Restrictions on scope of Section 153A and Judicial pronouncements
Introduction-:

1.    Search u/s 132 is the sharpest weapon in the hands of Income Tax Dept. Thus a sharpest weapon must be used with great care as well. The law, as developed, in relation to section 153A is with the SOLE objective to achieve the purpose of safeguarding the interest of revenue and the rights of the assessee at the same time.

2.    In this context, recently, the Honourable Bombay High Court, in its decision dated  April 21, 2015 in the case of CIT v Continental Warehousing Corporation (Nhava Sheva) Ltd., D. No.1088 and CIT v All Cargo Global Logistics Ltd. Re-iterated its decision on restriction of scope of section 153A as echoed in Murli Agro.

3.    Delhi and Karnataka High Court also have taken a view on scope of section 153A and section 263. Apparently, it is quite different from the view of Bombay High Court.

Why this article-:

4.    One may accept the view of Bombay high court because its division bench in the case of Murli Agro had already taken that view.

5.    After taking this view, Bombay high court has also reconciled its view with that of Delhi and Karnataka High Court.

6.    Honourable Bombay high court has observed that

a)    those decisions were rendered in the context of that particular case and in terms controversy before them and

b)    practically there is no difference in what the bench is saying and what Delhi and Karnataka High Courts are saying

7.    As a reader, I have tried to understand the re-conciliation by the Bombay High Court.

8.    The submissions on behalf of revenue were made by Mr. Arvind Pinto which were not accepted by Bombay High Court.…hence the title.

Background material, references and View point.

a)    Section 132 relates to search and 132A relates to Powers to requisition books of account, etc.

b)    Section 153A relates to Assessment in case of search or requisition.

c)    It is mandatory to do the assessment of income u/s 153A when there is a search / requisition of books of account u/s 132, 132A.

d)    Special Bench of the ITAT in All Cargo Global Logistics 137 ITD 287 (SB) (Mum) dated July 6, 2012 ruled that held that in respect of completed assessments, the scope is restricted to the scope emerging from incriminating material found during search. Bombay High Court had already taken this view in case of CIT vs. M/s. Murli Agro Products Limited decided on 29th October, 2010.

e)    Karnataka High Court in the case of Canada Housing Development Co v DCIT dated August 9, 2014 specifically over ruled decision of ITAT SB in terms of sec 153A.

f)     Delhi High Court in case of CIT v Anil Kumar Bhatia dated 7 August 2012 has taken a view that the assessment u/s 153A is to be made in terms of total income [ disclosed or undisclosed]

Query-:

9.    The questions may be summarized as,

a)    Whether the AO, gets unfettered jurisdiction over the assessee for assessment of income for the period mentioned in section 153A

b)    Whether the AO, has right to make assessment in terms of total income [disclosed or un disclosed] or are there any limitations.

c)    Whether the scope of assessment is limited by incriminating material found during search

d)    Whether a CIT can re-open any case u/s 263 the proceedings of which have completed and attained finality?

Conclusion-:

10. In simple language, all the three high courts and ITAT SB were trying to find out equilibrium among rights and duties of both i.e. of an assessee and of IT dept in terms of following points

a)    Cardinal principles of any assessment mechanism is to meet the ends of natural justice.

§  One should not be allowed to review its own actions.

§  Any Authority can not touch any matter which sub-judice.

§  Though not specifically mentioned in the IT Act, an assessee has right to have finality of assessment and IT Dept can not simply keep on doing re-assessment, litigations without sufficient checks and balances.

b)    There are differences in following aspects before passing an order u/s 153A vis-à-vis 263.

§  Pre-requisites to be completed before commencing the proceedings i.e. level of satisfaction / reason to believe / prejudicial to the interest of the revenue.

§  Officer of which rank can pass such an order.

§  Time frame available for passing the order

11. It is next to impossible to visualize various permutations and combinations of situation when the inter play between sec 263 and 153A is applied to varied facts of the case.

12. One will agree with the proverb that “Reality is stranger than fiction”.  It is so because apparently, there is a difference in view taken by Bombay High court vis-a-vis Delhi High Court and Karnataka High Court.

13. From para 32 of the order of Bombay High Court, the roller coster starts whereby the honourable High court starts analysing the judgements of Delhi and Karnataka High Court. Following are only the extracts…

32. We would be failing in our duty if we do not note the reliance placed by Mr. Pinto on the judgments rendered by the High Court of Delhi at New Delhi and the High Court of Karnataka. Mr. Pinto would submit that the above observations and conclusions of the Special Bench and reproduced by us are specifically disapproved in CIT vs. Anil Kumar Bhatia by the Delhi High Court. We do not find this argument to be accurate…..

37. We do not see as to how while allowing the appeal of the assessee and setting aside the order of the Commissioner under section 263 could the judgment be said to be laying down a proposition and as canvassed by Mr. Pinto……. A reference will have to be made to the income disclosed therein. However, the scope of enquiry, though not confined as held by the High Court of Karnataka, it essentially revolves around the search or the requisition under section 132A as the case may be. We do not find anything in these observations and reproduced above which would enable us to conclude that the Division Bench judgment of this Court in the case of Murli Agro requires reconsideration or does not lay down a correct principle of law. We cannot, therefore, accede to the submissions of Mr. Pinto and revisit any of the conclusions rendered by the Division Bench of this Court.

Author –: CA. Yogesh S. Limaye and can be reached at yogesh@salcoca.com