2023 (7) TMI 1515 - AT - Income Tax

Validity of assessment u/s 147 or 153C - incriminating material was found and seized during the search carried out of some other person - HELD THAT - As the incriminating material was found and seized during the search carried out of some other person that a sum had been paid by the assessee during the Financial Year 2011-12 to Santosh Medical College, Ghaziabad, and since the assessee was not assessed u/s 153C of the Act, which provision specifically exclude the operation u/s 147 of the Act, in our considered opinion, the A.O erred in invoking provision to Section 147 of the Act instead of those of Section 153C of the Act. The reasons recorded u/s 147 of the Act and all proceedings pursuant to thereto, cumulative the order under Appeal are quashed.

Summary

Issues:
1. Validity of assessment under section 147/148 versus section 153C of the Income Tax Act.
2. Admissibility of incriminating material found during a search.
3. Compliance with principles of natural justice and opportunity of cross-examination.

Analysis:

Issue 1: Validity of assessment under section 147/148 versus section 153C of the Income Tax Act
The appellant contended that the assessment should have been made under section 153C of the Act, as the reopening was based on documents/information found during a search. The appellant relied on judicial pronouncements to support this argument. The Departmental Representative, on the other hand, supported the orders of the lower authorities. The Tribunal analyzed the reasons recorded for reopening the assessment, which were based on information received during a search at Santosh Group of Medical Institution. The Tribunal referred to a Co-ordinate Bench decision where it was held that in cases where incriminating material is found during a search of a third party, provisions of section 153C should be applied, excluding sections 147 and 148. Consequently, the Tribunal found that the AO erred in invoking section 147 instead of section 153C, leading to the quashing of the assessment order and the CIT(A) order.

Issue 2: Admissibility of incriminating material found during a search
The Tribunal noted that during the search at Santosh Group of Medical Institution, incriminating material was found regarding the payment of capitation fees by the appellant to the institution. The Tribunal emphasized that since the appellant was not assessed under section 153C, which specifically excludes the operation of section 147, the AO's decision to proceed under section 147 was incorrect. The Tribunal highlighted that the incriminating material found during the search of a third party should have triggered the application of section 153C, rendering the assessment under section 147 invalid.

Issue 3: Compliance with principles of natural justice and opportunity of cross-examination
The appellant raised concerns about the violation of natural justice principles, specifically the lack of opportunity for cross-examination. However, the Tribunal's decision to quash the assessment order and the CIT(A) order was primarily based on the incorrect application of sections 147/148 instead of section 153C. The Tribunal did not delve into the issue of natural justice violations due to the fundamental flaw in the assessment proceedings.

In conclusion, the Tribunal allowed the appellant's appeal, quashing the assessment order and the CIT(A) order. The decision was based on the incorrect invocation of sections 147/148 instead of section 153C, as per the settled legal position.