Income tax - Whether when proceedings u/s 153A are initiated, AO is empowered to

Income tax - Whether when proceedings u/s 153A are initiated, AO is empowered to assess or reassess even 'total income' and no time-limit applies for sending notice u/s 148 - YES: Delhi HC

NEW DELHI, AUG 22, 2012: THE issues before the Bench are - Whether when the proceedings u/s 153A are initiated, AO is empowered to assess or reassess even the 'total income'; Whether, under the new scheme of things, there would be only one assessment order for both undisclosed as well as returned income; Whether the provisions of Sec 153A(1) remove the fetters imposed on the AO to comply with the strict procedure before assuming jurisdiction u/s 147; Whether the time-limit presicribed by Sec 149 for issue of notice u/s 148 does not apply in such proceedings; Whether even sanction mandated by Sec 151 is not required to be taken; Whether the mere fact that the document in the form of undertaking seized during search, was not signed, can absolve the assessee from the duty of satisfactorily explaining the possession of the documents, during the course of proceedings u/s 153A and Whether the finding of facts arrived at by the Tribunal are binding on High Courts. And the verdict favours Revenue.

Facts of the case

The assessee is an individual and was carrying on business in hing under the name and style of M/s. A.K. Traders. On 13.12.05, there was a search of the assessee's residence and business premises u/s 132 of the Act. Pursuant to the search, the AO issued notices u/s 153A of the Act and called upon the assessee to file the returns of income for the six years as envisaged in the Section. After considering the explanation and details submitted by the assessee, the AO made several additions to the income returned in respect of the AYs under consideration.

Before the Tribunal, the assessee in addition to challenging the addition made by the AO also questioned the validity of the additions made in the assessments framed u/s 153A of the Act. It was contended that during the search of the assessee's premises, no document or incriminating material, except the one unsigned undertaking for the loan was found. There was no corroborative material seized in the course of search. The income tax returns for the AYs 2000-01 to 2005-06 (six years) were filed prior to the search and in the normal course, suo moto disclosing the particulars of the subject additions and these returns stood accepted u/s 143(1) of the Act. Since on the date of the initiation of the search, no assessment was pending as they had all abated, the AO has wrongly invoked Section 153A of the Act. The assessment contemplated by Section 153A is not a de novo assessment and the additions made therein have to be necessarily restricted to the undisclosed income unearthed during the search. The Section has to be strictly interpreted. It is not an assessment such as a normal or regular scrutiny assessment.

The Tribunal found itself in complete agreement with the submissions made on behalf of the assessee. It held that since for all the AYs in consideration, processing returns u/s 143(1)(a) stood completed, for returns filed in due course before search, and no material being found in search thereafter, no addition can be made for agricultural income, gifts, unexplained deposit.

On further appeal by the Revenue, the High Court held that,

++ under the provisions of Section 153A, the AO is bound to issue notice to the assessee to furnish returns for each AY falling within the six AYs immediately preceding the AY relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the AO 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. U/s 153A, however, the AO has been given the power to assess or reassess the 'total income' of the six AYs in question in separate assessment orders. This means that there can 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;

++ 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 AYs, either u/s 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, 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. For this purpose, the fetters imposed upon the AO by the strict procedure to assume jurisdiction to reopen the assessment under Ss 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice u/s 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the AO by issue of notice to reopen the assessment u/s 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the AO u/s 153A 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;

++ there can be cases where at the time when the search is initiated, the assessment or reassessment proceedings relating to any AY falling within the period of the six AYs mentioned above, may be pending. In such a case, the second proviso to sub section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek. U/s 153A, there is no room for multiple assessment orders in respect of any of the six AYs under consideration. That is because the AO 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. Obviously there cannot be several orders for the same AY determining the total income of the assessee;

++ where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made, they will abate making way for the AO to determine the total income of the assessee in which the undisclosed income would also be included, 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 AO 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. In such a case, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made;

++ it is difficult to uphold the view of the Tribunal that since the returns of income filed by the assessee for all the six years under consideration before the search took place were processed u/s 143(1)(a) of the Act, the provisions of Section 153A cannot be invoked. The AO has the power u/s 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed returns before the date of search which stood processed u/s 143(1)(a);

++ the other reason given by the Tribunal that no material was found during the search is factually unsustainable since the entire case and arguments before the departmental authorities as well as the Tribunal had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. While summarizing the contentions of the assessee, the Tribunal itself has referred to the contention that no document much less incriminating material was found during the search of the assessee's premises, except one unsigned undertaking for loan. Again in Paragraph 10 of its order, while dealing with the assessee's contention against the addition of Rs. 1,50,000/- being unexplained loan given to Mohini Sharma, the Tribunal has stated that it has analyzed "the subject document carefully, recovered from search" suggesting that the document was recovered during the search from the assessee. The Tribunal has even proceeded to delete the addition of Rs. 1,50,000/- as well as the notional interest on merits, holding that the document was unsigned, that Mohini Sharma was not examined by the income tax authorities and there was no corroboration of the unsigned document. 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 AO to issue notices u/s 153A calling upon the assessee to file returns for the six AYs prior to the year in which the search took place. There are contradictions in the order of the Tribunal. We are unable to appreciate how the Tribunal can say that no material was found during the search and at the same time deal with the merits of the additions based on the document recovered during the search which allegedly contain the loan transaction with Mohini Sharma. Therefore, both the reasons given by the Tribunal for holding that the assessments made u/s 153A were bad in law do not commend themselves to us. The result is that the substantial question of law is answered in the negative, in favour of the Revenue and against the assessee;

++ as regards the second substantial question of law, it impinges on the decision of the Tribunal deleting the addition of Rs. 1,50,000/- made in the AY 2000-01 on account of unexplained loan to Mohini Sharma and the deletion of the addition of Rs. 27,000/- each as interest for the AYs 2003-04 to 2005-06. The CIT(Appeals) held that it was not possible to believe that the assessee had no connection with the documents found during the search. He further held that the assessee did not discharge the duty cast on him to rebut the evidence on the basis of any cogent material, but has tried to explain the evidence "in a very casual and evasive manner". He accordingly confirmed the addition. The contention however, raised by the assessee before the Tribunal, is that Mohini Sharma was not examined by the departmental authorities and that the unsigned document lacked corroboration and therefore, cannot be made the sole basis for making the addition. It would also appear to have been contended before the Tribunal that the document was not acted upon right from the beginning. The Tribunal accepted the contention and deleted the addition;

++ the Tribunal is the ultimate fact finding authority and an appeal to the High Court is provided only on a substantial question of law. The findings of fact entered by the Tribunal are normally binding on the High Court. However, if those findings are perverse or are so unreasonable that no person, properly instructed on facts and in law could have reached findings which the Tribunal did, it is open to the High Court to disregard the findings of fact as not binding on it. This is a well settled position and has been dealt with in several cases. The findings arrived at by the Tribunal are not borne out by the evidence on record. Therefore, we do not feel bound by the findings of the Tribunal. It is true that the order of the Tribunal cannot be said to give rise to a substantial question of law merely because the High Court is of the view that it would have come to a different conclusion on the same evidence; however, where the appreciation of the evidence is unsatisfactory and crucial aspects of the evidence have been missed, it is a case of a finding or conclusion which no person properly instructed on the facts and the legal position would have reached. That is what has happened in the present case;

++ it is not, therefore, possible to countenance the decision of the Tribunal. Documents were found in the assessee's possession and were recovered from him. The primary duty was therefore, upon the assessee to explain them. The mere fact that the undertaking was not signed by Mohini Sharma did not absolve the assessee from the duty of satisfactorily explaining the possession of the documents. The amount is stated to have been advanced in cash. The undertaking seems to have stated, as found by the CIT(Appeals), that she would forego all her rights in the property if she failed to return the loan within the stipulated period. The recovery of a copy of the General Power of Attorney executed by her in favour of the assessee prima facie corroborated the undertaking and the contents of the stamp paper. In these circumstances, it was for the assessee to show that no such transaction took place and the money was not advanced by him and the documents were not acted upon. The way in which this could have been done is for the assessee to bring Mohini Sharma before the AO and deny that she ever received the money from the assessee. Even an affidavit from her was not filed, denying the receipt of the money from the assessee. It was not for the AO to record any statement from Mohini Sharma confirming the transaction. The very plea of the assessee that the document was not acted upon is open to question in light of the fact that the copies of the General Power of Attorney were also recovered during the search along with the document. This shows that there was at least prime facie evidence to show that the document was acted upon and parties had taken some steps in furtherance thereto. In these circumstances, the Tribunal ought to have examined the case set up by the assessee without putting on blinkers and should have scratched the surface instead of simply accepting the assessee's stand. We are unable to find fault with the observation of the CIT(Appeals) that the assessee's explanation was very casual and evasive despite the evidence found during the search. The view taken by the Tribunal, with respect, appears to be one which cannot be sustained having regard to the evidence on record and the total lack of any explanation adduced by the assessee. The finding of the Tribunal cannot therefore be upheld as a reasonable inference. Consequently, the addition of Rs. 1,50,000/- is restored as also the addition of Rs. 27,000/- each in the AYs 2004-05 and 2005-06 as notional interest.