S.153A Income Tax Act| Can Assessments Be Reopened If No Incriminating Material Is Found During Search? Supreme Court Starts Hearing

The Supreme Court on Wednesday commenced hearing 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 heard a string of pleas on this issue arising on account of conflicting High Court judgments.Additional Solicitor General of India N Venkataraman, appearing for the revenue, explained the issue to the bench as follows : "There were two separate, independent assessment mechanisms- you can have original assessment under 143 and you can have escaped assessment under 147, and you will capture the search-based assessment as a block assessment of six years or 10 years as the case maybe only under the erstwhile 158. So you have two parallel assessments- one regular assessment is going on, one search assessment is going on. This was the law between 1995 and 2003 but this did not succeed. What was unbundled as two separate assessments between 95 and 2003- search assessments are separate and regular or escaped assessments separate- got bundled under 153A. Once a search takes place under 132 or 132A, once a search or an enquiry for seeking of records happened, all judgments are consistent that regular assessment under 143,147 gets ousted".Pointing out that Section 153A uses the expression 'total income', the ASG said that the Court is called upon to resolve the question how to do the assessment of total income when a search takes place under 153A. There are conflicting High Court judgments on this point."One set of view says very clearly that the law says that wherever assessments have been finalised, 153A permits revenue to go back for six years. The moment search takes place, we can travel back for 6 assessment years. Three assessment years are complete and three assessment years are yet to be completed, they are pending, then the law makes a distinction that completed assessments would not abate and incomplete assessments would abate and all subsumed under 153A. But the language used in 153A is 'total income', 'assess' and 'reassess'. So the question is what happens to completed assessments. One view of the High Courts is that 'See, look here, you will now do it under 153A. You can rely on the incriminating material which has been found during search, you can rely on such materials which the AO (Assessing Officer) has on hand, you can rely on such material which are the third party records available to you. Because what you can otherwise do under 147, you can do it under 153A. That is how you will be able to assess total income. This is one view. The other view is that you will have to confine it only to the incriminating material seized so any reassessment of those closed assessments should be confined to incriminating materials, but if during the search you don’t have incriminating material, then those assessments cannot be reopened and reassessed under 153A, which means, in our very humble view, the expression 'total income' stands judicially amended to a process to say instead of total income, taxation on undisclosed income found during search. This is the limitation we will form. So we will not meet the law which permits assessment of total income. Suppose I have three strings of material with me as an AO- I have material from third-party, I have found my material In assessment, and I have material in the search. 153A says search should culminate in a seizure of material. If you don’t seize any incriminating material, then there is a jurisdictional failure under 153A, you cannot reopen those assessments"Justice Shah : "That can be only under Section 147"ASG: "We can’t. Because 153A is 'notwithstanding'. This is a problem for 20 years. You can neither do under 153A nor under 147, then those assessments will go"Justice Shah: "Why?"ASG: "153A says 'notwithstanding anything contained'. That is why you are to exercise the power there. There are two difficulties in the dissenting judgment that we have. The first is that the jurisdictional requirement for satisfaction of 153A is not seizure of incriminating material. The jurisdictional requirement is that any such initiation should fall under 153A the moment there is a search. Then 143, 147 get suspended and 153A starts applying. So the jurisdictional requirement is search and not seizure of incriminating material. The second downside of this interpretation is that you seize incriminating material, then you come to assessment on all the three, if you don’t seize incriminating material, then you can’t do assessment on the rest of the two....

S.153A Income Tax Act| Can Assessments Be Reopened If No Incriminating Material Is Found During Search? Supreme Court Starts Hearing

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