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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI
PER MADHUMITA ROY, JUDICIAL MEMBER
The instant two appeals filed by the assessee are directed against the orders both dated 30.01.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Bengaluru, (in short ‘CIT(A)’) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), arising out of the orders
Page 2 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO) dated 28.03.2014 & 27.03.2014 passed by the ITO, Ward-4(3)/Ward-7(2)(3), Bangalore under Section 147 r.w.s. 143(3) of the Act for Assessment Years 2006-07 & 2007-08.
Since both the appeals filed by the same assessee these are heard analogously and are being disposed of by a common order for the sake of convenience.
The brief facts leading to this case is this that the appellant firm purchased a piece of land measuring 52152 sq.ft. known as “Minerva Mills Property, Bangalore, from K/s. National Textile Corporation (APKK & M) Ltd. for a consideration of Rs.8,90,00,000/- on 03.01.2007. Thereafter the assessee entered into an agreement dated 16.03.2009 with M/s. Sobha Developers Ltd. for sale of the said property for a consideration of Rs.10,05,00,000/-. The above fact was found during a search conducted in case of one M/s. Davanam Jewellers Pvt. Ltd. on 02.09.2010. On the basis of said agreement dated 16.03.2009, the Ld. AO formed an opinion that the appellant had transferred land purchased from M/s. NTC Ltd. to M/s. Sobha Developers Ltd., during F.Y. 2005-06, and thereupon derived profit of Rs.1,15,00,000/- taxable for the A.Y. 2006-07 which was not offered to tax for the said A.Y. 2006-07. The Ld. AO came to a very conclusion as the appellant had collected a substantial amount of consideration by way of advance during F.Y. 2005-06 from Ms. Sobha Developers Limited. Consequently, the appellant was served with a notice issued under Section 148 of the Act dated 22.03.2013 under the signature of the DCIT, Central Circle 1(2), Bangalore for A.Y. 2006-07 and the proceeding was ultimately
Page 3 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO) finalized upon making addition of Rs.1,15,00,000/- on account of capital gain, which was, in turn, confirmed by the First Appellate Authority. Hence, the instant appeal before us.
This case has a chequered history. Before the Ld. Tribunal, the assessee raised the particular jurisdictional ground for the first time and hence the matter was remitted back to the file of the Ld. CIT(A) for adjudication of the same. However, since the matter was not decided on merit by the Tribunal, the assessee preferred appeal before the Hon’ble High Court at Karnataka and by and under an order dated 28.10.2022, Hon’ble Jurisdictional High Court has been pleased to remit the jurisdictional issue to the file of the Ld. ITAT for adjudication of the same with the following observations:
“6. Undisputed facts of the case are, based on the agreement found during the search in the premises of M/s Davanam Jewellers Pvt. Ltd., the assessment was reopened for A.Y 2006-07. The assessment order does not Indicate the procedure followed in re-opening the assessment. In addition protective assessment for A.Y.2007- 08 has also been completed.
We have perused the agreement. Shri Chandrashekar is right in his submission that though the agreement is undated, the stamp paper bears the date of purchase as October 9th, 2009. In paragraph 2 of the agreement, the details of the payments are shown. In paragraph 9 of the agreement, it is stated that the possession of the land shall be handed over after execution of the sale deed. In the facts of this case, in the absence of details in the assessment order with regard to the procedure followed and want of reasons whether assessment could be done under Section 147 or 153C which is a question of law, in our considered opinion, same requires to be answered by the ITAT.”
Precisely, the jurisdictional ground is this that as to whether the reopening of assessment under Section 148 of the Act is bad in law in as much as the correct decision under which the proceeding could have been initiated under Section 153C of the Act in the present facts and circumstances of the case.
Page 4 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO)
Fact reveals that during the course of search in case of M/s. Davanam Jewellers Pvt. Ltd. this particular purchase of land made by the assessee and subsequently selling of the same came to the light of the Revenue. The crux of the submission made by the Ld. AR is this that the reopening based on any material and/or information obtained/unearthed during the course of search under Section 132 of the Act in case of other than the searched person ought to have been initiated under the provision of Section 153C of the Act and not the impugned proceeding under Section 147 of the Act. The argument advanced by the Ld. Senior Counsel is this that whenever incriminating documents found in search under Section 132 of the Act belongs/relates to person other than the searched person, it was necessary for the Ld. AO of the searched person to record a satisfaction that such incriminating documents belong to a person other than the searched person so as to proceed against such other person under Section 153C of the Act. No such recording of satisfaction to that effect has been done, in the instant case and consequently, the proceeding initiated under Section 148 of the Act suffers from illegalities, as the proceeding not having been initiated under Section 153C of the Act failing which the entire proceeding is become void-ab-initio and thus liable to set aside. On this count, he relied upon the judgment passed by the Hon’ble Apex Court in the case of ITO vs. Vikram Sujitkumar Bhatia, reported in (2023)453 ITR 417. On the contrary, the Ld. DR vehemently argued in support of the order passed by the Revenue under Section 147/148 of the Act. According to him, the application of law has been rightly made.
7. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record and the order passed by the Jurisdictional High Court and judgments relied upon the assessee.
Page 5 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO)
In the present case, it is an undisputed fact that the Ld. AO relying upon the documents found and impounded during the search conducted under Section 132 of the Act in the case of M/s. Davanam Jewellers Pvt. Ltd. on 02.09.2010 and not search in case of the assessee issued notice under Section 148 of the Act dated 22.03.2013. It is a trite law that in such a situation it is the duty incumbent upon the Ld. AO to initiate the assessment proceeding under Section 153C of the Act and not under Section 147 of the Act. Thus, initiation of proceeding under Section 148 of the Act in the present fact and circumstances of the case suffers from jurisdictional error. On this respect, we have carefully considered the judgment relied upon the assessee in the case of ITO vs. Vikram Sujitkumar Bhatia (supra). While dealing with this particular aspect of the matter, the Hon’ble Court has been please to observe as follows:
“10.8 Insofar as the submission on behalf of the respective respondents – assessees that by way of amendment to Section 153C by Finance Act, 2015, it brings into its fold, the assessees – persons, who were not so far covered by it and, therefore, it affects the substantive rights of the assessees and, hence, it should not be made applicable retrospectively, is concerned, the submission seems to be attractive but deserves to be rejected. As observed hereinabove, even the unamended Section 153C pertains to the assessment of income of any other person. The object and purpose of Section 153C is to address the persons other than the searched person. Even as per the unamended Section 153C, the proceeding against other persons (other than the searched person) was on the basis of the seizure of books of account or documents seized or requisitioned “belongs or belong to” a person other than the searched person. However, it appears that as in the case of Pepsico India Holdings Private Limited (supra), the Delhi High Court interpreted the words “belong to” restrictively and/or narrowly and which led to a situation where, though incriminating material pertaining to a third party / person was found during search proceedings under Section 132, the Revenue could not proceed against such a third party, which necessitated the legislature / Parliament to clarify by substituting the words “belongs or belong to” to the words “pertains or pertain to” and to remedy the mischief that was noted pursuant to the judgment of the Delhi High Court. Therefore, if the submission on behalf of the respective respondents – assessees that despite the fact that the incriminating materials have been found in the form of books of account or documents or assets relating to them from the premises of the searched person, still they may not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted prior to the amendment is accepted, in that case, the very object and purpose of the amendment to Section 153C, which is by way of substitution of the words “belongs or belong to” to the words “pertains or pertain to”
Page 6 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO) shall be frustrated. As observed hereinabove, any interpretation, which may frustrate the very object and purpose of the Act / Statute shall be avoided by the Court. If the interpretation as canvassed on behalf of the respective respondents is accepted, in that case, even the object and purpose of Section 153C namely, for assessment of income of any other person (other than the searched person) shall be frustrated.
11. In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court is held to be unsustainable and the question, i.e., “Whether the amendment brought to Section 153C of the Income Tax Act, 1961 vide Finance Act, 2015 would be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of amendment?”, is answered in favour of the Revenue and against the assessees and is answered accordingly. Therefore, it is observed and held that the amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment. The impugned common judgment and order passed by the High Court, therefore, deserves to be quashed and set aside and is accordingly quashed and set aside. However, as before the High Court respective assessment orders were challenged mainly on the aforesaid issue, which is now answered in favour of the Revenue as above, we reserve the liberty in favour of the respective assessees to challenge the assessment orders before CIT (A) on any other grounds which may be available and it is observed that if said appeals are preferred within four weeks from today, the same be considered in accordance with law and on their own merits, on any other grounds. Present appeals are accordingly allowed in terms of the above. However, in the facts and circumstances of the case, there shall be no order as to costs.”
It appears that the basic objects and purpose of the provision of Section 153C of the Act is to address the persons other than the searched person. As per the un-amended provision of Section 153C of the Act, the proceeding against the persons other than the searched person was on the basis of seized and/or requisition “belongs or belong to” the person other than the searched person. The particular word “belongs or belong to” has been substituted subsequently by the Parliament to “pertains or pertain to”, in view of the wrong interpretation made by the Hon’ble Delhi High Court in the case of Pepsico India Holdings Private Limited clarifying the position of initiation of proceedings against the person other than the searched person under Section 153C of the Act. Therefore, the right provision of law is also required to be applied in the instant case. Instead the provision laid down under Section 148
Page 7 of 8 & 772/Bang/2017 (M/s. Ickon Projects vs. ITO) of the Act was followed by the Ld. AO in reopening assessment against the assessee. Such wrong initiation of proceeding by issuing notice under Section 148 of the Act culminating into the order of addition under Section 147 of the Act, is, therefore, found to be without any jurisdiction and hence, the same is liable to be set aside. We, therefore, set aside the entire proceeding.
In the result, the appeal preferred by the assessee is allowed for statistical purposes.
The decision in A.Y. 2006-07 shall also apply mutatis mutandis in for A.Y. 2007-08.
In the result, assessee’s both appeals are allowed for statistical purposes.
[Order pronounced in the open court on 26th October, 2023.]