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Facts
The assessee, a non-resident, did not file a return of income for AY 2011-12. Information received indicated she advanced cash loans, the source of which was unexplained. The assessment was reopened under Section 147 based on seized documents from a related search.
Held
The Tribunal held that the reassessment proceedings were wrongly initiated under Section 147 of the Act, as the material found was seized during a search, and proceedings should have been initiated under Section 153C of the Act. The initiation under Section 147 was found to be without jurisdiction.
Key Issues
Whether reassessment proceedings initiated under Section 147 are valid when the basis of reopening is material seized during a search, and proceedings under Section 153C were potentially applicable.
Sections Cited
148, 147, 131(1A), 132, 143(3), 153C, 153
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
ORDER
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assesseeis against the Order passed by the CIT, vide DIN No.ITBA/APL/M/250/2023-24/1054021903 (1) dated 28.06.2023, for the Assessment Year 2011-12.
Briefly stated, the facts of the case are that the assessee is a non-resident. The assessee did not file return of income for the Assessment Year 2011-12 despite having taxable income and investments in mutual funds. The AO had information that the assessee had advanced cash loans during the year, the source of which was not explained. The assessee's assessment for the Assessment Year 2011-12 was reopened with the approval of the CIT and notice under section 148 of the Act was issued on 31.03.2018. After issuance of notice, assessee filed return of income on 25.04.2018 declaring total income of Rs.4,06,180/- and paid Page 2 of 7 taxes thereon. Thereafter,other statutory notice were issued to the assessee. Assessee sought copy of reasons recorded which wasprovided to the assessee and the same is kept at Paper Book Page Nos.8 and 9 which is as under:
The assessee filed objections which was disposed off. During the course of proceedings, the documents were found and marked as A/MAR-CCD/01 and seized from the master bedroom of the assessee under section 132 of the Act on 21.09.2017. The diary belonged to Smt. Mamta. The diary contained the details of the daily activity of Smt. MamtaAjila. On the day of search, Smt. Mamta was not in station and statement under section 132(4) of the Act from Shri. Ashwin Ajila, the husband of Smt. Mamta Ajila on the day of search and seizure and confirmed that the diary belong to his wife. Subsequently, statement of Smt. MamtaAjila under section 131(1A) of the Act on 23.01.2011 was recorded about the diary and the entries contained in it. The entries in the seized diary revealed that the assessee had lent a sum of Rs.50 lakhs in cash to Shri. V. G. Siddhartha in the Assessment Year 2011-12. Based on the entries contained in assessee's Page 4 of 7 diary, assessee was issued notice under section 148 of the Act dated 31.03.2018. The objections filed by the assessee were overruled by the AO and assessment was duly completed by order dated 31.12.2018 under section 143(3)r.w.s.147 of the Act and Rs.50 lakhs was added to the total income and income was determined at Rs.54,06,170/-.
Aggrieved from the Assessment Order, assessee filed appeal before the CIT(A) which was dismissed by the CIT(A) and aggrieved from the Order of CIT(A), assessee filed appeal before the Tribunal.
The learned Counsel reiterated the submissions made before the ld.CIT(A) and he strongly contested that the proceedings ought to have been initiated under section 153C of the Act and not under section 147 of the Act because the reason for initiation of assessment proceedings is based on material found and seized under section 132 of the Act and the said material has a bearing on the income of the assessee. The proceedings initiated under section 147 of the Act is therefore without jurisdiction and hence liable to be held as invalid assessment. In support of his arguments, he relied on the following judgments :
(i) ITO vs. Vikram Sujitkumar Bhatia, reported in 453 ITR 417 (SC) (ii) Dinakar Suvarna vs DCIT Central Circle in of 2015, Order dated 08.07.2022 of jurisdictional High Court of Karnataka. (iii) The Pr Commissioner Of Income Tax vs M/S Vsl Mining Company Pvt Ltd., Order dated 20.09.2024. (iv) Shyam Sunder Khandelwal Vs ITO reported in 161 taxmann.com 255 (Rajasthan) (v) M/s. Ickon Projects Vs. ITO in 772/Bang/2017, Order dated 26.10.2023. (vi) M/s. Ickon Projects Vs. ITO in ITA No.156/202 of jurisdictional Hon'ble High Court of Karnataka, Order dated 28.10.2022.
On similar set of facts, the issue has been decided in favour of the assessee that the AO should have initiated proceedings under section 153C of the Act but not under sections 147/148 of the Act.
7. On the other hand, learned DR relied on the Order of the lower authorities and submitted that the assessee is non-filer and assessee had taxable income. After receiving notice, he has filed return of income and paid taxes thereon. Therefore, the entire case laws relied on by the learned Counsel for the assessee are not applicable to the present case. There is no doubt that materials relied on by the AO for making addition was found during the course of search and marked as A/MAR-CCD/01 and A/MAR-CCD/03 and seized from the residence of Smt. Mamta Ajila and there was an entry made in the name of assessee which was confirmed by Smt. Mamta Ajila who is sister of the assessee when the statements were recorded on 10.01.2017 under section 131(1A) of the Act.
Considering the rival submissions, materials available on record and Order of the lower authorities, we notice that it is an undisputed fact that the reassessment proceedings were initiated under section 147 of the Act based on documents found and seized in search proceedings under section 132 of the Act which is clear as per the copy of the reasons recorded and communicated to the assessee and it is also clear from the Assessment Order itself that addition made is based on material found and seized under section 132 of the Act. It is also a fact that search under section 132 of the Act being conducted in September, 2017 and there was sufficient time to initiate proceedings under section 153C of the Act for Assessment Year 2011-12 under substitute provisions of section 153C of the Act w.e.f. dated 01.06.2015. Limitation to initiating proceedings under section 153 of the Act would expire on 31.03.2021 as the income which is believed to have escaped assessment is Rs.50 lakhs. The learned Counsel for the assessee submitted that for Assessment Year 2012-13 and onwards, action has Page 6 of 7 been initiated under section 153C of the Act by the AO vide notice dated 22.02.2021 considering the case laws relied on by the learned Counsel for the assessee in the case of Ickon Projects Vs. ITO in 772/Bang/2017. For the sake of convenience, we are reproducing para No.9 of the Order as under:
"9. 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 & 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."
The case laws relied on by the learned DR in the case of PCIT-7 Vs. Naveen Kumar Gupta reported in 168 taxmann.com 574 (Delhi) is not applicable to the facts of the present case since on the similar facts, there is a judgment of the jurisdictional Hon'ble High Court wherein it has been decided in favour of the assessee. Here in this case, the very basis for reopening is on the basis of material found during the course of search marked as A/MAR-CCD/01 and A/MAR-CCD/03 ana assessee has offered income and paid taxes thereon. Considering the facts and circumstances of the case and respectfully following the decision of the jurisdictional Hon'ble High Court and Co-ordinate Bench of the Tribunal, we are deciding this issue in favour of the assessee.
Pronounced in the court on the date mentioned on the caption page.