PCIT Vs. Abhisar Buildwell P. Ltd. (Supreme Court); Civil Appeal No. 6580 Of 2021; 24/04/2023
In Respect of Completed/Unabated Assessments, No Addition Can Be Made By AO In Absence of Any Incriminating Material Found During The Course of Search
Core issue involved in the appeals is the scope of assessment u/s 153A. question posed for consideration is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search u/s 132 or requisition u/s 132A 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 u/s 132 or requisition u/s 132 A or not.
Revenue argued that once upon the search u/s 132 or requisition u/s 132A, the assessment has to be done u/s 153A 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.
The Court noted that various High Courts of Delhi, Gujarat, Bombay, Karnataka, Orissa, Calcutta, Rajasthan and Kerala have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. The judgment by the Delhi High Court in the case of CIT v. Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi) dated 28.08.2015 has been subsequently followed and approved by the other High Courts. Another lead judgment is the decision of the Gujarat High Court in PCIT Vs. Saumya Construction (2016) 387 ITR 529 (Guj) which has been followed by the Gujarat High Court in the subsequent decisions. Only the Allahabad High Court in the case of PCIT v. Mehndipur Balaji, (2022) 447 ITR 517 has taken a contrary view.
Delhi High Court in the case of Kabul Chawla had summarised the legal position on interpretation of Sec 153A as under:
i. Once a search takes place u/s 132, notice u/s 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate & total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. AO will exercise normal assessment powers in respect of the 6 years previous to the relevant AY in which the search takes place. AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the 6 years. There will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.
iv. Although Sec 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. Word ‘assess’ in Sec 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment u/s 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment u/s 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
Gujarat High Court in the case of Saumya Construction referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment u/s 153A, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no jurisdiction to re-open the completed assessment.
The Supreme Court held that it is in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla and the Gujarat High Court in the case of Saumya Construction taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material.
The Court noted that while considering the issue involved, one has to consider the object and purpose of insertion of Sec153A. Prior to insertion of Sec 153A in the statute, the relevant provision for block assessment was u/s 158BA. The erstwhile scheme of block assessment u/s 158BA envisaged assessment of ‘undisclosed income’ for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment u/s 158BA to assess the ‘undisclosed income’ and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the ‘undisclosed income’ was chargeable to tax at a special rate of 60% u/s 113 whereas income other than ‘undisclosed income’ was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. U/s 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the ‘undisclosed’ income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments u/s 153A are triggered by conducting of a valid search u/s 132 . The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Foundation for making search assessments u/s 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.
The Court held that once search or requisition is made, a mandate is cast upon the AO to issue notice under Section 153 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.
As per the provisions of Section 153A, in case of a search u/s 132 or requisition u/s 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. As per the second proviso to Section 153A, 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 u/s 132 or making of requisition u/s 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, 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. 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. on true interpretation of Section 153A, in case of a search u/s 132 or requisition u/s 132A 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. 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 u/s 147/48, subject to fulfilment of the conditions mentioned. Even in case of block assessment u/s 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 has to be saved, otherwise the Revenue would be left without remedy.
The Court held that if the submission on behalf 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 is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. Only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, 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. No addition can be made in respect of the completed assessments in absence of any incriminating material.
The Court concluded that:
i) that in case of search u/s 132 or requisition u/s 132A, the AO assumes the jurisdiction for block assessment u/s 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;
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. 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 u/s 132 or requisition under Section 132A. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers u/s 147/148, subject to fulfilment of the conditions as envisaged/mentioned u/s 147/148 and those powers are saved.
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