2018 (6) TMI 1794 - AT - Income Tax

Validity of assessment u/s 147 - search and seizure operation u/s 132 - documents seized in search action under section 132 of the Act on a third party - HELD THAT - When the AO finally found that the material on the basis of which the proceedings for reassessment were initiated were not sufficient to assess the income and only made a protective assessment then such an exercise of the AO is not permissible to take a chance by resorting to the provisions of section 147/148 of the Act. In view of the above discussion facts and circumstances of the case and the decision of Hon ble Bombay High Court in the case of DHLF Venture Capital Fund 2013 (6) TMI 575 - BOMBAY HIGH COURT we hold that the reopening of the assessment is not valid and consequently we quash the reopening and reassessment made by the AO. Reopening of assessment u/s 147 OR assessment u/s 153C - Assessment order that after the initial assessment u/s 143(3) r.w.s. 153A the AO got the alleged incriminating material in the shape of diary and transactions recorded therein found and seized in the search and seizure operation in case of Rajendra Jain Group. Accordingly the AO proceeded to reassess the income of the assessee u/s 147 of the Act. The entire decisions of the AO to reassess the income of the assessee is based on the seized material and statement of Shri Madan Mohan Gupta recorded u/s 132(4) of the Act for which the specific remedy is provided u/s 153C. Assessment order that after the initial assessment u/s 143(3) r.w.s. 153A the AO got the alleged incriminating material in the shape of diary and transactions recorded therein found and seized in the search and seizure operation in case of Rajendra Jain Group. Accordingly the AO proceeded to reassess the income of the assessee u/s 147 of the Act. The entire decisions of the AO to reassess the income of the assessee is based on the seized material and statement of Shri Madan Mohan Gupta recorded u/s 132(4) of the Act for which the specific remedy is provided u/s 153C. Thus we hold that the reopening under section 147/148 of the Act is not valid when the proper course of action was only to initiate the proceedings under section 153C/153A - Decided against revenue.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of reopening the assessment under Section 147/148.
3. Applicability of Section 153C for reassessment based on seized material.
4. Deletion of protective addition made by the AO.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The assessee filed appeals with a delay of 240 days, supported by an affidavit explaining that the delay was due to the CIT (A) deciding in favor of the assessee on merits, leading the assessee to believe no further appeal was necessary. Upon receiving notice of the revenue's appeal, the assessee consulted a Chartered Accountant and decided to file cross appeals challenging the validity of reopening the assessments. The Tribunal condoned the delay, noting that the delay was not willful or deliberate but due to the circumstances explained, and the assessee did not achieve any ulterior purpose by filing late.

2. Validity of Reopening the Assessment under Section 147/148:
The Tribunal examined the validity of reopening the assessment for the assessment year 2007-08. The AO based the reopening on seized material and statements from a search operation, alleging that the assessee had paid 'On Money' for land purchase. The Tribunal found that the assessee was incorporated on 21.08.2006, and the land transaction occurred on 24.08.2006. The Tribunal held that there was no material evidence to suggest that the assessee had undisclosed income or paid any amount over and above what was recorded in the books. The Tribunal emphasized that reopening an assessment should be based on a rational connection or live link between the material and the belief that income had escaped assessment, which was absent in this case. Consequently, the Tribunal quashed the reopening and reassessment made by the AO.

3. Applicability of Section 153C for Reassessment Based on Seized Material:
For the assessment year 2008-09, the Tribunal addressed whether the AO should have initiated proceedings under Section 153C instead of Section 147/148, as the reopening was based on seized material. The Tribunal noted that Section 153C, which deals with assessments of persons other than the searched person, has an overriding effect on Sections 147/148. The Tribunal cited several judicial precedents, including decisions from the Amritsar and Visakhapatnam Benches of the ITAT, which held that when reassessment is based on seized material, the AO must follow the procedure under Section 153C. The Tribunal concluded that the AO's initiation of proceedings under Section 147/148 was illegal and without jurisdiction, rendering the reassessment order void ab initio.

4. Deletion of Protective Addition Made by the AO:
The revenue appealed against the CIT (A)'s decision to delete the protective addition of Rs. 5,00,00,000 made by the AO. The Tribunal noted that since the reopening of the assessment was quashed, the ground raised by the revenue on the merits of the protective addition became infructuous. Therefore, the Tribunal dismissed the revenue's appeal on this issue.

Conclusion:
The Tribunal allowed the assessee's appeals, quashed the reopening and reassessment orders for both assessment years, and dismissed the revenue's appeals. The Tribunal emphasized the importance of following the correct legal procedures for reassessment based on seized material and the necessity of a rational basis for reopening assessments.