Supreme Court: Settling an issue revolving around the scope of assessment under section 153-A of the Income Tax Act, 1961, the bench of MR Shah* and Sudhanshu Dhulia, JJ has held that once during search undisclosed income is found on unearthing the incriminating material during the search, the Assessing Officer (AO) assumes jurisdiction to assess or reassess the total income even in case of completed/unabated assessments. However, 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.
The controversy in the case at hand arose after the Revenue submitted that the Assessing Officer 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’. While some of the High Courts have agreed with the said proposition, however, as per some of the High Courts’ decisions, 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.
As a result of the Supreme Court’s ruling, 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, have been affirmed.
Issue
Whether in respect of completed assessments/unabated assessments, the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search under Section 132 or requisition under Section 132-A or not, i.e., whether any 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 132-A of the Act, 1961 or not?
Supreme Court’s analysis
The Revenue had argued before the Court that once upon the search under Section 132 or requisition under Section 132-A, the assessment has to be done under Section 153-A of the Act, 1961 and the AO thereafter has the jurisdiction to pass assessment orders and to assess the ‘total income’ taking into consideration other material, though no incriminating material is found during the search even in respect of completed/unabated assessments.
To decide this, the Supreme Court went on to understand the legislative intent behind Section 153-A and noticed that under the said provision,
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in case of a search under Section 132 or requisition under Section 132-A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years.
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as per the second proviso to Section 153-A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132-A, as the case may be, shall abate.
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As per sub-section (2) of Section 153-A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner.
Therefore, the Court observed that,
“The intention of the legislation seems 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.”
Hence, on true interpretation of Section 153-A of the Act, 1961, the Court observed that,
i) In case of a search under Section 132 or requisition under Section 132-A 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.
ii) 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.
Consequently, even in case of block assessment under section 153-A 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.
Rejecting the contention of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material, the Court held that if the same is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. Accepting this submission will also render second proviso to section 153-A and subsection (2) of Section 153-A redundant and/or lead to rewriting the said provisions, which is not permissible under the law. As per the second proviso to Section 153-A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate.
Conclusion
i) that in case of search under Section 132 or requisition under Section 132-A, the AO assumes the jurisdiction for block assessment under section 153-A;
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 132-A 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.
[Principal CIT v. Abhisar Buildwell P. Ltd., 2023 SCC OnLine SC 481, decided on 24-04-2023]
*Judgment authored by Justice MR Shah
Advocates who appeared in this case:
For Revenue: ASG N. Venkataraman;
For Respective Assessees: Senior Advocates Arvind P. Datar, Kavin Gulati, Preteesh Kapoor, and Advocate Ved Jain.
