Income Tax Act- AO Can’t Make Additions to Completed Assessments In Absence Of Incriminating Materials: Supreme Court

The Supreme Court has ruled that no additions can be made by the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961 in the absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132 A, in respect of completed /unabated assessments. The bench of Justices M.R. Shah and Sudhanshu Dhulia remarked that block assessment under Section 153A of the Income Tax Act is linked with the search and requisition under Sections 132 and 132A, respectively. Further, the object of assessment under Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search/requisition. Therefore, the court held that the jurisdiction of AO to make assessment is confined to the incriminating material found during the course of search or requisition. Thus, only in cases where the undisclosed income is found on the basis of incriminating material in search/ requisition, 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. The bench added that in case of completed/ unabated assessment, if no incriminating material is found during the search, the only remedy available to the revenue department would be to initiate the reassessment proceedings under Sections 147/148 of the Act, subject to fulfilment of the specified conditions. The top court was dealing with a batch of appeals filed by the revenue department and the assessees, on the issue concerning the scope of assessment under Section 153A of the Income Tax Act. The assessee, Abhisar Buildwell Pvt Ltd, argued that 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 he is precluded from considering any other material derived from any other source. Per contra, the revenue department pleaded that the AO is competent to consider all the material that is available on record, including any incriminating material found during the search. It further contended that additions can be made by the AO in absence of any incriminating material found during the course of search/ requisition, even in respect of completed assessments/ unabated assessments. The court observed that various High Courts, namely the Delhi, Gujarat, Bombay, Karnataka, Orissa, Calcutta, Rajasthan, and the Kerala High Courts have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material found during search. The bench observed that the lead judgment was by the Delhi High Court in Commissioner of Income Tax, Central-III vs Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi), which was subsequently followed and approved by the other High Courts. The High Court in Kabul Chawla (2015) had held that 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, which were not produced or not already disclosed or made known in the course of original assessment. The said decision was followed by the Gujarat High Court in Principal Commissioner of Income Tax vs. Saumya Construction, (2016) 387 ITR 529 (Gujarat), where it had held that in absence of any incriminating material found during search/ requisition, AO has no jurisdiction to re-open the completed assessment. The Supreme Court observed that as per the provisions of Section 153A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. The bench reckoned that search assessments/block assessments under Section 153A are triggered by conducting a valid search under Section 132 of the Income Tax Act. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of Sections 153A/153C, is detection of undisclosed income, i.e., the income which cannot be detected in the ordinary course of regular assessment, by undertaking extraordinary power of search and seizure. “Thus, the foundation for making search assessments under Sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search,” said the court. Referring to the second proviso to Section 153A and Section 153A(2), the court remarked, “The 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,...

Income Tax Act- AO Can’t Make Additions to Completed Assessments In Absence Of Incriminating Materials: Supreme Court

Parina Katyal

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