No Addition Is Permitted For Unabated Assessment In Absence Of Any Incriminating Material Found During Search U/S 132 Or Requisition U/S 132A

While stating that in respect of completed assessments/unabated assessments, jurisdiction of AO to make assessment is confined to incriminating material found during course of search u/s 132 or requisition u/s 132A, the Supreme Court set aside the addition made by the AO in absence of any incriminating material found during search u/s 132 or requisition u/s 132A.

The Division Bench of Justice M R Shah & Justice Sudhanshu Dhulia observed that the foundation for making search assessments u/s 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.

ASG N. Venkataraman appeared for the Revenue, whereas Senior Advocates Arvind P. Datar, Kavin Gulati, and Preteesh Kapoor appeared for the Assessee.

Briefly, the I-T Department had approached the Apex Court seeking assertion on the scope of assessment u/s 153A and contending that the AO is competent to consider all the material that is available on record, including that found during the search, and make assessment of ‘total income’. This was opposed by the assessee by contending that, if no assessment proceeding is pending on the date of initiation of the search, the AO may consider only the incriminating material found during the search and is precluded from considering any other material derived from any other source.

After considering the submission, the Bench referred to the decision of Kabul Chawla, wherein the Delhi High Court, while considering the very issue and on interpretation of Section 153A, has summarised that “Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material.”.

The Bench noted that the Delhi High Court in case of Kabul Chawla, also held that “In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY based on the findings of the search and any other material existing or brought on the record of the AO. Completed assessments can be interfered with by the AO while making the assessment under Section 153-A only based on some incriminating material unearthed during search or requisition of documents or undisclosed income or property discovered during search which were not produced or not already disclosed or made known during original assessment”.

Accordingly, the Bench held that no addition can be made in respect of completed assessment in absence of any incriminating material, while stating that for considering the issue involved, one has to consider the object and purpose of insertion of Section 153A and when there shall be a block assessment u/s 153A.

The Bench went on to observe that the very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment.

“As per the provisions of Section 153A, in case of a search u/s 132 or requisition u/s 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search u/s 132 or making of requisition under Section 132A, as the case may be, shall abate, added the Bench.

Therefore, the Apex Court highlighted that the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period.

The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search, added the Apex Court.

At the cost of repetition, the Apex Court observed that the assessment u/s 153A is linked with the search and requisition u/s 132 and 132A, and the object of Section 153A is to bring under tax the undisclosed income which is found during search or pursuant to search or requisition.

As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments, added the Top Court.

Cause Title: Pr. CIT v. Abhisar Buildwell Pvt. Ltd. [Civil Appeal No. 6580 of 2021 / 2023-Enterslice-2-SC-IT]

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Abhisar-Buildwell