High Court (Jharkhand)
Abhay Kumar Shroff vs CIT and Ors.
290 ITR 114
 
Assessment in search cases - Abatement of pending assessment, Law applicable

AY 2004-05. The assessee had filed his return of income for the AY 2004-05 in May 2004 and in August 2006 a search was conducted at his premises. Since the assessment for the year 2004-05 was pending on the date of search, the proceedings stood abated. Therefore, the assessment made after search without issuing a notice under s.153A of the Income Tax Act 1961, which was applicable from 01 June 2003, was void.

S.153A of the Income Tax Act 1961 

High Court of Jharkhand

Abhay Kumar Shroff vs CIT and Ors.

W.P.T. No. 7646 of 3006

M.Y. Eqbal and D.K. Sinha JJ

14 February 2007

N.K. Poddar, M. Banka and D.K. Sinha for the Petitioner
K.K. jhunjhunwala for the Respondents

JUDGMENT

The judgment of the court was delivered by

M.Y. Eqbal J.- The petitioner who is the assessee has prayed for quashing the impugned notice purportedly issued under sub-section (1) of section 142 of the Income-tax Act, 1961 (in short "the Act") and for a direction upon the respondents not to continue with the assessment proceeding in respect of the assessment year in question. By amendment petition dated January 8, 2007, the petitioner has also prayed for quashing the order of assessment and demand notice and show-cause notice issued by the Assistant Commissioner of Income-tax in respect of the assessment year 2004-05 which was pending on the date or filing of the writ petition.

The brief facts of the case are that the petitioner filed his income-tax return voluntarily under section 139(1) of the Act along with their profit and loss account drawn for the financial year ending on March 31, 2004. After the return was filed on May 17, 2004, the petitioner's authorised representative appeared before respondent No, 3, the Assistant Commissioner of Income-tax, and filed the petitioner's letter dated June 25, 2005, along with various details in respect of income, receipt, expenses, assets and liabilities as reflected from the profit and loss account and the balance-sheet. On August 24, 2006, search and seizure operations were carried out by the officials of the Income-tax Department and the investigation wing at the offices and residence of the petitioner, which continued for a number of days. Respondent No. 3, thereafter, issued notice to the petitioner under section 142 of the Art asking him to file his income-tax return for the assessment year 2004-05 and to produce the books of account, bank passbooks and vouchers, etc., for the financial year ending March 31, 2004. The authorised representative of the petitioner appeared before respondent No. 3 and drew his attention to the fact that the petitioner has already filed his return for the financial year 2004-05 accompanied with all the documents of profit and loss account- The petitioner also submitted to respondent No. 3 that no notice under section 153A of the Act had been issued to the petitioner asking him to file his income tax return for the sixth assessment year as contemplated in the said section and further stated that the assessment proceeding for the assessment year 2004-05 which was pending on the date of initiation of search and seizure under section 132 of the Act has already abated and continuation of the impugned assessment proceeding is wholly without jurisdiction, illegal and invalid. By amendment petition, the petitioner pleaded that in spite of pendency of the writ petition, the respondent proceeded with the assessment proceeding and passed final order of assessment.

In the counter affidavit filed by the respondents it is stated, inter alia, that search and seizure operations were conducted in the business premises as well as residential premises of the petitioner situated at different places at Deoghar. Similar searches were conducted in the premises of the petitioner at Kolkata by the officers of the Income-tax Department, Kolkata. The search was controlled by the Kolkata wing of investigation. It is further stated that in the case of search and seizure, notice is required to be served on the assessee under the provisions of section 153A of the Act but since the search took place at West Bengal and Jharkhand the assigning of the case has not been finalised and notice under section 153A of the Act is still awaited. It is further stated that the assessment proceeding shall not await merely because notices were not issued under section 153A of the Act.

Mr. N.K. Poddar, learned senior counsel appearing for the petitioner-assessee assailed the entire procedure adopted by the respondent authorities in the matter of search and seizure and passing final order of assessment as being illegal and wholly without jurisdiction. Learned counsel drew my attention to the relevant provisions of the Income-tax Act particularly/section 153A of the Act and submitted that under the new scheme forming part of sections 153A, 153B and 153C of the Act deal with the assessment in the case of search and requisition in substitution of the erstwhile assessment scheme contained in Chapter XIV-B of the Act. Learned counsel submitted that under certain provisions of section 153A of the Act assessment or reassessment, if any, relating to any assessment year falling within the period of any of the sixth assessment year ending on the date of initiation of search under section 132 of the Act by making requisition under section 132A of the Act, shall abate. Learned counsel submitted that in terms of section 153A of the Act notice was required to be issued to the petitioner for the sixth assessment year, i.e., 2001-02 to 2004-05. Learned counsel submitted that the impugned assessment order passed by the respondent pending hearing of the writ petitions is absolutely illegal and wholly without jurisdiction.

After considering the facts of the case and the submission made by learned counsel for the parties, the only question that falls for consideration is as to whether the assessment proceeding for the year 2004-05 and the final order passed in the said assessment proceeding is vitiated in law for non-compliance with the provisions of section 153A of the Act ?

Before answering the aforesaid question, I would first like to refer to some of the relevant provisions of the Act.

Section 132 of the Act lays down the provisions of search and seizure. Under this section, the Director General or Director or Chief Commissioner or Commissioner or Joint Commissioner may be empowered by the Board to make search and seizure when they have reason to believe that any person to whom summonses or notices have been issued under the provisions of the Act referred to therein have failed to produce books of account or any other documents relevant for any assessment proceeding. The provision of section 132 underwent a series of amendments with a view to enlarge the power of search and seizure vested in the income-tax authority. By subsequent amendment the power of search and seizure vested in the Inspecting Assistant Commissioner also. Sub-section (3) of section 132 empowers the taxing authorities to take possession or control of the seized articles. By the 1991 amendment, the operation of the prohibitory order passed can also be extended with the approval of the Commissioner.

Chapter XIV of the Act deals with the procedure for assessment. It begins with section 139, which makes it obligatory for a person who is assessable under the Act and whose income exceeds the maximum limit shall furnish return of his income in the prescribed form. This section also underwent a series of amendments making procedure of filing of return easier. Section 140 of the Act prescribes the procedure of signing of return. Section 140A of the Act lays down the procedure of self-assessment. Section 142 of the Act prescribes the procedure of inquiry before assessment. This section confers power upon the assessing authority to make inquiry by issuing notice upon the assessee for the compliance of the requirements of the Act. After furnishing of the return under section 139 or in response to a notice under section 142, the assessing authority shall make assessment. Under section 147 of the Act if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceeding. However, before making such escaped assessment or reassessment or recomputation under section 147 of the Act, the Assessing Officer shall serve notice to the assessee as required under section 148 of the Act. Section 153 of the Act specifies the limit within which assessment or reassessment shall be completed.

In the year 1995, the special procedure for assessment of search cases was introduced by the Finance Act, 1995 (22 of 1995). Chapter XIV-B containing section 158B to section 158BH was inserted. Under the said scheme, the undisclosed income detected as a result of search initiated after June 30, 1995, is assessed separately as the income of the designated period (block) consisting of 10 previous years prior to the previous year in which the search was conducted and also the period of current previous year up to the date of search. The undisclosed income is taxed at a flat rate of 60 per cent. Under this provision, the authority competent to make the block assessment shall be an Assessing Officer not below the rank of the Assistant Commissioner and the time limit for completion of block assessment is within one year from the end of the month in which the last authorisation for search under section 132 and requisition under section 132A was executed. In 2003, new provisions, i.e., sections 153A, 153B and 153C have been inserted in the Finance Act, 2003 (32 of 2003), relating to assessment in the case of search or requisition made on or after June, 1, 2003, specifying the time limit for completion of assessment or reassessment of income. By virtue of the aforesaid amendments, the assessment in the case of search or requisition made on or after June 1, 2003, is to be governed by the provisions contained in the new sections 153A, 153B and 153C and not by the provisions contained in Chapter XIV-B, i.e, sections 158B to section 158BH.

For better appreciation, sections 153A, 153B and 153C are reproduced herein below :

"153A. Assessment in case of search or requisition.Notwithstanding anything contained in 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 assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall

(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 :

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this 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.

Explanation. For the removal of doubts, it is hereby declared that,

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section ;

(ii) in an 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.

153B. (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,

(a) in respect of each assessment year falling within six assessment years referred in clause (b) of section 153A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed ;

(b) in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed :

Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this subsection or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later :

Provided further that in the case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing on the ast day of April, 2004 or any subsequent financial year,

(i) the provisions of clause (a) or clause (b) of this sub-section shall have effect as if for the words 'two years' the words 'twenty-one months' had been substituted ;

(ii) the period of limitation for making the assessment or reassessment in case of other person referred to in section 153C, shall be the period of twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed or nine months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later,

Explanation. In computing the period of limitation for the purposes of this section,

(i) the period during which the assessment proceeding is stayed by an order or injunction of any court; or

(ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section; or

(iii) the time taken in reopening the. whole or any part of the proceeding or in giving an opportunity to the assessee of being re-heard under the proviso to section 129 ; or

(iv) in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, or

(v) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Commissioner under subsection (3) of section 245R, or

(vi) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Commissioner under subsection (7) of section 245R,

shall be excluded :

Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this sub-section available to the Assessing Officer 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 aforesaid period of limitation shall be deemed to be extended accordingly.

(2) The authorisation referred to in clause (a) and clause (b) of subsection (1) shall be deemed to have been executed,

(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued ;

(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.

153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized of requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.

(2) Where books of account or documents or assets seized of requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or

(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A."

For giving effect to the above newly inserted provision section 158BI has also been inserted by the Finance Act of 2003 which provides that the provisions of Chapter XIV-B, section 158B to section 158BH, shall not apply where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A of the Act after May 31, 2003.

From a reading of the provisions of section 153A, it is clear that this provision provides for a single assessment of undisclosed income of a block period in a case where search is conducted. In other words, in a case where search is conducted there shall be a block assessment for the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of commencement of such search. In such cases, the Assessing Officer shall issue notice to the assessee requiring him to furnish return of income in respect of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A. The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Section 153B provides the time limit for completion of assessment. It provides that the Assessing Officer shall make the order of assessment or reassessment in respect of the each assessment year falling within the six assessment years under section 153A within a period of two years from the end of the financial year in which search under section 132 or requisition under section 132A was executed.

The scope and effect of sections 153A, 153B, 153C and 158BI have been explained elaborately by a departmental Circular No. 7 of 2003, dated September 5, 2003 (see [2003] 263.ITR (St.) 62), which is reproduced herein below (page 106) :

"65.1 The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to 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 section 132, or books of account, other documents or any assets are requisitioned under section 132A after May 31, 2003, by inserting a new section 158BI in the Income-tax Act.

65.3 Further three new sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition.

65.4 The new section 153A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after May 31, 2003. In such cases, the Assessing Officer 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 section 132 or requisition was made under section 132A.

65.5 The Assessing Officer 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 section 132 or requisition under section 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 section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 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 section 153B provides for the time limit for completion of search assessments. It provides that the Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year, falling within six assessment years under section 153A within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed.

65.7 This section also provides that assessment in respect of the assessment year relevant to the previous year in which the search is conducted under section 132 or requisition is made under section 132A shall be completed within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 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 proceeding is stayed by an order or injunction of any court; or the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a 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 re-heard under the proviso to section 129, or in a case where an application made before the Settlement Commission under section 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-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded. If, after the exclusion of the aforesaid period, the period of limitation available to the Assessing Officer 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 section 153C provides that where an Assessing Officer 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 section 153A, then the books of account, or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer 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 section 153A.

65.10 An appeal against the order of assessment or reassessment under section 153A shall lie with the Commissioner of Income-tax (Appeals).

65.11 Consequential amendments have also been made in sections 132, 132B, 140A, 234A, 234B, 246A and 276CC to give reference to section 153A in these sections.

65.12 These amendments will take effect from June 1, 2003."

From a bare reading of the provisions of sections 153A, 153B and 153C of the Act and the Departmental Circular dated September 5, 2003 (see [2003] 263 ITR (St.) 62), it is manifestly clear that after May 31, 2003, the earlier provision of block assessment in the case of search initiated against the assessee, shall not apply. Instead, the provision that there shall be single assessment on undisclosed income comprising previous years relating to six assessment years preceding in which the search was conducted, shall apply. It further provides that the Assessing Officer shall issue notice to such person requiring him to furnish return of income in respect of six assessment years immediately preceding the assessment year relating to the previous year in which the search was conducted under section 132 or requisition was made under section 132A of the Act.

The second proviso to section 153A makes it dear that assessment or reassessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A shall abate. In other words, if on the date of initiation of search or requisition under section 132 or section 132A any assessment or reassessment proceeding is initiated relating to any assessment year falling within the period of six assessment years, it shall stand abated and the assessing authority cannot and shall not proceed with such pending assessment after initiation of search or requisition as contemplated hereinabove.

The word "abate" or "abatement" has not been defined in the Act or in the circular. According to Chambers Dictionary the word "abate" means demolition or to put an end to.

The Law Lexicon defines the word "abate", which means to throw down, destroy or quash or to nullify. According to Black's Law Dictionary the word "abatement" means the act of eliminating or nullifying or suspension or defeat of a pending action.

According to Advanced Law Lexicon by P. Ramanathan Aiyar the word "abate" means diminish or take away or to put end to or to come to a naught. The term is used in the U. S. A. to describe the cancellation in whole or in part of a Government levy (business term and international accounting).

Coming back to the instant case, as noticed above, the search and seizure was initiated by the respondents on August 24, 2006, which was carried out by various authorised officials. Thereafter, as admitted by the respondents in their counter affidavit, no notice as required under section 153A was issued to the petitioner for the six assessment years, i.e., from 2001-02 to 2006-07. It has not been disputed by the respondents that the date on which the search was initiated the assessment proceeding was pending on the basis of the return furnished by the petitioner. Consequently, therefore, the pending assessment proceeding stood abated by virtue of the second proviso to section 153A of the said Act. Instead of complying with the requirements of section 153A of the Act, the respondents proceeded with the pending assessment proceeding for the assessment year 2004-05 and passed an assessment order during the pendency of the instant writ application. The said impugned order has also been challenged by the petitioner by filing amendment petition.

In the aforesaid facts and circumstances of the case, I am of the definite opinion that the entire action of the respondents in proceeding with the assessment after search in contravention of the provisions of section 153A is vitiated in law. Consequently, the impugned assessment order dated December 28, 2006, purportedly passed under section 143(3) of the Act in a pending assessment proceeding which stood abated is a nullity. As discussed above, continuation of the impugned assessment proceeding after the initiation of search without giving any notice under section 153A of the Act and passing the impugned final order of assessment is illegal, arbitrary and wholly without jurisdiction.

For the reasons aforesaid, this writ application is allowed and the impugned notice and the final order of assessment are set aside. The concerned authorities of the respondents are directed to proceed with the block assessment after issuing notices as contemplated under section 153A of the Act and pass order in accordance with law after giving opportunity of hearing to the petitioner.