2024 (11) TMI 889 - AT - Income Tax

Validity of reopening assessment u/s 147 - materials unearthed relating to and belonging to the assessee during the course of search conducted on Third party - HELD THAT - Keeping in view this particular legal aspect of the matter as certain documents unearthed/found and seized during the course of search in the residential as well as other premises related of Shri Surendra Kumar Jain and Shri Virendra Kumar Jain, on the basis of which the additional income was to be assessed in the hands of the assessee, such addition can only be made taking recourse of the provision of Section 153C and no proceeding can be initiated u/s 147, 148, 153 and 151 of the Act. In the instant case, therefore, reopening of proceeding u/s 148 has no legs to stand upon particularly when the reason to believe is on the basis of search conducted on a third party and on the basis of documents unearthed during search of the said third party namely Shri Surendra Kumar Jain group of companies. The initiation of proceeding in the case in hand u/s 148 on the basis of materials unearthed relating to and belonging to the assessee during the course of search conducted on Jain brothers is found to be not sustainable in the eyes of law. The assessment is void-ab-initio and thus, quashed. Assessee s appeal is allowed.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Legality of initiation of proceeding under Section 147.
3. Jurisdiction of reassessment under Section 147.

Analysis:
1. The appeal was filed by the assessee against the order passed by the CIT(A)-28, New Delhi, arising from the Assessment order dated 28.12.2016. The appeal was delayed by 192 days, and the assessee sought condonation of delay citing reasons including company's name being struck off and revived in ROC records, disputes with the landlord, and ongoing proceedings before NCLT. The Tribunal found the reasons reasonable and condoned the delay, admitting the appeal.

2. The assessee challenged the initiation of proceedings under Section 147 and completion of assessment under Section 143(3) r.w.s 147, alleging lack of statutory pre-conditions. The Tribunal admitted the additional ground of appeal, citing a legal issue raised for the first time. The Tribunal considered the judgment of the Hon'ble Apex Court in National Thermal Power Company Ltd. Vs. CIT and admitted the ground, addressing it at the outset.

3. The case involved the reassessment of the assessee's income under Section 147 based on incriminating documents found during a search operation on Shri Surendra Kumar Jain group. The assessee contended that the reassessment should have been done under Section 153C instead of Section 147. The Tribunal noted that Section 153C mandates a specific procedure when incriminating material pertains to a person other than the one searched. Relying on legal precedents, the Tribunal found that the initiation of proceedings under Section 147 was not sustainable in law, as the incriminating material was related to a third party. Consequently, the reassessment under Section 147 was deemed void-ab-initio and quashed.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 18.11.2024.