2015 (10) TMI 1076 - AT - Income Tax

Reopening of assessment - CIT(A) concluded that the assessment framed under section 147 was bad in law inasmuch as the assessment ought to have been framed under section 153C of the Act read with section 153A - Held that - As the proceedings under section 153C of the Act was not completed and it was dropped at the threshold with the approval of the Addl. CIT. Therefore, there is no bar for the Department to take cognizance of the said incriminating material for other provisions of the Income-tax Act and the Assessing Officer accordingly examined those incriminating material and has formed a belief that income chargeable to tax has escaped assessment. Since the Assessing Officer has not applied his mind to frame the assessment on the basis of incriminating material under section 153C of the Act, it cannot be called that there is a change of opinion of the Assessing Officer while forming a belief under section 147 of a for reopening of the assessment. Since the reopening was done on the basis of material seized during the course of search and the said material was never used by the Income-tax authority for completing the assessment, there is no change of opinion of the Assessing Officer and therefore reopening is valid under section 147 of the Act. In the light of these facts, we do not find ourselves in agreement with the order of the ld. CIT(A) who has held that reopening of assessment to be illegal and quashed the entire assessment in all the assessment years - set aside the order of the ld. CIT(A) and restore matter to his file with a direction to re-adjudicate the issues raised before him on merit by passing a reasoned order. - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Legality of the assessment order passed under section 147 of the Income Tax Act.
2. Validity of proceedings under section 153C of the Income Tax Act.
3. Utilization of incriminating material found during an illegal search for reassessment purposes.
4. Jurisdiction of the Assessing Officer to reopen assessments based on seized materials.
5. Application of judicial precedents on the change of opinion and reassessment.

Detailed Analysis:

1. Legality of the Assessment Order Passed Under Section 147:
The Revenue challenged the CIT(A)'s decision to annul the assessment order passed under section 147, arguing that the Assessing Officer (AO) had lawfully initiated proceedings under section 147 after obtaining the necessary approval from the Commissioner of Income Tax. The Tribunal noted that the AO had formed a belief that the income chargeable to tax had escaped assessment based on incriminating documents found during a search. The Tribunal concluded that since the AO did not complete the assessment under section 153C and had not applied his mind to the incriminating material found, the initiation of proceedings under section 147 was valid. Thus, the reopening of the assessment under section 147 was upheld as lawful.

2. Validity of Proceedings Under Section 153C:
The CIT(A) had annulled the assessment order, stating that the assessment should have been framed under section 153C read with section 153A. The Tribunal observed that the search warrant was issued in the name of a non-existent entity, M/s Shivam Granodyog Pvt. Ltd., making the search invalid. Consequently, the AO dropped the proceedings under section 153C due to the inability to record satisfaction in the name of a non-existent entity. The Tribunal agreed with this view, noting that the proceedings under section 153C could not be initiated without a valid search and the necessary satisfaction.

3. Utilization of Incriminating Material Found During an Illegal Search:
The Revenue contended that even if the search was illegal, the material found could still be used for assessment purposes. The Tribunal supported this argument, citing judicial precedents such as the Hon'ble Allahabad High Court's decision in Dr. Sharad B Sahai and the Hon'ble Supreme Court's ruling in Pooran Mal vs. Director of Inspection. These judgments established that materials seized during an illegal search could be utilized for regular or reassessment purposes. Therefore, the Tribunal held that the incriminating material found during the search could be used against the assessee.

4. Jurisdiction of the Assessing Officer to Reopen Assessments Based on Seized Materials:
The Tribunal examined whether the AO had jurisdiction to reopen assessments based on the seized materials after dropping the section 153C proceedings. It was found that the AO did not apply his mind to the seized materials for framing an assessment under section 153C, as the proceedings were dropped at the threshold. Consequently, the AO had jurisdiction to re-examine the seized materials and form a belief that income had escaped assessment, justifying the reopening under section 147.

5. Application of Judicial Precedents on Change of Opinion and Reassessment:
The assessee argued that reopening the assessment amounted to a change of opinion, which is not permissible. The Tribunal distinguished the present case from other judicial precedents cited by the assessee, noting that in those cases, the AO had completed assessments under section 153C or similar provisions. In the present case, the assessment under section 153C was never completed, and the AO did not apply his mind to the seized materials for that purpose. Therefore, the Tribunal concluded that there was no change of opinion, and the reopening under section 147 was valid.

Conclusion:
The Tribunal set aside the CIT(A)'s order, which had annulled the assessment under section 147, and restored the matter to the CIT(A) for re-adjudication on merits. The appeals of the Revenue were allowed for statistical purposes, and the Tribunal directed the CIT(A) to pass a reasoned order on the issues raised on merit.

← Previous Next →