Introduction
The Hon’ble Punjab and Haryana High Court (‘HC’) has, in the case of ‘Misty Meadows Private Ltd. v. Union of India’[i], held that the issuance of a fresh assessment order under the Income-tax Act, 1961 (‘Act’) in the absence of a search and seizure being conducted, is unsustainable in law. The HC also observed that in the absence of search authorization under s. 132 of the Act, the proceedings initiated under s. 153A of the Act, along with the notice issued thereof, shall be legally untenable.
Brief Facts
A search and seizure operation was conducted qua the Petitioner Company in 2011, under s. 132 of the Act. Subsequently, the revenue officers framed the assessments for financial years (‘FY’) from 2006-2007 to 2012-2013. Subsequent upon the issuance of a notice under s. 153(A) of the Act, the return of income of the Petitioner Company was accepted, and the matter was closed.
Thereafter, in 2016, a search was conducted at the premises of one M3M India Limited Company, under s. 132 of the Act, whereby the name of the Petitioner Company was also added in the panchnama drawn by the revenue officers. However, this addition was made without any authorization, and no search was conducted at the premises of the Petitioner Company. This led to the revenue department issuing a notice under s. 153A of the Act against the Petitioner Company, followed by a demand of Rs. 3,29,49,65,089/- under s. 156 of the Act.
Aggrieved by the said proceedings initiated under s. 153A of the Act, the Petitioner Company filed the writ before the HC challenging the notice and the assessment order passed for the AY 2011-2012 and seeking quashing of the search proceedings and the consequent panchnama.
Held
The HC, while quashing the assessment order and the demand notice issued qua the Petitioner Company, made the following observations:
The passing of a second assessment order in the absence of a search being conducted under ss. 132 and 132A of the Act, only because the Petitioner Company’s name was reflected in the panchnama prepared in M3M’s office premises, was unjustified and beyond the department’s jurisdictional boundaries.
Subsequent upon having conducted a search and an assessment order being passed to its effect under s. 153A, the issuance of a fresh assessment order without conducting search and seizure is unsustainable in law. It was clarified that mentioning the Petitioner Company’s name in the panchnama alone does not constitute authorization for search and seizure.
Further, in an instance of recovery of incriminating material and/or evidence, which is sufficient to initiate reassessment against the Petitioner Company (previous assessee), the procedure established under s. 153C of the Act ought to be followed by the revenue officer.
Our Analysis
The aforementioned judgement passed by the HC put into check the unlimited authority that the revenue has over the assessees. The blatant violation of the established statutory procedures that happen at the behest and beckon of the revenue department is erratic and rampant. The statutory provisions had already been crafted in a manner to further the intentions of the revenue and provide them with multiple opportunities to maintain checks and balances. The issue arises when the department blurs statutory boundaries to abridge the rights of the Assessee.
Even in the present case, while the revenue department had the opportunity of reassessing the Petitioner Company under s. 153C of the Act, they voluntarily proceeded on the statutorily untenable route by issuing notice against the Petitioner Company without having conducted any search on them and thereafter passing a fresh assessment order against the Petitioner Company, under s. 153A of the Act. In both of the aforementioned scenarios, the actions of the revenue department were untenable and thus liable to be quashed.
End Note
[i] [2024] 162 taxmann.com 702 (Punjab & Haryana) [dated: 13.05.2024]
Authored by Anshi Bhatia, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.