Assessment u/s 147 on the basis of seized material found during search of third party void ab-initio – ITAT
In a recent judgment, ITAT has quashed the re-assessment order passed u/s 147 holding that when incriminating material is seized belonging to person other than searched, assessment has to be under section 153C
ABCAUS Case Law Citation:
ABCAUS 3976 (2024) (04) ITAT
Important Case Laws relied upon:
Pr. CIT (Central) & Ors vs. Anand Kumar Jain (HUF) &Ors [2021] 432 ITR 0384 (Delhi)
Smt. Samanthapudi Lavanya vs. ACIT and others
Shyam Sunder Khandelwal vs. ACIT reported in [2024] 161 taxmann.com 255
Pr. CIT. vs. Abhisar Buildwell P. Ltd [2023] 454 ITR 0212 (SC)
In the instant case, the assessee had challenged the order passed by the CIT(A) in not adjudicating the legal ground raised that assessment proceedings ought to have been initiated u/s. 153C of the Income Tax Act, 1961 (the Act) and not U/s. 148 of the Act making the assessment proceedings as void -ab-initio.
The assessee was an individual and an NRI engaged in Medical Profession in USA and reported that he has no regular income in India. The assessee filed his return of income for the relevant AY admitting a meagre income and claimed a refund.
A search and seizure operation was conducted in the premises of a company and its associated entities which revealed that the assessee has entered into an agreement with the company for purchase of Land for a large amount of consideration. It was also noticed that the assessee had paid amount in cash. The regular conveyance deed was also registered.
The Managing Director of the searched company deposed in his sworn statement that the assessee had paid the amount for purchase of plot of land.
The assessee filed a reply before the Investigation Wing stating that he was engaged in Medical Profession in USA for the last thirty years and has been filing the return of income in USA from time to time. Out of the earnings and savings he made deposits in FCNR account. He advanced amounts to his friend (the M.D.) and no interest was charged on the same. It was submitted by the assessee that the assessee in order to help his friend entered into an agreement for purchase of site.
However, the Assessing Officer (AO) rejected the explanation of the assessee and initiated proceedings U/s. 147 of the Act which resulted In the instant appeal, the assessee had challenged the order of CIT(A) in confirming passing of the assessment order u/s 147 of the Act making an addition to the income as unexplained investment u/s. 69 of the Act.
Before the CIT(A), the assessee also raised a legal issue regarding the initiation of proceedings u/s. 147 of the Act wherein the assessment made by the AO was based on seized document and hence it attracts the provisions of section 153C of the Act.
However, the CIT(A) did not adjudicate the legal ground and partly sustained the addition made.
Before the Tribunal, the assessee relied upon number of judgments of Hon’ble Supreme Court, Hon’ble High Court and Co-ordinate Benches of ITAT and contended that settled law is that when there is incriminating material seized or requisitioned belonging or relatable to person other than on whom search was conducted, section 153C is to be resorted to. Therefore, the assessment order passed u/s 147 of the Act was void-ab-initio and deserved to be quashed.
The Tribunal noted that no detailed discussion was present in the order of the AO regarding the material available on record for a belief that was formed enabling the AO warranting reopening of proceedings U/s. 147 of the Act. The AO has fully relied on the seized agreement.
The Tribunal found merit in the argument of the assessee that section 153C of the Act overrides section 139, 147, 148 and 151 of the Act.
The Tribunal noted that the Co-ordinate Bench of the Tribunal by relying on various High Court decisions has held that in the absence of any fresh information collected by the AO or no information has come to the notice of the Assessing Officer (AO) in the normal course other than the information collected during he course of search from the search person, the AO ought to have made the assessment U/s. 153C of the Act and not U/s. 147 of the Act.
Further, the Tribunal noted that in a recent judgment of Hon’ble Rajasthan High Court has held that the argument that Section 153C can be invoked in case there is incriminating material for all the relevant preceding years and otherwise Section 148 is to be resorted to, is misplaced.
The Tribunal further observed that the Rajasthan High Court had also considered the decision of the Hon’ble Madras High Court. Also, the assessee had placed relied on the decision of the Hon’ble Supreme Court wherein it has been held that in case of absence of incriminating material seized during the search, the department is not remediless for reassessing the unabated assessment on the basis of material received from the other sources and can proceed under section 148. The decision does not support the contentions raised that Section 148 is rendered redundant if Section 153C is to be resorted to in the facts of the present case.
Following the judicial pronouncements, the Tribunal opined that the AO ought to have resorted to make the assessment u/s. 153C of the Act whereby heavy reliance placed by the AO on the seized material. Further, the AO had not recorded about any information that had come to the notice of the AO and had solely relied on the seized documents from the premises of the searched person.
Accordingly, the Tribunal quashed the assessment order as void -ab-initio and allowed the legal ground raised by the assessee.
Download Full Judgment Click Here >>
- In absence of mala fide intention bank should not be treated as assessee in default
- Whether bank account was fraudulently open in the name of assessee is question of fact
- SBI Concurrent Auditor Empanelment of Chartered Accountant Firms 2024-25. Last date 18.05.2024
- Change in the constitution of Appellate Authority for CAs CSs and Cost Accountants
- Trade Tax refund withheld beyond stipulated period & adjusted from demand unjustified – SC
