Introduction
The Hon'ble Union Finance Minister Nirmala Sitharaman has presented the Union Budget 2022-23 of India on the 1st of February, 2022 with an aim to boost growth amid continued disruption from Covid-19 and rising inflation. The Hon'ble Finance Minister mentioned that the country is expected to grow at 9.27 per cent in the coming year with a focus on four pillars of development - inclusive development, productivity enhancement, energy transition and climate action.
In the Union Budget 2022-23 through Finance Bill 2022, among other tax measures, the Hon'ble Finance Minister recommended significant changes relating to Income Tax Search and Seizure provisions, as under
Proposed changes relating to Income Tax Search and Seizure Provisions
i) Insertion of New Section 79A: No set off of losses consequent to search, requisition and survey
Chapter VI of the Act deals with aggregation of income and set off or carry forward of loss. In Sections 70-80 of the Act there are specific provisions relating to set off or carry forward and set off of losses while computing the income under various heads and with respect to different classes of persons.
The Memorandum explaining the provisions of Finance Bill 2022 states that in some cases, assessees claim set-off of losses or unabsorbed depreciation, against undisclosed income corresponding to difference in stock, undervaluation of stock, unaccounted cash payment etc. which is detected during the course of search or survey proceedings. Currently there is no provision in the Act to disallow such set-off and no distinction is made between undisclosed income which was detected owing to search & seizure or survey or requisition proceedings and income assessed in scrutiny assessment in the regular course of assessment though for incomes falling in section 68, section 69, section 69B etc., such restriction is there.
Allowing the adjustment of undisclosed income detected as a result of search or requisition or survey against the loss or unabsorbed depreciation is resulting in short levy of tax. The provision of non-adjustment of loss or unabsorbed depreciation against undisclosed income detected as a result of search or requisition or survey would help in ensuring that proper tax is paid on income detected due to a search or survey and also result in increased deterrence against tax evasion.
Therefore,by virtue of Finance Bill 2022, it is proposed to insert a new section 79A in the Act to provide that notwithstanding anything contained in the Act, where consequent to a search initiated under section 132 or a requisition made under section 132A or a survey conducted under section 133A, other than under sub-section (2A) of section 133A, the total income of any previous year of an assessee includes any undisclosed income, no set off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32 shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year.
Further, the term "undisclosed income" is proposed to be defined for the above purpose as :-
(i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132 or a requisition made under section 132A or a survey conducted under section 133A, other than that conducted under sub-section (2A) of section 133A, which has—
(a) not been recorded on or before the date of search or requisition or survey, in the books of account or other documents maintained in the normal course relating to such previous year; or
(b) not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search or requisition or survey, or
(ii) any income of the previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the previous year which is found to be false and would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.
This proposed amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.
ii) Prior Approval of superior authority proposed to be reinstated again before passing of the assessment order
Under the new schema of Search assessments which has been inserted by the Finance Act 2021 in Section 147 to Section 151, there was no provision of prior approval of superior authority before passing of such assessment orders. Therefore, legally speaking an Assessing Officer in search and seizure can pass the order without seeking any prior approval of the superior authorities. This was in strange contrast to the erstwhile law on search and seizure assessments wherein Section 153D of the act in the erstwhile Search Assessment regime mandates that a prior approval is necessary for a valid assessment under Section 153A of the act.
Finance Bill 2022, proposed to insert a new section 148B to provide that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, in respect of assessments consequent to search, survey and requisition to reduce avoidable inaccuracies.
It is proposed that this amendment will take effect from 1st April, 2022.
The intent can be gathered so far as that in its highest wisdom made it compulsory that the assessments of search cases should be made with the prior approval of superior authority, so that the superior authority apply their mind on the materials and other attending circumstances on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority have to approve the Assessment order. Object of entrusting the duty of Approval of assessment in search cases is that the Joint CIT, with his experience and maturity of understanding should scrutinize the seized documents and any other material forming the foundation of Assessment.
iii) Enhancement of the period of limitation of framing search assessments
For Searches initiated on or after 1st Day of April' 2021, the period of limitation for framing assessments is governed by Section 153 of the act. It is proposed to amend section 153, by inserting a new clause to provide for exclusion of the period of limitation for the purpose of assessment, reassessment or recomputation, ( not exceeding one hundred eighty days) commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the Assessing Officer having jurisdiction over the assessee, in whose case such search is initiated or such requisition is made or to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or to whom any books of account or documents seized or requisitioned, pertains or pertain to, or any information contained therein, relates to.
It is proposed that the amendment will take effect retrospectively from 1st April, 2021.
iv) Certain proposed amendments/ insertions in order to align the scheme of search assessments with the intent of the Act
- Finance Bill 2022 proposed to amend sub-section (8) of section 132 to make the provisions of that section also applicable to assessment or reassessment or recomputation under sub- section (3) of 143 or section 144 or section 147, as the case may be.
- Finance Bill 2022 proposed to amend clause (i) of sub-section (1) and sub-section (4) of section 132B to provide that these provisions shall also apply to assessment or reassessment or recomputation.
These amendments will take effect from 1st April, 2022.
v) Certain proposed amendments/ insertions to correct the inadvertent drafting errors
Period of Deemed escapement of Income for preceding 3 Asstt. Years removed
Finance Bill 2022 proposed to omit Explanation 2 of section 148 - the reference to three assessment years preceding the assessment year relevant to the year of search.
By Finance Act'2021, under the newly substituted Section 148 viz. "Issue of Notice where income has escaped assessment." Explanation 2 has been brought into place to cover search, survey or requisition cases initiated or made or conducted, on or after 1st April, 2021, wherein it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or requisition is made or any material is seized or requisitioned or survey is conducted.Further it is pertinent to mention that the newly inserted Section 148A mandates that before issuance of notice under Section 148, the Assessing Officer shall conduct enquiries, if required, and provide an opportunity of being heard to the assessee. After considering his reply, the Assessing Office shall decide, by passing an order, whether it is a fit case for issue of notice under section 148 and serve a copy of such order along with such notice on the assessee. The Assessing Officer shall before conducting any such enquiries or providing opportunity to the assessee or passing such order obtain the approval of specified authority. However, this procedure of enquiry, providing opportunity and passing order, before issuing notice under section 148 of the Act, shall not be applicable in search or requisition cases.
Since there is an interplay between Section 148 and Section 148A, if an Assessing Officer desires to go beyond three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated, whether he or she is duty bound to follow the procedure laid down in Section 148A of conducting enquiries, providing opportunity and passing order before issuing notice(s) under section 148 of the Act for such assessment years beyond the three assessment years. In my considered opinion, there is no clarity on this issue in the statue before the advent of Finance Bill 2022. The change proposed by the Finance Act'2022 will remove the aforementioned lacuna.
Proposed Insertion in Section 153B
The Finance Bill 2022 proposed to insert Sub- Section (4) in section 153B to provide that nothing contained in the said section shall apply to any search initiated under section 132 or requisition made under section 132A on or after the 1st day of April, 2021.
Proposed Amendment to First Proviso to Section 149(1) of the act
The Finance Bill 2022 proposed to amend the First Proviso to Section 149(1) of the act so far as no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of section 149 or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021.
These amendments will take effect retrospectively from 1stApril, 2021.
vi) Clarity on application of penalty provisions of "Section 271AAB: Penalty where search has been initiated"
Anomaly prior to advent of Finance Bill 2022: It is pertinent to mention here is that after the advent of new scheme of search assessment by virtue of Finance Act'2021, Section 153A of the act has been made inoperative for searches initiated on or after 1st April'2021. For such searches initiated on or after 1st April'2021, the return shall be filed u/s 148 of the act only and not under Section 153A of the act. However, an enabling necessary amendment to this effect has not been made in the definition of "Specified Date" under Section 271AAB of the act so far as to also include a return filed u/s 148 of the act in Search and Seizure cases. Owing to this count, in my considered opinion, there was no clarity on application of penalty provisions of "Section 271AAB: Penalty where search has been initiated" in case of searches initiated on or after 01st April'2021.
Addressing this anomaly, the Finance Bill 2022 proposed to amend the definition of "specified date" in clause (a) Explanation to section 271AAB to make it also applicable to a notice issued under section 148 in case where search is initiated on or after 1st April, 2021.
This amendment will take effect from 1st April, 2022.
vii) Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act
Sections 271AAB, 271AAC and 271AAD of the Act under Chapter XXI contain provisions which give powers to the Assessing Officer to levy penalty in cases involving undisclosed income in cases where search has been initiated u/s 132 or otherwise, or for false entry etc. in books of account.
Under Chapter XXI of the Act which deals with penalties, Commissioner (Appeals) has concomitant powers with Assessing Officer to levy penalty in eligible cases under section 270A, section 271, section 271A, section 271AA, section 271G,section 271J which deal with deliberate concealment, non-disclosure and omission by an assessee to evade tax.
Similarly, sections 271AAB, 271AAC, 271AAD penalise actions pertaining to undisclosed income, unexplained credits or expenditures, or deliberate falsification or omission in books of accounts. Therefore, in order to improve deterrence against non- compliance among taxpayers, Finance Bill 2022 proposed to amend the sections 271AAB, 271AAC and 271AAD by enabling the Commissioner (Appeals) to levy penalty under these sections to the along with Assessing Officer.
These amendments will take effect from 1st April, 2022
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