CIT vs. Anil Kumar Bhatia (Delhi High Court)

S. 153A applies if incriminating material is found even if assessments are completed

Pursuant to a search u/s 153A, the AO passed an assessment order in which he assessed various amounts. The Tribunal (1 ITR (Trib) 484) upheld the assessee’s appeal on the ground that (a) no “incriminating material” was found in the course of search and (b) as ROIs for the said 6 years disclosed the particulars of the subject additions and these had been accepted by the AO u/s 143(1), no assessment was pending so as to have abated. It was held that s. 153A was not a de novo assessment or a normal/ regular assessment and the additions made therein have to be necessarily restricted to the undisclosed income unearthed during the search. On appeal by the department to the High Court, HELD reversing the Tribunal:

(i) U/s 153A, the AO is empowered to assess or reassess the “total income” (which includes the disclosed & undisclosed income) of 6 years. This is a significant departure from the earlier block assessment scheme (s. 158BC) in which only the undisclosed income could be assessed. U/s 153A, there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. If the assessment proceedings are pending completion when the search is initiated, they will abate making way for the AO to determine the total income of the assessee in which the undisclosed income would also be included. If the assessment proceedings have already been completed, there is no question of any abatement since no proceedings are pending & the AO will have to reopen the assessments (without having the need to follow the strict provisions or complying with the strict conditions of s. 147, 148 & 151) and determine the total income of the assessee;

(ii) The Tribunal’s view that since the returns filed by the assessee for the six years had been processed u/s 143(1)(a) before the search took place, s. 153A cannot be invoked is not correct. The AO has the power u/s 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that ROIs were filed which stood processed u/s 143(1)(a);

(iii) On facts, the Tribunal’s finding that no material was found during the search is factually unsustainable since the entire case and arguments had proceeded on the basis that the document embodying the transaction was recovered from the assessee. If a document is found in the course of the search, s. 153A is triggered & it is mandatory for the AO to complete the assessment u/s 153A.

(Q as to whether s. 153A can be invoked in a case where no incriminating material is found during search left open).