SURESH KUMAR PODDAR,KOLKATA vs. I.T.O., WARD - 63(4), KOLKATA, KOLKATA

The facts in brief are that the assessment of the assessee was reopened in consequence to search u/s 132 of the Act on Shri Shirish Chandrakant Shah on 09.04.2013 i.e. third party. During the course of search operation, it was found that the Mr. Shah was providing Suresh Kumar Poddar accommodation entries of share capital, share premium, share application money, unsecured loan, long term and short-term capital gain/loss etc. During the course of search, it was revealed that the accommodation entry in the form of penny stock was arranged by Shri Shirish Chandrakant Shah. Accordingly, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 17.11.2015. Assessee vide letter dated 24.11.2015 requested the AO to treat the return filed u/s 139(1) of the Act on 29.07.2011 declaring total income of Rs. 1,66,04,039/- as filed in compliance to notice u/s 148 of the Act. Thereafter, the statutory notices along with questionnaire were issued. There was no any compliance on the part of the assessee and the assessment was completed by the AO by making addition of Rs. 78,43,300/- on account of short-term capital gain and Rs. 73,60,000/- was added in respect of investment in shares of M/s Shri Ganesh Spinners Limited, controlled and manage Shri Shah. The assessment was framed by the AO was affirmed by the Ld. CIT(A).

The ld AR vehemently submitted that the assessment framed by the AO u/s 144/147 of the Act vide order dated 15.11.2016 was bad in law as the same was passed consequent to the re-opening of assessment based upon the material found from the search on the third party u/s 132(1) of the Act. The ld AR submitted that , the proceedings should have been initiated u/s 153C of the Act and accordingly the assessment order should have been framed u/s 153C of the Act. Therefore, the assessment framed may kindly be quashed. In defense of his arguments the ld. AR relied on the certain decisions namely Aristocrat Residence LLP Vs. ITO, AY 2013-14, order dated 01.04.2025 which has been decided by the coordinate Bench in favour of the assessee by following the decision of Hon’ble Bombay High Court in the case of Sejal Jewellers and Anrs. Vs. Union of India &Ors. Writ Petition No. 3057 of 2019, order dated 18.02.2025, the decision of Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT Writ Petition No. 18363 Suresh Kumar Poddar of 2019 dated 19.03.2024 and decision of the Hon’ble Karnatka Hihg Court in Sri Dinakara Suvarna Vs. DCIT (2022) 143 taxmann.com 362 (Karnataka) Vs PCIT (2022) 147 taxmann.com 362 (Karnataka).

After hearing the rival contention and perusing the material available on record, we find that undisputedly reopening of assessment was made on the basis of information revealed during the course of search on third party i.e. of Shri Shirish Chandrakant Shah during the search on 09.04.2013. The contention of the assessee is that the proceeding should have been initiated u/s 153C of the Act. After examining records before us, we find that certainly the reopening was made on the basis of material found in the premises of third-party Mr. Shirish Chandrakant Shah during search, therefore, reopening of the assessment is bad in law and cannot be sustained. The case of the assessee is squarely covered by the decision of Aristocrat Residence LLP Vs. ITO, AY 2013-14, order dated 01.04.2025 which has been decided by the coordinate Bench in favour of the assessee by following the decision of Hon’ble Bombay High Court in the case of Sejal Jewellers and Anrs. Vs. Union of India &Ors. Writ Petition No. 3057 of 2019, order dated 18.02.2025, the decision of Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs. ACIT Writ Petition No. 18363 of 2019 dated 19.03.2024 which is duly approved by the Hon’ble Apex Court in the case of ACIT Vs. Promod Jain (2025) 163 taxman.com 762 (SC) and decision of the Hon’ble Karnatka High Court in Sri Dinakara Suvarna Vs. DCIT (2022) 143 taxmann.com 362 (Karnataka) Vs PCIT (2022) 147 taxmann.com 362 (Karnataka) wherein the SLP filed by the revenue before the Hon’ble Apex Court was dismissed vide its order in (2023) 151 taxmann.com 489 (SC). The operative of the decision of the coordinate bench in the case of Aristocrat Residence LLP Vs. ITO (supra) is extracted below:

As clearly seen from the record, to which, we have made a refer- ence in the aforesaid paragraphs, it appears to be quite clear that there was a search and seizure action on 4 October, 2018 on the business premises of one 'Shilpi Jewellers Pvt. Ltd., which has been the basis for the reopening of the petitioner's assessment, as also recorded in the reasons for reopening, which inter alia state that there were certain in- criminating evidences, in the form of various loose papers and data back-ups of various electronic devices, as found and seized. The search action was against Shilpi Jewellers Pvt. Ltd., its associate concerns, as well as the key individuals of the Group. Thedepartment asserts that the materials elicited during the search action revealed, that all these persons had accepted large unsecured loans from various shell/paper companies/entities during the year ended on 31 March 2012. On fur- ther enquiries being made, the profiling of the loan creditor companies in ITD application, indicated that the loan creditor companies/entities who advanced huge loans to Shilpi Jewellers Pvt. Ltd. and its associ- ate concerns, as well as the key individuals of this group, did not have any creditworthiness for extending such huge loans. It was, particular- ly, recorded that the petitioner/assessee was part of said group, which Suresh Kumar Poddar had shown loan receipts during the year ended on 31 March, 2012 from a company, viz. M/s. Green Valley Gems Pvt. Ltd., which was re- ported to be a shell/paper company, engaged in providing accommoda- tion entries to the beneficiary parties. The reasons for reopening of the assessment were set out in detail, referring to such material and fur- ther enquiry which was undertaken in that regard, including materials being gathered in regard to M/s.Green Valley Gems Pvt. Ltd. from whom the petitioners had alleged to have taken accommodation en- tries. It is on the basis of such information, which was certainly not the information borne out or gathered from the return of income, which was filed and/or any material thereunder, the Assessing Officer reached to a conclusion to reopen the assessment, on the ground that the as- sessee had not explained such loan receipttransactions. Such opinion was formed by the Assessing Officer on the basis that M/s. Green Val- ley Gems Pvt. Ltd. was a shell/paper company. It is on such premise that the Assessing Officer was of the view that income had escaped assessment within the purview of Clause (c) of Explanation 2 of Section 147 of the LT. Act and such escapement had occurred due to the as- sessee's failure to disclose true, proper and complete facts in the return of income, filed for the subject assessment year. Accordingly, notice under Section 148 was issued.

Thus, on the perusal of such reasons, it is quite clear that the pro- visions of Section 153A providing for "Assessment in case of search or requisition" and the provisions of Section 153C, which provide for "As- sessment of income of any other person", which ordain that recourse be taken to the provisions of Section 153A stand attracted for an assess- ment to be undertaken.

As the controversy revolves around the applicability of Section 153A and more particularly, as to whether Section 153A read with Sec- tion 153C vis-a-vis the provisions of Section 147 of the IT. Act, it will be appropriate to extract the said provisions, which reads thus: "147. Income escaping assessment. If the Assessing Officer has reason tobelieve that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this sec- tion, or recompute the lossor the depreciation allowance or any other al- lowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all mate- rial facts necessary for his assessment, for that assessment year:

On a plain reading of Section 153A, it is clear that it begins with a non-obstante' clause, when it provides that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiat- ed under section 132 or books of account, other documents or any as- sets are requisitioned under section 132A after 31 May. 2003 but on or before 31 March, 2021, the Assessing Officer shall have jurisdiction to issue notice to such person to furnish the return of income as specified in the notice or assess or reassess the total income as provided by the provision. Section 153C also begins with a non-obstanteclause, when it provides that notwithstanding anything contained in Section 139, Sec- tion 147, Section 148, Section 149, Section 151 and Section 153, to provide that, in a situation which may fall under Section 153C insofar as assessment of income of any other person is concerned, the As- sessing Officer shall proceed against such other person and issue no- tice and assess or reassess the income of other persons in accordance with the provisions of Section 153A, if he is satisfied that the books of account or document or assets seized or requisitioned have a bearing on the determination of the total income of such person for a period as specified in the said provision and after compliance of other provisions as mandated. On the other hand, Section 147 provides for "Income es- caping assessment", can be invoked when any income chargeable to tax, in the case of an assessee, has escaped assessment for any as- sessment year. In such situation, the Assessing Officer may subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allow- ance or deduction for such assessment year and for which a prior no- tice under Section 148 would be required to be issued. Section 147 does not contemplate an eventuality which Section 153A or Section 153C contemplates, the basis of which is inter alia a search action un- der Section 132 being resorted as noted hereinabove. Thus. both these provisions are quite compartmentalized although the deeming effectof both the provisions, may be the same. However, the situations in which such provisions operate are required to be invoked are completely dif- ferent. This is clear from the bare reading of the provisions, hence would not warrant any elaborate discussion.

The purport and effect of these provisions had fell for consideration of the Supreme Court in AbhisarBuildwell P. Ltd. (supra), wherein the scope of assessment under Section 153A of the 1.T. Act was consid- ered. In this case, the Revenue's contention was to the effect that the Assessing Officer was competent to consider all the materials which were available on record. including the materials found during search Suresh Kumar Poddar so as to make an assessment of the total income. Some of the High Courts had accepted such propositions. However, the assessee had contended that there were also decisions of the High Courts to the ef- fect that if assessment proceedings were not pending on the date of ini- tiation of the search, the Assessing Officer needs to consider only the incriminating material found during the search, and was precluded from considering any other material derived from any other source. It is in such context, the Supreme Court considering the purport of the provi- sions of Section 153A of the IT. Act, vis a vis its applicability qua the provisions of Section 147, and the applicability of Section 132, 132A and notably thedecision of the Delhi High Court in Commissioner of In- come Tax, Central-III vs. Kabul Chawla inter alia held that the provi- sions of Section 153A(1) need to be mandatorily resorted once a search takes place. The Supreme Court held as under: "7.1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of Section 153A of the Act. 1961, has summarized the legal position as under Summary of the legal position 38. On a conspectus of Section 153A(1) of the Act, read with the provi- sos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under. i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. ili. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the un- disclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strict- ly made on the basis of evidence found in the course of the search, or other post search material or information available with the AO which can be related to the evidence found, it does not mean that the as- sessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment of reassessment can bemade. The word 'assess' in Section 153 A is relatable to abated pro- ceedings (i.e., those pending on the date of search) and the word 'reas- sess to completed assessment proceedings.

The Supreme Court held that it was in complete agreement with the view taken by the Delhi High Court in Kabul Chawla (supra) and of the Gujarat High Court in Principal Commissioner of Income Tax-4 vs. Saumya Construction taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

Insofar as the present proceedings are concerned, the following ob- servations made by the Supreme Court in the context of Section 147 and 148 of the IT. Act need to be noted: "11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdic- tion to assess or reassess the 'total income' in respect of each assess- ment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the as- sessment or re assessment, if any,relating to any assessment year fall- ing within the period of six assessment years pending on the date of in- itiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been ansalted in appeal or any other legal proceeding, then, notwithstanding anything con- tained in sub-section (1) or section 153, the assessment or reassess- ment relating to any assessment year which has abated under the second proviso to sab section (1), shall stand revived with effect from the dare of receipt of the order of such annulment by the Commission- er. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment peri- od. The intention does not seem to be to re-open the complet- ed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act. 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the boral income tak- ing into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed Suresh Kumar Poddar income. However, in case during the search no incriminating material is found, in case of completed/anak assessment, the only remedy avail- able to the Revenue would be to initiate the reassessment proceedings under Sections 147/148 of the Act, subject to fulfillment of the condi- tions mentioned in sections 147/148, as in such a situation, the Reve- nue cannot be left with no remedy. Therefore, even in case of block as- sessment under section 153A and in case of unabated/completed as- sessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under Sec- tions 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assess- ment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and roquution under Sections 132 and 132A of the Act. The object of Section 1538 a to bring under sax the undisclosed income which is found duringthe course of search or pur- suant to search or requisition. Therefore, only in a case where the un- disclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total in- come for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated as- sessments. It does not provide that all completed/unabated assess- ments shall abate. If the submission on behalf of the Revenue is ac- cepted, in that case, second proviso to section 153A and sub section (2) of Section 153A would be redundant and/or re- writing the said provi- sions, which is not permissible under the law."

It is thus clear that in the event any incriminating material is found during the search, the Revenue necessarily would be required to take recourse to the provisions of Section 153A and in the event no incrimi- nating material found during the search, then the power of the Revenue to have the reassessment under Sections 147/148 of the I.T. Act stands saved, failing which, the Revenue would be left without reme- dy. It is on such observations the conclusions as rendered by the Su- preme Court and which are relevant to the case in hand, are required to be noted, which reads thus: "14. In view of the above and for the reasons stated above, it is con- cluded as under i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under sec- tion 153A; ii) all pending assessments/reassessments shall stand abated:

The Rajasthan High Court in Shyam Sunder Khandelwal s/o. Late Damodar Lal Khandelwal vs. Assistant Commissioner of Income Tax, Central Circle-2, Jaipur (supra) also had taken a similar view when the issue which had arisen before the Court was in regard to the notice is- sued under Section 148 of the I. T. Act, the basis of issuance of such notice was the material seized during search. The contention of the as- sessee was to the effect that in the said circumstances, the proceed- ings ought to have been initiated under Section 153C of the IT. Act. The Division Bench referring to the decision of Supreme Court in Abhisar- Buildwell P. Ltd. (supra) as also the decision of Karnataka High Court in Sri Dinakara Suvarna (supra) allowed the petitions observing that the department had not set up a case, that for initiating proceedings underSection 148, it had material other than the material seized during the search of a related party. The relevant observations of the Division Bench are required to be noted, which reads thus: "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 carned thereon were unaccounted. In other words, the ba- sis for initiation of Section 148 proceedings is the material seized relat- ing 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 Sec- tion 153A mandatorily is required to issue notices to the assessee for filing of income tax return for the relevant preceding years. The AD asumes jurisdiction to assess/reassess 'total income by passing sepa- rate order for each assessment Suresh Kumar Poddar 25. In cases of the person other than on whom search was conducted but material belonging or relating such person was seized or requisi- tion, the AO has to proceed under Section 153C. The two pre-requisites are that the A dealing with the assessee on whom search was con- ducted 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 26. Special procedure is prescribed under Section 153A to 153D for as- sessment 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 153D 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 assess- ment/reassessment in Section 153A, 153C in cases of search or requi- sition 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 operation- alperiod of Section 153A to 153D, the cases being dealt thereunder were circumscribed in the scope of newly substituted Section 148." We are in complete agreement with the view taken by the Division Bench of Rajasthan High Court in the aforesaid decision.

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, mate- rials were seized and such materials were further explored and en- quired. Such enquiry revealed significant information in regard to M/s. Green Valley Gems Pvt. Ltd., which according to the Revenue had pro- vided accommodation entries to the petitioner, in which it was also re- vealed 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 ac- tion 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 AbhisarBuildwell 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 proceed- ings under Section 147 and 148 of 1.T. Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the in- tention 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 de- Suresh Kumar Poddar cision of the Supreme Court in Phool Chand Bajrang Lal (supra), how- ever, 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 compart- mentalized. To avoid any overlapping of these provisions, the legisla- ture in its wisdom has thought it appropriate to provide for an inde- pendent 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.

Learned counsel for the parties are ad idem that the aforesaid ob- servations would cover the other companion matters, which also stand allowed in terms of our aforesaid reasoning and the operative order passed in Writ Petition No. 3057 of 2019. The said petitions hence stand allowed in terms of prayer clauses (a) and (b) of each of these petitions.

Rule is made absolute in the aforesaid terms. No costs.”

The case of the assessee is also squarely covered with various other decisions as referred to above. Therefore, we are inclined to quash the proceeding- initiated u/s 147 of the Act and consequent order framed by the ld. AO. The appeal of the assessee is allowed on legal issue.”

In view of the above facts and circumstances, we are of the opinion that the proceedings should have been initiated u/s 153C of the Act and not u/s 147 of the Act. We therefore respectfully following the above decisions, quash the re-opening of assessment as well as the consequent assessment framed by the AO In the result, appeal of the assessee is allowed.