The Supreme Court examined the scope and ambit of assessment under Section 153A of the Income Tax Act, 1961, and considered whether, in respect of completed or unabated assessments, the Assessing Officer is empowered to make additions in the absence of any incriminating material found during the course of a search conducted under Section 132 or requisition under Section 132A of the Act.

The Revenue contended that once a search is initiated, the Assessing Officer acquires jurisdiction to assess or reassess the total income of the six assessment years preceding the year of search and that such power is not confined to incriminating material found during the search. It was argued that Section 153A mandates assessment of “total income” and permits consideration of all material available on record, irrespective of whether such material was discovered during the search.

The assessees, on the other hand, contended that Section 153A is a special provision linked to search and seizure proceedings and that its scope, in respect of completed assessments, is limited to income unearthed during the search. It was submitted that permitting additions in the absence of incriminating material would render the concept of search otiose and would allow reopening of concluded assessments beyond the prescribed limitation period.

After examining the statutory scheme, legislative history, and the object behind the insertion of Section 153A, the Supreme Court held that while the Assessing Officer is required to issue notices and assess or reassess six assessment years upon initiation of search, the scope of such assessment differs depending on whether the assessment was pending or completed on the date of search.

The Court held that in cases where assessments were pending on the date of search, such assessments abate, and the Assessing Officer is empowered to make a fresh assessment of total income, including income disclosed as well as undisclosed income. However, in respect of completed or unabated assessments, the jurisdiction of the Assessing Officer under Section 153A is confined to making additions only on the basis of incriminating material found during the course of search.

The Supreme Court expressly approved the view taken by the Delhi High Court in Commissioner of Income Tax v. Kabul Chawla and the Gujarat High Court in Principal Commissioner of Income Tax v. Saumya Construction, holding that these decisions correctly interpret the scope of Section 153A. The Court disapproved the contrary view taken by the Allahabad High Court.

Accordingly, the Supreme Court held that no addition can be made under Section 153A in respect of completed assessments in the absence of incriminating material discovered during the search. The appeals filed by the Revenue were dismissed, and the appeals filed by the assessees were allowed to the extent indicated, thereby settling the legal position on search assessments under Section 153A.

Source Link - https://api.sci.gov.in/supremecourt/2020/19437/19437_2020_4_1501_43795_Judgement_24-Apr-2023.pdf

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