2021 (10) TMI 21 - AT - Income Tax

Reopening of assessment u/s 147 v/s assessment u/s 153C - additions made on the basis of the document which belongs to the assessee - HELD THAT - It is an undisputed fact that the assessee was not covered under the search action u/s 132 of the Act. It is thus the case of the assessee that no addition could be made u/s 143(3) r.w.s 147 of the Act on the basis of the materials seized during the course of search and the proper course of action for framing the assessment by the AO was to proceed on the basis of the provisions of Section 153C of the Act as the incriminating material that has been relied upon by the AO for making additions belongs to the assessee. As decided GLITZ BUILDERS PROMOTERS PVT. LTD AND VICE - VERSA 2021 (1) TMI 1074 - ITAT DELHI quashed the assessment framed u/s 143(3) by holding that the additions made on the basis of the document which belongs to the assessee could not be made in the assessment framed u/s 143(3) of the Act but the AO should have invoked the provision of Section 153C of the Act which is mandatory - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessment under Section 143(3) read with Section 147 instead of Section 153C.
2. Use of seized documents belonging to the assessee.
3. Penalty levied under Section 271(1)(c).
4. Revenue's appeal against relief granted by CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 143(3) read with Section 147 instead of Section 153C:
The primary contention of the assessee was that the assessment should have been framed under Section 153C of the Income Tax Act, not under Section 143(3) read with Section 147. The assessee argued that since the material used for the assessment was seized during a search on BPTP Ltd. and its group companies, and not directly from the assessee, the proper procedure was to assess under Section 153C. The Tribunal found merit in this argument, noting that the documents used for the additions belonged to the assessee but were found during a search on a third party. Citing a similar case involving Glitz Builders & Promoters Pvt. Ltd., the Tribunal held that the assessment should indeed have been framed under Section 153C. Consequently, the assessment under Section 143(3) read with Section 147 was quashed.

2. Use of Seized Documents Belonging to the Assessee:
The assessee challenged the use of seized documents, arguing that they did not belong to them and that no independent verification or confrontation with the alleged recipients of interest payments was made. The Tribunal noted that the documents, including post-dated cheques, were indeed related to the assessee and were found during a search on a third party. This substantiated the assessee's claim that the assessment should have been conducted under Section 153C, as the documents belonged to the assessee but were found with another entity.

3. Penalty Levied under Section 271(1)(c):
The appeals also addressed penalties levied based on the additions made by the Assessing Officer. The assessee argued that if the assessment itself was invalid, the penalties should not stand. The Tribunal agreed, stating that since the assessment was quashed, the penalties under Section 271(1)(c) were also set aside.

4. Revenue's Appeal Against Relief Granted by CIT(A):
The Revenue's appeal was against the partial relief granted by the CIT(A) for the assessment year 2007-08. The Tribunal noted that since the assessment itself was quashed, the Revenue's appeal did not survive. Consequently, the Revenue's appeal was dismissed.

Conclusion:
The Tribunal quashed the assessments for both assessment years 2006-07 and 2007-08, holding that the proper procedure under Section 153C was not followed. As a result, the penalties levied were also set aside, and the Revenue's appeal was dismissed. The Tribunal's decision emphasized the importance of following the correct legal procedures when utilizing seized documents for assessments.