No additions can be made u/s 153A for completed/unabated assessments in absence of any incriminating material found during search u/s 132 – Supreme Court settles the controversy by affirming the law laid down by Delhi High Court in Kabul Chawla
ABCAUS Case Law Citation:
ABCAUS 3716 (2023) (04) SC
Important Case Laws relied upon:
Pr. Commissioner of Income Tax v. Mehndipur Balaji, 2022 SCC OnLineAll 444: (2022) 447 ITR 517
All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income Tax, (2012) 18ITR (Trib.) 106
Commissioner of Income Tax, Central-III v. Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi)
Chintels India Limited vs DCIT [2017] 397 ITR 416(Del)].
Commissioner of Income Tax vs. Sinhgad Technical Education Society
Commissioner of Income Tax vs. Saumya Construction
Commissioner of Income Tax vs. Continental Warehousing Corporation (Nhava Sheva) Ltd.
Smt. Jami Nirmala Vs. Principal Commissioner of Income Tax
Commissioner of Income Tax vs. Veerprabhu Marketing Limited
Dr. A. V. Sreekumar vs. Commissioner of Income Tax
Supreme Court affirm law laid down by Delhi High Court in Kabul Chawla
The main issue involved in these batch of appeals was the scope of assessment under section 153A of the Income Tax Act, 1961 (the Act).
According to the Revenue, the Assessing Officer (AO) 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’.
The Hon’ble Supreme Court observed that some of the High Courts have agreed with the said proposition. However, according to 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.
In this regard, Delhi High Court, Gujarat High Court, Bombay High Court, Karnataka High Court, Orissa High Court, Calcutta High Court, Rajasthan High Court and the Kerala High Court have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. The lead judgment is by the Delhi High Court in the case of Kabul Chawla which has been subsequently followed and approved by the other High Courts.
One another lead judgment on the issue is the decision of the Gujarat High Court which has been followed by the Gujarat High Court in the subsequent decisions. Only the Allahabad High Court has taken a contrary view.
In the case of Kabul Chawla the Delhi High Court, on interpretation of Section 153A of the Act, has summarised the legal position as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 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. 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 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 under Section 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 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.
The Revenue submitted that when section 153A requires assessment of ‘total income’, can it be interpreted so as to exclude a part of the ‘total income’ while making the assessment?
It was submitted that if income based on incriminating material from sources other than the search is excluded from assessment under section 153A, how can the same be brought to tax? It was submitted that the language and meaning of Section 153A is plain and unambiguous, i.e., if search undersection 132 of the Act, 1961 is conducted in a case, assessment of ‘total income’ for each of the six assessment years pending the assessment year relevant to the previous year in which such search is conducted, has to be made. It was submitted that therefore the decision in All Cargo Global Logistics Ltd and the decision of the Delhi High Court in the case of Kabul are not in consonance with the plain language and meaning of Section 153A and in the process, defeats the very purpose of the ‘charging section’ of the Act.
The Hon’ble Supreme Court framed the following question of law to be answered.
“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 under Section 132 or requisition under Section 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 under section 132 or requisition under Section 132A of the Act or not?
No additions can be made u/s 153A for completed/unabated assessments in absence of any incriminating material found during search u/s 132
A division Bench of the Hon’ble Supreme Court comprising of Hon’ble Justice M. R. Shah and Hon’ble Justice Sudhanshu Dhulia expressed 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.
In view of the detailed analysis of the decisions relied upon and the relevant provisions of the Act, the Hon’ble Supreme Court concluded its decision as under:
(i) that in the case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 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; 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 132A of the Act.
Completed/unabated assessments in absence of any incriminating material found during search u/s 132 can be reopened u/s 147
However, the Apex Court said that 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.
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