2011 (11) TMI 213 - HC - Income Tax

Block Assessment - Interpretation of Word Abatement - only assessment pending as on the date of search are abated and not the assessment completed or appeal pending . Held That - according to the second proviso of Section 153A only the pending assessment or reassessment is to abate. Appeal filed before the ITAT is not continuation of the proceedings of assessment. He submits that in pursuance to the assessment order under Section 143 (3) a penalty of Rs. 97, 85, 925/- was imposed under Section 271 (1) (c) of the Act. If the interpretation given by the ITAT is to be accepted the entire proceedings of penalty will also abate giving an unreasonable advantage to the assessee insptie of adverse findings inviting penalty. Thus Decided against assessee.

Summary

Issues Involved:
1. Legality of the Income Tax Appellate Tribunal's (ITAT) decision to set aside and restore the completed assessment to the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961.
2. Interpretation of the second proviso to Section 153A regarding the abatement of pending assessments or reassessments.
3. Impact of search and seizure operations on completed assessments and related penalty proceedings.

Detailed Analysis:

1. Legality of ITAT's Decision to Set Aside and Restore Completed Assessment:
The primary issue was whether the ITAT was justified in law in setting aside the completed assessment and restoring it to the AO under Section 153A of the Income Tax Act, 1961. The Tribunal had held that all assessments for the six preceding years prior to the search should abate and be reassessed by the AO, even if they were completed. The High Court disagreed with this interpretation, stating that the second proviso to Section 153A only allows for the abatement of pending assessments or reassessments, not those that have already been completed.

2. Interpretation of the Second Proviso to Section 153A:
The second proviso to Section 153A of the Income Tax Act states, "assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate." The High Court emphasized that the word "pending" is crucial and signifies that only assessments or reassessments that are ongoing at the time of the search are subject to abatement. Completed assessments are not covered by this proviso and therefore should not be abated or restored to the AO.

3. Impact of Search and Seizure Operations on Completed Assessments and Related Penalty Proceedings:
The High Court noted that the abatement of proceedings has serious consequences, including the termination of all subsequent actions arising from the original assessment. In this case, the regular assessment had already resulted in a penalty under Section 271(1)(c) of the Act. The High Court held that the material found during the search could be used for new assessments under Section 153A, but it would not nullify or terminate the consequences of the completed regular assessment, such as the penalty proceedings.

The High Court also referred to Circular No. 7 of 2003, which clarifies that only pending assessments or reassessments abate, not appeals, revisions, or rectifications pending on the date of the search. This further supported the Court's interpretation that completed assessments are not subject to abatement.

Conclusion:
The High Court concluded that the ITAT erred in law by abating the completed regular assessment proceedings and restoring them to the AO as a consequence of the search under Section 132 and the notice under Section 153A. The appeal was allowed, and the ITAT's order dated 31st October 2007 was set aside. The question of law was decided in favor of the revenue and against the assessee. The Tribunal was directed to decide the appeal on merits in accordance with the law.