Case Law Details
PCIT Vs Sidhi Vinayak Aromatics Pvt Ltd (Delhi High Court)
Introduction: The Delhi High Court recently delivered a significant judgment in the case of PCIT vs. Sidhi Vinayak Aromatics Pvt Ltd, addressing the legality of additions made under section 153C of the Income Tax Act. The core issue revolved around the absence of incriminating material during a tax search. In this article, we delve into the details of the case, the court’s analysis, and the implications of the judgment.
1. Background of the Case: The appeals in question pertain to Assessment Year (AY) 2006-07 and AY 2005-06. The appellant, the income tax department, challenged the order issued by the Income Tax Appellate Tribunal, commonly known as the Tribunal, on 07.12.2017.
2. The Tribunal’s Verdict: The Tribunal addressed the appeals and cross-objections filed by the income tax department and the taxpayer (assessee) against the order of the Commissioner of Income Tax (Appeals) dated 25.03.2011. The crux of the matter hinged on a significant legal issue.
3. No Incriminating Material Found: A pivotal finding by the Tribunal was that in the AYs in question, where the assessments were completed, no incriminating material was discovered during the course of a search. This crucial fact is documented in paragraph 10 of the Tribunal’s order.
4. The Legal Framework: The appeals centered on the provisions of section 153C of the Income Tax Act, 1961, which deals with assessments in cases where a search is initiated under section 132. Section 153C allows for the assessment of income found as a result of the search in the hands of a person other than the one searched, provided that incriminating material or evidence is discovered.
5. Tribunal’s Justification: In support of its conclusion that the additions made by the Assessing Officer (AO) were unsustainable due to the absence of incriminating material, the Tribunal relied on the judgment in Commissioner of Income Tax vs. Kabul Chawla (2016) 380 ITR 573 (Delhi).
6. Supreme Court’s Affirmation: Notably, the decision in Kabul Chawla was upheld by the Supreme Court in Principal of Income Tax vs. Abhisar Buildwell (2023) 454 ITR 2012 (SC), thereby establishing its legal precedence.
7. No Substantial Question of Law: In light of the established legal framework and the factual findings of the Tribunal, the Delhi High Court held that no substantial question of law merited consideration.
8. Closure of Appeals: Consequently, the appeals filed in this case were closed by the court.
9. Conclusion: The Delhi High Court’s judgment in the PCIT vs. Sidhi Vinayak Aromatics Pvt Ltd case reaffirms the importance of adhering to the legal provisions of the Income Tax Act, especially when invoking section 153C. The court’s ruling emphasizes that additions without the presence of incriminating material are not sustainable. This decision serves as a reminder to tax authorities to exercise their powers within the framework of the law, preserving the rights of taxpayers and ensuring that assessments are based on substantive evidence.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. These appeals concern Assessment Year (AY) 2006-07 (ITA 251/2019) and AY 2005-06 (ITA 265/2019).
2. The appellant/revenue seeks to assail the common order dated 07.12.2017 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
3. The Tribunal has disposed of the appeals of the appellant/revenue and the cross-objections filed by the respondent/assessee against the common order of the Commissioner of Income Tax (Appeals) [in short, “CIT(A)] order dated 25.03.2011 based on a view taken qua a legal issue.
4. The Tribunal found that in respect of the aforementioned AYs in which assessments were completed, no incriminating material had been found.
4.1. In support of its conclusion that additions made were unsustainable in view what is adverted to hereinabove, the Tribunal, inter alia, relied upon the judgment rendered by a coordinate bench of this Court in Commissioner of Income Tax vs. Kabul Chawla (2016) 380 ITR 573 (Del.)
5. Mr Shlok Chandra, learned senior standing counsel, who appears on behalf of the appellant/revenue, does not dispute the fact that no incriminating material was found pursuant to the search carried out under Section 132 of the Income Tax Act, 1961 [in short, “Act”] against the Surya Vinayak Group, which included the respondent/assessee, concerning the aforementioned AYs.
6. These findings of fact are recorded in paragraph 10 of the impugned order passed by the Tribunal. For convenience, the relevant part of paragraph 10 is extracted hereafter:
“xxx xxx xxx xxx
We find that the additions made by the AO are beyond the scope of section 153C of the Income Tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal.
xxx xxx xxx xxx”
7. Notably, the decision of the coordinate bench of this court in Kabul Chawla has been affirmed by the Supreme Court in Principal of Income Tax vs. Abhisar Buildwell, (2023) 454 ITR 2012 (SC).
8. Given the aforesaid position, according to us, no substantial question of law arises for our consideration.
9. Accordingly, the above-captioned appeals are closed.
10. Parties will act based on the digitally signed copy of the order.
