2022 (6) TMI 256 - AT - Income Tax

Reopening of assessment u/s 147 or 153C - assessment was reopened mainly on the basis of information received from ACIT, Ahmadabad that during search proceedings in the case of M/s. Dharmadev Infrastructure Ltd., they unearthed the information relating to bank account in the case of assessee which contain the details of deposits and cash deposits - whether the information found during the search can be applied to reopen the assessment instead of assessing the return of income under the provisions of section 153C? - HELD THAT - As relying on Karti P. Chidambaram 2021 (7) TMI 393 - MADRAS HIGH COURT any material found during the search can be applied to initiate proceedings only u/s. 153C of the Act, not under section 147 of the Act. Accordingly, we are in agreement with the grounds raised by the assessee that the proceedings initiated u/s. 147 of the Act is void ab initio. Accordingly, any proceedings relating to the above assessment is also becomes invalid. Accordingly, the appeal filed by the assessee is allowed in this regard.

Issues Involved:
1. Validity of proceedings initiated under Section 147 instead of Section 153C.
2. Application of mind by the Assessing Officer (AO) in reopening the assessment.
3. Reassessment proceedings based on suspicion and surmises.
4. Validity of penalty proceedings under Sections 271D and 271E.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated under Section 147 Instead of Section 153C:

The primary issue raised by the assessee was that the AO erred in initiating proceedings under Section 147 of the Income-tax Act, 1961, based on information received from the office of the ACIT, Central Circle - 2(4) related to a search conducted at the premises of M/s. Dharmadev Infrastructure Ltd. The assessee argued that the notice should have been issued under Section 153C, as the reopening was void ab initio and without jurisdiction. The Tribunal observed that the assessment was reopened based on information unearthed during the search, which included bank account details with deposits and cash deposits. The Tribunal cited the case of Karti P. Chidambaram v. Pr. CIT (Investigation), where the Hon'ble Madras High Court held that Sections 153A and 153C, which start with a non-obstante clause, specifically exclude the applicability of Sections 147/148. The Tribunal concluded that any material found during the search should trigger proceedings under Section 153C, not Section 147, making the proceedings void ab initio.

2. Application of Mind by the Assessing Officer (AO) in Reopening the Assessment:

The assessee contended that the AO reopened the assessment under Section 147 based on suspicion and surmises without any application of mind, relying solely on information received from ACIT CC - 2(4). The Tribunal noted that the AO's reasons to believe were based on the bank account statement found during the search, indicating that the AO relied on the seized documents. The Tribunal emphasized that the AO must have a reason to believe, not just a suspicion, that income has escaped assessment. The Tribunal referenced the case of Bir Bahadur Singh Sijwali vs. ITO, where it was held that mere cash deposits in a bank account do not constitute a reason to believe that income has escaped assessment.

3. Reassessment Proceedings Based on Suspicion and Surmises:

The assessee argued that the reassessment proceedings were bad in law as they were based on vague, contradictory, and unclear reasons to believe. The Tribunal observed that the AO's reasons for reopening were based on the bank account statement found during the search, which was considered incriminating material. The Tribunal reiterated that reassessment proceedings cannot be initiated merely for verification purposes and must be based on concrete reasons to believe that income has escaped assessment. The Tribunal cited several cases, including PCIT-5 vs. Manzil Dineshkumar Shah and Jalaram Enterprises (P.) Ltd. vs. ITO, where it was held that reopening for mere verification is not permitted.

4. Validity of Penalty Proceedings under Sections 271D and 271E:

The assessee contended that the penalty proceedings under Sections 271D and 271E were initiated without appreciating that no addition was made concerning the reasons recorded for reopening the assessment. The Tribunal did not specifically address this issue in detail, as the primary issue of the validity of proceedings under Section 147 was found to be void ab initio. As a result, any proceedings related to the assessment, including penalty proceedings, were also deemed invalid.

Conclusion:

The Tribunal concluded that the proceedings initiated under Section 147 were void ab initio as the AO should have proceeded under Section 153C, given that the information was based on material found during a search. Consequently, the appeals filed by the assessee for both assessment years 2010-11 and 2011-12 were allowed, and the reassessment orders were quashed. The Tribunal did not adjudicate the main grounds of appeal and kept them open, focusing on the procedural invalidity of the reassessment proceedings.

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