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SEARCH & SEIZURE & SETTLEMENT COMMISSION

DIRECT TAX REFRESHER COURSE, 2017. SEARCH & SEIZURE & SETTLEMENT COMMISSION. CA VIPIN K. GUJARATHI. SEARCH & SEIZURE. AMENDMENTS BY FINANCE ACT 2017. New Explanation to Section 132(1) & 132A (1) inserted by the Finance Act 2017 w. e. f. 01/04/1962 & 01/10/1975 respectively.

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SEARCH & SEIZURE & SETTLEMENT COMMISSION

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  1. DIRECT TAX REFRESHER COURSE, 2017 SEARCH & SEIZURE & SETTLEMENT COMMISSION CA VIPIN K. GUJARATHI

  2. SEARCH & SEIZURE CA VIPIN K. GUJARATHI

  3. AMENDMENTS BY FINANCE ACT 2017 • New Explanation to Section 132(1) & 132A (1) inserted by the Finance Act 2017 w. e. f. 01/04/1962 & 01/10/1975 respectively. • Explanation : For the removal of doubts, it is hereby declared that the reason to believe as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal. CA VIPIN K. GUJARATHI

  4. AMENDMENTS BY FINANCE ACT 2017 • Sec. 132 does not confer any arbitrary authority on the Revenue officers—Power must be exercised strictly in accordance with the law and only for the purpose for which the law authorizes its exercise. • Seth Brothers 74 ITR 836 (SC) • Vindhya Metal Corporation 224 ITR 614 (SC) • UOI Vs Ajit Jain 280 ITR 280 (SC) CA VIPIN K. GUJARATHI

  5. AMENDMENTS BY FINANCE ACT 2017 • Warrant of authorization can be issued only if the conditions specified in section 132(1) (a) or (b) or (c) are complied with • The assessee has right to file Writ Petition under Article 226 of the Constitution of India against the validity of the search action. However, for filing Writ Petition the assessee must know the reasons for search action. • By inserting Explanation the assessee as well as any authority including Tribunal is denied the opportunity of knowing the reason. Under such circumstance filing of Writ petition is not possible CA VIPIN K. GUJARATHI

  6. AMENDMENTS BY FINANCE ACT 2017 • Insertion of section 132(9B) –Power of provisional attachment of the property during the course of search or within 60 days from execution of the last of the authorizations • Power of Provisional Attachment are vested with the AO u/s 281B. By this amendment powers can be exercised by authorized officers during the search or within 60 days of end of search action CA VIPIN K. GUJARATHI

  7. AMENDMENTS BY FINANCE ACT 2017 • Insertion of section 132(9D) Power to make reference to Valuation Officer referred to in section 142A during or within 60 days from end of the search action who will submit report with in 60 days • Object of amendment is to enable correct estimation & quantification of undisclosed income held in the form of investment or property. Assessee may be confronted during post search enquiries. CA VIPIN K. GUJARATHI

  8. AMENDMENTS BY FINANCE ACT 2017 • Amendment to section 153A & Section 153C of the I T Act • Section 153A (1) (a) & (b) and Section 153C before amendment provided that where the search is initiated after 31st day of May 2003 the AO shall issue notice for the six assessment years immediately preceding assessment year relevant to the previous years in which the search is conducted and assess or reassess income of such six assessment years CA VIPIN K. GUJARATHI

  9. AMENDMENTS BY FINANCE ACT 2017 • Now the section 153(1)(a) and section 153A(1)(b) has been amended to include “Relevant Assessment Years” in addition to six assessment years. Relevant assessment Year/s mean beyond six years and not beyond 10 years. Therefore, now AO in respect of search conducted after 01/04/2017 can issue notice u/s 153A(a) for 10 assessment years subject to certain conditions. CA VIPIN K. GUJARATHI

  10. AMENDMENTS BY FINANCE ACT 2017 • Explanation 1 to section 153A defines the expression “Relevant Assessment Year” shall mean an assessment year preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made which falls beyond six years but not later than ten assessment years from the end of assessment year relevant to the previous year in which the search is conducted CA VIPIN K. GUJARATHI

  11. AMENDMENTS BY FINANCE ACT 2017 • Fourth proviso to section 153A provides that AO shall not issue notice for the relevant assessment years unless the income, in the form of asset, which has escaped assessment amounts to or is likely to amount to 50 lakh rupee or more in the relevant A. Y. or in aggregate in the relevant Assessment Years • This amendment is applicable for search initiated on or after 1st April 2017 CA VIPIN K. GUJARATHI

  12. AMENDMENTS BY FINANCE ACT 2017 • Explanation 2 to section 153A has been inserted according to which the “asset” referred to in fourth proviso shall include immovable property being land or building or both, shares and securities, loans and advances and deposits in bank account. Any other asset can not be considered for computing limit of Rs. 50 Lakhs • Consequential amendments have been made in section 153C. CA VIPIN K. GUJARATHI

  13. AMENDMENTS BY FINANCE ACT 2017 • Memorandum explaining amendments states that section 153A & 153C are amended as the existing provisions of clause (c) of the section 197 of the Finance Act 2016 treating the income or asset found as the income of the year in which notice u/s 142, 143 or 153A or 153C is deleted w. e. f. 1st June 2016 CA VIPIN K. GUJARATHI

  14. AMENDMENTS BY FINANCE ACT 2016 • Amendment to sub-clause (c) to section 271AAB w. e. f 01.04.2017 • Section 271AAB(1)(c) provided that penalty in case of undisclosed income of specified previous years was leviable at the rate of 30% of the undisclosed income if the case does not fall under sub-clause (a) or (b) of section 271AAB(1) of the Act. CA VIPIN K. GUJARATHI

  15. AMENDMENTS BY FINANCE ACT 2016 • Sub clause (c) of sub section (1) of section 271AAB has been amended to provide that the penalty shall be levied at the rate of 60% of the undisclosed income of the specified previous years if it is not covered by the provisions of clause (a) or (b) • The amendment is w. e. f. 01/04/2017 CA VIPIN K. GUJARATHI

  16. TAXATION LAW (SECOND AMENDMENT) ACT 2016 • Insertion of Sub-section (1A) of section 271AAB w. e. f. 15/12/2016. • Sub clause (a) to section 271AAB (1A) provides that penalty u/s 271AAB (1A) in respect of search initiated after 15th December 2016 shall be payable @ 30% of undisclosed income of specified previous years if the assessee, fulfills the following three conditions: CA VIPIN K. GUJARATHI

  17. TAXATION LAW (SECOND AMENDMENT) ACT 2016 Three Conditions of S 271AAB (1A): A) admits UDI in the course of search in the statement u/s 132(4), B) substantiates the manner of deriving UDI & pays tax together with interest and C) Furnishes the return before specified date • Sub clause (b) provides that if the case is not covered by sub clause (a) the penalty shall be leviable 60% of undisclosed income of specified previous year CA VIPIN K. GUJARATHI

  18. TAXATION LAW (SECOND AMENDMENT) ACT 2016 • Section 273B provides that no penalty shall be levied if the assessee proves that for the failure there was a reasonable cause for said failure. However, section 273B has not been amended to include section 271AAB and therefore, it will be very difficult to argue the case of the ground of reasonable cause. CA VIPIN K. GUJARATHI

  19. AMENDMENTS BY FINANCE ACT 2015 • Amendment to section 153C of the I T Act w. e. f. 1st June 2015 Prior to amendment to section 153C the AO of the searched person was empowered to initiate proceedings u/s 153C in case of any person other than searched person only when the money bullion jewellery or other valuable article or books of accounts or documents belongs or belong to person other than searched person. CA VIPIN K. GUJARATHI

  20. AMENDMENTS BY FINANCE ACT 2015 • The Finance Act 2015 has amended section 153C w. e. f. 1st June 2015 which enables the AO of the searched person to initiate proceedings under scetion153C even if the books of accounts or documents do not belong to other person. The requirement is the documents “relate to” or “pertains to” such other person CA VIPIN K. GUJARATHI

  21. AMENDMENTS BY FINANCE ACT 2015 • any money, bullion, jewellery or other valuable article or thing, seized or requisitioned belongs to or • any books of accounts or documents, seized or requisitioned pertains or pertain to any information contained therein, relates to • The amendment has widened the scope of section 153C CA VIPIN K. GUJARATHI

  22. EFFECT OF AMENDMENT TO SECTION 153C • Before amendment to S. 153C the requirement that the documents found during search should “belong” to such other person was a condition precedent and a jurisdictional issue. The non-satisfaction of the condition renders the entire proceedings null and void. • Arpit Land Developers Pvt Ltd ITA No. 83 of 2014 (Bom) • Vijaybhai Chandrani 333 ITR 436 (Guj) CA VIPIN K. GUJARATHI

  23. Relates to, Refers to or Pertains to • Pepsi India Holdings Pvt. Ltd (Delhi) – Rebuttal of presumption u/s 132(4A) (i) & 292C (1)(i) documents belong to person from whose custody is found • has explained the terms “relate to” or “refers to” • A Registered Sale Deed belongs to the purchaser although relates to refers to Vendor • Photo copies of the documents found in search action on A may relate to B but may not belong to B CA VIPIN K. GUJARATHI

  24. SECTION 153C ISSUES • Finding of photo copies with searched person does not mean that they belong to the other person holding originals • Recording of satisfaction u/s 153C- Even if the AO of searched person & of the other person is the same, the proper satisfaction has to be recorded before assuming jurisdiction over other person • CIT Vs M/s Mechmen (MP) • Tanvir Collection Pvt Ltd Vs ACIT (Delhi) CA VIPIN K. GUJARATHI

  25. Time of recording of satisfaction by AO of searched person • Time or at which stage AO of the searched person should record the satisfaction as to the documents belonging to other person was subject of controversy. Now the controversy is put to rest by the Supreme Court in the case of CIT Vs Calcutta Knitwears 362 ITR 673 held as follows: • For the purpose of S. 158BD of the Act satisfaction note is sine quo non and must be prepared by AO before he transmit the record to other AO CA VIPIN K. GUJARATHI

  26. Time of recording of satisfaction by AO of searched person • Satisfaction note could be prepared either (a) at the time or along with initiation of proceedings against the searched person u/s 158BC or (b) along with the assessment proceedings u/s 158BC or (c) immediately after assessment proceedings are completed. • CBDT Circular 24/2015 Dt. 31st December 2015 accepted that the provisions of section 153C are substantially similar/pari materia to section 158BD • Cit Vs Apna Organics 374 ITR 55 (Bombay) CA VIPIN K. GUJARATHI

  27. Addition u/s 153A vis-à-vis absence of incriminating documents Whether addition can be made under section 153A even if no document or material or evidence is found in the course of search action? Once search takes place u/s 132 the AO has to necessarily issue notices u/s 153A(a) for six preceding Assessment Year relevant to AY of search and assess or reassess income of each of six assessment years CA VIPIN K. GUJARATHI

  28. Addition u/s 153A vis-à-vis absence of incriminating documents The issue arises whether AO, even if no incriminating material is found, still require to assess or reassess income of all assessment years? Kabul Chawla 380 ITR 573 (Delhi) has held that no addition can be made in respect of an unabated assessment which has become final if no incriminating material is found during the search. The law has been explained as follows: CA VIPIN K. GUJARATHI

  29. Addition u/s 153A vis-à-vis absence of incriminating documents • Once search takes place u/s 132 the AO will have to mandatorily issue notice to the assessee to file returns for six years • Assessment or reassessment pending on the date of initiation of search shall abate and AO will have to pass fresh orders • One assessment order for disclosed as well as undisclosed income for each of six assessment years CA VIPIN K. GUJARATHI

  30. Addition u/s 153A vis-à-vis absence of incriminating documents? • Although the section 153A does not say that assessment should be strictly made on the basis of evidence found as a result of search or post search enquiries. However, the assessment can not be arbitrarily made. • In absence of incriminating material the completed assessment can be reiterated & abated assessment can be made afresh CA VIPIN K. GUJARATHI

  31. Addition u/s 153A vis-à-vis absence of incriminating documents • The word “assess” in S 153A is relatable to the abated proceedings and the word “reassess” to completed assessment proceedings • Completed assessment can be interfered with by the AO only on the basis of incriminating material found in the course of search action CA VIPIN K. GUJARATHI

  32. Addition u/s 153A vis-à-vis absence of incriminating documents • Kurele Paper Mills which refers to Kabul Chawla has been affirmed by Supreme Court by dismissing Revenue’s petition on 7th December 2015 • Continental Warehousing Corporation 374 ITR 645 (Bombay) • Saumya Construction Pvt. Ltd 387 ITR 0529(Gujarat) • Salasar Stock Broking Ltd (Calcutta) • Gurindersingh Bawa 386 ITR 483 (Bombay) CA VIPIN K. GUJARATHI

  33. Addition u/s 153A vis-à-vis absence of incriminating documents • Judgment of Delhi HC –Dayawanti Gupta 390 ITR 496 was being interpreted to mean that addition can be made u/s 153A even without incriminating documents. Delhi High Court in the recent and longest decision –Meeta Gutgutia & Ors ITA 309/2017 delivered on 25th May 2017 analyzed judgments of all High Courts reaffirmed the judgment of Kabul Chawla and held that the no addition can be made in absence of incriminating documents. CA VIPIN K. GUJARATHI

  34. Whether issue of notice u/s 143(2) is mandatory for assessment? • Whether it is mandatory to issue notice u/s 143(2) within the time limit provided in proviso to section 143(2) in assessment u/s 153A? • Supreme Court in the case of Hotel Blue Moon has held that where the AO repudiates the return filed by assessee in response to notice u/s 158BC he must issue notice u/s 143(2)within the time prescribed in proviso to section 143(2) CA VIPIN K. GUJARATHI

  35. Whether issue of notice u/s 143(2) is mandatory for assessment? • The controversy arose because section 153A does not mandate the issue of notice u/s 143(2). It only requires issue of notice for six assessment years. Secondly, the judgment of Hotel Blue Moon was under chapter XIV-B block assessment with reference to section 158BC • Now there are three High Court Judgments against the above propositions CA VIPIN K. GUJARATHI

  36. Whether issue of notice u/s 143(2) is mandatory for assessment? • Ashok Chaddha Vs ITO 337 ITR 399 (Delhi) • CIT Vs Promy Kuriakose 386 ITR 597 (Kerala) • Tarsem Singla Vs CIT 385 ITR 138 (P & H) • A specific notice is required u/s 153A(1)(a) calling upon the person searched to file return and no further notice u/s 143(2) could be contemplated and judgment of Blue Moon was in the context of S. 158BC to which provisions of section 142, 143 (2) & (3), section 144 & 145 were specifically applicable, so far as may be. CA VIPIN K. GUJARATHI

  37. Section 153C Issues • As per proviso the Section 153C- Date of receiving documents by AO of other person is the date of search or making of requisition. • Date of abetment of proceedings in the case of other person is the date on which the AO of such person receives documents/assets • SSP Aviation Ltd 252 CTR 291 (Delhi) CA VIPIN K. GUJARATHI

  38. Section 153C Issues • Normally the documents are handed over by the AO of searched person to the AO of the other persons only after he realizes that the documents/assets belong to other person. This has the effect of block period being different in case of searched person and other persons. • V K Fiscal Services Pvt Ltd ITA No 5460 to 5465 /Del/2012 • R. L. Industries ITAT Delhi ITA No 567 & 568/Del/2011 CA VIPIN K. GUJARATHI

  39. Section 153C Issues • Let us take a case that search is carried out in March 2017. The block period for the searched person will be AY 2011-12 to 2016-17. However the AO of the searched person hand over the documents or assets after 31st March 2018. Therefore, in case of other person the block period will be A. Y. 2013-14 to 2018-19. CA VIPIN K. GUJARATHI

  40. SETTLEMENT COMMISSION CA VIPIN K. GUJARATHI

  41. SETTLEMENT COMMISSION A premier Alternative Dispute Resolution Body in India with the mandate to resolve tax dispute in respect of Income Tax and Wealth Tax Laws between two disputing parties – Income Tax Department on one side and Litigating tax payer on the other side CA VIPIN K. GUJARATHI

  42. SETTLEMENT COMMISSION • ITSC was set up in 1976 on the recommendations of Direct Tax Enquiry Committee set up under the Chairmanship of Justice K. N. Wanchoo popularly known as “Wanchoo Committee”. • ITSC is an independent quasi-judicial authority. It is an attached office of the Department of Revenue CA VIPIN K. GUJARATHI

  43. SETTLEMENT COMMISSION • Settlement Commission comprises of Chairman and as many Vice-chairmen and other members as Central Government thinks fit. • At present there are seven benches of settlement commissions. Delhi Bench is Principal Bench and other benches are known as additional benches. CA VIPIN K. GUJARATHI

  44. SCOPE & POWER OF ITSC • ITSC mechanism allows taxpayer to disclose additional income before it over and above what has been already been disclosed before Income Tax Authority. • The applicant has to pay full amount of tax and interest on additional income disclosed before ITSC before filing application CA VIPIN K. GUJARATHI

  45. SCOPE & POWER OF ITSC • ITSC decides upon the admissibility of applications and carries out the process of settlement in time bound manner by giving opportunity to both the parties • Object of Chapter XIX-A is not to give amnesty to tax evader from paying tax due but to see that protracted litigation is avoided and Revenue is collected earlier • CIT Vs Anjum Ghaswala 252 ITR 1 (SC) • CIT Vs Om Prakash Mittal 273 ITR 326 (SC) CA VIPIN K. GUJARATHI

  46. WHEN ONE CAN APPROACH ITSC • An applicant can approach ITSC in respect of a “Case” if no assessment order is passed by concerned IT authority in respect of the assessment year/s and the statutory time limits for passing of assessment order for that assessment year has not lapsed. W. e. f. 01/06/2007 • Definition of “Case” is further expanded to include such cases of search u/s 132 or requisition of books of accounts u/s 132A w. e. f. 1st June 2010 CA VIPIN K. GUJARATHI

  47. WHEN ONE CAN APPROACH ITSC • The Finance Act 2010 excluded the cases of reassessment, revision, set aside or cancelled assessment from the purview of the expression “Case”. • The Finance Act 2015 w. e. f. 01/06/2015 included cases of reassessment. Similarly the Finance Act 2014 included cases of revision and set aside or cancelled assessment as a “Case”. CA VIPIN K. GUJARATHI

  48. WHEN ONE CAN APPROACH ITSC • An applicant can approach ITSC in respect of proceedings which are pending. Proceedings are considered to be pending from the 1st day of the assessment year and it is not necessary that a return of income is filed or notice for scrutiny is issued before filing application. However, one can not approach ITSC once the assessment order is passed or time for passing the order has expired CA VIPIN K. GUJARATHI

  49. APPLICATION TO ITSC U/S 245C • Application to ITSC is in Form 34B • The application must contain a “Full and True” disclosure of his income which has not been disclosed before the AO. This is the most important criteria. • The applicant must explain the manner in which such income has been derived. “Manner” of deriving undisclosed is one of the most important criteria. CA VIPIN K. GUJARATHI

  50. APPLICATION TO ITSC U/S 245C • Additional amount of income tax payable on such income must be paid on or before filing of application and such other particulars as may be prescribed • The manner in which issues/disputes be settled by ITSC and the manner in which such application be disposed off must be stated in the application CA VIPIN K. GUJARATHI

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