MUMBAI: The Supreme Court (SC) on Monday held that Income-tax (I-T) officials cannot make any addition to a taxpayer’s income in the absence of any incriminating material in reassessment proceedings under Section 153A of the I-T Act, in cases where no assessment proceeding is pending as on the date of the search. The apex court has upheld the judgement of the Delhi high court in the case of Kabul Chawla.
The provision (for the period covered by the SC’s order) was that assessments for the period of six years preceding the date of search were to be reassessed by issue of notice under section 153A. The issue before the SC was whether such cases could be reassessed even if no incriminating material relating to those years was found at the time of search.
However, the verdict is a mixed bag for taxpayers, as the division bench of the SC comprising Justice MR Shah and Justice Sudhanshu Dhulia added that tax officials can reopen cases under sections 147 and 148 of the I-T Act.
Supreme Court advocate Deepak Joshi states it’s a decision favouring taxpayers in as much as no reassessment can now take place under Section 153A when there is no incriminating material found during the search. “The wide jurisdiction provided to tax officials under Section 153A has been curtailed to the extent that the I-T official cannot make use of any other information from any other source that may be in his/her possession to initiate reassessment under Section 153A of previous completed and settled assessments.”
“However, the SC has kept the remedy of the tax department alive by stating that the power to make reassessment under Section 147/148 remains. Hence, the safeguards, conditions and procedural aspects under these sections (which were not present under Section 153A) can be used by the taxpayer in defence against any reassessment (including jurisdictional challenges),” adds Joshi.
Gautam Nayak, chartered accountant and tax partner at CNK & Associates, states while the SC rightly held that in absence of incriminating material, completed assessments would not be disturbed under the search reassessment procedure, the apex court further held that reassessment could be resorted to through the reassessment procedure under Section 147/148, if the conditions therein were fulfilled. This was on the ground that the revenue would otherwise be left with no remedy.”
“Effectively therefore, the SC has held that reassessment was possible for those completed years in parallel proceedings, even without any incriminating material being found in search,” adds Nayak.
It should be noted that the SC decision is not dealing with new I-T provisions. Joshi points out that the regime of reassessment pursuant to searches has undergone a change with effect from April 1, 2021. As per Section 148, any search conducted on or after this date will be deemed to have the effect of being an information that the income has escaped assessment for the tax official to automatically initiate reassessment for the previous three assessment years.
“The procedure for reassessment in search cases is now not separate, but a part of the reassessment procedure contained in sections 147-148, and reassessment is possible up to a period of 10 years if the value of undisclosed asset, expenditure or entry exceeds Rs 50 lakh,” points out Nayak. The I-T officials have the power to reassess under sections 147-148. The SC has also kept this remedy alive.
The provision (for the period covered by the SC’s order) was that assessments for the period of six years preceding the date of search were to be reassessed by issue of notice under section 153A. The issue before the SC was whether such cases could be reassessed even if no incriminating material relating to those years was found at the time of search.
However, the verdict is a mixed bag for taxpayers, as the division bench of the SC comprising Justice MR Shah and Justice Sudhanshu Dhulia added that tax officials can reopen cases under sections 147 and 148 of the I-T Act.
Supreme Court advocate Deepak Joshi states it’s a decision favouring taxpayers in as much as no reassessment can now take place under Section 153A when there is no incriminating material found during the search. “The wide jurisdiction provided to tax officials under Section 153A has been curtailed to the extent that the I-T official cannot make use of any other information from any other source that may be in his/her possession to initiate reassessment under Section 153A of previous completed and settled assessments.”
“However, the SC has kept the remedy of the tax department alive by stating that the power to make reassessment under Section 147/148 remains. Hence, the safeguards, conditions and procedural aspects under these sections (which were not present under Section 153A) can be used by the taxpayer in defence against any reassessment (including jurisdictional challenges),” adds Joshi.
Gautam Nayak, chartered accountant and tax partner at CNK & Associates, states while the SC rightly held that in absence of incriminating material, completed assessments would not be disturbed under the search reassessment procedure, the apex court further held that reassessment could be resorted to through the reassessment procedure under Section 147/148, if the conditions therein were fulfilled. This was on the ground that the revenue would otherwise be left with no remedy.”
“Effectively therefore, the SC has held that reassessment was possible for those completed years in parallel proceedings, even without any incriminating material being found in search,” adds Nayak.
It should be noted that the SC decision is not dealing with new I-T provisions. Joshi points out that the regime of reassessment pursuant to searches has undergone a change with effect from April 1, 2021. As per Section 148, any search conducted on or after this date will be deemed to have the effect of being an information that the income has escaped assessment for the tax official to automatically initiate reassessment for the previous three assessment years.
“The procedure for reassessment in search cases is now not separate, but a part of the reassessment procedure contained in sections 147-148, and reassessment is possible up to a period of 10 years if the value of undisclosed asset, expenditure or entry exceeds Rs 50 lakh,” points out Nayak. The I-T officials have the power to reassess under sections 147-148. The SC has also kept this remedy alive.
