Search and seizure – Assessment of third person – Absence of any incriminating documents or evidence against assessee discovered during course of search – Jurisdiction to assess third person could not be assumed

Search and seizure – Assessment of third person – Absence of any incriminating documents or evidence against assessee discovered during course of search – Jurisdiction to assess third person could not be assumed

The assessee was a charitable trust. A search was conducted u/s 132 of one SG who was a doctor and managing trustee of the assessee which established and administered a hospital. Simultaneously, a search action was conducted in the case of one TJ who
supplied medical and surgical equipment and other accessories to the hospital run by the assessee. Pursuant to the search, the Department was of the prima facie view that funds were siphoned off through TJ allegedly resorting to huge inflation of expenses through salaries paid to staff members by transfer of funds to the bank accounts of the employees as if salaries were paid to them. Based on the seized documents, a notice u/s 153C was issued for the A.Ys. 2009-10 to 2015-16 against the assessee. An order u/s 143(3) read with section 153C was passed.

The Commissioner (Appeals) and the Tribunal found that TJ did not admit that money was paid back to the managing trustee of the assessee-trust, that the materials seized did not indicate any inflation of purchase by the assessee and that the deposits in the bank account of the managing trustee of the assessee stood explained. The Commissioner (Appeals) and the Tribunal held that there was no material brought on record to prove the nexus between withdrawal of the amount from the bank account of TJ and the deposits made in the bank accounts of the managing trustee of the assessee.

The appeal filed by the Department was dismissed by the Madras High Court. The High Court held as under:

‘i) The Tribunal was right in holding that the A.O. ought not to have assumed jurisdiction u/s 153C. In proceedings u/s 153C, in the absence of any incriminating documents or evidence discovered during the course of search u/s 132 in the case of searched person against the assessee, the jurisdiction under the provisions of section 153C could not be assumed. The Commissioner (Appeals) had allowed the appeals filed by the assessee as confirmed by the Tribunal.’

ii) The order of the Tribunal was confirmed. No question of law arose.