2014 (10) TMI 255 - HC - Income Tax

Section 153A allows reassessment for six years pre-search using all available material, overriding sections 147 and 148

The HC held that under section 153A, the AO must issue notices for each AY within six years preceding the search and reassess total income including ... Assessment u/s 153A – Scope of total income u/s 2(45) - Addition made for gifts made – Held that:- Under section 153A of the Act, the AO is bound to issue notice to the assessee to furnish return for each AY falling within six AYs immediately preceding the AY relevant to the previous year in which such search is conducted or requisition is made - under the block assessment proceeding under Chapter XIV-B only the undisclosed income found during the search and seizure operation were required to be assessed and the regular assessment proceedings were preserved - even though an assessment order has been passed u/s 143(1)(a) or u/s 143(3) of the Act, the AO would be required to reopen these proceedings and reassess the total income taking notice of undisclosed income even found during the search and seizure operation - The fetter imposed upon the Assessing Officer u/s 147 and 148 of the Act have been removed by the non obstante clause u/s 153A. 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 AO would be competent to reopen the assessment proceeding already made and determine the total income of the assessee - the reasons given by the Tribunal that no material was found during the search cannot be sustained, since it has been held that the AO 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 - relying upon CIT v. Anil Kumar Bhatia [2012 (8) TMI 368 - DELHI HIGH COURT] - the Tribunal has committed an error in dismissing the appeal of the Revenue – thus, the order of the Tribunal is set aside and the matter is remitted back for re-consideration – Decided in favour of revenue. ISSUES: Whether the Assessing Officer can make additions to income under section 153A of the Income-tax Act, 1961, in respect of gifts declared in the return of income when no incriminating material relating to such gifts was found during the search.Whether the Income-tax Appellate Tribunal erred in holding that no addition can be made under section 153A unless incriminating material is found during the search.Interpretation of the scope and effect of section 153A of the Income-tax Act, 1961, particularly regarding reassessment powers and applicability to total income including disclosed income.Whether the proviso to sub-section (1) of section 153A restricts the Assessing Officer's power to reassess total income in the absence of incriminating material found during search. RULINGS / HOLDINGS: The Assessing Officer has the power under section 153A to assess or reassess the total income of the assessee for six assessment years immediately preceding the year of search, including income disclosed in the original return, notwithstanding that no incriminating material relating to such income (e.g., gifts) was found during the search.The Tribunal's reliance on the absence of incriminating material found during the search to deny reassessment under section 153A is erroneous and cannot be sustained.Section 153A contains a non obstante clause overriding sections 139, 147, 148, 149, 151 and 153, thereby empowering the Assessing Officer to reopen and reassess completed assessments for the relevant years, including disclosed income.The proviso to sub-section (1) of section 153A does not restrict the Assessing Officer's authority to reassess total income in the absence of incriminating material found during the search; rather, it requires assessment or reassessment of total income as defined in section 2(45) of the Act.The order of the Tribunal dismissing the Revenue's appeal on the legal ground that no addition could be made without incriminating material is set aside, and the matter is remitted for fresh consideration on merits. RATIONALE: The Court applied the statutory framework of section 153A of the Income-tax Act, 1961, introduced by the Finance Act, 2003, effective June 1, 2003, which replaced the block assessment scheme under Chapter XIV-B with a scheme mandating assessment or reassessment of total income for six assessment years following search or requisition.The Court emphasized the non obstante clause in section 153A(1), which overrides other assessment provisions and removes fetters under sections 147 and 148, enabling the Assessing Officer to reopen even completed assessments to determine total income, including disclosed income.The Court referred to the Central Board of Direct Taxes circular dated September 5, 2003, clarifying that assessments under section 153A are to be made for six assessment years and are subject to normal provisions of the Act, including interest, penalty, and prosecution.The Court distinguished the dismissed Tribunal decision relying on a co-ordinate Bench ruling, which was subsequently set aside by the Delhi High Court, thereby undermining the Tribunal's legal basis.The Court identified a doctrinal shift from the earlier block assessment scheme, which assessed only undisclosed income found during search, to the current regime under section 153A, which contemplates reassessment of total income irrespective of whether incriminating material was found during search.