2024 (4) TMI 259 - AT - Income Tax

Reopening of assessment u/s 147 or assessment u/s 153C - reassessment was made based on the materials found in the course of search conducted on third party - addition u/s 68 in respect of share capital received by the assessee from various parties/companies - HELD THAT - We observe that identical issue came up for consideration before the coordinate bench of the Tribunal in the case of M/s MAH Impex Pvt. Ltd. 2024 (1) TMI 411 - ITAT DELHI wherein the coordinate bench considered identical issue where an assessment was made u/s 143(3) r.w.s. 147 of the Act based on incriminating material found in a search conducted on S.K. Jain Group and the Tribunal sustained the order of the CIT(Appeals) in quashing the reassessment order passed u/s 143(3) r.w.s. 147 of the Act and upholding the view of the CIT(A) that once reassessment proceedings are initiated on the basis of incriminating material found in the search of third party then the provisions of section 153C of the Act are applicable which exclude the application of provisions of section 147 and 148 of the Act. Also decided in MR. NILESH BHARANI VERSUS DCIT CC - 4 (1) MUMBAI 2023 (3) TMI 200 - ITAT MUMBAI assessment order passed u/s 147 of the Act on 30/12/2018 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. Thus as in the present case the assessment was framed u/s 143(3) r.w.s. 147 of the Act based on the incriminating material found in the course of search in a third party. We hold that the assessment made u/s 143(3) r.w.s. 147 of the Act is void ab initio - Assessee appeal allowed.

Summary

Issues Involved:
1. Reopening of assessment u/s 147 of the Act.
2. Addition made u/s 68/69C of the Act.
3. Legality of assessment based on search conducted on a third party.
4. Violation of principles of natural justice.

Summary:

Reopening of Assessment u/s 147 of the Act:
The assessee challenged the reopening of assessment u/s 147, arguing that it was based merely on information from the investigation wing without proper procedure. The Tribunal noted that the reassessment was initiated following a search on Jain Brothers, where incriminating materials were found. The Tribunal admitted the additional ground raised by the assessee regarding the jurisdiction of making assessment u/s 153C rather than u/s 147, citing the decision in National Thermal Power Company Ltd. Vs. CIT 229 ITR 383.

Addition u/s 68 of the Act:
The assessee contested the addition of Rs. 1,51,00,000/- u/s 68 for share application money, claiming it was genuine. The Tribunal observed that the addition was based on materials found during the search on Jain Brothers, which indicated the transactions were accommodation entries.

Addition u/s 69C of the Act:
The assessee also disputed the addition of Rs. 3,02,000/- u/s 69C for alleged unexplained expenditure on commission for accommodation entries. The Tribunal noted that the addition was based on conjectures without concrete evidence.

Legality of Assessment Based on Search Conducted on a Third Party:
The Tribunal highlighted that assessments based on incriminating materials found during a search on a third party should be made u/s 153C, not u/s 147. Citing the decisions in M/s MAH Impex Pvt. Ltd. Vs. ITO and Mr. Nilesh Bharani Vs. DCIT, the Tribunal held that the assessment u/s 143(3) r.w.s. 147 was void ab initio as it should have been made u/s 153C.

Violation of Principles of Natural Justice:
The assessee argued that the addition was confirmed without confronting the evidence and statements gathered by the revenue, violating natural justice principles. The Tribunal did not specifically address this issue after quashing the reassessment order on jurisdictional grounds.

Conclusion:
The Tribunal quashed the reassessment order dated 28.03.2016 as void ab initio, holding that the assessment should have been made u/s 153C based on the incriminating material found during the search on Jain Brothers. Consequently, other grounds raised by the assessee became academic and were not adjudicated. The appeal of the assessee was allowed.