IMPORTANT POINT
Scope of assessment – No addition can be made in respect of completed assessments in absence of any incriminating material.

JUDGMENT :

M.R. Shah, J.

1. As common question of law and facts arise in this group of appeals, they are being disposed of by this common judgment and order.

Civil Appeal No. 6580 of 2021 and other connected appeals as mentioned above have been preferred by the Revenue. However Civil Appeal No. 15617 of 2017 and other allied appeals as mentioned above have been preferred by the respective assessees challenging the order passed by the respective High Courts taking the view that in case any incriminating material is found during search then even completed assessments can be assessed or reassessed taking into consideration the incriminating material and other material in possession of the Assessing Officer.

1.1 For the sake of convenience, Civil Appeal No. 6580 of 2021 filed by the Revenue be treated and considered as the lead matter.

2. The core issue involved in the present batch of appeals is the scope of assessment under section 153A of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act, 1961’). According to the Revenue, the Assessing Officer (hereinafter referred to as the ‘AO’) is competent to consider all the material that is available on record, including that found during the search, and make an assessment of ‘total income’. Some of the High Courts have agreed with the said proposition. However, according to the respective assessees and as per some of the High Courts’ decisions, if no assessment proceeding is pending on the date of initiation of the search, the AO may consider only the incriminating material found during the search and is precluded from considering any other material derived from any other source.

3. Shri N. Venkataraman, learned Additional Solicitor General of India has appeared on behalf of the Revenue and S/Shri Arvind P. Datar, Kavin Gulati, Preteesh Kapoor, learned Senior Advocates and Shri Ved Jain, learned counsel have appeared on behalf of the respective assessees.

3.1 Shri N. Venkataraman, learned ASG has made the following submissions on behalf of the Revenue :

(i) It is submitted that under the Act, 1961, the charging section is section 4. It is submitted that thus the income tax is tax on ‘total income.’ It is submitted that the term ‘total income’ has been defined in section 2(45) of the Act, 1961, which means the total amount of income referred to in section 5 and computed in the manner laid down in the Act. It is submitted that as per section 5 of the Act, 1961, the ‘total income’ of any previous year of a person who is a resident includes all income from whatever source derived. It is submitted that therefore the income tax is a tax on all income from whatever source derived in the case of a resident-assessee. Therefore, if any taxable income is left out, the resultant figure would be ‘partial income’ and not ‘total income’. It is submitted that any interpretation of any provision of the Act, 1961 which seeks to exclude any portion of the ‘total income’ from the ambit of taxation runs contrary to the scheme of taxation and hence is impermissible. It is submitted that thus the income tax is a tax on ‘total income,’ the assessee furnishes a return of ‘total income’ (as per Section 139 of the Act, 1961) and the AO assesses ‘total income’ only.

(ii) It is next submitted that while considering the issue involved, the manner and mode of passing assessment/re-assessment orders is required to be considered. It is submitted that section 139 of the Act, 1961 requires an assessee to furnish his return of total income for the previous year. The return is processed under section 143(1). Sub-sections (2) and (3) contain provision for assessment of ‘total income’ by the AO. It is submitted that there is a possibility that income chargeable to tax has escaped assessment in the first instance. Section 147 of the Act, 1961 enables the AO to assess or reassess the case and bring to tax such income a