2025 (4) TMI 539 - AT - Income Tax

Reopening of assessment u/s 147 v/s assessment 153C - loose paper/documents pertaining to a third party found in search - HELD THAT - We have taken cognizance of the alleged seized material (loose paper) as well as the belief formed by the AO while recording the reasons for re-opening of the assessment. According to the Revenue this paper pertains to the assessee. The information contained in this paper is regarding payment of Rs.13 Cr to the assessee. Thus this also pertains to the assessee. In such situation to our mind the AO ought to have initiated the proceedings under Section 153C. AO of the searched person i.e. AO of Shri Sanjay Bansal or of the Trust should have recorded satisfaction that information contained in this loose paper pertains to the assessee and action against the assessee deserves to be taken under Section 153C because income has escaped assessment in the hands of the assessee. Such satisfaction ought to have been transmitted to the AO of the assessee and only thereafter assessment could have been made. No action under Section 147/148 could be taken against the assessee because Section 153C starts with a non obstante clause namely notwithstanding anything contained in Section 139/147. Thus Section 147/148 has no bearing if proceeding required to be taken against the assessee u/s 153C - AO has failed to follow the mandatory procedure required to be followed hence assessment order is not sustainable and accordingly is quashed. The Act contemplated a procedure which is required to be followed mandatorily and which has not been followed by the AO. Addition on account of undisclosed income - loose paper was found - AO harboured the belief that Shri Sanjay Bansal has paid a sum of Rs.13 Cr to the assessee and hence this amount deserves to be assessed in the hands of the assessee - AO was not in possession of any material which can authorize him to firmly reach at a conclusion that Shri Sanjay Bansal has made payment of Rs.13 Cr in cash to the assessee. The AO is simply harping upon the statement of Accountant of Shri Sanjay Bansal against whom a FIR has been lodged by his employer. If we exclude that statement from the evidence on the basis of the judgement of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT as well as DSG Papers (P) Ltd. 2023 (11) TMI 762 - PUNJAB AND HARYANA HIGH COURT then nothing will remain with the AO to draw such a conclusion. Therefore this addition is not sustainable. We allow this ground of appeal and delete the addition. Whether re-assessment is not sustainable because no notice was issued to the assessee u/s 143(2)? - There is no dispute with regard to the fact that assessee has filed two applications pleading therein that original return filed u/s 139(1) be treated as filed in response to notice received u/s 148. If Section 143(2) is being perused then it will reveal that this Section provides first opportunity to an assessee what he wants to say in support of his return. Only thereafter AO would carry out investigation. In the present case physical copy of the notice has not been brought before us by the Revenue. In the judgement of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT cited by the assessee as well as Shri Shiv Shankar Traders 2015 (10) TMI 1765 - DELHI HIGH COURT it has unanimously been propounded that before taking a return for scrutiny a notice u/s 143(2) is the prerequisite condition and if such notice was not issued then assessment is not sustainable. Therefore on this ground also assessment is not sustainable and accordingly quashed. Penalty u/s 271D - acceptance of loan in cash in violation of Section 269SS of the Income Tax Act - HELD THAT - This penalty is not sustainable for two reasons as we have already deleted the addition made to the total income of the assessee therefore it cannot be construed that assessee has accepted a sum of Rs.13 Cr in cash. This was neither loan nor deposits. This amount does not fall within the ambit of Section 269SS of the Income Tax Act. Therefore no penalty is imposable on the assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in the judgment include:

• Whether the assessment order is void ab initio due to the improper issuance of notice under Section 148 instead of Section 153C of the Income Tax Act.
• The validity of the addition of Rs. 13 crore as undisclosed income based on documents seized during a search.
• Whether the absence of a notice under Section 143(2) renders the reassessment proceedings null and void.
• The imposition of a penalty under Section 271D for alleged acceptance of cash in violation of Section 269SS.

ISSUE-WISE DETAILED ANALYSIS

1. Issuance of Notice under Section 148 vs. Section 153C

The legal framework revolves around the proper procedure for issuing notices under Sections 148 and 153C of the Income Tax Act. Section 153C is applicable when documents or information pertain to a person other than the one searched, requiring the Assessing Officer (AO) to record satisfaction and transmit materials to the AO of the concerned person.

The Court noted that post-amendment in 2015, Section 153C mandates action when documents pertain to another person. The AO failed to follow this procedure, instead issuing a notice under Section 148. The Court concluded that the assessment order was unsustainable due to non-compliance with the mandatory procedure under Section 153C, as the document pertained to the assessee and should have triggered action under Section 153C.

2. Addition of Rs. 13 Crore as Undisclosed Income

The AO added Rs. 13 crore to the assessee's income based on a document found during a search, purportedly indicating payment from a third party. The Court evaluated the evidence, noting the document was neither in the assessee's handwriting nor found at his premises. The statement of the accountant, who allegedly wrote the document, was not recorded under Section 132(4), and the assessee was denied cross-examination rights.

Relying on precedents, the Court emphasized that a person cannot be held accountable for third-party writings. The lack of cross-examination and the context of the accountant's statement, given under duress due to a pending FIR, further weakened the evidence. Consequently, the Court found the addition unsustainable and deleted it.

3. Absence of Notice under Section 143(2)

Section 143(2) requires issuance of a notice to provide the assessee an opportunity to support their return. The assessee argued that no such notice was issued after the original return was treated as filed in response to the Section 148 notice.

The Court observed that the absence of a physical notice under Section 143(2), despite the AO's claim, rendered the reassessment proceedings invalid. Citing Supreme Court and High Court judgments, the Court held that the absence of this notice invalidated the assessment.

4. Penalty under Section 271D

The AO imposed a penalty under Section 271D for allegedly accepting Rs. 13 crore in cash, violating Section 269SS. The Court noted two key points: the deletion of the addition of Rs. 13 crore and the nature of the transaction, which did not constitute a loan or deposit under Section 269SS.

Consequently, the Court found the penalty unsustainable and set aside the orders imposing it.

SIGNIFICANT HOLDINGS

• The Court emphasized the mandatory nature of Section 153C, stating that "no action under Section 147/148 could be taken against the assessee because Section 153C starts with a non obstante clause."
• On the issue of evidence, the Court reiterated that "a person shall not be made accountable for the writings made by a third person in his notings," referencing the Supreme Court's decision in CBI Vs V.C. Shukla.
• The absence of a notice under Section 143(2) was deemed a fatal flaw, with the Court citing the necessity of this procedural step for a valid assessment.
• The penalty under Section 271D was found inapplicable, as the transaction did not meet the criteria of a loan or deposit, and the related addition was deleted.

The appeals were allowed, quashing the assessment and penalty orders. The Court's findings underscore the importance of adhering to procedural requirements and the evidentiary standards necessary to substantiate additions in tax assessments.