2024 (6) TMI 1067 - HC - Income Tax

Validity of assessment u/s 153A - assess or reassess the total income of six assessment years - whether search conducted u/s 132 did not yield any incriminating material pertaining to the appellants/assessees for the said assessment years - HELD THAT - As per the amended provisions of Section 153A of the I.T. Act, while the unearthing of incriminating material would unambiguously clothe an AO with the jurisdiction to initiate proceedings in terms of Section 153A of the I.T. Act for the block period of six years contemplated under that Section, when it comes to passing fresh assessment orders in respect of each of those assessment years comprised in the block of six assessment years, AO must necessarily relate such unearthed incriminating material to the assessment year in question. This is more so in view of the specific provisions u/s 153A (b), which requires the AO to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or the requisition made, and the proviso thereto which mandates that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. In our view, the statutory provision gives a clear indication that, based on the material obtained during the search, the AO who gets the jurisdiction to re-open the assessments, can do so in respect of the individual assessment years comprised in the block period of six years only if the material obtained during the search under Section 132 of the I.T. Act, or any part thereof, relates to the assessment year in question. In the appeals before us, since it is not in dispute that the materials obtained during the search conducted on 21.08.2007 pertain only to the assessment year 2008-09, and there was no incriminating material against the appellants/assessees pertaining to the assessment years 2002-03 to 2007-08, the finding of the Appellate Tribunal reversing the orders of the First Appellate Authority, cannot be legally sustained. we set aside the orders of the Appellate Tribunal, to the extent impugned herein, and answer the substantial questions of law raised by the appellants/assessees in favour of the assessees and against the Revenue.

Summary

Issues Involved:
1. Jurisdiction of Assessing Officer under Section 153A of the I.T. Act.
2. Validity of assessment based on incriminating material.
3. Estimation of undisclosed income.
4. Rejection of books of account.
5. Gross profit ratio adjustments.
6. Suppression of sales turnover.
7. Evidence and statements used in assessments.
8. Applicability of precedents and legal principles.

Summary:

Jurisdiction of Assessing Officer under Section 153A of the I.T. Act:
The High Court examined whether it was permissible for the Assessing Officer to reopen assessments for the years 2002-03 to 2007-08 under Section 153A of the I.T. Act when the search did not yield incriminating material for these years. The Court held that the Assessing Officer could not reopen completed/unabated assessments without incriminating material pertaining to those specific years.

Validity of assessment based on incriminating material:
The Court noted that the search conducted on 21.08.2007 yielded incriminating material only for the assessment year 2008-09. The Assessing Officer had used this material to estimate escaped income for other years, which the Court found improper as there was no incriminating material for those years.

Estimation of undisclosed income:
The Court found that the Assessing Officer's estimation of undisclosed income for the years 2002-03 to 2007-08 based on the material for 2008-09 was unjustified. The Appellate Tribunal's reliance on previous judgments was deemed incorrect in light of the Supreme Court's ruling in Principal Commissioner of Income Tax, Central-3 v. Abhisar Buildwell Pvt. Ltd., which clarified that assessments could not be reopened without incriminating material for the specific years.

Rejection of books of account:
The Assessing Officer had rejected the books of account for multiple years based on the incriminating material for 2008-09 and a statement from an employee. The Court found this rejection unsustainable as it was not supported by material evidence for the other years.

Gross profit ratio adjustments:
The Assessing Officer's increase of the gross profit ratio from the declared 18% to 22% was based on assumptions rather than concrete evidence. The Court found this adjustment arbitrary and unsupported by the search findings.

Suppression of sales turnover:
The Court addressed the issue of suppression of sales turnover, noting that the Assessing Officer had presumed a suppression rate of 70% without specific evidence for the years 2002-03 to 2007-08. This presumption was found to be legally untenable.

Evidence and statements used in assessments:
The Court criticized the reliance on statements from an employee and the partner of the firm, noting that these statements did not constitute sufficient evidence to support the assessments for the years in question.

Applicability of precedents and legal principles:
The Court distinguished the present case from previous judgments cited by the Appellate Tribunal, emphasizing the Supreme Court's interpretation in Abhisar Buildwell Pvt. Ltd. that incriminating material must relate to the specific assessment year for reopening assessments under Section 153A.

Conclusion:
The High Court set aside the orders of the Appellate Tribunal, holding that the assessments for the years 2002-03 to 2007-08 could not be reopened without incriminating material for those specific years. The substantial questions of law were answered in favor of the assessees and against the Revenue. The appeals were disposed of accordingly.