2023 (8) TMI 452 - AT - Income Tax

Assessment u/s 153A or 147 - provision under which the assessment can be initiated - penny stock purchases - assessee submitted that the AO has erred in initiating the assessment u/s 147 without appreciating that the assessment for the current year can be done only u/s 153A subject to the fulfilment of the conditions specified therein - HELD THAT - If there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings u/s 147 can be validly initiated. As evident from the record, in the present case, proceedings u/s 147 were not initiated on the basis of the search conducted in the case of the assessee but the same were initiated on the basis of the information received from the DDIT (Investigation) Unit-5(1), New Delhi that the assessee is a beneficiary of bogus long term capital gains from trading in penny stock scrips - This fact is further established from the copy of the reasons recorded by the AO while reopening the assessment, which was provided to the assessee vide letter dated 01/06/2021. Since in the present case, the assessment proceedings were initiated on the basis of information received by the AO, therefore, we are of the considered view that the learned CIT(A) completely erred in holding that the assessment proceedings for the year under consideration can only be initiated u/s 153A of the Act and the same cannot be initiated under section 147. Accordingly, we set aside the impugned order passed by the learned CIT(A). During the hearing, the learned AR made submissions regarding the validity of proceedings under section 147 of the Act. However, we find that the learned CIT(A) has not examined any other aspect and has also not adjudicated on other issues raised by the assessee on merits. Therefore, we deem it appropriate to restore the appeal to the file of the learned CIT(A) for de novo adjudication - Appeal by the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the assessment proceedings initiated under section 147 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) to initiate proceedings under section 147 instead of section 153A.
3. Merits of the additions made by the AO regarding bogus long-term capital gains and commission expenses.

Summary:

Issue 1: Validity of the assessment proceedings initiated under section 147 of the Act
The Revenue challenged the order of the learned Commissioner of Income Tax (Appeals) [CIT(A)] allowing the assessee's appeal on technical grounds without addressing the merits of the additions. The AO had initiated proceedings under section 147 based on information that the assessee had traded in penny stock and was a beneficiary of tax-exempt bogus long-term capital gains. The CIT(A) held that the assessment for the year under consideration should have been done under section 153A due to a search conducted, rendering the proceedings under section 147 void ab initio.

Issue 2: Jurisdiction of the AO to initiate proceedings under section 147 instead of section 153A
The CIT(A) concluded that since the assessment year 2013-14 fell within the ambit of section 153A due to the search conducted, the AO should have initiated proceedings under section 153A, not section 147. The CIT(A) relied on judicial precedents, including the Hon'ble Jurisdictional Tribunal and the Hon'ble Visakhapatnam Tribunal, which held that section 153A overrides section 147 in search cases.

Issue 3: Merits of the additions made by the AO
The AO added Rs. 53,60,000 as unexplained cash credit under section 68 and Rs. 1,60,800 as commission expenses under section 69C, considering the sale of shares as bogus. The CIT(A) directed the deletion of these additions, stating that the assessment order under section 147 was void ab initio.

Conclusion:
The ITAT Mumbai set aside the order of the CIT(A), stating that the proceedings under section 147 were validly initiated based on information received from the DDIT (Investigation) and not on the basis of the search. The ITAT noted that the CIT(A) did not examine other aspects or adjudicate on the merits of the case. The appeal was restored to the file of the CIT(A) for de novo adjudication, allowing both parties to raise all submissions regarding the jurisdiction under section 147 and the merits of the case. The appeal by the Revenue was allowed for statistical purposes.