Assessing Officer Can Re-Open Assessments In Block Period Of 6 Years Only If Material Obtained During Search Relates To Assessment Year: Kerala HC

The Kerala High Court held that the Assessing Officer can re-open the assessments in respect of the individual assessment years comprised in the block period of six years only if the material obtained during the search under Section 132 of the Income Tax Act, 1961 (ITA) relates to the assessment year in question.

The Court held thus in a batch of 15 Income Tax Appeals preferred by various business units involving a common issue and hence, were taken up together for consideration.

A Division Bench comprising Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. observed, “In our view, the statutory provision gives a clear indication that, based on the material obtained during the search, the Assessing Officer who gets the jurisdiction to re-open the assessments, can do so in respect of the individual assessment years comprised in the block period of six years only if the material obtained during the search under Section 132 of the I.T. Act, or any part thereof, relates to the assessment year in question.”

Senior Advocate T.M. Sreedharan, Advocates V.P. Narayanan and Nisha John represented the appellants/assessees while Senior Standing Counsel Susie B. Varghese represented the respondent/Income Tax Department (ITD).

Facts of the Case -

The appellants/assessees were the business units coming under the umbrella of M/s. Sunny Jacob Group and comprised of partnership firms in which Sunny Jacob and his wife Magi Sunny were partners. All the business units under the group were engaged in the business of gold ornaments and were assessees under the ITA. Pursuant to a search conducted under Section 132 of the Act at the various business premises of the units, notices were issued to the appellants under Section 153A of the Act. Under the said provision, an Assessing Officer (AO) is conferred with the jurisdiction to initiate fresh assessment proceedings in relation to an assessee, in relation of whom incriminating material has been unearthed in a search initiated under Section 132 or pursuant to the requisition of any books of account, documents or assets in terms of Section 132A. The AO can thereafter proceed to 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.

The AO, in this case, however, used the incriminating material to reject the books of account of the appellants for all the assessment years (AY) from 2002-03 to 2008-09 and proceeded to estimate the alleged escaped income for the all AYs based on the estimation done for AY 2008-09. Aggrieved by the assessment orders, the appellants approached the Commissioner of Income Tax (Appeals), who allowed the same, but confirmed the demand of differential tax for AY 2008-09. The Income Tax Appellate Tribunal (ITAT) set aside the orders of the First Appellate Authority and remanded the matter back to AO. Such order of ITAT was challenged before the High Court and then before the Supreme Court but both the courts did not interfere in the same and remanded the matter to AO. The AO virtually reiterated its stand he had earlier taken and hence, the appellants again approached CIT and then ITAT. As the ITAT allowed the appeals of the Department, the appellants were before the High Court.

The High Court in view of the above facts noted, “… we are of the view that as per the amended provisions of Section 153A of the I.T. Act, while the unearthing of incriminating material would unambiguously clothe an Assessing Officer with the jurisdiction to initiate proceedings in terms of Section 153A of the I.T. Act for the block period of six years contemplated under that Section, when it comes to passing fresh assessment orders in respect of each of those assessment years comprised in the block of six assessment years, the Assessing Officer must necessarily relate such unearthed incriminating material to the assessment year in question.”

The Court further noted that Section 153A(b) of ITA requires the AO to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or the requisition made, and the proviso thereto mandates that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years.

“In the appeals before us, since it is not in dispute that the materials obtained during the search conducted on 21.08.2007 pertain only to the assessment year 2008-09, and there was no incriminating material against the appellants/assessees pertaining to the assessment years 2002-03 to 2007-08, the finding of the Appellate Tribunal reversing the orders of the First Appellate Authority, cannot be legally sustained”, it said.

Accordingly, the High Court disposed of the appeals, set aside the order of the Appellate Tribunal to the extent impugned, and answered the substantial questions of law raised by the appellants in favour of the assessees and against the Revenue.

Cause Title- M/s. Sunny Jacob Jewellers Gold Hyper Market v. The Commissioner of Income Tax (Neutral Citation: 2024:KER:42960)

Appearance:

Appellants: Senior Advocate T.M. Sreedharan, Advocates V.P. Narayanan, Nisha John, and Divya Ravindran.

Respondent: Senior Standing Counsel Susie B. Varghese

Click here to read/download the Judgment