Introduction

Section 153A of the Income Tax Act, 1961 ("the Act") provides a special procedure for assessment in cases 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. A cornerstone of this procedure is the mandatory requirement for the assessee to furnish a return of income for each of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made. This article undertakes a comprehensive analysis of the legal characteristics, procedural intricacies, scope, and significant implications associated with the returns filed pursuant to a notice issued under Section 153A(1)(a) of the Act, drawing upon statutory provisions and judicial pronouncements.

Statutory Framework of Section 153A: The Mandate to File Returns

Section 153A(1) of the Act begins with a non-obstante clause, overriding several provisions including Section 139 (Return of income), Section 147 (Income escaping assessment), Section 148 (Issue of notice where income has escaped assessment), Section 149 (Time limit for notice), Section 151 (Sanction for issue of notice), and Section 153 (Time limit for completion of assessment and reassessment).^{[9, 8]}

Clause (a) of Section 153A(1) mandates the Assessing Officer (AO) to issue notice to the person searched or whose assets/documents are requisitioned, requiring them to furnish, within a specified period, the return of income for each of the six assessment years (and for relevant extended assessment years, if applicable) "in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed." Crucially, the provision further stipulates that "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."^{[8, 10]} This deeming fiction is pivotal to understanding the status and treatment of returns filed under Section 153A.

The issuance of notice under Section 153A(1)(a) is mandatory once a search under Section 132 is initiated.^{[1, 12]} The return filed in response to such a notice forms the foundational document for the assessments or reassessments to be made for these years.

Nature and Scope of the Return Filed Under Section 153A

Supersession of Original Return and Abatement of Pending Proceedings

A significant consequence of the scheme under Section 153A is its impact on returns previously filed under Section 139 and any pending assessment or reassessment proceedings. The Delhi High Court in Pr. Commissioner Of Income Tax-19 v. Shri Neeraj Jindal (2017)^[7] explicitly held that "the revised return filed under Section 153A takes the place of the original return under Section 139, for the purposes of all other provisions of the Act." This view is reinforced by the Gujarat High Court's decision in Kirit Dahyabhai Patel v. Assistant Commissioner of Income Tax, cited by the ITAT in Suresh B Desai v. DCIT (2019)^[21], which observed that once an assessee files a return under Section 153A, it is treated as the original return filed under Section 139 for all other provisions of the Act.

Furthermore, the second proviso to Section 153A(1) states that assessment or reassessment proceedings pending on the date of initiation of the search or making of requisition shall abate.^{[4, 9]} The return filed under Section 153A then becomes the basis for a fresh determination of total income for these abated assessment years. For assessment years where assessments are already completed and not pending (unabated assessments), the return filed under Section 153A still allows the AO to reassess the total income, subject to certain judicial interpretations discussed later.

Opportunity for New Claims and Disclosures

Given that the return filed under Section 153A is treated as a return under Section 139, questions arise regarding the assessee's right to make new claims or disclose additional income not previously reported. The Rajasthan High Court in Jai Steel (India), Jodhpur v. Asst. Commissioner Of Income Tax (2013)^[16] dealt with a situation where the assessee made a claim for deduction of Sales Tax Incentive in the return filed under Section 153A, which had not been claimed in the original return. While the specifics of the outcome on this point in the provided extract are limited, the context implies that such claims can be made.

Several cases indicate that assessees often declare additional income in returns filed under Section 153A. For instance, in Mr. Prem Arora v. DCIT (2012)^[20], the assessee filed a return under Section 153A admitting income from undisclosed business activities. Similarly, in Pr. Commissioner Of Income Tax-19 v. Shri Neeraj Jindal (2017)^[17], the assessee filed a return under Section 153A declaring a higher income than in the original return. This practice suggests that the return under Section 153A provides an opportunity for the assessee to make a full and true disclosure of income, potentially regularizing past omissions.

Assessment Subsequent to Filing of Return under Section 153A

While the return filed under Section 153A is comprehensive and covers the total income of the assessee, the scope of assessment, particularly concerning additions to income, has been a subject of extensive judicial scrutiny.

Linkage to Incriminating Material for Unabated Assessments

A consistent line of judicial precedent, notably established by the Delhi High Court in Commissioner Of Income Tax (Central)-Iii v. Kabul Chawla (2015)^[1] and affirmed by the Supreme Court in PR. COMMISSIONER OF INCOME TAX CENTRAL 3 v. ABHISAR BUILDWELL P. LTD. (2023)^[4], holds that in respect of completed or unabated assessments, the AO can make additions to the returned income only if incriminating material is found during the search under Section 132 or requisition under Section 132A. If no incriminating material is found, the AO does not have jurisdiction to reassess completed assessments based on information unrelated to the search.^{[5, 6]}

Thus, while the assessee is obligated to file a return declaring total income for the six (or more) assessment years, the AO's power to disturb the income already assessed in completed assessments is circumscribed by the presence of incriminating material specific to those years.^[5] For pending (abated) assessments, the AO can make additions even without incriminating material, as the original assessment proceedings are subsumed into the Section 153A assessment.

It is important to note, as observed by the Kerala High Court in Commissioner Of Income-Tax v. St. Francis Clay Decor Tiles (2016)^[10], that "Neither under section 132 or under section 153A, the phraseology 'incriminating' is used by the Parliament." However, judicial interpretation has read this requirement into the scheme for completed assessments to prevent roving inquiries.

Implications of Filing Return under Section 153A

Penalty under Section 271(1)(c)

A significant implication of declaring additional income in a return filed under Section 153A is its bearing on penalty proceedings under Section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars. The argument often advanced by assessees is that if income is declared in the return filed pursuant to a Section 153A notice, it amounts to a disclosure and should not attract penalty.

In Pr. Commissioner Of Income Tax-19 v. Shri Neeraj Jindal (2017)^[17], the Delhi High Court addressed penalty imposition where additional income was declared in the 153A return. The Calcutta High Court in Income Tax, Central-Iii v. Suresh Chand Bansal (2009)^[19] upheld penalty where the assessee filed a "revised return under section 153A" showing higher income, noting that the disclosure was a consequence of the search. The ITAT in Mr. Prem Arora v. DCIT (2012)^[20] considered the assessee's submission that penalty could not be levied on income declared in a return filed under Section 153A as it constitutes due disclosure. The ITAT in BABITA KHURANA, NEW DELHI v. DCIT, CENTRAL CIRCLE, NOIDA (2019)^[22] also deliberated on this issue. The general judicial trend appears to be that merely because income is declared in a return under Section 153A, it does not automatically grant immunity from penalty, especially if the disclosure is clearly attributable to the detection during the search and was not voluntary prior to it. However, the specifics of each case, including the nature of the disclosure and the stage at which it is made, are crucial.

Interest Liability

The filing of a return under Section 153A also has implications for interest calculations, such as under Section 234A (delay in filing return of income). In Mr. Prem Arora v. DCIT (2012)^[20], it was noted that levy of interest under Section 234A(3) was determined from the expiry of the period prescribed up to the filing of the return of income in response to notice under Section 153A.

Procedural Aspects

Mandatory Nature of Notice and Filing

As established, the issuance of notice under Section 153A(1)(a) is mandatory post-search.^{[1, 12]} The assessee is then statutorily bound to file returns for the specified assessment years within the time allowed in the notice.^[11]

Return Filed After Search but Before Section 153A Notice

An interesting procedural scenario arose in Assistant Commissioner Of Income-Tax, Central Circle I(3) v. V.N. Devadoss (2013)^[18], where the assessees had not filed returns under Section 139(1) but furnished them *after* the search was conducted but *before* the notices under Section 153A were issued. Subsequently, notices under Section 153A were issued. The scheme of Section 153A, particularly its non-obstante clause and the mandate to file fresh returns for the six preceding years, suggests that the returns filed pursuant to the Section 153A notice would be the ones considered for the purpose of assessment under that section, effectively overriding any returns filed after the search but prior to the Section 153A notice for those assessment years.

Conclusion

The return filed under Section 153A of the Income Tax Act, 1961, is a unique and critical component of the post-search assessment mechanism in India. It is not merely a procedural formality but is deemed by statute to be a return filed under Section 139, thereby attracting the application of other provisions of the Act. This return supersedes any original returns filed and forms the basis for a fresh assessment of total income for the six (or more, as applicable) preceding assessment years. While it offers an assessee an opportunity to make new claims or disclose previously unreported income, the subsequent assessment, particularly for unabated assessment years, is judicially constrained by the requirement of incriminating material found during the search. The filing of such a return also carries significant implications for penalty and interest liabilities. The consistent interpretation by the judiciary has provided clarity on its nature and the scope of assessments based thereon, balancing the powers of the Revenue with the rights of the taxpayers.