Summary
In a large batch of appeals on the scope of search assessments under Section 153A of the Income Tax Act, 1961, the Revenue contended that once a search is initiated the Assessing Officer may assess the 'total income' of all six preceding years on any material, even for completed assessments where no incriminating material was found. The Supreme Court approved the view of the Delhi High Court in Kabul Chawla and the Gujarat High Court in Saumya Construction: only pending assessments abate, and in respect of completed or unabated assessments no addition can be made in the absence of incriminating material found during the search, the Revenue's remedy in such cases being reassessment under Sections 147 and 148 subject to their conditions.
Issues
- Whether, in respect of completed or unabated assessments, the jurisdiction of the Assessing Officer under Section 153A to assess or reassess is confined to incriminating material found during a search under Section 132 or requisition under Section 132A, or whether additions can be made on other material even where no incriminating material is found.
- Whether the use of the words 'total income' in Section 153A(1)(b), replacing the 'undisclosed income' of the earlier block assessment scheme, entitles the Assessing Officer to reopen completed assessments without incriminating material.
- What remedy remains with the Revenue where a search yields no incriminating material in respect of a completed assessment.
Provisions considered
- Section 153A, including the second proviso to sub-section (1) and sub-section (2), Income Tax Act, 1961A search or requisition after 31 May 2003 obliges the AO to issue notices for six preceding years and assess or reassess total income; only assessments pending on the date of search abate, and sub-section (2) revives only abated assessments if the Section 153A order is annulled. Reading the provision to permit reopening of completed assessments without incriminating material would render the second proviso and sub-section (2) redundant. (¶¶ 9, 9.1, 10, 11, 12, 14)
- Sections 132 and 132A, Income Tax Act, 1961Search and requisition are the trigger for Section 153A and their purpose is detection of undisclosed income; the foundation of a search assessment is therefore the existence of incriminating material showing undisclosed income detected as a result of the search. (¶¶ 9.1, 12)
- Sections 158B to 158BG (Chapter XIV-B, block assessment), Income Tax Act, 1961The earlier scheme assessed 'undisclosed income' of a block period at a special rate in parallel with regular assessments; Section 153A replaced it to do away with two parallel assessments and tax undisclosed income at normal rates, which explains the shift to the expression 'total income'. (¶ 9.1)
- Sections 147 and 148, Income Tax Act, 1961Where no incriminating material is found in a search, the Revenue is not left without remedy against a completed assessment; it may initiate reassessment under these provisions subject to fulfilment of their conditions, and those powers are saved. (¶¶ 11, 14)
Held
- On a search under Section 132 or requisition under Section 132A the AO assumes jurisdiction for block assessment under Section 153A, and all pending assessments or reassessments stand abated. (¶¶ 11, 14)
- Where incriminating material is unearthed during the search, the AO has jurisdiction, even in respect of completed or unabated assessments, to assess or reassess the total income taking into account the incriminating material and the other material available, including income declared in the returns. (¶¶ 11, 14)
- Where no incriminating material is unearthed during the search, the AO cannot assess or reassess completed or unabated assessments on the basis of other material; no addition can be made in respect of such assessments, since the intention of Section 153A is to bring to tax undisclosed income found as a result of the search and not to reopen concluded assessments, which would otherwise produce two assessment orders and render the second proviso and sub-section (2) redundant. (¶¶ 11, 12, 13, 14)
- In such cases the completed assessment may be reopened only under Sections 147 and 148, subject to their conditions, which powers are saved; the views of the Delhi High Court in Kabul Chawla and the Gujarat High Court in Saumya Construction, followed by several other High Courts, are approved, the contrary view of the Allahabad High Court in Mehndipur Balaji notwithstanding. (¶¶ 7, 8, 11, 13, 14)
Result
Appeals and review petition by the Revenue dismissed. Appeals by the assessee Kesarwani Zarda Bhandar dismissed, the Allahabad High Court having rightly held that where incriminating material was found the AO could reassess total income; appeals by the assessee Dayawanti dismissed, the additions having been based on incriminating material found in search. No costs.