PCIT Vs GMR Energy Ltd. (Karnataka High Court)
Search Assessment: Find the Incriminating Material First, Says Karnataka HC
Summary: A dispute over a search assessment could not be resolved without a clear finding on the material seized during the search. In PCIT v. GMR Energy Ltd., the Karnataka High Court upheld the Tribunal’s decision to remit the matter to the CIT(A) for examination of the assessment records and a categorical finding on the existence of incriminating material.
The Court did not decide the merits of the additions or answer the substantial question concerning the assessing authority’s power to make a search assessment without incriminating material. Instead, it permitted the Revenue to identify the seized material or place other available material before the appellate authority.
The judgment was delivered on 17 September 2026 by Justice S.G. Pandit and Justice Dr. Chillakur Sumalatha in ITA No. 26 of 2021, concerning Assessment Year 2007–08, with neutral citation 2026:KHC:50763-DB.
Search Followed by Assessment and Successive Appeals
A search was conducted on GMR Energy Ltd. on 11 October 2012. Following the search, an assessment was completed under Section 143(3) read with Section 153A of the Income-tax Act, 1961.
The assessee challenged the assessment before the CIT(A), but its appeal was dismissed. It then approached the Tribunal.
In the first round, the Tribunal allowed the assessee’s appeal, holding that the assessment was bad in law because no documents had been seized during the search and the additions were not based on incriminating material.
That Tribunal order, dated 21 November 2017, was challenged before the High Court in ITA No. 358 of 2018 and connected appeals. By its judgment dated 8 January 2019, the High Court set aside the order and remanded the matter to the Tribunal for fresh consideration in accordance with law.
Thus, the present proceedings arose from a further examination of the same search assessment after the earlier High Court remand.
Tribunal Required a Clear Finding from the CIT(A)
On reconsideration, the Tribunal found that the CIT(A) had not recorded a categorical finding on whether incriminating material had been unearthed and seized during the search, leading to undisclosed income.
The Tribunal consequently remitted the matter to the CIT(A) through its order dated 9 September 2020 in ITA No. 1917/Bang/2016.
The direction was to examine the assessment records, ascertain whether incriminating material had been seized, and record a finding after considering the decisions relied upon by both sides.
This remand did not finally invalidate the assessment or confirm the additions. It required the appellate authority to establish the factual foundation necessary for deciding the controversy.
Revenue Challenged the Need for Such Examination
The Revenue appealed under Section 260A, questioning whether the Tribunal’s remand was perverse.
Its substantial question proceeded on the contention that, under the parameters of Sections 153A or 153C, the assessing authority was empowered to pass an assessment order even in the absence of incriminating material.
Accordingly, the Revenue questioned the Tribunal’s direction requiring the CIT(A) to investigate whether the assessment was based on material seized during the search.
The appeal was admitted on 15 April 2021. Although both parties advanced several contentions before the High Court, the Court declined to enter into those arguments because the matter remained at the stage of obtaining the necessary factual finding.
Remand Was Consistent with the Earlier High Court Direction
The High Court explained that its earlier remand had required examination of whether there was incriminating material supporting the additions made in the assessment under Section 143(3) read with Section 153A.
When the Tribunal found that the CIT(A) had not supplied a categorical answer on this issue, the controversy could not properly be resolved.
The High Court therefore held that the Tribunal had rightly remanded the matter to the CIT(A) to ascertain the position from the assessment records.
The significance of this reasoning lies in the continuity between the two rounds of litigation. The Tribunal’s direction sought to complete the factual inquiry contemplated by the earlier High Court order.
No Final Ruling on Assessment Validity
The High Court disposed of the appeal without examining the merits and without answering the substantial question of law.
It expressly left it open to the Revenue to point out the incriminating material seized at the time of search, or to place any other material available with it.
Consequently, the judgment should not be described as a final deletion of the additions or a conclusive declaration that this assessment was invalid. The examination directed before the CIT(A) remained necessary.
Author’s Comments
The judgment underlines the importance of a reasoned factual finding in search assessment litigation. A dispute about incriminating material requires identification and examination of the actual records, rather than an unresolved assertion by either side.
For the assessee, the Tribunal’s remand provided an opportunity to have the evidentiary basis of the additions examined. For the Revenue, the High Court preserved the opportunity to identify and produce the material supporting its case.
The decision’s precise scope matters: the remand survived, while the substantive legal question remained unanswered. A procedural direction to examine evidence should therefore be reported as such, without converting it into a final victory on the validity of the assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The above appeal filed under Section 260A of the Income Tax Act, 1961 is directed against the order dated 09.09.2020 passed by the Income Tax Appellate Tribunal, Bengaluru in ITA No.1917/Bang/2016 (Annexure-D) for the assessment year 2007-2008 and the appeal was admitted on 15.04.2021 to examine the following substantial question of law:
“Whether on the facts and circumstances of the case the Tribunal’s order can be said as perverse in nature in remanding the matter to CIT(A) to examine whether assessment order is based on any incriminating material seized during course of search conduced in the case of the assessee on 11.10.2012 and in the light of decision’s relied upon by it even when as per the parameters of Section 153A or 153C of the Act, assessing authority is empowered to pass assessment order in the absence of any incriminating materials?”
2. Heard learned counsel Sri.Y.V.Raviraj for appellants-revenue and learned counsel Sri.Likith Patel.M.K through video conference for respondent-assessee.
3. It is stated that a search was conducted on 11.10.2012 on the respondent-assessee and consequent to search, assessment order under Section 143(3) read with Section 153A of the Income Tax Act, 1961 was passed. The assessee has preferred an appeal before the CIT(A) and the said appeal was dismissed. The assessee preferred an appeal before the Tribunal and the Tribunal allowed an appeal of the assessee holding that the assessment order is bad in law as no documents were seized during search and the addition is not on the basis of any incriminating material. The said order of the Tribunal was the subject matter of ITA No.358/2018 and connected appeals. This Court by judgment dated 08.01.2019, set aside the order of the Tribunal dated 21.11.2017 and remanded the matter to the Tribunal for fresh consideration in accordance with law. The Tribunal on remand under impugned order dated 09.09.2020 remanded the matter to CIT(A) to discern from assessment records of there being any incriminating materials seized during the course of search with a further direction to give a finding in respect of the same in the light of all decisions relied upon by both the sides on the said issue. Against the said order of remand, the revenue is before this Court in this appeal.
4. Though the learned counsels appearing for both the parties canvassed or urged several contentions, we are not inclined to enter upon those contentions, since the matter is remanded by the Tribunal to the CIT(A) to find out whether there are incriminating material seized during the course of search.
5. In earlier round of litigation before this Court in the above referred ITA, this Court remanded the matter to the Tribunal only to find out whether there is incriminating material for addition during the course of assessment under Section 143(3) read with Section 153A. When the Tribunal on consideration of the material available before it was of the opinion that, CIT(A) has not given any categorical finding regarding incriminating material that was unearthed and seized leading to undisclosed income, issue cannot be answered therefore, it has rightly remanded the matter back to CIT(A) to discern from assessment records of there being any incriminating material seized during the course of search.
6. In view of the above, without going into the question of merit, with an observation that it is open for the appellants-revenue to point out the incriminating material which was seized at the time of search or place any other material if available with the appellants-revenue, the present appeal stands disposed of without answering the substantial question of law.
