Section 153A Notice Must Disclose Basis and Seized Material: Bombay HC

Underwater Services Company Limited Vs ACIT (Bombay High Court)

Summary: The Bombay High Court considered a batch of writ petitions challenging notices issued under Section 153A of the Income-tax Act, 1961. The impugned notice dated 29 November 2018 required the petitioner to furnish a return for Assessment Year 2012-13, but it did not disclose any particulars of the seized or requisitioned material forming the basis of the proceeding. The Revenue submitted that Section 153A is couched in mandatory terms and, once a search takes place, the Assessing Officer must call upon the assessee to furnish returns for the preceding six assessment years. The Court accepted that general proposition, but clarified that an assessment under Section 153A cannot be arbitrary or lack relevance or nexus with seized material. It observed that the purpose of a show-cause notice is to enable the assessee to effectively meet the case made against it. Since the notice did not indicate whether material had been seized under Section 132 or whether books, documents or assets had been requisitioned under Section 132A, the assessee was left without information about the basis of the notice. The Court therefore quashed and set aside the notice dated 29 November 2018, without expressing any view on the merits, and permitted the Revenue to issue a fresh, suitably worded notice under Section 153A. The connected petitions were disposed of with the same observations and liberty.

Cases Discussed:

• Madugula Venu v. Director of Income Tax, (2013) 29 taxmann.com 200 (Delhi) — Cited by the Revenue in support of its submissions concerning the mandatory operation and scope of Section 153A following a search.
• Commissioner of Income Tax-II, Thane v. Continental Warehousing Corporation (Nhava Sheva) Ltd., (2015) 58 taxmann.com 78 (Bombay) — Cited by the Revenue; the Court accepted the proposition that Section 153A is mandatory after a search while holding that assessment cannot be arbitrary or without nexus to seized material.
• Commissioner of Income Tax (Central)-III v. Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi) — Cited by the Revenue on the scope of assessment under Section 153A.
• Commissioner of Income Tax v. Anil Kumar Bhatia, (2012) 24 taxmann.com 98 (Delhi) — Cited by the Revenue in support of the proposition concerning assessment of total income under Section 153A.
• Om Shri Jigar Association v. Union of India, 1994 SCC OnLine Guj 77 — Relied upon for the proposition that issuance of a show-cause notice is a preliminary step intended to enable a party to effectively deal with the case made by the respondent.

Alternative SEO Titles:

1. Section 153A Assessment Cannot Be Arbitrary or Lack Nexus With Seized Material: Bombay HC
2. Bombay HC Quashes Section 153A Notice Bereft of Seized Material Particulars
3. Section 153A Notice Must State Basis for Search Assessment: Bombay HC
4. Fresh Section 153A Notice Allowed After Defective Notice Quashed: Bombay HC
5. Assessee Must Know Basis of Section 153A Notice to Respond Effectively: Bombay HC

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1.  Petitioner is impugning a notice dated 29^th November 2018 issued under Section 153A (Assessment in case of search or requisition) of the Income Tax Act, 1961 (the said Act) on the ground that the notice has been issued without jurisdiction. According to petitioner, there is no incriminating material in possession of the assessing officer and any notice under Section 153A can be issued only on the basis of incriminating material discovered during the course of the search.

2. We have considered the notice dated 29^th November 2018 which is impugned in this petition. The notice is very very brief and is bereft of any particulars. The same reads as under :

Sir/Madam/M/s.,

In pursuance of provisions of section 153A of the Income Tax Act, 1961, you are hereby required to prepare true and correct return of your total income for the Assessment year 2012-13 in the prescribed form and manner as per Rule 12 of Income Tax Rules 1962 setting forth such other particulars as may be prescribed by the Income Tax Act, 1961.

The return for the said assessment year verified in accordance with the provisions of  section 140 of the Income Tax Act, 1961 should be furnished within 30 days from the service of this notice.

3. According to Mr. Chhotaray, Section 153A is couched in mandatory language which implies that once there is a search, the assessing officer has no option but to call upon the assessee to file the returns of the income for the earlier six assessment years. According to Mr. Chhotaray, it is not merely the undisclosed income that will be brought to tax in such assessments, but the total income of the assessee, including both the income earlier disclosed and income found consequent to the search, would be brought to tax. Mr. Chhotaray in support of this submission relied upon Madugula Venu V/s. Director of Income Taxⁱ,  Commissioner of Income Tax — II, Thane Ws. Continental Warehousing Corporation (Nhava Sheva) Ltd², Commissioner of Income Tax (Central) — III V/s. Kabul Chawla³ and Commissioner of Income Tax V/s. Anil Kumar Bhatia⁴.

4. We have no quarrel with the proposition submitted by Mr. Chhotaray. Section 153A is couched in mandatory language once there is a search, the assessing officer has no option but to call upon the assessee to file the returns of the income for the earlier six assessment years. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the assessing officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section 153A only on the basis of seized material.

5. Issuance of a show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent (Om Shri Jigar Association vs Union Of India⁵).

6. Because Section 153A provides that an assessment has to be made under the said Section only on the basis of seized material, the notice dated 29^th November 2018, which is impugned in this petition, should have mentioned whether the seized material was under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A. The notice is absolutely silent as could be seen from above. The notice says “you are required to prepare true and correct return of income” and “setting forth such other particulars”. Petitioner had filed their returns for the Assessment Year in question, which they thought was the true and correct return of income and that it contained all other particulars as prescribed. If respondent felt that was not enough and petitioner should file a fresh true and correct return of income because of the search, then respondent should certainly indicate in its notice what were the seized material under Section 132 or books of accounts or other documents or any assets requisitioned under Section 132A. Otherwise an assessee would file a copy of what it had filed earlier, which respondent anyways had in its file. Petitioner has also been seeking from respondent to make available copy of the alleged incriminating material found/seized during the search based on which the notice has been issued. Mr. Chhotaray states that such material has been given later. We are not going into that aspect at this stage because what we find is that the notice issued under Section 153A is bereft of any material. Nothing prevented respondent from mentioning in the notice the basis for issuing the notice under Section 153A so that petitioner could comply with the same as prescribed.

7. In the circumstances, the notice dated 29^th November 2018 impugned in this petition is quashed and set aside. We do not make any observation on the merits of the case. Respondent may issue fresh notice under Section 153A and word it suitably, as advised so that petitioner may have some information reading that notice the basis on which such notice has been issued. All rights and contentions of the parties are kept open.

8. Petition disposed.

9. Mr. Chhotaray states that since the Court has set aside the notice issued under Section 153A, a fresh notice as per the observation made by this Court, will be issued within four weeks from today. Noted.

10. In view of the above order, the following petitions are also disposed with the same observations and liberty as noted above :

WRIT PETITION NO.2838 OF 2019

WITH

WRIT PETITION NO.2052 OF 2019

WITH

WRIT PETITION NO.2138 OF 2019

WITH

WRIT PETITION NO.2160 OF 2019

WITH

WRIT PETITION NO.3056 OF 2019

WITH

WRIT PETITION NO.3061 OF 2019

WITH

WRIT PETITION NO.3059 OF 2019

WRIT PETITION NO.2308 OF 2019

11. Mr. Sridharan states that due to inadvertence certain averments/prayers have been missed out in this petition and petitioner will take out an application for leave to amend the petition within two weeks from today.

12. Application to be filed and copy served within two weeks from today. Reply, if any, to be filed and copy served within two weeks thereafter.

13. This petition to be listed for directions on 30^th November 2021.

Notes:-

1 (2013) 29 com 200 (Delhi)

²(2015) 58 com 78 (Bombay)

3(2015) 61 com 412 (Delhi)

⁴(2012) 24 com 98 (Delhi)

5 1994 SCC Online Guj. 77