‘Incriminating’ material must for I-T Act’s Section 153A assessment, says Supreme Court

In a major ruling with respect to search and seizure provisions, the Supreme Court on Monday held that assessment under Section 153A of the Income Tax Act can be done only if ‘incriminating’ material is available. However, the judgment seems to leave a window open for revenue, indicating that the avenue to re-open cases under Section 147 and 148 of the Income Tax Act would be available where any ‘other material’ is found.

Section 153 A of the Income Tax Act, 1961 aims to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Section 147/148 prescribes reopening the assessment.

“In case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the Assessing Officer (AO) would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns,” said a Division Bench of Justices MR Shah and Sudhanshu Dhulia, dismissing appeals filed by the Tax Department.

Further, it said that in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. “Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961,” the Bench said.

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However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under Sections 147/148 of the Act and those powers are saved, added the Bench.

Experts say with this ruling, the Supreme Court has now upheld the principle laid down by the Delhi High Court in this regard. These principles say the assessments cannot be conducted arbitrarily but should be purely based on seized material. In absence of any incriminating material, assessment and/or reassessment of the abated proceedings can be conducted. Essentially, where no “incriminating” material has been found during the search, but “other” information has been unearthed as a result of search operation, the Tax Department has the power to either frame an assessment or reassessment, as the case may be.

According to Vishwas Panijar, Partner with Nangia Andersen LLP, reassessment by its very nature is detrimental to the taxpayer, hence a higher degree of care needs to be taken by the department while invoking the provisions. Under the amended law, it needs to be noted that “reassessment” conducted pursuant to search and seizure inherently satisfies two of the most critical elements that, in most other cases, is a sine quo non for initiating reassessment - first is deemed that income has escaped assessment in a case where search/seizure has been conducted and second show cause notice before initiating reassessment is not required to be given in such cases.

Thus, “while there is no bar on initiation of reassessment in above mentioned cases as per the law, other safeguards (like time limit for issue of notice, seeking reason for reassessment) would continue to be available to taxpayer even in such cases,” he said.

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