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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the Revenue challenging the impugned order dated 01/12/2022, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–48, Mumbai, [“learned CIT(A)”], for the assessment year 2013–14.
In its appeal, the Revenue has raised the following grounds:–
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of the assessee without going into the merits of additions as it was evident that assessee had taken accommodation entry in the form of penny stock.
Shri Ramesh Kumar Jain ITA no.553/Mum./2023
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of the assessee on a technical ground without appreciating that said technical ground was never raised by the assessee during the course of the assessment proceedings and assessee never challenged notice u/s 148 during assessment proceedings.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the additional ground of appeal of the assessee ignoring the fact that the search was conducted on 13.11.2019 and proceedings u/s.153A of the Act was optional for assessment year 2013-14.”
The brief facts of the case as emanating from the record are: The assessee being an individual filed the return of income for the year under consideration on 27/09/2013, declaring a total income of Rs.37,17,260. Subsequently, on the basis of information received from DGIT (Investigation) Unit-5(1), New Delhi that the assessee has traded in penny stock scrip M/s. Global Capital Market Ltd, and has sold shares worth Rs.53,60,000, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued. On the basis of the aforesaid information, it was alleged that the assessee is a beneficiary of the tax-exempt bogus long- term capital gains through the above scrip and thus the income chargeable to tax amounting to Rs.53,60,000, has escaped assessment in the meaning of section 147 of the Act. In response to the aforesaid notice, the assessee filed its return of income on 27/05/2021, declaring a total income of Rs.37,17,260. The reasons recorded by the Assessing Officer (“AO”) while reopening the assessment were also shared with the assessee vide letter dated 01/06/2021. During the reassessment proceedings, statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee, inter-alia, requesting the assessee to explain as to why the sale of shares of M/s Global Capital Market Ltd should not be treated as bogus and as to why
Shri Ramesh Kumar Jain ITA no.553/Mum./2023 the amount of Rs.53,60,000, should not be added to the total income of the assessee. In response thereto, the assessee submitted that the sale consideration received by the assessee from the sale of scrip of M/s.Global Capital Market Ltd is genuine.
The AO, vide order dated 13/08/2021, passed under section 147 of the Act did not agree with the submissions of the assessee and held that the individuals in the GM Group have taken long-term capital gains from scrips which are established as penny stock by the Directorate of Investigation, Kolkata. The AO noted the findings of the Kolkata Directorate in respect of the no. of scrips through which unaccounted income was converted as exempt long-term capital gains. The AO noted that the promoter of the company M/s. GM Modular Private Limited has given the statement that the proceeds of the long-term capital gains through these scripts have been declared voluntarily by the family members in the Income Declaration Scheme-2016. The AO also noted that the assessee has disclosed penny scrips in Income Declaration Scheme-2016 in the form of long-term capital gains in other assessment years. Since the enquiries conducted by the Directorate of Investigation, Kolkata has established that the above scrips a penny scrips, the entire sale consideration of Rs.53,60,000, was considered as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. The AO also made an addition of 3% of the aforesaid sum under section 69C of the Act being commission paid in such transaction.
During the appellate proceedings before the learned CIT(A), the assessee submitted that the AO has erred in initiating the assessment under Page | 3
Shri Ramesh Kumar Jain ITA no.553/Mum./2023 section 147 of the Act without appreciating that the assessment for the current year can be done only under section 153A of the Act subject to the fulfilment of the conditions specified therein. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and held that the year under consideration falls within the ambit of section 153A of the Act and therefore the assessment proceedings can only be initiated in the aforesaid section and the same cannot be initiated under section 147 of the Act. The relevant findings of the learned CIT(A), vide impugned order, are reproduced as under:-
“7.1 During the appellate, through additional ground, the appellant has submitted that the assessment order passed u/s 147 of the Act is bad-in-law and without jurisdiction as the assessment relating to search matter can be re- opened only u/s 153A of the Act. On perusal of the impugned assessment order, I find that the AO has invoked proceeding u/s 147 of the Act for AY 2013-14 based on search conducted in the case of the Appellant. Therefore, it is relevant to discuss section 153A of the Act, which deals with assessment proceeding relating to search matter. Section 153A of the Act starts with a non- obstante clause and overrides section 147 of the Act. As per the said section read with Explanation 1, the notice under section 153A can be issued for the six assessment years immediately preceding the relevant previous year and also for the 'relevant assessment years'. 'Relevant assessment years' means beyond six assessment year and not more than ten assessment year. Therefore, I agree with the Ld. AR that as per section 153A of the Act, the AO has power to open re-assessment proceeding for 10 years' subject to conditions specified in the said section. In the instant case, the AO has re-opened proceeding for AY 2013-14 which is seventh year immediately preceding the year of search. Therefore, AY 2013-14 falls within the ambit of Section 153A of the Act. Hence, the assessment proceeding for AY 2013- 14 can be initiated u/s 153A of the Act only and the same cannot be initiated u/s 147 of the Act. 7.2 In this regard, reliance of the appellant in the judgment delivered by Hon'ble Jurisdictional Tribunal in the case of M/s. Rayoman Carriers Pvt. Ltd. vs ACIT (ITA No. 3275/Mum/2015 & 3276/Mum/2015) is in order. In the judgment, the Tribunal has held that in consequences to search the proceeding should be initiated of 153C of the Act and not u/s Section 147 of the Act. Thus, assessment order framed u/s.143(3) r.w.s. 147 is without any jurisdiction. The head notes and catch notes of the decision is as under: “15. In terms of above judicial pronouncements, Section 153C provides that persons relating to whom some material is found in search of some other person should be assessed under sec. 153C of the Act. The provisions of section 153C are non-obstantive provisions and specially exclude the operation of sec. 147 of Page | 4
Shri Ramesh Kumar Jain ITA no.553/Mum./2023 the Act, therefore, the Assessing Officer in the present case has erred in invoking the provisions of sec. 147 of the Act. If action under sec. 147 is permitted on the basis of material found in the course of search, then the provisions of sec. 153 would be redundant. The provisions of sec.153C were applicable which excludes the application of sections 147 and 148 of the Act and hence the notice issued under sec. 148 and proceedings under sec. 147 are void ab initio.
Applying the proposition of law laid down in the above judicial pronouncements to the facts of the instant case, wherein consequences to search at the premises of director, proceedings u/s.153C has been initiated in the hands of assessee company, the AO was not justified in not complying with the provisions of 153C and proceeding with the provisions of Section 147. Thus, assessment order framed u/s.143(3) r.w.s. 147 is without any jurisdiction. Respectfully following the above judicial Pranouncements, I set aside the order passed by the AO." 7.3 Similar view has been taken by Hon'ble Visakhapatnam Tribunal in the case of G. Koteshwara Rao vs. DCIT [2015] 64 taxmann.com 159 (Visakhapatnam Trib.). The extract of the decision is as under: "A careful study of sections 153A to 153C and also the circular issued by the CBDT explaining the procedure of assessment in search cases shows that these are separate provisions independent of other provisions relating to reassessment, because of the non abstante clause begins with the said sections. The language used in these sections, i.e. notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153 made it clear that provisions of these sections are not made applicable to the assessments covered by the provisions of section 153A. Prior to the introduction of these three sections, there was a separate chapter XIV- B of the Act, by sections 158BC to 158BE which governs the search assessments which is popularly known as block assessment." 7.4 Considering the totality of the facts and circumstances of the issue involved, in my considered view, in the instant case, the AO has acted without jurisdiction by re-opening the case under section 147 of the Act instead of u/s 153A. Hence, the assessment order passed u/s. 147 of the Act for AY 2013-14 deserved to be held as void ab initio. Hence, the additions made i.e., (i) On account of accommodation entry from sale of penny scrips amounting to Rs. 53,60,000/- and (ii) On account of Commission expenses of Rs. 1,60,800/- as unexplained expenditure u/s. 69C of the Act cannot survive as held in the above judicial decisions. The AO is accordingly directed to delete the impugned additions made in the assessment order. Thus, the additional ground of appeal is allowed.”
Being aggrieved, the Revenue is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. Since the dispute in the present appeal is pertaining to the provision under which the assessment can be initiated,
Shri Ramesh Kumar Jain ITA no.553/Mum./2023 therefore, it is pertinent to analyse these provisions of the Act before proceeding further. Section 153A of the Act deals with assessment in case of search or acquisition and the same reads as under:-
“153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate51 : Provided also that the Central Government may by rules52a made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.] (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.—For the removal of doubts, it is hereby declared that,—
Shri Ramesh Kumar Jain ITA no.553/Mum./2023
(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.”
Therefore, in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction to assess or reassess the total income of six assessment years under section 153A of the Act.
However, on the other hand, under section 147 of the Act if the AO has reason to believe that any income chargeable to tax has escaped assessment then he may assess or reassess such income. In ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd, [2007] 291 ITR 500 (SC), the Hon’ble Supreme Court observed as under:
“16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).”
Shri Ramesh Kumar Jain ITA no.553/Mum./2023
Thus, 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 under section 147 of the Act can be validly initiated.
As evident from the record, in the present case, proceedings under section 147 of the Act 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 M/s Global Capital Market Ltd. 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. It is also pertinent to note that recently the Hon’ble Supreme Court in PCIT v/s Abhisar Buildwell (P.) Ltd., [2023] 149 taxmann.com 399 (SC) held that in case of the completed/unabated assessments the AO in the exercise of powers under sections 147/148 of the Act can re-open the assessment, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act. 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 under section 153A of the Act and the same cannot be initiated under section 147 of the Act. Accordingly, we set aside the impugned order passed by the learned CIT(A). During the hearing, the learned
Shri Ramesh Kumar Jain ITA no.553/Mum./2023 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. Needless to mention that no order shall be passed without affording reasonable opportunity of being heard to both parties. Further, both parties shall be at liberty to raise all the submissions in respect of the jurisdiction under section 147 of the Act as well as on the merits of the case. Accordingly, grounds raised by the Revenue are allowed for statistical purposes.
In the result, the appeal by the Revenue is allowed for statistical purposes. Order pronounced in the open Court on 07/08/2023