Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell P. Ltd.

Court/Forum: SC

Bench: M.R. Shah, J. and Sudhanshu Dhulia, J.

Order Date: 2023-04-24

Outcome: Assessee

Sections: Section 153A, Section 132, Section 132A, Section 147, Section 148

Core Ratio

In the absence of incriminating material, the AO cannot assess or reassess completed/unabated assessments under Section 153A.

Outcome

The Supreme Court held that in the absence of any incriminating material found during a search, the Assessing Officer cannot make additions in respect of completed/unabated assessments under Section 153A. The decision was in favor of the assessee, affirming the view of several High Courts.

Favourability

Assessee

Core Issue

The central legal question was whether the AO can make additions to completed assessments under Section 153A without any incriminating material found during a search.

Facts of the Case

The Revenue conducted a search on Abhisar Buildwell P. Ltd. and sought to reassess completed assessments under Section 153A without finding incriminating material. The assessee challenged the jurisdiction of the AO to make such additions.

Arguments by Assessee

The assessee argued that Section 153A assessments should be based on incriminating material found during a search, and without such material, completed assessments should not be reopened.

Arguments by Revenue

The Revenue contended that Section 153A allows for the reassessment of total income, including completed assessments, regardless of whether incriminating material is found.

Key Sections & Provisions

• Section 132: This section relates to the search and seizure operations that must yield incriminating material for reassessment under Section 153A.
• Section 147: This section outlines the conditions under which reassessment can occur, particularly when no incriminating material is found during a search.
• Section 148: This section is pertinent as it provides the framework for issuing notices for reassessment, which may be the only recourse when no incriminating material is available.
• Section 132A: This section is relevant as it governs the requisition of documents and assets, which must also provide incriminating material for the assessing officer's jurisdiction.
• Section 153A: This section was central to the case as it determines the jurisdiction of the assessing officer to make additions to completed assessments based on incriminating material found during a search.

Ratio Decidendi

The Court emphasized that the purpose of Section 153A is to assess undisclosed income found during a search. Without incriminating material, the AO lacks jurisdiction to reassess completed assessments. The decision aligns with the legislative intent to avoid reopening assessments without new evidence.

Court Reasoning & Analysis

• The Court noted that Section 153A is triggered by a search under Section 132.
• The purpose of Section 153A is to assess undisclosed income found during a search.
• Without incriminating material, the AO cannot reassess completed assessments.
• The legislative intent is to avoid reopening assessments without new evidence.

Key Observations

• The assessment under Section 153A is linked with the search and requisition under Sections 132 and 132A.
• The object of Section 153A is to bring under tax the undisclosed income found during the search.

Case Laws Cited

• Kabul Chawla (Delhi High Court)
• Saumya Construction (Gujarat High Court)

Related Issues

• Scope of reassessment under Section 147
• Jurisdiction of AO in search cases
• Interpretation of 'total income' in tax assessments
• Role of incriminating material in tax proceedings

Important Passages

• The intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate.
• In case no incriminating material is found during the search, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/148.

Contrary Principles

• Allahabad High Court in Mehndipur Balaji case took a contrary view.

Not Decided / Remanded

The Court did not decide on the validity of searches without incriminating material.

Practical Takeaway

Practitioners should note that without incriminating material found during a search, completed assessments cannot be reopened under Section 153A.

Supporting Judgments

• Commissioner of Income Tax (Central)-III vs Kabul Chawla (HC) — Additions to income under Section 153A can only be made based on incriminating material found during the search.
• PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI vs MEETA GUTGUTIA PROP. M/S FERNS 'N' PETALS (HC) — Completed assessments can be interfered with by the AO under Section 153A only on the basis of some incriminating material unearthed during the course of search
• DCIT (Central Circle-1) vs Shree Ganesh Edibles Pvt. Ltd. (ITAT) — Once the assessee furnishes identity, creditworthiness, and genuineness of the lender, the onus shifts to the AO to prove otherwise.
• DCIT, CC-1(2), Kolkata vs M/s Chaman Metallics Ltd (ITAT) — Once the assessee has submitted documents relating to identity, genuineness of the transaction, and credit-worthiness, the AO must conduct an inquiry before inv
• Chhugamal Rajpal vs S. P. Chaliha & Ors. (SC) — A notice under Section 148 cannot be issued without the Income-tax Officer having prima facie grounds and the Commissioner's satisfaction based on recorded reas
• Nuclear Power Corporation of India Ltd. vs Deputy Commissioner of Income-tax (HC) — Reopening of assessment based on a change of opinion without new tangible material is not justified.

Contrary Judgments

• Union of India & Ors. vs Rajeev Bansal (SC) — Reassessment notices issued under the old regime are deemed valid under the new regime due to the application of TOLA and judicial directions.
• Pawan Sachdeva vs Income-Tax Officer, Ward 19(3), Delhi & Anr. (HC) — Issuance of notice within the limitation period is sufficient for jurisdiction, even if the service occurs later or with errors.
• Union of India & Ors. vs Rajeev Bansal (SC) — Reassessment notices issued after 1 April 2021 should be treated as issued under the new regime, with TOLA extending the time limits for compliance.
• Union of India & Ors. vs Ashish Agarwal (SC) — Reassessment notices issued under the unamended Section 148 post-01.04.2021 are deemed valid under Section 148A of the Finance Act, 2021.
• Arya Roadways Company Pvt. Ltd. vs I.T.O., Ward-12(1), Kolkata (ITAT) — The case was remanded to ensure a fair opportunity for the assessee to substantiate its claims regarding the expenditure.
• The Deputy Commissioner of Income Tax, LTU, Bangalore vs M/s. Biocon Limited (ITAT) — The provisions of Section 10B are exemption provisions, and profits of the eligible unit should not be set off against losses of non-eligible units.