonging to the assessee are kept. The perusal of the panchnama reveals that the search was conducted in respect of SSKI Group wherein the search warrant was served on Mr. Hitesh M. Desai, who is the Manager of SSKI Group, his statement was recorded during the course of search. The books of account as per the Annexure A-1 and other valuables, locker, FD as per Annexure O-1 belonging to SSKI Group were found and seized. Other valuable articles including money as per note in 1, 2, 3, 4 were found but not seized. The assessee claims that none of his books of account were found or seized and in respect of the valuables also the assessee clarifies that none of his valuables were available at the above said address as the said premises were rented out to SSKI group by the assessee and its sister concerns. In the body of order under section 143(3) read with section 153A of the Income-tax Act, the Assessing Officer also observes that ‘there was search and seizure action under section 132 of the Income-tax Act on SSKI Group and by warrant dated 1-8-2003, the assessee was also covered under the search. The premises whereas the assessee was found was not searched.

The fact that search under section 132 of the Act have been conducted on the assessee, is a condition precedent to be satisfied before start of any proceedings against the assessee. Section 158BC of the Income-tax Act, provides the procedure for block assessment in all such cases where search has been conducted under section 132 or books of account or other documents requisitioned under section 132A of the Income-tax Act for searches conducted upto 31-5-2003. Thus, the jurisdictional fact of a search being conducted prior to issue of notice under section 158BC of the Act need to be satisfied. The Special Bench of Bangalore Tribunal in C. Ramaiah Reddy v. Asstt. CIT (Inv.) [2004] 268 ITR (AT) 491 held as under: ". . . . . . . .The Income-tax Appellate Tribunal need be satisfied only about the validity of the search under section 132 based on valid authorization. The jurisdictional fact that needs to be satisfied before the Assessing Officer can issue notice under section 158BC is that a search under section 132 should have been conducted on the assessee. The Income-tax Appellate Tribunal, therefore, needs to satisfy itself that a search was indeed conducted with reference to the assessee in question. The search should not merely have been initiated, butconducted. Hence, the income- tax appellate Tribunal is required to verify whether the jurisdictional facts exist before notice can be issued under section 158BC."

The Tribunal though cannot determine the Propriety of search but the Tribunal has the inherent power to verify that there was a search on the assessee and Panchnama prepared was legal. The said principle has also been held by the Special Bench of Bangalore Tribunal in C. Ramaiah Reddy’s case (supra). Applying the ratio of the decision of Special Bench in C. Ramaiah Reddy’s case (supra) to the facts of the present case, we find that though warrant of authorization was issued in the name of the assessee proving the fact of initiation of search against the assessee. But, in the facts of the present case, where the assessee is not to be found on the said premises though owned by the assessee but rented out to a separate concern, income from which is assessed under the head Property Income, established that no search was conducted at the premises at which the assessee is found and available. The word ‘conduct’ is defined in the Law Lexicon as Management; Conducting of affair (as conduct of business); Conduct of a campaign; conduct of sale. It further states conducting requires most wisdom and knowledge. 24. section 132 of the Income-tax Act thus provides the acts and deeds to be carried out by the search team at the premises of the assessee. The conduct of search includes acts, deeds and things enumerated under section 132 of the Income-tax Act which an authorized officer is bound to carry out in order to complete the process of search. Search is an invasion of Privacy of the assessee and all proceedings connected with search need to be carried out within the framework of the provisions of the Act. In case of non-compliance to the provisions of the Act by the Authorised Officer, such searches are invalid and illegal. In the present case before us, no search was conducted against the assessee as the premises occupied by the assessee were not entered upon and searched by the Authorised Officer. Mere search of the premises owned by the assessee but rented to another concern does not by any implication prove the conduct of search against the assessee in view of the fact that the assessee was not available at the address searched upon. Mere mentioning of name in the panchnama does not lead to the conclusion that a valid search was conducted against the assessee. In the totality of circumstances, where no search has been conducted against the assessee there is no merit in the issue of notice under section 153A of the Income-tax Act under which the jurisdictional area of operation is six assessment years immediately preceding the assessment year relevant to the previous year, in which search was conducted. In case, no search is conducted against a person, the period of operation to which the provisions of section 153A would apply, cannot be determined and the invoking of provisions of section 153A of the Act is baseless. Though the provisions of section 158BC of the Act are not applicable to searches conducted after 31-5-2003, but the provisions of section 132 of the Income-tax Act are continuing on the statute implying thereby that the provisions of section 153A of the Act are only applicable in case valid search is conducted against the assessee under section 132 of the Act. Accordingly, we declare the assessments made against the assessee under the provisions of section 143(3) read with section 153A of the Income-tax Act are null and void and direct the Assessing Officer to cancel the same. Thus, the issue related to the validity of search raised by the assessee is allowed.””

We also note that the above decision of the coordinate bench has been confirmed by the Hon’ble Bombay High Court vide order dated 29.09.2009 passed in CIT Vs. J. M. Trading Corpn. In of 2009 (supra). We therefore, respectfully following the above decision quash the assessment framed by the AO. Appeal of the assessee is allowed.

We note that while passing the order the co-ordinate bench has followed the decision of the Mumbai Co-ordinate Bench in case of J.M. Trading Corpn (supra). We also observed that the decision of the Mumbai Co-ordinate bench was confirmed by Mumbai High Court vide order dated 29.06.2009 passed in CIT Vs. JM Trading Corpn in of 2009. Accordingly, we quash the assessment framed u/s 143(3) r.w.s. 153A of the Act by the ld. Assessing Officer. The appeal of the assessee is allowed.

In the Result, the appeals of the assessee are allowed and the appeal of the Revenue is dismissed.