First question arises for determination in this case is as to whether the AO is justified to complete the assessment u/s 153A by making an addition of Rs.2,34,54,000/- for AY 2006-07 and Rs.7,12,00,000/- for AY 2007-08 even in the absence of any incriminating material deemed found during the search conducted u/s 132 of the Act?” Identical issue has come up before the Hon’ble jurisdictional High Court in the case cited as Kabul Chawla wherein all the earlier decisions delivered by the Hon’ble High Courts have been considered and legal position decided by the Hon’ble jurisdictional High Court is summarized for ready reference as under :-
“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (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. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words 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 Section 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. The word ‘assess’ in Section 153 A 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 under Section 153A merges into 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 under Section 153 A 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.
38. The present appeals concern AYs 2002-03, 2005- 06 and 2006-0 7. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”
Now, adverting to the case at hand, so far as assessment for the AY 2006-07 is concerned, the assessment was though completed u/s 143(1) but undisputedly no notice was issued u/s 143(2) within the period of limitation on the date of search, meaning thereby no assessment was pending in this case as on date of search i.e. 27.03.2012 and question of abatement does not arise and in these circumstances, addition could be made on the basis of
incriminating material unearthed during the search only. However, assessment qua AY 2007-08 was admittedly completed u/s 143(3) prior to the date of search i.e. 27.03.2012.
DR for the revenue by laying emphasis on paras 37 (iv), (vi) and (vii) vehemently contended that section 153 does not mandate to make an addition strictly on the basis of evidence found during the course of search rather assessment can be made on the basis of evidence found in the course of search or other post-search material or information available with the AO which can be related to the evidence found. Ld. DR further emphasized that even completed assessment can be interfered with by the AO u/s 153A on the basis of requisition of documents or undisclosed income or property discovered in the course of search which was not produced or not already disclosed or made known in the course of original assessment.
