Impact of Finance Act 2021 on survey cases under section 133A

The Finance Act 2021 brought a new re-assessment procedure in respect of an income which has escaped assessment and also in survey, search and seizure cases. In this brief write up I will confine myself only to the impact of new provisions on cases where survey U/S 133A is conducted after 01/04/2021.

The Explanatory Memorandum to the Finance Bill states as under:-

“The bill proposes a completely new procedure of assessment of such cases. It is expected that the new system would result in less litigation and would provide ease of doing business to taxpayers as there is a reduction in time limit by which a notice for assessment or reassessment or re-computation can be issued”.

Section 148 of the IT Act as inserted w.e.f. 01/04/2021 provides for issue of notice before making the assessment, reassessment or re-computation under section 147. The issue of notice is subject to provisions of section 148A and further provides that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority for issue of such notice. Section 148 further provides that:-

“ The assessing officer shall be deemed to have information which suggest that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any asset are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person”.

Non applicability of new process U/S 148A in certain cases

Section 148A has provided three exceptions where provisions of this section shall not apply which are as under:-

a) A search is initiated U/S 132 or books of account, other documents or any assets are requisitioned U/S 132A in the case of the assessee on or after the 1^stday of April, 2021; or

b) The assessing officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search U/S 132 or requisitioned U/S 132A, in the case of any other person on or after the 1^stday of April, 2021, belongs to the assessee; or

c) The assessing officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search U/S 132 or requisitioned U/S 132A, in case of any other person on or after the 1^stday of April, 2021 pertains or pertain to, or any information contained therein, relate to, the assessee. 

Although in section 148 a deeming provision has been made regarding escapement of income in the case of the assessee where a survey is conducted U/S 133A yet we do not find any exclusion in section 148A from following the procedure laid down in section 148A. It is inferred that the AO has to follow the procedure as laid down under section 148A before issue of notice U/S 148 and all the approvals have to be obtained from the specified authority.

The legislature in its wisdom has provided a deeming provision regarding escapement of income in survey cases, but if there is no adverse inference in relation to proceeding three assessment years then how and on what basis notice U/S 148A can be issued. It is not clear whether in such cases compulsory scrutiny will be taken up or not. If at all the compulsory scrutiny is taken up the same will be in violation of Principles of Natural Justice.

Mandatory assessment/ Re-assessment for 4 years in case of assessee where a survey is conducted U/S 133A

After going through all the relevant provisions of Re-assessment we can safely make out that the assessee in whose case survey is conducted after 01/04/2021 is burdened with the following:-

a) Scrutiny Assessment (subject to certain exceptions as provided in the guidelines issued by CBDT from time to time) for the year in which survey is conducted and in addition.

b) Re-assessment in the preceding three years in which the survey is conducted irrespective of the fact that whether any escapement is detected or not.

c) Re-assessment beyond preceding three years upto ten years if any escapement of income is detected which is represented in the form of asset, which is likely to amount to fifty lakhs rupees or more for that year.

d) The assessment of cases under compulsory scrutiny which have impounded material shall have to be transferred to central charges U/S 127 of the Act after the issue of notice U/S 143(2) of the Act.

Conclusion

The provisions of re-assessment are in contrast to the memorandum where it is said that the new procedure of assessment would result in less litigation and would provide ease of doing business to taxpayer. The assessee in whose case survey is conducted U/S 133A will be burdened with compulsory scrutiny U/S 143/148 of the IT Act for preceding three assessment years also. The scope of litigation will much higher in such cases.