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  • u/s. 148 of the Income Tax Act, 1961 (hereinafter referred as the Act)
  • u/s. 147/143(3) of Income Tax Act, 1961.
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
Acts
  • u/s. 148 of the Income Tax Act, 1961 (hereinafter referred as the Act)
  • u/s. 147/143(3) of Income Tax Act, 1961.
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Smart Summary

Factual and Procedural Background

Decision pronouced in Open Court on 08/08/2017 by H.S. Sidhu, Judicial Member (ITAT, Delhi Benches). Appeals pertain to Assessment Year 2007-08; impugned CIT(A) orders dated 23.12.2016.

These appeals were filed by separate assessees against the respective orders of the Learned CIT(A), Ghaziabad dated 23.12.2016 (Assessment Year 2007-08). The appeals were heard together because they involved common and identical issues.

Briefly, the Assessing Officer (AO) initiated proceedings under section 148 of the Income Tax Act, 1961 based on information that the assessee had invested Rs. 25,50,000 towards admission to an MS ENT course. The assessee filed a return declaring nil income in response to the notice under section 148 and was asked to furnish the source of payment made to Maharaja Education Trust (Santosh Medical College). After considering the assessee's reply, the AO made an addition of Rs. 25,50,000 as unexplained cash invested in payment of fee and assessed the assessee's income at Rs. 25,50,000 by an order dated 11.03.2015 under sections 147/143(3).

The assessee appealed to the Learned CIT(A), who dismissed the appeal on 23.12.2016 confirming the AO's action. The assessee then appealed to the Tribunal (ITAT), which delivered the impugned order summarized here.

Legal Issues Presented

  1. Whether proceedings initiated under sections 147/148 of the Income Tax Act are valid when the reassessment was initiated on the basis of material/information found during the course of a search at the premises of a third party (Santosh Medical College), or whether the provisions of section 153C (assessment of persons to whom seized material pertains) are the applicable and exclusive procedure.
  2. Whether the reasons recorded for initiation of reassessment under sections 147/148 reflect tangible material or constitute borrowed satisfaction from the Investigation Wing (i.e., validity of the reasons recorded).
  3. Whether reassessment under sections 147/148 could have been made only under section 153C on the basis of documents/information found during the course of a search.
  4. Whether the assessment is invalid for being barred by limitation.
  5. Whether the burden rested on the appellant to establish that no capitation fees were paid to M/s. Santosh Medical College.
  6. Whether the addition of Rs. 25,50,000 on account of alleged payment to M/s. Santosh Medical College was correctly upheld.
  7. Whether principles of natural justice were violated by not providing an opportunity for cross-examination.

Arguments of the Parties

Appellant's Arguments

  • The proceedings under section 147/148 are not tenable because the correct statutory provision to be invoked where material is found during the course of a search (even if from a third party) is section 153C, not section 147.
  • The reassessment was initiated on the basis of information/material found during a search of the premises of Santosh Medical College (run by Maharaja Education Trust), and therefore the AO should have proceeded under section 153C which excludes application of section 147.
  • If the AO is permitted to proceed under section 147 on the basis of material found in the course of search, section 153 would become redundant.
  • The appellant relied on decisions (as listed in the Paper Book) to support the proposition that no action under section 147 is permissible on the basis of material found in a search.

Respondent's (Revenue) Arguments

  • The Departmental Representative (Ld. DR) defended the actions of the AO and relied upon the orders of the authorities below, seeking to justify initiation of reopening proceedings under sections 147/148.
  • The opinion does not set out detailed points of law or factual rebuttals advanced by the Revenue beyond the general stance that the AO's reopening was justified and that the authorities below were correct.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
ACIT vs. Arun Kapur - 140 TTJ 249 (Amritsar) Where reassessment is initiated on the basis of incriminating material found in search of a third party, provisions of section 153C apply and exclude the application of sections 147/148; hence notices under section 148 and proceedings under section 147 are illegal/void ab initio if procedure under section 153C is not followed. The Tribunal followed this Co-ordinate Bench decision and relied on it as primary support for holding that section 153C applied in the present facts, rendering the section 148 notice and section 147 assessment void ab initio.
Cargo Clearing Agency vs. JCIT - 307 ITR 1 (Guj.) This precedent was cited by the appellant as supportive authority (the opinion lists it among authorities relied upon by the assessee). The Tribunal's order records that this decision was placed on record by the assessee; the Tribunal's explicit reliance in the reasoning is principally stated as following the Amritsar and Delhi ITAT decisions. The Cargo Clearing Agency case is cited as part of the appellant's reliance material.
Rajat Shubra Chatterji vs. ACIT, New Delhi - ITA No. 2430/Del/2015 dated 20.05.2016 On similar facts, the ITAT, Delhi quashed reassessment where reassessment was initiated on the basis of material found during search of a third party, applying section 153C and excluding sections 147/148. The Tribunal expressly followed this Delhi Bench decision (and noted that it had followed the Amritsar decision) and applied the same principle to quash the reassessment in the present appeals.
ITO vs. Arun Kumar Kapoor (supra) Referenced as the same line of authority as ACIT vs. Arun Kapur regarding application of section 153C where reassessment is based on material found in search of a third party. The Tribunal treated this decision as part of the line of authorities establishing that section 153C excludes application of section 147 in such circumstances and relied on it in reaching its conclusion to quash reassessment.

Court's Reasoning and Analysis

The Tribunal reviewed the record, the impugned order, and the Paper Book filed by the assessee which included the reasons recorded and the cited precedents. The Tribunal identified the fundamental factual premise common to the appeals: the reassessment was initiated by the AO under section 148 based on information/material that had been found during the course of a search at the premises of Santosh Medical College (a third party).

The Tribunal analyzed the line of decisions placed before it, particularly the ITAT, Amritsar decision in ACIT vs. Arun Kapur (140 TTJ 249) and the ITAT, Delhi decision in Rajat Shubra Chatterji vs. ACIT (ITA No. 2430/Del/2015). In those decisions, when reassessment proceedings were initiated on the basis of incriminating material found during the course of a search of a third party, the authorities concluded that the correct statutory route for assessing persons to whom the seized material pertains is section 153C and that section 153C excludes the operation of section 147/148 in such cases.

Applying those precedents to the present facts, the Tribunal concluded that because the AO initiated reassessment proceedings on the basis of information available with him arising from material found in a search of a third party, the procedure under section 153C was applicable. Consequently, the AO's invocation of sections 147/148 (and consequent framing of assessment under section 147 read with section 143(3)) was procedurally incorrect.

The Tribunal therefore held that the notice issued under section 148 and the assessment framed under section 147/143(3) were void ab initio for non-compliance with the procedure mandated by section 153C. Having quashed the reassessment on that ground, the Tribunal found it unnecessary to adjudicate the remaining grounds raised by the assessees.

Holding and Implications

Holding: The Tribunal allowed the appeals and held that the reassessment proceedings initiated under sections 148/147 (and the assessment passed under section 147 read with section 143(3)) were void ab initio because the initiation was based on material/information found during the course of a search of a third party and therefore the provisions of section 153C applied. The reassessment in question was accordingly quashed.

Implications:

  • Direct effect on the parties: The reassessment orders under sections 147/148 (and attendant assessment under section 143(3)) were quashed and the appeals were allowed.
  • Broader consequences: The Tribunal's decision follows existing coordinate Bench decisions (as cited) applying section 153C where reassessment is based on material found in third-party searches; the opinion does not purport to create a new precedent beyond applying and following the cited authorities.
  • Other grounds raised by the assessees (limitation, natural justice, burden of proof, correctness of addition) were not decided because the reassessment was quashed on the procedural ground described above.

Order signed: Sd/- [H.S. SIDHU], JUDICIAL MEMBER. Copy forwarded to Appellant, Respondent, CIT, CIT(A), DR, ITAT. True copy issued by Assistant Registrar, ITAT, Delhi Benches.

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    Shelly Agarwal,, New Delhi v. ITO, Ghaziabad

    These are the appeals filed by the separate assesses against the respective order of the Ld. CIT(A), Ghaziabad both dated 23.12.2016 and pertains to assessment year 2007-08. Since the issues involved in these appeals are common and identical, hence, the same were heard together and are being disposed of by this common order for the sake of convenience, by dealing with ITA No. 1500/Del/2017 (AY 2007-08).

    2. The grounds raised in the Assessees appeal (ITA NO. 1500/DEL/2017) (AY 2007-08) read as under:-

    1. That the Ld. CIT (A) has erred in not appreciating that the proceedings initiated u/s. 147/ 148 are invalid and illegal as the reasons recorded do not reflect any tangible material on the basis of which the Assessing Officer could have reasons to believe that any income has escaped assessment. .

    2. That the Ld. CIT (A) has erred in not appreciating that the proceedings initiated u/ s 147/148 are invalid and illegal as the reasons recorded do not reflect any satisfaction of the Assessing Officer regarding escapement of income but are based upon borrowed satisfaction of the Investigation Wing of the department.

    3. That the Ld. CIT (A) has erred in not appreciating that the proceedings could not be as assessment could have been made only under section 153C on the basis of the documents /Information found during the course of a search.

    4. That the Ld. CIT (A) has erred in not appreciating that the assessment is invalid and illegal as it has been made after the limitation period.

    5. That the Ld. CIT (A) has erred in holding that it was the burden of the appellant to establish that no amount of capitation fees has been paid to M/s. Santosh Medical College.

    6. That the Ld. CIT (A) has erred on facts and in law in upholding the addition of Rs. 25,50,000/- on account of alleged payment to M/s. Santosh Medical College.

    7. That the Ld. CIT (A) has erred in holding that merely because the appellant has attended the assessment proceedings it can be presumed that the information on the basis of which the addition has been made was confronted to the appellant.

    8. That the Ld. CIT (A) has erred in not appreciating that the assessment is invalid and illegal as the principles of natural justice have been completely violated and no opportunity of cross examination was provided to the appellant.

    9. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

    10. That the Appellant craves leave to add/alter any/all grounds of appeal before or at the time of hearing of the Appeal.

    3. The grounds raised in the Assessees appeal (ITA NO. 1501/DEL/2017) (AY 2007-08) read as under:-

    1. That the Ld. CIT (A) has erred in not appreciating that the proceedings initiated u/s. 147/ 148 are invalid and illegal as the reasons recorded do not reflect any tangible material on the basis of which the Assessing Officer could have reasons to believe that any income has escaped assessment. .

    2. That the Ld. CIT (A) has erred in not appreciating that the proceedings initiated u/ s 147/148 are invalid and illegal as the reasons recorded do not reflect any satisfaction of the Assessing Officer regarding escapement of income but are based upon borrowed satisfaction of the Investigation Wing of the department.

    3. That the Ld. CIT (A) has erred in not appreciating that the proceedings could not be as assessment could have been made only under section 153C on the basis of the documents /Information found during the course of a search.

    4. That the Ld. CIT (A) has erred in not appreciating that the assessment is invalid and illegal as it has been made after the limitation period.

    5. That the Ld. CIT (A) has erred in holding that it was the burden of the appellant to establish that no amount of capitation fees has been paid to M/s. Santosh Medical College.

    6. That the Ld. CIT (A) has erred on facts and in law in upholding the addition of Rs. 25,50,000/- on account of alleged payment to M/s. Santosh Medical College.

    7. That the Ld. CIT (A) has erred in holding that merely because the appellant has attended the assessment proceedings it can be presumed that the information on the basis of which the addition has been made was confronted to the appellant.

    8. That the Ld. CIT (A) has erred in not appreciating that the assessment is invalid and illegal as the principles of natural justice have been completely violated and no opportunity of cross examination was provided to the appellant.

    9. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

    10. That the Appellant craves leave to add/alter any/all grounds of appeal before or at the time of hearing of the Appeal.

    4. The brief facts of the case are that in this case proceedings u/s. 148 of the Income Tax Act, 1961 (hereinafter referred as the Act) initiated by the AO based on the information that assessee has invested a sum of Rs. 25,50,000/- towards admission to MS ENT course during the assessment year 2007-08. The assessee has furnished return of income in response to notice u/s. 148 of the Act declaring NIL income. The assessee was required to furnish the source of payment made to Maharaja Education Trust for the above mentioned course. After considering the reply of the assesee, the AO made an addition of Rs. 25,50,000/- being unexplained cash invested in payment of fee. The income of the assessee was assessed at Rs. 25,50,000/- vide order dated 11.03.2015 passed u/s. 147/143(3) of Income Tax Act, 1961. Aggrieved with the assessment order dated 11.3.2015, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 23.12.2016 has dismissed the appeal of the Assessee by confirming the action of the AO.

    5. Aggrieved with the Ld. CIT(A)s order, assessee appealed before the Tribunal.

    6. At the time of hearing, Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 22 in which the Assessees counsel has attached the written submissions; copy of reasons recorded and the copy of the order of the ITAT, New Delhi in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016. He contended that the action taken by the Assessing Officer under sec. 147 is not tenable for the simple reason that provisions of sec. 153 C of the Act are applicable in this case and not the provisions laid down under sec. 147 of the Act. He further submitted that it is an admitted position of the fact as it is also evident from the assessment order that the Assessing Officer has initiated reassessment proceedings in the present case on the basis of information received based on the material found during the course of search from the premises of Santosh Medical College run by Maharaja Education Trust. The Learned AR contended that provisions of sec. 153C provides that persons relating to whom some material is found in search of some other person should be assessed under sec. 153C of the Act. The provisions of section 153~C are non-obstantive provisions and specially excludes the operation of sec. 147 of the Act, therefore, the Assessing Officer in the present case has erred in invoking the provisions of sec. 147, instead of 153C of the Act. If action under sec. 147 is permitted on the basis of material found in the course of search, then the provisions of sec. 153 would be redundant. In this regard, he placed reliance on the following decisions to support his above contentions that no action under sec. 147 is permissible on the basis of material found in search:

    i) ACIT vs. Arun Kapur - 140 TTJ 249 (Amritsar); ii) Cargo Clearing Agency vs. JCIT - 307 ITR I(Guj.); iii) Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016.

    7. On the contrary, Ld. DR relied upon the orders of the authorities below and has tried to justify the action of the Assessing Officer in initiating reopening proceedings.

    8. I have heard both the parties and perused the records, especially the impugned order as well as the Paper Book. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), I find that in that case as in the present case before me, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio. It was held that Assessing Officer having not followed procedure under sec. 153C, reassessment order was rightly quashed by the Learned CIT(Appeals). I also draw my support from the ITAT, New Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016, wherein the reassessment was quashed on the similar facts and circumstances by following the ITAT, Amritsar decision in the case of ITO vs. Arun Kumar Kapoor (supra). In the present case before me, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information available with the AO. I thus respectfully following the decision of Co-ordinate Bench of the ITAT, Amritsar in the case of ACIT vs. Arun Kapur - 140 TTJ 249 vs. (Amritsar) and the ITAT, Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016 hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the ~ hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. Hence, the reassessment in question is accordingly quashed. Since I have already quashed the reassessment, there is no need to adjudicate other grounds.

    9. In the result, both the appeals filed by the different Assessees stand allowed in the aforesaid manner. Order pronounced in the Open Court on 08/08/2017. Sd/- [H.S. SIDHU] JUDICIAL MEMBER Date:- 08/08/2017 SRBHATNAGAR Copy forwarded to: -

    1. Appellant

    2. Respondent

    3. CIT

    4. CIT (A)

    5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Benches

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    Comments

    Shelly Agarwal,, New Delhi v. ITO, Ghaziabad
    (Aug 8, 2017)