(2023) 454 ITR 212 (SC)
Assessment in case of search; income escaping assessment
No. For completed or unabated assessments, additions must rest on incriminating material found in the search. The Revenue's remedy in such cases is to reopen under the reassessment provisions, if otherwise available.
In a search assessment for a year that was already completed and not pending, can additions be made without any incriminating material found during the search?
Searches were conducted on various taxpayers, and assessments were framed under the search provisions for the six preceding years. In a number of those years, the original assessments had already been completed and no proceedings were pending on the date of the search, so those assessments did not abate. The Assessing Officers nonetheless made additions in those years on the basis of material already on record or on general grounds, without any incriminating material having been found during the search itself.
The Delhi High Court in the Kabul Chawla line of cases had held that additions in unabated years require incriminating material, while the Allahabad High Court had taken a contrary view. The Supreme Court resolved the conflict and, in doing so, clarified the Revenue's alternative remedy.
For the assessee
The search assessment provision is triggered by a search and is intended to bring to tax undisclosed income unearthed by it. Where an assessment stood completed and did not abate, the officer does not acquire a general power to reassess the year afresh; the jurisdiction to make additions depends on something incriminating having been found.
For the Revenue
The provision requires the total income of each of the six years to be assessed or reassessed, without limiting the assessment to material found in the search. Once a search occurs, the officer may examine all aspects of those years.
The Court distinguished between assessments pending on the date of search, which abate and may be framed afresh on all material, and assessments already completed, which do not abate. For the latter, it held that the jurisdiction to make additions depends on incriminating material unearthed during the search. The search provision, it reasoned, is directed at bringing to tax income disclosed by the search; it does not confer a general power to review concluded assessments in the absence of anything found. To hold otherwise would allow a search in relation to one year to reopen years in which nothing had been discovered, which the scheme does not contemplate. Having decided the principal question against the Revenue, the Court was careful to preserve its position: it held expressly that in cases where no incriminating material is found, the ordinary reassessment powers remain available, subject to their own conditions as to reason to believe, limitation and approval. It therefore saved the Revenue's alternative remedy while confining the search assessment power to its proper scope.
Governs a large volume of search assessment appeals. The search assessment provision is Section 285 in the IT Act 2025 and the reassessment trigger is Section 279, so both the limitation on additions and the preserved alternative remedy continue to apply. The practical consequence is that the abated-versus-unabated status of each year must be established at the outset of any search assessment dispute.