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Canara Housing Development Company v. Deputy Commissioner Of Income Tax
Summary of Judgment — N. Kumar, J.
Factual and Procedural Background
The assessee is a firm carrying on real estate business. It filed its return for the assessment year 2008-09 and an assessment order under section 143(3) of the Income-tax Act, 1961 ("the Act") was passed on 31 December 2010. A search under section 132 of the Act was subsequently conducted on 12 April 2011, during which incriminating material leading to undisclosed income was seized. Proceedings under section 153A were initiated and a notice was issued on 13 January 2012. The assessee filed returns on 3 February 2012 for the six years as required by section 153A(1)(a).
On 14 March 2013 the Commissioner of Income Tax (CIT) initiated proceedings under section 263 of the Act, alleging that the earlier order dated 31 December 2010 (passed under s.143(3)) was erroneous and prejudicial to the revenue. The assessee filed objections, but on 28 March 2013 the CIT passed an order directing the assessing authority to enhance the total income. The assessee appealed to the Tribunal. The Tribunal partially upheld the CIT's invocation of s.263 (relying on a Special Bench decision of the Mumbai Tribunal) and remanded some matters to the assessing authority; the assessee then appealed to the High Court.
Legal Issues Presented
- When once proceedings under section 153A of the Act are initiated, whether the CIT can invoke the power under section 263 of the Act to review an order of assessment passed by the assessing authority?
Arguments of the Parties
Appellant's (Assessee's) Arguments
- Once proceedings under section 153A are initiated the prior assessment (even if passed under s.143(1) or s.143(3)) stands reopened; in law there is no subsisting valid order of assessment which is a condition precedent for the CIT to exercise jurisdiction under s.263.
- Therefore, the CIT's order under s.263 is without jurisdiction.
Respondent's (Revenue's) Arguments
- Relying on the Special Bench of the Mumbai Tribunal, it was contended that proceedings under s.153A concern only undisclosed income unearthed during the search and that other material outside the search cannot be taken into account by the assessing authority in s.153A proceedings.
- On that basis, the CIT was said to be justified in invoking s.263 where the earlier assessment order failed to deal with matters (outside the search) that were erroneous and prejudicial to the revenue.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| All Cargo Global Logistics Ltd. v. Dy. CIT (2012) 146 TTJ (Mumbai) (SB) 657; (2012) 72 DTR (Mumbai) (SB) 1; (2012) 16 ITR (Trib) 380 (Mumbai) (SB) | Held (as relied upon by the Tribunal) that after initiation of search/proceedings under s.153A the scope of enquiry may be confined to undisclosed income unearthed during the search, and that revisional remedies under s.263 may remain available to the Revenue in certain circumstances. | The Tribunal relied on this Special Bench decision to conclude that the Revenue could explore remedies under s.263 even after initiation of s.153A proceedings. The High Court, however, rejected the Tribunal's reliance on this assumption and did not follow that narrow limitation; the High Court found that s.153A reopens assessments and precludes exercise of s.263 in the circumstances described. |
| CIT v. Anil Kumar Bhatia (2012) 80 DTR (Del) 169 | Interpreted section 153A: emphasized the non-obstante clause, removal of fetters on AO for reassessment, the AO's power to assess/reassess "total income" of six years, and that previously concluded assessments are reopened for purposes of s.153A. | The High Court adopted and relied on the Delhi High Court's detailed exposition of s.153A to conclude that initiation of proceedings under s.153A reopens prior assessment orders; consequently there is no subsisting order that can be revised under s.263. The High Court's reasoning tracks the principles set out in Anil Kumar Bhatia and applies them to the facts of the case. |
Court's Reasoning and Analysis
The Court first set out the text of section 153A and emphasised that it begins with a non-obstante clause which removes the procedural fetters that normally restrict the assessing officer (AO) from reopening assessments under sections 147/148 and related provisions. The Court relied upon and reproduced the analysis of the Delhi High Court in CIT v. Anil Kumar Bhatia to explain the legislative scheme:
- Section 153A obliges the AO to issue notices and to assess or reassess the "total income" of the six assessment years preceding the year in which a search under s.132 is conducted.
- The non-obstante clause renders inapplicable the time limits and procedural safeguards that otherwise govern reopening (ss.147–151, 149 and 153), thereby empowering the AO to reassess total income, including disclosed and undisclosed income, without the usual fetters.
- If an assessment order already exists for any of the six years, the AO is empowered to reopen that assessment and reassess total income; in legal effect, the prior assessment "stands reopened" and, in the eye of law, there is no subsisting final assessment order for purposes of invoking s.263.
- Contrary to the Tribunal's approach (which leaned on the Special Bench All Cargo decision), the Court concluded there is no statutory restriction that confines s.153A proceedings only to undisclosed income unearthed during the search. Rather, the AO must determine the "total income" for each year — including income in the earlier return, undisclosed income found on search, and any other income that comes to the AO's notice — when the prior assessment is reopened under s.153A.
On these statutory and precedential foundations, the Court held that the condition precedent for the CIT to exercise revisional jurisdiction under s.263 is the existence of an order passed by the AO which is erroneous and prejudicial to the revenue. Once proceedings under s.153A are initiated and the prior assessment is reopened, there is no subsisting order of assessment that can be impugned under s.263. Consequently, the CIT lacked jurisdiction to initiate s.263 proceedings in this case.
The Court also observed that if the CIT considered that some income had not been taken into account by the AO in the earlier order, the proper course is to furnish such material to the assessing authority so that the AO can take it into account when conducting the reopened proceedings under s.153A.
Holding and Implications
Holding: The substantial question of law was answered in favour of the assessee and against the Revenue. The appeal was allowed and the impugned order as well as the order passed by the CIT under section 263 were set aside.
Direct consequences and practical implications:
- The assessing authority is at liberty to proceed with assessment proceedings under section 153A of the Act, applying the Court's interpretation of that section.
- The assessing authority shall determine the total income of the assessee by taking into consideration: (a) the materials which were the subject matter of the earlier return, (b) the undisclosed income unearthed during the search, and (c) any other income which comes to the authority's notice when conducting the reopened proceedings.
- The CIT's revisional order under s.263 was held to be without jurisdiction in the circumstances of this case and therefore invalid.
- No costs were awarded.
The Court's decision applies the statutory interpretation of s.153A (as explained in the cited Delhi High Court authority) and limits the use of s.263 where assessments have been reopened under s.153A; the opinion does not expressly state that it is creating any broader precedent beyond the legal conclusions reached in this judgment.
JUDGMENT
N. Kumar, J.:— The assessee has preferred this appeal against the order passed by the Tribunal partly upholding the order of the CIT exercising his powers under s. 263 of the IT Act 1961 (for short hereinafter referred to as ‘the Act’) and partly finding fault with him for invoking the said provision.
2. The assessee is a Firm carrying on real estate business. The assessee filed its return for the asst. yr. 2008-09. The case of the assessee was taken up for scrutiny. An order under s. 143(3) of the Act came to be passed on 31st Dec., 2010. Subsequently, a search took place in the premises of the assessee under s. 132 of the Act on 12th April, 2011. In the course of search, incriminating material leading to undisclosed income was seized. The proceeding was initiated under s. 153A of the Act calling upon the assessee to file return of income under s. 153A(1)(a) of the Act. A notice came to be issued on 13th Jan., 2012.
3. In pursuance of the said notice, the assessee filed a return oh 3rd Feb., 2012 for six years as required under the said provision. When the said return was under consideration, on 14th March, 2013, the CIT initiated proceedings under s. 263 of the Act on the ground that the order dt, 31st Dec., 2010 passed under s. 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue. The assessee filed-his objection. However, the CIT proceeded to pass an order on 28th March, 2013 directing the assessing authority to enhance the total income as mentioned in the said order. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal.
4. Before the Tribunal it was contended that the proceedings initiated under s. 263 of the Act is one without jurisdiction because by virtue of the proceedings initiated under s. 153A of the Act, the assessment for six years stood reopened and it is for the assessing authority to pass appropriate order on the basis of the return filed under s. 153A(1)(a) of the Act. Rejecting the said contention, the Tribunal held, if an order of assessment had already been passed before initiating proceedings under s. 153A of the Act, the said order does not abate. In the proceedings initiated under s. 153A of the Act, the assessing authority has to confine the assessment to the incriminating material found during search. He cannot take into consideration other materials while making an assessment order. Therefore, it is open to the CIT to invoke his powers under s. 263 of the Act, if the said assessment order is erroneous and prejudicial to the interest of the Revenue, otherwise the Revenue Will be without any remedy. In coming to the said conclusion the Tribunal relied on the judgment of the Special Bench of Tribunal, Mumbai in the case of All Cargo Global Logistics Ltd. v. Dy. CIT (2012) 146 TTJ. (Mummbai) (SB) 657 : (2012) 72 DTR (Mumbai) (SB) 1 : (2012) 16 ITR (Trib) 380 (Mumbai) (SB) and therefore, it held, in such cases, it would be open to the Revenue to explore remedies open to it in law under s. 263 of the Act, subject to satisfaction of the condition precedent for exercise of jurisdiction under that provision even after the initiation of search under s. 132 of the Act. Thereafter, he proceeded to consider the case on merits in respect of two items. It was held the revisional power has been wrongly exercised in respect of other two instances and the matter was remanded to the assessing authority. It is against the said order the assessee is before this Court.
5. Learned counsel appearing for the assessee assailing the impugned order contended that once proceedings under s. 153A is initiated, though the order of assessment passed in respect of six years do not abate, the effect is it stands reopened. Therefore, in law there is no valid order of assessment which is a condition precedent for the CIT to exercise his power under s. 263 of the Act and therefore, he; submits the order passed by the CIT is one without jurisdiction and the Tribunal was not justified in upholding the said order.
6. Per contra, learned counsel appearing for the Revenue submitted in view of the judgment of the Special Bench of Mumbai the subject matter of proceedings, under s. 153A would be only the undisclosed income which is the subject matter of search. No other materials can be taken into consideration by the assessing authority. In that view of the matter, the CIT was justified in invoking his powers under s. 263 of the Act and therefore, he submits no case for interference is made out.
7. In the light of the aforesaid facts and rival contentions, the substantial question of law that arise for consideration in this case is as under:
‘“When once the proceedings under s. 153A of the Act is initiated, whether the CIT can invoke the power under s. 263 of the Act to review the order of assessment passed by the assessing authority ?”
8. Sec. 153A reads as under:
“(1) Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153 in the case of a person where a search is initiated under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A after the 31st day of May 2003 the AO 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 cl. (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 s. 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 AO 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 sub-section pending on the date of initiation of the search under s. 132 or making of requisition under s. 132A as the came may be, shall abate.”
9. The Delhi High Court interpreting this provision in the case of CIT v. Anil Kumar Bhatia (2012) 80 DTR (Del) 169 held as under:
“18. A perusal of s. 153A shows that it starts with a non-obstante clause relating to normal assessment procedure which is covered by ss. 139, 147, 148, 149, 151 and 153 in respect of searches made after 31st May, 2003. These sections, the applicability of which has been excluded, relate to returns, assessment and reassessment provisions. Prior to the introduction of these three sections, there was Chapter XIV-B of the Act which took cafe of the assessment to be made in cases of search and seizure. Such an assessment was popularly known as ‘block assessment’ because the chapter provided for a single assessment to be made in respect of a period of a block of ten assessment years prior to the assessment year in which the search was made. In addition to these ten assessment years, the broken period upto the date on which the search was conducted was also included in what was known as ‘block period’. Though a single assessment order was to be passed, the undisclosed income was to be assessed in the different assessment years to which it related. But all this had to be made in a single assessment order. The block assessment so made was independent of and in addition to the normal assessment proceedings as clarified by the Explanation below s. 158BA(2). After the introduction of the group of sections namely, 153A to 153C, the single block assessment concept was given a go by. Under the new s. 153A, in a case where a search is initiated under s. 132 or requisition of books of account, documents or assets is made under s. 132A after 31st May, 2003, the AO is obliged to issue notices calling upon the searched person to furnish returns for the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or requisition was made. The other difference is that there is no broken period from the first day of April of the financial year in which the search took place or the requisition was made and ending with the date of search/requisition. Under s. 153A and the new scheme provided for the AO is required to exercise the normal assessment powers in respect of the previous year in which the search took place.
19. Under the provisions of s. 153A, as we have already noticed, the AO is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year 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. Under s. 153A, however, the AO has been given the power to assess or reassess the ‘total income’ of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax.
10. 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 s. 143(1)(a) or s. 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 whiehsub-s. (1) of s. 153A opens. The time-limit within which the notice under s. 148 can be issued, as provided in s. 149 has also been made inapplicable by the non-obstante clause. Sec. 151 which requires sanction to be obtained by the AO by issue of notice to reopen the assessment under s. 148 has also been excluded in a case covered by s. 153A. The time-limit prescribed for completion of an assessment or reassessment by s. 153 has also been done away with in a case covered by s. 153A. With all the stops haying been pulled out, the AO under s. 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by s. 153A, by even making reassessments without any fetters, if need be.”
11. Sec. 153A of the Act starts with a non-obstante clause. 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-s. (1) of s. 153A opens. The time-limit within which the notice under s. 148 can be issued, as provided in s. 149 has also been made inapplicable by the non-obstante clause. Sec. 151 which requires sanction to be obtained by the AO by issue of notice to reopen the assessment under-s. 148 has also been excluded in a case covered by s. 153A. The time-limit prescribed for completion of an assessment or reassessment by s. 153 has also been done away with in a case covered by s. 1531A. With all the stops having been pulled, out, the AO under s. 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by s. 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment order is passed under s. 143(1) or 143(3) of the Act, 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. After such reopening of the assessment, the AO is empowered to assess or reassess the total income of the, aforesaid, years. The condition precedent for application of s, 153A is there should be a search under s. 132. Initiation of proceedings under s. 153A is hot dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six-assessment years referred to in the aforesaid sub-section on the date of initiation of the search under s. 132, the said proceeding shall abate. If such proceedings are already concluded by the AO by initiation of proceedings under s. 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under s. 153A, however, the AO has been given the, power to assess or reassess the “total income” of the six assessment years in question in separate assessment orders. 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. He has been entrusted with the duty of Bringing to tax the total income of, an assessee whose case is covered by s. 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under s. 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Reopened means to deal with or begin with again! It means 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 erlier 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. Therefore, the CIT by virtue of the power conferred under s. 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under s. 263 is any order passed under the Act by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Once the order passed by the AO gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the Revenue which confers jurisdiction on the CIT to exercise the power of the jurisdiction.
12. The Tribunal has proceeded on the assumption by virtue of the judgment of the special bench of the Mumbai, the scope of enquiry under s. 153A is to be confined only to the undisclosed income unearthed during search and if there is any other income which is not the subject matter of search, the same cannot be taken into consideration. Therefore, the revisional authority can exercise the power under s. 263; In the entire scheme of 153A of the Act, there is no prohibition for the assessing authority to take note of such income. On the contrary, it is expressly provided under s. 153A of the Act the AO shall assess or reassess the “total income” of six assessment years which means the said total income includes income which was returned in the earlier return, the income which was unearthed during Search and income which is not the subject matter of aforesaid two income. If the CIT has come across any income that the assessing authority has not taken note of while passing the earlier order, the said material can be furnished to the assessing authority and the assessing authority shall take note of the said income also in determining the total income of the assessee when the earlier proceedings are reopened and that income also shall become the subject matter of said proceedings. In that view of the matter the reasoning given by the Tribunal is not justified. The CIT did not have jurisdiction to initiate any proceedings under s. 263 of the Act.
13. For the aforesaid reasons the substantial question of law framed is answered in favour of the assessee and against the Revenue. Hence, we pass the following:
(a) The appeal is allowed.
(b) The impugned order as well as the order passed by the CIT are hereby Set aside.
(c) The assessing authority is at liberty to proceed with the assessment proceedings under s. 153A of the Act keeping in mind the observations made above.
(d) The assessing authority shall determine the total income of the assessee taking into consideration the materials which was the subject matter of earlier return and the undisclosed, income unearthed during search and also any other income which comes to his notice.
(e) No costs.
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