The Indian Income Tax Act contains several provisions to deal with regular assessments, reassessments, and cases involving search and seizure. One such important provision is Section 153A of Income Tax Act, which specifically applies in situations where a search is conducted under Section 132 or books of accounts and assets are requisitioned under Section 132A. This section deals with the assessment of the income of any person in case of search or requisition and mandates the Assessing Officer to initiate fresh assessments for the specified years.
This provision ensures that undisclosed income discovered during a search is brought to tax, while also providing an opportunity to reassess previous years’ returns. For taxpayers, Section 153A can feel intimidating, as it requires compliance beyond the current year. However, understanding its scope, procedure, and timelines is crucial to avoid penalties and disputes.
What is Section 153A of Income Tax Act?
Section 153A was introduced through the Finance Act, 2003, with effect from June 1, 2003. The main objective was to give tax authorities a clear legal framework to reassess income after a search. Unlike regular assessments, which deal with income voluntarily disclosed by the taxpayer, Section 153A kicks in only when there is a search or requisition by the tax department.
In simple terms, this section deals with the assessment of the income of any person in case of search or requisition, ensuring that any undisclosed wealth or assets uncovered are brought under taxation. It mandates the reopening of six previous assessment years (in some cases up to 10 years) to check if income was concealed.
Applicability of Section 153A
Section 153A applies when:
- A search is conducted under Section 132.
- Books of accounts, documents, or assets are requisitioned under Section 132A.
Once triggered, the Assessing Officer is empowered to issue notices requiring the taxpayer to file returns for six assessment years preceding the year of search. In exceptional cases where assets exceeding a specified threshold are found, the reassessment period may extend up to 10 years.
Thus, Section 153A ensures that income for past years is scrutinized if there is reason to believe that taxes were evaded."
Procedure Under Section 153A
- Notice to File Return – The Assessing Officer issues a notice requiring the taxpayer to furnish returns for six years prior to the year of search.
- Assessment or Reassessment – Fresh assessments are carried out for each year, irrespective of whether income was already assessed earlier.
- Consideration of Seized Material – The AO relies on seized documents, books of accounts, and other evidence to compute correct taxable income.
- Merging of Pending Assessments – If any assessment or reassessment was already pending for those years, it automatically merges with the Section 153A proceedings.
This ensures a comprehensive review of the taxpayer’s income history.
Also Read: Powers of Search and Seizure Explained
Time Limit for Completion of Assessment, Reassessment, and Re-computation
One of the most important aspects of Section 153A of Income Tax Act is the time limit for completion of assessment, reassessment, and recomputation.
Currently, the law provides that assessments under Section 153A must be completed within 12 months from the end of the financial year in which the last authorization for search was executed. In case of transfer to the Income Tax Appellate Tribunal (ITAT) or Court orders, extensions may apply.
This strict timeline ensures faster disposal of search cases and avoids unnecessary delays in litigation.
Section 153A with Example
Let’s understand with a simple example:
Suppose a search under Section 132 was conducted at Mr. X’s premises in August 2024. The Assessing Officer will issue notices under Section 153A requiring Mr. X to file fresh returns for the six preceding years, i.e., Assessment Years 2019–20 to 2024–25. If undisclosed income is found, it will be added to his taxable income for those years.
This shows how Section 153A of Income Tax Act deals with the assessment of the income of any person in case of search or requisition and enforces compliance.
Amendments in Section 153A
Over time, several amendments have been introduced to refine the provision:
- Extension of reassessment period from six years to ten years in cases involving large undisclosed assets.
- Clearer guidelines on merging pending assessments with Section 153A assessments.
- Time-bound completion of proceedings to avoid taxpayer harassment.
These amendments aim to balance the powers of tax authorities with the rights of taxpayers."
Key Judicial Pronouncements on Section 153A
Courts have repeatedly interpreted Section 153A in cases involving reassessment and use of seized material. Some important principles laid down include:
- Additions can only be made if incriminating material is found during search.
- Completed assessments cannot be disturbed unless there is clear evidence of undisclosed income.
- Timelines under Section 153A must be strictly followed.
These rulings provide clarity and safeguard taxpayer interests.
Limitations and Challenges
While Section 153A strengthens the government’s hand against tax evasion, it also brings challenges:
- Reassessment Burden – Taxpayers must furnish returns for up to six years, which can be cumbersome.
- Litigation – Many cases under Section 153A reach tribunals and courts due to disputes.
- Uncertainty – Frequent amendments and evolving judicial interpretations create confusion.
Still, the provision plays a crucial role in curbing black money and ensuring compliance.
Also Read: Penalty for Under-Reporting and Misreporting of Income
Section 153A vs Section 153C
While Section 153A applies to the person searched, Section 153C applies when documents or assets belonging to a third party are found during the search. For instance, if during a search on Company A, documents belonging to Company B are found, Section 153C proceedings may be initiated against Company B.
Both sections are complementary, ensuring that undisclosed income of both the searched person and related parties is taxed."
Conclusion
The Section 153A of Income Tax Act is a powerful tool in the hands of the tax department, designed to tackle cases of undisclosed income. It specifically deals with the assessment of the income of any person in case of search or requisition, allowing the reopening of six preceding years’ assessments. The provision also defines the time limit for completion of assessment, reassessment, and recomputation, ensuring time-bound proceedings.
For taxpayers, while Section 153A may feel stringent, it is important to remember that only incriminating material discovered during the search forms the basis of additions. With proper compliance and expert assistance, taxpayers can navigate Section 153A smoothly and avoid prolonged disputes.
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