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Facts
The assessee's appeal arose from an order u/s 147 of the Act, which was based on material seized during a search in another group's case. The assessee argued that proceedings should have been initiated under Section 153C, not Section 147, as the material belonged to a third party.
Held
The Tribunal held that if incriminating material seized relates to a person other than the one searched, proceedings must be initiated under Section 153C, not Section 147/148. Since notices u/s 148 were quashed and notices u/s 153C were subsequently issued, the appeals became infructuous.
Key Issues
Whether reassessment proceedings initiated under Section 147/148 are valid when the seized material pertains to a third party, or if Section 153C should have been invoked.
Sections Cited
147, 148, 153C, 153A
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A-Bench” JAIPUR
Before: SHRI MANISH BORAD, AM & SHRI NARINDER KUMAR, JM
vkns'k@ORDER PER: MANISH BORAD, AM This appeal at the instance of the assessee is directed against the order of ld. CIT(A), Jaipur-5, dated 03.12.2024 which is arising out of the order u/s 147 of the Act dated 26.05.2023 for A.Y 2015-16 framed by Central Circle-4, Jaipur.
Siddhartha Totuka , Jaipur.
At the outset, Ld. Counsel for the assessee submitted that the assessment order for A.Y. 2015-16 was framed by the Assessing Officer u/s 147 of the Act pursuant to the search action carried out in the case of Ramesh Manihar Group. However when the validity of issue of notice u/s 148 of the Act for carrying out reassessment proceedings u/s 147 of the Act challenged before the Hon’ble High Court, assessee succeeded. Hon’ble Court held that since the reassessment proceedings has been carried out based on the material gathered during the course of search, the Ld. AO ought to have initiated the proceedings u/s 153C of the Act relevant for the persons “other than the searched persons”. He further submitted that subsequently Ld. Assessing Officer has issued fresh notice u/s 153C of the Act dated 10.01.2025 for A.Y. 2015-16 to the assessee and therefore, the present appeal of the Revenue deserves to be dismissed as infructuous.
On the other hand, department representative did not oppose the contention made by the ld. Counsel for the assessee.
We have heard the rival contentions and perused the record placed before us. We note that very same issue came for adjudication before us “7. Record reveals that on the basis of information available with the concerned Assessing Officer, separate notices u/s 148 of the Act, came to be issued to the above named assessees, and the proceedings led to passing of the above mentioned assessment orders. When the above said assessment orders were challenged by way of appeals, Learned CIT(A) allowed all the appeals on the technical ground that notices u/s 148 of the Act were legally not sustainable. In this regard, Learned CIT(A) placed reliance on decision of our own Hon’ble High Court in Shyam Sunder Khandelwal vs. Assistant Commissioner of Income Tax, (2024) 161 taxmann.com 255 (Rajasthan), D.B. Vivil Writ Petition No. 18363/2019. Learned CIT(A) held that as per said decision, notice u/s 148 of the Act having been quashed, the order passed by the Assessing Officer had become ineffective, for want of notices u/s 153C of the Act.
At this stage, for ready reference, observations made by Hon’ble High Court in the above cited case need to be reproduced. Same read as under:-.
"23. The reasons supplied in case in hand for initiation of proceedings under Section 147/148 are based on the incriminating material and documents including Pen Drives seized during the search carried out of the Manihar Group and the statements recorded during proceedings. From the information received the AO noticed that the loan advanced and interest earned thereon were unaccounted. In other words the basis for initiation of Section 148 proceedings is the material seized relating to or belonging to the petitioner, during the search conducted of Manihar Group.
In the case where search or requisition is made, the AO under Section 153A mandatorily is required to issue notices to the assessee for filing of income tax return for the relevant preceding years. The AO assumes jurisdiction to assess/reassess 'total income' by passing separate order for each assessment.
In cases of the person other than on whom search was conducted but material belonging or relating such person was seized or requisition, the AO has to proceed under Section 153C. The two pre-requisites are that the AO dealing Siddhartha Totuka , Jaipur. with the assessee on whom search was conducted or requisition made, being satisfied that seized material belongs or relates to other assessee shall hand over it to AO having jurisdiction of such assessee. Thereafter, the satisfaction of AO receiving the seized material that the material handed over has a bearing for determination of total income of such other person for the relevant preceding years. On fulfillment of twin conditions the AO shall proceed in accordance with the provisions of Section 153A.
Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 1530 have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148.
Section 153A and 153C starts with non-obstante clause. The procedure for assessment reassessment in Section 153A, 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139, 147, 148, 149, 151 & 153.
The language of explanation 2 to new Section 148 is akin to Section 153A and Section 153C. Corollary being that after seizing of operational period of Section 153A to 153D, the cases being dealt thereunder were circumscribed in the scope of newly substituted Section 148.
The Department has not set up a case that for initiating proceedings under Section 148 it had material other than the material seized during the search of Manihar Group. The contention was that though the material with regard to unaccounted loan advanced by the petitioner was received, the earning of interest on unaccounted loan was derivation of the AO from the material received. The submission is that the derived conclusion cannot be acted upon under Section 153C. The submission lacks merit and shall defeat the concept of single assessment order for each of relevant preceding years for assessing 'total income' in case of incriminating material found during search or requisition.
The argument that by enactment of Section 153A to 153D has not eclipsed Section 148 does not enhance the case of respondent to initiate the proceedings under Section 148. On fulfillment of two conditions for invoking Section 153C the proceeding in accordance with Section 153A are to be initiated. The operating field of and Section 1534 to 153D and Section 148 are different Applicability of Siddhartha Totuka , Jaipur. Section 153C in cases where the seized material related to or belonged to person other than on whom search is conducted or requisition made does not render Section 148 otiose. Section 148 shall continue to apply to the regular proceedings and also in cases where no incriminating material is seized during the search or requisition.
The other aspect of the matter is that under Section 153A and 153C, the total income' is to be assessed. The total income includes returned income (if any), undisclosed income unearthed during the search or requisitioning and information possessed from the other sources. For Illustration: An assessee had returned income of Rs.100, undisclosed Income of Rs.200 is unearthed during search and there is information from annual information statement of non- disclosure of income of Rs. 150/-, The AO under Section 153A and 1530 shall pass order dealing with income of Rs. 100+Rs.200+Rs.150, the total income being Rs.450/-. In cases where there is no unearthing of undisclosed income of Rs.200/-, the department can resort to proceeding under Section 147/148.
The argument that Section 153C can be invoked in case there is incriminating material for all the relevant preceding years and otherwise Section 148 is to be resorted to, is misplaced. On satisfaction of the twin condition for proceedings under Section 153C, the AO has to proceed in accordance with Section 153A. Notice is to be issued for filing of the retums for relevant preceding years and thereupon proceed to assessee or reassesses the 'total income'. It is not obligatory on the AO to make assessment for all the years, the earlier orders passed may be accepted. But once there is incriminating material seized or requisitioned belonging or relatable to the person other than on whom search was conducted, Section 153C is to be resorted to.
In view of above discussion the notices issued under Section 148 and the impugned orders are quashed. However, the respondents shall be at liberty to proceed against the petitioners in accordance with law."
While referring to the above said decision by our own Hon’ble High Court, Learned CIT(A) observed that in the case of a person, other than on whom search was conducted, the material belonging or relating to such person was seized or requisitioned, the AO had to proceed u/s 153C of the Act, instead of section 147/148 of the Act, the reason being that the proceedings were initiated on the basis of incriminating material in the form of documents including pen- drives seized during search at the premises of the group, named therein, as well as statements recorded during said proceedings.
Siddhartha Totuka , Jaipur.
It may be mentioned here that today when all these appeals have been taken up for hearing, it has been brought to our notice that notices u/s 153C of the Act have been issued by the department to the above named assessee(s), in respect of the above said respective assessment years, requiring them to prepare true and correct return for their total income of the said assessment years. Ld. DR for the department admits issuance of said notices u/s 153C of the Act to the assesses.
In the given situation, from the factum of issuance of notices under section 153 C of the Act, it can safely be said that the department has given effect to the abovesaid decision by our own Hon’ble High Court, even though the department is stated to have challenged said decision before Hon’ble Apex Court.
Result 12. As a result, we find that all these 7 appeals filed by the department have become infructuous. Accordingly, same are hereby dismissed. “
On perusal of the above decision in the case of JCIT(OSD) vs. Sh. Vijay Kumar Mehta in & 55/JPR/2025, we find that facts of the instant case are same and the above referred decision is squarely applicable and ld. DR failed to controvert by placing any other binding decision in its favour. We therefore fail to find any infirmity in the order of Ld. CIT(A). Grounds of appeal raised by the Revenue are dismissed as infructuous.
Siddhartha Totuka , Jaipur.
In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on 03/07/2025. Sd/- Sd/- ¼ ujsUnz dqekj ½ ¼ euh"k cksjkM ½ (NARINDER KUMAR) (MANISH BORAD) U;kf;d lnL;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 03/07/2025 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- JCIT (OSD), Central Circle-4, Jaipur. 1. 2. izR;FkhZ@ The Respondent- Siddhartha Totuka, Jaipur. 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेजज. त्महपेजतंत