Income Tax, Issue Update

Documents seized during search of a person other than the person against whom assessment proceedings are initiated under section 153A: Basis for passing order under section 153C


Outcome: Remand


  • The Revenue had initiated search action under Section 132 of the Act on Kouton Group on 19.02.2009 and during the search proceedings, it inter-alia seized a document described as ‘Memorandum of Understanding’ relating to transaction of sale and purchase of share capital of M/s S.R. Resorts Private Limited. Consequent upon the seizure of the aforesaid document, a notice was issued to the Assessee under Section 153C of the Act, calling for filing of return of income. Since there was no compliance to the said notice, another notice was issued under Section 142(1)(ii) of the Act. In response thereto, the Assessee filed the original return of income declaring total income of Rs.8.90 lakhs and submitted that the same be treated as a return in compliance to notice under Section 153C of the Act. The assessment proceedings culminated in framing of an assessment order dated 28.12.2010 whereby the return of income of the Assessee stood assessed at Rs.1.46 crores.

Key Points

  • Rule 27 of the Income-tax Rules embodies a fundamental principal that a respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, had not filed an appeal against the same, was entitled to defend such an order before the Appellate forum on all grounds, including the ground which had been held against him by the Lower Authority, though the final order was in its favour.
  • In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the Commissioner of Income Tax (Appeals) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, did not mean that an inference could be drawn that the Assessee had accepted the findings in part of the final order, that was decided against him. The Assessee had taken the ground of maintainability before the Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The Tribunal, therefore, committed a mistake by not permitting the Assessee to support the final order of Commissioner (Appeals), by assailing the findings of the Commissioner (Appeals) on the issues that had been decided against him.
  • Thus, it was inferred that the impugned order passed by the Tribunal suffered from perversity in so far as it refused to allow the Assessee (Respondent before the Tribunal) to urge the grounds by way of an oral application under Rule 27. Hence, the matter was remanded back before the Tribunal with a direction to hear the matter afresh by allowing the Assessee to raise the additional grounds, under Rule 27 of the Income Tax Appellate Tribunal Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the reassessment proceedings under Section 153C of the Act.

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