2024 (8) TMI 1366 - AT - Income Tax

Illegal exercise of jurisdiction u/s 147 instead of Section 153C - as submitted that due to non-obstante clause in Section 153A coupled that the principle of abatement the mechanism contained in the provisions of search assessments, the assessment can be concluded in case of incriminating material relied u/s 153C only - HELD THAT - Judgment which the DR has relied has been considered in the case of Nishit Gupta son of Shri Ramesh Gupta Vs. ACIT 2024 (4) TMI 196 - RAJASTHAN HIGH COURT Hon ble Rajasthan High Court has considered the issue involved in the bunch of writ petitions about the applicability of Section 153C and Section 148 of the Act in the case of seizure of material in search or requisition of books/documents relating to Assessee other than on whom the search was conducted or requisition made and after taking into consideration the history of special provisions in search cases and various judicial pronouncements including Judgment of Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT as held 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 re-assessee the 'total income'. It is 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. The findings of this Bench in the case of M/s Mah Impex Pvt. Ltd 2024 (1) TMI 411 - ITAT DELHI which also involved the case of search conducted in Surendra Kumar Jain Group squarely applies to the case of the assessee before us. Assessee appeal allowed.

Issues Involved:

1. Jurisdiction under Section 147 vs. Section 153C of the Income Tax Act.
2. Validity of the additions made under Section 68 of the Act.
3. Treatment of share application money and commission as unexplained investment.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 147 vs. Section 153C of the Income Tax Act:

The core issue raised by the assessee was the illegal exercise of jurisdiction under Section 147 of the Income Tax Act instead of Section 153C. The assessee argued that any material found during the course of a search that belongs to a person other than the one in whose case the search was conducted should be assessed under Section 153C, not Section 148. The assessee relied on multiple judicial precedents to support this argument, including judgments from various High Courts and the Supreme Court.

The Tribunal considered the judgment of the Rajasthan High Court in the case of Nishit Gupta vs. ACIT, which emphasized that when material is seized during a search that relates to a person other than the one searched, the assessment should be conducted under Section 153C. The Rajasthan High Court held that the special provisions of Sections 153A to 153D have an overriding effect over the general provisions for assessment or reassessment under Sections 143 and 147/148. The Tribunal found that the Department had not set up a case that it had material other than what was seized during the search of the Surendra Kumar Jain Group. Hence, the assessment should have been completed under Section 153C.

2. Validity of the Additions Made Under Section 68 of the Act:

The CIT(A) had confirmed the addition of Rs. 1,00,00,000/- made by the Assessing Officer under Section 68 of the Act on account of receipt of share application money and an addition of Rs. 2,00,000/- on account of commission at 2% on Rs. 1,00,00,000/-, treating the same as unexplained investment. The background to this addition was a search conducted on the Surendra Kumar Jain Group, and the assessment in the present case was framed under Section 147 based on material found during this search.

The Tribunal noted that the reasons supplied for initiating proceedings under Section 147/148 were based on incriminating material seized during the search. However, as discussed, the correct jurisdiction should have been under Section 153C. Given this jurisdictional error, the validity of the additions made under Section 68 was also brought into question.

3. Treatment of Share Application Money and Commission as Unexplained Investment:

The Tribunal did not delve deeply into the merits of the additions made under Section 68, as the jurisdictional issue was dispositive. The Tribunal's primary focus was on whether the assessment was conducted under the correct section of the Act. Given that the assessment should have been conducted under Section 153C, the Tribunal allowed the assessee's appeal on this ground, rendering the specific treatment of share application money and commission as unexplained investment moot for the purpose of this judgment.

Conclusion:

The Tribunal concluded that the assessment should have been conducted under Section 153C due to the nature of the material seized during the search. As a result, the additional ground raised by the assessee was allowed, and the appeal was decided in favor of the assessee. The Tribunal quashed the notices issued under Section 148 and the impugned orders, emphasizing the precedence of special provisions under Sections 153A to 153D over the general provisions for reassessment. The order was pronounced in the open court on 27th August 2024.

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