M/S AGGARWAL SALES,ZIRAKPUR vs. DCIT, CC, PATIALA

We find, that the issue first came up for consideration before the High Court of Bombay in the case of CIT Vs. M/s Murli Agro Products Ltd. (supra), wherein on the issue of exercise of revisionary powers by the Commissioner of Income Tax u/s 263 of the Act, on the order passed by the Assessing Officer under section 153A, it was contended by the Revenue that the impugned order was erroneous and prejudicial to the interest of the Revenue since the Assessing Officer had only determined the undisclosed income and not the total income which is the mandate of section 153A .The Hon'ble High Court, while adjudicating the issue, dealt at length with the purpose of introduction of the new search assessment procedures, as against the earlier block assessment procedures and then went on to interpret the proviso to section 153A(1) , and held that it is only pending proceedings which are abated on initiation of proceedings under section 153A of the Act, while the assessments which have attained finality cannot be disturbed unless materials gathered in the course of proceedings under section 153A of the Act established otherwise.

Thereafter, the Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia 352 ITR 493, interpreted the provisions of section 153A of the Act at length, and held that as against the earlier block assessment procedure which roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments, under the present assessment procedures prescribed under section 153A/B/C of the Act, only one assessment order in respect of each of the six assessment years had to be passed. The Hon'ble High Court held that this was sought to be achieved in case of those assessment years where assessment proceedings were pending on the date of search by abating them and framing fresh assessment including incomes relating to incriminating material found during search. In case of those assessment years where an assessment order had already been passed under section 143(1)(a) or 143(3), those assessments could be reopened and the total income reassessed taking note of the undisclosed income if any unearthed during search, the fetters to reopening, being removed by insertion of the non-obstante clause to section

The Delhi High Court further reiterated the proposition laid down in Kabul Chawla (supra) in the case of CIT Vs.

That the words "assess" or "reassess" has been used at more than one place in the section and a harmonious construction of the entire provision would lead to the conclusion that the word "assess" has been used in the context of abated proceedings and "reassess" has been used for completed proceedings which would not abate as they are not pending on the date of initiation of search or making of requisition.

We may add that that the requirement of the section is limited to opening or reopening of the cases for the purpose of making assessment or reassessment of the total income of preceding six assessment years prior to the year of search. It does not contain any provision regarding the concept of making assessment of undisclosed income as was there in the earlier Block assessment regime under chapter XIVB. It does not specifically contain any provision regarding the nature of addition which can be made under this section. The section has provided, for the removal of doubts ,by way of insertion of Explanation at the end of the section that save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to assessment made under this section. This implies that nature of assessment or reassessment made under this section shall be governed by the normal provisions of the Act. In case it is an assessment made for the first time, all provisions of assessment which are applicable to assessments made u/s 143(3) shall apply and in case it is a reassessment being made all principles of reassessment which are applicable in case of proceedings u/s 147/148 shall become applicable . Thus in cases where assessments have already been made addition to be made in proceedings u/s 153A is to be restricted to incriminating material found if any.

It is amply evident from the above that the issue is settled, with a number of decisions of the High Courts holding that in the case of completed assessments, no addition can be made in the absence of any incriminating material. Though we do agree that there are decisions of High courts which hold otherwise and state that u/s 153A, addition in case of completed assessments need not be restricted to incriminating material, but in view of the Apex court decision in CIT vs Vegetable Products Ltd.(1973) 88 ITR 192 which states that where there are two reasonable constructions of a statute ,the construction favouring the assessee should be adopted, we hold that in case of completed assessments under section 143(3)/143(1) of the Act, in the absence of any incriminating material found during the course of search, the Assessing Officer has no jurisdiction to make any addition under section 153A of the Act.”