Income Tax Act: According To The Supreme Court, An Ao Cannot Make Additions To Completed Assessments In The Absence Of Incriminating Evidence

CAUSE TITLE:

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

DATE OF ORDER:  

24-04-2023

JUDGE(S):

M.R. SHAH, SUDHANSHU DHULIA

PARTIES:

Petitioner:Principal Commissioner of Income Tax, Central-3

Respondent:Abhisar Buildwell P. Ltd.

SUBJECT 

According to a decision by the Supreme Court, the Assessing Officer (AO) is not permitted to add anything to completed or unabated assessments under Section 153A of the Income Tax Act of 1961 in the absence of evidence of criminal activity discovered during a search under Section 132 or requisition under Section 132 A.

QUESTION RAISED 

What Is The Scope Of Assessment Under Section 153a Of The Income Tax Act, 1961? Is The Question At Hand In The Current Batch Of Appeals?

ARGUMENTS ADVANCED BY THE APPELLANT

• In contrast, the revenue department said that the AO is qualified to take into account all of the information that is on file, including any damning information discovered during the search. It further argued that the AO could make amendments even to finished or unresolved assessments if no damning evidence was discovered during the search or requisition.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The assessee, Abhisar Buildwell Pvt Ltd, maintained that the AO may only examine the incriminating evidence uncovered during the search and is prohibited from considering any additional material derived from any other source if no assessment proceeding is pending on the date of the search's inception.

ANALYSIS BY THE COURT

• The bench of Justices M.R. Shah and Sudhanshu Dhulia stated that block assessment under Section 153A of the Income Tax Act is related to search and requisition under Sections 132 and 132A, respectively. Furthermore, the purpose of Section 153A assessment is to tax concealed income discovered during a search or under a search/requisition. As a result, the court determined that the AO's jurisdiction to conduct an assessment is limited to the incriminating evidence discovered during the search or requisition.
• Thus, only in circumstances where unreported income is discovered as a result of incriminating information discovered during a search/requisition would the AO assume jurisdiction to assess or evaluate the total income for the whole six-year block assessment period, even if the assessment is completed/unabated.
• The bench further stated that the revenue department's only option in the case of a completed or unabated assessment would be to begin the reassessment proceedings under Sections 147/148 of the Act, subject to meeting the required conditions, if no incriminating material was discovered during the search.
• The Delhi, Gujarat, Bombay, Karnataka, Orissa, Calcutta, Rajasthan, and Kerala High Courts, among others, have taken the position that no addition can be put forward in respect of accomplished or unabated assessments in the absence of any incriminating material discovered during the search, the court observed.
• The panel noted that the other High Courts followed and endorsed the Delhi High Court's decision in Commissioner of Income Tax, Central-III v. Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi), which served as the precedent.
• According to the High Court's ruling in Kabul Chawla (2015), assessments that have already been made can only be changed by the AO when assessing Section 153 A based on certain incriminating items discovered during a search or requisition that were not produced, already disclosed, or made known during the initial assessment.
• The Gujarat High Court upheld the aforementioned ruling in Principal Commissioner of Income Tax vs. Saumya Construction, (2016) 387 ITR 529 (Gujarat), holding that the AO lacks the authority to reopen the final assessment in the absence of any incriminating evidence discovered during the search or requisition.
• According to Section 153 A's provisions, the Supreme Court noted, the AO has the authority to assess or evaluate the "total income" for each assessment year that falls within six assessment years.
• The bench determined that conducting a proper search under Section 132 of the Income Tax Act constitutes triggering search assessments/block assessments under Section 153A. The whole objective of a search, which is a requirement or trigger for using Sections 153A/153C's provisions, is to find undeclared income—i.e., income that cannot be found during a regular assessment's normal course—by using an extraordinary power of search and seizure.
• "Thus, the existence of incriminating material showing undisclosed income detected as a result of the search can be said to be the basis for making search assessments under Sections 153A/153C," the court said.
• The court stated about the second proviso to Section 153A and Section 153A(2), "The intention of the legislation appears 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 objective does not appear to be to re-open the completed/unabated assessments unless any incriminating material is discovered concerning the concerned assessment year that falls within the last six years preceding the search."
• The bench, therefore concluded that the AO would have the authority to assess or reassess the "total income," taking into account the incriminating material collected during the search and other material, which would include income declared in the returns, if any incriminating material is found during the search, even in case of unabated/completed assessment.
• The only remedy available to the revenue department in a completed or unabated assessment, however, would be to begin the reassessment proceedings under Sections 147/148 of the Act, subject to fulfilling the criteria mentioned therein, as in such a scenario, the department cannot be left with no remedy, the court ruled.
• In response to the revenue department's contention, the court stated: "If the Revenue's submission that in case of search, even if no incriminating material exists during the search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into account the other material is agreed upon, in that case, there will be two assessment orders, which are not permissible under the law."
• According to the second provision of Section 153A, only pending assessments and reassessments shall stand abated, and the AO would take over authority over those abated assessments, it was further said. It does not stipulate that all finished, unabated assessments must end. The second provision to Section 153A and subsection (2) of Section 153A would be superfluous and/or rewritten in that event, which is not permitted by law if the Revenue's proposal is adopted.
• The Delhi High Court's decision in Kabul Chawla (2015), the Gujarat High Court's decision in Saumya Construction (2016), and the rulings of the other High Courts that no additions can be made regarding the completed assessments in the absence of any incriminating evidence discovered during the search or requisition were upheld by the court.

Click here to download the original copy of the judgement