2023 (10) TMI 1471 - AT - Income Tax

Validity of assessment u/s 147 or 153C - documents found and impounded during the search conducted u/s 132 in the case of third party/M/s. Davanam Jewellers Pvt. Ltd. and not search in case of the assessee issued notice u/s 148 HELD THAT - Basic objects and purpose of the provision of Section 153C of the Act is to address the persons other than the searched person. As per the un-amended provision of Section 153C of the Act, the proceeding against the persons other than the searched person was on the basis of seized and/or requisition belongs or belong to the person other than the searched person. The particular word belongs or belong to has been substituted subsequently by the Parliament to pertains or pertain to , in view of the wrong interpretation made in the case of Pepsico India Holdings Private Limited 2014 (8) TMI 898 - DELHI HIGH COURT clarifying the position of initiation of proceedings against the person other than the searched person under Section 153C of the Act. Therefore, the right provision of law is also required to be applied in the instant case. Instead the provision laid down under Section 148 of the Act was followed by the Ld. AO in reopening assessment against the assessee. Such wrong initiation of proceeding by issuing notice under Section 148 of the Act culminating into the order of addition under Section 147 of the Act, is, therefore, found to be without any jurisdiction and hence, the same is liable to be set aside. We, therefore, set aside the entire proceeding. It is a trite law that in such a situation it is the duty incumbent upon the Ld. AO to initiate the assessment proceeding under Section 153C of the Act and not under Section 147 of the Act. Thus, initiation of proceeding under Section 148 of the Act in the present fact and circumstances of the case suffers from jurisdictional error.

Summary

Issues:
Jurisdictional ground of reopening assessment under Section 148 of the Income Tax Act, 1961.

Analysis:
The judgment pertains to two appeals filed by the assessee against orders dated 30.01.2017 passed by the Ld. Commissioner of Income Tax (Appeals) under Section 250 of the Income Tax Act for Assessment Years 2006-07 & 2007-08. The appeals were heard together due to being filed by the same assessee. The case involved the purchase and subsequent sale of a property by the appellant firm, leading to a capital gain not offered for tax in the A.Y. 2006-07. The jurisdictional issue raised was whether the reopening of assessment under Section 148 was valid when it should have been initiated under Section 153C based on information from a search conducted in another entity's premises. The High Court remitted this issue to the ITAT for adjudication.

The crux of the matter was the correct application of Sections 147 and 153C of the Act in initiating proceedings against a person other than the searched party based on incriminating documents found during a search. The assessee argued that the initiation under Section 148 was incorrect as it should have been under Section 153C. The ITAT analyzed the legislative intent behind Section 153C and the amendment brought by the Finance Act, 2015, emphasizing the need to address persons other than the searched party. The judgment highlighted the importance of applying the correct provision of law, as misapplication could render the proceedings void-ab-initio.

The ITAT referred to the judgment in the case of ITO vs. Vikram Sujitkumar Bhatia, emphasizing the need to avoid interpretations that frustrate the purpose of the Act. The High Court's observations on the amendment to Section 153C and its applicability to searches conducted before the amendment date were discussed. Ultimately, the ITAT held that the initiation of proceedings under Section 148 instead of Section 153C was a jurisdictional error, leading to the entire proceeding being set aside. The appeals were allowed for statistical purposes, and the decision for A.Y. 2006-07 was applied to A.Y. 2007-08 as well.

In conclusion, the judgment focused on the correct interpretation and application of Sections 147 and 153C of the Income Tax Act in cases involving incriminating documents found during a search. It emphasized the legislative intent behind Section 153C and the necessity of applying the appropriate provision of law to ensure the validity of assessment proceedings.