Tribunal invalidates assessments due to incorrect section invoked by Assessing Officer

The Tribunal ruled in favor of the assessee, holding that the Assessing Officer (AO) wrongly initiated proceedings under Section 148 instead of Section 153C, resulting in the assessments made under Section 143(3) read with Section 147 being invalid. Consequently, the Tribunal quashed the assessments for the Assessment Years 2007-08, 2008-09, and 2009-10, leading to the cancellation of the additions made in those assessments. The appeals of the assessee were fully allowed, and the orders of the Commissioner of Income Tax (Appeals) were set aside.

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Issues involved:
1. Legality of initiating proceedings under Section 148 instead of Section 153C.
2. Jurisdiction of the Assessing Officer (AO) in completing the assessment under Section 147.
3. Validity of the assessments made under Section 143(3) read with Section 147.

Detailed Analysis:

1. Legality of initiating proceedings under Section 148 instead of Section 153C:
The primary issue raised by the assessee was the legality of the AO initiating proceedings under Section 148 of the Income Tax Act, despite the incriminating material being found during a search operation conducted on M/s. Sri Sai Kamal Construction Group. The assessee contended that the AO should have initiated proceedings under Section 153C, not Section 148, as the material found during the search pertained to the assessee. The Tribunal acknowledged this argument, referencing the case of National Thermal Power Co. Ltd. vs. CIT, which supports raising legal issues on jurisdiction at any stage.

2. Jurisdiction of the Assessing Officer (AO) in completing the assessment under Section 147:
The assessee argued that the AO lacked jurisdiction to complete the assessment under Section 147 because the proceedings should have been initiated under Section 153C. The Tribunal noted that the AO had issued a notice under Section 148 based on the information found during the search, which indicated that the assessee had purchased land and made payments. However, the Tribunal found that the jurisdiction to initiate proceedings lay under Section 153C, not Section 148, as the material was found during a search of a third party.

3. Validity of the assessments made under Section 143(3) read with Section 147:
The Tribunal referred to the decision of the Coordinate Bench in ITA No.1695/Hyd/2017 and others in the case of Batta Yadamma and others, which held that the AO should have initiated proceedings under Section 153C when the material found during a search pertains to a third party. The Tribunal also cited the Bengaluru Bench of ITAT in the case of Shri Srinivasa Rao Hostake, which emphasized that Section 153C takes precedence over Section 148 when incriminating documents are found during a search. The Tribunal concluded that the AO wrongly initiated proceedings under Section 148 and completed the assessment under Section 143(3) read with Section 147, instead of under Section 153C. Consequently, the Tribunal quashed the assessments made by the AO under Section 143(3) read with Section 147, resulting in the cancellation of the additions made in such assessments.

Conclusion:
The Tribunal set aside the orders of the Commissioner of Income Tax (Appeals) and quashed the assessments made by the AO under Section 143(3) read with Section 147 for the Assessment Years 2007-08, 2008-09, and 2009-10. Since the very assessments were quashed, the additions made in such assessments were automatically canceled. The appeals of the assessee were allowed in their entirety. The order was pronounced in the open court on 9th August 2019.

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