2007 (12) TMI 237 - AT - Income Tax

Validity of the assessment framed under s. 153C r/w s. 144 - Search And Seizure - no incriminating documents found - new provisions relating to the assessment in case of search comprising of ss. 153A to 153C - HELD THAT:- A reading of s. 153A reveals apparent contradiction in the first proviso and the second proviso. The first proviso provides that the assessment or reassessment shall be done by the AO in respect of each assessment year falling within six assessment years preceding the year of search. The second proviso, on the other hand, provides that the assessment/reassessment pending on the date of search shall abate. In other words, the assessments which are not pending, shall hold the field.

The assessee contends that the concluded assessments cannot be disturbed by the AO and even under the new scheme, only undisclosed income detected in the course of search can be added and charged to tax. The Department, on the other hand, vehemently contends that once a search is conducted, the preceding six years assessment of the searched person and any other person whose valuables and/or books, or documents are found during search are ripped open and the assessments/reassessments shall be framed afresh.

As the issue under consideration is new and no direct legal precedents are available on the point, we take aid from the principles of statutory interpretation and also from a judgment of the Hon'ble Jharkhand High Court in the case of Abhay Kumar Shroff vs. CIT [2007 (2) TMI 169 - JHARKHAND HIGH COURT], where the new provisions of assessments of search cases have fallen for consideration although in a different context.

The basic principle of interpretation of a statute is that where the words of a statute are clear, plain or unambiguous, the Courts should give effect to that meaning irrespective of consequences. As we have seen above, the language of s. 153A is not unambiguous and is not susceptible to only one meaning. In the circumstances, the principle of literal construction is of no help. We, therefore, would like to take recourse to other guiding rules like rule of harmonious construction, regard to consequences, rules relating to provisos and the external aids like contemporanea expositio.

Thus, it is possible to effect reconciliation of the two provisos appended to s. 153A by restricting the meaning of the term "assess or reassess" appearing in the first proviso. After the search, in our considered opinion, the total income of the assessee is to be recomputed on the basis of the undisclosed income unearthed during search and the same is to be added with the regular income assessed under s. 143(3) or computed under s. 143(1) for each of the six preceding assessment years. Where any prepaid taxes are there, the same are required to be given credit for computing the further tax payable by the assessee. The assessee is also required to pay interest under ss. 234A and 234B on the tax due on the basis of new calculation. Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed in our considered view.

We agree with the ld DR. But at the same time, the scheme of the Act is very clear-the regular assessments are made in terms of ss. 139, 142 and 143, concluded assessments can be reopened as per ss. 147 and 148 in case the AO has "reasons to belief' that the income chargeable to tax has escaped assessment and the 'provisions of ss. 153A to 153C can be resorted to for the assessment of undisclosed income in search cases. All the three procedures of assessment operate in different fields and have different purposes to be fulfilled altogether.

Therefore, we allow ground Nos. 1 and 2 of the assessee. The additions made by the AO, being all relating to regular items are hereby deleted. Since we have allowed the appeal on legal grounds, we are not inclined to deal with the merit of additions, though arguments were made on merit as well.

In the result, the appeal of the assessee is allowed and the Revenue's appeal is hereby dismissed.