ITAT upholds reassessment under Sections 147/148 over 153C, remands unexplained money and expenditure additions under 69A/69C

ITAT Ahmedabad held that reassessment u/s 147 r.w.s. 148 was valid where the AO independently recorded reasons based on information regarding bogus long-term capital gains, despite a search on a third party. Since the AO did not rely solely on material seized in the third-party search, the assessee's contention that proceedings ought to have been initiated u/s 153C was rejected, and Grounds 2 and 3 were dismissed. However, in respect of additions u/s 69A and 69C, ITAT observed that CIT(A) had not examined the merits or the evidentiary material produced. The issue of such additions was remanded to CIT(A) for fresh adjudication in accordance with law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings initiated under section 147 on the basis of information emanating from search proceedings in another case were invalid for want of recourse to section 153C.

1.2 Whether notices under section 148 (and related orders under section 148A) issued by the jurisdictional Assessing Officer in physical charge, post Notification No. 18 of 2022 dated 29.03.2022, were invalid for non-adherence to the faceless, automated allocation procedure.

1.3 Whether the Assessing Officer lacked valid jurisdiction for initiating reassessment under sections 147/148, rendering the consequential assessment orders and demands void.

1.4 Whether dismissal of appeals by the appellate authority for non-prosecution, without adjudication on merits and without considering evidence, was legally sustainable.

1.5 Whether delay in filing the appeal for a particular assessment year, explained on account of serious illness (cancer treatment), deserved condonation.

1.6 Consequential relief and directions on issues relating to additions under sections 69A and 69C, where no adjudication on merits was carried out by the appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment under section 147 where information emanates from search in another case vis-à-vis section 153C

Interpretation and reasoning

2.1 The Tribunal noted that reassessment under section 147 was initiated based on information that the assessee had received accommodation entries in the form of bogus long term capital gains.

2.2 It was recorded that search and seizure action had been carried out in the "Kushal Group", but the Assessing Officer had conducted an independent enquiry and recorded independent reasons for reopening the assessee's case.

2.3 On these facts, the Tribunal held that the assessee's plea that only section 153C could be invoked, and hence section 147 could not be resorted to, "does not come in picture".

Conclusions

2.4 Reassessment initiated under section 147 on the basis of information emanating from search in another case, supported by independent enquiry and recorded reasons, is valid; section 153C need not necessarily be invoked in such circumstances.

2.5 Grounds challenging the validity of notice under section 148 on the footing that section 153C was the only permissible route were dismissed for all assessment years.

Issue 2: Validity of notices under section 148 issued by jurisdictional Assessing Officer in alleged contravention of Notification No. 18 of 2022 and faceless regime

Legal framework (as discussed)

2.6 The assessee contended that, in view of Notification No. 18 of 2022 dated 29.03.2022, notices under section 148 must be issued through automated allocation and in a faceless manner, and that issuance by the jurisdictional Assessing Officer in physical charge was in direct contravention of the said Notification.

Interpretation and reasoning

2.7 For the relevant assessment years where this plea was raised, the Tribunal held that the Assessing Officer had "rightly invoked section 147 by following due procedure as the Income Tax Law".

2.8 No specific infirmity in the procedure adopted by the Assessing Officer was found by the Tribunal on the facts before it, and the assessee's technical objections on this count were rejected.

Conclusions

2.9 Notices under section 148 issued by the jurisdictional Assessing Officer and the consequent reassessment proceedings were upheld as valid; the challenge based on alleged violation of Notification No. 18 of 2022 and faceless procedure was rejected.

2.10 Grounds alleging that notices and orders under sections 148/148A were nullities for this reason were dismissed.

Issue 3: Challenge to jurisdiction of the Assessing Officer to initiate reassessment under sections 147/148

Interpretation and reasoning

2.11 The assessee raised general grounds that the Assessing Officer lacked valid jurisdiction for issuance of notices under section 148 and for passing orders under sections 144/144B read with section 147.

2.12 The Tribunal, after noting that reasons had been recorded and requisite approvals obtained, accepted the Revenue's position that section 147 had been properly invoked based on information of escapement of income.

2.13 In the absence of demonstrated procedural or substantive jurisdictional defects, the Tribunal found no basis to invalidate the reassessment proceedings.

Conclusions

2.14 Jurisdictional challenges to the reassessment proceedings under sections 147/148 were rejected for all assessment years.

2.15 Grounds alleging lack of jurisdiction, and consequent invalidity of assessment orders and demand notices, were dismissed.

Issue 4: Legality of dismissal of appeals by the appellate authority for non-prosecution without adjudication on merits

Interpretation and reasoning

2.16 For all assessment years, the appellate authority had dismissed the appeals essentially for non-prosecution, without rendering findings on the merits of the additions.

2.17 In particular, for one assessment year, the assessee contended that no notices were received at the email address mentioned in Form 35; and in general, it was noted that the appellate authority had not taken cognizance of documentary evidence filed before the Assessing Officer and had not examined the issues on merits.

2.18 The Tribunal observed that there was no discussion or finding by the appellate authority on additions made under sections 69A and 69C, nor on the evidences relevant to such additions.

2.19 Considering these circumstances, the Tribunal found it appropriate that the issues on merits be remanded to the appellate authority for proper verification and adjudication, with due observance of principles of natural justice.

Conclusions

2.20 Dismissal of the appeals by the appellate authority for non-prosecution, without adjudication on merits and without dealing with the evidence, was held unsustainable.

2.21 Issues on merits, including those relating to additions under sections 69A and 69C, were remanded to the appellate authority for fresh adjudication in accordance with law, after affording adequate opportunity of hearing.

Issue 5: Condonation of delay in filing appeal on account of serious illness

Interpretation and reasoning

2.22 For one assessment year, the appeal before the Tribunal was filed belatedly.

2.23 The assessee furnished substantive details regarding his cancer treatment as explanation for the delay.

2.24 The Tribunal, having considered the medical circumstances as constituting sufficient cause, decided to condone the delay.

Conclusions

2.25 Delay in filing the appeal for the concerned assessment year was condoned in view of the assessee's serious illness and the supporting details relating to cancer treatment.

Issue 6: Consequential treatment of additions under sections 69A and 69C

Interpretation and reasoning

2.26 The Assessing Officer had made additions treating alleged long-term capital gains as unexplained money under section 69A and further additions under section 69C at a percentage of such receipts.

2.27 The appellate authority had either dismissed the appeals ex parte or for non-prosecution, without adjudicating these additions on merits.

2.28 The Tribunal did not enter into the merits of these additions in view of the incomplete adjudication by the appellate authority and instead directed reconsideration by that authority.

Conclusions

2.29 All grounds relating to the quantum and merits of additions under sections 69A and 69C were restored to the file of the appellate authority for fresh decision on merits.

2.30 For each assessment year, the appeals were treated as partly allowed for statistical purposes, to the limited extent of remand on merits while upholding the validity of reassessment proceedings.

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