2024 (11) TMI 1071 - HC - Income Tax

Overriding effect of Provisions of section 153C on the provisions of section 147 - interplay between the provisions of Section 153C and Section 147 of the Act - It is the Assessee s case that recourse to Section 147 would be unavailable in cases where the AO is empowered to proceed u/s 153C - HELD THAT - The provision of Section 153C enables the AO to assess or re-assess the income of the assessee where any incriminating assets, material, books of account or documents are found (which either belongs to the assessee a person other than the searched person or contains information pertaining to the assessee), in a search conducted u/s 132 of the Act or requisition made u/s 132A of the Act in respect of another person. As stated above, the AO must be satisfied that the assets or material found or information contained in documents and books of account has a bearing on the income of the assessee for the six assessment years immediately preceding the AY relevant to the previous year in which the search was conducted or the requisition under Section 132A of the Act was made this is in terms of second proviso, which was inserted by Finance Act, 2012 with effect from 01.07.2012. By its very nature, Section 153C of the Act is an enabling provision, which enables the Assessing Officer to assume jurisdiction to assess/reassess the income of the Assessee, in cases where the jurisdictional conditions as set out in Section 153C are satisfied. The non obstante provision as contained in Section 153C(1) of the Act must necessarily be construed in the aforesaid context. In the facts of the present case, the Revenue disputes that a satisfaction note by the AO of the searched person (Jain Brothers) was forwarded to the AO of the Assessee along with the requisite documents. Thus, in the facts of the present case, the jurisdictional conditions to initiate further steps under Section 153C of the Act were not satisfied. However, the AO had received certain information from the AO. A report was also received from the Investigation Wing, Mumbai regarding the Assessee purchasing units of a penny stock during the financial year 2010-11. Based on the aforesaid information, including the information received from the Investigation Wing, Mumbai, the AO issued a notice dated 23.08.2018 under Section 148 of the Act. Admittedly, there is nothing on record to indicate that the AO of the searched person had recorded a satisfaction note and transmitted the relevant material containing information regarding the Assessee to the AO. There is also no material that the AO had on receipt of the said information issued a notice under Section 153C of the Act. Thus, in fact the AO did not assume jurisdiction under Section 153C of the Act. Absent assumption of any jurisdiction, the question of Sections 147, 148 and 149 of the Act being overridden by virtue of the non obstante clause of Section 153C of the Act, does not arise. The said clause would be operative only if the AO had in fact assumed jurisdiction under Section 153C of the Act. In that eventuality, recourse to the provisions as named in the opening sentence of Sections 139, 147, 149, 151 and 153 of the Act would be ousted. In the present case, the re-assessment proceedings are initiated under Section 147 of the Act not only on the basis of the material containing information that was found during the search conducted in respect of Jain Brothers, but is also founded on the basis of other information as obtained by the Investigation Wing, namely, that the Assessee had purchased units of a penny scrip named SVC Resource Ltd. This being the case, the decision of the Assessing Officer to re-assessee the income of the Assessee under Section 147 of the Act cannot be faulted.

Summary

Issues Involved:

1. Whether the provisions of Section 153C have an overriding effect on the provisions of Section 147 of the Income Tax Act, 1961.
2. The interplay between Sections 153C and 147 of the Act, and whether reassessment under Section 147 is permissible when conditions for Section 153C are not met.

Issue-Wise Detailed Analysis:

1. Overriding Effect of Section 153C on Section 147:

The primary issue addressed in this judgment is whether the provisions of Section 153C override those of Section 147 of the Income Tax Act, 1961. The court examined the non obstante clause in Section 153C, which states that the provisions apply notwithstanding anything contained in Sections 139, 147, 148, 149, 151, and 153. The court concluded that the non obstante clause in Section 153C does not completely exclude the applicability of Section 147. The clause is interpreted as enabling the Assessing Officer (AO) to proceed under Section 153C without following the procedural requirements of Section 147, but it does not preclude the AO from resorting to Section 147 if the jurisdiction under Section 153C is not assumed.

2. Interplay Between Sections 153C and 147:

The court analyzed the conditions under which Section 153C can be invoked, which include the satisfaction of the AO of the searched person that the seized material belongs to or pertains to another person, and the subsequent satisfaction of the AO of the other person that the material has a bearing on the determination of the total income. The court emphasized that Section 153C is an enabling provision and does not mandate the AO to assume jurisdiction under it. If the AO does not take recourse to Section 153C, the provisions of Section 147 are not ousted, and the AO can proceed under Section 147 subject to fulfilling the necessary conditions.

The court rejected the notion that the non obstante clause in Section 153C automatically overrides the provisions of Section 147. It clarified that the non obstante clause is operative only when the AO exercises jurisdiction under Section 153C. If the AO does not assume jurisdiction under Section 153C, the normal provisions for assessment or reassessment, including Section 147, remain applicable.

Conclusion:

The court concluded that the provisions of Section 153C do not have an overriding effect on Section 147 unless the AO assumes jurisdiction under Section 153C. The decision of the ITAT, which held that Section 153C precludes proceedings under Section 147, was set aside. The court allowed the appeal and restored the Assessee's appeal before the ITAT for consideration of other grounds. The judgment clarifies the legal position regarding the interplay between Sections 153C and 147, affirming that reassessment under Section 147 is permissible if the conditions for Section 153C are not satisfied or if the AO chooses not to proceed under Section 153C.