2023 (3) TMI 200 - AT - Income Tax

Assessment u/s 153A or u/s 147/148 - reasons recorded by the AO wherein he has referred to various information during the course of search and seizure carried out in the case of M/s Evergreen Enterprises, wherein assessee is one of the partner and it was found that assessee has taken some accommodation entry of bogus /long term capital gains on sale shares of M/s DB International and various persons have taken loan from the assessee and M/s Evergreen Enterprises - whether there was any escapement or whether any income representing in the form of asset which has escaped assessment amounts to Rs. 50 lakhs or more? - HELD THAT - The legislature has specifically carved out scope of assessment / reassessment of income of a person not searched of such alleged escaped income based on some incriminating information found during a search on some other person searched by taking recourse to the section 153C of the Act. AO has not been empowered to extend the scope of an assessment/ reassessment u/s 153A read with the section 153C of the Act beyond the alleged incriminating material found during the course of search in the case of some other person, because assessment / reassessment in such case is specifically restricted to the income based on the said incriminating information only. Whereas, in the proceedings initiated u/s 148 of the Act, the AO may extend the scope of the assessment / reassessment on other amounts also if any information about those is on his record over and above the alleged escaped income as per the reasons recorded. The purpose of restriction of assessment for amount of income by taking recourse to the provisions u/s 153C of the Act to alleged incriminating material and not on suspicion has been upheld by the Hon ble Supreme Court in the case of Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT Accordingly, we hold that any incriminating information of any undisclosed income of the person not searched which was found during the course of a search having taken place up to 31/03/2021 on some other assessee, can only be taken into consideration for an assessment / reassessment in the hands of the said person not searched through the domain of the section 153C of the Act. Thus, any assessment / reassessment proceedings-initiated u/s 148 of the Act in respect of the said incriminating information found during the course of a search up to 31/03/2021 on some other assessee is illegal and is ab initio as the same can be considered only by taking recourse to the provisions of the section 153C r.w.s. 153A of the Act. Thus, the assessment of the said amount of LTCG, which was claimed to be exempt u/s 10(38) of the Act by the assessee, made u/s 147 of the Act is beyond the scope of section 147, albeit it can be roped in only u/s 153C. If on overall appreciation of the scheme of assessment / reassessment of income after the income-tax searches on the assessee searched and also for the persons not searched based on detection of some incriminating information during the said searches conducted upto 31/03/2021. Here in this case as held above, the assessment order passed u/s 147 is beyond the jurisdiction as correct course for framing reassessment as per statute was u/s 153A and u/s 153C only. Ergo, on all the above legal grounds and issues raised by the assessee here are the jurisdictional issue and goes to the threshold of the validity of the assessment proceedings, which in our opinion has not been validly assumed. If the jurisdiction has not been correctly assumed, then the entire consequent assessment proceedings also become illegal. Accordingly, the assessee succeeds here on the above two legal issues / pleas raised by him resulting into cancellation of the assessment order in this appeal. We hold that the assessment order passed u/s 147 is illegal and void ab initio and same is hereby quashed, having been passed on incorrect provision, ignoring the mandatory non-obstante sections 153A / 153C of the Act, as here in this case, jurisdiction to assess and pass the assessment order was under sections 153A / 153C.

Issues Involved:
1. Validity of re-opening under Sections 147 and 148.
2. Jurisdiction of the Assessing Officer (AO).
3. Applicability of Section 153A versus Section 147 for reassessment.
4. Legality of additions made under Section 68 based on alleged bogus long-term capital gains and cash loans.

Detailed Analysis:

1. Validity of Re-opening Under Sections 147 and 148:
The Assessee challenged the re-opening of assessment under Sections 147 and 148, arguing it was invalid as the search under Section 132 had already taken place. The AO cited incriminating material found during the search, including statements of employees and documents indicating undisclosed income. The Tribunal agreed with the Assessee, stating that once a search has occurred, the AO must proceed under Section 153A, not Sections 147 and 148, especially when the search revealed undisclosed income in the form of assets exceeding Rs. 50 lakhs.

2. Jurisdiction of the Assessing Officer:
The Assessee contested the jurisdiction of the AO who passed the assessment order, arguing that the correct jurisdiction was with the ITO, Ward 20(2)(4), Mumbai, not the ACIT, Circle-20(2), Mumbai. The Tribunal found that the transfer of jurisdiction was not done according to the legal provisions under Section 127, making the assessment order void ab initio. The Tribunal emphasized that jurisdictional issues could be raised at any stage, and the transfer of jurisdiction must follow the legislative mandate.

3. Applicability of Section 153A Versus Section 147 for Reassessment:
The Tribunal analyzed whether the AO should have proceeded under Section 153A instead of Section 147. Given that the search revealed undisclosed income in the form of assets exceeding Rs. 50 lakhs, the Tribunal held that the AO was required to proceed under Section 153A. The Tribunal noted that the Fourth Proviso to Section 153A mandates that no notice for reassessment shall be issued under Sections 147/148 when the conditions for Section 153A are met. The Tribunal concluded that the AO's action under Section 147 was incorrect and void ab initio.

4. Legality of Additions Made Under Section 68:
The Tribunal examined the additions made under Section 68 for alleged bogus long-term capital gains and cash loans. The AO had added Rs. 75.74 crores based on documents found during the search, treating them as unexplained cash credits. The Tribunal found that the AO's findings were based on the search and seizure operation, which should have been assessed under Section 153A. The Tribunal also noted inconsistencies in the AO's findings regarding the nature of the transactions and the amounts involved.

Conclusion:
The Tribunal quashed the assessment order passed under Section 147, declaring it illegal and void ab initio. The Tribunal emphasized that the correct legal procedure was to proceed under Sections 153A and 153C, given the nature of the evidence and the conditions met. The Tribunal did not adjudicate the grounds of appeal on merits as they became academic due to the quashing of the assessment order.

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