Search - Whether additions can be made in relation to a particular AY without having any incriminating materials qua that AY - NO: HC

THE issue before the court is - Whether additions can be made in relation to a particular AY without having any incriminating materials qua that AY. NO is the answer.

Facts of the case

The case involves the proprietor of M/s. Ferns 'N' Petals which is engaged in the sale of fresh flowers and other related products. A search and seizure operation was conducted in the premises of the Ferns N Petals Group. On the basis of documents recovered during the search and seizure operation, a notice u/s 153A was issued to the Assessee. Separate assessment orders in respect of the AYs 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05 was passed by the AO. During the course of search, the Assessee made a disclosure of Rs.110 lakhs on account of change in the method of accounting of franchisee fees and undisclosed franchisee fees for the Financial Year during which the search was conducted. On the basis of the said statement, the AO surmised that the number of outlets for which franchisee fee was received must have more or less remained the same in all AYs from 2001-02 to 2006-07. He estimated the undisclosed income at a certain percentage of the amount of disclosure made by the Assessee in her statement. However, it must be noted that no statement was made by the Assessee herself. A statement was made u/s 133A by Shri Pawan Gadia who was working at M/s. Satya Farms as Vice-President since August, 2001 and was supervising the work of the various companies/concerns of the assessee. Upon appeals CIT(A) partly allowed the same. Against the same both Revenue and Assessee filed appeals. Revenue's appeal was dismissed on merits and the corresponding appeal of the Assessee was dismissed for non-prosecution since none appeared for the Assessee before the Tribunal.

The High Court decided the additions are not valid as Revenue failed to bring out incriminating material qua each of the Assessment Years in question and additions would be justified only if such material is available separately for each year. The Court also categorically stated that in terms of Section 153A Revenue can re-open at least six years of assessments earlier to the year of search only if incriminating material was found during the course of search in respect of the issue. After undertaking detailed discussions on the Kabul Chawlal case and Dayawanti Gupta case the Court held that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs