Income Tax Act | Assessment U/S Section 153A Must Be Based On Incriminating Material Disclosed In Search: Patna High Court

The division bench of Chief Justice K Vinod Chandran and Justice Partha Sarthy held, “Hence, the assessment referred to in Section 153A enables the Assessing Officer to proceed for assessment, when any such assessment for the previous six years is pending, treating the proceedings to have abated. In so proceeding with the assessment, the Assessing Officer would be entitled to reckon both disclosed and undisclosed income of the assessee.”

“Insofar as completed assessment, they do not abate and for the purpose of re-assessing, there should be some incriminating material disclosed in the search, which alone can lead to re- opening of the proceedings on the basis of the seized material, which has some relevance or nexus to the allegation of undisclosed income. The assessee’s assessment for the relevant year stood completed as on 06.06.2003 long before the search and consequent proceeding initiated under Section 153A and there is no question arising of the relevant assessment to abate under the second proviso to Section 153A.”

This case stemmed from an appeal against the Income Tax Appellate Tribunal's decision dated 04.07.2017, related to the assessment year 2002-03. The central legal question posed was whether the ITAT's decision to declare the assessment conducted under Section 153A of the Income Tax Act, 1961, following a search and seizure, as invalid, considering that no assessment proceedings were pending at the time the Section 153A proceedings were initiated, was justified.

To provide context, in the assessment year 2002-03, the initial assessment of the taxpayer was completed under Section 143(3) of the Act on 06.06.2003. Subsequently, this assessment was set aside by the 1st Appellate Authority under Section 263 of the Act through an order dated 24.11.2004. The 1st Appellate Authority remanded the case back to the Assessing Officer for a fresh assessment. On 15.12.2004, a search operation was conducted at the taxpayer's premises under Section 132(1) of the Act, leading to the initiation of Section 153A proceedings.

The taxpayer argued before the Assessing Officer that there were no pending assessments at the time of the search or the initiation of Section 153A proceedings. Therefore, there was no basis for the Assessing Officer to proceed with the assessment based on the original records, disclosed income, or any findings from the search.

However, the Assessing Officer rejected the taxpayer's plea, primarily because of the remand order issued by the Commissioner of Income Tax. This remanded assessment, which was still pending, was deemed to have been abated, and an assessment order was subsequently passed under Section 153A, in conjunction with Section 143(3) of the Act, on 29.12.2006.

In the meantime, the taxpayer contested the 1st Appellate Authority's remand order before the Tribunal. The Tribunal overturned the 1st Appellate Authority's decision, reinstating the original assessment order dated 06.06.2003. This reversal occurred even before the assessment order was issued under Section 153A, alongside Section 143(3) of the Act.

The taxpayer then challenged the assessment order under Section 153A, coupled with Section 143(3) of the Act, before the 1st Appellate Authority, but without success. However, the Tribunal later reversed the decisions of both the 1st Appellate Authority and the Assessing Officer, concluding that the assessment was effectively completed as of the date when the Section 153A proceedings were initiated. Consequently, there were no pending assessment proceedings at the time the Section 153A proceedings began.

The court relied on the principle set forth in Commissioner of Income Tax v. Kabul Chawla; [2016] 380 ITR 573 (Delhi), which summarizes the principles for assessment and reassessment under Section 153A, and has been affirmed by the Supreme Court.

The court held that the Tribunal was perfectly within the statutory framework, in making a remand directing the Assessing Officer to carry out re-assessment of the assessment year 2002-03, which stood completed as on the date of initiation of Section 153A proceedings, if some incriminating material seized during the search is available.

“We bow to the proposition as declared by the High Court of Delhi and affirmed by the Hon’ble Supreme Court of India and answer the question framed in favour of the assessee and against the Revenue,” the Court concluded while rejecting the appeal filed by the Revenue.

Counsel For the Appellant/s: Mrs.Archana Sinha @ Archana Shahi, Advocate

Counsel For the Respondent/s: Mr. A.K.Rastogi, Sr. Advocate Mr.Parijat Saurav, Advocate Ms. Smriti Singh, Advocate

LL Citation: 2023 LiveLaw (Pat) 108

Case Title: Assistant Commissioner of Income Tax vs. Satish Kumar Keshri

Case No.: Miscellaneous Appeal No.823 of 2017

Click Here To Read Judgement