2022 (9) TMI 477 - HC - Income Tax

Validity of assessment u/s 153A - Whether assessment or re-assessment under Section 153-A can be framed only on the basis of incriminating material found during the course of search under Section 132 ? - Substantial question of law - HELD THAT - The aforesaid substantial questions of law have been answered by this Court in a bunch of appeals in M/s Shri Mehndipur Balaji 2022 (7) TMI 294 - ALLAHABAD HIGH COURT wherein taking note of the Division Bench judgment of this Court in Kesarwani Zarda Bhandar Sahson Alld 2017 (4) TMI 57 - ALLAHABAD HIGH COURT and other connected appeals, the substantial question of law involved therein were answered stating in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed, which were subsisting when the search was made, the Assessing Officer would be competent to reopen the assessment proceeding already made and determine the total income of the assessee. The Assessing Officer, while exercising the power under Section 153A of the Act, would make assessment and compute the total income of the assessee including the undisclosed income, notwithstanding the assessee had filed the return before the date of search which stood processed under Section 143(1)(a) of the Act. In the light of the aforesaid, the reasons given by the Tribunal that no material was found during the search cannot be sustained, since we have held that the Assessing Officer has the power to reassess the returns of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to the material that was available at the time of the original assessment. The impugned order of the Income Tax Appellate Tribunal is hereby set aside and the appeal before the Tribunal is restored to its original number.

Summary

Issues:
1. Whether assessment or re-assessment under Section 153-A of the Income Tax Act, 1961 can be based only on incriminating material found during a search under Section 132 of the Act.
2. Whether assessment or re-assessment under Section 153-A of the Income Tax Act can be conducted when no incriminating material is found during a search under Section 132 of the Act.

Analysis:
Issue 1: The appellant challenged an order passed by the Income Tax Appellate Tribunal, Lucknow Bench 'B', Lucknow under Section 260-A of the Income Tax Act, 1961. The substantial questions of law raised included whether assessment or re-assessment under Section 153-A can solely rely on incriminating material found during a search. The appellant cited precedents where the court held that the Assessing Officer has the power to reassess returns not only for undisclosed income found during a search but also for material available during the original assessment. The court emphasized that Section 153A empowers reassessment even when the assessment has been finalized, and the scope should not be restricted. The Tribunal's decision in favor of the Assessee was overturned, and the court ruled that the Assessing Officer can reassess returns for undisclosed income found during the search or available at the time of the original assessment.

Issue 2: The court further discussed whether assessment or re-assessment under Section 153-A could proceed without any incriminating material found during a search. Citing a Division Bench judgment, the court clarified that the Assessing Officer has the authority to reopen assessment proceedings and determine total income, including undisclosed income, even if the return was filed before the search date. The court emphasized that the Assessing Officer's power under Section 153A includes reassessment and is not limited by the absence of incriminating material during the search. The court concluded that the Tribunal's reasoning that no material was found during the search could not be sustained, as the Assessing Officer has the authority to reassess returns for undisclosed income found during the search or available during the original assessment.

The court admitted the appeal based on the settled legal positions from previous judgments and set aside the Tribunal's order. The appeal was allowed, and the Tribunal was directed to reconsider the case on its merits, providing a fair hearing to both parties.