Income Tax | Abatement Is Not A Magic Wand: Orissa High Court Declines To Nullify Scrutiny Assessment Merely Because A Search Was Conducted

“Chapter XIV-B Targets ‘Total Undisclosed Income’ — Not Every Pending Assessment”, Orissa High Court at Cuttack, in Saroj Kumar Sahoo v. National Faceless Assessment Centre & Another (W.P.(C) No. 30861 of 2025), delivered a reportable judgment clarifying the true ambit of Section 158BA(2) of the Income Tax Act, 1961 as introduced by the Finance (No.2) Act, 2024 and amended by the Finance Act, 2025.

The Division Bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman refused to interfere with an assessment order passed under Section 143(3) read with Section 144B for A.Y. 2022-23, holding that abatement under Section 158BA(2) is not automatic upon initiation of search under Section 132.

The Court decisively ruled that Chapter XIV-B operates in a confined field — it is concerned with “total undisclosed income of the block period” and cannot be invoked merely because a scrutiny assessment was pending on the date of search.

Does Every Pending Assessment Collapse On Search?

The petitioner contended that since his scrutiny assessment for A.Y. 2022-23 was pending when a search under Section 132 was conducted on 26.11.2024, the proceedings stood abated by operation of Section 158BA(2). According to him, the Assessing Officer had no jurisdiction to proceed further under Section 143(3).

The Court carefully examined the statutory language. Section 158BA(2) provides that any assessment “pertaining to any assessment year falling in the block period” and pending on the date of search “shall abate.”

The Bench acknowledged that A.Y. 2022-23 did fall within the “block period” as defined under Section 158B. The definition, employing the phrase “means … includes,” was held to be exhaustive.

However, the Court made it clear that falling within the block period is only one part of the inquiry. The real trigger for Chapter XIV-B is assessment of “total undisclosed income” as a result of search.

The judgment records that Section 158BA “restricts assessment or reassessment only to ‘total undisclosed income’ of the block period in accordance with the provisions of Chapter XIV-B.”

Mere pendency of a scrutiny assessment, therefore, does not ipso facto result in abatement unless the statutory conditions tied to undisclosed income are satisfied.

A Crucial Distinction: Section 153A And Section 158BA Operate In Different Fields

The petitioner heavily relied on the Supreme Court’s decision in Principal Commissioner of Income Tax v. Abhisar Buildwell Pvt. Ltd., which interpreted Section 153A dealing with search assessments.

The High Court, however, drew a sharp statutory distinction. It noted that Section 153A empowers the Assessing Officer to assess or reassess “total income,” whereas Section 158BA is confined to “total undisclosed income.”

The Bench observed that precedents cannot be applied mechanically without regard to statutory context, cautioning that “one additional or different fact may make a world of difference between conclusions in two cases.”

The ratio of Abhisar Buildwell could not be transplanted into Chapter XIV-B without examining the language and object of the amended provisions.

Search Was Against Corporate Entities — Not The Individual Assessee

A decisive factual factor influenced the Court’s reasoning. The Panchanama revealed that the search under Section 132 was conducted in respect of certain corporate entities. There was no material placed before the Court to demonstrate that the petitioner, in his individual capacity, was subjected to search.

The impugned assessment, on the other hand, arose from CASS scrutiny of the petitioner’s return filed in his individual status.

The Court categorically recorded that “nothing is brought on record to suggest that the impugned assessment framed under Section 143 did contain ‘total undisclosed income as a result of search’.”

In the absence of any pleading or material to show that incriminating material relating to the petitioner’s undisclosed income was unearthed during search, the foundation for invoking Section 158BA(2) was found to be missing.

Strict Construction Of Taxing Statutes

Reaffirming classical principles of fiscal interpretation, the Court invoked the dictum in Cape Brandy Syndicate v. IRC that in a taxing statute “nothing is to be read in, nothing is to be implied.”

The Bench emphasized that a legal fiction such as abatement under Section 158BA must operate strictly within its statutory contours. The provision cannot be expanded beyond what the legislature has clearly expressed.

Abatement is not a blanket nullification clause; it is tethered to the special procedure for assessment of undisclosed income discovered as a result of search.

Writ Jurisdiction Declined: Disputed Facts And Alternate Remedy

The Court also declined to exercise its extraordinary jurisdiction under Articles 226 and 227 of the Constitution. It noted that crucial factual issues remained unresolved, including whether any incriminating material was discovered and whether such material related to the petitioner’s income.

Relying on Radha Krishan Industries and Chhabil Dass Agarwal, the Bench held that disputed factual controversies cannot be adjudicated in writ proceedings when statutory remedies are available.

The petitioner was therefore relegated to pursue remedies under the Income Tax Act.

The Orissa High Court’s ruling underscores a significant legal principle: Section 158BA(2) does not automatically wipe out every pending assessment upon initiation of search. Abatement under Chapter XIV-B is confined to cases involving “total undisclosed income” of the block period and must be applied within the strict framework of the statute.

By refusing to treat search as a universal extinguisher of scrutiny proceedings, the Court has reinforced both the discipline of statutory interpretation and the limited scope of extraordinary writ jurisdiction in fiscal matters.

Date of Decision: 18 February 2026