Reassessment proceedings u/s 147/148 invalid when based on third party search material under section 132

ITAT Delhi held that reassessment proceedings u/s 147/148 initiated based on material seized during search of third party (Jain Brothers) were invalid. The tribunal ruled that when incriminating material is found during search of third party u/s 132, proper procedure requires action u/s 153C, not u/s 147/148. The AO erroneously invoked reassessment provisions instead of following correct statutory procedure for third-party search material. Following precedent in Saurashtra Color Tones case, tribunal quashed the reassessment proceedings and decided in favor of assessee.

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Issues:
Admission of additional legal ground for AY 2011-12 regarding the validity of proceedings initiated u/s. 147/148 of I.T. Act.

Analysis:
The appeal was filed against the order of CIT(A)-1 New Delhi for AY 2011-12. The assessee sought to raise an additional legal ground challenging the initiation of proceedings u/s. 147/148 of the I.T. Act. The AR argued that this ground, though not raised before the lower authorities, was crucial and could be decided based on existing records, citing judgments of the Hon'ble Supreme Court. The Senior DR opposed the admission of the additional ground.

Upon careful consideration, the Tribunal admitted the additional ground for adjudication, following precedents set by the Hon'ble Supreme Court. The AR relied on judgments of ITAT Delhi and other co-ordinate benches, emphasizing that the proceedings initiated under u/s. 147/148 were unwarranted and should have been under u/s. 153C due to the nature of the seized material from a third party. The AR's arguments were supported by various case laws, highlighting the applicability of Sec. 153C in such scenarios.

The Senior DR presented written submissions based on judgments of ITAT Ahmedabad and Pune, arguing that the Assessing Officer's jurisdiction under Sec. 153C required a specific intimation from the Assessing Officer of the relevant person. However, the Tribunal noted that the proceedings were indeed initiated based on information from a third party search, falling under the purview of Sec. 153C. The Tribunal referenced the Saurashtra Color Tones Pvt. Ltd. case to support the invalidity of proceedings under u/s. 147/148 and the necessity of action under Sec. 153C.

Considering the consistent view of various co-ordinate benches, the Tribunal held that the initiation of reassessment proceedings under u/s. 147/148 was invalid and quashed the reassessment and first appellate order. The Tribunal refrained from adjudicating on the merits of the assessee's grounds due to the relief granted on the legal issue. Consequently, the appeal was partly allowed, and the order was pronounced on 26.05.2023.

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