Bombay HC Upholds Aurum Ventures’ Tax Relief, Says Search Must Yield Incriminating Material

Mumbai: Completed income tax assessments cannot be reopened under search proceedings unless incriminating material is found during the search, the Bombay High Court has reiterated while dismissing two appeals filed by the Income Tax Department against Aurum Ventures Pvt Ltd.

A bench of Justices Girish Kulkarni and Aarti Sathe upheld an order of the Income Tax Appellate Tribunal (ITAT), which had ruled in favour of the company for the assessment years 2015-16 and 2016-17.

The case arose from a search conducted on the Aurum Group in March 2018 under Section 132 of the Income Tax Act. Following the search, the Income Tax Department issued notices under Section 153A and made additions to Aurum Ventures’ income. It treated the proceeds from the sale of flats as business income instead of capital gains and also disallowed certain interest expenses.

The Revenue argued that documents seized during the search, including board resolutions, escrow agreements and correspondence relating to the sale of flats and loan repayments, showed that the company’s intention was to carry on the business of selling flats rather than leasing or renting them. It contended that these documents were incriminating and justified reopening the completed assessments.

The High Court, however, noted that the legal position on the issue is now well settled. Referring to an earlier Supreme Court ruling in a similar case, the bench said that where an assessment has already attained finality, the Assessing Officer cannot make additions under Section 153A unless incriminating material is unearthed during the search.

The court also relied on several earlier decisions of the Bombay High Court that have taken the same view.

It observed that the ITAT had examined the record and found that the additions made by the Assessing Officer were not based on any incriminating material seized during the search. Instead, the documents relied upon formed part of the company’s regular books of accounts and had already been disclosed during the original assessment proceedings.

The bench agreed with the Tribunal’s findings and held that no substantial question of law arose for consideration. It also ruled that the disallowance of interest expenditure was not supported by any incriminating material found during the search.

Holding that the Tribunal had correctly applied the settled legal position, the High Court dismissed both appeals filed by the Income Tax Department. 

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