REMESAN PUTHANPURAKAL NAIR,MUMBAI vs. ITO- WARD 42(3)(2), MUMBAI, KAUTILYA BHAVAN, BANDRA MUMBAI

Learned counsel for the assessee, at the outset, referring to Ground Nos. 1 and 2 of the grounds of appeal, submitted that the assessee is challenging the reassessment order dated 14.12.2019 passed by the Assessing Officer under section 143(3) read with section 147 of the Act as being without jurisdiction, bad in law, contrary to the provisions of the Act, and liable to be quashed.

Learned counsel for the assessee submitted that the learned CIT(Appeals) erred in not appreciating that assessment on the basis of a search conducted in the case of a third party could have been made only under section 153C of the Act, and not under section 147 of the Act, and, therefore, the reassessment framed under section 147 of the Act by the Assessing Officer is wholly without jurisdiction, bad in law, and liable to be quashed.

Learned counsel for the assessee, referring to the findings in para 2 at page 1 of the assessment order, submitted that there was a search and survey action in the case of M/s Bhagwati Developers and its group concerns, and in the course of search proceedings, certain incriminating materials like diaries/loose papers containing details of on-money, cash expenses, cash receipts, etc., were said to have been seized. Based on the said materials, the assessment in the case of the assessee was reopened on the ground that the assessee had purchased a flat and made payment in cash amounting to Rs.14,78,500/- out of the purchase cost of Rs. 41,85,600/-, and, therefore, the Assessing Officer arrived at a conclusion that the assessee had made on- money payment of Rs. 14,78,500/- over and above the purchase cost of Rs. 41,85,600/-.

The learned counsel submitted that since the assessment of the assessee was reopened based on search proceedings on a third party, the assessment in the case of the assessee should have been made only under section 153C and not under section 147 of the Act. Reliance was placed on the decision of the jurisdictional High Court in the case of Sejal Jewellery Vs. Union of India, (171 taxmann.com 846). A copy of the decision is placed on record. Referring to the said decision, the learned counsel for the assessee submitted that the Hon'ble jurisdictional High Court held that if an assessment is made in the case of an assessee based on search proceedings and incriminating material thereon in a third party's case, such assessments are to be made only under section 153A/153C and not under section 147 of the Act.

The learned counsel further submitted that, while coming to such conclusion, the learned jurisdictional High Court analysed the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell Private Limited (454 ITR 212) and, followed the decision of the Hon'ble Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT, (161 taxmann.com 255). Learned counsel submits that the SLP filed by the Revenue against the decision of the Hon'ble Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT(supra) had been dismissed and is reported as ACIT Vs. Gopal Prasad Gupta (183 taxmann.com 384).

Thus, the learned counsel submitted that the assessment framed by the Assessing Officer in the case of the assessee under section 143(3) read with section 147 of the Act, based on search materials from a third party's case, is bad in law and liable to be quashed.

On the other hand, the learned DR, placing reliance on the decision of the Hon'ble Delhi High Court in the case of PCIT Vs. Naveen Kumar Gupta, (479 ITR 586), submitted that the Hon'ble Delhi High Court held that the non-obstante clause as used in section 153C could not be read as completely excluding the provisions of section 147, and thus the Assessing Officer could initiate reassessment proceedings under section 147 of the Act, even if proceedings under section 153C could have been initiated.

Heard rival contentions and perused the orders of the authorities below. On perusal of the assessment order, we noticed that there was a search and seizure operation carried out in the case of M/s Bhagwati Developers and its group concerns, and certain incriminating materials were seized. Based on the said incriminating materials, the assessment of the assessee was reopened under section 147 of the Act on the ground that the assessee had paid on-money of Rs. 14,78,500/- over and above the purchase cost as shown in the agreement of Rs. 41,85,600/-.

Accordingly, an addition of Rs. 14,78,500/- was made treating as unexplained investment under section 69 of the Act. The assessee challenged the very validity of the reassessment order on the ground that since the assessment was reopened based on the incriminating materials found in third-party premises, the assessment in the case of the assessee should have been made under section 153C and not under section 147 of the Act.

We observed that an identical issue came up for consideration before the Hon'ble jurisdictional High Court in the case of Sejal Jewellery Vs. Union of India (supra), and the Hon'ble jurisdictional High Court, considering the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Private Limited, (454 ITR 212), and the decision of the Hon'ble Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT (supra), held that where the Assessing Officer reopened the assessee's case under section 147 of the Act on the basis of a search operation conducted at the premises of a group concern, since the foundation of such present case was certainly a search action in which materials were seized which were further explored and enquired into, the provisions of section 153C read with section 153A would be applicable and, therefore, the impugned notice under section 147 is bad in law.

While coming to such conclusion, the Hon'ble jurisdictional High Court analysed the decision of the Hon'ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Private Limited (supra), and also the decision of the Hon'ble Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT (supra). We further observed that the special leave petition filed by the Revenue against the decision of the Hon'ble Rajasthan High Court was dismissed by the Hon'ble Supreme Court and is reported as ACIT Vs. Gopal Prasad Gupta, (183 taxmann.com 384).

Though we find that the Hon'ble Delhi High Court in the case of PCIT Vs. Naveen Kumar Gupta (supra) had taken a contrary view, we are bound by the decision of the Hon'ble jurisdictional High Court in the case of Sejal Jewellery Vs. Union of India (supra).

Thus, respectfully following the decision of Hon’ble Jurisdictional High Court in the case of Sejal Jewellery Vs. Union of India (supra), we hold that the reassessment framed by the Assessing Officer under section 143(3) read with section 147 of the Act for the assessment year 2012-13 is bad in law and, consequently, the same is hereby quashed. Ground Nos. 1 and 2 of the grounds of appeal of the assessee are allowed.

Since we have quashed the reassessment proceedings by allowing Ground Nos. 1 and 2 on the legal point, we are not adjudicating the grounds raised by the assessee on merits, as it would be only academic in nature at this stage. Thus, all other grounds are left open.

In the result, the appeal of the assessee is allowed as indicated above.