2019 (10) TMI 1463 - AT - Income Tax

Reopening of assessment u/s 147 v/s assessment u/s 153C - adverse material belonging to the assessee found in course of search of third person - HELD THAT - As per AO it was held in M/s. Pepsico India Holdings (P) Ltd 2014 (8) TMI 898 - DELHI HIGH COURT that if a sale deed is found in course of search, it has to be accepted that this sale deed is belonging to the buyer and not the vendor although the names of both are mentioned in the sale deed. On the basis of this judgment of Hon ble Delhi High Court, this is the submission of the AO in the remand report that the documents seized in the present case i.e. the receipt regarding cash payment by the assessee available is not belonging to the assessee. In my considered opinion, this observation of the AO is not correct because if the sale deed is belonging to the buyer, then the receipt issued by any receiver is belonging to the payer and not to the receiver and hence, in the facts of present case, the seized material is belonging to the present assessee. As relying on case of Shri Srinivas Rao Hoskote 2018 (2) TMI 1830 - ITAT BANGALORE reopening by the AO in the present case u/s. 147 of the IT Act is arbitrary and not as per law and the proceedings should have been initiated u/s. 153C of the IT Act as it were based on the material found during the search from the premises of the searched person other than the assessee and under these facts, the reopening u/s. 147 is not valid. This ground is allowed.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 147 instead of Section 153C.
2. Validity of notice issued under Section 148.
3. Validity of reassessment proceedings.
4. Procedural lapses by the CIT(A) in handling the remand report and delay in passing the order.
5. Confirmation of addition of ?12,00,000/-.
6. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147 Instead of Section 153C:
The primary contention of the assessee was that the initiation of proceedings under Section 147 was invalid as the proceedings should have been initiated under Section 153C, given that the information was obtained during a search on a third party. The Tribunal agreed with the assessee, referencing the Tribunal's decision in the case of ACIT Vs. Shri Srinivas Rao Hoskote, which held that adverse material found during a search on a third party should trigger proceedings under Section 153C, not Section 147. The Tribunal concluded that the reopening under Section 147 was "arbitrary and not as per law" and should have been initiated under Section 153C.

2. Validity of Notice Issued under Section 148:
The assessee argued that the notice issued under Section 148 was invalid due to procedural lapses, including the lack of a "speaking order" disposing of objections and the notice being based on "borrowed satisfaction." The Tribunal, however, did not delve deeply into this issue, as it had already determined that the proceedings should have been initiated under Section 153C, rendering the Section 148 notice invalid by extension.

3. Validity of Reassessment Proceedings:
The reassessment proceedings were challenged on multiple grounds, including the assertion that they were based on "borrowed satisfaction" and lacked proper jurisdiction. The Tribunal found that the reassessment proceedings were invalid due to the improper initiation under Section 147 instead of Section 153C. Consequently, the reassessment was deemed "bad in law."

4. Procedural Lapses by the CIT(A) in Handling the Remand Report and Delay in Passing the Order:
The assessee raised concerns about procedural lapses, including the CIT(A)'s failure to provide the first remand report for rebuttal and reliance on submissions from an unauthorized officer. Additionally, the order was passed after a delay of 26 months without explanation. The Tribunal did not specifically address these procedural lapses, as the primary issue of improper initiation of proceedings under Section 147 had already rendered the reassessment invalid.

5. Confirmation of Addition of ?12,00,000/-:
The assessee contested the addition of ?12,00,000/- as alleged cash payment to M/s. Aishwarya Homes Developers and Builders. The Tribunal did not specifically address this issue, as the invalidity of the reassessment proceedings under Section 147 meant that the addition could not be sustained.

6. Levy of Interest under Section 234B:
The assessee challenged the levy of interest under Section 234B, arguing that the period, rate, quantum, and method of calculation were incorrect. The Tribunal did not address this issue separately, as the primary determination that the reassessment was invalid rendered the interest levy moot.

Conclusion:
The Tribunal allowed the appeal, holding that the initiation of proceedings under Section 147 was invalid and should have been initiated under Section 153C. As a result, the reassessment proceedings were deemed "bad in law," and other grounds raised by the assessee did not require adjudication. The appeal was allowed in favor of the assessee.