2023 (4) TMI 1056 - SC - Income Tax

Section 153A Empowers AO to Conduct Block Assessments After Search, Affecting Pending and Completed Cases

Principal Commissioner of Income Tax, Central-3 Versus Abhisar Buildwell P. Ltd., RITU AGARWAL

The SC held that under Section 153A, the AO acquires jurisdiction to conduct block assessments following a search or requisition under Sections 132/132A. ... Scope of Assessment u/s 153A - searches conducted under Section 132 or requisitions under Section 132A - Interpretation of the phrase 'total income' under Section 153A and its relationship with the earlier block assessment regime under Section 158BA - 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. ISSUES: Whether the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961, can assess or reassess the total income in respect of completed/unabated assessments in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A.Scope and effect of the abatement proviso under Section 153A(1) second proviso and revival under Section 153A(2) in relation to pending and completed assessments upon initiation of search or requisition.Interpretation of 'total income' under Section 153A in the context of search assessments and its relation to undisclosed income found during search.Whether the AO can rely on material other than incriminating material found during search to make additions in completed/unabated assessments under Section 153A.Whether the assessment under Section 153A is a block assessment or year-wise assessment and its relation to the erstwhile block assessment scheme under Section 158BA.Whether the AO's jurisdiction under Section 153A is contingent upon the existence of incriminating material found during search or arises merely upon initiation of search/requisition. RULINGS / HOLDINGS: The AO's jurisdiction under Section 153A to assess or reassess total income in respect of completed/unabated assessments is confined to cases where incriminating material is found during the course of search or requisition; no addition can be made in absence of such incriminating material.Upon initiation of search or requisition, all pending assessments/reassessments shall abate as per the second proviso to Section 153A(1), and the AO shall assume jurisdiction to assess or reassess total income for each of the six assessment years afresh under Section 153A(1)(b).Assessment under Section 153A is year-wise for each of the six assessment years preceding the assessment year relevant to the search, and not a block assessment; the concept of block assessment under Section 158BA has been replaced by this scheme.The term 'total income' under Section 153A is to be understood contextually: for abated assessments, it means total income as defined in Section 2(45); for completed assessments where no incriminating material is found, it means the total income as per the earlier assessment order or return filed where assessment time limit has expired.The AO cannot make assessment or reassessment under Section 153A in respect of completed/unabated assessments based on material other than incriminating material found during search; reliance on such other material in absence of incriminating material would amount to impermissible roving enquiry and abuse of process.The AO's jurisdiction under Section 153A arises upon initiation of search or requisition, but the power to assess or reassess total income in completed/unabated assessments depends on presence of incriminating material found during search; mere initiation of search without incriminating material does not confer unrestricted jurisdiction. RATIONALE: The Court analyzed the statutory framework of assessment under the Income Tax Act, 1961, including Sections 132, 132A, 139, 143, 147, 153A, and the erstwhile provisions under Chapter XIV-B (Sections 158B to 158BG) relating to block assessments.It was noted that prior to Section 153A, block assessments under Section 158BA assessed only 'undisclosed income' separately from regular assessments, with a special tax rate; the 2003 amendment introduced Section 153A to unify assessment of total income for six assessment years on search/requisition, abolishing parallel assessments.The Court emphasized that Section 153A is a non-obstante provision overriding other assessment provisions and mandates assessment or reassessment of 'total income' for each relevant assessment year, triggered by valid search/requisition.The Court interpreted the second proviso to Section 153A(1) as abating only pending assessments/reassessments, not completed/unabated assessments, preserving the finality of completed assessments unless incriminating material is found.The Court relied on the principle that the object of search and requisition under Sections 132 and 132A is to detect undisclosed income based on incriminating material, and thus assessment powers under Section 153A must be linked to such material to avoid arbitrary or roving enquiries.The Court rejected the Revenue's contention that AO can assess total income including material other than incriminating material in completed assessments, holding that such interpretation would render the statutory abatement and revival provisions redundant and violate the legislative intent.The Court followed and affirmed the reasoning of various High Courts, notably the Delhi High Court in Kabul Chawla and the Gujarat High Court in Saumya Construction, which restrict AO's jurisdiction in completed assessments to incriminating material found during search.The Court preserved the Revenue's right to initiate reassessment proceedings under Sections 147/148 for completed assessments where no incriminating material was found during search, subject to statutory conditions, thereby maintaining the balance between assessment finality and Revenue's powers.The Court underscored that the heading of Section 153A and the statutory language support the interpretation that assessment under Section 153A must be connected with the search/requisition and related incriminating material.