2018 (2) TMI 1830 - AT - Income Tax

Reopening of assessment - survey u/s.133A consequent to which the assessee filed a revised return declaring the same amount - assessment u/s 153C - Held that - The scope of Section 153C and 148 are clear from the bare reading of the two provisions insomuch as Section 153C it starts with Notwithstanding nothing containing in Section 139, 147, 148, 149, 151 and 153 . Thus if there is any contradiction between Sections 153C and 148,in that eventuality, Section 148 shall give way to Section 153C. There is a reason for saying so because if a notice u/s.153C is issued to the third party (assessee), then the AO may assess or reassess the income of the assessee for a period of six years whereas this is not the position in case of Section 148. Further u/s.153C the assessment / reassessment can only be made based on the satisfaction recorded by the AO or the searched person as well as of the third party and further addition can only be made by the AO in respect of the assessment year for which the incriminating documents were found with the search person belonging to the third party. Therefore in our view the finding of the CIT(A) is in accordance with law, as the proceeding should have been initiated under section 153C of the Act, as it were based on material found during the search from the premises of searched person other than assessee and not under section 148 of the Act. In the matter of Gudwill Housing Ltd (2014 (4) TMI 478 - KARNATAKA HIGH COURT) was a decision on Section 158BD under the old Act. There is a significant difference in the construction, language and content of both the provisions i.e Section 158BD under the old Act and section 153C of new Act of 1961. Section 153C of 1961 Act, starts with a non-obstante clause, whereas this non-obstinate provision was not there in Section 158BD. Therefore in our considered opinion the decision relied upon by the Revenue is not applicable to the facts and circumstances of present case. We hold accordingly.

Summary

Issues Involved:
1. Validity of assessment proceedings under Section 147 versus Section 153C.
2. Applicability of Section 153C in cases involving incriminating documents found during searches of third parties.
3. Jurisdictional authority and procedural compliance in reassessment cases.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 147 versus Section 153C:
The primary issue revolves around whether the reassessment proceedings initiated under Section 147 were valid when the material prompting the reassessment was obtained during a search conducted on a third party. The CIT(A) held that the reassessment proceedings under Section 147 were invalid, asserting that the proceedings should have been initiated under Section 153C, which begins with a non-obstante clause overriding Sections 139, 147, 148, 149, 151, and 153. The CIT(A) concluded that the assessment proceedings under Section 147 were "void ab initio" due to the improper invocation of the section, leading to the cancellation of the assessment order.

2. Applicability of Section 153C in Cases Involving Incriminating Documents Found During Searches of Third Parties:
The CIT(A)'s decision was based on the premise that the seized material, which led to the reassessment, belonged to the assessee and not to the person at whose residence it was found. Therefore, the appropriate procedure would have been to proceed under Section 153C, which specifically deals with situations where documents or assets seized during a search belong to someone other than the person searched. This section mandates that such documents be handed over to the Assessing Officer having jurisdiction over the other person, who should then issue notice and assess or reassess the income in accordance with Section 153A.

3. Jurisdictional Authority and Procedural Compliance in Reassessment Cases:
The Revenue argued, citing the Gudwill Housing Ltd v. ITO case, that the Assessing Officer has the option to proceed under Section 147 if there is a reason to believe that income has escaped assessment. However, the Tribunal disagreed, emphasizing that Section 153C's non-obstante clause takes precedence over Section 147. The Tribunal referred to several cases, including Rajat Shubra Chatterji v. ACIT and ITO v. Arun Kumar Kapoor, which supported the view that once incriminating documents are found during a search, proceedings should be initiated under Section 153C, not Section 148. The Tribunal highlighted that Section 153C provides a comprehensive framework for assessing or reassessing income based on documents found during searches, which supersedes the provisions of Section 147.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the reassessment proceedings under Section 147 were invalid and should have been conducted under Section 153C. The Tribunal dismissed the Revenue's appeals, emphasizing the precedence of Section 153C in cases involving documents seized during searches of third parties. The Tribunal also noted the differences between the old Section 158BD and the current Section 153C, particularly the non-obstante clause in Section 153C, which was not present in Section 158BD. This distinction further validated the CIT(A)'s approach and the Tribunal's concurrence with it.