In recent case of CIT Vs Anil Kumar Bhatia delivered on 7th August, 2012, Hon’ble Delhi high court has held that in the case of search u/s 132 of the Income Tax Act, 1961, Assessing Officer is statutorily required to make assessment/reassessment of total income relating to earlier six years and addition can be made for any escaped income.
Recently, Special Bench of the Tribunal in the case of M/s All Cargo Global Logistics Ltd. vs. DCIT vide its order dated 6th July, 2012, held that in the case of assessment/reassessment proceedings u/s 153A which are already completed u/s 143(1) or u/s 143(3) and which were not abated, addition can be made as to the undisclosed income, inter alia, based upon incriminating material found during the course of search. However, the ratio of Hon’ble Delhi High Court’s decision in the case of Anil Bhatia, supra, is contrary to the ratio of the special bench’s decision and thus supersedes it though special bench decision was not adverted to by Delhi High Court.
In the above referred judgment, Hon’ble Delhi High Court has laid down certain significant ratios regarding nature and scope of assessment/reassessment proceeding, interpreting the provision of section 153A which may be analyzed as under:
1. Scope of assessment/reassessment u/s 153A is not to be restricted to assess or reassess undisclosed income but to assess or reassess total income. Assessment of total income may be based upon incriminating material found during the course of search or otherwise and extends to any income which has escaped assessment.
Hon’ble Delhi High Court in Para 21 of the above said judgment has observed that
Delhi High Court has further observed in para 21 that
2. If any incriminating material is found during search, provision of section 153A is triggered and assessing officer is required to issue notices u/s 153A for earlier six years and make assessment/reassessment of total income related to those years.
Hon’ble Delhi high court has observed in para 22 that
Delhi High Court has further observed in para 20 that
The context of the judgment makes it clear that even if material is found relating to a specific year, section 153A is triggered and assessment/reassessment of total income is required to be made for all the earlier six assessment years’ u/s 153A.
3. In a case where no incriminating material relating to any year is found during search, the issue whether provision of section 153A can be invoked and assessment/reassessment of total income can be made relating to the earlier six years has been left open by Hon’ble High Court.
Hon’ble Delhi high court has observed in para 23 as
Hon’ble Delhi High court has made the above distinction, which in our respectful opinion, needs reconsideration. The provision of section 153A, in our respectful opinion, is triggered the moment search u/s 132 is initiated or requisition u/s 132A is made. The language of section 153A is pretty clear in this regard and there is hardly any scope of any departure from the rule of literal construction or other interpretation. Moreover, a case of search where no incriminating material relating to any of the years is found would be rare and therefore also, such situation would be practically applicable only in exceptional cases.
4. Nature of assessment proceeding u/s 153A is entirely different from the assessment proceeding under the erstwhile block assessment scheme under chapter XIVB.
Hon’ble Delhi High Court observed in para 19 as
5. Abatement would take place only of those assessment/reassessment proceedings which were pending on the date of search. There is no question of abatement in the case of completed proceedings which are not pending as on the date of search.
Hon’ble Delhi High Court observed to this effect in para 21 of the order, reproduced above.
In our respectful opinion, there are still certain issues which remained unaddressed regarding the interpretation of section 153A and which may be of larger interest, such as:
(i) In a case where original assessment order was passed u/s 143(3), whether additions can be made in assessment u/s 153A relating to issues which were already discussed and dealt and attained finality in original assessment proceedings and original assessment order regarding which no incriminating material was found during the course of search?
(ii) Whether Assessing Officer is empowered to assess/reassess total income of the earlier years as if it is de novo assessment and assessee is required to discharge his onus as is required during original assessment proceedings u/s 143(3)?
(iii) Whether assessee is also entitled to lodge new claims of deduction/exemption while filing the returns u/s 153A, which could not be claimed by him during original Income Tax return filed u/s139?
Coming to the first issue, section 153A prescribes simple procedure for reassessment of earlier six years’ cases in the case of search, without fulfilling the strict conditions contained under normal provisions of the Act u/s 147/148 as has been observed by Hon’ble Delhi High court also in the above referred case. In our respectful opinion, nature of assessment or reassessment u/s 153A shall be governed by the normal provisions of the Act. If it is a case of assessment, the assessment shall be framed in the same manner and applying the same principles as is done in the normal scrutiny assessment when assessment is framed u/s 143 (3). If it is a case of reassessment, assessment shall be framed applying the same principles which are applicable in the case of reopening of the case u/s 147/148.
It is to be appreciated that in the case of reassessment u/s 147/148, the Assessing Officer may not only assess or reassess any income which was chargeable to tax and which has escaped assessment but also he is empowered to assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Further, second proviso to section 147 states clearly that Assessing Officer may assess or reassess such income other than income involving matters which are the subject matters of any appeal reference or revision, which is chargeable to tax and which has escaped assessment. Further, as per various judicial pronouncements rendered with respect to reassessment proceedings u/s 147/148, it is settled position of law that in case of reassessment proceedings u/s 147 or 148, change of opinion on the same set of facts is not permitted as has been held by the Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561.
Nature and scope of reassessment proceedings u/s 153A thus is of the same nature as reassessment proceedings u/s 147/148 and the above principles would be equally applicable while framing reassessment u/s 153A. Hon’ble Delhi High court in the aforesaid judgment has also observed that the determination of total income u/s 153A would be similar to the order passed in any reassessment u/s 147/148. It would thus mean that in the case of assessment/reassessment u/s 153A, any addition to the income can be made which has escaped assessment, evidences relating to which comes to the possession of the Revenue either in the course of search, post search proceeding or during the course of assessment proceedings u/s 153A or during the examination of books of accounts in the course of assessment proceedings u/s 153A. However, in a case where original assessment was framed u/s 143(3), it is not open to AO in law to change his opinion and make addition on the same set of facts while passing the reassessment order u/s 153A.
Adverting to the second issue, the onus of the assessee has to be decided in our opinion, in the case of reassessment proceedings u/s 153A, in the same manner as would be applicable in the case of reassessment proceedings u/s 147. A useful reference in this regard can be made to the decision of Delhi High Court in the case of CIT vs. Pradeep Kumar Gupta 303 ITR 95 where it was held that in case of reopening of an already concluded assessment, initial burden to prove rests on the shoulders of the assessing officer because it is he who has reopened an already concluded assessment on the basis of his belief that income has escaped assessment.
The third issue as to whether assessee may be entitled to lodge new claim in the income tax return filed in pursuance to notice u/s 153A, may be highly contentious. In the case of Sun Engineering vs. CIT 198 ITR 297(SC), it has been held that the reassessment proceedings u/s 147/148 are for the benefit of the Revenue and assessee is not entitled to lodge new claim of deduction in the return of income filed in pursuance to notice u/s 148. By applying the above ratio, one can interpret that in the income tax return filed u/s 153A also, an assessee can not be entitled to lodge new claim of deduction. However, on the other hand one may advance the argument that proceedings u/s 153A are distinct from the proceedings of reassessment u/s 147 in a manner that u/s 153A, an assessee is required to file fresh income tax returns for earlier six years for the purpose of assessment/ reassessment of total income of the assessee without there being any specific reason leading to the belief as to the escapement of income for each of the earlier six years. Moreover, mandate of section 153A is to assess or reassess total income of earlier six years. In the case of search, when Revenue is empowered to reassess ‘total income’ of the assessee for the earlier six years, assessee should also be entitled to lodge new claim of deduction which could not be claimed by him in the original return and for which assessee is legally entitled. In fact, entitlement of the assessee to lodge fresh claim has been accepted in Dy. CIT vs. Eversmile Construction Co. (P) Ltd. 65 DTR 39 (Mum ‘G’)
Recently, Special Bench of the Tribunal in the case of M/s All Cargo Global Logistics Ltd. vs. DCIT vide its order dated 6th July, 2012, held that in the case of assessment/reassessment proceedings u/s 153A which are already completed u/s 143(1) or u/s 143(3) and which were not abated, addition can be made as to the undisclosed income, inter alia, based upon incriminating material found during the course of search. However, the ratio of Hon’ble Delhi High Court’s decision in the case of Anil Bhatia, supra, is contrary to the ratio of the special bench’s decision and thus supersedes it though special bench decision was not adverted to by Delhi High Court.
In the above referred judgment, Hon’ble Delhi High Court has laid down certain significant ratios regarding nature and scope of assessment/reassessment proceeding, interpreting the provision of section 153A which may be analyzed as under:
1. Scope of assessment/reassessment u/s 153A is not to be restricted to assess or reassess undisclosed income but to assess or reassess total income. Assessment of total income may be based upon incriminating material found during the course of search or otherwise and extends to any income which has escaped assessment.
Hon’ble Delhi High Court in Para 21 of the above said judgment has observed that
“………but in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee’s total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of sections 147, 148, and 151) and determine the total income of the assessee. Such determination in the orders passed u/s 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income……………”.
Delhi High Court has further observed in para 21 that
“………..Under section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration that is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the “total income” of the assessee in whose case a search or requisition has been initiated.……….”
2. If any incriminating material is found during search, provision of section 153A is triggered and assessing officer is required to issue notices u/s 153A for earlier six years and make assessment/reassessment of total income related to those years.
Hon’ble Delhi high court has observed in para 22 that
“……….If it is not in dispute that the document was found in the course of search of the assessee, then Section 153A is triggered. Once the section is triggered, it appears mandatory for the Assessing Officer to issue notices u/s 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place………….”
Delhi High Court has further observed in para 20 that
“A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under section 143(1) (a) or section 143 (3) of the Act. If such an order is already in existence, having obviously been passed prior to initiation of the search/ requisition, the assessing officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the assessing officer by the strict procedure to assume jurisdiction to reopen the assessment u/s 147 and 148, have been removed by the non obstante clause with which sub section (1) of section 153 A opens ………………….. with all the stops having been pulled out, the assessing officer u/s 153 A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by section 153A, by even making reassessments without any fetters, if need be”.
The context of the judgment makes it clear that even if material is found relating to a specific year, section 153A is triggered and assessment/reassessment of total income is required to be made for all the earlier six assessment years’ u/s 153A.
3. In a case where no incriminating material relating to any year is found during search, the issue whether provision of section 153A can be invoked and assessment/reassessment of total income can be made relating to the earlier six years has been left open by Hon’ble High Court.
Hon’ble Delhi high court has observed in para 23 as
“We are not concerned with a case where no incriminating material was found during the search conducted u/s 132 of the Act. We, therefore, express no opinion as to whether section 153A can be invoked even in such a situation. That question is therefore left open”.
Hon’ble Delhi High court has made the above distinction, which in our respectful opinion, needs reconsideration. The provision of section 153A, in our respectful opinion, is triggered the moment search u/s 132 is initiated or requisition u/s 132A is made. The language of section 153A is pretty clear in this regard and there is hardly any scope of any departure from the rule of literal construction or other interpretation. Moreover, a case of search where no incriminating material relating to any of the years is found would be rare and therefore also, such situation would be practically applicable only in exceptional cases.
4. Nature of assessment proceeding u/s 153A is entirely different from the assessment proceeding under the erstwhile block assessment scheme under chapter XIVB.
Hon’ble Delhi High Court observed in para 19 as
“………..Another significant feature of this section is that the Assessing Officer is empowered to assess or reassess the ‘total income’ of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under section 153 A, however, the Assessing Officer has been given the power to assess or reassess the ‘total income’ of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and undisclosed income would be brought to tax”.
5. Abatement would take place only of those assessment/reassessment proceedings which were pending on the date of search. There is no question of abatement in the case of completed proceedings which are not pending as on the date of search.
Hon’ble Delhi High Court observed to this effect in para 21 of the order, reproduced above.
Nature of assessment or reassessment u/s 153A shall be governed by the normal provisions of the Act. If it is a case of assessment, the assessment shall be framed in the same manner and applying the same principles as is done in the normal scrutiny assessment when assessment is framed u/s 143 (3). If it is a case of reassessment, assessment shall be framed applying the same principles which are applicable in the case of reopening of the case u/s 147/148
Having analyzed the ratio of the Delhi High Court decision, it needs to be appreciated that the above referred judgment of Delhi High court has in fact been delivered in the context of the question of law before their Lordships in the case of Mr. Anil Kumar Bhatia, wherein earlier six years’ cases were assessed u/s 143 (1) (a) which were held by the Tribunal to have attained finality due to the reason that these assessments since were not pending on the date of search and thus could not abate and hence were final. Hon’ble Delhi High Court had no occasion to deal a situation where earlier assessments were framed u/s 143(3). In our respectful opinion, there are still certain issues which remained unaddressed regarding the interpretation of section 153A and which may be of larger interest, such as:
(i) In a case where original assessment order was passed u/s 143(3), whether additions can be made in assessment u/s 153A relating to issues which were already discussed and dealt and attained finality in original assessment proceedings and original assessment order regarding which no incriminating material was found during the course of search?
(ii) Whether Assessing Officer is empowered to assess/reassess total income of the earlier years as if it is de novo assessment and assessee is required to discharge his onus as is required during original assessment proceedings u/s 143(3)?
(iii) Whether assessee is also entitled to lodge new claims of deduction/exemption while filing the returns u/s 153A, which could not be claimed by him during original Income Tax return filed u/s139?
Coming to the first issue, section 153A prescribes simple procedure for reassessment of earlier six years’ cases in the case of search, without fulfilling the strict conditions contained under normal provisions of the Act u/s 147/148 as has been observed by Hon’ble Delhi High court also in the above referred case. In our respectful opinion, nature of assessment or reassessment u/s 153A shall be governed by the normal provisions of the Act. If it is a case of assessment, the assessment shall be framed in the same manner and applying the same principles as is done in the normal scrutiny assessment when assessment is framed u/s 143 (3). If it is a case of reassessment, assessment shall be framed applying the same principles which are applicable in the case of reopening of the case u/s 147/148.
It is to be appreciated that in the case of reassessment u/s 147/148, the Assessing Officer may not only assess or reassess any income which was chargeable to tax and which has escaped assessment but also he is empowered to assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Further, second proviso to section 147 states clearly that Assessing Officer may assess or reassess such income other than income involving matters which are the subject matters of any appeal reference or revision, which is chargeable to tax and which has escaped assessment. Further, as per various judicial pronouncements rendered with respect to reassessment proceedings u/s 147/148, it is settled position of law that in case of reassessment proceedings u/s 147 or 148, change of opinion on the same set of facts is not permitted as has been held by the Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561.
Nature and scope of reassessment proceedings u/s 153A thus is of the same nature as reassessment proceedings u/s 147/148 and the above principles would be equally applicable while framing reassessment u/s 153A. Hon’ble Delhi High court in the aforesaid judgment has also observed that the determination of total income u/s 153A would be similar to the order passed in any reassessment u/s 147/148. It would thus mean that in the case of assessment/reassessment u/s 153A, any addition to the income can be made which has escaped assessment, evidences relating to which comes to the possession of the Revenue either in the course of search, post search proceeding or during the course of assessment proceedings u/s 153A or during the examination of books of accounts in the course of assessment proceedings u/s 153A. However, in a case where original assessment was framed u/s 143(3), it is not open to AO in law to change his opinion and make addition on the same set of facts while passing the reassessment order u/s 153A.
Adverting to the second issue, the onus of the assessee has to be decided in our opinion, in the case of reassessment proceedings u/s 153A, in the same manner as would be applicable in the case of reassessment proceedings u/s 147. A useful reference in this regard can be made to the decision of Delhi High Court in the case of CIT vs. Pradeep Kumar Gupta 303 ITR 95 where it was held that in case of reopening of an already concluded assessment, initial burden to prove rests on the shoulders of the assessing officer because it is he who has reopened an already concluded assessment on the basis of his belief that income has escaped assessment.
The third issue as to whether assessee may be entitled to lodge new claim in the income tax return filed in pursuance to notice u/s 153A, may be highly contentious. In the case of Sun Engineering vs. CIT 198 ITR 297(SC), it has been held that the reassessment proceedings u/s 147/148 are for the benefit of the Revenue and assessee is not entitled to lodge new claim of deduction in the return of income filed in pursuance to notice u/s 148. By applying the above ratio, one can interpret that in the income tax return filed u/s 153A also, an assessee can not be entitled to lodge new claim of deduction. However, on the other hand one may advance the argument that proceedings u/s 153A are distinct from the proceedings of reassessment u/s 147 in a manner that u/s 153A, an assessee is required to file fresh income tax returns for earlier six years for the purpose of assessment/ reassessment of total income of the assessee without there being any specific reason leading to the belief as to the escapement of income for each of the earlier six years. Moreover, mandate of section 153A is to assess or reassess total income of earlier six years. In the case of search, when Revenue is empowered to reassess ‘total income’ of the assessee for the earlier six years, assessee should also be entitled to lodge new claim of deduction which could not be claimed by him in the original return and for which assessee is legally entitled. In fact, entitlement of the assessee to lodge fresh claim has been accepted in Dy. CIT vs. Eversmile Construction Co. (P) Ltd. 65 DTR 39 (Mum ‘G’)
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