S.153A Income Tax Act| Can Assessments Be Reopened If No Incriminating Material Is Found During Search? Supreme Court Reserves Judgment
The Supreme Court on Thursday reserved its judgment on whether in an assessment under section 153A of the Income Tax Act, besides the incriminating material found during search, such materials which the Assessing Officer has on hand and the third party records available can be relied on to assess total income, or whether the assessment has to confined only to the incriminating material seized during the search. The Court also discussed the issue whether there is no incriminating material seized during the search, then those assessments be reopened and reassessed under Section 153A.
The bench of Justices M. R. Shah and Sudhanshu Dhulia was hearing a string of pleas on this issue arising on account of conflicting High Court judgments. On Wednesday, ASG Venkataraman had made submissions for the revenue.
Senior Advocate for some of the assessees: "I have three basic submissions- one, your lordships have seen the second proviso (to section 153A), it is only the pending assessments that abate and the necessary corollary is that completed assessments do not abate. It is important that your lordships say this because in all of these judgments, the Revenue's contention has been that even concluded assessments abate and that has been rejected all over by all high courts. The ASG has accepted that concluded assessments do not abate but your lordships would have to clarify. Second submission is that right from Pooran Mal's case, the power under section 132 (of the IT Act) has been upheld as not violating Article 21 or 19(1)(g) on the ground that this is the power to prevent evasion of tax. And it has inbuilt safeguards. 132 uses the expression 'undisclosed income'. Two consequences follow. And as a result of a search, because it is a power only to prevent evasion, it cannot become a tool of a roving enquiry. In most cases, that is why the assessees are in appeal. The revenue contends that the moment there is a search, everything is at large and I can make a roving enquiry and keep digging for material even when there is no material, whether for reopening or incriminating material. The consequence that follows from Pooran Mal's case is that a search cannot be made a roving enquiry. The second consequence is the view taken by various High Court that under 153A, the triggering event is still a search under 132 and 132 has inbuilt, inherent safeguards and the requirement that it attacks only the undisclosed income. And since the triggering event, the jurisdictional event is a valid search...."
Justice Shah: "Incriminating material can only be after search. Till the search...."
Senior Advocate for the Assessees: "That will be my third submission because your lordships have to draw that balance. The Second submission, may I complete? All courts have taken the view that the triggering event is still a valid search, the idea is to assess undisclosed income. The third submission is because your lordships will have to balance the assessees' rights in the sense that there cannot be any roving enquiry as well as the department's powers. What about tangible material which is already available with the AO but which is not found as a result of the search- this was troubling your lordships. The answer is given by the Gujarat High Court, there your lordships held that the non obstante clause (in section 153A) does not mean that he loses his jurisdiction to reassess under 147. The non obstante clause overrides only to the extent of inconsistency. Then in my submission here what it is intended to override is the procedural aspect of 147, the substantive power as well as substantive safeguards of 147 Are still available to the assessing officer. In my humble submission, that will be the way to draw a balance between protecting the assessees' right As well as protecting the department's power in legitimate cases.
Even without 147, even under 153A, the moment the word 'reassess' is used, in Kelvinator's case, the three-judge bench came to the conclusion that the word 'reassess' means that de hors the words 'reason to believe', power to reassess is distinct from the power to review. Therefore, at the moment the power to reassess is there, two consequences follow, as laid down by the three-judge bench- one, there cannot be a change of opinion, and two, there must be tangible material"
ASG N. Venkataraman, for the Revenue: "Your Lordships can very well say that it is not supposed to be a roving enquiry. That is not my case. It also does not permit change of opinion. That is also not our case. Change of opinion is review alone. But assessment based on materials we already have is not review. That is only reassessment"
Justice Shah to the ASG: "His submission is that in case of a completed assessment, there cannot be two assessments, one under 143 and another under 153A. Suppose some further material is found during a search, during the assessment under 153A, not undisclosed income but incriminating material, then that can be said to be reassessment but not assessment"
ASG: "153A says 'Assess or reassess total income'"
Justice Shah: "That would be akin to 147"
ASG: "Yes, the restrictions of 147 can be applied here. We cannot use 153A to engage in roving inquiry. Your lordships can qualify the judgment like that. We don’t want to use 153A like that. But now they are using 153A and in the process asking us to confine to incriminating material seized and if you don’t find anything else, they are stopping us to assess total income. In gathering material, there is a dividing line. You cannot set out on a roving enquiry, but that is a different extreme. In preventing me from gathering material, my original assessment under 143 is lost"
Justice Shah: "It is not lost because 143 assessment is already conducted"
ASG: "What I’m trying to say is that the difference is this- where assessment is completed, I have to do it within the contours of 147. Where the assessments have not been completed, he is saying we cannot gather material"
Justice Shah: "But where the assessments are over, they are abated, everything is at large. In the course of the search, maybe incriminating material is not available. But some other material is available with the AO which would have a direct effect on the assessment of the total income. Then that can be looked at"
Senior Advocate: "That is exactly what the Gujarat High Court has said that that power is retained"
Bench: "then there is no problem"
Senior Advocate: "There is one problem. My learned friend (ASG) says that during the course of 153A assessment, I can call for further material. That is a roving enquiry"
Bench: "That is not a roving enquiry"
Senior Advocate: "Even under 147 that power is based on tangible material. Now he wants that once that power is there in 153A, even for closed assessments he can call for material"
ASG: "We are saying if you have incriminating material, let that be the basis. If you don’t have incriminating material, any material that we already have, other than incriminating material, any questions posed based on materials which we have, more information which we have, my friend cannot prevent it. I have material. I can use the material. But I can’t pose him questions about that material, that is the caveat he is asking"
Senior Advocate: "Your Lordships should say that all the substantive limitations which apply under 147 will apply, then all this will be settled"
Justice Shah: "Under 153A, the reassessment power can be exercised because the words used are 'assess' or 'reassess'. 'Reassess' can only be in case of a concluded, completed assessment. So far as the assessment not completed is concerned, it is akin to 143, everything is at large. The second thing is that incriminating material is found and can be used. Thirdly, so far as the reassessment is concerned, any material found other than the incriminating material which would have a direct bearing on the total income, it can be considered and the reassessment can be made under 153A subject to the rigours under 147. If under 147 it is permissible, it will also be under 153A because the reassessment powers under 153A are akin to 147. You may be right that reassessment cannot be considered or construed as an assessment or a change of opinion. There is a distinction between assessment and reassessment. Whatever can be undertaken under assessment cannot be permitted to be done under the guise of a reassessment"
ASG: "I have instructions that your lordships can say that the limitations under 147 will apply under 153A also. We have no problem"
ASG: "Abated assessments which will need to be done afresh will follow the path of 143. If we have to reassess, we have to follow the contours of 147. We are okay with that, I have instructions"
Justice Shah: "We can very well say that you can collect or gather information under 153A but those materials can be used for the purpose of determining total income subject to the rider or rigours under 147. Under the guise of collecting material under reassessment or assessment under 153A, there cannot be a roving enquiry, we have noted that point also"
Senior Advocate Arvind Datar, also for some of the assessees: "If assessment is pending or reassessment is pending and a search takes place, then everything is at large before the officer. He can assess or reassess the income. If the assessment is closed, then he does not have the power to redo it. If there is no search under 132, 153A cannot take place. Search under 132 is presupposed by assessment under 150 3A. The supreme court has held that a search is a serious invasion of a person’s privacy and strict provisions must be followed. So see 132- 'has reason to believe that a person to whom summons were issued has not produced the documents'; 'a person to whom summons have been issued will not produce documents'; 'any person is in possession of money, bullion, jewellery or any other valuable article or thing and such thing represents wholly or partly income or property for the purpose of income tax act hereinafter referred to as undisclosed income or property'. 99% cases will come under this third point. They come for search, they find gold, cash etc. Now look at the scheme of the act. A search is carried out by an authorised officer. Authorised officer is different from assessing officer. The way the scheme works is suppose, there is a raid on the house of Mr X, authorised officer comes, they find cash, jewellery, bullion etc, they find some incriminating material that cash has been paid to Y and Z. They find incriminating material qua Y and Z. X may be in Chennai and Y and Z may be in Delhi and Ahmedabad. As authorised officer has 60 days time to provisionally attach, complete the search, enquiry etc, then he hands over the incriminating material to the assessing officer who has the jurisdiction over Mr X in Chennai. So far as Y and Z in Delhi and Ahmedabad are concerned, it is sent to the jurisdictional assessing officer in Delhi and Ahmedabad. Then they continue to do the assessment thereafter. After 132 is finished, now we go to 153A. In the earlier regime, prior to 2003, assessment was one channel- a search takes place in the house of Mr X, they find Y and Z also. Qua Y and Z, they will make an assessment for a block period. In 158BD, there was no provision for Abatement. It said it will be in addition to regular assessment"
Justice Shah: "Because then 158BD said it was with regard to undisclosed income"
Mr. Datar: "I am saying that is still the law"
Justice Shah: "We are not saying that so far as pending assessment or reassessment is concerned, they have abated. Suppose in a given case, it was done, it was for the purpose of reassessment. Because six years time is available, at the relevant time the assessment is completed for the particular year, before the four years or six years are over, because till then the powers of reassessment are available subject to the riders under 147- change of opinion, tangible material, whatever it maybe- in that time there is the search, 4 years or whatever time period is permissible. Once there is a search, the completed assessment can be reassessed under 153A"
Mr. Datar: "It cannot be done. Say Search takes place. Authorising officer finds incriminating material, cash or bullion. He sends it to AO. But the AO is already doing proceeding under 147, 148. Once he gets incriminating material, 147 proceedings shall stop then and there and he will continue on the 153A track. Similarly, if assessment is still not over- for three years assessment is complete, for three years it is not complete- for the not completed portion, he goes under 153A track. If 153A case enables the person to assess or reassess even close assessments, then the second proviso (to section 153 A) was not necessary"
Justice Shah: "If your submission is accepted then there will be no reassessment at all"
Mr. Datar: "No. I’m coming to that. Suppose there is no raid, my assessment is going on, within six years my officer finds something, He can proceed under 147 if he discovers something. Once it is a search case, the entire controversy is if the assessment is over and reassessment is over and 153A notice is issued, can you still go. If the argument of ASG is accepted, the second proviso becomes Redundant, otiose. Because once it is a search case, what is being assessed is incriminating material"
Mr. Datar: "Even if you go under 153A, please do not say that reassessment under 153A will be subject to rigours under 147. Our proposition is that only those reassessments which are pending, which abate, can be re-done by the assessing officer. If a reassessment has been completed, if an assessment has been completed, that reassessment or assessment can be disturbed only by the Commissioner of appeals or the tribunal. Look at the paradox, when assessing officer has completed my assessment, let us say the appeal is pending or no appeal is pending, once an assessment is over, the scheme of the act is that it can only be disturbed by a superior officer, commissioner (appeals) or commissioner (revision) or tribunal. And 153A argument says because there is the search, the assessing officer who could not disturb his earlier finding Can now do everything subject to the rigours of 147. Under 147, different requirements are there. They are not giving the assessing officer 147 powers again"
Mr. Datar: "If it is a raid case, if it is a search case, incriminating material is found, he can assess the incriminating material if the assessment is complete. If the assessment is complete, it is pending appeal, they come to my house, they find something, his hands are not powerless, he can assess the undisclosed income. In such a case where assessment is complete, the assessment will be subject to appeal etc, but the undisclosed income will be assessed again for six years. No dispute about that. But if my assessment is complete and 153A is issued, then he cannot disturb the concluded issues in the guise of 153A"
Bench: "What you are saying was there in the earlier regime. The ASG has said it is now about total income (and not undisclosed income)"
Mr. Datar: "Where the assessment is pending, a reassessment is pending, that will abate. Then the whole thing is that large. This is what the second proviso of 153 A says".
Case Title : PR. COMMISSIONER OF INCOME TAX CENTRAL v. ABHISAR BUILDWELL P. LTD| C.A. No. 6580/2021 and connected cases