Assessment Order Passed Without Conducting Search And Seizure Not Sustainable In Law: Punjab & Haryana High Court

The Punjab and Haryana High Court has held that once the search and seizure were conducted and an assessment order was passed by invoking Section 153A of the Income Tax Act for the AY 2006-07 to 2012-13, a fresh order without conducting a search and seizure operation would not be sustainable in law.

The bench of Justice Sanjeev Prakash Sharma and Justice Sudeepti Sharma has observed that when there was no search conducted under Sections 132 and 132A of the Income Tax Act as against the petitioner and only a panchnama reflected the name of the petitioner prepared at the registered office of M3M India Limited, the action of the respondents in passing a second assessment order on the basis of notice under Section 153A is held to be unjustified and without jurisdiction.

A search and seizure operation was conducted under Section 132 of the Act against the petitioner company. Pursuant to the search proceedings, the assessments for FY 2006–07 to FY 2012–13 were framed. A notice under Section 153A of the Income Tax Act was issued, and the petitioner company was asked to furnish the return of total income, including the undisclosed income. The final assessment was framed under Section 153A. The return of income was accepted.

In 2016, a search and seizure operation was conducted against M3M India Limited company at its office at Paras Twin, Tower-B, 6th Floor, Golf Course Road, Sector-54, Gurgaon, which was its registered office and business premises. However, while preparing the panchnama drawn at the Paras Twin Tower-B, Gurgaon, the name of the petitioner company was also added, although it is asserted that no authorization for search and seizure under Section 132 was issued in the name of the petitioner, nor was any search or seizure conducted at the premises or registered office of the petitioner company with effect from May 2, 2011. The office premises were known to the respondent authorities as they had existed from FY 2011–2012 at the time of the search and seizure conducted against the petitioner.

The petitioner contended that proceedings under Section 153A were not permissible. If any new material was found while conducting the search, the only procedure available to the respondents to conduct a fresh assessment was under Section 153C.

The procedure laid down under Section 153C was sacrosanct, and the petitioner submitted that if a particular procedure had been laid down under the statute, the respondents were obliged to conduct themselves accordingly, and a different procedure could not be adopted. The order imposing Rs. 400 crores by issuing a fresh assessment order under Section 153A is based on complete non-application of mind. There is no flow of proceeds of such money traceable to the books of accounts of the petitioner, and the addition stands already made on a protective basis in the books of accounts of another company. The amount received was only Rs. 10 crore, and the remaining amount of Rs. 396 crore was received and assessed separately for the other companies. However, the respondents have put the entire addition on the petitioner company as undisclosed income.

The department contended that the petitioner cannot be allowed to question the search after participation in pursuance to the search under Section 132 of the Act and submits that the petitioner had moved an application under Section 245C (1) of the Act before the Income Tax Settlement Commission, which was rejected on March 29, 2023, on the ground that the disclosure is not full and true and there is a deficiency in explaining the facts gathered by the department. The order of assessment is, thus, also appealable, and on that count, the respondents have objected.

The court concluded that based on the name being mentioned in the panchnama alone, it cannot be concluded that there was an authorization to conduct a search against the petitioner under Section 132 of the Act, and the authorization to conduct a search was only against M3M India Limited having its registered office.

“If during the search of their premises any incriminating articles, documents, objects, or material relating to the petitioner was recovered, which was found to be sufficient for the purpose of reassessment by the assessing officer, he was required to follow the procedure laid down under Section 153C of the Act,” the court said.

Counsel For Petitioner: Akshay Bhan

Counsel For Respondent: Urvashi Dugga

Case Title: Misty Meadows Private Limited Versus Union of India and others

Case No.: CWP No. 5139 of 2024 (O&M)

2024 LiveLaw (PH) 179

Click Here To Read The Order