Search and seizure – Assessment of third person – Income-tax survey – Assessment based on documents seized during survey at assessee’s premises – No incriminating material found against assessee during search of third parties – Absence of satisfactory note by A.O. that any seized document belonged to assessee – Search warrant not issued against assessee – Assessment and consequent demand notice were unsustainable

Search and seizure – Assessment of third person – Income-tax survey – Assessment based on documents seized during survey at assessee’s premises – No incriminating material found against assessee during search of third parties – Absence of satisfactory note by A.O. that any seized document belonged to assessee – Search warrant not issued against assessee – Assessment and consequent demand notice were unsustainable

The assessee processed cashewnuts into cashew kernel. A survey operation was conducted u/s 133A against it. The A.O. invoked the jurisdiction u/s 153C for making a block assessment for the A.Ys. 2010-11 to 2016-17 as a result of searches which were conducted in the premises of two persons JR and JS u/s 132. He passed an order u/s 143(3) read with section 153C for the A.Y. 2016-17 and issued a notice of demand u/s 156.

The assessee filed a writ petition and challenged the order. The Orissa High Court allowed the writ petition and held as under:

‘i) In the absence of incriminating materials against the assessee having been found in the course of the search of the searched persons JR and JS, the order passed u/s 143(3) read with section 153C and the consequential demand notice issued u/s 156 were unsustainable and, therefore, set aside.

ii) The documents relied upon by the A.O. were found in the course of survey of the assessee u/s 133A and not during the search of the parties against whom the search authorisation was issued u/s 132 and search was conducted. The Department had not been able to dispute any of the factual averments. No incriminating materials concerning the assessee were found in the premises of the two persons against whom search was conducted and the absence of satisfaction note of the A.O. of the persons against whom search was conducted about any such incriminating material against the assessee, were not denied. The order only related to disallowance of expenditure u/s 140A(3) that was payable to the cultivators, expenses towards hamali, i.e., labour charges, unexplained money u/s 69A, negative cash and unaccounted stock which was not on account of the discovery of any incriminating materials found in the course of the search concerning the assessee and there was no search warrant u/s 132 against the assessee.’