Following a series of proceedings and subsequent discussions, the Honorable ITAT declared the assessment order passed u/s 143(3) r.w.s 153A of the Income Tax Act as void ab initio and cancelled the same. The rationale behind step was that the Assessing Officer did not have any jurisdiction to issue a notice u/s 153A of the Income Tax Act because any authorization to search the premises u/s 132 of the Income Tax Act after assuming jurisdiction under Section 153A was not found, thereby making the notice given by the Assessing Officer invalid.
Delving deeper into jurisdiction under Section 153A
In order to understand the declaration given by the Honorable ITAT, it is important to get a clear picture about assessment in the context of the Income Tax act. It is mandatory for every taxpayer to furnish the details of his or her income by filing of income tax. This IT Return is then subject to scrutiny by the Income Tax Department in order to ensure the correctness of the data provided by the taxpayer.
This process is known as “Assessment” in official terms that comprises of re-assessment as well as best judgment assessment too under Section 144. However, broadly, Income Tax classifies assessment under the following four sections for detailed assessment of a taxpayer:
Summary assessment without calling the assessee – Assessment under Section 143(1):
This is the introductory assessment process that involves summarizing the taxpayer’s assessment without calling the concerned person in question. There is no detailed scrutiny involved here and involves only initial stage assessment by ruling out the arithmetical errors, incorrect claims, inconsistent entries and other allied factors. The time limit for this assessment is one year from the date of income tax filing by the taxpayer as at the end of financial year.
- Scrutiny Assessment – Assessment under Section 143(3):
This section involves carrying out a detailed scrutiny of the income details stated by the taxpayer or the assessee that actually decides upon the genuineness of the claims, deductions. Etc. made by the taxpayer. This is confirmed only with the subsequent satisfaction by the Assessing Officer regarding the details of the claims, deductions and the like. In this matter, the AO has the power to serve a notice to the taxpayer under Section 143(2) in case of any discrepancy found in the income details filed by the concerned taxpayer. The notice must be served within six months from the date of filing of income tax return as at the end of the financial year and the whole assessment process has to be completed within two years from the date of income tax filing by the taxpayer.
Best judgment assessment – Assessment under Section 144:
- Whenever a taxpayer or an assessee fails to adhere to the requirements specified under Section 144, then it is totally upon the best judgment of the Assessing Officer based on the appropriate materials or documents presented by the taxpayer. Time period for the same is two years from the date of income tax filing by the taxpayer as at the end of the financial year as per Section 153.
Income escaping assessment – Assessment under Section 147:
- This assessment comes into play when the Assessing Officer feels that any income that was ought to be chargeable under Income Tax Act had escaped the required assessment for any assessment year.
- This happens in cases of under assessment of income chargeable under income tax, assessment at lower rate, excessive relief has been provided in case of any income, excessive loss or depreciation allowance and other allied escaping cases. The time period ranges from six years to sixteen years based on circumstances and can be issued only after receiving prior approval from the authorized official.
Now, the concerned Section in question here is the detailed scrutiny assessment under Section 143(3). Here, the Assessing Officer has to serve the taxpayer’s notice strictly in accordance with the prescribed rules and under Section 153. In certain circumstances, the AO may also issue authorization or warrant for the searching the taxpayer’s premises under Section 132 to assume jurisdiction under Section 153A. However, the AO has to exercise extreme caution in such cases or else, both the notices and warrants can be rendered invalid on being challenged by the assessee in the court.
Validity of issuing notice under Section 153 by the Assessing Officer:
In order to judge the correctness of the AO’s action, it is crucial to get a fair idea about the section in question. The same is stated as: “Section 153A of the Income Tax Act pertains to assessments to be carried out in case of search under section 132 or requisition under section 132A of the Act. Subsection (1) of section 153A provides that notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 143 of the Act, in the case of a person in whose case search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act after 31.05.2003, the AO shall issue notice requiring such person to furnish the returns of income for and assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search was conducted or requisition is made.”
In this context, it is vital to note that if a valid warrant or authorized search order to search the assessee ’s premises is not served under Section 132, then the Assessing Officer is not entitled to serve the taxpayer any notice under Section 153.
The role-play of Section 292BB in this case: Section 292BB goes like this:” Notice deemed to be valid under certain circumstances”. Yet, in order to apply the section under these circumstances requires taking into account the cases mentioned hereunder in Section 292BB.
Section 292BB: Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was
(a) Not served upon him; or
(b) Not served upon him in time; or
(c) Served upon him in an improper manner:
“Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.”
Under such cases, the assessee cannot put up any objection regarding any notice served to him by the Assessing Officer. However, this will only come into picture if the said notice is served upon the concerned taxpayer or the assessee in question.
Therefore, to sum up, it can be said that the Assessing Officer’s action can be questioned and subsequently cancelled only in cases of absence of proper authorization order or warrant to search the taxpayer’s premises under Section 132 of the Act because only then, the AO is not having the authority to issue any notice under Section 153A of the Act, thereby making the same invalid.