2025 (9) TMI 1704 - AT - Income Tax

Reassessment under section 147 r.w.s. 143(3) quashed as proceedings should have been initiated under section 153C; assessment set aside

ITAT PUNE held the reassessment under section 147 r.w.s. 143(3) invalid and quashed it, finding that the proceedings arose from information unearthed ... Validity of assessment proceedings which has been carried out u/s. 147 r.w.s. 144 - information unearthed during a search u/s 132 at the premises of a third party HELD THAT:- This Tribunal vide order [2024 (9) TMI 1715 - ITAT PUNE] after considering earlier decision of this Tribunal in the case of ITO Vs. Narendra Sampatlal Bafna[2024 (8) TMI 1536 - ITAT PUNE] has held that proper course by the Assessing Officer should have been under the provisions of section 153C of the Act and not under the provisions of section 147 of the Act as the case has been reopened on the basis of information that emerged at the time of search at the premises of RMM. This Tribunal thus allowed the additional ground raised by the assessee challenging the validity of assessment proceedings and quashed the assessment order u/s. 147 r.w.s. 143(3) of the Act . I find that the above decision of this Tribunal is squarely applicable on the facts of the instant case wherein also the proceedings have been carried out on the basis of information pertaining to the assessee unearthed during the course of search and therefore respectfully following the above decision in the case of Vijaykumar Mangilalji Chordiya (supra) hold that the assessment proceedings in question deserves to be quashed as they have not been carried out u/s. 153C of the Act. Ground No. 1 raised by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether reassessment proceedings initiated under section 147 read with section 148 are valid where the only basis for reopening is information unearthed during a search under section 132 at the premises of a third party. 2. Whether, on the facts where reassessment was initiated on information revealed in a search of another entity, the proper statutory route is initiation under section 153C (and not section 147), and whether failure to follow section 153C vitiates the proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening under section 147/148 where information emerged during search under section 132 of a third party Legal framework: Section 132 authorises search and seizure; information obtained during such search may reveal material relating to other persons. Section 147 empowers reopening of assessments where escapement of income is believed. Section 148 is the notice mechanism to initiate proceedings under section 147. Section 153C provides a specific procedure for dealing with income, assets or documents of any person found during a search of another person, including power to make assessment in respect of such person. Precedent treatment: The Tribunal has in prior decisions held that when reassessment is founded on material or information emerging during a search of a third party, the statutory scheme contemplates the invocation of section 153C rather than ordinary reopening under section 147; those prior conclusions were applied by the Tribunal in the present matter. The present decision follows those precedents. Interpretation and reasoning: The Tribunal reasoned that information unearthed during a search of a third party is distinguishable from information discovered by routine inquiries or independent developments; the legislature provided section 153C as the exclusive and special procedure to address assessments arising from material located in the course of search of others. Initiating reassessment under section 147/148 on the basis of such search-derived information circumvents the safeguards and procedural requirements embodied in section 153C and therefore is not the proper course. Ratio vs. Obiter: The finding that reassessment founded on information obtained in a search of a third party must be undertaken under section 153C (and not under section 147) is a ratio decidendi of the decision. The application of this principle to quash the reassessment carried out under section 147/148 on that factual foundation constitutes the operative ratio. Any observations about alternative grounds or merits of additions raised but not adjudicated are obiter. Conclusion: The Tribunal held that reopening under section 147 read with section 148 is not valid where the only basis is information obtained in a search under section 132 at the premises of a third party; the assessment made on that basis is quashed for failure to invoke section 153C. The ground challenging validity of the reassessment is allowed. Issue 2 - Effect of quashing the assessment on substantive additions (e.g., additions under section 69) and other procedural objections Legal framework: Additions under section 69 relate to unexplained investments; procedural preconditions for valid assessment determine whether merits may be considered. A determination that the mode of initiating assessment was invalid generally forestalls adjudication on substantive additions, which become academic unless and until valid proceedings are initiated. Precedent treatment: The Tribunal applied prior rulings which establish that when the foundational jurisdictional defect is found (improper statutory route for reopening), adjudication on subsequent substantive grounds need not be undertaken and are rendered academic. Interpretation and reasoning: Given the Tribunal's conclusion that the reassessment was vitiated for not following section 153C, any examination of the merits of specific additions (such as unexplained cash deposits treated under section 69) would be consequential and premature. Similarly, other procedural objections (for example, alleged failure to issue notices under section 143(2) after return filing) were not adjudicated because the primary jurisdictional defect disposed of the appeal. Ratio vs. Obiter: The proposition that substantive grounds become academic once a jurisdictional defect quashes the assessment is part of the decision's applied ratio on relief. Detailed commentary on the merits of the unexplained investment addition or on the auxiliary procedural objection was not decided and is obiter. Conclusion: The Tribunal did not decide on the correctness of substantive additions or peripheral procedural complaints because the assessment was quashed for failure to invoke the specific statutory procedure (section 153C); those grounds remain academic in the present appeal. Disposition The Tribunal allowed the challenge to the reassessment on jurisdictional grounds and quashed the assessment proceedings carried out under section 147/148 that were founded on information obtained during a search of a third party; consequential and substantive grounds were not adjudicated as they became academic.