2023 (10) TMI 1383 - AT - Income Tax

Validity of exercise of jurisdiction u/s 153A and 153C - AO justification in passing the assessment orders u/s 143(3) and not u/s 153C - validty of assessment orders passed u/s 143(3) - HELD THAT - Matter to be covered by the decision of the Supreme Court in the case of Pr. CIT Vs Abhisar Buildwell P. Ltd 2023 (4) TMI 1056 - SUPREME COURT wherein held no addition can be made in respect of completed assessment in absence of any incriminating material. Also Lordships concluded - i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the total income taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. In view of the above detailed reasoned judgement rendered by the Hon'ble Supreme Court in Abhisar Buildwell P.Ltd. (supra), Question No. 1 raised before us, i.e., as to whether the AO was justified in passing the assessment orders u/s 143(3) and not u/s 153C of the Act is answered in the negative and Question No.2, as to whether the assessment orders passed u/s 143(3) are invalid and bad in law is answered in the affirmative. Both these Questions, thus, are answered in favour of the assessee.

Summary

Issues Involved:
1. Jurisdiction of assessment under Section 143(3) versus Section 153C.
2. Validity of assessment orders under Section 143(3).
3. Justification of additions under Section 68.
4. Binding nature of decisions from the jurisdictional High Court on ITAT.

Summary:

Issue 1: Jurisdiction of Assessment under Section 143(3) versus Section 153C
The Tribunal examined whether the Assessing Officer (AO) was justified in passing assessment orders under Section 143(3) instead of Section 153C of the Income Tax Act, 1961. The assessee argued that the assessment proceedings under Section 143(3) were illegal due to the abatement provisions in Sections 153A and 153C, which mandate that pending assessments abate and fresh assessments are to be initiated under Section 153C when incriminating material is found during a search. The Tribunal noted that the search was conducted after the issuance of the notice under Section 143(2), and the documents seized were handed over to the AO. The Tribunal concluded that the AO should have initiated proceedings under Section 153C, as the pending assessment under Section 143(3) abated automatically due to the search.

Issue 2: Validity of Assessment Orders under Section 143(3)
The Tribunal held that the assessment orders passed under Section 143(3) were invalid and bad in law. The Tribunal relied on the Supreme Court's decision in "Pr. CIT Vs Abhisar Buildwell P. Ltd.," which established that in the case of a search, the AO must issue a notice under Section 153A and assess or reassess the total income for the relevant years. The Tribunal found that the AO's failure to initiate proceedings under Section 153C, despite the abatement of the pending assessment under Section 143(3), rendered the assessment orders invalid.

Issue 3: Justification of Additions under Section 68
The Tribunal did not specifically address the merits of the additions made under Section 68, as the primary focus was on the jurisdictional issue. The Tribunal noted that the issue of incriminating material becomes relevant only in the case of unabated or completed assessments, and since the proceedings under Section 143(3) abated due to the search, the AO should have proceeded under Section 153C.

Issue 4: Binding Nature of Decisions from Jurisdictional High Court on ITAT
The Tribunal did not specifically address this issue, as the primary focus was on the jurisdictional issue and the validity of the assessment orders.

Conclusion:
The Tribunal concluded that the AO was not justified in passing the assessment orders under Section 143(3) and that the assessment orders were invalid and bad in law. The Tribunal agreed with the view taken by the Judicial Member and held that the AO should have initiated proceedings under Section 153C following the search. Consequently, the Tribunal rendered the other issues infructuous and ordered that the appeals be placed before the regular Division Bench for passing necessary orders giving effect to this order.