2012 (6) TMI 403 - AT - Income Tax

Assessment of income of any other person u/s 153C versus income escaping assessment u/s 147/148 - Whether CIT(A) has erred in not appreciating the fact that proceedings in this case were initiated under s. 148 Held that - provisions of s. 153C of the Act were applicable which supersedes the applicability of provisions of ss. 147 and 148 of the Act. - documents were seized during the search under s. 132 of the Act and the same were sent to the assessee s AO at Amritsar by the officer at Delhi officer at Delhi has mentioned in his letter that the necessary action may be taken as per law under s. 153C/148 of the Act. - Hence notice issued under s. 148 of the Act and proceedings under s. 147 of the Act by the AO are illegal and void ab initio. procedure laid down under s. 153C has not been followed by the AO and therefore assessment has become invalid. CIT(A) was fully justified in quashing the reassessment order. order of the CIT(A) upheld and dismiss the ground Nos. 1 to 4 of the appeal. appeal of the Department is dismissed.

Issues Involved:
1. Admittance of additional grounds of appeal by CIT(A) without hearing the AO.
2. Validity of proceedings initiated under Section 148 instead of Section 153C.
3. Requirement for initiating proceedings under Section 148.
4. Relevance of seized documents to the assessee and the implications for proceedings under Sections 148 and 153C.
5. Deletion of addition made to the income on account of understatement of sale value of shares.
6. Computation of share value by the AO.
7. Request to set aside the CIT(A)'s order and restore the AO's addition.
8. Opportunity to add or amend grounds of appeal.

Detailed Analysis:

1. Admittance of Additional Grounds of Appeal by CIT(A) without Hearing the AO:
The Revenue argued that the CIT(A) erred in admitting additional grounds of appeal without giving the AO an opportunity to be heard. However, the Tribunal did not specifically address this procedural issue in detail, focusing instead on the substantive legal issues of the case.

2. Validity of Proceedings Initiated under Section 148 Instead of Section 153C:
The CIT(A) quashed the assessment order, holding that the proceedings initiated under Section 148 were illegal and void ab initio. The CIT(A) referenced the CBDT Circular No. 7 of 2003 and the Supreme Court's decision in Manish Maheshwari v. Asstt. CIT, which established that if the procedure laid down in Section 153C is not followed, the assessment is invalid. The Tribunal upheld this view, noting that the provisions of Section 153C supersede those of Sections 147 and 148 when incriminating documents are seized during a search.

3. Requirement for Initiating Proceedings under Section 148:
The Revenue contended that the AO had recorded reasons to believe on the basis of material available, including the report from the Dy. CIT, Central Circle-22, New Delhi. The CIT(A) did not find any infirmity in the reasons recorded by the AO for initiating proceedings under Section 148. However, the Tribunal emphasized that the proper procedure under Section 153C should have been followed, rendering the proceedings under Section 148 invalid.

4. Relevance of Seized Documents to the Assessee:
The Revenue argued that the seized documents pertained to M/s. P.R. Infrastructure Ltd. and not directly to the assessee, suggesting that action under Section 153C could only be taken against M/s. P.R. Infrastructure Ltd. The Tribunal rejected this contention, pointing out that incriminating documents related to the assessee were indeed found during the search, as detailed in the assessment order. Therefore, the AO should have proceeded under Section 153C.

5. Deletion of Addition Made to the Income on Account of Understatement of Sale Value of Shares:
The CIT(A) deleted the addition of Rs. 1,51,50,000 made by the AO, who had computed the share value at Rs. 1,525 per share. The Tribunal upheld the CIT(A)'s decision to quash the reassessment order, thus also supporting the deletion of the addition.

6. Computation of Share Value by the AO:
The AO had computed the share value of M/s. P.R. Infrastructure Ltd. at Rs. 1,525 per share based on the break-up value method, as opposed to the face value of Rs. 10 per share shown by the assessee. Since the Tribunal upheld the quashing of the reassessment order, this computation issue became moot.

7. Request to Set Aside the CIT(A)'s Order and Restore the AO's Addition:
The Revenue requested that the CIT(A)'s order be set aside and the AO's addition be restored. However, the Tribunal dismissed this request, upholding the CIT(A)'s decision to quash the reassessment order.

8. Opportunity to Add or Amend Grounds of Appeal:
The Revenue sought leave to add or amend the grounds of appeal before the appeal was heard and disposed of. The Tribunal did not specifically address this request, as it dismissed the appeal on substantive grounds.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decision to quash the reassessment order. The Tribunal emphasized that the proper procedure under Section 153C should have been followed, rendering the proceedings under Section 148 invalid. Consequently, the substantive issues regarding the addition to the income and the computation of share value were rendered moot.

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