2021 (5) TMI 26 - AT - Income Tax

Reopening under s.147 invalid where additions based solely on s.132 search material falling under s.153A/153C; assessment quashed

Smt. Samanthapudi Lavanya, Kanumuri Siva Rama Raju, Smt. Kanumuri Krishna Kumari, Kanumuri Prasad, Smt. Kanumuri Lakshmi Uma Katyaini, Samanthapudi Raja Ramesh, Smt. Kanumuri Lakshmi Sirisha, KanumuriSubba Raju, KanumuriBhaskara Raju Versus Asst. Commissioner of Income Tax Central Circle Vijayawada

ITAT held the AO's reopening under s.147 invalid because the additions relied solely on material seized or statements recorded consequent to a search ... Reopening of assessment u/s 147 - information found from the searched person consequent to the search u/s 132 relied upon - HELD THAT:- In the instant case, there is no dispute that the joint receipt was seized during the course of search as mentioned by the AO in the assessment order as well as the remand report and the assessment was made u/s 147 on the basis of statement recorded u/s 132(4) of the Act, appraisal report and the joint receipt.All of them are directly related to the information found from the searched person consequent to the search u/s 132. Therefore, as provided u/s 153A and 153C, all the search assessments required to be made u/s 153A or 153C, but not u/s 147 of the Act. No fresh information was collected by the AO or no information has come to the notice of the AO in normal course other than the information collected during the course of search from the searched person. Thus, the assessee’s case is squarely covered by the decision of this Tribunal in G.Koteswara Rao [2015 (12) TMI 1280 - ITAT VISAKHAPATNAM]. The department has not brought any other evidence to establish that the joint receipt was not seized during the search/s 132. In the light of the aforesaid discussion and on consideration of facts and the law we, hold that the assumption of jurisdiction by the AO u/s 147 is bad in law, hence, we set aside the order of the Ld.CIT(A) and the assessments framed u/s 147 r.w.s. 143(3) are quashed. The appeals of the assesses allowed. Issues Involved:1. Condonation of Delay2. Validity of Reassessment Proceedings3. Jurisdiction under Section 147 vs. Section 153C4. Merits of the Addition of Undisclosed IncomeDetailed Analysis:1. Condonation of Delay:The appeals were filed with a delay of 492 days. The assessees claimed the delay was due to the illness and subsequent forgetfulness of their accountant, who was responsible for filing the appeals. They realized the mistake only when the department pressed for payment of the demand. The Tribunal found the explanation reasonable and noted that there was no malafide intention. The Tribunal referenced the Supreme Court's decision in Senior Bhosale Estate (HUF) vs. Assistant Commissioner of Income Tax, where a delay of 1754 days was condoned under similar circumstances. Consequently, the Tribunal condoned the delay and admitted the appeals in the interest of justice.2. Validity of Reassessment Proceedings:The assessees challenged the reassessments on the grounds that the reasons for reopening were not communicated to them. The Tribunal noted that although the reasons were shown to the assessees' authorized representative during the assessment proceedings, they were not formally communicated in writing. Citing the Supreme Court's decision in GKN Drive Shafts (India) Ltd. vs. ITO, the Tribunal held that non-communication of reasons renders the reassessment proceedings invalid. The Tribunal quashed the assessments made under Section 147 r.w.s. 143(3) due to this procedural lapse.3. Jurisdiction under Section 147 vs. Section 153C:The Tribunal examined whether the assessments should have been made under Section 153C instead of Section 147. The reassessments were based on a joint receipt and statements recorded during a search operation, which indicated undisclosed income. The Tribunal found that the joint receipt was seized during the search, and the assessments were based on information collected during the search proceedings. According to Section 153C, assessments in such cases should be made under Section 153C, not Section 147. The Tribunal referenced its own decision in G. Koteswara Rao and others, which held that assessments based on search findings must be made under Section 153C. Consequently, the Tribunal quashed the assessments made under Section 147 as invalid.4. Merits of the Addition of Undisclosed Income:Given that the Tribunal quashed the reassessments on procedural grounds, it did not find it necessary to adjudicate the merits of the addition of undisclosed income. The Tribunal allowed the appeals of the assessees without delving into the substantive issues of the case.Conclusion:The Tribunal's decision focused on procedural compliance and jurisdictional appropriateness. It emphasized the mandatory requirement for the Assessing Officer to communicate the reasons for reopening assessments and the necessity to follow the correct jurisdictional provisions under the Income Tax Act. The appeals were allowed, and the reassessments were quashed on these grounds.