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Submissions of counsel

11. The submission of Ms. Suruchi Aggarwal, learned Senior Standing Counsel for the Revenue, is that there is no mention in Section 153A of the Act that any incriminating material had to be found during the search in order that an assessment could be framed in terms of the first proviso to Section 153A(1) of the Act for those AYs where the assessment already stood completed on the date of the search. Referring the judgement of this Court in Madugula Venu v. Director of Income Tax [2013] 29 Taxmann.Com 200 (Delhi), she submitted that in terms of Section 153A(1) of the Act it was mandatory for the AO to issue a notice to the searched person once a search took place whether or not any incriminating material was found. The logical corollary of this was that irrespective of whether any such incriminating material was found the search, since notice had been issued under Section 153A(1)(a) of the Act, the returns for the six preceding years had to mandatorily be filed by the Assessee and the assessment for each of the six previous years had to be carried to the logical end. If in that process any undisclosed income relating to completed assessments came to light, it would be open to the AO to proceed to make such additions, as was done in the present case.

19. The Court then explained that the concept of time-limit for completion of assessment or reassessment under Section 153 had been done away with in a case covered by Section 153A and "with all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an Assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be." The Court then dealt with the second proviso to Section 153A, which states that pending assessment or reassessment proceedings in relation to any AY falling out of the period of six AYs previous to the search shall abate. In such cases all pending assessments, the Court explained that once those proceedings abate, the decks were cleared, for the AO to pass assessment orders for each of those six years determining the total income of the Assessee. Such 'total income' would include "both the income declared in the returns, if any, furnished by the Assessee as well as the undisclosed income, if any, unearthed during the search or requisition." Therefore, merely because the returns of income filed by the Assessee for the AYs previous to the date of the search already stood processed under Section 153A(1)(a) of the Act it could not be held that the provisions of Section 153A could not be invoked.

The decision in Madugula Venu

24. Turning to the decision in Madugula Venu v. Director of Income Tax (supra), the question there was not whether in the absence of any incriminating material the assessment could be completed under Section 153A of the Act. No doubt a contention was put forth on behalf of the Assessee that "no material which would implicate him, in the earning of any undisclosed income was unearthed during the search and, therefore, there was no basis to issue the notice under section 153A." It must be remembered that the Petitioner in that case had come forth with a writ petition to challenge the search and seizure proceedings under Section 132 of the Act by questioning the very issuance of notice under Section 153A of the Act. It is in that context that the Court found no merit in the writ petition and observed that once a search was conducted under Section 132 of the Act, it was mandatory for the AO to issue notice to the person searched requiring him to furnish returns of income for the six AYs immediately preceding the AY relevant to the previous year in which the search was conducted. The Court was not entering into a discussion on whether any additions could be made in the assessment by the AO in the absence of any incriminating material unearthed during search. On the other hand, it left it open to the Assessee to raise all contentions in the assessment proceedings. The Court observed "in case he has evidence or material to show that he has not earned any income which is not disclosed to the income tax authorities or to rebut the material gathered during the search, it is perfectly open to him to do so." One observation in the said judgement is, however, important. While explaining Section 153A of the Act, the Court observed "it is not merely the undisclosed income that will be brought to tax in such assessments, but the total income of the assessee, including both the income earlier disclosed and income found consequent to the search, would be brought to tax." The Court, however, did not answer the question of whether a finding of undisclosed income would have to be based on some material unearthed during the search.

29. In Filatex India Ltd. the Court sought to explain the observations in CIT v. Chetan Das Lachman Das (supra) in the following manner:

"3. Learned counsel for the appellant-assessee has relied on the decision of this Court in CIT v. Chetan Das Lachman Das [20121 211 Taxman 61/25 taxmann.com 227. The said decision notices insertion of Section 153A by Finance Act, 2003, its purpose and object, and the earlier proceedings for block assessment under Chapter XIVB, the difficulties and the legal issues which had arisen on the difference between regular assessment and block assessment. It is in this context that in the case of Chetan Das Lachman Das (supra), the Division Bench, [to which one of us (Sanjiv Khanna, J) was a party], has observed that Section 153A(l)(b) provides for assessment or re- assessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. It was emphasized that there is no condition in this Section that the additions should be strictly made on the basis of evidence found during the course of the search or other post search material or information available with the Assessing Officer, related to the evidence found. Subsequent observation to the effect that the assessment under section 153A should not be arbitrary or made without any relevance or nexus with the seized material, is basically clarificatory that the assessment under Section 153A emanates and starts on the foundation of the search, which is the jurisdictional precondition. The additions cannot and should not be arbitrary...."