Absence Of Incriminating Materials, AO Not Empowered To Reopen Assessments In Block Period Of Six Years: Kerala High Court

The Kerala High Court has held that based on the material obtained during the search, the Assessing Officer, who gets the jurisdiction to re-open the assessments, can do so in respect of the individual assessment years comprised in the block period of six years only if the material obtained during the search under Section 132 of the Income Tax Act, or any part thereof, relates to the assessment year in question.

The bench of Justice A.K.Jayasankaran Nambiar and Justice Syam Kumar V.M. has relied on the decision of the Supreme Court in the case of Principal Commissioner of Income Tax, Central v. Abhisar Buildwell Pvt. Ltd. in which it was held that as per the amended provisions of Section 153A of the Income Tax Act, while the unearthing of incriminating material would unambiguously clothe an Assessing Officer with the jurisdiction to initiate proceedings in terms of Section 153A of the Income Tax Act for the block period of six years contemplated under that Section, when it comes to passing fresh assessment orders in respect of each of those assessment years comprised in the block of six assessment years, the Assessing Officer must necessarily relate such unearthed incriminating material to the assessment year in question.

As many as 15 writ petitions were filed by various business units that come under the umbrella of the M/s. Sunny Jacob Group and comprise partnership firms, in which Sri. Sunny Jacob and his wife Magi Sunny are partners. One of the firms is a proprietorship concern in which Magi Sunny is the sole proprietor. All the business units under the group are engaged in the business of making gold ornaments.

A search was conducted under Section 132 of the I.T. Act at the various business premises of the units coming under the umbrella of M/s. Sunny Jacob Group on August 21, 2007, and notices were issued to the appellants and assessees under Section 153A of the Income Tax Act.

The Assessing Officer used the incriminating material to reject the books of account of the appellants and assessees for all the assessment years from 2002–03 to 2008–09 and proceeded to 'estimate' the alleged 'escaped income' for all the assessment years based on the estimation done for the assessment year 2008–09.

The assessees approached the Commissioner of Income Tax (Appeals), who allowed the appeals preferred by the appellants for the assessment years 2002–03 to 2007–08 but confirmed the demand for differential tax for the assessment year 2008–09. In appeals preferred both by the Department and the appellant, the Income Tax Appellate Tribunal set aside the orders of the First Appellate Authority and remanded the matter back to the Assessing Officer for a fresh consideration based on the observations of the Tribunal in the common order dated November 16, 2012.

The Assessing Officer passed fresh assessment orders for the assessment years 2002–03 to 2008–09 under Section 153A, read with Section 254. The assessing officer virtually reiterated the stand that he had earlier taken in the matter. When the said assessment orders were impugned by the appellants herein before the C.I.T. (Appeals), the First Appellate Authority also took the same stand as was taken by his predecessor in the earlier round of litigation and allowed the appeals preferred by the appellants for the assessment years from 2002-03 to 2007-08.

Section 153A of the Income Tax Act conferred an Assessing Officer with the jurisdiction to initiate fresh assessment proceedings in relation to an assessee, in relation to whom incriminating material has been unearthed in a search initiated under Section 132 or pursuant to the requisition of any books of account, documents, or assets. In the assessment proceedings that must follow, the Assessing Officer can, through a notice issued under Section 153A, require an assessee to furnish, within such period as may be specified in the notice, a return of income in respect of each assessment year falling within six assessment years, and the said returns, when filed, would be treated as though they were returns furnished under Section 139 for the respective assessment years. The Assessing Officer can thereafter proceed to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such a search is conducted or a requisition is made.

The court noted the specific provisions under Section 153A(b), which require the Assessing Officer to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or the requisition made, and the proviso, which mandates that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within six assessment years.

The court held that there was no incriminating material against the appellants or assessees pertaining to the assessment years 2002–03 to 2007–08; the finding of the Appellate Tribunal reversing the orders of the First Appellate Authority cannot be legally sustained.

Counsel For Appellant: T.M.Sreedharan

Counsel For Respondent: Susie B Varghese

Citation: 2024 LiveLaw (Ker) 369

Case Title: M/S. Sunny Jacob Jewellers Gold Hyper Market Versus CIT

Case No.: I.T.A.NO.60 OF 2019

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