The Delhi High Court in a recent decision observed that the abatement under Section 153C of the Income Tax Act, 1963 should be triggered by the formation of opinion.
The batch of writ petitions impugns notices issued under Section 153C of the Income Tax Act, with the petitioners-assessees asserting that in the absence of any material pertaining to the Assessment Years which are proposed to be reopened and assessed having been gathered during the course of a search, the assumption of jurisdiction is wholly illegal and unsustainable in law.
According to the writ petitioners, merely because incriminating material may have been found or discovered and which would pertain to a particular AY, the same would not constitute sufficient basis for initiation of assessment or reassessment proceedings in respect of the six AYs’ preceding the year of search or the entire block comprised in the “relevant assessment year” as defined by Explanation 1 to Section 153A of the Income Tax Act.
The counsels for the petitioner contended that Section 153C assessment is clearly distinct from a scrutiny assessment under Section 143(3) or a reassessment under section 147. They also contended that if the stand of the respondents were to be accepted, namely that the reopening of any AY would be justified notwithstanding no incriminating material specific to that year having been gathered, the same would clearly result in manifest arbitrariness.
According to the counsels for the respondent, the jurisdictional AO would be justified in initiating action as long as the material gathered is likely to impact the assessment of total income of any one particular AY forming part of the block which comes to be thrown open under Section 153C and that the underlying statutory scheme of Section 153C is liable to be recognised as warranting the entire block period of ten AYs’ being scrutinised even though the proceedings may have been triggered by material that may pertain to a particular AY only.
A Division Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav observed that “Both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity. Therefore, and in our opinion, abatement of the six AYs’ or the “relevant assessment year” would follow the formation of that opinion and satisfaction in that respect being reached.”
“The mere existence of a power to assess or reassess the six AYs’ immediately preceding the AY corresponding to the year of search or the “relevant assessment year” would not justify a sweeping or indiscriminate invocation of Section 153C” the Court noted.
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