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TMI Blog2023 (4) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 OF 2015 CIVIL APPEAL NO. 17533 OF 2017 CIVIL APPEAL NO. 6596 OF 2021 CIVIL APPEAL NO. 7028 OF 2021 CIVIL APPEAL NO. 7029 OF 2021 CIVIL APPEAL NO. 6610 OF 2021 CIVIL APPEAL NO. 7030 OF 2021 CIVIL APPEAL NO. 6608 OF 2021 CIVIL APPEAL NO. 6594 OF 2021 CIVIL APPEAL NO. 7338 OF 2019 CIVIL APPEAL NO. 6609 OF 2021 CIVIL APPEAL NO. 6605 OF 2021 CIVIL APPEAL NO. 1505 OF 2020 CIVIL APPEAL NO. 734 OF 2020 CIVIL APPEAL NO. 7016 OF 2021 CIVIL APPEAL NO. 7017 OF 2021 CIVIL APPEAL NO. 7015 OF 2021 CIVIL APPEAL NO. 6584 OF 2021 CIVIL APPEAL NO. 6589 OF 2021 CIVIL APPEAL NO. 7026 OF 2021 CIVIL APPEAL NOS. 9098-9099 OF 2022 CIVIL APPEAL NO. 3053 OF 2018 CIVIL APPEAL NO. 7014 OF 2021 CIVIL APPEAL NO. 6583 OF 2021 CIVIL APPEAL NO. 7027 OF 2021 CIVIL APPEAL NO. 6899 OF 2021 Connected Appeals filed by the Assessees CIVIL APPEAL NO. 15617 OF 2017 CIVIL APPEAL NO. 10267 OF 2017 CIVIL APPEAL NOS. 7738-7739 OF 2021 CIVIL APPEAL NOS. 7736-7737 OF 2021 CIVIL APPEAL NOS. 7732-7735 OF 2021 CIVIL APPEAL NO. 10266 OF 2017 CIVIL APPEAL NO. 10268 OF 2017 CIVIL APPEAL NOS. 7740-7743 OF 2021 M. R. SHAH And SUDHANSHU DHULIA , JJ. JUDGMENT M.R. SHAH, J. 1. As common question of law and facts arise in this group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y previous year of a person who is a resident includes all income from whatever source derived. It is submitted that therefore the income tax is a tax on all income from whatever source derived in the case of a resident-assessee. Therefore, if any taxable income is left out, the resultant figure would be 'partial income' and not 'total income'. It is submitted that any interpretation of any provision of the Act, 1961 which seeks to exclude any portion of the 'total income' from the ambit of taxation runs contrary to the scheme of taxation and hence is impermissible. It is submitted that thus the income tax is a tax on 'total income,' the assessee furnishes a return of 'total income' (as per Section 139 of the Act, 1961) and the AO assesses 'total income' only. ii) It is next submitted that while considering the issue involved, the manner and mode of passing assessment/re-assessment orders is required to be considered. It is submitted that section 139 of the Act, 1961 requires an assessee to furnish his return of total income for the previous year. The return is processed under section 143(1). Sub-sections (2) and (3) contain provision for assessment of 'total income' by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the incriminating material found during the search as well as that coming to the AO's notice from any other source. It is submitted that thereafter the Finance Act, 1995 introduced a special procedure for assessment of search cases. A set of provisions comprising of Sections 158B to 158BG was introduced by Chapter XIV-B - Special procedure for assessment of search cases. The salient features of Chapter XIV-B are as follows: (i) Any search initiated u/s 132 or 132A of the Act after 30th June, 1995, the AO shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. (ii) It mandated the assessment of the total undisclosed income relating to the block period to be taxed at the rate specified under Section 113 of the Act as the income of the block period, irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. (iii) Section 158B(a) defines "block period"- "block period" means the period comprising previous years relevant to six assessment years preceding the previous year in which the search w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the regular assessment/reassessment falling under Section 143/147 respectively, and the assessment on undisclosed income for block period would constitute together the total income. (iv) However, the streams of assessment are independent and separate. The regular assessment/reassessment would be under Section 143/147 respectively. Whereas, the assessment of undisclosed income for block period would be a separate assessment under Section 158BC(c). (v) Three things are therefore clear. The spirit of the Income Tax Act is to tax total income. The regular assessment/reassessment form one stream u/s 143/147 and, the block assessment of the undisclosed income as yet another stream of undisclosed income. (vi) As a result of two separate assessments for computation of total income and taxation on it, Section 158BB allowed the following exclusions in computing the undisclosed income of block period to be assessed u/s 158BA which are: a. Assessment under Section 143 (assessment), Section 144 (best judgment assessment), and Section 147 (reassessment). b. Where returns have been filed u/s 139 or notices have been issued u/s 142(1) or u/s 148, but assessments have not been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The concept of 'block period' was given a go-by. The concept of 'assessment year' as the temporal unit was restored. (iii) Assessment had to be made u/s 153A, not under Sections regularly employed for assessment/reassessment, i.e. Section 143(3)/147. (iv) Assessment u/s 153A was to be mandatory and automatic in a case where search had been conducted. (v) Assessments u/s 153A were to be made for each of the six assessment years preceding the assessment year relevant to the previous year in which the search was conducted. (vi) As mentioned above, the second proviso stipulated that assessment/reassessment for any assessment year (out of the 6 assessment years referred to above) pending on the date of the initiation of the search would abate and a single assessment would be made u/s 153A only. It is submitted that the following are the salient features of Section 153A of the Act, 1961: (i) Section 153A is a non-obstante provision to Sections 139, 147, 149, 151 and 153 and the jurisdictional cause of action to initiate proceeding under this Section would be where a search is initiated u/s 132 or books of accounts, other documents or any assets are requisitioned u/s 132 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion happens, the normal assessment/reassessment was allowed to be carried on without any interference and a block assessment of undisclosed income was allowed to be made independently. However, the new scheme brought w.e.f. 01.06.2003 has dismantled this structure and Section 153A conceives the following sequence: a. The jurisdictional exercise of power to initiate proceedings u/s 153A would commence only upon initiation of a search u/s 132 or a requisition u/s 132A and not before that. b. Once a search gets initiated or a requisition is made, the assessment process under every other provision of the Income Tax Act would abate. c. This is clear by virtue of the expression employed in Section 153A(1) "Notwithstanding anything contained in Section 139, 147, 148, 149, 151 and 153." Being a non-obstinate provision, Section 153A overrides all these provisions. It is submitted that to what extent does the override operate is also brought clearly by Section 153A in the following manner: I. 153A(1)(b) allows assessment and reassessment of total income of Six assessment years immediately preceding the assessment year relevant to the previous year in which such a search is conducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment to be made under section 153A for six assessment years. It is submitted that again the Parliament has been extremely careful in not employing the expression 'total income' in the second proviso which expression has been carefully employed under section 153A(1)(b) of the Act, 1961. The omission in the second proviso and the inclusion under Section 153A(1)(b) is extremely significant. The omission under the second proviso is necessary since those pending assessments gets abated upon an initiation of a search under section 132 or a requisition under section 133, since the total income is to be assessed or reassessed again consequent to search or requisition. However, when it comes to section 153A(10(b) it authorises the AO to assess or reassess the 'total income' consequent to search or requisition. (ix) It is submitted that once a search or requisition is initiated, all pending assessments or reassessments would abate. They would get subsumed into the assessment/reassessment to be passed under section 153(1)(b) and the AO will pass one assessment order for each of the six assessment years subsuming all pending assessments and reassessments and such an order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not in consonance with the plain language and meaning of Section 153A and in the process, defeats the very purpose of the 'charging section' of the Act. 4. Learned counsel appearing for the respective assessees have made the following submissions: i) It is submitted that the core issue that arises in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of assessing officer to make assessment is confined to incriminating material found during the course of search under Section 132 of the Act or not, i.e., whether any addition can be made by the assessing officer in absence of any incriminating material found during the course of search under section 132 of the Act, 1961 or not. ii) It is submitted that it is the case on behalf of the Revenue that the jurisdiction to assess the total income under section 153A arises upon 'search' under section 132 and that the jurisdiction is not contingent upon unearthing incriminating material during the course of search. To the aforesaid, it is submitted that while the jurisdiction to issue notice under section 153A may arise consequent to search, however, jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time limit to make regular assessment under section 143(3) is pending or an assessment is underway as on the date of search, the said assessment shall get abated and the AO will have jurisdiction to carry out assessment in respect of such abated assessment dehors any incriminating material. However, in respect of completed/unabated assessments, under section 153A of the Act, 1961, an assessment has to be made in relating to the search or requisition, namely, in relation to material disclosed during the search or requisition. It is submitted that in case the Revenue is permitted to make assessment in respect of any issue despite the fact that no incriminating material is found during the course of search, the same would lead to the expression "search" and "requisition" used in Section 153A being rendered otiose. Not only that, search will become a tool to enlarge limitation period for making regular assessment under section 143(3), which is not permissible. It is submitted that it is the settled position of law that what cannot be done directly, cannot be done indirectly. v) It is submitted that search and requisition can be undertaken in limited circumstances stated under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst reason was that there were two parallel assessments envisaged under the erstwhile regime i.e. (i) block assessment under Section 158BA to assess the undisclosed income and (ii) the regular assessment in accordance with the provision of the Act to make assessment qua income other than undisclosed income. Second reason was that the undisclosed income was chargeable to tax at a special rate of 60% under Section 113 whereas income other than undisclosed income was required to be assessed under regular assessment procedure and was taxable at normal rate. ix) It is submitted that under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the undisclosed income too at the normal rate of tax as against any special rate. It is for such reason that distinction made earlier qua undisclosed income vis-avis other income had been done away with under the regime of Section 153A and it is for that reason that the procedure for separate assessments qua undisclosed income and income other than undisclosed income has been done away with. The omission of word "undisclosed income" in Section 153A does not mean that assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further submitted that, in cases of unabated assessments where no incriminating material whatsoever was unearthed, no addition could be made in the erstwhile regime as well. It is humbly submitted that the intention of the Parliament was to never tinker with such category of cases in the 153A regime. This is because when no two assessments were taking place in respect of such category of cases, there was no question of doing away with the requirement of two parallel assessments. In such category of cases, the expression "total income" cannot be construed literally as per the definition provided under Section 2 as the same would not only be contrary to the objective of the legislation (which is to do away with two parallel assessments) but also manifestly arbitrary as despite no incriminating material being found and despite assessment having been completed earlier, the Revenue will indulge into roving enquiry to tinker with earlier assessment in the garb of assessment under Section 153A. That cannot be permissible and become a tool to bypass the period of limitation for regular assessment. xiii) It is submitted that the expression "total income" in such category of cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on introducing this new scheme of assessment under section 153A which provided that assessment will be made for each of the assessment year separately and the income found undisclosed during the search will be taxed at the normal rate. Hence, in section 153A, it has been stated that 'total income' will be assessed. This means that while computing tax liability, income disclosed as well as undisclosed income found during the course of search will be clubbed to determine the 'total income' and tax to be computed on the basis of such 'total income'. Thus, on the basis of the expression 'total income' in section 153A, the contention of the Revenue that the AO gets power to assess 'total income' which will include even income without there being any incriminating material found during the search in respect of assessments which have not abated is not tenable. It is submitted that the meaning of the expression 'total income' here will be income originally assessed and the income found during the course of the search. On the basis of this expression 'total income', the AO cannot get jurisdiction to make an assessment in respect of other material available on record despit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search. AO not entitled to go beyond scope of pending assessment. No assessment u/s 153A in absence of any incriminating material. Originally concluded assessment which has attained finality cannot be disturbed more so when no material found in search. ii. No incriminating material found in search. + Information/ document from sources other than search available with AO AO entitled to assess entire income, as pending regular assessment stood abated. Scope of assessment u/s 153A must be restricted to: (a) grounds on which proceedings reopened; and (b) additional specific information coming to knowledge AO through modes other than search. AO not entitled to reopen entire assessment and undertake roving/fishing enquiries. Assessment u/s 153A in absence of any incriminating material may be dropped. Post dropping of proceeding s u/s 153A, Revenue may, basis other information, proceed u/s 147 and/or 263 subject to satisfaction of jurisdictional conditions under the said provisions. iii. Incriminating material found during search only on issue 'A'. No other information/mterial available or found from any external sources. AO entitled to assess entire income, as pending regular a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Central -2, New Delhi Vs. Meeta Gutgutia (2017) 395 ITR 526 (Delhi) 8. Chintels India Ltd. Vs. Deputy Commissioner of Income Tax - Circle -8, Delhi (2017) 397 ITR 416 (Delhi) 9. Sri. S.M. Kamal Pasha Vs. The Deputy Commissioner of Income-Tax Central Circle - 6 (3) (2) Bangalore (2022 (8) TMI 966 (Karnataka) 10. Principal Commissioner of Income Tax-2 Vs. Jay Infrastructure and Properties Pvt. Ltd. 2016 (10) TMI 1022 (Gujarat) 11. Smt. Jami Nirmala Vs. Principal Commissioner of Income Tax (2021) 437 ITR 573 (Orissa) 12. Smt. Smrutisudha Nayak Vs. Union of India (2021) 439 ITR 193 (Orissa) 13. Commissioner of Income Tax, Kolkata Vs. Veerprabhu Marketing Limited (2016) 388 ITR 574 (Calcutta) 14. Principal Commissioner of Income Tax-2, Kolkata Vs. M/s. Salasar Stock Broking Ltd. 2016 (8) TMI 1131 (Calcutta) 15. Pr. Commissioner of Income Tax-Central, Jaipur Vs. Smt. Daksha Jain, Sirohi 2019 (8) TMI 474 (Rajasthan) 16. Dr. A.V. Sreekumar Vs. The Commissioner of Income Tax, Kochi and Assistant Commissioner of Income Tax, Calicut (2018) 404 ITR 642 (Kerala) 5. We have heard learned counsel for the respective parties at length. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby; it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year, falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act." 8. For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material. 9. While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under Section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 151 and Section 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132-A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above and for the reasons stated above, it is concluded as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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