Reopening assessment under Section 147 invalid when based on third party search materials, only Section 153C applies

ITAT Delhi held that reopening assessment under Section 147 based on materials found during search of third party premises is invalid. When documents relating to assessee are discovered during search of third party (Jain brothers), assessment can only be made under Section 153C, not through reopening proceedings under Sections 147/148. The tribunal ruled that initiation of proceedings under Section 148 based on third party search materials is legally unsustainable. Assessment was declared void ab-initio and quashed. Assessee's appeal allowed.

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Issues:
1. Condonation of delay in filing appeal.
2. Legality of initiation of proceeding under Section 147.
3. Jurisdiction of reassessment under Section 147.

Analysis:
1. The appeal was filed by the assessee against the order passed by the CIT(A)-28, New Delhi, arising from the Assessment order dated 28.12.2016. The appeal was delayed by 192 days, and the assessee sought condonation of delay citing reasons including company's name being struck off and revived in ROC records, disputes with the landlord, and ongoing proceedings before NCLT. The Tribunal found the reasons reasonable and condoned the delay, admitting the appeal.

2. The assessee challenged the initiation of proceedings under Section 147 and completion of assessment under Section 143(3) r.w.s 147, alleging lack of statutory pre-conditions. The Tribunal admitted the additional ground of appeal, citing a legal issue raised for the first time. The Tribunal considered the judgment of the Hon'ble Apex Court in National Thermal Power Company Ltd. Vs. CIT and admitted the ground, addressing it at the outset.

3. The case involved the reassessment of the assessee's income under Section 147 based on incriminating documents found during a search operation on Shri Surendra Kumar Jain group. The assessee contended that the reassessment should have been done under Section 153C instead of Section 147. The Tribunal noted that Section 153C mandates a specific procedure when incriminating material pertains to a person other than the one searched. Relying on legal precedents, the Tribunal found that the initiation of proceedings under Section 147 was not sustainable in law, as the incriminating material was related to a third party. Consequently, the reassessment under Section 147 was deemed void-ab-initio and quashed.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 18.11.2024.

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