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Facts
The assessee's return for AY 2018-19 was processed. Subsequently, reassessment proceedings under Section 147 were initiated based on information from a search on a third party, 'Oneworld Group'. The Assessing Officer (AO) relied on documents and statements related to this search to issue notices and pass an order.
Held
The Tribunal held that the AO erred in invoking Section 147 when the correct procedure should have been Section 153C, as the basis of reassessment stemmed from a third-party search. The invocation of Section 147 was deemed invalid and without legal sanction.
Key Issues
Whether reassessment proceedings under Section 147 were legally sustainable when based on information from a search on a third party, or if Section 153C was the mandatory procedure.
Sections Cited
147, 148, 151A, 151, 68, 69C, 153C, 132, 153A, 143(1), 148A
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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
This appeal by the assessee is directed against order dated 31.12.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 49, Mumbai [in short „the Ld. CIT(A)‟] for assessment year 2018-19, raising following grounds:
“1. In the facts and circumstances of the case and in law, the Learned CIT(Appeals) has erred in upholding the action of Ld. Assessing Officer of issuing notice dated 31.03.2022 under section 148 in violation of provisions of section 151A of the Act as per law laid down by the Hon'ble Bombay High Court in the case of Hexaware Technlogies Limited vs. ACIT [WP No. 1778/2023; order dated 03.05.2024].
In the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in not providing the sanction note of the Learned Pr. CIT-, Ahmedabad thereby violating the directions laid down by the Hon'ble Bombay High Court in the case of Tata Capital Financial Services Limited vs. ACIT [WP No. 546/2022; order dated 15.02.2022].
3. In the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in initiating the assessment u/s 147 by obtaining a mere mechanical sanction u/s 151 and thus violating the law laid down by Honorable Supreme Court in the case of Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603.
4. In the facts and circumstances of the case and in law, the Learned CIT (Appeals) has passed the Order dated 31.12.2024 in gross violation of the principle of Natural Justice without giving proper opportunity of being heard.
5. In the facts and circumstances of the case and in law, the Learned CIT (Appeals), Mumbai has erred in upholding the addition of Rs. 71,52,27,967/- being unsecured loans as unexplained cash credits under section 68, merely on surmises and conjectures, even after providing all requisite explanations and evidences to substantiate the genuineness of the loans availed and repaid.
6. In the facts and circumstances of the case and in law, the Learned CIT (Appeals), Mumbai has erred in upholding the addition of Rs. 1,90,68,140/- being interest charged on unsecured loans under section 69C, merely on surmises and conjectures, even after providing all requisite explanations and evidences to substantiate the genuineness of the loans availed and repaid.
The appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each other.”
2. Before us, Ld. counsel for the assessee filed an application vide letter dated 11.06.2025 for admission of additional ground. The relevant additional ground duly signed by the partner of the assessee firm is reproduced as under : “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not holding the assumption of jurisdiction by the Ld. A.O. u/s 147 of the Act as bad-in-law, disregarding that the jurisdiction of the impugned assessment was within the purview of section 153C of the Act, beginning with non-obstante clause and over-riding section 147 of the Act, as 'information', which formed the basis of reopening the impugned assessment, relating to or pertaining to the appellant was found and seized during the course of search on One World Group on 06.11.2019, which is prior to 01.04.2021.”
We have heard rival submission of the parties on the issue of admissibility of the additional ground. Since the ground raised being purely of legal nature and challenging the jurisdiction which goes to root of the assessment and no investigation of the fresh facts is required, therefore same is admitted in view of the decision of the Hon‟ble Supreme Court in the case of NTPC India 229 ITR 383(SC).
The brief facts relevant for adjudication are that the assessee filed its return of income for the Assessment Year 2018-19 on 18.09.2018, declaring total income of ₹18,35,400/-. The return was processed under Section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Subsequently, proceedings under Section 147 were initiated pursuant to the amended reassessment regime effective from 01.04.2021, which included issuance of notice under Section 148A(a), opportunity under Section 148A(b), and passing of an order under Section 148A(d) of the Act. The basis for the reopening was the information uploaded on the “Insight portal”, which disclosed that during the course of search and seizure operations under Section 132 conducted on 06.11.2019 in the case of the „Oneworld Group‟, it was unearthed that several entities under the said group were controlled by one Shri Rajesh G. Mehta, who was engaged in facilitating accommodation entries and issuing bogus purchase and sale invoices without any actual movement of goods. Statements recorded post-search, including those of Shri Urvil A. Jani and Shri Rajesh G. Mehta, affirmed that bogus transactions were routed through entities such as M/s Aneri Fincap Ltd., which had allegedly extended accommodation entries to the assessee amounting to ₹35,84,37,373/-. In the course of reassessment, the Assessing Officer noted that the assessee had received unsecured loans aggregating ₹71,52,27,967/- from four such entities and concluded, relying upon the search material and statements, that a sum of ₹7,15,22,797/- constituted unexplained cash credit under Section 68. Additionally, interest expenditure amounting to ₹1,90,68,140/- was disallowed as unexplained expenditure under Section 69C of the Act.
4.1 Aggrieved, the assessee preferred an appeal before the ld. CIT(A), which was dismissed. The assessee has now preferred the present appeal before the Tribunal and raised, inter-alia, an additional ground challenging the jurisdictional validity of the reassessment proceedings under Section 147, contending that the correct and mandatory procedure was to invoke the provisions of Section 153C of the Act.
We propose to first address the additional ground since it raises a foundational legal challenge going to the root of the assessment. It is an admitted position that the information forming the very basis of the reassessment proceedings against the assessee emanated from documents and statements discovered and recorded during the course of a search conducted upon a third party, namely the „Oneworld Group‟.
5.1 During the course of the hearing on 11.06.2025, Ld. DR sought time for obtaining comments from the Ld.AO on the additional grounds raised by the assessee. In hearing date 24.06.2025, the Ld. DR filed a letter containing comments of the Ld.AO. The relevant part of the letter of Ld.AO is reproduced as under: “3.5 It is pertinent to mention here that the information in the seized material belong to the M/s. Parshwa Investment however, seized material does not belongs to M/s. Parshwa Investment. In this regard, reliance is placed on the order of the Hon'ble High Court of Delhi in the case of Pepsi Foods Pvt. Ltd. v. ACIT wherein it has been clearly stated that for 153C to apply: i) The seized material must "belong to" the assessee ii) Not merely "relate to" or "refer to" them.
Further, As per Supreme Court in Calcutta Knitwears, a valid 153C proceeding requires the AO of the searched person to record satisfaction that seized documents belong to the assessee. In this case, ownership of M/s. Parshwa Investment is not established with the seized material and only information is available in seized material which pertains to M/s. Parshwa Investment. In view of the above, the AO was justified in reopening of the case u/s 147 of the Income Tax Act, 1961 using valid information under explanation 1 to Section 147.” 5.2 On perusal of the above, it is evident that seized material pertaining to the assessee containing information related to the assessee was found and seized during the search action on the „oneworld‟ group entities. In the instant case, it is clear from the assessment records and correspondence on record that the material relied upon by the AO, namely the statements of Shri Rajesh Mehta and others, as well as documents relating to M/s Aneri Fincap Ltd. and other entities, were unearthed in the course of the search on the Oneworld Group, and not in relation to any independent inquiry against the assessee 5.3 The AO, having relied entirely on such third-party search material, nonetheless proceeded to initiate reassessment proceedings under Section 147 rather than following the special procedure envisaged under Section 153C of the Act. The Section 153C of the Act, as amended and applicable to the relevant period, lays down a specific procedure to be followed when during a search under Section 132, any books of account, documents, or information are found which pertain to, or contain information relating to, a person other than the searched person. It mandates that the AO of the searched person must record satisfaction that the seized material belongs to, or pertains to, such third person and must forward such material to the AO having jurisdiction over the said third person. Thereafter, the AO of the third person is also required to record satisfaction that such material has a bearing on the determination of the income of the third person, prior to initiating proceedings under Section 153C.
5.4 Thus, as per the express scheme of the Act, where documents seized in a search pertain or information contain therein relates to a person other than the searched person than appropriate and mandatory course of action is to proceed u/s 153C of the Act and not under 147 of the Act.
5.5 Before us Ld. counsel for the assessee relied on the decision of the Tribunal in the case of DCIT Vs Ghanshyam Rasiklal Shah in for A.Y. 2012-13. The Tribunal (supra), in circumstances materially identical to the present case, categorically held that where the entire foundation of reopening rests upon material found during a search on a third party, the appropriate course of action is to proceed under Section 153C, and not under Section 147. The Tribunal further emphasized that permitting invocation of Section 147 in such cases would render Section 153C otiose and subvert the procedural safeguards statutorily embedded therein. The Relevant finding of Tribunal is reproduced as under:
“ 8. We heard the rival submission and perused the documents available on record. The legal issue is agitated before us whether the initiation of reassessment proceedings under Section 147 of the Act, is not legally sustainable in the present case. The foundation of the reopening rests entirely on documents seized during the search and seizure operation conducted on a third party, namely the Ameya Group of Virar. As per the express scheme of the Act, where documents seized in a search pertain to or belong to a person other than the searched party, the appropriate and mandatory course of action is to proceed under Section 153C and not under Section 147. The documents cited in the assessment order (Paragraph 4) clearly form part of the material seized from the premises of the Ameya Group. No new or Independent information was unearthed by the Ld. AO in the normal course of assessment proceedings. Furthermore, the Ld. AO, despite initiating the reassessment on the basis of alleged cash receipts, ultimately made additions on an entirely different ground, namely cash payments thus deviating from the recorded reasons. Such divergence between the recorded reasons and the eventual addition undermines the very jurisdiction assumed under Section 147. It is further submitted that the Ld. AO did not establish that the documents "belonged" to the assessee, as required under the law prevailing at the relevant time to invoke Section 153C. However, if the pre-conditions of Section 153C were not met, the invocation of Section 147 based solely on the same documents amounts to circumvention of the statutory safeguards embedded in Section 153C. Allowing such a course of action would render Section 153C otiose, defeating the purpose of the special procedure laid down by the legislature. The legal position taken by the Department, relying on subsequent judicial pronouncementsin case of Hon'ble Delhi High Court in Naveen Kumar Gupta (supra), particularly post-amendment interpretations, does not apply to the facts of the present case, as the action of reopening was undertaken in 2019 in respect of AY 2012-13, and the requisite threshold under the unamended Section 153C was not fulfilled. Judicial precedents cited by the appellant-includingruling of Hon'ble Apex Court in Abhisar Buildwell (P.) Ltd (supra), Hon'ble Jurisdictional High Court in Sejal Jewellary (supra) and Coordinate bench of ITAT- Visakhapatnam in G. Koteswara Rao (supra)-strongly support the contention that where the seized documents do not belong to the assessee, the invocation of Section 147 in lieu of Section 153C is Improper. In view of the above legal and factual matrix, the assumption of jurisdiction under Section 147 by the issuance of notice under Section 148 dated 30.03.2019 is invalid and without legal sanction. Consequently, the reassessment proceedings, and the resultant additions made therein, are liable to be quashed in their entirety. Accordingly, assessee's groundsin Cross-Objection are allowed, and the reassessment proceedings held to be void ab initio.
9. Considering the above, the legal issue raised by the assessee in the cross objection is allowed. Consequently, the appeal of the revenue on merit is kept open and dismissed.” 5.6. Further, the Hon‟ble Bombay High Court in Sejal Jewellery v. Union of India (Writ Petition No. 3057 of 2019) held in no uncertain terms that where the Revenue proceeds against an assessee based solely on material found during the search of another person, recourse must be had to Sections 153A/153C, and not Sections 147/148. It was observed that the legislature, by enacting a non obstante clause in Section 153C, intended to carve out a distinct procedure for such cases to avoid overlap and jurisdictional conflict. The relevant finding of the Hon‟ble High Court(supra) is reproduced as under: “22. Applying the principles of law as discussed hereinabove, we are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against one Shilpi Jewellers Pvt. Ltd. and in such search and seizure action, materials were seized and such materials were further explored and enquired. Such enquiry revealed significant information in regard to M/s. Green Valley Gems Pvt. Ltd., which according to the Revenue had provided accommodation entries to the petitioner, in which it was also revealed that Green Valley Gems Pvt. Ltd. was a shell company. We do not find that the record would indicate something which is not on the basis of such new materials gathered under the search and seizure action under Section 132. If this be the case, then certainly the provisions of Section 153C read with Section 153A would be applicable, as held by the Supreme Court in Abhisar Buildwell P. Ltd. (supra) when the Court interpreted the effect and purport of Section 153C and 153A, as also held by the Rajasthan High Court in Shyam Sunder Khandelwal (supra).
Insofar as Mr. Suresh Kumar's contention supporting the proceedings under Section 147 and 148 of 1.T. Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the intention of the legislature as depicted by the provisions of Section 153A and 153C of the I.T. Act. There would not be any difficulty in accepting the proposition as canvassed by Mr. Suresh Kumar, referring to the decision of the Supreme Court in Phool Chand Bajrang Lal (supra), however, the facts in the present case are distinct. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 read with Section 147. We have already observed that the provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wisdom has thought it appropriate to provide for an independent effect, to be given under Section 153A read with Section 153C by incorporating the "non-obstante" clause, in these provisions, which carves out an exception to any normal/regular action being resorted under Section 147.
In this view of the matter, we are of the clear opinion that the impugned notice under Section 147 of the I.T. Act and all actions consequent thereto are required to be held to be without jurisdiction and bad in law. The petition is accordingly allowed in terms of prayer clauses (a) and (b).”
5.7 Applying the above principles to the present case, we are constrained to hold that the Assessing Officer erred in invoking jurisdiction under Section 147 of the Act when the correct legal recourse was under Section 153C of the Act. The statutory scheme does not admit of an alternative pathway where the pre-conditions of Section 153C are satisfied. Consequently, the entire reassessment proceedings initiated by issuance of notice under Section 148, culminating in the reassessment order under Section 147, are rendered void-ab-initio and are liable to be quashed for want of jurisdiction.
Accordingly, the additional ground raised by the assessee is allowed. The reassessment proceedings for A.Y. 2018-19 are hereby quashed. In view of the above decision on jurisdictional ground, the other grounds on merits are rendered academic and are not adjudicated upon.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 30/06/2025.