2020 (4) TMI 289 - AT - Income Tax

Assessment u/s 153C v/s Reopening of assessment u/s 147 - unexplained income under section 68 - valid approval granted u/s 151 - HELD THAT - Referring to provisions contained under section 153C it is clear that the A.O. should consider the issue of share capital and share premium based on the documentary evidences seized from Jain Brothers, copies of the seized documents are attached with the assessment order particularly as Annexures B and D. It would, therefore, show that incriminating material was found during the course of search in the case of search operation carried out in the case of Shri S.K. Jain Group of cases. The same seized documents were relied upon by the A.O. while framing the assessment in the case of the assessee and initiating the re-assessment proceedings. It is well settled Law that validity of the re-assessment proceedings is to be determined with reference to the reasons recorded for reopening of the assessment. Reasons for reopening of the assessment shows that during the course of search incriminating material pertaining to assessee-company were found and seized and that M/s. Blue Bell Finance Ltd., has made investment in assessee-company. The A.O. has specifically referred to the seized documents during the course of search as Annexures B D and also attached various other documents found during the course of search to the assessment order. D.R. also admitted that the aforesaid Annexures were found during the course of search in the case of Jain Group. Therefore, when incriminating documents were found during the course of search, the same have been used in the case of the assessee-company. The proper course the A.O. should have adopted is to proceed against the assessee-company under section 153C of the I.T. Act instead of recording reasons for reopening of the assessment under section 147/148 of the I.T. Act. We are of the view that A.O. was not justified in initiating the re-assessment proceedings under section 147 of the I.T. Act, 1961. The A.O. should have proceeded against the assessee under section 153C -A.O. did not apply his mind to the facts and circumstances of the case and material on record. Therefore, we set aside the Orders of the authorities below and quash the reopening of the assessment in the matter. In the result, additional grounds of appeal of assessee challenging the reopening of the assessment are allowed and resultantly, all additions stand deleted. - Decided in favour of assessee.

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Jurisdictional requirements under Section 153C.
3. Legitimacy of additions based on material found during the search of a third party.
4. Admissibility of additional grounds of appeal.
5. Merits of the additions made under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee challenged the reopening of the assessment under Section 148, arguing that the reassessment proceedings were based on material found during a search of a third party. The assessee contended that the correct procedure should have been under Section 153C, which deals specifically with assessments based on material found during searches on third parties. The Tribunal agreed with the assessee, noting that the reassessment proceedings were indeed based on material found during a search on the Jain Group. Therefore, the notice issued under Section 148 was deemed invalid.

2. Jurisdictional Requirements under Section 153C:
The Tribunal emphasized that when incriminating material is found during a search of a third party, the proper course of action is to proceed under Section 153C, which overrides Sections 147 and 148. The Tribunal cited several cases, including the ITAT decisions in the cases of Shri Meer Hassan & Shri Ali Hassan and Shri Adarsh Agrawal, where it was held that assessments based on third-party search material should be conducted under Section 153C. Consequently, the Tribunal found that the Assessing Officer (A.O.) erred by not following the procedure under Section 153C, rendering the assessment invalid.

3. Legitimacy of Additions Based on Material Found During the Search of a Third Party:
The Tribunal noted that the A.O. made additions based on documents seized during a search on the Jain Group, which indicated that the assessee received accommodation entries. The Tribunal found that the A.O. relied on these documents without providing the assessee an opportunity for cross-examination or verifying the authenticity of the documents. The Tribunal ruled that such reliance on third-party material without proper verification and adherence to procedural requirements under Section 153C was unjustified.

4. Admissibility of Additional Grounds of Appeal:
The assessee filed additional grounds challenging the validity of the assessment proceedings under Sections 147/143(3) based on material found during a third-party search. The Tribunal admitted these additional grounds, noting that they were legal issues arising from the orders of the authorities below and did not require new facts or evidence. The Tribunal cited the Supreme Court judgment in National Thermal Power Co. Ltd. vs. CIT, which allows for the admission of legal grounds in the interest of justice.

5. Merits of the Additions Made under Section 68:
On the merits of the additions, the Tribunal found that the Investor Company, M/s. Blue Bell Finance Pvt. Ltd., had provided confirmation of the transaction, supported by bank statements, balance sheets, and income tax returns. The Tribunal noted that the authorities did not doubt these documentary evidences. The Investor Company had sufficient funds, and there was no cash deposit in its account. Therefore, the Tribunal concluded that even on merits, the addition under Section 68 was unjustified.

Conclusion:
The Tribunal quashed the reopening of the assessment under Section 147/148, holding that the proper course of action was under Section 153C. The Tribunal also found that the additions made under Section 68 were unjustified on merits. Consequently, the appeal of the assessee was allowed, and all additions were deleted.

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