Initiation of Assessment Proceedings can't be done if no incriminating material seized at time search

The Orissa High Court has ruled that assessment proceedings under Section 153A of the Income Tax Act cannot be initiated if no incriminating materials were seized during a search. In this case, the petitioner challenged assessment notices issued over 18 months after a search where nothing was found in her locker. The court, referencing a previous Rajasthan High Court ruling, found no justification for the proceedings and quashed the notices.

The Hon’ble Orissa High Court ("Orissa HC") in the matter of Smt. Smrutisudha Nayak v. Union of India and Others [W.P. (C) Nos. 10587 OF 2009 dated October 27, 2021], held that assessment proceedings cannot be initiated if no incriminating materials are seized at the time of the search.

Smrutisudha Nayak ("the Petitioner") filed the petition challenging the initiation of the assessment proceedings under Section 153A of the Income Tax Act, 1961 ("the IT Act"). The Petitioner is a Director of a Private Limited Company in the name and style of Sambit Resorts Pvt. Ltd. On November 15, 2007, search was conducted by the Income Tax Department at the Petitioner’s residence in Bhubaneswar and a Panchnama was drawn up on that date. Subsequently another search warrant was issued under Section 132 (1) of the IT Act to conduct search and seizure operation of the locker standing jointly in the name of the Petitioner and her husband at Andhra Bank, Ashok Nagar Branch, Bhubaneswar.

Though the said search took place, nothing was found in the locker. The said search was not followed up immediately by a notice under Section 153A of the IT Act initiating search assessment proceedings. More than 18 months later, the Assessing Officer issued a notice on July 14, 2009 commencing assessment proceedings under Section 153A/ 143(3) of the IT Act for the Assessment Year 2002-2003. Identical notices were issued for each of the Assessment Year of 2008-2009. The Petitioner filed her returns for the said Assessment Years.

The Hon’ble Orissa High Court relied on the case Jai Steel (India) v. Assistant CIT [INCOME TAX APPEAL NO.53/2011 dated May 24, 2013] in which the Rajasthan High Court held that there being absolutely no incriminating materials found or seized at the time of the search, there was no justification for the initiation of assessment proceedings under Section 153A of the IT Act.

Further, the Court directed that the impugned notices issued to the Petitioner for the Assessment Year 2002-03 and 2008-09 under Section 153A(1) read with Sections 143(3) of the IT Act are hereby quashed. And the Petition is allowed.