Section 153A – Assessment in Search & Seizure Cases

The Income Tax Department is vested with significant powers to combat tax evasion, including the authority to conduct search and seizure operations under Section 132 of the Income Tax Act, 1961. When such an operation takes place, the regular assessment procedures are set aside, and a special assessment mechanism kicks in. This is primarily governed by Section 153A, which deals with the assessment of income in cases where a search has been initiated or books of account/other assets have been requisitioned.

Section 153A aims to bring to tax any undisclosed income or assets discovered during the search operation, ensuring that the tax liability on such income is promptly determined and collected.

Understanding Search and Seizure Operations

A search and seizure operation is a stringent measure undertaken by the Income Tax Department, usually based on credible information suggesting significant tax evasion. During such an operation, authorized officers have the power to:

• Enter and search any building, place, vessel, vehicle, or aircraft.
• Break open the lock of any door, box, locker, safe, or other receptacle.
• Search any person found in the place.
• Seize books of account, documents, cash, jewellery, bullion, or other valuable articles or things.
• Place marks of identification on any books of account or documents or make abstracts or copies therefrom.
• Make an inventory of any cash, jewellery, or valuable articles found.

The primary goal is to unearth undisclosed income, assets, and the means by which such income has been generated or concealed.

Applicability and Scope of Section 153A

Section 153A applies to a person in whose case a search is initiated under Section 132 or books of account, other documents, or assets are requisitioned under Section 132A. Its scope is significant:

• Mandatory Assessment for Multiple Years: The Assessing Officer (AO) is required to assess or reassess the total income of the person for:
  • Six assessment years immediately preceding the assessment year relevant to the previous year in which such search is initiated or requisition is made.
  • The assessment year relevant to the previous year in which such search is initiated or requisition is made.

  This effectively means that the AO has the power to assess/reassess income for up to seven assessment years (six past years plus the year of search).

• Abatement of Pending Assessments: Any assessment or reassessment proceedings for any of the six assessment years preceding the search (or requisition) that are pending on the date of initiation of search (or requisition) stand abated (become null and void). However, completed assessments for these years do not abate and can be reopened under this section.

Example: A search is initiated on Mr. Jain on October 15, 2024. This date falls in the financial year 2024-25, and the relevant assessment year is 2025-26. Under Section 153A, the AO can assess/reassess Mr. Jain's income for AY 2025-26 (the search year) and the six preceding assessment years: AY 2019-20, 2020-21, 2021-22, 2022-23, 2023-24, and 2024-25. If any regular assessment for, say, AY 2023-24 was pending on October 15, 2024, it would abate.

Procedure under Section 153A

The procedure for assessment under Section 153A is distinct from regular assessments (types of assessment):

1. Issuance of Notice: After a search or requisition, the AO issues a notice under Section 153A to the person, requiring them to furnish a return of income for the specified assessment years within a prescribed period (usually 15-60 days).
2. Filing of Return: The assessee must file the return as required by the notice, disclosing all income, whether previously disclosed or found during the search.
3. Assessment/Reassessment: The AO proceeds to assess or reassess the total income for all the specified years. The assessment is heavily influenced by the material seized during the search. Additions to income must typically have a nexus with incriminating evidence found during the search, especially for completed assessments that are reopened.
4. Time Limit for Completion: The assessment under Section 153A has specific time limits for completion, generally within a few years from the end of the financial year in which the last authorization for search was executed.

Key Implications and Penalties

• Mandatory Filing: The requirement to file a return under Section 153A is mandatory, irrespective of whether the person believes they have any undisclosed income.
• Burden of Proof: A significant shift in the burden of proof occurs. Any cash, jewellery, or other assets found during the search, for which no satisfactory explanation is provided, can be deemed as undisclosed income.
• Severe Penalties: Undisclosed income unearthed during search operations attracts stiff penalties. For search cases, Section 271AAB often applies, which can levy a penalty ranging from 30% to 60% of the undisclosed income, in addition to the tax and interest.
• Interplay with Section 153C: If any books of account, documents, or assets seized belong to a person other than the one subjected to search, the AO can initiate assessment proceedings against that "other person" under Section 153C.
• Prosecution: Severe cases of tax evasion discovered through search operations can also lead to prosecution proceedings.

What to Do if You are Subject to a Search or Receive a Section 153A Notice

Being involved in a search operation or receiving a Section 153A notice is a highly critical situation. Immediate and informed action is paramount:

1. During Search:
   • Remain calm and cooperate with the tax authorities. Do not obstruct the search.
   • Do not attempt to destroy or conceal any documents or assets.
   • Insist on your legal rights, such as having witnesses present and receiving copies of the panchnama (record of seizure).
2. After Search/Receiving Notice:
   • Immediately Consult an Expert: This is not a situation to handle alone. Engage an experienced tax lawyer or Chartered Accountant specializing in search assessments.
   • Review Seized Material: Thoroughly examine all documents and assets seized. Your professional advisor will help correlate these with your financial records.
   • Prepare for Response: Based on the seized material and your records, prepare a comprehensive return of income and explanations for all discrepancies or undisclosed income.
   • Full Disclosure: It is generally advisable to make full and true disclosure of any undisclosed income or assets discovered during the search, as it can mitigate penalties.
   • Respond Timely: Ensure all responses to notices and information requests are submitted within the stipulated deadlines.

Conclusion

A search and seizure operation is a serious intervention by the Income Tax Department, triggering the special assessment procedure under Section 153A. It signifies that the authorities have substantial information regarding undisclosed income or assets. Navigating such a situation requires expert guidance to ensure compliance, mitigate penalties, and effectively represent your case. Timely and transparent cooperation, coupled with professional advice, is the best strategy to manage the aftermath of a search operation.