1. Introduction

The case of Shri Karshni Metals Pvt Ltd, New Delhi v. ITO Ward-23(3), New Delhi adjudicated by the Income Tax Appellate Tribunal (ITAT) Delhi Bench on August 27, 2024, presents a pivotal examination of the interplay between Sections 147/148 and Section 153C of the Income Tax Act, 1961. This case underscores the procedural intricacies involved when dealing with assessments based on material seized during a search operation, particularly when such material pertains to individuals other than the one on whom the search was conducted.

Parties Involved:
- Appellant: Shri Karshni Metals Pvt. Ltd., New Delhi
- Respondent: Income Tax Officer, Ward-23(3), New Delhi

The primary issue revolves around the correct application of statutory provisions governing tax assessments in the context of search operations, specifically whether Section 147/148 or Section 153C should govern the assessment process when material unrelated to the primary assessee is discovered.

2. Summary of the Judgment

The ITAT Delhi Bench, presided over by Sh. M. Balaganesh (Accountant Member) and Shri Anubhav Sharma (Judicial Member), examined the appeal filed by Shri Karshni Metals Pvt. Ltd. against the Assessing Officer's order under Section 250 of the Income Tax Act, 1961. The Assessing Officer had increased the tax liability by Rs. 1,00,00,000/- under Section 68 for unexplained proceeds from share application money and Rs. 2,00,000/- for commissions, treating them as unexplained investments.

The crux of the appeal was the alleged improper exercise of jurisdiction under Section 147 instead of Section 153C when assessing income based on material found during a search operation targeting the Surendra Kumar Jain Group. The ITAT ultimately favored the appellant, holding that the Assessing Officer erred in applying Section 147/148 where Section 153C was applicable due to the material pertaining to a different individual.

3. Detailed Analysis

3.1 Precedents Cited

The appellant's counsel referenced several judgments to support their contention that Section 153C should govern over Section 147/148 in scenarios where incriminating material pertains to an individual other than the one subjected to the search. Key cases cited include:

• Warm Forgings P. Ltd. vs. DCIT Circle 27 (1), New Delhi, 2024
• M/s Mah Impex Private Ltd. vs. ITO, Ward-16 (1), Delhi, 2024
• Saloni Kumar Prakash Vs. ITO, Madras High Court, 2023
• Principal Commissioner of Income Tax vs. Abhisar Buildwell P. Ltd., Supreme Court, 2023
• Additional cases from Karnataka, Bombay, and Rajasthan High Courts addressing the applicability of Section 153C vs Section 148

The respondent relied on the Madras High Court's decision in Saloni Kumar Prakash Vs. ITO and the Rajasthan High Court's affirmation of the same principles, further bolstered by the Supreme Court's stance in Abhisar Buildwell P. Ltd.

3.2 Legal Reasoning

The Tribunal meticulously analyzed the statutory framework governing tax assessments during and after search operations. The primary legal contention was whether the Assessing Officer correctly applied Section 147/148 or should have resorted to Section 153C for reassessing the assessee based on material found during the search.

The Tribunal underscored the supremacy of the special provisions under Sections 153A to 153D over the general provisions of Sections 147/148. It held that:

• Section 153C is applicable when material relating to an individual other than the one searched is found.
• Section 147/148 should be invoked only when such material pertains directly to the assessee under search.
• The dual prerequisites for invoking Section 153C — material pertaining to a different individual and the necessity to reassess total income — were satisfied in this case.
• The Assessing Officer failed to recognize these prerequisites, thereby erroneously applying Section 147/148.

The Tribunal also dismissed the respondent's reliance on certain High Court judgments by highlighting discrepancies and contextual misapplications in those cases.

3.3 Impact of the Judgment

This Judgment has significant implications for the practice of tax assessments in India, particularly in cases involving search operations:

• Clarification on Jurisdiction: It delineates the clear boundary between Sections 147/148 and 153C, ensuring that Assessing Officers apply the correct provisions based on the nature of the seized material.
• Procedural Compliance: Tax authorities are compelled to adhere strictly to statutory procedures, especially in reassessing income based on evidence from search operations.
• Legal Precedence: The decision reinforces the precedents set by higher courts, offering a consolidated interpretation that lower tribunals and courts are likely to follow.
• Assessee Protection: Enhances procedural safeguards for taxpayers, preventing arbitrary or incorrect assessments based on misapplied legal provisions.

4. Complex Concepts Simplified

4.1 Section 147 and 148

- Section 147: Initiates reassessment when income is found to be understated or undisclosed.
- Section 148: Empowers the Assessing Officer to reassess the income if there is reason to believe that income has escaped assessment.

4.2 Section 153C

- Specifically applies when material unrelated to the primary assessee is found during a search.
- It mandates reassessment based on the material found, but only if it pertains to a different individual.

4.3 Non-Obstante Clause

- A legal provision that takes precedence over any other conflicting legislation.
- In this context, it ensures that the special provisions under Sections 153A to 153D override the general assessment provisions.

5. Conclusion

The ITAT Delhi Bench's decision in Shri Karshni Metals Pvt Ltd vs. ITO Ward-23(3) serves as a critical interpretation of the Income Tax Act's provisions concerning tax assessments post-search operations. By affirming the applicability of Section 153C over Sections 147/148 in scenarios involving material unrelated to the primary assessee, the Tribunal reinforces the hierarchical structure of the provisions and safeguards the procedural rights of taxpayers.

This Judgment not only aligns with established legal precedents but also provides clarity to both tax authorities and taxpayers on the correct procedural pathways to follow during assessments. It underscores the necessity for meticulous adherence to statutory mandates, thereby fostering a more transparent and just tax administration framework.