2024 (5) TMI 1170 - HC - Income Tax

Validity of reassessment proceedings u/s 147/148/148A OR u/s 153C/153A - material/ information is collected during search from other/ third party - whether the basis for reopening the assessment was the information and material collected during the search conducted in the premises of another assessee or the same was based on any information and material collected after the search? - HELD THAT - Reassessment has to be done only by taking recourse to the provisions contained in Section 153C r.w.s. 153A of the Act of 1961 and not under Section 148A/Section 148 of the Act of 1961. The legal position in this regard is well settled in view of the decision of Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT Basis for reopening the assessment - The entire basis for reopening the assessment is nothing but the material and information collected during search conducted in the premises of another assessee. Collection of details relating to search would not mean collection of new incriminating material and information, independent of the incriminating material and information collected during search proceedings. Petitioner is correct in submitting that in fact, search was carried out in the year 2016 and the respondents had the authority to reopen the assessment by invoking the powers u/s 153C and draw reassessment proceedings u/s 153A - That was not done within the period of limitation prescribed under Section 153B of the Act of 1961. The respondent-authority was fully aware of the fact that proceedings under Section 153C of the Act of 1961 would be barred by limitation, therefore, recourse was taken to the provisions contained in Section 148 and Section 148A of the Act of 1961 which has no application in the present cases. Thus legal position is that where the basis for reassessment is incriminating material and information collected during search, the only legally permissible course of action is the one provided under Section 153C and not under Section 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Basis for reopening the assessment.
2. Applicability of Section 148A and Section 148 versus Section 153C read with Section 153A of the Income Tax Act, 1961.
3. Period of limitation for initiating reassessment proceedings.

Detailed Analysis:

1. Basis for Reopening the Assessment:
The primary issue was whether the reopening of the assessment was based on information and material collected during a search conducted in the premises of another assessee or on any information and material collected after the search. The petitioner argued that the entire basis for reopening the assessment was the incriminating material and information collected during the search, which should have invoked Section 153C read with Section 153A of the Income Tax Act, 1961. The respondents contended that the reopening was based on pre and post-search investigations, thus justifying the use of Section 148A and Section 148.

2. Applicability of Section 148A and Section 148 versus Section 153C read with Section 153A:
Both parties agreed on the legal position that if the basis for reopening the assessment is incriminating material and information collected during a search, reassessment must be done under Section 153C read with Section 153A, not under Section 148A/Section 148. This position is supported by the Supreme Court decision in Principal Commissioner of Income-Tax Vs. Abhisar Buildwell P. Ltd. and the Division Bench decision of this Court in Shyam Sunder Khandelwal Vs. Assistant Commissioner of Income Tax.

The court examined the notices and found that the incriminating information and material were indeed found during the search proceedings, not beyond that. The notice under Section 148 issued earlier did not disclose specific reasons but was followed by a notice under Section 148A(b) detailing the incriminating material found during the search. The court concluded that the material collected during the search was the basis for reopening the assessment, making the invocation of Section 148A and Section 148 inappropriate.

3. Period of Limitation for Initiating Reassessment Proceedings:
The petitioner argued that the search was conducted in 2016, and the respondents had the authority to reopen the assessment under Section 153C within the period of limitation prescribed under Section 153B. However, this was not done, and instead, the respondents took recourse to Section 148 and Section 148A, which was legally impermissible. The court agreed that the proceedings under Section 153C would be barred by limitation, and the attempt to use Section 148A and Section 148 was an inappropriate workaround.

Conclusion:
The court concluded that the entire basis for reopening the assessment was the material and information collected during the search in another assessee's premises. The appropriate legal provisions to invoke were Section 153C read with Section 153A, not Section 148A and Section 148. The impugned orders dated 27.07.2022 were quashed and set aside, and the writ petitions were allowed. The office was directed to place a copy of this order on the record of the connected Writ Petition No. 17523/2022.