Search abatement under second proviso to s.153A makes s.153A(1) return replace s.139(1), allowing new claims and AO can reconsider disallowances

HC held that where a search led to abatement of a pending scrutiny assessment under the second proviso to s.153A, the original return loses its finality and the return filed under s.153A(1) stands in the place of a return under s.139(1). Consequently the assessee may advance claims (including new claims not made in the original return) and the AO may consider disallowances afresh. Applying this principle, the Court allowed the assessee's claim to treat the pre-payment gain as capital receipt and decided against the revenue.

---

---

Issues Involved:
1. Whether the assessee can lodge new claims, deductions, exemptions, or reliefs in the return filed under Section 153A of the Income Tax Act, 1961, which were not claimed in the original return filed under Section 139(1).
2. Interpretation and applicability of Section 153A of the Income Tax Act, 1961, in the context of assessments abating due to search actions under Section 132.

Detailed Analysis:

Issue 1: Lodging New Claims under Section 153A
The primary question was whether the assessee could raise a new claim in the return filed under Section 153A, which was not made in the original return filed under Section 139(1). The Assessing Officer (AO) disallowed the new claim, treating it as a "revenue receipt" instead of a "capital receipt." The AO's reasoning was based on the fact that the assessee had availed of a sales tax deferral scheme and had treated the gain on pre-payment of deferred VAT/sales tax on NPV basis as a "capital receipt" in the subsequent return filed under Section 153A.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, but the Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, setting aside both the AO and CIT(A)'s orders. The ITAT concluded that the assessee could lodge new claims in the return filed under Section 153A, as the assessment proceedings had abated.

Issue 2: Interpretation and Applicability of Section 153A
Section 153A deals with assessments in the case of search or requisition. It mandates that the AO issue notice to the person searched to furnish returns for six assessment years preceding the search year. These returns are treated as returns filed under Section 139, and the AO is required to assess or reassess the total income for these years.

The court emphasized the significance of the non-obstante clause in Section 153A, which overrides the provisions of Sections 139, 147, 148, 149, 151, and 153. The second proviso to Section 153A(1) states that any pending assessment or reassessment proceedings on the date of the search shall abate.

Judicial Precedents and Analysis
The court referred to the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. and the principles laid down therein. The judgment clarified that once the assessment proceedings abate due to a search, the AO must conduct a fresh assessment for the relevant years. The court also noted that the returns filed under Section 153A should be treated as returns filed under Section 139, allowing the assessee to make new claims.

The court highlighted that the abatement of pending assessments means that the original return loses its originality, and the subsequent return filed under Section 153A takes its place. This interpretation allows the assessee to raise new claims, deductions, exemptions, or reliefs that were not claimed in the original return.

Conclusion
The court concluded that in view of the second proviso to Section 153A(1), once the assessment gets abated, it is open for the assessee to lodge new claims in the return filed under Section 153A, which were not claimed in the original return. The court found no substantial question of law in the revenue's appeal and dismissed it, upholding the ITAT's decision.

Final Judgment
The appeal filed by the revenue was dismissed, with the court agreeing with the ITAT's interpretation that the assessee could make new claims in the return filed under Section 153A following the abatement of the original assessment proceedings. The court emphasized that the provisions of the Income Tax Act should be applied to the return filed under Section 153A as if it were filed under Section 139(1).

---