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Newsletter

Volume - I
October,2016
No. of Pages - 13

Income Tax Search ,Seizure


and Survey
Contents:

Editorial Board:

1) Article on Section 153A of the Income Tax Act1961


2) Legal Browser on Income Tax Search & Seizure
Cases including Settlement Commission

Founder editor:

CA.MOHIT GUPTA
Coordinating editors:

CA.SUMIT BANSAL
CA.MOHAN JOSHI
CA.SANJAY BANSAL
PRABHAT RANJAN

Section 153A of the Income Tax Act'1961


and scope of assessment
CA.Mohit Gupta
I.Introduction:-

section 139, section 147, section 148, section


149, section 151 and section 153, in the case of a
person where a search is initiated under section
132 or books of account, other documents or any
asset are requisitioned under section 132A after
the 31st day of May, 2003, the Assessing Officer
shall

Section 153A of the Income Tax Act'1961Assessment in case of search or requisition


(forming part of Chapter XIV of the Income Tax
Act'1961- Procedure for Assessment) provides for
assessment in the case of a person in whose case a
search is initiated under section 132 of the Act or
documents or assets are requisitioned under
section 132A of the Act after May 31st, 2003. In
such a case the Assessing Officer is obliged to
issue notice u/s 153A in respect of 6 preceding
years, immediately preceding the year in which
search has been initiated. Thereafter he has to
assess or reassess the total income of these six
years. It is obligatory on the part of the Assessing
Officer to assess or reassess total income of the six
years as provided in section 153A(1)(b) and
reiterated in the 1st proviso to this section. The
second proviso states that the assessment or
reassessment pending on the date of initiation of
the search or requisition shall abate.
II.

(a) Issue notice to such person requiring him to


furnish within such period, as may be specified
in the notice, the return of income in respect of
each assessment year falling within six
assessment years referred to in clause (b), in
the prescribed form and verified in the
prescribed manner and setting forth such other
particulars as may be prescribed and the
provisions of this Act shall, so far as may be,
apply accordingly as if such return were a return
required to be furnished under section 139;
(b) Assess or reassess the total income of six
assessment years immediately preceding the
assessment year relevant to the previous year in
which such search is conducted or requisition is
made:
:
Provided that the Assessing Officer shall
assess or reassess the total income in respect of
each assessment year falling within such six
assessment years:

Relevant Provisions:-

For understanding the legal issues which has


arisen on the subject matter and discussed in the
later part of this write up, let us go through the
relevant underlying provisions :"153A. Assessment in case of search or
requisition.

Provided further that assessment or


reassessment, if any, relating to any
assessment year falling within the period of six

(1) Notwithstanding anything contained in

1.

assessment years referred to in this sub-section


pending on the date of initiation of the search
under section 132 or making of requisition under
section 132A, as the case may be, shall abate:

does entail altogether a fresh exercise of making


fresh assessment even on the issues which are not
connected with the incriminating material
unearthed during the course of search and seizure
proceedings

Analysis of relevant provisions


At the outset it will be relevant to mention that
new search assessment procedure as contained
under sections 153A to 153D concerning the
assessment in a case where search under section
132 or requisition under section 132A is initiated
were brought on the statute only w.e.f. 1-6-2003.
Oua the search assessments earlier applicable
procedure was contained in Chapter XIV-B
(sections 158B to 158BI) wherein only undisclosed
income mentioned in the seized documents, etc.,
relatable to the block of ten years was liable to be
brought to tax and for the regular income
Assessing Officer had to frame the normal
assessments. If the search assessment scheme of
sections 153A to 153D is compared with the
scheme as existing earlier in Chapter XIV-B we
notice clear departure, at least in respect of
following two aspects:

III.

The issue as to whether search assessments are


fresh assessments or limited assessments only
w.r.t the seized material has been a matter of
judicial controversy over the years leading to high
end litigation across the country so far as different
courts and tribunals have given divergent views
on the matter.
Section 153A of the act starts with non-obstante
clause with reference to sections 139, 147, 148,
149, 151 and 153. In case of a person who has
been searched u/s 132(1) or in whose case books
of account, other documents or any assets are
requisitioned u/s 132A after 31.5.2003, the
Assessing Officer has to issue notice to him for
filing the return in respect of each assessment
year falling within six assessment years
immediately preceding the assessment year
relevant to the previous year in which the search
or the requisition is made. Thereafter, the
Assessing Officer has to assess or reassess the
total income of the six assessment years. First
proviso is nothing but reiteration of the provisions
contained in clause (b) of section 153A (1)
wherein it is provided that the Assessing Officer
shall assess or reassess the total income of each of
the six assessment years as mentioned above.
The second proviso contemplates that if any of the
aforesaid six assessments is pending on the date
of initiation of the search or requisition, the same
shall abate. However, there is no provision
that even the completed assessment of
aforesaid six years shall abate. Therefore, the
distinction has been made between a completed
assessment and a pending assessment.

(a) Firstly, the concept of block assessment


comprising of the period of 10 years was dispensed
with reverting to the concept of year-wise
assessments; and
(b) Secondly, unlike the earlier scheme taxability
of income was not restricted merely to the
undisclosed income as emanating from the
evidences found in the searches.
The concept of block assessment under Chapter
XIV-B was altogether on a different footing as
compared to the current scheme of search
assessments so far as under the erstwhile block
assessment scheme, there was a concept of dual
assessments proceedings (assessment of regular
income and assessment of undisclosed income
under erstwhile Chapter XIV-B) unlike a composite
assessment of both normal income and
undisclosed income unearthed during the course
of search. Despite there being principal differences
in the provisions of erstwhile Chapter XIV-B and
sections 153A to 153D of the Income Tax
Act'1961, a controversy has been existing for
some time:(i)

The Controversy and the Judicial


precedents:-

The controversy arises when the Assessing Officer


makes routine additions on regular issues which
has no bearing/nexus with the material unearthed
during the course of search and seizure action. To
illustrate, let us assume M/s. XYZ Ltd. was search
on 10-08-2013, thereby assessed u/s 153A for
A.Y. 2008-09 to 2013-14 and u/s 143(3) for A.Y.
2014-15 on or before 31-03-2016. Further,
assume that A.Y. 2008-09 to 2010-11 are already
assessed u/s 143(3) of the act before the date of
search. Now, the controversy arises when the AO

as to whether the proceedings under section


153A tantamount to de novo proceedings ,

(ii) Whether the assessment u/s 153A of the act


pursuant to search operations for the years which
stood assessed earlier is de-novo. Whether
pursuant to search operations, issuance of notice
u/s 153A for the years which are already assessed

2.

resorts to regular additions on regular issues


which have no nexus with the search action and
the connected incriminating material unearthed
under such action for A.Y. 2008-09 to 2010-11
since already assessed under section 143(3) of the
act.

the legislative intent. Section 153A of the act


merely lays down the manner/procedure for
making assessment/reassessment and also the
maximum number of years for which assessment/
r e a s s e s s m e n t c a n b e m a d e . H o w e ve r,
assessment/reassessment have necessarily to be
made in pursuance to search action and,
therefore, scope of assessment/reassessment is
confined to undisclosed income as enumerated in
section 132 and thus does not give sweeping or
naked powers to re-compute regular income by
conducting search action. To illustrate, if any issue
is accepted in original assessment order, the same
cannot be once again re-considered while framing
assessment under section 153A except if some
evidence or material is found at the time of search
in respect of such issue leading to the interference
of undisclosed income.

It is worthwhile to mention here is that under the


provision contained in sub-section (2) of Section
153A, the assessment or reassessment relating to
any assessment year which has abated under the
second proviso, if such an assessment is annulled
in appeal or any other legal proceeding, then it
shall stand revived w.e.f. the date of receipt of the
order of such annulment by the Commissioner.
Further such revival shall cease to have effect if
the order of annulment is set aside. Therefore, in
so far as the completed assessments are
concerned, they do not abate and pending
appeals etc. in respect thereof continue to
exist notwithstanding the fact that the
search has been made. Thus a completed
assessment becomes final unless some
incriminating material is found in the course of
search. Such a legislation was inserted by the
legislature to restrain the Assessing Officer to
undo what has already been completed and has
become final. Therefore, no reassessment in
respect of completed assessment is
contemplated under this provision in case no
incriminating material is found in the search.
The legal intent of section 153A mandates that the
search assessments u/s 153A of the act has to be
based on incriminating material and any contrary
approach shall defeat the essence of the stringent
legislation. Furthermore, the interpretation to be
placed on the provision contained in section 153A
has to take into account the safeguard so that the
assessee's are not put to undue harassment by
subjecting them to reassessment in case of a
completed assessment and thereby making
arbitrary additions/disallowances which has no
nexus with the material unearthed during the
course of the search and seizure operations. Since
the longest arm of the revenue, being search
action under section 132 of the Act, stands
exercised in present case, assessment under
section 153A needs to be made on the basis of
incriminating material unearthed during search. It
is worthwhile to mention here is that the power of
review being not available to the same authority
under the Act in normal circumstances
must/should not be allowed in the present
provisions of section 153A where last weapon in
arsenal of the Department (search) stood used, as
otherwise it would allow roving and fishing
enquiries in search based assessment, which is not

Furthermore to the above, the scope and effect of


the insertion of a new s. 153A of the Act by the
Finance Act, 2003 have been elaborated by the
CBDT in the following portion of the
Departmental Circular No. 7 of 2003, dt. 5th
Sept., 2003 [(2003) 184 CTR (St) 33], the
relevant extract of which is reproduced herein
under:"65. The special procedure for assessment of
search cases under Chapter XIV-B be abolished
65.1 The existing provisions of the Chapter XIV-B
provide for a single assessment of undisclosed
income of block period, which means the period
comprising previous years relevant to six
assessment years preceding the preceding year in
which the search was conducted and also includes
the period upto the date of the commencement of
such search and lay down the manner in which
such income is to be computed.
65.2. The Finance Act, 2003 has provided that the
provisions of this chapter shall not apply where a
search is initiated under s. 132, or books of
account, other documents or any assets are
requisitioned under s. 132A after 31st May, 2003
by inserting a new s. 158BI in the IT Act.
65.3. Further, three new ss. 153A, 153B and 153C
have been inserted in the IT Act to provide for
assessment in case of search or making
requisition.
65.4. The new s. 153A provides the procedure for
completion of assessment where a search is
initiated under s. 132 or books of account or other
documents or any assets are requisitioned under
s. 132A after 31st May, 2003. In such case, the AO

3.

shall issue notice to such person requiring him to


furnish, within such period as may be specified in
the notice, return of income in respect of six
assessment years immediately preceding the
assessment year relevant to the previous year in
which the search was conducted under s. 132 or
requisition was made under s. 132A.
65.5. The AO shall assess or reassess the total
income of each of these six assessment years.
Assessment or reassessment, if any, relating to
any assessment year falling within the period of six
assessment years pending on the date of initiation
of the search under s. 132 or requisition under s.
132A, as the case may be, shall abate. It is
clarified that the appeal, revision or rectification
proceedings pending on the date of initiation of
search under s. 132 or requisition shall not abate.
Save as otherwise provided in the proposed s.
153A, s. 153B and s. 153C, all other provisions of
this Act shall apply to the assessment or
reassessment made under s. 153A. It is also
clarified that assessment or reassessment made
under s. 153A shall be subject to interest, penalty
and prosecution, if applicable. In the assessment
or reassessment made in respect of an
assessment year under this section, the tax shall
be chargeable at the rate or rates as applicable to
such assessment year.
65.6. The new s. 153B provides for the time-limit
for completion of search assessments. It provides
that the AO shall make an order of assessment or
reassessment in respect of each assessment year,
falling within six assessment years under s. 153A
within a period of two years from the end of the
financial year in which the last of the
authorizations for search under s. 132 or for
requisition under s. 132A was executed.
65.7. This section also provides that assessment in
respect of the assessment year relevant to the
preceding year in which the search is conducted
under s. 132 or requisition is made under s. 132A
shall be completed within a period of two years
from the end of the financial year in which the last
of the authorizations for search under s. 132 or for
requisition under s. 132A as the case may be, was
executed.
65.8. It also provides that in computing the period
of limitation for completion of such assessment or
reassessment, the period during which the
assessment proceedings is stayed by an order or
injunction of any Court; or the period commencing
from the day on which the AO directed the
assessee to get his accounts audited under s. (2A)
of s. 142 and ending on the day on which the

4.

assessee is required to furnish report of such audit


under that sub-section, or the time taken in
reopening the whole or any part of the proceeding
or giving an opportunity to the. assessee of being
reheard under the proviso to s. 129 or in a case
where an application made before the Settlement
Commission under s. 245C is rejected by it or is
not allowed to be proceeded with by it, the period
commencing on the date on which such application
is made and ending with the date on which the
order under sub-s. (1) of s. 245D is received by the
CIT under sub-s. 20 of that section, shall be
excluded. If, after the exclusion of the aforesaid
period, the period of limitation available to the AO
for making an order of assessment or
reassessment as the case may be, is less than
sixty days, such remaining period shall be
extended to sixty days and the period of limitation
shall be deemed to be extended accordingly.
65.9. The new s. 153C provides that where an AO
is satisfied that any money, bullion, jewellery or
other valuable article or thing or books of account
or documents seized or requisitioned belong or
belongs to a person other than the person referred
to in s. 153A, then the books of account, or
documents or assets seized or requisitioned shall
be handed over to the AO having jurisdiction over
.such other person and that AO shall proceed
against such other person and issue such other
person notice and assess or reassess income of
such other person in accordance with the
provisions of s. 153A.
65.10. An appeal against the order of assessment
or reassessment under s. 153A shall lie with the
CIT(A).
65.11. Consequential amendments have also
been made in ss. 132, 132B, 140A, 234A, 234B,
246A and 276CC to give reference to s. 153A in
these sections.
65.12. These amendments will take effect from 1st
June, 2003 [ss. 59( b), 60(b), 63, 65, 67, 89, 90,
93 and 97]."
The perusal of the aforementioned CIRCULAR NO.
7/2003, DATED 5-9-2003 divulge the intent of the
insertion so far as the Assessing Officers shall
make assessment or reassessment of the total
income of 6 years, and the pending assessments
on the date of initiation of search shall abate. In
this connection, it further emerge that the
appeals, review or rectification proceedings
pending on the date of initiation of search or
requisition shall not abate. This only means that

the issues which stand concluded in assessments


made earlier shall continue to remain intact
subject to aforesaid jurisdictions. The other
conclusion that arises in respect of matters
already attained finality in the assessments
framed earlier, no further action is required in
reassessments u/s 153A.

'with all the steps having been pulled out, the


Assessing Officer under section 1534 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 Court then
dealt with the second proviso to section 153A,
which states that pending assessment or
reassessment proceedings in relation to any
assessment year falling out of the period of six
assessment years previous to the search shall
abate. In all such cases pending assessments, the
Court explained that once those proceedings
abate, the decks were cleared, for the AO to pass
assessment orders for each of those six years
determining the total income of the Assessee.
Such 'total Income' would include "both the
income declared in the returns, if any, furnished by
the Assessee as well as the undisclosed income, if
any, unearthed during the search or requisition."
Therefore, merely because the returns of income
filed by the Assessee for the assessments years
previous to the date of the search already stood
processed under section 143(1)(a) it could not be
held that the provisions of section 153A could not
be invoked.
As regards the material unearthed during the
search the Court in CIT v. Anil Kumar Bhatia
(supra) observed that 'if it is not in dispute that the
document was found in the course of the search of
the Assessee, then section 153A is triggered. Once
the section is triggered, it appears mandatory for
the Assessing Officer to issue notices under
section 153A calling upon the Assessee to file
returns for the six assessment years prior to the
year in which the search took place.

Judicial Precedents:
(i) Delhi High Court in Anil Kumar Bhatia (2013)
352 ITR 493 (Del)
Before the Delhi High Court in Anil Kumar Bhatia
(2013) 352 ITR 493 (Del) the question whether in
order to frame an assessment in terms of the first
proviso to section 153A(1) in respect of those
assessment years for which the assessments had
already been completed, there was a requirement
that some incriminating material should be
unearthed during the search was left open. In that
case the Tribunal had concluded that "if no
incriminating material is found in respect of such
completed assessments then the total income in
the proceedings under section 153A(1) shall be
computed by considering the originally
determined income. If some incriminating
material is found in respect of such assessment
years for which assessment is not pending, then
the total income would be determined by
considering the originally determined income plus
(+)income emanating from the incriminating
material found during the course of search".
The Delhi High Court in CIT v. Anil Kumar Bhatia
(supra) posed the question as under:

'The Court clarified in para 24 as under:-

'21 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) . If such an order is
already in existence, having obviously been
passed prior to the 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 section 147 and 148,
have been removed by the non obstante clause
with which sub section( 1) of section 153A opens".

"24 We are not concerned with a case where no


incriminating material was found during the
search conducted under section 132 . We,
therefore, express no opinion as to whether
section 153A can be invoked even in such a
situation. That question is therefore left open.
Therefore, it is clear that the decision in CIT v. Anil
Kumar Bhatia (supra) does not deal with a
situation where any incriminating material would
be found.
(ii) Delhi High Court in Chetan Das Lachman
Das (2012) 211 Taxman 61 (Del)
On the same date as of the above case , the Delhi
High Court also pronounced its decision in Chetan
Das Lachman Das wherein the Court underscored
the need for to Department to have unearthed

The Court then explained that the concept of timelimit for completion of assessment or
reassessment under section 153 had been done
away with in a case covered by section 153A and

5.

material during search justifying the assessment


sought to be made, in the following words:

gathered during the search, it is perfectly open to


him to do so." One observation in the said
judgement is, however, important. While
explaining Section 153A of the Act, the Court
observed "it is not merely the undisclosed income
that will be brought to tax in such assessments,
but the total income of the assessee, including
both the income earlier disclosed and income
found consequent to the search, would be brought
to tax." The Court, however, did not answer the
question of whether a finding of undisclosed
income would have to be based on some material
unearthed during the search.

"11. . . . . . . . . Section 153A (1) (b) provides


for the assessment or reassessment of the
total income of the six assessment years
immediately preceding the assessment year
relevant to the previous year in which the
search took place. To repeat, there is no
condition in this Section that additions should
be strictly made on the basis of evidence found
in the course of the search or other postsearch material or information available with
the Assessing Officer which can be related to
the evidence found. This, however, does not
mean that the assessment under Section
153A can be arbitrary or made without any
relevance or nexus with the seized material.
Obviously an assessment has to be made
under this Section only on the basis of seized
material. . . . . . . "

(iv) Karantaka High Court in ITA No.38/2014


Canara Housing Development Co. v. Dy. CIT
[2014] 49 taxmann.com 98
In the Karnatka High Court the question was
whether the CIT could invoke the power under
Section 263 of the Act once the proceedings under
Section 153A was initiated. The High Court in
Canara Housing Development Co. (supra)
answered the question in the negative. It referred
to the decision of this Court in Anil Kumar Bhatia
(supra) and came to the conclusion that once
proceedings are initiated under Section 153A of
the Act the legal effect was that even where an
assessment order is passed, it would stand
reopened. In the eye of law there was no order of
assessment. It meant that the AO "shall assess or
reassess the total income of six assessment years.
Once the assessment is reopened, the assessing
authority can take note of the income disclosed in
the earlier return, any undisclosed income found
during search or and also any other income which
is not disclosed in the earlier return or which is not
unearthed during the search, in order to find out
what is the "total income" of each year and then
pass the assessment order."

(iii) Delhi High Court in Madugula Venu (2013)


29 Taxmann.com 2009 (Del)
Turning to the decision in Madugula Venu (supra),
the question there was not whether in the absence
of any incriminating material the assessment
could be completed under Section 153A of the Act.
No doubt a contention was put forth on behalf of
the Assessee that "no material which would
implicate him, in the earning of any undisclosed
income was unearthed during the search and,
therefore, there was no basis to issue the notice
under section 153A." It must be remembered that
the Petitioner in that case had come forth with a
writ petition to challenge the search and seizure
proceedings under Section 132 of the Act by
questioning the very issuance of notice under
Section 153A of the Act. It is in that context that
the Court found no merit in the writ petition and
observed that once a search was conducted under
Section 132 of the Act, it was mandatory for the AO
to issue notice to the person searched requiring
him to furnish returns of income for the six AYs
immediately preceding the AY relevant to the
previous year in which the search was conducted.
The Court was not entering into a discussion on
whether any additions could be made in the
assessment by the AO in the absence of any
incriminating material unearthed during search.
On the other hand, it left it open to the Assessee to
raise all contentions in the assessment
proceedings. The Court observed "in case he has
evidence or material to show that he has not
earned any income which is not disclosed to the
income tax authorities or to rebut the material

It is important to note that Canara Housing was


also a case where some material was unearthed
during the search. Further, the High Court was
clear that the addition to the income already
disclosed would have to be based on some
material unearthed during the search. This is clear
from the observation in para 9 of the decision to
the effect: "The AO is empowered to reopen those
proceedings and reassess the total income, taking
note of the undisclosed income, if any, unearthed
during the search." It was further observed that in
the facts of that case if the CIT had come across
any income that the AO had not taken note of while
passing the earlier order, "the said material can be
furnished to the assessing authority" who will take
note of it while determining total income.

6.

(v) Delhi High Court in Filatex India Ltd. V CIT


(2014) 49 Taxmann.com 465 (Del)

jurisdictional precondition. The additions cannot


and should not be arbitrary....

In Filatax India Ltd. v. CIT [2014] 49 taxmann.com


465 (Del) the facts of the case were that there
was incriminating material found during the
course of search conducted in the premises of
the Assessee on 18.01 .2006 and subsequent
dates which included a statement of the General
Manager (Marketing). On the basis of the said
material and statement additions were made to
the disclosed income under section 115 JB
although no material was found specific to such
addition. The Court held that under section 153A
"the additions need not be restricted or limited
to the incriminating material, which was found
during the course of search." Consequently even
if no incriminating material was found for the
addition under section 115JB, since there was
some incriminating material found which would
sustain additions made and since the 'total
income' had to be computed, they were
sustained by the High Court.

The above passage in Filatex India Ltd. (supra),


paraphrases inter alia, the following line in CIT v.
Chetan Das Lachman Das (supra): "This, however,
does not mean that the assessment under section
153A can be arbitrary or made without any
relevance or nexus with the seized material".
However, the immediately next line in CIT v.
Chetan Das Lachman Das (supra) reads:
"Obviously an assessment has to be made under
this section only on the basis of seized material.
On careful reading of both the decisions i.e., in CIT
v. Chetan Das Lachman Das (Supra) and Filatex
India Ltd. v. CIT-IV (supra) what was the similarity
was that they do not hold that additions can be
validly made to income forming the subject matter
of completed assessments prior to the search even
if no incriminating material whatsoever was
unearthed during the search.
(vi) CIT V. Kuarele Papers Mills P. Ltd.
Recently by its order dated 6th July 2015 in ITA No.
369 of 2015 (Pr. CIT v. Kurele Paper Mills (P.)
Ltd.), the Delhi High Court declined to frame a
question of law in a case where, in the absence of
any incriminating material being found during the
search under Section 132 of the Act, the Revenue
sought to justify initiation of proceedings under
Section 153A of the Act and make an addition
under Section 68 of the Act on bogus share capital
gain. The order of the CIT(A), affirmed by the ITAT,
deleting the addition, was not interfered with.

In Filatex India Ltd. (supra) the Court sought to


explain the observations in Chetan Das Lachman
Das (supra) in the following manner:
"3.Learned counsel for the appellant-assessee has
relied on the decision of this Court in CIT v. Chetan
Das Lachman Das [2012] 211 Taxman 61/25 Taxmann.com
227 (Del). The said decision notices insertion of
section 153A by Finance Act, 2003, its purpose
and object, and the earlier proceedings for block
assessment under Chapter XIVB, the difficulties
and the legal issues which had arisen on the
difference between regular assessment and block
assessment. It is in this context that in the case of
Chetan Das Lachman Das (supra), the Division
Bench, to which one of us (Sanjiv Khanna, J) was a
party, has observed that section 153A(1)(b)
provides for assessment or re-assessment of the
total income of six assessment years immediately
preceding the assessment year relevant to the
previous year in which the search took place. It
was emphasized that there is no condition in this
section that the additions should be strictly made
on the basis of evidence found during the course of
the search or other post search material or
information available with the Assessing Officer,
related to the evidence found. Subsequent
observation to the effect that the assessment
under section 153A should not be arbitrary or
made without any relevance or nexus with the
seized material, is basically clarificatory that the
assessment under section 153A emanates and
starts on the foundation of the search, which is the

(vii) Rajasthan High Court in Jai Steel (India )


Jodhpur V. ACIT (2013) 219 Taxman 223 ( Raj)
The decision of the Rajasthan High Court in Jai
Steel (India) (supra) involved a case where certain
books of accounts and other documents that had
not been produced in the course of original
assessment were found in the course of search. It
was held where undisclosed income or undisclosed
property has been found as a consequence of the
search, the same would also be taken into
consideration while computing the total income
under Section 153A of the Act. The Court then
explained as under:
"22. In the firm opinion of this Court from a
plain reading of the provision along with the
purpose and purport of the said provision,
which is intricately linked with search and
requisition under Sections 132 and 132A of
the Act, it is apparent that:

7.

(a) the assessments or reassessments, which


stand abated in terms of II proviso to Section
153A of the Act, the AO acts under his original
jurisdiction, for which, assessments have to be
made;
(b) regarding other cases, the addition to the
income that has already been assessed, the
assessment will be made on the basis of
incriminating material and
(c) in absence of any incriminating material, the
completed assessment can be reiterated and the
abated assessment or reassessment can be
made.

of assessment under Section 153A encompasses


additions, not based on any incriminating material
found during the course of search? It was held that
no addition could be made in respect of the
assessments that had become final in the event no
incriminating material was found during search.
The Bombay High Court relied on the earlier
decision in Murli Agro Products Ltd. and discussed
the scope and ambit of the proceedings for
assessment and reassessment of total income
under Section 153A (1) of the Act and the provisos
thereto. One of the specific pleas taken by the
Assessee was that if no incriminating material was
found during the course of search in respect of an
issue then no addition in respect of any issue can
be made to the assessment under Sections 153A
and 153C. It was observed that the assessment or
reassessment under Section 153A arises only
when a search has been initiated and conducted
and, therefore, "such an assessment has a vital
link with the initiation and conduct of the search."
The Court then reproduced and affirmed the
decision of the Special Bench of the ITAT in All
Cargo Global Logistics Ltd. v. Dy CIT [2012] 23
taxmann.com 103/137 ITD 287 (Mum.) (SB) and answered
the question as regards the scope of the
assessment of total income as under:

The argument of the Revenue that the AO was


free to disturb income dehors the incriminating
material while making assessment under Section
153A of the Act was specifically rejected by the
Court on the ground that it was "not borne out
from the scheme of the said provision" which
was in the context of search and/or requisition.
The Court also explained the purport of the
words "assess" and "reassess", which have been
found at more than one place in Section 153A of
the Act as under:
"26. The plea raised on behalf of the assessee that
as the first proviso provides for assessment or
reassessment of the total income in respect of
each assessment year falling within the six
assessment years, is merely reading the said
provision in isolation and not in the context of the
entire section. The words 'assess' or 'reassess'
have been used at more than one place in the
Section and a harmonious construction of the
entire provision would lead to an irresistible
conclusion that the word assess has been used in
the context of an abated proceedings and reassess
has been used for completed assessment
proceedings, which would not abate as they are
not pending on the date of initiation of the search
or making of requisition and which would also
necessarily support the interpretation that for the
completed assessments, the same can be tinkered
only based on the incriminating material found
during the course of search or requisition of
documents."

"53. . . . . . . . We are of the view that for


answering this question, guidance will have to
be sought from section 132(1). If any books of
account or other documents relevant to the
assessment had not been produced in the
course of original assessment and found in the
course of search in our humble opinion such
books of account or other documents have to
be taken into account while making
assessment or reassessment of total income
under the aforesaid provision. Similar position
will obtain in a case where undisclosed income
or undisclosed property has been found as a
consequence of search. In other words,
harmonious interpretation will produce the
following results:
(a) Insofar as pending
assessments are concerned, the jurisdiction to
make original assessment and assessment u/s
153A merge into one and only one assessment
for each assessment year shall be made
separately on the basis of the findings of the
search and any other material existing or
brought on the record of the AO, (b) in respect
of non-abated assessments, the assessment
will be made on the basis of books of account
or other documents not produced in the
course of original assessment but found in the
course of search, and undisclosed income or
undisclosed property discovered in the course
of search"

(viii) Bombay High Court in CIT v. Continental


Warehousing Corporation (Nhava Sheva)
Ltd. [2015] 374 ITR 645/232 Taxman 270/58 taxmann.com
78 (Bom.)
In CIT v. Continental Warehousing Corporation
(Nhava Sheva) Ltd. [2015] 374 ITR 645/232 Taxman
270/58 taxmann.com 78 (Bom.) the question addressed
by the Bombay High Court was whether the scope

8.

Game changer:- SLP granted by Hon'ble


Supreme Court in CIT v. Continental
Warehousing (Nhava Sheva) Ltd. SLP (c) no.
1350 to of 2015dt. 12.10.2015, against the high
court decision, as aforesaid , now creating clouds
over the judgements of various courts across the
country which are , so far, mostly in favour of the
assessee . Only, the outcome of the SLP shall clear
the legal position once forever.

Ultimately in Continental Warehousing (supra),


the Bombay High Court answered the question
framed by it as under:
(a)

(b)

In assessments that are abated, the AO


retains the original jurisdiction as well as
jurisdiction conferred on him under section
l53Afor which assessments shall be made
for each of the six assessment years
separately;

IV.

In view of the legal intent of Section 153A(1) of


the Act, read with the provisions thereto, and in
the light of the law explained in the
aforementioned decisions though pending the
decision of the Hon'ble Supreme Court in
Supreme Court in CIT v. Continental Warehousing
(Nhava Sheva) Ltd. SLP (c) no. 1350 to of 2015dt.
12.10.2015, as of now the legal position that
emerges is that once a search takes place under
Section 132 of the Act, notice under Section 153
A(1) of the act will have to be mandatorily issued
to the person searched requiring him to file
returns for six AYs immediately preceding the
previous year relevant to the AY in which the
search takes place. The pending assessments/
reassessments as on the date of search shall
abate. The Assessing Officer will exercise normal
assessment powers in respect of the six years
previous to the relevant AY in which the search
takes place. The Assessing Officer has the power
to assess and reassess the 'total income' of the
aforementioned six years in separate assessment
orders for each of the six years. In other words
there will be only one assessment order in respect
of each of the six AYs "in which both the disclosed
and the undisclosed income would be brought to
tax. Although section 153A does not say that
additions should be strictly made on the basis of
evidence found in the course of the search, or
other post-search material or information
available with the Assessing Officer which can be
related to the evidence found, it does not mean
that the assessment can be arbitrary or made
without any relevance or nexus with the seized
material. Obviously an assessment has to be
made under Section 153A only on the basis of
material unearthed during the course of search.
In absence of any incriminating material, the
completed assessment can be reiterated and the
abated assessment or reassessment can be
made. The word 'assess' in section 153A is
relatable to abated proceedings (i.e. those

In other cases, in addition to the income


that has already been assessed, the
assessment under section 153A will be
made on the basis of incriminating material,
which in the context of relevant provisions
means
(i)

Books of account, other documents,


found in the course of search but
not produced in the course of
original assessment, and

(ii)

Undisclosed income or property


discovered in the course of search."

Conclusion:-

(ix) Delhi High Court in CIT v. Kabul Chawla in


ITA Nos. 707,709 & 713 OF 2014 DATED AUGUST
28, 2015
Recently, the Hon'ble Delhi High Court delivered
an unambiguous landmark judgment on the
subject issue under consideration and held in clear
terms that the completed assessments can be
interfered with by the AO while making the
assessment under Section 153 A only on the basis
of some incriminating material unearthed during
the course of search or requisition of documents or
undisclosed income or property discovered in the
course of search which were not produced or not
already disclosed or made known in the course of
original assessment.
The legal position that emerges after the aforesaid
judgment is that the assessments u/s 153A has to
be essentially based on the documents unearthed
during the course of search and seizure operations
and a completed assessment becomes final unless
some incriminating material is found in the course
of search. In other words, if any issue is accepted
in original assessment order, the same cannot be
once again re-considered while framing
assessment under section 153A except if some
evidence or material is found at the time of search
in respect of such issue leading to the inference of
undisclosed income.

9.

pending on the date of search) and the word


'reassess' to completed assessment proceedings.
Insofar as pending assessments are concerned,
the jurisdiction to make the original assessment
and the assessment under section 153A merges
into one. Only one assessment shall be made
separately for each AY on the basis of the findings
of the search and any other material existing or
brought on the record of the Assessing Officer.

Completed assessments can be interfered with by


the Assessing Officer while making the
assessment under section 153A only on the basis
of some incriminating material unearthed during
the course of search or requisition of documents or
undisclosed income or property discovered in the
course of search which were not produced or not
already disclosed or made known in the course of
original assessment.

LEGAL BROWSER

A guide to Legal Updates and Landmark Rulings on Income Tax Search and
Seizure and related sections under the Income Tax Act'1961

Section 132(4)
DCIT V. Narendra Garg & Ashok Garg [2016] 72 taxmann.com 355 (Gujarat)
Where assessee retracted from disclosure made in statement under section 132(4) which was
not accepted by revenue, and if no undisclosed income was found during search, revenue could
not make addition on bare suspicion and presumption.
FACTS
A search operation under section 132 was carried out at the business and residential
premises of the assessee and various documents were found disclosing undisclosed
income of the assessee.
The Assessing Officer made the additions to the declared undisclosed income of the
assessee
On appeal, the Commissioner (Appeals) deleted all the additions made by the Assessing
Officer and only upheld part addition on account of undisclosed household expenses.
On cross appeal, the Tribunal partly allowed the appeal of the assessee and dismissed
the appeal of the revenue.
On appeal before the High Court, the revenue submitted that once disclosure statement
under section 132(4) during the search proceedings was given, the same could not be
retracted as the same was an admissible evidence against the person making the
disclosure. On contrary, the assessee submitted that no undisclosed income was found
during the search and, therefore, no addition could be made.
HELD
It is true that the addition was made by the Assessing Officer pursuant to the statement
recorded under section 132(4). The assessee has retracted from the said disclosure which
has not been accepted by the revenue. It is required to be borne in mind that the revenue
ought to have collected enough evidence during the search in support of the disclosure
statement. It is a settled position of law that if an assessee, under a mistake,
misconception or on not being properly instructed, is over assessed, the authorities are
required to assist him and ensure that only legitimate taxes are collected. The Assessing
Officer cannot proceed on presumption under section 132(4) and there must be
something more than bare suspicion to support the assessment or addition. In the
present case, though the revenue's case is based on disclosure of the assessee stated to
have been made during the search under section 132(4), there is no reference to any
undisclosed cash, jewellery, bullion, valuable article or documents containing any
undisclosed income having been found during the search. [Para 5]
10.

There is no infirmity in the Tribunal's order. The revenue is not in a position to produce
any material on record so as to warrant interference by this Court. The deletion of addition
on account of household expenses and cloth transaction has been rightly confirmed by the
Tribunal.The Tribunal has rightly applied the principles of telescoping for reducing
additions made by the Assessing Officer. [Para 6]
The questions raised for consideration in the present appeals are answered in favour of
the assessee and consequently, the impugned judgment and order passed by the
Tribunal is confirmed. Hence, the present Tax Appeal are dismissed. [Para 7]

Section 153C
Commissioner of Income-tax, Kolkata-III V. Veerprabhu Marketing Ltd. [2016] 73
taxmann.com 149 (Calcutta)
Existence of incriminating material which may be found during
search/requisition/survey of third party is a prerequisite for assessment of a person
other than person searched
FACTS
Before the High Court the assessee-company submitted that the assessment under
section 153C, read with section 153A was altogether without jurisdiction because such
assessment was made on the basis of survey conducted under section 133A upon other
person during which no incriminating material was found in respect of the assessee.
On the other hand, the revenue submitted that there was a search as also a requisition;
and there was survey in addition thereto, so, it could not be said that exercise of power
was bad:
HELD
In CIT v. IBC Knowledge Park (P.) Ltd. [2016] 69 taxmann.com 108 (Kar.), the High

Court held that materials such as books of account, documents or valuable assets found
during a search should belong to a third party which would lead to an inference of
undisclosed income of such third party. Such an inference should be recorded by the
Assessing Officer having jurisdiction over the searched persons and communicated to the
Assessing Officer having jurisdiction over such third party along with the seized
documents and other incriminating materials on the basis of which the Assessing Officer
having jurisdiction over such third party would issue notice under section 153C. On
receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third
party would proceed against the said third party. Thus, where no material belonging to a
third party is found during a search, but only an inference of an undisclosed income is
drawn during the course of enquiry, during search or during post-search enquiry, section
153C would have no application. Thus, the detection of incriminating material leading to
an inference of undisclosed income is a sine qua non for invocation of section 153C. [Para
5]

The views expressed by the Karnataka High Court that incriminating material is a
prerequisite before power could have been exercised under section 153C, read with
section 153A is correct. [Para 8]
There is no infirmity in the aforesaid act of the Tribunal. The appeal is, therefore,
dismissed. [Para 10]

11.

Section 245D, read with section 245C, of the Income-tax Act, 1961
Commissioner of Income-tax-I v. Income Tax Settlement Commission [2016]
72 taxmann.com 168 (Gujarat)
Where assessee at time of settlement raised/revised offers of tax marginally in
order to put an end to entire dispute through settlement, it could not be said that
original or initial declaration was not true and full disclosure
FACTS
The petition was filed by department challenging the order of the Settlement Commission by
which it accepted offer of settlement made by respondent-assessee for three years 2011-12 to
2013-14. Upon the assessee paying tax as per computation of income-tax made by the
Settlement Commission in said order, the assessee had been offered immunity from penalty
and prosecution.
It was submitted that the Settlement Commission had not recorded proper reasons for
accepting offer of settlement by the assessees. Further, no proper basis or yardstick had been
provided for estimating income of the assessee and the assessee had been allowed to revise
their offers which would indicate that initially the disclosures made by the assessee were not
full and true disclosures.
However, the respondent assessee opposed the petitions contending that the Settlement
Commission had given detailed reasons for passing the order and the consideration could not
be stated to be contrary to the provisions of the Act. Further, the High Court had limited
jurisdiction to interfere with the orders passed by the Settlement Commission.

HELD
The fact that the scope of inquiry by the High Court in exercise of writ jurisdiction under
article 226 of the Constitution of India against an order passed by the Settlement Commission
is quite restricted, is no longer a new or unknown proposition. It is held by series of judgments
by the Supreme Court as well as by High Courts that though finality given to an order of
Settlement Commission would not bar a writ petition before High Court, the scope of judicial
review would be restricted to considering whether order is contrary to any provisions of the
Income-tax Act. The scope of inquiry, whether by the High Court under article 226 or by the
Supreme Court under article 136 is to see whether the order of the Commission is contrary to
any of the provisions of the Act and if so, apart from the ground of bias and malice which
constitute a separate and independent category as it prejudices the applicant. [Para 5]
The Settlement Commission had in the impugned order examined material on record in the
context of the declarations made by the applicants for settlement including certain
transactions of the applicants of lending their on-money on short-term basis. The Settlement
Commission has examined material on record, given its own findings and made observations
and come to conclusions which cannot be said to be perverse or that the order was contrary to
any of the provisions of the Act. Recognising the limitation of judicial review by the High Court
in exercise of writ jurisdiction against the order of Settlement Commission, no justifiable
grounds are found for interference in this respect. [Para 6]
As regards disclosures, it is noticed that under section 245C, an assessee at any stage of a
case relating to him is allowed to make application for settlement in a prescribed form which
would require a full and true disclosure to be made by him of his income which has not been
disclosed before Assessing Officer and the manner in which such income has been derived.
While processing such application under section 245D, it would be open for the Settlement
Commission to reject an application for settlement if it is found that the applicant has not made
true and full disclosure of his income in the application for settlement. [Para 7]
The issue of true and full disclosure, stage at which such disclosures should be made and the
effect of making further disclosures by revising initial offers of settlement was examined by the
Supreme Court in the case of Ajmera Housing Corpn v. CIT [2010] 326 ITR 642/193 Taxman
193. The ratio of the judgment of the Supreme Court judgment is that the true and full
disclosure of the income must be made at the initial stage and large scale remissions in such
disclosure itself would show that the initial disclosures were not true. [Para 10]

12.

However, in the instant case, the applicants had initially offered on money rotation of Rs. 25
lakhs, Rs. 21 lakhs and Rs. 30 lakhs respectively and income at the rate of 12.5 per cent
thereof by way of interest earned which during the course of assessment proceedings was
revised to Rs. 50 lakhs, Rs. 50 lakhs and Rs. 75 lakhs respectively with rate of return at 15 per
cent. With respect to revised rate of return, even revenue would not be in a position to argue
that the same would form part of declaration of two incomes since whether rate of return
should be estimated to 12.5 per cent or 15 per cent would be substantially in the realm of
estimation of not profit. He would however, strenuously contend that revised declaration of on
money should be enough to establish that initial disclosures made by the assessees were not
full or true disclosures of such income. In this context, in the letter written by the applicants
making such revised offers, it was conveyed that the applicants had filed a petition for
settlement in which offered a sum of Rs. 7.75 lakhs at the rate of 12 per cent on peak balance
of funds deployed in money lending activity. It was further stated that the applicant during the
course of hearing under section 245D(4), in the spirit of settlement, agreed to further
additional income of Rs. 39.13 lakhs which is computed on the basis stated hereinbelow:
(a) interest in money lending activity at the rate of 15 per cent per annum.;
(b) Amount deployed in money lending activity Rs. 50 lakh
(C)Income out of on money receipt at the rate of 15 per cent [Para 11]
Similar declarations were made in the case of other applicants as well. It can thus be seen
that these revised offers of tax was in the nature of spirit of settlement and cannot be seen in
strict sense of abandoning initial disclosures and replacing the same by fresh disclosures on
the basis of such revised offers. What in essence the assessee did was to raise their offers
marginally to put an end to the entire dispute through settlement or in the spirit of settlement
as is referred to in the said letter. This cannot be seen as accepting that original or initial
declaration was not true and full disclosure thereby paving way for the application of
judgment in the case of Ajmera Housing Corpn. (supra). [Para 12]
In the result, the petitions are dismissed. [Para 13]

Section 153A, of the Income-tax Act, 1961


Commissioner of Income-tax-I v. MGF Automobiles Ltd [2016] 72 taxmann.com
240 (SC)
SLP granted against High Court's ruling that where seized material was destroyed in fire
that took place at revenue's office and was not available with Assessing Officer while
framing assessment under section 153A, assessment so framed on basis of said
information which was not unearthed during search, was to be set aside
A search took place in assessee's premises and certain incriminating material was seized, which
was stated to be destroyed in a fire that took place at premises of revenue . Consequent to
search, Assessing Officer framed assessments disallowing set off of losses of company CML and
made additions .High Court by impugned order (CIT v. MGF Automobile Ltd. [2015] 63 taxmann.com
137 (Delhi)) held that since Assessing Officer proceeded to frame assessments under section
153A relying on some information not unearthed during search, assessment orders so passed
were not sustainable in law. Special Leave Petition filed against impugned order was granted.
In case of any clarification, please feel free to revert :-

CA. Mohit Gupta,

Partner, M/s. Dhanesh Gupta & Co,


Chartered Accountants, New Delhi.
13.
M: 91-9999008009
E: ca.mohitgupta@icai.org, camohitgupta.tax@gmail.com
13.