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Facts
A search and seizure action was conducted on Ramesh Manihar Group, revealing information about cash loan finance and brokerage. This information was forwarded to the jurisdictional AO, who initiated reassessment proceedings against the assessee under Section 147 for alleged unaccounted cash loans and interest income.
Held
The Tribunal held that the notice issued under Section 148 and the subsequent assessment order were invalid because the proceedings were initiated based on seized material belonging to a third party, which should have been processed under Section 153C. The Hon'ble High Court, Rajasthan's decision quashing similar notices was applied.
Key Issues
Whether the reassessment proceedings initiated under Section 147/148 were valid when the basis was seized material related to a third party, and if Section 153C was the appropriate provision to invoke.
Sections Cited
147, 143(3), 148, 153C, 132, 143(2), 142(1), 139, 149, 151, 153, 153A
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No.1171/JPR/2024
fu/kZkj.k o"kZ@Assessment Years : 2012-13 Deputy Commissioner of Income cuke Jitendra Kumar Daga Tax, Vs. 1370, Tara Chand Naib Ka rasta Central Circle-4, Johri Bazar, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABXPD6015E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Siddharth Ranka, Adv. jktLo dh vksj ls@ Revenue by : Smt. Runi Pal, CIT a lquokbZ dh rkjh[k@ Date of Hearing : 19/02/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 05/05/2025 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M.
This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals), Jaipur-5 dated 18.07.2024 [hereinafter referred as “CIT(A)”] for the assessment year 2012-13, which in turn arise from the order dated 13.12.2019 passed under section 147 r.w.s. 143(3) of the Income Tax Act, [In short “Act” ] by the AO.
Jitendra Kumar Daga, Jaipur 2. The assessee has raised following grounds:- “i) Whether the Learned CIT(A) erred in quashing the assessment proceedings based solely on the High Court judgment in DBCWP 18363/2019, without considering the unique facts and circumstances of the present case.
(ii) Whether on the facts and circumstances of the case and in law, the Hon. CIT (A) is justified in holding that notice u/s 148 is not sustainable legally relying upon the order of Hon'ble Rajasthan High Court's order dated 19.03.2024 in D.B. Civil Writ Petition No. 18363/2019 and several other linked petitions wherein wrongly held that 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 without giving any finding that issuance of notice under section 148 was incorrect. Thus, the CIT (A) is not justified in quashing notice issued u/s 148 of the Act.
(iii) Whether the Learned CIT(A) erred in overturning the issuance of a notice under Section 148 of the Income Tax Act, 1961, despite the precedent set by the Hon. Supreme Court of India in Deputy Commissioner of Income Tax (Central) Circle 1(2) V/s. M/s. M.R. Shah Logistics Private Limited (2022) 14 SCC 101. In light of the Supreme Court's ruling in the aforementioned case, the Learned CIT (A) should have upheld the issuance of the notice under Section 148, unless there were compelling reasons to deviate from the established legal precedent.
(iv) The appellant craves leave to add, amend or withdraw any of the ground of appeal during the course of appellate proceeding.”
3. The brief facts of the case are that a search & seizure action u/s 132 of the Income Tax Act, 1961 was carried out in the case of Ramesh Manihar Group on 07.01.2016. The information revealed that the group was indulged in cash loan finance on large scale. During the course of search, voluminous data comprising of excel sheets in 18 pen-drives seized from the main office of the Ramesh Manihar Group at 303, Ratna Jitendra Kumar Daga, Jaipur Sagar, MSB Kaa Rasta, Johari Bazar, Jaipur, which consisted details of cash loans financed by the Ramesh Manihar Group. The information further revealed that the persons of the Ramesh Manihar Group, being Shri Ramesh Chand Maheshwari and Shri Manmohan Krishan Bagla were engaged as finance brokers for arranging cash loans between various borrowers and lenders which were not reflected in the books of accounts and that the brokerage received for such unrecorded cash transactions was also not offered for taxation by the group. As per the information, investigation wing carried out an investigation and names of lender were identified out of the names which were recorded in the said data and it was established that the appellant was associated with the above group and had paid cash loans from undisclosed income and received interest income on these loans. The information in respect of the appellant was forwarded by DCIT, Central Circle-3, Jaipur to the jurisdictional AO. After receiving the above information, the AO had analysed the information and recorded reasons for escaped assessment within the meaning of section 147 of the I.T. Act, 1961 for issuance of notice u/s 148 of the I.T. Act, 1961.
3.1 Accordingly, notice u/s 148 of the I.T. Act, 1961 was issued on 29.03.2019 to the appellant after taking the necessary approval of the competent authority. The notice u/s 148 of the I.T. Act, 1961 was duly Jitendra Kumar Daga, Jaipur served upon the appellant. In compliance of the same, the appellant had filed his return of income. Notices u/s 143(2) of the I.T. Act, 1961 and notice u/s 142(1) of the I.T.Act, 1961 were issued. During the course of assessment proceedings, the appellant had filed objection against the reopening of assessment proceedings, which were duly disposed off by the AO. Considering the reply of the appellant and the facts of the case, the AO had passed an order u/s 147 r.w.s. 143(3) of the I.T.Act, 1961 vide order dated 13.12.2019 at the total income of Rs.2,39,02,595/- considering the undisclosed cash loans of Rs.2,08,00,000/- and interest earned of Rs. 31,02,595/- on these loans.
Aggrieved from the order of AO, the Revenue preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:-
4.2 Conclusion: I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:- 4.2.1 A search & seizure action u/s132 of the Income Tax Act, 1961 was carried out in the case of Ramesh Manihar Group on 07.01.2016. The information revealed that the group was indulged in cash loan finance on large scale. During the course of search, voluminous data comprising of excel sheets in 18 pen-drives seized from the main office of the Ramesh Manihar Group at 303, Ratna Sagar, MSB Kaa Rasta, Johari Bazar, Jaipur, which consisted details of cash loans Jitendra Kumar Daga, Jaipur financed by the Ramesh Manihar Group. The information further revealed that the persons of the Ramesh Manihar Group, being Shri Ramesh Chand Maheshwari and Shri Manmohan Krishan Bagla were engaged as finance brokers for arranging cash loans between various borrowers and lenders which were not reflected in the books of accounts and that the brokerage received for such unrecorded cash transactions was also not offered for taxation by the group. As per the information, investigation wing carried out an investigation and names of lender were identified out of the names which were recorded in the said data and it was established that the appellant was associated with the above group and had paid cash loans from undisclosed income and received interest income on these loans. 4.2.2 The information in respect of the appellant was forwarded by DCIT, Central Circle-3, Jaipur to the jurisdictional AO. On receiving the information, AO has recorded reasons for escaped assessment within the meaning of section 147 of the 1.T.Act, 1961 for issuance of notice u/s 148 of the IT Act, 1961 and notice u/s 148 of the I.T.Act, 1961 was issued to the assessee after taking the necessary approval of the competent authority. 4.2.3 Considering the reply of the appellant and the facts of the case, the AO had passed an order u/s 147 r.w.s. 143(3) of the 1.T.Act, 1961 vide order dated 13.12.2019 at the total income of Rs.2,39,02,595/- considering the undisclosed cash loans of Rs.2,08,00,000/- and interest earned of Rs. 31,02,595/- on these loans. 4.2.4 During the course of appellate proceedings the appellant has objected the validity of notice issued u/s148 of the I.T.Act, 1961 and the order passed u/s 147 r.w.s 143(3) of the I.T.Act, 1961 and making additions on account of alleged cash loans and interest on cash loans. Appellant in his reply has also raised a questioned on issuance of notice under Section 148 of the I.T.Act, 1961 where the case was re- opened on the basis of seized material during the search conducted on Ramesh Manihar Group and submitted that the proceedings should have to be initiated under Section 153C of the I.T. Act, 1961. 4.2.5 Meanwhile, when the appellate proceedings were in progress in the present case, the Hon'ble High Court, Rajasthan has passed a common order dated 19.03.2024 in D.B. Civil Writ Petition No.18363/2019 and several other linked petitions. These writ petitions were filed by the petitioners, whose cases were re-opened u/s 148 of the I.T.Act, 1961 on the basis of incriminating documents Jitendra Kumar Daga, Jaipur seized during the course of search proceedings in the case of Ramesh Manihar Group, Jaipur. In the above order Hon'ble High Court, Rajasthan has quashed the notices issued under Section 148 and the resultant assessment orders. 4.2.6 The findings of Hon'ble High Court, Rajasthan in the above order dated 19.03.2024 in D.B. Civil Writ Petition No.18363/2019 and several other linked petitions are 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 carmed 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 AQ 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 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 1534.
Special procedure is prescribed under Section 153A to 1530 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 1534 to 1530 have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148.
Jitendra Kumar Daga, Jaipur 27. Section 1534 and 153C starts with on-obstante clause. The procedure for assessment/reassessment in Section 153A, 1530 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 1530 Corollary being that after seizing of operational period of Section 1534 to 1530, 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 eaming of interest on unaccounted loan was derivation of the AQ 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 1530 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 153A to 1530 and Section 148 are different. Applicability of 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 31. The other aspect of the matter is that under Section 1534 and 1530, 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 153C 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 Jitendra Kumar Daga, Jaipur 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 returns 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 1530 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." 4.2.7 In the above order Hon'ble High Court, Rajasthan has quashed the notices issued under Section 148 and the resultant assessment orders. As per the above judgement, 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 of the Act instead of section 147/148 of the Act., as the proceedings in the relevant cases were initiated based on the incriminating material and documents including Pen Drives seized during the search carried out of in the case of Ramesh Manihar Group and the statements recorded during proceedings. Further, as per the order of the Hon'ble High Court, Rajasthan, applicability of 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. 4.2.8 As per decision of Hon'ble High Court, Rajasthan in the above writ petition, it is clear that the notice issued u/s 148 of the I.T.Act, 1961 and the assessment order in the cases which were reopened on the basis of incriminating documents seized during the course of search in the case of Ramesh Manihar Group are quashed.
Jitendra Kumar Daga, Jaipur 4.2.9 Considering the facts of the present case, it is noticed that the case of the appellant was also reopened u/s 148 of the I.T.Act, 1961 by the Id. AO on the basis of information of advancing of unaccounted cash loans by the appellant through the broker Sh. Ramesh Chand Maheshwari and on the basis of seized material during the course of search proceedings in the Ramesh Manihar Group. 4.2.10 In the light of the above decision, as the facts of the present case are similar, hence the above judgement of Hon'ble High Court is squarely applicable in the present case of the appellant. 4.2.11 Accordingly, the order passed by the AO u/s 147 r.w.s. 143(3) of the I.T.Act, 1961 has become ineffective as on date as the Hon'ble High Court Rajasthan has quashed the notice u/s 148 of the I.T.Act, 1961 and impugned orders in the cases which were re-opened on the basis of seized material during the course of search proceedings in the Ramesh Manihar Group. 4.2.12 In these circumstances, the assessment order u/s 147 r.w.s. 143(3) of the 1.T.Act, 1961 under challenge in present appeal does not survive, the assessment order passed by the AO has become infructuous. Hence the ground of appeal challenging the legality of notice issued u/s 148 of the Act is hereby allowed. In view of the above discussion and the facts of the case, the argument of the appellant is acceptable. Thus, the Additional Ground of Appeal & Ground of Appeal No.1 are hereby allowed.
5. Since the additions do not survive on technical ground that notice u/s 148 of the Act is not sustainable legally, the other grounds of appeal on the merits of such addition are rendered only academic and do not warrant detailed adjudication. In view of the discussion, the subject grounds of appeal no. 2 to 6 raised by the appellant are treated as disposed off.
6. The last ground of appeal is that the assessee craves his rights to add, amend or alter any of the grounds on or before the hearing. During the course of appellate proceedings, the appellant has filed additional grounds of appeal and the same are considered.
7. In the result, the appeal is treated as allowed.”
Jitendra Kumar Daga, Jaipur 5. As the Revenue did not receive any favour from the appeal filed before Ld. CIT(A). The present appeal filed against the said order of the Ld. CIT(A) before us on the grounds as reiterated here in above. To support the grounds so raised the Ld. AR of the assessee has placed reliance on the decision of Hon’ble Jurisditional High Court in case of Shyam Sunder Khandelwal vs. ACIT in D.B. Civil Writ Petition No. 18363/2019 vide order dated 19.03.2024.
Per contra, Ld. DR relied upon the order of the ld. AO.
We have heard both the parties and perused the materials available on record. We observed that Revenue Department has issued 153(C) notice and now the present appeal becomes infructuous, as the department cant issue Sec 148 notice and Sec 153(C) simultaneously for the same assessment year .
In the result, the appeal of the Revenue is dismissed as infructuous.
Order pronounced in the open Court on 05/05/2025.