Facts of the Case:
The assessee filed his return of income for AY 2022-23 and the case was selected for faceless scrutiny assessment under Section 143(2) read with Section 144B. Various notices under Section 142(1) were issued seeking explanations and documents. An assessment order dated 21.03.2024 was initially passed but was set aside by the High Court due to violation of natural justice (non-grant of personal hearing). The matter was remanded for fresh assessment. Accordingly, assessment proceedings recommenced and notices were issued again. During the pendency of these reassessment proceedings, a search under Section 132 was conducted between 26.11.2024 and 28.11.2024. Despite the search, the Assessing Officer completed assessment u/s 143(3) r.w.s. 144B on 17.03.2025, raising a demand of about Rs.45.20 crores, and also initiated penalty proceedings under various sections. The assessee filed a writ petition under Articles 226 and 227 of the Constitution challenging the assessment order on jurisdictional grounds.
Contention of Assessee:
The Assessee contended that as per section section 158BA(2) of the Act, once a search is initiated, any pending assessment for years falling in the block period automatically abates and therefore assessment proceedings for AY 2022-23 were pending on the date of search and the same should have abated.
The Assessee further contended that AO ceased to have jurisdiction to complete assessment under Section 143(3) after the search was initiated as the department was required to proceed only under the special procedure for search assessments under Chapter XIV-B.
The Assessee relied upon Principal Commissioner of Income Tax v. Abhisar Buildwell Pvt. Ltd., contending that additions cannot be made outside the scope of search provisions.
Contention of Revenue:
The Revenue contented that the assessment under Section 143(3) of the Act was strictly an evaluation of the “total income” as disclosed in the return rather than “total undisclosed income” resulting from a search.
The Revenue further contended that there was no evidence that the assessment order was based on “undisclosed income” or incriminating material unearthed during the search.
Revenue also contended that warrant for search operation under Section 132 was issued in the names of various companies and not at the petitioner in his individual capacity. Hence, the search of these corporate entities did not automatically mean that the petitioner’s individual “undisclosed income” was the subject of the search.
Ruling:
The Hon’ble Court dismissed the writ petition and upheld the assessment order by giving following observations stated hereunder:-
- The Court held that Chapter XIV-B becomes applicable only when search results in discovery of undisclosed income.
- There was no evidence on record showing that the search resulted in discovery of the assessee’s undisclosed income, or the search was conducted in relation to such income. In absence of such incriminating material, the Assessing Officer retains jurisdiction to complete assessment under the regular provisions of the Act.
- It clarified that abatement of pending proceedings under Section 158BA cannot be claimed merely because a search occurred.
Editor’s Note:-
Following are the Key Principles emerging from this judgement:-
- Chapter XIV-B applies only where search leads to discovery of “undisclosed income.”
- Verify whether the relevant assessment year falls within the “block period” as defined in Section 158B.
- Search does not automatically nullify ongoing assessments.
- Abatement of proceedings under Section 158BA(2) is conditional, not mechanical.
- Courts will not entertain writ petitions against assessment orders where statutory appellate remedies exist, unless jurisdictional defects are clearly established.
Citation:- Saroj Kumar Sahoo, v NFAC (W.P.(C) No. 30861 of 2025) of Hon’ble Orissa High