Income Tax Assessment u/s 153 A must be based on Incriminating Material: SC [Read Judgement]

The Supreme Court in its recent judgement has held that assessment under Section 153A of the Income Tax Act, 1961 must be based on ‘incriminating’ material.

Abhisar Buildwell P. Ltd, the assessee challenged the order passed by the respective High Courts taking the view that in case any incriminating material is found during the search then even completed assessments can be assessed or reassessed taking into consideration the incriminating material and other material in possession of the Assessing Officer.

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’.

Section 153A(2) states that if an order of assessment or reassessment made under section 153A(1) stands annulled in appeal or any other legal proceeding, the assessments and reassessments which had abated under the second proviso to Sub pending on the date of initiation of such under section 132 or requisition under section 132A shall abate.

Section 153A bears the heading “Assessment in case of search or requisition”. It is well settled as held by the Supreme Court in a catena of decisions that the heading of the, section can be regarded as a key to the interpretation of the operative portion of, the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning From the heading of section 153, the intention of the Legislature is clear, viz, to provide for assessment in case of search and requisition.

On a plain reading of Section 153A of the Act, 1961, it is evident that once a search or requisition is made, a mandate is cast upon the AO to issue a notice under Section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same.

It was observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act.  The object of Section 153A is to bring under tax the undisclosed income which is found duringthe search or pursuant to search or requisition.  Therefore, only in a case where the undisclosed income is found based on incriminating material, 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. 

A Division Bench comprising of Justices MR Shah and Sudhanshu Dhulia while dismissing the appeals filed by the Income Tax Department, upheld the view taken by the Delhi High Court in the case of  Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) wherein it was held that no addition can be made in respect of the completed assessments in absence of any incriminating material.

Further held that “once during search undisclosed income is found on unearthing the incriminating material during the search, the AO would assume jurisdiction to assess or reassess the total income even in case of completed/unabated assessments.”

Shri N. Venkataraman, Additional Solicitor General of India appeared on behalf of the Revenue and S/Shri Arvind P. Datar, Kavin Gulati, Preteesh Kapoor, Senior Advocates and Shri Ved Jain, appeared on behalf of the respective assessees.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates