1. Law with respect to Assessment of search cases has been amended by the Finance Act, 2021. A sunset clause has been introduced in sub-section(1) of Section 153A of the Act, whereby the provisions contained in Section 153A to 153C shall apply only in cases of search conducted on or prior to 31/03/2021.
2. A search operation in accordance with the IncomeTax Laws primarily comprises of four stages:
a. Investigation and Issue of warrant of authorisation
b. Search operation u/s 132
c. Appraisal of Search material and,
d. Assessment of income for various years
3. Assessment of income in searches conducted on or after 01/04/2021 will be covered by the new regime contained in Section147 to 153 of the Act. In other words the provisions with respect to assessment of Search cases has been merged with the reassessment provisions contained in Section 147 to Section 153 of the Act.
4. The aforesaid amendment is definitely in the right direction as specific provisions with respect to reassessment of Income can be suitably modified for using the same for the search cases as well. No separate provisions for search cases was really warranted and the same can be assessed in accordance with the reassessment provisions contained in Section 147 to 153 of the Act.
5. The provisions with respect to reassessment of Income and issue of notice under Section 148 are primarily triggered in cases where the Assessing officer has information which suggests that the Income chargeable to tax has escaped assessment in the case of an assesse for the relevant Assessment Year. The aforesaid condition has to be mandatorily fulfilled for the lawful initiation of the proceedings. Explanation 2 to Section 148 addresses the issue regarding assessing officer having information suggesting the Income chargeable to tax escaped assessment with respect to cases where search has been initiated on or after 01/04/2001. The said explanation primarily presumes that the assessing officer in the case of search would have information suggesting escapement of Income and as a result brings in a deeming supposition that the Assessing Officer is in possession of information which has suggested escapement of Income. The said explanation 2 to Section148 of the Act primarily provides a presumption that the assessing officer shall be deemed to have information which suggests the Income chargeable to tax has escaped assessment in case where search has been conducted.
6. Section 148A of the Act provides for a detailed procedure to be followed for conducting an enquiry, providing opportunity to the assesse before issue of notice under Section148. In a normal case of reassessment, the procedure prescribed under Section148A has to be complied with whereas the said procedure has been given a go by in the case of assessment of search cases. The assessing officer need not comply with the procedure contained in Section148A for assessing the Income of a person where search has been conducted.
7. The reassessment provisions provide for two timelines under Section 149 of the Act. Clause (a) of sub-section(1) of Section 149 provides for issue of notice under Section 148 within three years from the end of the relevant assessment year. Implying thereby that in the case of search during the financial year 2022-23, the Assessing Officer can initiate the reassessment proceedings for A.Y. 2019-20 to A.Y. 2021-22.
8. Clause (b) of sub-section (1) of Section 149 extends the period of reassessment to ten years from the end of the relevant assessment year in cases where the assessing officer has in his possession books of accounts or other documents or evidence which reveals that the Income chargeable to tax, represented in the form of an asset, expenditure in respect of a transaction or in relation to an event or occasion, or an entry or entries in the books of account which have escaped assessment amounts to or is likely to amount to ₹ 50 lakh or more.
9. The question which arises here is whether the presumptive deeming provision contained in explanation 2 to Section 148 will extend to clause (b) and the assessing officer will be able to initiate reassessment proceedings in the case of search for ten prior assessment years. In my humble view the presumption regarding information would be applicable only for the 3 prior assessment years but the same cannot be extended to clause (b) of sub-section (1) of Section 149 of the Act. The requirement of clause (b) is entirely different as the same can become applicable only in cases where assessing officer has in his possession books of accounts or documents which are suggesting Income chargeable to tax with respect to an asset or expenditure in relation to any event or an entry in the books of account which has escaped assessment.
10. In other words the Assessing Officer can initiate reassessment proceedings for the three prior assessment years on the presumptive basis even if the Assessing Officer does not have specific information with respect to the said Assessment years. On the contrary to extend the reassessment proceedings in the case of search from three to ten prior assessment years would be subject to the condition which is prescribed under clause (b) and the same does not seem to have been relaxed in the case of search.
11. In any case, the aforesaid timelines will be subject to the first proviso to Sub-section(1) of Section 149 which provides for non-initiation of proceedings for the years for which the notice under Section 148 or 153A or 153C could not have been issued in accordance with the earlier law.
12. Another important issue which arises here is the additional Income which can be brought to tax under the new regime for assessment of search cases.The law with respect to assessment of Income in the case of search was more or less settled by the ruling of the Hon’ble Delhi High Court in the case of Kabul Chawla, [2015] 61 taxmann.com 412 (Delhi) wherein it was held that the assessment under Section 153A has to be on the basis of incriminating material found during the course of search. Now with Section 153A having been done away with and assessment of search cases having been brought under the purview of Section 147 to Section 153, the issue again becomes open whether the assessing officer has to limit himself to the incriminating material found in the course of search or can he assess any Income by reassessing the cases on the basis of presumption provided in explanation 2 to Section 148 of the Act. Another issue which is likely to arise is with respect to making of roving enquiries during the reassessment proceedings. Needless to say that it will be the endeavour of the Department to reopen the ten prior assessment years and conduct fresh assessments by making roving enquiries. In our humble submission the law does not permit the same and even if there is a presumption with respect to information, the reassessment has to be on the basis of incriminating material collected during the course of search. No doubt that during the course of such assessment in case the assessing officer finds any other Income which has escaped assessment he would be at liberty to assess the same but in any case the reassessment provisions are not for conducting a fresh de novo assessment from scratch.
13. Moreover, one more issue which is likely to arise is with respect to the Incomes which have already been assessed in accordance with the opinion of the Assessing Officer during the original proceedings. Will it be open for the Assessing Officer to re-examine all those issues and make a fresh de-novo assessment. In our humble submission the same would still remain un-permissible as per law keeping in view the judgement of the Hon’ble Supreme Court in the case of Kelvinator India, [2010] 187 Taxman 312 (SC)as well as Calcutta Discount Company [1961] 41 ITR 191 (SC). The Assessing Officer conducting the reassessment proceedings will not be expected to sit on judgement over the opinions which has been formed by the earlier Assessing Officer during the original proceedings. This would possibly apply to issues with respect to which full and true disclosure along with complete information having been provided to the Assessing Officer at the time of original proceedings and the same also become a subject matter of reassessment by the new incumbent.
We earnestly hope that the new provisions are judiciously analysed and applied by the Assessing Officers.