2018 (4) TMI 321 - AT - Income Tax

Tribunal Invalidates Assessment under Section 147, Upholds Application of Section 153C for Third-Party Search

The Tribunal ruled in favor of the assessee, declaring the assessment under Section 143(3) read with Section 147 as invalid. It held that Section 153C ... Reopening on assessment u/s 147 - Assessment u/s 153C - Held that:- As relying on Koteswara Rao Vs. DCIT (Central Circle), Visakhapatnam [2015 (12) TMI 1280 - ITAT VISAKHAPATNAM] Assessing Officer, has no jurisdiction to issue notice u/s 148 of the Act to reopen the assessments in respect of those six assessment years immediately preceding the assessment year in which search is conducted or requisition is made. The period under consideration falls within the exclusive domain of section 153A. In the instant case, since the assessment is made consequent to search in another case, the Assessing Officer is bound to issue notice u/s 153C and thereafter proceed to assess or reassess total income under section 153A of the Act. The Assessing Officer, instead of complying with the provisions of section 153C, proceeded with the reassessment under section 147/148 which is not applicable to search cases. Therefore, the impugned assessment order passed u/s 143(3), r.w.s. 147 of the Income tax Act, 1961 is illegal, arbitrary and without any jurisdiction - Decided in favour of assessee. Issues Involved:1. Validity of assessment under Section 143(3) read with Section 147 instead of Section 153C.2. Addition of Rs. 35,00,000 as unexplained investment.Issue-wise Analysis:1. Validity of Assessment under Section 143(3) read with Section 147 instead of Section 153C:The primary issue was whether the assessment made under Section 143(3) read with Section 147 was valid, or if it should have been made under Section 153C. The search and seizure operation under Section 132 revealed unaccounted investments by the assessee in land at Annavaram village. The Assessing Officer (AO) issued a notice under Section 148 based on this information. The assessee challenged this, arguing that the assessment should have been made under Section 153C, which deals with assessments related to third-party searches.The Tribunal noted that Section 153C applies when incriminating materials are found during a search on a third party, necessitating the assessment of the person to whom these materials belong. The Tribunal referred to the case of G. Koteswara Rao Vs. DCIT and other relevant judgments, which clarified that Section 153C should be invoked in such scenarios, not Section 147. The Tribunal concluded that the AO's action of reopening the assessment under Section 147 was illegal and without jurisdiction. Consequently, the notice issued under Section 148 was quashed, and the appeal was allowed in favor of the assessee.2. Addition of Rs. 35,00,000 as Unexplained Investment:The second issue involved the addition of Rs. 35,00,000 as unexplained investment for the purchase of land. During the search, the assessee's brother-in-law admitted to an unaccounted investment of Rs. 27,00,000 on behalf of the assessee. However, the assessee later retracted this statement, claiming the funds were from explained sources, specifically an advance received from her brothers for the sale of Revada land.The AO did not accept the retraction, viewing it as an afterthought to justify the source of funds. The CIT(A) upheld the AO's decision, stating that the assessee failed to substantiate the genuineness of the claim regarding the receipt of Rs. 35,00,000 as advance for the Ravada land. The Tribunal, however, did not delve into this issue in detail, as the primary ground of appeal regarding the validity of the assessment under Section 143(3) read with Section 147 was decided in favor of the assessee, rendering the addition issue moot.Conclusion:The Tribunal allowed the appeal, quashing the notice issued under Section 148 and declaring the assessment under Section 143(3) read with Section 147 as invalid. The Tribunal emphasized that the correct provision to be invoked in such cases is Section 153C, aligning with the decisions of other judicial precedents. The appeal was thus decided in favor of the assessee, and the assessment order dated 31-12-2010 was deemed illegal and without jurisdiction.