Reopening of Assessments u/s 153A of Income Tax Act Unjustified if No Incriminating Material Linked to Undisclosed Income Discovered in Search: Patna HC [Read Order]

The High Court of Patna has held that the reopening of assessments under Section 153A of the Income Tax Act, 1961 is unjustified if no incriminating material linked to undisclosed income is discovered during the search operation.

The judgment came in response to an appeal filed by the Assistant Commissioner of Income Tax, Central Circle 1, Patna, against Satish Kumar Keshri of M/s. Hira Panna Jewellers, challenging the order of the Income Tax Appellate Tribunal (ITAT).

The case pertains to the assessment year 2002-03, where the original assessment of the respondent assessee, Mr. Satish Kumar Keshri, was completed under Section 143(3) of the Income Tax Act, 1961.

This assessment was subsequently set aside by the 1st Appellate Authority under Section 263 of the Income Tax Act, leading to remand back to the Assessing Officer for a fresh assessment.

A search was conducted in the premises of the respondent under Section 132(1) of the Income Tax Act, initiating Section 153A proceedings.

The central issue revolved around whether there was a valid reason to reopen the assessment under Section 153A of the Income Tax Act when no assessment proceedings were pending as on the date of the search or the initiation of Section 153A proceedings.

The Assessing Officer rejected the assessee’s plea, citing the remand order by the Commissioner of Income Tax. Consequently, an assessment order under Section 153A read with Section 143(3) of the Income Tax Act was issued.

During this time, the assessee challenged the remand order before the ITAT, which set aside the 1st Appellate Authority’s order and revived the original assessment order even before the assessment under Section 153A of the Income Tax Act was conducted.

The assessee further contested the Section 153A assessment before the 1st Appellate Authority, with no success. However, the ITAT, reversed the 1st Appellate Authority’s and the Assessing Officer’s decisions, asserting that the assessment was completed as of the initiation of Section 153A proceedings.

The appellant revenue, Assistant Commissioner of Income Tax was represented by Mrs. Archana Sinha while the respondent assessee was represented by Mr. A. K. Rastogi, Mr. Parijat Saurav and Ms. Smriti Singh.

The bench relied on the judgment of the High Court of Delhi in Commissioner of Income Tax v. Kabul Chawla, wherein it emphasised the need for incriminating material to justify reopening assessments under Section 153A of the Income Tax Act and clarified the jurisdiction of Assessing Officers in conducting such assessments. This was subsequently affirmed by the Supreme Court in Principal Commissioner of Income Tax v. Abhisar Buildwell P. Ltd.

The bench acknowledged the principles established by the Delhi High Court and the Supreme Court and concluded that the assessment for the relevant year had already been completed before the initiation of Section 153A proceedings. Therefore, there was no basis for the relevant assessment to abate under the second proviso to Section 153A of the Income Tax Act.

The bench emphasised the requirement of incriminating material linked to undisclosed income and concrete evidence to justify reopening assessments under Section 153A of the Income Tax Act. Providing taxpayers with a crucial safeguard against arbitrary or baseless assessments, ensuring that the tax authorities adhere to the statutory framework and established legal principles when conducting such proceedings.

In conclusion, the division bench of Chief Justice K Vinod Chandran and Justice Partha Sarthy rejected the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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