2024 (7) TMI 1560 - AT - Income Tax

Reassessment under section 147 quashed when based on third party seized material requiring section 153C proceedings instead

ACIT, Circle-46 (1), New Delhi. Versus Shri Deepak Gambhir

ITAT Delhi upheld CIT(A)'s decision quashing reassessment proceedings under section 147. The tribunal held that when additions are based on incriminating ... Validity of reassessment proceedings u/s 147 v/s 153C - seized material from third party - HELD THAT:- Addition has been made based on incriminating material found in the course of search of M/s Alankit Group as information pertaining to the assessee herein. Hence, the same becomes a search material/ incriminating material found during the course of search of M/s Alankit Group which pertains to assessee herein. Hence, the right course of action to be initiated on the assessee qua such incriminating material would be initiation of proceedings u/s 153C of the Act and not u/s 147 of the Act. This has been rightly addressed by the CIT(A) while deleting the addition in the hands of the assessee. We find that the issue in dispute is squarely covered by the decision of Sri Dinakara Suvarna [2022 (7) TMI 800 - KARNATAKA HIGH COURT] wherein it was held that the provisions of section 153C of the Act are pari materia with Section 158BD of the Act (erstwhile block assessment proceedings under Chapter XIVB of the Act). Hence, the ratio laid down in the case of Manish Maheshwari [2007 (2) TMI 148 - SUPREME COURT] referred in the context of section 158BD proceedings shall apply mutatis mutandis to Section 153C proceedings also. In the facts of the case before the Hon’ble Karnataka High Court, the ld AO in his order had held that reasons formed to reopen the assessment on the basis of assessee’s voluntary depositions and seized materials are in order and further that assessee’s objection on that aspect has been rejected by his order dated 07.06.2010. Admittedly, no proceedings were initiated u/s 153C of the Act thereon and hence there was patent non-application of mind on the part of the ld AO. Accordingly assessment was duly quashed by the Hon’ble Karnataka High Court. It is further noted that the Special Leave Petition (SLP) preferred by the revenue against this decision was dismissed by the Hon’ble Supreme Court in [2023 (6) TMI 1175 - SC ORDER] Thus we hold that the CIT(A) had rightly quashed the reassessment proceedings u/s 147 of the Act in the facts and circumstances of the instant case. We do not find any infirmity in the said order. Accordingly, the grounds raised by the revenue are dismissed Issues Involved:1. Differentiation between information received on the basis of seized material under Section 148 and seized material under Section 153C of the Income-tax Act, 1961.2. Necessity of satisfaction note by the Assessing Officer (AO) of the searched person for initiating proceedings under Section 153C.3. Requirement of sending the satisfaction note of the AO of the searched person to the AO of the assessee.4. Scope limitation of assessment/re-assessment under Section 147 based on information received from seized material.5. Validity of reassessment proceedings initiated under Section 147 instead of Section 153C.Detailed Analysis:1. Differentiation between Sections 148 and 153C:The primary issue was whether the Ld. CIT(A) erred in distinguishing between information received on the basis of seized material under Section 148 and seized material under Section 153C. The Tribunal observed that the incriminating material was found during the search of M/s Alankit Group, which pertained to the assessee. Hence, the correct course of action would be to initiate proceedings under Section 153C rather than Section 147. The Tribunal supported this view by citing various judicial precedents, which held that Section 153C supersedes the applicability of Sections 147 and 148 when dealing with incriminating material found during a search.2. Necessity of Satisfaction Note:The Tribunal examined whether the satisfaction note drawn by the AO of the searched person is a necessary requirement for initiating proceedings under Section 153C. It was noted that the absence of such a satisfaction note being communicated to the AO of the assessee was a procedural lapse. The Tribunal reiterated that the satisfaction note is crucial for the validity of proceedings under Section 153C, as established by judicial precedents.3. Requirement of Sending Satisfaction Note:The Tribunal addressed the issue of whether the satisfaction note of the AO of the searched person should have been sent to the AO of the assessee. It was found that the lack of communication of the satisfaction note constituted a procedural irregularity, impacting the legality of the proceedings under Section 153C.4. Scope Limitation under Section 147:The Tribunal considered whether the Ld. CIT(A) overlooked the fact that there are no provisions limiting the scope of assessment/re-assessment under Section 147 in cases arising from information received on the basis of seized material. The Tribunal clarified that when incriminating material is found during a search, the appropriate section for assessment is Section 153C, which excludes the application of Section 147. This interpretation was consistent with the judicial precedents cited, which emphasized the non-applicability of Section 147 when Section 153C is applicable.5. Validity of Reassessment Proceedings:The Tribunal concluded that the reassessment proceedings initiated under Section 147 were void ab initio, as they should have been conducted under Section 153C. The Tribunal supported the Ld. CIT(A)'s decision to quash the reassessment proceedings, aligning with the judicial precedents that invalidated reassessment under Section 147 when Section 153C was applicable. The Tribunal cited the decision of the Hon'ble Karnataka High Court, which was upheld by the Hon'ble Supreme Court, reinforcing the necessity of following the correct procedural framework under Section 153C.Conclusion:The Tribunal upheld the decision of the Ld. CIT(A) to quash the reassessment proceedings under Section 147, affirming that the correct procedure was not followed. The appeal of the revenue was dismissed, and the reassessment was deemed void ab initio due to procedural lapses in not adhering to Section 153C. The Tribunal did not find it necessary to adjudicate other arguments on the merits of the addition, as the reassessment itself was invalidated.