2024 (8) TMI 1626 - AT - Income Tax

Transfer under s.127(3) valid without consent; reassessment under s.147 invalid from third-party search-s.153C required; plot additions sent back for consideration

ITAT AHMEDABAD held that transfer of the assessee's case between officers within the same city under s.127(3) does not require the assessee's consent or a ... Transfer of assessee case from jurisdictional Assessing Officer to Central Circle without obtaining consent of the assessee u/s 127 - HELD THAT:- On perusal of the plain language of Section 127(3), in our view, the case of the assessee is squarely covered by these provisions and there is no statutory requirement of giving any opportunity of hearing to the assessee in terms of Section 127(3) of the Act, when the case of the assessee is transferred from ITO, Ward-2(3), Ahmedabad to Central Circle-1(2), Ahmedabad i.e. within the same city itself. We are also not able to place reliance on the judicial precedent cited by the Counsel for the assessee for two reasons. Firstly, the ITAT in the decision cited as Dharamshibhai H. Patel [2019 (7) TMI 15 - ITAT AHMEDABAD] by the assessee did not have any opportunity of analyzing the language of Section 127(3) of the Act to the assessee’s set of facts. Secondly, in our considered view in view of the specific language of Section 127(3) of the Act, in the event of assessee’s case being transferred from one officer to another Assessing Officer, within the same city, there is no requirement of giving any opportunity of hearing to the assessee. Accordingly, this ground of the assessee’s appeal is dismissed. Validity of reassessment proceedings u/s 147 or assessment u/s 153C - HELD THAT:- Where the AO proceeded to make additions in the hands on account of undisclosed investments on the basis of documents found during the course of search at third party premises, in our view, the correct course should have been to initiate proceedings u/s 153C after handing over the relevant material to the AO of the assessee rather that directly initiating proceedings u/s 147 of the Act. In the case of Jagjeet Singh [2024 (7) TMI 1132 - ITAT AMRITSAR] ITAT held that where assessee’s case was framed based on ledger account seized during search of another company which showed entries of unsecured loans, course of action was required to be taken under section 153C and not under section 148, and thus, subsequent revisionary proceedings invoked on ground that AO failed to make necessary enquiries in reassessment proceedings with respect to ledger account seized were based on invalid order and were without jurisdiction. Reference is also drawn to the judgment/decision of ITO vs. Vikram Sujitkumar Bhatia [2023 (4) TMI 296 - SUPREME COURT] and PCIT vs. Abhishar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] Thus, the ground of the assessee challenging the validity of reassessment proceedings under Section 147 is allowed. Addition with respect to four plots which have not been sold by the assessee - HELD THAT:- CIT(A) has considering the facts of the instant case and has held that when the booking of such flats had been cancelled, the booking amount had also been refunded by the assessee by way of account payee cheques and no sale of such plots of land had been affected by the assessee, then there is no question of taxing any unaccounted on-money receipts in the hands of the assessee. However, Ld. D.R. submitted that the assessee has filed certain additional evidences before Ld. CIT(A) in respect of which relief was afforded to the assessee without calling for Remand Report from the concerned Assessing Officer. Further, assessee has now filed additional evidences before ITAT which also require verification, by the Authorities below. Accordingly, looking into the instant facts, in the interest of justice, this issue is being restored to the file of Ld. CIT(A) for de-novo consideration. ISSUES PRESENTED AND CONSIDERED 1. Whether transfer of assessment jurisdiction within the same city without issuing a notice under the statutory provision governing transfer of cases (Section 127) renders subsequent proceedings invalid. 2. Whether reassessment initiated under Section 147/148 is valid where incriminating material relied upon originates from documents seized during a search at premises of a third party (including a corporate entity where a partner of the assessee also worked), or whether the specific regime of Sections 153C/153A exclusively governs such situations. 3. Whether satisfaction and formal handover/notice requirements under Section 153C are mandatory where incriminating documents are found at third-party premises and the Assessing Officer reopens assessment under Section 147 without invoking Section 153C. 4. Quantum/measure of taxable income on 'on-money' (undisclosed cash receipts) in sales of plots - whether entire on-money receipts can be taxed or whether net income should be determined by allowing expenses and estimating profit (contention for applying presumptive rate under Section 44AD or adopting a 15% net profit estimate adopted by the Tribunal). 5. Whether amounts received as booking deposits/on-money which were subsequently refunded (by account-payee cheques) and where sale was cancelled, remain taxable as undisclosed income or are correctly deleted. 6. Ancillary/contentious grounds (interest under Sections 234A/234B/234D) raised but not finally adjudicated where primary jurisdictional issue is determinative. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of transfer of jurisdiction within same city under Section 127 Legal framework: Section 127 permits transfer of cases by higher authorities; sub-section (3) provides that where transfer is between Assessing Officers whose offices are situated in the same city/locality/place, no opportunity need be given to the assessee. Precedent treatment: The Tribunal examined cited precedents relied on by the assessee but found them distinguishable on facts and not addressing the specific language of Section 127(3). Interpretation and reasoning: The Tribunal applied the plain language of Section 127(3). Since the transfer in question was from one assessing officer to another within the same city, no statutory requirement arose to give prior notice or hearing to the assessee. The assessee's conduct of responding to notices from the transferee Assessing Officer (filing return and participating) further negated prejudice. Administrative centralisation of related group cases for uniformity was held acceptable. Ratio vs. Obiter: Ratio - where transfer is within the same city, Section 127(3) negates requirement of prior opportunity; similar earlier decisions not directly applicable where they did not consider the specific statutory provision. Conclusion: Transfer within same city was valid and did not vitiate subsequent proceedings; ground raised on this basis dismissed. Issue 2: Requirement to proceed under Section 153C (and 153A) where incriminating material found at third-party premises; legality of proceeding under Section 147/148 Legal framework: Section 153C (read with 153A) is a specific code dealing with assessment/reassessment where books/documents seized during a search in respect of one person pertain to another; Section 153C contains a non obstante clause overriding specified provisions (including Sections 147/148) and prescribes handover and proceedings by the Assessing Officer having jurisdiction over the other person. Precedent treatment: The Tribunal reviewed a number of authorities (including higher court and tribunal decisions) which consistently hold that where incriminating material is seized from third-party premises, the proper procedure is under Section 153C/153A; issuing a notice under Section 148 and reassessing under Section 147 in such cases is void/without jurisdiction. Interpretation and reasoning: The Tribunal first rejected Revenue's contention that search at the premises of a partner equals search at the firm; emphasising that the partnership firm is a separate assessable person under the Act, a search at the partner's/corporate office of a related entity is effectively a search at third-party premises. Factually, the incriminating documents were seized at the corporate office of the group entity, not at the assessee's own premises. Given the non obstante clause and the object of Section 153C, the specific procedure mandated there is exclusive and precludes reopening under Section 147/148 based solely on seized third-party material. The Tribunal held that additions based only on documents seized from third party premises should have been made after following Section 153C; therefore reassessment under Section 147/148 was held invalid. Ratio vs. Obiter: Ratio - where incriminating material relied upon originates from documents seized during search of third-party premises, the Assessing Officer must follow Section 153C (and 153A) procedure; resort to Section 147/148 in such circumstances is improper and liable to be set aside. Conclusion: Reassessment proceedings initiated under Section 147/148 based solely on materials seized at third-party premises were invalid; the assessee's challenge succeeded and reassessment was quashed for the relevant years (consequentially other grounds not adjudicated for those years). Issue 3: Necessity of recording satisfaction/notice under Section 153C where seized material pertains to assessee Legal framework: Section 153C requires the Assessing Officer seized the books/documents be handed over to the Assessing Officer having jurisdiction over the other person once he is satisfied that seized material pertains to that other person; thereafter proceedings under Section 153A follow. Precedent treatment: Authorities uniformly interpret the satisfaction and handover/notice requirements as integral to the Section 153C scheme. Interpretation and reasoning: The Tribunal emphasised that where the material originates from third-party premises, the procedural safeguards under Section 153C (satisfaction, handover to jurisdictional AO, issue of notices) must be followed. It rejected the Revenue's view that prior satisfaction/hand-over was unnecessary where the assessee's own AO reopened under Section 147 after analysing seized material. The Tribunal found the statutory scheme specific and mandatory. Ratio vs. Obiter: Ratio - satisfaction and the handover/notice processes under Section 153C are mandatory where the seized material originates from third-party premises; failure to follow this procedure renders subsequent Section 147/148 proceedings improper. Conclusion: The requirement to use Section 153C was mandatory and non-compliance invalidated the reassessment route adopted by the Department. Issue 4: Taxation/estimation of on-money receipts - full addition versus allowing expenses / presumptive computation Legal framework: Principles require taxing the element of income; where undisclosed receipts are linked to business sales, the assessee's contention was to tax net income (after allowable expenses), with reliance on presumptive rate regime under Section 44AD; Revenue argued that on-money over and above documented price should be fully taxable without separate expense allowance. Precedent treatment: The appellate authority examined and applied judicial precedents and precedential practice to estimate net profit on undisclosed receipts where necessary. Interpretation and reasoning: The Tribunal (through the lower appellate authority reproduced in the order) accepted that only the income element of on-money should be taxed and that expenses relatable to the documented transaction are already reflected in contract/document price; however factual/precedential analysis led to adopting a pragmatic estimate of net profit at 15% on undisclosed on-money receipts for the years where reassessment was otherwise permitted to stand (or where Section 153C procedure was applied). The Tribunal partly accepted the assessee's plea and reduced additions by applying a 15% net profit estimation rather than taxing gross on-money in full or applying the assessee's claimed 8% under presumptive scheme in the specific circumstances. Ratio vs. Obiter: Ratio (in context of facts) - where on-money receipts are proved and relate to sales, taxable element may be estimated by applying an appropriate net profit percentage rather than taxing gross receipts outright; a 15% estimate was applied on the facts before the Tribunal. This is fact-dependent and not a universal rule. Conclusion: Additions were reassessed to reflect a 15% net profit on on-money receipts in the relevant years where applicable; departmental appeals on this estimation were dismissed in light of the Tribunal's approach (except where specific issues were remanded for fresh adjudication). Issue 5: Refunded booking amounts and deletion of additions where sale cancelled Legal framework: Where receipt is subsequently refunded and the sale is not consummated, the proprietary and income character of the amounts requires examination; documentary and bank evidence is relevant. Precedent treatment: The lower appellate authority accepted documentary evidence of refund (account-payee cheques, bank entries, ledgers) and held that no taxable event arose if sale was cancelled and amounts returned. Interpretation and reasoning: The Tribunal observed that the appellate authority found ledger and bank evidence that booking amounts for specific plots were refunded in full and that the plots were not sold. The Revenue's contention about additional evidence and need for verification led the Tribunal to restore the matter to the lower authority for de novo consideration in the interest of justice. Ratio vs. Obiter: Ratio - where documentary and banking evidence establishes refund of booking amounts and cancellation of sale, additions based on those amounts can be deleted; however, when fresh evidence is filed, verification by Assessing Officer/CIT(A) may be required. Conclusion: Deletion of additions in respect of refunded/cancelled bookings was sustained at appellate stage but remanded for verification of additional evidence where necessary; departmental challenge restored the issue for reconsideration. Issue 6: Interest on tax (Sections 234A/234B/234D) and other ancillary issues Legal framework: Interest provisions apply based on tax liability and timing; however their adjudication depends on determination of substantive tax liability. Interpretation and reasoning: The Tribunal noted that where jurisdictional/primary issues (validity of reassessment under Section 147 versus Section 153C) were determinative, interest issues remained consequential and were not adjudicated where reassessment was set aside. In some years the CIT(A) had allowed relief on certain grounds and interest pleas were left to be adjudicated consequentially. Ratio vs. Obiter: Obiter/consequential - interest issues are to be addressed after resolution of primary tax determination; no independent ratio laid down on these provisions in the instant order. Conclusion: Interest issues were not finally adjudicated where the primary jurisdictional determination disposed of the reassessment; consequential adjudication to follow as appropriate.