Proceedings initiated u/s 148 instead of section 153C quashed. ITAT explains the difference

Proceedings initiated u/s 148 instead of section 153C quashed. ITAT explains the difference between jurisdiction under both sections

ABCAUS Case Law Citation:
ABCAUS 3121 (2019) (08) ITAT

Important case law relied upon by the parties:
National Thermal Power Co. Ltd., Vs. CIT [229 ITR 383] (SC).
Smt.Archana Pandey Vs. ITO (2013) [34 taxmann.com 88]
F G. Koteshwara Rao v. DCIT [(2015) 64 taxmann.com 159
Batta Yadamma and others

The appellant assessee had challenged the orders of the Commissioner of Income Tax (Appeals) for three assessment years

A search and seizure operation was conducted in a business Group. During the course of search operation, certain incriminating material was found and seized.

On analysis of the seized document, the information relating to assessee was found. As per which, assessee had purchased land. A notice u/s 148 of the of the Income Tax Act, 1961 (the Act) was issued and served on assessee, based on the information found during the search.

Subsequently, the reasons for reopening were also communicated to the assessee based on the request made.  

Before the Tribunal, the assessee filed additional grounds of appeal contending that it involved legal issue on jurisdiction. The assessee raisied a legal ground questioning the legality of the issue of notice u/s 148 of the Act instead of Section 153C of the Act and assessments completed not in line as per Section 153B of the Act.

In view of that it was a legal issue, the Tribunal admitted the Additional Ground of Appeal for adjudication.

The assessee pointed out that the AO had initiated the proceedings u/s 148 of the Act even though incriminating material found, relating to the transaction involving assessee in search carried out in the case of other business group. He submitted that the AO should have initiated proceedings u/s.153C not u/s.148 of the Act and completed the assessment u/s.143(3) r.w.s. 147 of the Act. Therefore, AO was not have jurisdiction in completing the assessment u/s.147 of the Act.

On the other hand, the Department submitted that assessee had participated in completion of the assessment proceedings u/s 147 of the Act and since this issue was not raised before the Assessing Officer (AO), now the assessee could not raise the issue in appellate proceedings.

The Tribunal opined that since the assessment proceedings were initiated mainly on the information found during the search proceedings and it was found that assessee was a party to the transactions and the same material was brought on record to complete the assessment u/s.147 of the Act, jurisdiction lied to initiate proceedings u/s153C of the Act and not u/s.148 of the Act. Further even it was not brought on record whether there was proper satisfaction recorded by the AO of the search party as well as AO of the assessee.

The Tribunal also noted that the issue had already been decided by the Coordinate Bench of the Tribunal

Proceedings initiated u/s 148 instead of section 153C quashed

The Coordinate Bench had observed that section 153A to 153C and also the circular issued by the CBDT explaining the procedure of assessment in search cases shows that these are separate provisions independent of other provisions relating to reassessment, because of the non obstante clause begins with the said sections. ‘notwithstanding anything contained’ in section 139, section 147, section 148, section 149, section 151 and section 153 make it clear that provisions of these sections are not made applicable to the assessments covered by the provisions of section 153A.

The Coordinate Bench observed that under the provisions of section 147, the Assessing Officer is having power to re-open the assessment, if he is of the opinion that the income chargeable to tax has escaped assessment.  Before doing so, the AO is required should satisfy himself that, there is material which suggests that there is an escapement of income. The AO can exercise these powers with a reasonable belief coupled with some material which suggest the escapement of income. Once the conditions precedent for assumption of jurisdiction to commence the reassessment proceedings, he has to cross the hurdles attached with reassessment by way reasons for reopening of assessment, time limit for issue of notice and provision for obtaining sanction of higher authority in certain circumstances.

The Coordinate Bench pointed out that under the provisions of section 153A to 153C these hurdles are cleared by using the non abstante clause in the said section. In other words, under the new provisions of section 153A, the AO is not required to satisfy these conditions before issue of notice. The only requirement is that there should be a search action u/s 132 or books of account, other documents or any other asset are requisitioned under section 132A. Therefore, though the Assessing Officer from both sections empowered to tax the income escaped from tax, both are works in a different situations, i.e. section 147 comes in to operation where there is an escapement of income chargeable to tax and section 153A comes in to operation where there is search u/s 132.

The Coordinate Bench observed that in such situation, the word “shall” used in section 153A makes it clear that the Assessing Officer has no option, but to issue notice and proceed thereafter to assess or reassess the total income. Whereas the Assessing Officer had issued notice u/s 148 to reopen the assessment.

The Coordinate Bench opined that in view of the non-obstante clause begin with section 153A, the Assessing Officer had no jurisdiction to issue notice u/s 148 reopen the assessment of those assessment years which falls within the exclusive jurisdiction of section 153A. Though, both provisions of the Act empowers the Assessing Officer to assess or reassess the income escaped from assessment, both sections are dealing with different situations. Section 147 comes into operation when, the Assessing Officer believes that there is an escapement of income chargeable to tax, either from the return already filed or through some external material evidence came to his knowledge, which shows the escapement of income. Whereas, section 153A comes into operation when there is search u/s 132 or books of accounts, or any other asset or other documents requisitioned u/s 132A.

The Coordinate Bench pointed out that if Assessing Officer justified in proceeding with section 147 to reopen the assessment, then there would be no relevance to section 153A, which was inserted in to the Act to deal exclusively with search cases. The legislators in their wisdom clearly spelt out the provisions of law applicable to search cases by using the word shall to begin with section 153A, made it mandatory that the Assessing Officer bound to issue notice u/s 153A or 153C, thereafter proceed to assess or reassess the total income, where search is conducted u/s 132 or requisition is made u/s 132A. Therefore, the AO was not justified in reopening the assessment u/s 147 and his order was illegal and arbitrary.

In view of the above findings of the Coordinate Bench, in the instant case, the Tribunal set aside the order of CIT(A) and quashed the assessment made by the AO u/s 143(3) r.w.s. 147 of the Act.

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