Analysis of Incriminating Material (IM) and Search Assessment

Ashish M. Shaji

05 Jun, 2024

Assessment of Income as per section 143(3) read with section 153A, must have nexus to the Incriminating Material (IM), if any, found during the course of search in respect of unabated assessment. There are various precedents to consider that where no IM was found during search in respect of assessment for the relevant AY which already was completed/time barred on the date of search, no addition can be made on the re-appreciation basis of the regular account of the assessee.

Incriminating material and search assessment: Legal View point

It can also be stated that the documents found or acquired after the search during assessment cannot be used against the assessee while framing assessment of unabated assessment orders and also in case where the time limit for issuance of notice u/s 143(2) stood expired at the time of search.

Hence, the jurisprudence with respect to it is that in absence of any reference to any incriminating material found during search in the assessment order, action of the AO in making adjustments of routine nature during search assessment under section 153A of the Act is impermissible.

To provide a better view, it has been said that where no IM is found during the search relating to an AY, then the scope of assessment shall depend upon whether original assessment is pending or completed.

If original assessment is pending on the search date, then the proceedings pertaining to pending assessments shall abate, and proceedings begun as a result of search shall be continued. The scope of assessment would include the issues arising from pending assessment, and freshly initiated proceedings will cover issues that can arise from the originally pending proceedings.

Meaning of Incriminating Material

The word Incriminating Material (IM) has been used quite often therefore, it is essential to know the meaning of IM. It has been a main issue while framing the search assessment order under section 153A of the Income Tax Act 1961, and it hasn’t been defined under the Act.

Generally, the incriminating material can be in any form like evidence in the nature of:

• A document, content of a document;
• An asset;
• Entry in the books of accounts;
• Statement given on oath;
• Absence of any book being found during search;
• Absence of any fact claimed earlier but came to notice during the course of search;
• Absence of office/business premises as claimed during the returns filed or any other documents;
• Documents or material seized from a different person and not from the assessee.

So to cut it short, any fact or evidence which suggests that documents/transactions claimed or submitted in any old proceedings were not genuine, fulfilling the ingredients of undisclosed income shall constitute an incriminating material.

Difference between incriminating material and seized documents

It has to be noted that during search, business documents executed in the ordinary course may be found naturally, but it does not mean that such documents are incriminating in nature.

Therefore we need to understand the difference between a seized document and an incriminating document. An incriminating document may be the part of a seized document if it stays unexplained, undisclosed, unaltered or unsubstantiated.

Hence if you want to know what an incriminating material from the seized document is, the following should be done:

• Such seized documents should be arranged systematically, and everything must be analysed;
• The documents have to be sort assessee wise, AY wise and premises wise;
• The documents should be arranged as financially relevant and financially irrelevant;
• In case the documents’ are financially relevant, know how they are explainable through books of accounts or other details available with the department of income tax;
• It should be seen if the explanation is available regarding all records;
• The Income tax return under section 153A must be judiciously filed after considering records and material lying with the IT department;
• If any undisclosed income is offered under the return filed under the aforementioned sections, then the expenditure incurred to earn the income can also be claimed.

By doing so, the assessee knows the difference between the two- incriminating material and seized document.

While facing the search assessment under section 153A or assessment in case of other person, you should know if it’s based on any incriminating document or not.

Conclusion

The unabated search assessment must not be based on seized documents but on incriminating seized document, otherwise, if no undisclosed income is found, then the proceedings may cause unnecessary hardship upon honest taxpayers purely due to the fact that a search action is initiated against them.

Read our article:Filing Income Tax Return? :Points to note for Individual Taxpayers