2024 (12) TMI 246 - AT - Income Tax

Assessment u/s 153C v/s 147 - information has been received from the investigation wing on the basis of which assessment was sought to be reopened - search material of a third party is sought to be used against a non-searched person - HELD THAT - Since the search material found in the course of Shri Anand Kumar Jain and Shri Naresh Kumar Jain stating that the transactions carried out by the assessee are to be construed as accommodation entries is sought to be used against the assessee herein in the present reopened proceedings, any proceeding against the assessee using such information could be proceeded only under section 153C. Whereas, in the instant case, based on the information received from the investigation wing, the assessment of the assessee for assessment year 2013-14 was sought to be reopened by AO u/s 147. Now, when the search material of a third party is sought to be used against a non-searched person, then the right recourse available to the revenue would be to proceed only u/s 153C of the Act and not under section 147 of the Act. This issue is no longer res integra in view of the decision of this tribunal in the case of ACIT vs Shri Deepak Gambhir 2024 (7) TMI 1560 - ITAT DELHI wherein held if search material incriminating material found during the course of search from third party which pertains to assessee herein, the right course of action to be initiated on the assessee qua such incriminating material would be initiation of proceedings u/s 153C of the Act and not u/s 147 Admittedly, the assessment in this case was made by the Learned AO under section 147 by treating the sum as unexplained cash credit under section 68 of the Act by using the search material received in the case of Shri Anand Kumar Jain and Shri Naresh Kumar Jain treating it as accommodation entry. Hence, the ratio decidendi laid down in the aforesaid cases would squarely be applicable to the facts of the instant case - we hold that the reassessment proceedings u/s 147 of the Act are to be declared void ab initio and liable to be quashed. Assessee appeal allowed.

Summary

Issues:
Appeals and cross-objection related to assessment years 2012-13 and 2013-14 arising from the order of the National Faceless Appeal Centre (NFAC) against the reopened assessment under sections 147 and 143(3) of the Income-tax Act, 1961, based on search material from a third party.

Analysis:
The appeals and cross-objection were related to the assessment years 2012-13 and 2013-14 arising from the order of the National Faceless Appeal Centre (NFAC) against the reopened assessment under sections 147 and 143(3) of the Income-tax Act, 1961. The key issue addressed was the use of search material from a third party in the reassessment proceedings against the assessee. The cross-objection raised by the assessee highlighted the use of material found during the search of a third party in the reopened proceedings under section 147 of the Act, instead of under section 153C. The tribunal emphasized that when search material of a third party is used against a non-searched person, the proper recourse is to proceed under section 153C and not under section 147. This principle was supported by judicial precedents, including the decision in the case of ACIT vs. Shri Deepak Gambhir.

The tribunal noted that the assessment made by the Assessing Officer under section 147 treated a sum as unexplained cash credit based on the search material from a third party, considering it as an accommodation entry. The tribunal applied the ratio decidendi from various cases to declare the reassessment proceedings under section 147 void ab initio and liable to be quashed. The decision was based on the principle that using incriminating material found during the search of a third party against the assessee necessitates proceedings under section 153C, not section 147. The tribunal allowed the ground raised by the assessee in its cross-objection, quashing the reassessment proceedings.

The tribunal dismissed the revenue's appeal as infructuous since the reassessment proceedings were quashed. The cross-objection of the assessee was allowed, leading to the dismissal of the revenue's appeal for both assessment years. The decision for the assessment year 2013-14 was held to apply mutatis mutandis for the assessment year 2012-13. The tribunal concluded by pronouncing the order on the matter on a specific date.