Madras High Court Dismisses Writ Petitions Against Search Assessments Under Section 153A — Directs Assessee to Pursue Statutory Appeal Under Section 246A

Case Background and Overview

The Madras High Court recently disposed of a batch of Writ Petitions filed under Article 226 of the Constitution of India challenging assessment orders passed by the Deputy Commissioner of Income Tax under Section 153A of the Income Tax Act, 1961. The Court dismissed all petitions on the ground that an effective statutory appellate remedy was available to the assessee under Section 246A of the Income Tax Act, 1961, and that no exceptional circumstances warranting exercise of writ jurisdiction had been demonstrated.

The case arose from search and seizure operations conducted by the Revenue authorities against the business premises of the deceased assessee, and the subsequent assessments framed against his legal representative. The judgment touches upon several critical areas of search assessment law, including the evidentiary value of seized loose sheets, the sanctity of sworn statements recorded during search, the scope of Section 153A, and the contours of natural justice in quasi-judicial proceedings.

Material Facts

Search operations under Section 132 of the Income Tax Act, 1961, were carried out on August 10, 2017, at the premises of several firms operated by Mr. K. Murugesan, namely M/s. Cholan Auto Finance, M/s. Cholan Finance Corporation, M/s. No.1 Auto Finance, M/s. Helpline Motor Finance, and M/s. Vivek Associates.

During the course of the search:

  • Loose sheets were confiscated from the business premises
  • Digital data was extracted from newly installed software
  • Sworn statements on oath were recorded from Mr. K. Murugesan on August 10, 2017, August 12, 2017, March 26, 2018, and May 08, 2018

Mr. K. Murugesan passed away on December 13, 2017, approximately four months after the search was conducted. His son, M. Vivek, stepped in as the legal representative of the deceased assessee and subsequently sent a letter dated August 22, 2019, seeking to retract the statements that had been recorded during the search proceedings.

Procedural History

The sequence of proceedings that followed the search is outlined below:

  1. Notice under Section 153A of the Income Tax Act, 1961, issued on March 01, 2019
  2. Returns of income filed by the petitioner in his capacity as legal representative
  3. Notice under Section 143(2) issued on August 22, 2019
  4. Detailed pre-assessment proposal sent to the assessee on November 08, 2019, accompanied by scanned images of seized materials
  5. Written objections submitted by the petitioner on December 02, 2019
  6. Assessment orders passed under Section 153A read with Section 143(3) on December 25, 2019, covering Assessment Years 2012–13 through 2018–19, along with consequential demand notices

Rather than availing the statutory appellate remedy, the petitioner approached the Madras High Court directly by filing a batch of Writ Petitions under Article 226 of the Constitution of India challenging all seven assessment orders and the associated demand notices.

The High Court was called upon to adjudicate the following questions of law and fact:

Issue 1 — Maintainability of Writ Petitions

Whether Writ Petitions filed under Article 226 of the Constitution of India are maintainable when assessment orders passed under Section 153A are challenged and an effective statutory appellate remedy exists under Section 246A of the Income Tax Act, 1961.

Issue 2 — Evidentiary Value of Loose Sheets

Whether loose sheets seized during search operations under Section 132 carry any evidentiary value, or whether they are inadmissible under Section 34 of the Indian Evidence Act, 1872, as argued based on CBI vs V.C. Shukla and others.

Issue 3 — Validity of Sworn Statements in Typed Format

Whether sworn statements recorded under Section 132(4) in a typed/printed question-answer format possess legal sanctity, and whether a retraction filed approximately two years after the search could invalidate such statements.

Issue 4 — Denial of Cross-Examination as Natural Justice Violation

Whether the refusal by the Assessing Officer to permit cross-examination of a third party — in this case, Shri Seetharaman — amounted to a violation of the principles of natural justice that would justify quashing the assessment orders in writ jurisdiction.

Issue 5 — Jurisdiction to Pass Assessment for AY 2018–19

Whether Section 153A empowers the Assessing Officer to pass an assessment order for Assessment Year 2018–19 when the search was conducted on August 10, 2017, at a time when the assessment for AY 2018–19 had not yet been completed.

Submissions by the Parties

Petitioner's Contentions

The counsel appearing for the petitioner advanced the following arguments: