Incriminating material must for any addition to taxable income: Supreme Court [25.4.2023]

The Supreme Court on Monday held that the income tax authorities cannot add to a taxpayer's income under Section 153A of the Income Tax Act if no incriminating evidence is found during a search. The court, however, left the scope for the authorities to re-open the cases of tax violation if any incriminating evidence emerges later.

Section 153A of the I-T Act specifies a process to determine the income of the searched individual. It aims to bring undisclosed income under the tax. The cases can be re-opened under Section 147/148.

According to the report, a division bench of justices MR Shah and Sudhanshu Dhulia said that if no incriminating evidence is found during the search, the Assessing Officer (AO) cannot assess other material which relates to already completed assessments.

The report also quoted Vishwas Panijar, partner with Nangia Andersen LLP, as saying that the reassessment is detrimental to the taxpayer by its very nature. So, it would require a higher degree of care by the department. According to the law, 'reassessment' inherently satisfies two of the most critical elements. One, it is deemed that income has escaped assessment in a case where a search/seizure has been conducted. Second, a show cause notice before initiating reassessment is not required to be given in such cases.

Panijar added that there is no restriction on the initiation of reassessment, safeguards like a time limit for issuing of notice and seeking the reason for reassessment would continue to be available to the taxpayer even in such cases.

25 Apr 2023