TaxTMI 
TaxTMI 
2024 (11) TMI 1071
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....ction 147 read with Section 143(3) of the Act in respect of assessment year [AY] 2011-12 was dismissed. 3. The assessment of the Assessee's income chargeable to tax for the previous year relevant to the AY 2011-12 was reopened by issuance of a notice under Section 148 of the Act on the basis of information and evidence unearthed during the course of the search conducted on Shri Anand Kumar Jain and Shri Naresh Kumar Jain group on 17.12.2015. And, the Assessee's income was reassessed under Section 147 of the Act. 4. The learned ITAT held that the Assessing Officer [hereafter AO] was required to frame the assessment/reassessment under Section 153C of the Act and was precluded from proceeding under Section 147 of the Act. Accordingly, the learned ITAT set aside the assessment order for the aforesaid singular reason. QUESTION OF LAW 5. This Court by an order dated 20.03.2024 admitted the present appeal in respect of the following question of law: "Whether in the facts and circumstances of the case, the ITAT was correct in holding that provisions of section 153C have overriding effect on the provisions of section 147 of the Income Tax Act, 1961?" FACTUAL CONTEXT ....
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.... is relevant to note the reasons, as recorded by the AO in the assessment order dated 26.12.2018, for initiating the reassessment proceedings. The same are set out below: "1. In this case an information has been received from O/o ACIT, CC-26, new Delhi that during search and seizure operation on Anand Kumar Jain and Naresh Kumar Jain group of cases on 17.12.2015 (Jain Brothers entry operators). A large volume of documents were seized. On examination of the documents seized during the course of search and the bank statement of the shell companies obtained thereafter highlighted the name of Sh. Naveen Kumar Gupta as a major beneficiary of the Jain Brothers. The report states that Sh. Naveen Gupta was an accomplice of Jin Brothers in this illegal business for many years. The assessee has named all the companies created by Jain brothers as bogus companies which were managed only for the entry business. The report explains at length the entire procedure of giving / receiving an entry in lieu of cash from the various beneficiaries including the assessee. It is stated in the report that during 01.04.2009 to 31.03.2016, Sh. Naveen Kumar Gupta has taken entries from Jain b....
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....ssment of a person pursuant to material found during the search operations conducted under Section 132 on any other person or as a result of requisition made under Section 132A of the Act. And, since the provisions of Section 153C of the Act are special provisions, the same would override the other provisions relating to assessment/reassessment under the Act including Section 147 of the Act. He contended that since Section 153C of the Act sets out a specified procedure for conducting the assessment, the same cannot be side stepped. 16. Mr Rai, learned counsel appearing on behalf of the Revenue countered the said submission. He contended that the assessments were reopened not only on the basis of the material / information collected pursuant to search conducted in respect of Jain Brothers but also on the basis of the information received from the Investigation Wing. He also contended that since the material collected during the search did not belong to the Assessee, the proceedings under Section 153C of the Act could not have been initiated. 17. Mr Rai relied heavily on the decision of the Supreme Court in Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P....
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....g Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of Section 153A. Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub- section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue not....
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....ed to transmit the assets or documents belonging to the person other than the searched person to the AO of such other person. If the same was done, the third jurisdictional pre-requisite would stand satisfied. The AO of such other person was then required to examine the said material received by the AO of the searched person and if it was found that the same had a bearing on the determination of the income of such other person, the AO could proceed to issue a notice under Section 153C of the Act. 24. It is relevant to note that Section 153C of the Act was amended by virtue of the Finance Act, 2015 with effect from 01.06.2015. Prior to the said amendment, Sub-section (1) of Section 153 of the Act read as under: "153-C. Assessment of income of any other person.-(1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in Section 153-A, then, the books of account or documents or as....
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....atia 2023 SCC Online SC 370, the Supreme Court considered the question whether the amendment to Section 153C of the Act as enacted by virtue of the Finance Act, 2015 would also be applicable to searches conducted under Section 132 of the Act prior to 01.06.2015, that is the date on which the amended Section 153C of the Act came into force. The Supreme Court accepted that Section 153C of the Act is a machinery provision and the substituted provision would also apply in respect of searches conducted prior to 01.06.2015. 27. As noted above, the first jurisdictional condition to be satisfied for invoking Section 153C of the Act is the satisfaction of the AO of the searched person that the valuable articles, books of accounts or documents belong to a third party (a person other than the searched person) or contains information pertaining to the such other person. Once the AO of a searched person reaches to the said conclusion, he has to record his satisfaction and transmit the material to the AO exercising jurisdiction in respect of the third party. 28. At the stage of recording a satisfaction that the valuable articles or documents, which were found or requisitioned, belong to a ....
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....d to the person searched requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officer as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it doe....
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.... income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub- section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that ....
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....ee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act." 32. The decision in the case of Commissioner of Income Tax v. Kabul Chawla9 and Principal Commissioner of Income Tax v. Saumya Construction (P.) Ltd.10 were rendered in the context of Section 153A of the Act. It is relevant to note that although it was held that assessment/reassessment can be made only on the basis of incriminating material unearthed during the search or requisitioned yet it was accepted that in cases where search was conducted under Section 132 of the Act or requisition was made under Section 132A of the Act, it was necessary for the AO to issue a notice under Section 153A of the Act calling upon the assessee to furnish the return of income for the six assessment years preceding the assessment year relevant to the previous year in which the search was conducted or the requisition was made, as the case....
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....t is required to be issued. The relevant extract of the said decision is set out below: "40. It is thus apparent that it is only when the transmitted documents and material reaches the desk of the jurisdictional Assessing Officer that it becomes empowered to initiate action under Section 153C of the Act. This is evident from a plain textual reading of that provision and which speaks of the commencement point being the handing over of documents or assets seized or requisitioned to the Assessing Officer of the "other person" and it in turn proceeding to issue notice to assess or reassess the income of the non-searched entity in accordance with section 153A. However, the initiation of action under section 153C is significantly premised upon the Assessing Officer being satisfied that the books of account or documents and assets seized or requisitioned having "a bearing on the determination of the total income of such other person". This is manifest from the provision employing the expression "if, that Assessing Officer is satisfied.....". It would therefore necessarily follow that the issuance of a notice under Section 153C is clearly not intended to be an inevitable consequen....
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....on seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the "total income" for the entire six years' period/block assessment period. The intention does not seem to be to reopen the completed/unabated assessments, unless any incriminating material is found with respect to assessment year concerned falling within last six years preceding the search. Therefore, on true interpretation of Section 153-A of the 1961 Act, in case of a search under Section 132 or requisition under Section 132-A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the "total income" taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment ....
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....material. 14. In view of the above and for the reasons stated above, it is concluded as under: (i) That in case of search under Section 132 or requisition under Section 132-A, the AO assumes the jurisdiction for block assessment under Section 153-A; (ii) All pending assessments/reassessments shall stand abated; (iii) In case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the "total income" taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132-A of the 1961 Act. However, the completed/unabat....
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....that the said recourse is not open and it is necessary for the AO to follow the procedure as stipulated under Section 153C of the Act. 41. As noted above, the jurisdiction of the AO to reassess the income under Section 153C of the Act is predicated on (a) the AO of the searched person being satisfied that the assets and material found during the search proceedings or requisitioned are incriminating insofar as the assessee (other than the searched person) is concerned; (b) recording its satisfaction to the aforesaid effect; (c) transmitting the same to the AO of the other person (person other than the searched person); (d) the AO of the non-searched person being satisfied that the material information received has a bearing on the determination of the total income; and, (e) the AO of such non searched person issuing a notice to commence assessment / reassessment proceedings. Indisputably, if any of the aforesaid conditions are not satisfied, the income of such other person cannot be assessed or reassessed under Section 153C of the Act. According to the Assessee (and as accepted by ITAT), in such circumstances, the AO would also be precluded from initiating the proceedings under S....
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....of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. The main objectives for the introduction of the Chapter XIV-B were avoidance of disputes, early finalisation of search assessments and reduction in multiplicity of proceedings. The idea was to have a cost-effective, efficient and meaningful search assessment procedure. However, the experience on implementation of the special procedure for search assessments (block assessment) contained in Chapter XIV-B, has shown that the new scheme has failed in its objective of early resolution of search assessments. The new procedure postulates two parallel streams of assessment, i.e., one of regular assessment and the other for block assessment during the same period, i.e., during the block period Controversies have sprung up questioning the treatment of a particular income as 'undisclosed' and whether it is relatable to the material found during the course of se....
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....section 132A was executed. This section also provides the time limit for completion of assessment in respect of the assessment year relevant to the previous year in which the search is conducted under section 132 or requisition is made under section 132A within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed. It also provides that in computing the period of limitation for completion of such assessment or reassessment, the period during which the assessment proceeding is stayed by an order or injunction of any court, or the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section, or the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee of being reheard under the proviso to section 129, or in a case where an application made before the Settlement Commission under section 245C is r....
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....The Finance Act, 2003, has provided that the provisions of this Chapter shall not apply where a search is initiated under section 132, or books of account, other documents or any assets are requisitioned under section 132A after May 31, 2003, by inserting a new section 158BI in the Income-tax Act. 65.3 Further three new sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition. 65.4 The new section 153A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after May 31, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A. 65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. ....
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....ceeding or giving an opportunity to the assessee of being re-heard under the proviso to section 129, or in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing on the date on which such application is made and ending with the date on which the order under sub- section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded. If, after the exclusion of the aforesaid period, the period of limitation available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the period of limitation shall be deemed to be extended accordingly. 65.9 The new section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong or belongs to a person other than the person referred to in section 153A, then the books of account, or documents or assets seized or requisitioned ....
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....the "undisclosed income", and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the "undisclosed income" was chargeable to tax at a special rate of 60% under Section 113 whereas income other than "undisclosed income" was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, Section 153-A came to be inserted and brought on the statute. Under Section 153-A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the "undisclosed" income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153-A and in case of search, there shall be block assessment for six years. Search assessments/Block assessments under Section 153-A are triggered by conducting of a valid search under Section 132 of the 1961 Act. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of Sections 153-A/153-C is detection of undisclosed income by undertaking extraordinary power of search and seizure i.e. the income which cannot be detected in ordinary c....
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....way in spite of the contrary provisions contained in the non obstante clause. Therefore, the object and purpose of the enacting part should be first ascertained and then the assistance of the non obstante clause should be taken to nullify the effect of any contrary provision contained in the clause. 49. The enacting part of section 153A has three stipulations-(i) to issue notice calling for the returns of income for six assessment years (ii) to assess or reassess total income of each of the six assessment years and (iii) not to proceed with any pending assessment or reassessment as on the date of initiation of search as the same would abate. Since some of the provisions contained in the enacting part may come into conflict with the provisions contained in the non obstante clause, these impediments are removed by means of the non obstante clause. Thus, by enacting the non obstante clause in the section, the formalities of issuing notice under section 139, application of the provisions of section 147, 148, 149 or 151 for reopening a case for escaped assessment, taking of approval from the concerned authorities for reopening the assessment and the time limit for completion of....
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....3A of the Act. In terms of Section 153B(1) of the Act, assessment in respect of each of the six years, as referred to in Section 153A(b) of the Act, are required to be completed within the period of two years from the end of the financial year in which the last of the authorization for search under Section 132 of the Act or acquisition under Section 132A of the Act were executed. The assessment in respect of the year relevant to the previous year in which the search was conducted under Section 132 of the Act or requisition made under Section 132A of the Act is also required to be completed within the aforesaid period. 51. It is necessary to note that there is a clear distinction between the provisions of Sections 153A and 153C of the Act. The AO under Section 153 of the Act has the discretion to assume jurisdiction. If the jurisdictional conditions are satisfied, it is not necessary for the AO to assume jurisdiction in such cases. In Agni Vishnu Ventures Pvt. Ltd. v. Deputy Commissioner of Income Tax Judgement dated 28.06.2023 in W.P. No. 24407/2021, the Madras High Court had highlighted the difference between the provisions of Sections 153A and 153C of the Act. It is relevant t....
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....sidered view, there is a vital distinction between the object, intention as well as the express language of sections 153A and 153C. Section 153A addresses the searched entity and the procedure set out is evidently a notch higher for this reason. There is no discretion or condition precedent under section 153A to the issuance of notice save the conduct of a search under section 132 or making of a requisition under section 132A. Upon the occurrence of one of the aforesaid events, it is incumbent upon the officer to issue notice under section 153A to the searched entity in line with the procedure stipulated. 79. Section 153C however requires the satisfaction of two conditions prior to issuance of notice: (i) Recording of satisfaction by the Assessing Officer of the searched entities that some of the incriminating materials relate to a third party. (ii) Recording of satisfaction by the Assessing Officer of the third party that the incriminating materials have a bearing on the determination of the total income of that third party. 80. Notice under section 153C would have to be issued only upon the concurrent satisfaction of both conditions as aforesai....
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....re, and in- depth probing before such year-wise determination is possible. In such cases, the officer would be well within his right to state the nature of the issue and detail the difficulties that present themselves in precise bifurcation at that stage. This would reflect application of mind and, in my considered view, would serve as sufficient compliance with the statutory condition." 52. In the case of Saksham Commodities Ltd. v. Income-tax Officer & Anr.12, this Court had explained the distinction between Sections 153A and 153C of the Act. The relevant extracts of the said decision are as under: "37. Having noticed the rival contentions which were addressed, we firstly take note of the evident distinction that exists between section 153A and section 153C. They are clearly couched in language which is dissimilar. When we turn our gaze upon section 153A, it becomes apparent that where a search is initiated or documents and books requisitioned, the Assessing Officer is mandated to issue notice calling upon the searched person to submit a return of income in respect of each assessment year falling within the six assessment years' and for the "relevant assessment year".....
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.... seized or requisitioned having "a bearing on the determination of the total income of such other person". This is manifest from the provision employing the expression "if, that Assessing Officer is satisfied.....". It would therefore necessarily follow that the issuance of a notice under Section 153C is clearly not intended to be an inevitable consequence to the receipt of material by the jurisdictional Assessing Officer. That the Assessing Officer before commencement of action under Section 153C is also obliged to be satisfied that the material so received would "have a bearing on the determination of the total income of such other person" is an aspect of significance and constitutes a fundamental point of distinction between Section 153A and Section 153C. This distinguishing element of the two provisions would become further apparent from the discussion which ensues. 41. Firstly, and from a historical perspective of the legislation itself, we find that one of the significant amendments which came to be introduced in Section 153C was ushered in 2014. The Finance (No. 2) Bill, 2014, while seeking to explain the objective of the amendments which were proposed to be incorpo....
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....said Act that Section 153C came to incorporate provisions relating to the Assessing Officer being satisfied that the books of accounts, documents or assets seized or requisitioned must "have a bearing on the determination of the total income of such other person" for the six preceding assessment years' or the "relevant assessment year" as referred to in Explanation 1 to Section 153A. Prior to the promulgation of these amendments, the Assessing Officer of the non-searched party was not obliged to form an opinion that the material received by it was likely to impact the estimation of income of that person. Significantly, although this prerequisite came to be incorporated in Section 153C, no such corresponding precondition was included in Section 153A. This, although the legislative history of the search assessment provisions placed in the Act would indicate that they were amended from time to time in order to constitute a complete and homogeneous code. This becomes apparent from the legislative mandate of those two provisions being applicable to searches undertaken in a particular time period, the principles of abatement being replicated and the search assessment power being availabl....
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.... incriminating assets, material, books of account or documents are found (which either belongs to the assessee a person other than the searched person or contains information pertaining to the assessee), in a search conducted under Section 132 of the Act or requisition made under Section 132A of the Act in respect of another person. However, as stated above, the AO must be satisfied that the assets or material found or information contained in documents and books of account has a bearing on the income of the assessee for the six assessment years immediately preceding the AY relevant to the previous year in which the search was conducted or the requisition under Section 132A of the Act was made This is in terms of second proviso, which was inserted by Finance Act, 2012 with effect from 01.07.2012. By its very nature, Section 153C of the Act is an enabling provision, which enables the Assessing Officer to assume jurisdiction to assess/reassess the income of the Assessee, in cases where the jurisdictional conditions as set out in Section 153C are satisfied. The non obstante provision as contained in Section 153C(1) of the Act must necessarily be construed in the aforesaid context. ....
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....iding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this Court in South India Corpn. (P) Ltd. v. Secy., Board of Revenue, Trivandrum [(1964) 4 SCR 280 : AIR 1964 SC 207] . 68. It is well settled that the expression 'notwithstanding' is in contradistinction to the phrase 'subject to', the latter conveying the idea of a provision yielding place to another provision or other provisions to which it is made subject. This will be clarified in the instant case by comparison of sub-section (1) of Section 15 with sub- section (1) of Section 15-A. We are therefore unable to accept, with respect, the view expressed by the Full Bench of the Bombay High Court as relied on by the learned Single Judge in the judgment under appeal." 57. The aforesaid authorities clear....
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....ent/reassessment of the assessee's income for the stipulated period. The non obstante provisions do no come into play, if the AO does not take recourse to provision of Section 153C of the Act. 59. The non obstante clause as used in Section 153C of the Act cannot be read to completely exclude the provisions of Sections 143 or 147 of the Act in cases where the assessee's income is sought to be assessed inter alia on the basis of the information found during search proceedings. However, it will not be open for the AO to take recourse to Section 147 of the Act, where the AO has taken steps under Section 153C of the Act. Thus, if the conditions for exercise of jurisdiction under Section 153C of the Act are satisfied and the AO issues a notice as required under Section 153C of the Act, any reassessment under Section 147 of the Act would obviously, be impermissible. This is because the Act does not contemplate parallel assessment proceedings. Where the AO is satisfied that the assets, material and documents forwarded by the AO of the searched person under Section 153C of the Act has a bearing on determination of the income of the assessee for any of the years, the AO shall proceed to i....
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....ted petitions)1, the Rajasthan High Court had interpreted the non obstante clause of Sections 153A and 153C to have an overriding effect on the legal provisions for assessment / reassessment including under Sections 139,147,148, 149 and 153 of the Act. We are unable to concur that the said provisions are overridden merely on account of assets, books of account, documents and material being seized or requisitioned which either belong to or contain information regarding a person other than the one searched. If the AO does not exercise the jurisdiction under Section 153C of the Act, recourse to the normal provisions of assessment or reassessment are not foreclosed. The provisions of Section 153C of the Act are enacted for the purpose of simplifying the procedure in search cases. The import of such provisions cannot be to oust the recourse to the normal provisions, which in any event are available for assessment / reassessment of an income of an assessee. 63. The decision of the Patna High Court in Amit Kumar alias Amit Saraf v. Union of India3 relied upon by the learned counsel for the Assessee, was rendered in the context of Section 153A of the Act where the AO has to necessarily ....