Loading judgment…
Facts
A search conducted on M/s Ameya Group led to the seizure of documents which indicated cash transactions between the Ameya Group and the assessee. Based on this information, the Assessing Officer (AO) reopened the assessment under Section 147 of the Income Tax Act, 1961.
Held
The Tribunal held that the reopening of assessment under Section 147 was improper. The AO should have proceeded under Section 153C of the Act, as the documents seized belonged to a third party (Ameya Group) and not directly to the assessee. Therefore, the reassessment proceedings were quashed.
Key Issues
Whether the reopening of assessment under Section 147 was valid when the information originated from a search on a third party, and whether Section 153C should have been invoked instead.
Sections Cited
147, 148, 143(3), 69A, 132, 153C, 153A, 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRINARENDRA KUMAR BILLAIYA & SHRI ANIKESH BANERJEE
The instant appeal of the revenue and the cross objection by the assessee are filed against the order of the National Faceless Appeal Centre, Delhi (NFAC) [in short, ‘Ld.CIT(A)’]passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for A.Y. 2012-13, date of order 18/07/2024. The impugned order was emanated from the order of the Learned Deputy Commissioner of Income-tax- 33(1), Mumbai (in short, the Ld. AO) passed under section 143(3) read with section 147 of the Act, date of order 18/12/2019.
The brief facts of the case are that a search was conducted under section 132 of the Act in the case of M/s Ameya group of Virar on 31/07/2014. During the course of search proceedings, the documents were seized and certain discrepancies were found pertaining to assessee. After that an information was received from the office of the Deputy Director of Income-tax (Inv)-IV(1), Thane and on that basis the Ld.AO has reopened he assessee’s case under section 147 of the Act for escaped assessment. After recording of satisfaction, the notice was issued and finally, the assessment was completed relied on the incriminating documents and the addition made amount to Rs.1,37,43,500/- under section 69A based on the seized MOU with Ameya group, addition was made of Rs.1,19,40,900/- on the basis of the seized documents, addition of Rs.25 lakhs on account of cash loan to Ameya group under section 69A and interest on loan amount to Rs. 6,60,000/- under section 69A was added back with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld. 208/Mum/2024 Ghanshyam Rashiklal Shah CIT(A). The Ld.CIT(A) had adjudicated the appeal of the assessee both on legal and on merit. The legal issue related the jurisdiction of the Ld.AO for assessment under section 148 or section 153C of the Actwas duly dismissed. But related to merit, the Ld.CIT(A) partly allowed the appeal of the assessee. Being aggrieved, the revenue filed appeal, and the assessee filed the cross objection before us.
The Ld.AR first argued the cross objection related to challenging of jurisdiction for assessment under section 148 of the Act. The Ld.AR first invited our attention to assessment order paragrapg 4 which is reproduced as below:- “4. A search action u/s 132 of the Act was carried out in the case of M/s Ameya Group of Virar on 312.7.2014. During the course of search action, certain documents were seized. On perusal of the seized documents, it was noted that the assessee has entered into certain cash transactions with Ameya Group which are discussed as under:- Sr.No. Seized document Amount of Transaction 1 Party No. A-5 Bundle No.48 Page No.4 (front side) Rs.1,52,44,700/- 2 Party No.A-13 bundle No.4 Page No.29 (front side) Rs.,1,19,40,900/- 3 Party No.A-13 Bundle No.4 Page No.1-8 (front side) Rs.1,36,43,500/- 4 Party No.A-5 Bundle No.7 Page No.64 Rs.10,50,000/- 5 Bundle No.8 (grey diary) Party No.5 page No.207 Rs.1,53,44,200/- 6 Party No.A-5, Bundle No.9 page No.71 Rs.10,50,000/- 7 Party No.A-5 Bundle No.12 page No.120 Rs.10,50,000/-
The Ld. AR submitted that, during the assessment proceedings, the Ld. AO relied upon documents seized in the course of a search and seizure action conducted on the Ameya Group of Virar on 31.07.2014. The addition made by the Ld. AO was based on these incriminating documents discovered during the said search. Accordingly, the assessee is to be treated as an “other person” in terms of the search proceedings.
208/Mum/2024 Ghanshyam Rashiklal Shah It was further contended that the reassessment is bad in law and, therefore, any addition on account of alleged escaped income cannot be sustained. The Ld. AO reopened the assessment under Section 147 of the Act,by issuing a notice under Section 148 dated 30.03.2019. From the copy of the recorded reasons for reopening, it is evident that the Ld. AO reopened the assessment for alleged AY 2012–13 with the objective of taxing alleged escaped income arising from various cash transactions, as recorded in the said reasons. The Ld. AR submitted that the reopening was based on an apparent duplication of transactions and erroneous conclusions suggesting that the assessee either received or paid certain sums. For instance, at Serial No. 1 of the chart forming part of the recorded reasons, the Ld. AO alleged that the appellant received cash amounting to Rs.1,52,44,700/-. However, the reassessment order passed under Section 143(3) read with Section 147 on 18.12.2019 makes no reference whatsoever to the alleged cash receipt. It is clear that the Ld. AO, having received information from the Investigation Wing, Thane, thoroughly examined the matter and concluded that no such cash receipt existed in the appellant’s case. Accordingly, no addition was made on that count in the reassessment order. Instead, the Ld. AO proceeded to make an addition of Rs.1,37,43,500/- on account of alleged cash payment made by the assessee to M/s. Ameya Builders & Property Developers. This clearly indicates that while the reopening of the assessment was based on one ground—receipt of cash—the actual addition was made on an entirely different ground—cash payment by the appellant. Such a course of action is impermissible under the law. It is further submitted that the Ld. AO did not examine the seized documents at the time of recording the reasons for reopening. This is evident from the reasons 208/Mum/2024 Ghanshyam Rashiklal Shah recorded, where at Serial No. 2, the Ld. AO refers to a private cash loan of Rs.119.40 lakhs allegedly received from or paid to Shri Ghanshyam R. Shah. This demonstrates that the Ld. AO did not adequately review the seized material, or else the inconsistencies in the statements would have been evident. The assessee therefore submits that the reopening was initiated without the existence of a prima facie belief that any income chargeable to tax had escaped assessment. Although the Ld. AO was in possession of information shared by the Deputy Director of Income Tax (Investigation), Thane, he failed to apply his mind to ascertain the nature of the transactions and whether income had in fact escaped assessment. The reopening appears to have been undertaken in a mechanical and routine manner, which renders it contrary to the provisions of the Act.
In argument it is stated that Improper Invocation of Section 148: Assessment should have been framed under section 153C of the Act. As recorded by the Ld. AO in the assessment order, a search and seizure operation under Section 132 of the Act was conducted on the Ameya Group of Virar on 31.07.2014. During the said operation, documents listed in Paragraph 4 on pages 2 and 3 of the assessment order were found and seized. These documents allegedly reflected unaccounted cash transactions involving the appellant and the Ameya Group. The appellant contends that, in view of the above facts, the assessment ought to have been completed under Section 153C of the Act,and not under Section 147. The relevant provision, Section 153C, provides that if during a search, any books of account or documents are found which belong to a person other than the searched person, then such documents must be handed over to the Assessing 208/Mum/2024 Ghanshyam Rashiklal Shah Officer having jurisdiction over that “other person,” and any assessment or reassessment must be carried out in accordance with Section 153A, not Section 147. In the present case, the reopening was based entirely on documents found during the search on the Ameya Group. No fresh information came to the notice of the Ld. AO during the normal course of proceedings. Hence, invoking Section 147 on the basis of such documents is unjustified. The Ld. AO has failed to appreciate that Section 153C is a non-obstante provision that overrides the provisions of Section 147, among others. Therefore, the Ld. AO has erred in reopening the assessment under Section 147, rather than proceeding under Section 153C. Permitting action under Section 147 in such circumstances would render Section 153C redundant. Accordingly, the assumption of jurisdiction under Section 147 by issuance of notice under Section 148 dated 30.03.2019 is invalid, and the resulting assessment is liable to be quashed. The assessee, under Ground No. 3, has challenged this erroneous assumption of jurisdiction.
The Ld. AR supports its contention with the following decisions: G. Koteswara Rao v. DCIT [2015] 64 taxmann.com 159 (Visakhapatnam - Trib.). The bench has taken the following observations which are as follows:- “12. Under the provisions of section 147, the Assessing Officer is having power to re-open the assessment, if he is of the opinion that the income chargeable to tax has escaped assessment. Before doing so, the Assessing Officer should satisfy himself that, there is material which suggests that there is an escapement of income. The AO can exercise these powers with a reasonable belief coupled with some material which suggest the escapement of income. Once the conditions precedent for assumption of jurisdiction to commence the reassessment proceedings, he has to cross the hurdles attached with reassessment by way reasons for 208/Mum/2024 Ghanshyam Rashiklal Shah reopening of assessment, time limit for issue of notice and provision for obtaining sanction of higher authority in certain circumstances. Under the provisions of section 153A to 153C these hurdles are cleared by using the non abstante clause in the said section. In other words, under the new provisions of section 153A, the AO is not required to satisfy these conditions before issue of notice. The only requirement is that there should be a search action u/s 132 or books of account, other documents or any other asset are requisitioned under section 132A. Therefore, we are of the opinion that though, the Assessing Officer from both sections empowered to tax the income escaped from tax, both are works in a different situations, i.e. section 147 comes in to operation where there is an escapement of income chargeable to tax and section 153A comes in to operation where there is search u/s 132.
Under the provisions of section 153A, the Assessing Officer is bound to issue notice to the assessee to furnish the returns of income for each assessment years falling within the six assessment years immediately preceding the assessment year in which search or requisition is made. Another significant feature of this section is that the Assessing Officer is empowered to assess or reassess the total income of the aforesaid period which includes disclosed and undisclosed income. Therefore, the new provisions has given wide powers to the Assessing Officer to assess or reassess the total income of six assessment years falling within the period of those six assessment years immediately preceding the assessment year in which search is conducted. Under the new provisions of section 153A, the statute is provides wide powers to the Assessing Officer in respect of assessments already completed u/s 143(1) or 143(3). If such orders is already in existence prior to the initiation of search, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, found during the course of search. For this purpose, the restrictions imposed on the Assessing Officer by way of sections 148 to 153 to reopen the assessment u/s 147 has been removed by the non abstante clause used in section 153A.
In the present case on hand, admittedly, the Assessing Officer has reopened the assessment based on a search conducted in a third party case. The AO formed the opinion based on the statement recorded from the assessee, consequent to post search proceedings taken up by the DDIT(Inv), which shows undisclosed income which is the very basis of reopening the assessment. The search is conducted on 22- 208/Mum/2024 Ghanshyam Rashiklal Shah 8-2008 which comes under the assessment year 2009-10. The Assessing Officer reopened the assessment year 2008-09, which is falling within those six assessment years immediately preceding the assessment year in which search is conducted. The assessee case falls within the provisions of section 153C, as the incriminating document seized in the case of search in another case. The Assessing Officer, on satisfying the above condition is under obligation to issue notice to the person requiring him to furnish the return for the six assessment years immediately preceding the assessment year in which search is took place. Thereafter, the Assessing Officer has to assess or reassess the total income of those six assessment years. The word "shall" used in section 153A made it clear that the Assessing Officer has no option, but to issue notice and proceed thereafter to assess or reassess the total income. In the instant case, the Assessing Officer issued notice u/s 148 to reopen the assessment. Therefore, in view of the non-abstante clause begin with section 153A, the Assessing Officer has no jurisdiction to issue notice u/s 148 reopen the assessment of those six assessment year which falls within the exclusive jurisdiction of section 153A. Though, both provisions of the Act empowers the Assessing Officer to assess or reassess the income escaped from assessment, both sections are dealing with different situations. Section 147 comes into operation when, the Assessing Officer believes that there is an escapement of income chargeable to tax, either from the return already filed or through some external material evidence came to his knowledge, which shows the escapement of income. Whereas, section 153A comes into operation when there is search u/s 132 or books of accounts, or any other asset or other documents requisitioned u/s 132A. If Assessing Officer justified in proceeding with section 147 to reopen the assessment, then there would be no relevance to section 153A, which was inserted in to the Act to deal exclusively with search cases. The legislators in their wisdom clearly spelt out the provisions of law applicable to search cases by using the word shall to begin with section 153A, made it mandatory that the Assessing Officer bound to issue notice u/s 153A or 153C, thereafter proceed to assess or reassess the total income, where search is conducted u/s 132 or requisition is made u/s 132A. Therefore, in our opinion, the AO is not justified in reopening the assessment u/s 147 and his order is illegal and arbitrary.”
Additionally, the Ld. AR respectfully relies on the following judgments: i) Abhisar BuildwellPvt. Ltd. v. Union of India[2023] 149 taxmann.com 399 (SC) ii) Sejal Jewellaryv.UOI [2025] 171 taxmann.com 846 (Bombay). The observations are reproduced as below:-
208/Mum/2024 Ghanshyam Rashiklal Shah “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 I.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).”
The Ld.DR vehemently argued and submitted a written submission, which is containing pages 1 to 19. Defending the legal arguments of the Ld. AR, the Ld. DR submitted the following, which is reproduced as follows: – “Ground IV: Assessee's Cross-Objection 1, 2 & 3 Validity of Reopening (Section 147 vs. 153C)
The assessee has raised legal objections that the reassessment u/s 147 was invalid, arguing that the information came from a search on a third party and hence proceedings should have been taken under Section 153C instead. Both the AO and the CIT(A) have rightly rejected these technical objections. The Revenue fully supports the CIT(A)'s findings on this aspect:
Section 147/148 was correctly invoked: At the time of issuing notice u/s 148 (March 2019), the AO was in possession of concrete evidence of unaccounted income of the as-sessee (the seized documents). He recorded satisfaction and obtained approval from the statute. The reason to believe was eminently justified. The fact that the eventual additions in assessment included items beyond (or different from) the initial specific tip-off does not vitiate the proceeding. It is settled law that the exact quantification or pinpoint precision of escaped income is not required at the stage of reopening; it is enough that the AO has a prima facie reasonable belief. As CIT(A) noted, "the reasons recorded are not required to be exact and precise... Ultimately, the addition may crystallize or not, depending on verification, but that does not make the reopening bad in law". Here, importantly, the very items that formed the crux of the AO's reason (cash transactions with Ameya) did lead to additions (over ₹31 lakh still sustained). So the premise of reopening was borne out. The cross-objector's claim that "no addition was made on the grounds recorded" is factually wrong. The AO's recorded reasons spoke of undisclosed dealings with Ameya, which indeed were assessed (even if quantum differed). In any case, as a matter of law, even if the particular transaction initially suspected had not been added, the AO is empowered to assess other escaped income found in the course of proceedings (Section 147 gives wide Section 153C vs 147: The assessee's contention that only Section 153C (and not 147) could be used because the info came from a search, is not supported by the law as it stood or as it stands now. It is true that Section 153C is a special procedure for assessing third-party search cases, but it does not bar the normal provisions of 147 where its stringent preconditions are not met. The critical distinction is that, at the time of this case, the law required that seized documents or assets must "belong to" the other person for Section 153C to be triggered. In this case, the seized documents, albeit pertaining to the as-sessee's transactions, were undeniably owned and maintained by the Ameya Group (the searched party). They were not books or assets handed over to the assessee or originating from him legally, they did not "belong" to Mr. Shah. CIT(A) examined this in detail and concluded that "the provisions of section 153C are not attracted for the sin-gular reason that the relevant seized documents do not belong to the appellant. The AO is correct to invoke section 147". This finding is firmly in line with judicial precedents (e.g. PepsiCo India Holdings (Delhi HC), which interpreted "belongs to" narrowly). In fact, it was precisely the recognized loophole (documents pertaining to a third party but not "belonging" to him) that allowed the Department to resort to Section 147 in such cases. Subsequent legal developments: The Bench may be aware that Section 153C was amended in 2015 (to refer to items that "pertain to" the other person), and the Supreme Court has since held that amendment retrospective. However, even post-amendment, courts have held that Section 153C does not bar action under Section 147. The Delhi High Court in Principal Commissioner of Income-tax vs. Naveen Kumar Gupta [2024] 168 taxmann.com 574 (Delhi) [20-11-2024) has explicitly affirmed: "Section 153C... does not by itself preclude an Assessing Officer from reopening the assessment u/s 147/148 based on data discovered in a search on another person." The Court observed that if the AO of the searched person or other person does not choose to invoke 153C, "recourse to Section 147/148 is not ousted". In our case, the AO of the searched person (Ameya) did forward the evidence, but the Department, in its wisdom (and given timing constraints), proceeded under 147. There is no statutory provision that voids a 147 208/Mum/2024 Ghanshyam Rashiklal Shah action in such circumstances section 153C's non-obstante clause only means that if 153C is taken, it has priority over 147 for those years, not that 147 is prohibited if 153C is possible. This position is supported by other High Courts as well (e.g. Gujarat HC in Amar Jewellers Ltd. vs. Assistant Commissioner of Income-tax [2022] 137 taxmann.com 249 (Gujarat)/[2022] 444 ITR 97 (Gujarat)[31-01-2022] cited by Delhi HC). The assessee's reliance on contrary ITAT rulings or the non obstante clause is misplaced because, as Delhi HC noted, the non-obstante clause applies only when the AO has assumed jurisdiction under 153C. Here, the AO did not (and could not, since the strict "belonging" test wasn't satisfied). Therefore, the reopening is valid. The CIT(A) was correct in dismissing Ground 1-3 of the appeal on this issue.
In summary, the assessee's cross-objections challenging jurisdiction are devoid of merit. The Department has scrupulously followed procedure (sanction from Pr.CIT, reasoned order) and in substance, income that had escaped was brought to tax. To accept the assessee's technical plea would mean letting admitted undisclosed income go untaxed purely due to a procedural nuance an outcome neither justified by law nor equitable. The Tribunal, we submitted, should firmly uphold the reopening's validity, consistent with CIT(A)'s well-reasoned order and the legal principles stated above.
Thus, Cross-Objection Nos. 1, 2, 3 should be dismissed, and the assessment proceedings held to be valid in toto.”
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 208/Mum/2024 Ghanshyam Rashiklal Shah 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- 208/Mum/2024 Ghanshyam Rashiklal Shah Visakhapatnam inG. 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.
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.