2024 (4) TMI 196 - HC - Income Tax

Reopening of assessment v/s assessment u/s 153C - Applicability of Sections 153C and 148 of the Act in case of seizure of material in search or requisition of books-documents relating to assessee other than on whom the search was conducted or requisitioned made - Petitioner contented basis of issuance of notice u/s 148 is the material seized during the search conducted on Manihar Group the proceedings should have been initiated u/s 153C HELD THAT - The reasons supplied in case in hand for initiation of proceedings u/s 147/148 are based on the incriminating material and documents including Pen Drives seized during the search carried out of the Manihar Group and the statements recorded during proceedings. From the information received the AO noticed that the loan advanced and interest earned thereon were unaccounted. The basis for initiation of Section 148 proceedings is the material seized relating to or belonging to the petitioner during the search conducted of Manihar Group. In the case where search or requisition is made the AO u/s 153A mandatorily is required to issue notices to the assessee for filing of income tax return for the relevant preceding years. AO assumes jurisdiction to assess/reassess total income by passing separate order for each assessment. In cases of the person other than on whom search was conducted but material belonging or relating such person was seized or requisition the AO has to proceed u/s 153C. The two pre-requisites are that the AO dealing with the assessee on whom search was conducted or requisition made being satisfied that seized material belongs or relates to other assessee shall hand over it to AO having jurisdiction of such assessee. Satisfaction of AO receiving the seized material that the material handed over has a bearing for determination of total income of such other person for the relevant preceding years. On fulfillment of twin conditions the AO shall proceed in accordance with the provisions of Section 153A. Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 153D have prevalence over the regular provisions for assessment or reassessment under Section 143 147/148. Section 153A and 153C starts with non-obstante clause. The procedure for assessment/reassessment in Section 153A 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139 147 148 149 151 153. The language of explanation 2 to new Section 148 is akin to Section 153A and Section 153C. Corollary being that after seizing of operational period of Section 153A to 153D the cases being dealt thereunder were circumscribed in the scope of newly substituted Section 148. Department has not set up a case that for initiating proceedings u/s 148 it had material other than the material seized during the search of Manihar Group. The contention was that though the material with regard to unaccounted loan advanced by the petitioner was received the earning of interest on unaccounted loan was derivation of the AO from the material received. The submission is that the derived conclusion cannot be acted upon u/s 153C. The submission lacks merit and shall defeat the concept of single assessment order for each of relevant preceding years for assessing total income in case of incriminating material found during search or requisition. The argument that by enactment of Section 153A to 153D has not eclipsed Section 148 does not enhance the case of respondent to initiate the proceedings u/s 148. On fulfillment of two conditions for invoking Section 153C the proceeding in accordance with Section 153A are to be initiated. The operating field of and Section 153A to 153D and Section 148 are different. Applicability of Section 153C in cases where the seized material related to or belonged to person other than on whom search is conducted or requisition made does not render Section 148 otiose. Section 148 shall continue to apply to the regular proceedings and also in cases where no incriminating material is seized during the search or requisition. The argument that Section 153C can be invoked in case there is incriminating material for all the relevant preceding years and otherwise Section 148 is to be resorted to is misplaced. On satisfaction of the twin condition for proceedings under Section 153C the AO has to proceed in accordance with Section 153A. Notice is to be issued for filing of the returns for relevant preceding years and thereupon proceed to assessee or reassessee the total income . As not obligatory on the AO to make assessment for all the years the earlier orders passed may be accepted. But once there is incriminating material seized or requisitioned belonging or relatable to the person other than on whom search was conducted Section 153C is to be resorted to. Supreme Court in the case of Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT while dealing with the provisions of Section 153A held that in case of absence of incriminating material seized during the search the department is not remediless for reassessing the unabated assessment on the basis of material received from the other sources and can proceed u/s 148. The decision does not support the contentions raised that Section 148 is rendered redundant if Section 153C is to be resorted to in the facts of the present case. If the Department has chosen not to proceed u/s 153C no right is created to the petitioner for getting the notice under Section 148 quashed. Moreover learned Single Judge was not having the benefit of the decision of Abhisar Buildwell P. Ltd. (supra). The appeal against the order was dismissed having rendered infructuous in view of the subsequent developments that the assessment order was passed. The decision of the Madras High Court in the case of Saloni Prakash Kumar 2023 (10) TMI 207 - MADRAS HIGH COURT is of no help to the respondents. The High Court held that Section 153C does not preclude issuance of notice u/s 148. The field of applicability of two sections was not the issue before the Court. The notices issued u/s 148 and the impugned orders are quashed.

Summary

Issues Involved:
1. Applicability of Sections 153C and 148 of the Income Tax Act in case of seizure of material in search or requisition of books/documents relating to an assessee other than the one on whom the search was conducted or requisition made.

Summary:

Issue of Jurisdiction under Section 148:
The writ petition challenges the notice issued u/s 148 of the Income Tax Act, 1961, and the order rejecting objections to the issuance of the notice. The petitioner argued that the notice should have been issued u/s 153C, a special provision for search cases, and not u/s 148, citing Karnataka High Court and Bombay High Court decisions. The respondents contended that Sections 153A to 153D do not eclipse Section 148 and that the Department can proceed under Section 148 even in search cases, relying on Supreme Court decisions.

History of Special Provisions:
The Finance Act, 1995, introduced Sections 158B to 158BG for special assessment procedures in search cases. The Finance Act, 2003, replaced these with Sections 153A to 153D, which mandated separate orders for each assessment year and included all income sources. The Finance Act, 2021, amended Section 153A, restricting its applicability to searches before 31.03.2021, and introduced new provisions for Section 148 effective from 1.4.2021.

Analysis of Sections 153A and 153C:
Section 153A mandates the AO to issue notices for six assessment years preceding the search year. Section 153C applies to persons other than the one searched if the seized material relates to them. The AO must hand over the material to the jurisdictional AO, who then proceeds under Section 153A. Both sections have an overriding effect over regular assessment provisions.

Case Law:
The Supreme Court in Abhisar Buildwell P. Ltd. held that in absence of incriminating material during a search, the AO cannot reassess completed/unabated assessments but can proceed u/s 147/148. The respondents' reliance on M.R. Shah Logistics Pvt. Limited was found inapplicable as it did not address the interplay of Sections 147/148 and 153C. The Karnataka High Court in Sri Dinakara Suvarna and Bombay High Court in M/s. Aditi Constructions supported the petitioner's argument that Section 153C should be invoked in search cases involving third-party material.

Conclusion:
The court quashed the notices issued u/s 148 and the impugned orders, stating that the Department can proceed against the petitioners in accordance with the law. The court did not address other grounds raised for challenging the notice u/s 148 due to the acceptance of the primary ground. The writ petitions were allowed, with interim protection granted during the pendency of the petitions.