The Delhi High Court has held that the Supreme Court’s Decision in Abhisar Buildwell Case not Carte Blanche (complete freedom to act as one wishes) enabled the department to overcome restrictions for reopening assessment.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that nothing fettered the right of the respondents to commence reassessment if they were of the opinion that, notwithstanding absence of incriminating material, escapement of income had occurred. It was open for the respondents to establish that an action for reassessment was warranted independently and irrespective of no adverse material having been found in the course of a search.
Background
The petitioner/assessee assailed the validity of the reassessment action principally on the ground of being barred by time. The reassessment action which had come to be initiated after the promulgation of Finance Act, 2021 would not qualify the pre-conditions which are introduced by virtue of the First Proviso to Section 149(1) of the Income Tax Act, 1961.
The petitioner contended that the initiation of action under Section 148 of the Act, when tested on the anvil of the First Proviso to Section 149(1), would lead one to the inevitable conclusion of the reassessment action being barred on the ground of limitation.
The petitioner, Dharampal Satyapal is the successor entity of Abhisar Buildwell Private Limited, a company incorporated under the Companies Act, 1956 and which had come into existence as a result of a demerger of the Rubber Thread Unit of the writ petition pursuant to a Scheme of Demerger approved by the concerned High Court on 11 September 2007. ABPL is stated to have filed a revised Return of Income for Assessment Year5 2007-08 on 29 September 2008.
On 21 January 2011 a search and seizure operation was carried out in respect of the Dharampal Satyapal Group and which included ABPL. Consequently, ABPL came to be served a notice under Section 153A on 09 January 2012. The proceedings ultimately culminated in an order of assessment being framed and which saw the Assessing Officer ordering a disallowance in respect of depreciation which had been claimed by ABPL.
The order of assessment was subjected to challenge by way of an appeal before the Commissioner of Income Tax (Appeals). The appeal came to be allowed on 25 April 2014 with the CIT(A) holding that the assessment would not sustain in the absence of any incriminating material having been unearthed in the course of the search. Since the disallowances were principally based on a special audit report and thus unconnected with the material gathered in the course of the search.
The order of the CIT(A) was assailed by the Revenue before the Income Tax Appellate Tribunal. The appeal came to be dismissed on 04 July 2017 with the Tribunal taking note of the seminal decision rendered by the Court in Commissioner of Income-tax v. Kabul Chawla and which had underlined the import and significance of incriminating material constituting the foundational ground for a search assessment.
This led to the filing of a Special Leave Petition before the Supreme Court. That petition constituted the lead matter in Abhisar Buildwell. The Supreme Court, while ruling on the scope and ambit of a search assessment in Abhisar Buildwell, took note of the consistent view which had been taken by different High Courts and which had in unison held that no additions could be made in respect of completed or unabated assessments in absence of any incriminating material having been gathered in the course of a search.
The Supreme Court in unambiguous terms held that it would only be in cases where undisclosed income is found on the basis of incriminating material that the AO could be said to have validly assumed jurisdiction to assess income for the ten-year block assessment period constituting the subject matter of Section 153A. It thus held, while affirming the view taken by the Delhi and the Gujarat High Courts, that no addition could be made in respect of completed assessments in the absence of any incriminating material.
The Supreme Court also pertinently observed that in case a search does not result in any incriminating material being found, the only remedy that would be available to the Revenue would be to resort to Sections 147/148 of the Act “subject to fulfilment of the conditions mentioned” in those provisions. This it held, since in its opinion, the Revenue could not have been left remediless. It thus observed that where a search does not result in any incriminating material being unearthed, the power of the Revenue to initiate reassessment action would stand preserved subject to the same being in conformity with the scheme of reassessment as embodied in Sections 147 and 148 of the Income Tax Act.
Conclusion
The court while allowing the petition held that nothing fettered the right of the respondents to commence reassessment if they were of the opinion that, notwithstanding absence of incriminating material, escapement of income had occurred. It was open for the department to establish that an action for reassessment was warranted independently and irrespective of no adverse material having been found in the course of a search.
Case Title: ARN Infrastructures India Limited Versus Assisstant Commissioner Of Income Tax
Case No.: W.P.(C) 1892/2024 & CM APPL. 7921/2024 (Stay)
Date: 26/09/2024
Counsel For Petitioner: Ruchesh Sinha
Counsel For Respondent: Gaurav Gupta, SSC
