2023 (4) TMI 1056 - SC - Income Tax

Scope of Assessment u/s 153A - competency of AO to consider all the material that is available on record, including that found during the search, and make an assessment of total income - assessment of completed assessments/unabated assessment - Whether in case any incriminating material is found during search then even completed assessments can be assessed or reassessed taking into consideration the incriminating material and other material in possession of the Assessing Officer? - HELD THAT - We are in complete agreement with the view taken in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Saumya Construction 2016 (7) TMI 911 - GUJARAT HIGH COURT taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material. When there shall be a block assessment under Section 153A?- On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under Section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. In case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy. Conclusion 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. Whether in case of completed/unabated assessments, the AO would have jurisdiction to re-open the assessments made under Section 143(1)(a) or 143(3) of the Act, 1961 and to reassess the total income taking notice of undisclosed income even found during the search and seizure operation ? - As once during search undisclosed income is found on unearthing the incriminating material during the search, the AO would assume jurisdiction to assess or reassess the total income even in case of completed/unabated assessments. Therefore, the impugned judgment(s) and order(s) passed by the High Court taking the view that the AO has the power to reassess the return of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to material that was available at the time of original assessment does not require any interference. Under the circumstances, the aforesaid appeals preferred by the assessee M/s Kesarwani Zarda Bhandar, Sahson, Allahabad deserve to be dismissed and are accordingly dismissed.

Summary

Issues Involved:
1. Scope of assessment under Section 153A of the Income Tax Act, 1961.
2. Whether the jurisdiction of the Assessing Officer (AO) to make an assessment is confined to incriminating material found during the search under Section 132 or requisition under Section 132A.

Summary:

Issue 1: Scope of assessment under Section 153A of the Income Tax Act, 1961

The core issue in the present batch of appeals is the scope of assessment under Section 153A of the Income Tax Act, 1961. According to the Revenue, the AO is competent to consider all the material that is available on record, including that found during the search, and make an assessment of 'total income.' However, the assessees contend that if no assessment proceeding is pending on the date of initiation of the search, the AO may consider only the incriminating material found during the search and is precluded from considering any other material derived from any other source.

Issue 2: Whether the jurisdiction of the AO to make an assessment is confined to incriminating material found during the search under Section 132 or requisition under Section 132A

The Supreme Court upheld the view taken by various High Courts, including the Delhi High Court in the case of Kabul Chawla and the Gujarat High Court in the case of Saumya Construction, that no addition can be made in respect of completed/unabated assessments in the absence of any incriminating material. The Court held that the intention of the legislature is clear from the second proviso to Section 153A, which states that only pending assessments/reassessments shall abate and the AO would assume jurisdiction with respect to such abated assessments. The Court emphasized that the object of Section 153A is to bring under tax the undisclosed income found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period, even in the case of completed/unabated assessments.

Conclusion:

i) 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.
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. However, the completed/unabated assessments can be reopened by the AO in the exercise of powers under Sections 147/148 of the Act, subject to fulfillment of the conditions as envisaged/mentioned under Sections 147/148 of the Act, and those powers are saved.

The appeals and review petitions preferred by the Revenue were dismissed, and the appeals preferred by the assessee were also dismissed.