DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4, JAIPUR, JAIPUR vs. VIMAL PARWAL, JAIPUR

& 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur (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.”

CO No. 16//JPR/2024 (Grounds of assessee’s appeal):-

“1. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in passing the order, without adjudicating all the contentions raised by the assessee, challenging assumption of jurisdiction by the Id. AO under Section 147. The action of the Id. CIT(A) is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by quashing the order of the Id. AO, considering all the contentions raised by the assessee challenging the reopening of the case.

2. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in passing the order, without adjudicating on the merits of the case of the assessee, i.e. not deleting the additions made to the income of the assessee, for the year under consideration. The action of the Id. CIT(A) is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by adjudicating on the merits of the case, apropos additions made to the income of the assessee and deleting the same, as having been made without any basis.

3. The assessee craves his rights to add, amend, or alter any of the grounds on or before the hearing.”

“1. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in passing the order, without adjudicating all the contentions raised by the assessee, challenging assumption of jurisdiction by the Id. AO under Section 147. The action of the Id. CIT(A) is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by quashing the order of the Id. AO, considering all the contentions raised by the assessee challenging the reopening of the case.

2. In the facts and circumstances of the case and in law, id. CIT(A) has erred in passing the order, without adjudicating on the merits of the case of the assessee, i.e. not deleting the additions made to the income of the assessee, for the year under consideration. The action of the Id. CTT(A) is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by adjudicating on the merits of the case, apropos additions made to the income of the assessee and deleting the same, as having been made without any basis.

3. The assessee craves his rights to add, amend, or alter any of the grounds on or before the hearing.”

& 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur of the I.T.Act, 1961 were issued.Considering the reply of the assesseeand the facts of the case, the AO had passed an order u/s 147 of the I.T.Act, 1961 vide order dated 22.03.2022 at the total income of Rs.4,48,82,410/- considering the undisclosed cash loans of Rs. 4,30,00,000/- and interest earned of Rs. 12,25,000/- on these loans.

“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 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 & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 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 I.T.Act, 1961 for issuance of notice u/s 148 of the IT Act, 1961 and notice u/s 148 of the IT.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 is 147 of the IT Act 1961 vide ptder 1961 vide order dated 22.03.2022 at the total Income of Rs.4,48,82,410/- considering the undisclosed cash loans of Rs. 4,30,00,000/- and interest earned of Rs. 12,25,000/-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 of the IT.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 LT. 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 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 a 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 & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 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, 24. 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 retum for the relevant preceding years. The AO assumes jurisdiction to assess/reassess total income by passing separate order for each assessment.

27. Section 153A and 1530 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.

28. 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.

& 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 29. 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.

30. 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 153D 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 153A 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 urnearthing of undisclosed income of Rs.200/-, the department can resort to proceeding under Section 147/148. 200/-, the department ca 32. 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 & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 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 40. 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. 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 & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 4.2.11 Accordingly, the order passed by the AO u/s 147 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 course of search proceedings in the Ramesh Manihar Group. TAX 4.2.12 In these circumstances, the assessment order u/s 147 of the I.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.”

5. The Revenue is aggrieved from the findings of the ld. CIT(A) preferred this appeal and since the appeal of the assessee was allowed, the assessee has also preferred cross objection. At the time of the hearing, the ld. DR relied upon the assessment order passed by the AO, contending the correctness of initiating proceedings under Section 147/148. However, the ld. AR for the & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur assessee strongly supported the impugned order passed by the CIT(A). Ld. AR submitted before us that in identical facts, the Hon’ble Rajasthan High Court has conclusively adjudicated the issue, holding that where proceedings emanate from incriminating documents seized during search proceedings conducted on another assessee, the correct recourse for reassessment is Section 153C, and not Section 147/148. Ld. AR also placed on record the copy of notice subsequently issued under Section 153C by the Income Tax Department in the assessee’s own case for the same assessment year, further demonstrating the Department's acceptance of the Hon'ble High Court's decision.

& 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur Brief factual matrix leading to the present appeals, as culled from the orders of lower authorities, is set out hereinbelow proceedings for the relevant assessment year were initiated by the Assessing Officer (AO) pursuant to a search conducted under Section 132 of the Income Tax Act, 1961 on 07.01.2016, on the premises of Ramesh Manihar Group. During this search operation, incriminating material including Excel sheets was seized, indicating substantial cash loan financing activities and brokerage income which remained unaccounted. On the basis of this seized material, the AO held the view that the present assessee had also provided cash loans from undisclosed sources and had earned unaccounted interest thereon. The information was forwarded by DCIT, Central Circle-3, Jaipur, to the jurisdictional AO of the assessee, consequently leading to reopening of the assessment under Section 147 and issuance of notice under Section 148 of the Act.

The AO, during the reassessment proceedings, made additions to the income of the assessee, alleging cash loans amounting to Rs. 4,30,00,000 and unaccounted interest income amounting to Rs. 12,25,000 thereon. Assessment order under Section 147/148 were accordingly passed on 22.03.2022.

Aggrieved, the assessee challenged the reassessment order before the CIT(A). The CIT(A), by detailed order, upheld the preliminary legal objection raised by the assessee against initiation of reassessment proceedings under & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur Sections 147/148. The CIT(A), placing reliance on the decision of the Hon’ble Rajasthan High Court, rendered in DB Civil Writ Petition No. 18363/2019 (along with connected petitions) dated 19.03.2024, quashed the reassessment orders passed under Section 147/148. The Hon’ble High Court had unequivocally held in identical factual circumstances that where the reassessment proceedings were based entirely on incriminating documents and materials seized during a search conducted in another person's case, the correct course available to the Department was under Section 153C of the Act, not Section 147/148. The CIT(A), applying the binding judicial precedent, allowed the appeal of the assessee. The relevant extracts of CIT(A) order, wherein the decision of Hon’ble Rajasthan High Court in the aforementioned case has also been considered is reproduced hereunder:-

“4.2.6. The findings of Hon’ble Rajasthan High Court in the above order dated 19.03.2024 in D.B. Civil Writ Petition No.18363/2019 and several other linked petitions are a 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.

& 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur 25. 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 otherassessee 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.

Accordingly, we hold that the CIT(A) was justified in quashing the reassessment orders passed under Section 147/148 of the Act. Therefore, the appeal filed by the Revenue for the Assessment Year 2015-16 stands dismissed.

In conclusion, the appeal filed by the Revenue and the Cross-Objection filed by the assessee for the Assessment Year 2015-16 are dismissed. The issue raised by the Revenue for the Assessment Year 2015-16 is identical to the issue raised for & 1231/JPR/2024 CO No. 16 & 18/JPR/2024 Vimal Parwal, Jaipur the Assessment Year 2016-17. Therefore, the findings made by us for the Assessment Year 2015-16 shall also apply to the appeal filed by the Revenue for the Assessment Year 2016-17.

In the result , the appeal for the Assessment Year 2016-17 filed by the Revenue and the Cross-Objection filed by the assessee for the same assessment year are also dismissed.

Order pronounced in the open court on 24/04/2025.