2024 (7) TMI 1132 - AT - Income Tax

Reassessment under Section 147 wrongly invoked where material from search required Section 153C; Section 263 order quashed

ITAT AMRITSAR held that reassessment proceedings under section 147 were wrongly invoked where the case was framed on material found in search and the ... Revision u/s 263 - Validity of order passed by the Ld. AO u/s 147 r.w.s 144B - course of action was required to be taken u/s 153C OR 148 - appellant was reopened u/s 147 after getting approval u/s 151 and notice u/s 148 was issued requiring the assessee to file income tax return - HELD THAT:- We find that the whole case has been framed based on material found during the search. Meaning thereby, the course of action was required to be taken u/s 153C and not u/s 148. This view has been accepted Sri Dinakara Suvarna [2023 (6) TMI 1175 - SC ORDER] - In our view, the AO has erred in invoking the reassessment proceedings u/s 147 and as such, the subsequent cause of action based on invalid order is held to be without jurisdiction. Our view gets support from the judgment delivered in the case of Badal Prakash Jindal [2023 (3) TMI 268 - ORISSA HIGH COURT] The revenue in the present case has not been able to prove as to how the order passed by the Assessing officer was erroneous and prejudicial to the interests of the revenue as the PCIT has not been able to prove non-application of mind by the AO particularly considering the fact that the order of Kapil Romanna was passed on 29.09.2021 and that the order of the appellant u/s 147 was passed on 24.03.2022 after considering the order of Kapil Romanna. It has been stated by the AO of Kapil Romanna in the said order passed u/s 153A that he has failed to identify the parties from whom the unsecured loan was raised. It is also mentioned that no PAN No, address and other details were furnished by Kapil Romanna. Consequently, Kapil Romanna has never identified the parties from whom the loan was raised, and the addition has been made in his hands u/s 68. Mere allegation that the AO has passed the order without application of mind would not be legally justified to set aside the assessment order by way of invoking section 263 of the Act. Considering the factual matrix and the judicial precedents, we do not concur with the PCIT that the AO did not verify the transactions appearing in the ledger account seized during search on Homeland group and that the order was passed without application of mind. Accordingly, we hold that the PCIT finding, and observation are infirm and perverse to the facts on record. Therefore, we hold that this is not a fit case for invoking the provisions of section 263 of the Act. We hold that the order passed under section 263 is bad in law and it is quashed. Decided in favour of assessee. Issues Involved1. Legality and jurisdiction of the order passed under section 263 of the Income Tax Act.2. Validity of the assessment order passed under section 147 based on unsigned reasons.3. Appropriateness of invoking section 147 instead of section 153C for reassessment based on material found during a search.4. Adequacy of inquiries conducted by the Assessing Officer (AO) and whether the assessment order was erroneous and prejudicial to the interests of the revenue.Detailed Analysis1. Legality and Jurisdiction of the Order Passed Under Section 263The appellant argued that the order passed under section 263 by the Principal Commissioner of Income Tax (PCIT) was illegal, bad in law, and without jurisdiction. The appellant contended that the assessment order passed under section 147 read with section 144B was neither erroneous nor prejudicial to the interests of the revenue. The PCIT initiated proceedings under section 263 alleging that the AO failed to carry out necessary inquiries and verification on unexplained cash transactions. The tribunal found that the PCIT's order was based on incorrect facts and failed to conduct an independent inquiry, rendering the order under section 263 bad in law.2. Validity of the Assessment Order Passed Under Section 147 Based on Unsigned ReasonsThe appellant challenged the validity of the assessment order passed under section 147, arguing that it was based on unsigned reasons recorded by the AO, making it without jurisdiction and bad in law. The tribunal examined the reasons recorded and found them to be unsigned. The tribunal referred to case laws, including the judgment of the Bombay High Court in the case of Great Eastern Shipping Co. Ltd., which emphasized that unsigned reasons cannot be regarded as final and violate procedural norms. Consequently, the tribunal held that the original assessment order was invalid, and all subsequent proceedings were void ab initio.3. Appropriateness of Invoking Section 147 Instead of Section 153CThe appellant argued that the reassessment should have been initiated under section 153C, not section 147, as the assessment was based on material found during a search. The tribunal agreed with the appellant, noting that the whole case was framed based on material found during a search. The tribunal cited various case laws, including the Supreme Court's judgment in Deputy Commissioner of Income-tax v. Sri Dinakara Suvarna, supporting the view that the proper course of action was under section 153C. Thus, the tribunal held that the original assessment under section 147 was without jurisdiction, rendering the subsequent proceedings under section 263 invalid.4. Adequacy of Inquiries Conducted by the AOThe appellant contended that the AO had conducted thorough inquiries and verification during the assessment proceedings. The tribunal examined the documents submitted by the appellant, including income tax returns, bank statements, audit reports, and cash books, and found that the AO had duly examined these documents. The tribunal referred to various case laws, including Meerut Roller Flour Mills (P.) Ltd v Commissioner of Income tax, which held that jurisdiction under section 263 could not be exercised where the AO had made proper inquiries. The tribunal concluded that the AO's view was a plausible one and that the assessment order was neither erroneous nor prejudicial to the interests of the revenue.ConclusionThe tribunal held that the order passed under section 263 was bad in law and quashed it. The tribunal found that the original assessment under section 147 was invalid due to unsigned reasons and that the proper course of action should have been under section 153C. The tribunal also concluded that the AO had conducted adequate inquiries, and the assessment order was not erroneous or prejudicial to the interests of the revenue. Consequently, both appeals filed by the assessee were allowed.