Deputy Commissioner of Income-tax, Circle 1(1), Ujjain v. Sushil Kumar Jain

Per V.K. Gupta, Accountant Member. - This appeal, filed by the Revenue, arises out of order of the Ld. CIT(A), Ujjain, dated 26-2-2007, for the assessment year 2004-05.

2. We have heard both the parties and have also perused the material available on record.

3. In this appeal, the Revenue is aggrieved by the decision of the ld. CIT(A) in holding that assessment for assessment year 2004-05 being the year in which search took place could not be made under section 153A of the Income-tax Act, 1961, and, therefore, annulling the same.

4. The facts, in brief, are that there was a search operation under section 132(1) against the assessee on 25-9-2003. The Assessing Officer issued notice under section 153A requiring the assessee to file return of income for assessment year 2004-05, to which the assessee replied that as per provisions of section 153A, returns of income for six preceding assessment years to the assessment year in which search had been conducted had to be filed. However, the assessee also mentioned in the said reply that return of income for assessment year 2004-05 had already been filed under section 139 of the Income-tax Act, 1961, therefore, the same could be considered as a return of income for the purpose of making an assessment. The Assessing Officer, however, rely- ing on the provisions of section 153B(1)(b) of the Income-tax Act, 1961, held that time-limit for completing the assessment for this year was 31-3-2006, and the same could not be observed unless the return of income was required under the special provisions relating to search cases. He further held that the language used in sections 153A and 142(1) was not different. Accordingly, he rejected the relevant contentions of the assessee. The Assessing Officer, accordingly, issued notice under section 143(2) on 6-3-2006, and proceeded for completing the assessment in terms of provisions of sections 153A & 153B, read with other procedural provisions of the Act and completed the assessment by determining total income at Rs. 13,93,323 as against income returned by the assessee at Rs. 4,31,530. Aggrieved by this, the assessee carried the matter into appeal before the ld. CIT(A), wherein the assessee challenged the action of Assessing Officer on legal ground as well as on merits. The assessee, in the course of such proceedings, submitted that as per provisions of section 153A or 153C only six years preceding the assessment year relevant to previous year in which search was conducted were covered and, therefore, for assessment year 2004-05, assessment could be made only in accordance with the provisions of section 143(3) or 144 and not by invoking section 153A. The assessee also pleaded that return of income had been filed on 1-11-2004, hence, the notice under section 143(2) could be served only up to 30-11-2005, and since the same had been served on 6-3-2006, hence, the assessment made by the Assessing Officer was invalid for this reason also. The Ld. CIT(A) held that the Assessing Officer made a patent and obvious mistake by applying provisions of section 153A as for this year no return was required to be filed under section 153A, nor any notice was required to be issued under that section for such year and, therefore, no assessment was possible for such year under section 153A. Accordingly, he annulled the assessment passed by the Assessing Officer. He further held that since notice under section 143(2) had not been served within 12 months and, therefore, the assessment was invalid even under section 143(3) of the Act. Aggrieved by this, the Revenue is in appeal before us.

5. The ld. Departmental Representative narrated the facts and contended that the Act had provided procedure for assessment and even in case of special situations like block assessment or new procedure for making assessment in search cases, the provisions of section 143/144, were cardinal. He further contended that as compared to block assessment proceedings falling under Chapter XIV, the new scheme of assessment in case of search brought on statute by way of sections 153A, 153B and 153C, the income had to be assessed as per the normal provisions of the Act and such normal provisions were to apply to the extent possible as per the provisions of section 153A(1)(a). He further contended that even if provisions of section 143(2) were to be put into operation, time-limit prescribed therein was not to apply and, therefore, the assessment order could not be termed as invalid for the reason that notice under section 143(2) had been served beyond the period of 12 months from the end of the month in which such return was furnished. He further contended that absurdity had to be avoided and if a literal construction resulted into such a situation then it was preferable to make a purposive construction to further the objects of the Act. For this proposition, he placed reliance on the decision of the Hon’ble Supreme Court in the case of Commissioner Of Income-Tax v. J.J.H Industries (P.) Ltd. [1985] 156 ITR 323 ¹, and in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 ².

6. The Learned counsel, on the other hand, contended that the provisions of section 153A, provided for assessment/reassessment of total income of each of six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. Hence, assessment year 2004-05, being the search year was not at all covered under the provisions of section 153A. In this regard, he placed reliance on the following:—

(i)Circular No. 7 of 2003, dated 5-9-2003, reported in 263 ITR (St.) 62 Page 1-4.

(ii)Circular No. 3 of 2006, dated 27-2-2006, reported in 281 ITR (St.) 222, Pages 5-8.

(iii)Article in 272 ITR (St.) Pages 17 to 23.

(iv)Article in 281 ITR (St.) 9 to 24 Pages 9-15.

(v)Commentary of Sampath Iyengar, (2006) 10th Edition Part 5 - Pages 8475 to 8479 Pages 16-20

7. He further contended that notice under section 153A was mandatory. Hence, a valid assessment could not be made unless there was a service of the notice under section 153A and in view of the fact that section 153A contemplated issue of notice for six years preceding the search, no return was to be filed for the year of search under section 153A and, therefore, no assessment could be possible under that Section. The Learned counsel, thereafter, drew our attention to relevant portion of the material relied on by him. On a query from the Bench regarding the nature and scope of provisions of Explanation 1 to section 153A and provisions of section 153B(1)(b), the learned counsel contended that these provisions were related to procedure of completion of assessment under section 153A read with other provisions of the Act and, therefore, these could not extend the scope of the provisions of section 153A indirectly. The Ld. counsel also contended that direction by the ld. CIT(A) to the Assessing Officer to take action under section 147, if any had escaped assessment were not correct in law and for this he mainly relied on the decisions of the Hon’ble Supreme Court in the case of CIT v. Green World Corpn. [2009] 18 Taxman 111 and in the case of Rajendra Nath v. CIT [1979] 120 ITR 14 ¹ (SC) apart from two other decisions of the Tribunal.

8. The ld. Departmental Representative, in the rejoinder, contended that if the assessment of the previous year, in which the search had been conducted, had not to be made as per the provisions of section 153A/153B, then there was no requirement of bringing the provisions of section 153B(1)(b) on statute, as the time-limit for completing such assessment could have been taken care of by the provisions of section 153 only.

9. We have considered the submissions made by both the sides, material on record and the orders of the authorities below.

10. The issues, which require adjudication by us, can be summarized as under :

(i)Whether assessment for the previous year in which search is initiated under section 132 or requisition under section 132A is made has to be done in accordance with the provisions of section 153A/153B of the Act.

(ii)If so, then whether time limit for service of notice under section 143(2) of the Act shall also apply and how such time limit shall be determined.

11. Before proceeding further, we consider it relevant to reproduce relevant provisions of sections 153A & 153B as under :—

"153A. [(1)] 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 [sub-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.

[(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153. the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner:

Provided that such revival shall cease to have effect, if such order of annulment is set aside.]

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. Time-limit for completion of assessment under section 153A.—(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 to in clause (b) of 89 [sub-section (1) 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 :"

12. If we analyze the provisions of section 153A again, then, it emerges that this section operates in the following fields :—

(1)It gives jurisdiction to the Assessing Officer to issue notice for six back assessment years and to assess or reassess total income of such six assessment years.

(2)The Assessing Officer has to assess or reassess the total income in respect of each assessment year falling within such six assessment years.

(3)The pending assessment or reassessment relating to any assessment year falling within the period of such six assessment years shall abate.

(4)The tax is to be charged at the rate or rates as applicable to specific assessment year falling in such block.

(5)Save as otherwise provided in sections 153A, 153B and section 153C, all other provisions of the Act shall apply.

(6)No time limit has been prescribed for issue of notice under section 153A nor any time limit has been prescribed for iling of return pursuance to notice issued under section 153A. However, such notice may prescribe the time frame within which the return is required to be furnished.

(7)The return so furnished shall be treated as were required to be filed under section 139.

(8)The provisions of section 143 are not overridden.

13. Thus, there can be three situations for making an assessment under section 153A, i.e., firstly, the reassessment of all completed assessments falling under the period of six assessment years; secondly, there could be pending assessment or reassessment of any assessment year falling in such period and in that case, such pending assessment shall abate and the assessee would be re- quired to file a fresh return under section 153A and assessment or reassessment of such year shall be done under section 153A; thirdly, assessment for the year in which search is conducted (which has been disputed in the present appeal). As far as first two aspects are concerned, the provisions are absolutely clear. However, the scope of operation of the provisions of section 153A, may be different in first two situations, because in the case of completed assessment /reassessment, the reassessment would be limited in scope having regard to the fact that jurisdiction under section 153A in such situation is a result of an action as per the provisions of sections 132 and 132A, i.e., the income already assessed plus undisclosed income/undisclosed assets pertaining to a specific year would become the total income for such year. In the second situation i.e., in the case of proceedings in relation to an abated assessment, the scope of provisions of section 153A would be little wider in a sense that there has to be one assessment/reassessment for such year and, therefore, in addition to the undisclosed income/assets, the other claims of the assessee, which may normally fall within the scope of provisions of section 143, section 143 read with section 144 or section 143 read with section 147, would also be covered. Similarly, the scope of assessment under section 153A for the assessment year relevant to the previous year in which search took place or requisition was made would be wider, i.e., it would also cover the matters of section 143 of the Act. Thus, in nut-shell, section 153A can be summarized as a combination of section 143, section 147 and factually for assessment or reassessment of total income in respect of cases covered by section 132 or section 132A.

14. It is further pertinent to note that new scheme of assessment in respect of search conducted after May 31, 2003, is materially different from special procedure of search assessment contained in Chapter XIV-B which was abandoned as to controversies sprung up questioning treatment of particular income as undisclosed and whether there Was any material found during the course of search relatable thereto. In this background, when we read,the provisions of section 153A, it is noted that it starts with a non-obstante clause overriding the provision of sections 139, 147, 148, 149, 150, 151 and 153. It is also noted that return under section 153A has to be in prescribed form. The other important effect of provision of section 153A(1) is that it gives a jurisdiction to the Assessing Officer to initiate assessment proceedings by issuing notice under this section. This section also creates an outer limit of the six back assessment years for which an assessment /reassessment could be done under this section in case of search/requisition made under section 132/132A. However, in our view; there cannot be a mandatory jurisdiction for six back years, even for those entities, which were not in existence in all such six years and which is also so because of the fact that jurisdiction under section 153A is for assessment or reassessment of total income of each year falling in such period. Thus, scope of section 153A, if viewed in this manner, cannot be interpreted to mean that assessment in respect of previous year in which search was conducted or requisition was made, cannot be made in accordance with provisions of section 153A read with section 153B or 153C as contended by the assessee. It is further noteworthy that concept of broken period in the year of search applicable for block assessment is not present under the new scheme, hence, the Assessing Officer has to wait to exercise the assessment powers after the relevant financial year during which search took place and such procedure, in fact, provides an opportunity to assessee to disclose unexplained assets/income in such return and avoid penalty. It is also pertinent to mention here that notice under section 153A requiring the assessee to file return for such is, generally, not to be issued for the previous year of search or requisition precisely for the reason that the assessee is required to file return for the such previous year of search in normal course and, in case of failure of the assessee to do so, the Assessing Officer can issue notice under section 142(1) of the Act to file the return under section 139(4).

15. Thus, absence of requirement of issue of notice under section 153A for the year of search, in our opinion, does not result into an inference that assessment of previous year of search is to be made as per the normal provisions of the Act, specially when state of provisions of section 153A is not different from scope of provisions of section 143 for making assessment of total income of such year. We may further add that, in case, any notice under section 153A is issued in case of such previous year, the same should be construed as issued under section 142(1) as the scope object of these two provisions on the aspect of requiring the assessee to file the return is same. Even otherwise, under the new scheme, total income has to be computed as per the normal provisions of the Act and tax, interest and penalty also is to be levied as per the general provisions of the Act applicable to such assessment year, hence, there cannot be any prejudice to the assessee merely because an Assessing Officer proceeds to make an assessment in case of year of search as per the provisions of section 153A read with section 153B, particularly when time limit of service of notice under section 143(2), subject to provisions of section 153B, would also be applicable (reasons on this aspect are given later in this order).

16. We also find that as per Explanation (i ), time limit prescribed under section 153B for completion of assessment under section 153A is to override the time limit provided for completion of assessment under section 143 or 144 in section 153 of the Act. We further find that the heading of section 153B is "Time limit for completion of assessment under section 153A". It is a settled principle that heading of a particular section also indicates about nature and scope of such provision and if viewed in this perspective, then, it would again be clear that assessment of the previous year, in which search took place, is required to be completed as per the provisions of section 153A read with section 153B of the Act. In this regard, memorandum explaining the Finance Bill, 2000 as reported in 260 ITR (St.) 219 -221, also mentions that provisions of sections 153A, 153B and 153C were inserted to provide for assessment in the case of search or making requisition.

17. The learned CIT DR has also contended that as against the literal construction, the construction which resulted into attainment of the objects of the Act, has to be preferred. In this regard, we are of the view that the settled position of law is that if there is no ambiguity then, literal construction should be given effect as such although which may result into hardship. However, in the context of present dispute, in our humble opinion, the provisions of law do not appear so clear or unambiguous as is evident from the discussion made hereinbefore. In this regard, we may further point out that if the assessee’s view that the assessment for the financial year wherein such search under section 132 took place or requisition was made under section 132A, has to be completed as per the normal provisions of the Act, then provisions of section 153B(1)(b) would become redundant. Further, there would also arise a possibility of such assessment being treated as time-barred under section 153B(1)(b) because as per the provisions of section 153, the time limit for completion of assessment under section 143(3) is more than the normal time limit available to the Assessing Officer for completing the assessment under section 153A read with section 153B of the Act. Further, if the assessment of search year is to be completed under section 143 as such, then, there appears no reason as to why such assessment should be completed within the time limit prescribed under section 153B(1)(b) and not within the time limit prescribed under section 153. Accordingly, we agree with ld. CIT DR that a purposive and harmonious construction of these provisions should be done.

18. Further, the provisions of section 153C(2) also provide for completion of assessment in respect of the person other than the person referred to in section 153A in the manner provided in section 153A. No doubt, the provisions of section 153C(2) provide for specific situations wherein the assessment in respect of the assessment year relating to the previous year in which search is conducted under section 132 or requisition is made under section 132A has to be made in the manner provided in section 153A. However, in our opinion, where Assessing Officer having jurisdiction over such other person receives the books of account or documents, etc. before the due date of furnishing the return of income for such assessment year, then also, the assessment would be completed in the manner provided under section 153A of the Act because in that case, the Assessing Officer can assess/reassess under section 153C(1) in routine course. We are, accordingly, of the view that if under specific circumstances as provided under section 153C(2) assessment of a person covered under section 153C has to be completed in the manner provided in section 153A of the Act, then, there should not be any no doubt that the assessment in case of a searched person for the year of search has to be completed under section 153A read with section 153B of the Act.

19. In view of the above discussion, we hold that the ld. CIT(A) was not correct in law in holding that assessment for the previous year in which search took place or requisition was made had to be completed under the normal provisions of the Act.

20. Now, we shall deal with the second issue. The ld. Departmental Representative has contended that though the notice under section 143(2) was required to be served, however, time-limit of 12 months was not applicable. We are unable to accept this contention for the reason that the provisions of Explanation (i ) to section 153A are unambiguous and which provide that save as otherwise provided in section 153A, 153B or 153C all other provisions of this Act shall apply to the assessment made under this section. It is further noted that as per the provisions of section 153A(1)(a) of Income-tax Act, 1961, the Assessing Officer gets jurisdiction by issuing a notice and as per the provisions of this clause, the person receiving such notice is required to furnish return of income in respect of such six assessment years within such period as may be specified in the said notice. It is also provided 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 of the Act. Thus, no minimum or maximum time limit has been prescribed under clause (a) of sub-section (1) of section 153A for issue of notice and filing of return. In this legal position is further analyzed then, in our humble opinion, the time limit specified in such notice would be equivalent to time limit prescribed under section 139(1) of the Act, meaning thereby that if the assessee does not file a return in response to notice issued under section 153A of the Act, the Assessing Officer may issue notice under section 142(1) and in the event of the assessee does not file any return even then, the Assessing Officer may complete the assessment under section 153A by applying provisions of section 144, read with section 143(2) of the Act. Accordingly, in our opinion, the words "so far as may be" used in section 153A(1)(a) operate in a different field, i.e., cover the stage up to filing of return and consequences of non-filing of return and provisions of Explanation (i) govern the field relating to maping of assessment and legal consequences thereof. Thus, we do not find any merit in the contention of the learned CIT DR that the time limit prescribed under section 143(2) for service of notice would not apply. In this regard, we are further of the view that the contention of the learned CIT DR that all assessments are to be considered as completed under section 143/144 only, is not correct in law, because section 143 operates in two different fields i.e., firstly, it gives original jurisdiction to the Assessing Officer to assess the total income of an assessee as per provisions of law and, secondly, it requires that in doing so, the Assessing Officer shall follow the principles of natural justice by giving due opportunity to the assessee before completing the assessment and, therefore, when reassessment is made under section 147, then only the second aspect of the provisions of section 143 comes into play. We are further of the view that the second aspect as mentioned above rather makes it obligatory on the part of the Assessing Officer to serve the notice under section 143(2) within the time limit prescribed thereunder as there is no exemption from such requirement in sections 153A, 153B and 153C of the Act. We are further of the view that the provisions of Explanation (i) to section 153A are materially different from the provisions of section 158BC(b) as in that section, the words "so far as may be" existed and such words are not used by the Legislature in such explanation. Having stated so, it is also important to note that in case of block assessment under section 158BC in spite of having a different wordings, judicial opinion was that notice under section 143(2) was required to be served in the manner as specified in section 143(2) to pass a legal valid order under section 158BC. In this regard, a reference may be taken of the latest decision of the Hon’ble Delhi High Court in the case of Commissioner Of Income Tax v. Pawan Gupta [2009] 318 ITR 322¹ . Thus, therefore, in view of the provisions of sections 153A & 153B, which are more apparent in this regard, we cannot accept this contention of the Revenue. The learned CIT DR has also tried to argue that there would arise some inconsistency /absurdity, if such requirement was envisaged in case of search assessments. In this regard he has cited the provisions of section 139(4) and its consequential impact as regards the time limitation. We are, however, not convinced with this argument of the learned CIT DR as veil for the reason that as per the provisions of section 139(4) the return can be filed by an assessee before expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Hence, when the time limit for completion of assessment as per the provisions of section 153B is less, then naturally the assessee can file return under such section before completion of such assessment only. To put it differently, the extended time limit under the normal circumstances would not be available to an assessee in whose case assessment is to be completed under section 153A/153C read with section 153B of the Act. Thus, in sum and substance all other provisions of the Act, save as otherwise provided in sections 153A, 153B and 153C, have to be necessarily applied and, therefore, time-limit of service of notice under section 143(2) shall also apply. Accordingly, we reject this contention of the Revenue.

21. Now, other aspect involved is that how such time-limit shall be determined. In the present case, notice under section 143(2) has been issued on 6-3-2006 alter issue of notice under section 153A was issued , and in response to which the assessee vide its letter dated 12-11-2005 has stated that return of income for assessment year 2004-05, filed under section 139 of the Income-tax Act, 1961 filed on 1-11-2004 could be treated as return filed in response to notice under section 153A. Thus, in our humble opinion the time limit for service of notice under section 143(2) should be considered from the date of said letter filed by the assessee in response to notice issued under section 153A and not from 1-11-2004 when return for assessment year 2004-05 had been filed by the assessee.

22. We further add that the time period of 12 months for service of notice under section 143(2) of the Act is the outer limit for making an assessment under section 143(3) as such or under section 143(3) read with section 147 of the Act. Hence, such time limit has to be exercised in a manner so as the Assessing Officer can complete the assessment under section 153A or under section 53C, read with section 153A within the time limit prescribed under section 153B(b) of the Act. To put it differently, time limit prescribed under section 143(2) for service of notice cannot extend the time limit prescribed for completion of assessment under section 153B(1)(b) of the Act. This is also so because as per Explanation (i) to section 153A, the time limit prescribed for completion of assessment proceedings under section 153B(1)(b) would prevail over the limit prescribed as per the provisions of section 143(2) of the Act. Accordingly, we hold that condition of time limit for service of notice under section 143(2) shall also apply to assessment/reassessment proceedings contemplated under section 153A and it would start from the end of the month in which return is filed in response to notice issued under section 153A/142(1) and, in case, no such notice has been issued, then, it shall be construed from the end of month in which return was filed.

23. In the result, the ld. CIT(A)’s order is reversed in respect of both the aspects. Since the ld. CIT(A) has not decided the issue of addition of Rs. 9,61,793 made by the Assessing Officer under section 69C on merits, in view of his decision on legal grounds raised by the assessee, hence, we direct the ld. CIT(A) to decide the issue on merits. Accordingly, we find no necessity to express any opinion on the directions/observations by the Ld. CIT(A) in the impugned appellate order regarding Assessing Officer’s freedom to initiate action under section 147/148, because the same would be taken care of by the decision of the ld. CIT(A) on merits and further in view of the fact that double addition of same income cannot be made.

24. In the result, the appeal filed by the Revenue stand’s allowed in terms indicated above.

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