Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.A. No. 1500/DEL/2017 and I.T.A. No. 1501/DEL/2017

Advocates

Assessee by: Sh. Rajesh Jain, CA & Ms. Chandrima Chaudhury, Adv.
Department by: Sh. T. Vasanthan, Sr. DR

Judges

H.S. Sidhu, J.M.

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

Tribunal Opinion Summary — ITA No.1500/Del/2017 (AY 2007–08)

Factual and Procedural Background

These are appeals by separate assessees against the orders of the Ld. CIT(A), Ghaziabad dated 23.12.2016 relating to assessment year 2007–08. The issues in the appeals were common and the Tribunal heard them together, producing a common order in respect of ITA No.1500/Del/2017 (AY 2007–08).

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. In response to the notice under section 148 the assessee filed a return declaring NIL income and was asked to furnish the source of payment made to Maharaja Education Trust.

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 passed under sections 147/143(3) of the Act. The assessee appealed to the Ld. CIT(A), who dismissed the appeal and confirmed the AO's action by order dated 23.12.2016. The assessee then appealed to the Tribunal.

Legal Issues Presented

Whether reassessment proceedings initiated under sections 147/148 are valid where they were taken on the basis of material/information found during a search of a third party (Santosh Medical College/Maharaja Education Trust), or whether the assessment should have been initiated under section 153C of the Act.
Whether a notice issued under section 148 and an assessment framed under section 147 (read with section 143(3)) are void ab initio when the initiation is based on material found in the course of search of a third party.
Ancillary issues raised in the appeals included challenges alleging violation of principles of natural justice (no opportunity for cross-examination), claims that proceedings were time-barred, contentions about burden of proof concerning alleged capitation fees, and the correctness of the addition of Rs. 25,50,000 — as raised in the grounds of appeal before the authorities below.

Arguments of the Parties

Assessee's Arguments

The reassessment under section 147/148 was not tenable because the provisions of section 153C apply where material is found during the course of a search relating to another person; thus the AO should have proceeded under section 153C and not under section 147.
The reasons recorded for reopening did not reflect tangible material or the AO's independent satisfaction that income had escaped assessment; the reopening relied on borrowed satisfaction of the Investigation Wing.
Section 153C is a non-obstante provision which excludes the operation of section 147; allowing reassessment under section 147 on the basis of search material would render section 153C redundant.
The assessee placed reliance on earlier decisions to support the contention that action under section 147 is impermissible when based on materials found in the search of a third party, and submitted a paper book with written submissions, the reasons recorded, and cited precedents (listed below).

Revenue's Arguments (Ld. DR / Respondent)

The Department relied upon the orders of the authorities below and sought to justify the AO's initiation of reopening proceedings under section 147/148.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
ACIT v. Arun Kapur, 140 TTJ 249 (Amritsar)	Cited for the proposition that where reassessment is initiated on the basis of incriminating material found in the search of a third party, provisions of section 153C apply and exclude the application of sections 147/148.	The Tribunal followed this decision and held that the facts of the present case were analogous; therefore section 153C was applicable and the notice under section 148 and assessment under sections 147/143(3) were void ab initio.
Rajat Shubra Chatterji v. ACIT, New Delhi ITA No.2430/Del/2015 dated 20.5.2016	Cited in support of the same proposition — that reassessment initiated on the basis of material found in a search of a third party should be proceeded with under section 153C and not under section 147/148.	The Tribunal drew support from this ITAT, New Delhi decision and applied its reasoning to quash the reassessment in the present appeals.
Cargo Clearing Agency v. JCIT, 307 ITR 1 (Guj)	Cited by the assessee to support the contention that action under section 147 is not permissible on the basis of material found in search (as part of the cluster of authorities relied upon).	The decision was cited by the assessee; the Tribunal's reasoning specifically highlights the Amritsar and Rajat Shubra Chatterji decisions as the primary authorities it followed in quashing the reassessment.

Court's Reasoning and Analysis

The Tribunal heard the parties and perused the record, including the paper book and the impugned order. It examined the decisions cited by the assessee, placing particular emphasis on the coordinate-bench decisions of the ITAT (Amritsar) in ACIT v. Arun Kapur (140 TTJ 249) and the ITAT, New Delhi decision in Rajat Shubra Chatterji (supra).

The Tribunal observed that in the cited decisions, reassessment had been initiated on the basis of incriminating material found in the search of a third party. Those benches concluded that where assessment action is based on such search material, the statutory scheme contemplates proceedings under section 153C, which is a non-obstante provision excluding the application of sections 147/148. Consequently, notices under section 148 and reassessment proceedings under section 147 were held to be illegal and void ab initio in those cases.

Applying the same analysis to the present appeals, the Tribunal noted that it was an admitted fact (and reflected in the reasons recorded and the assessment order) that the AO initiated reopening on the basis of information/material available from the search of Santosh Medical College (run by Maharaja Education Trust). Given the factual parity with the precedents, the Tribunal held that section 153C applied and accordingly excluded the operation of section 147. On this basis the Tribunal concluded that the notice issued under section 148 and the assessment framed under section 147 read with section 143(3) were void ab initio.

Because the Tribunal quashed the reassessment on this primary jurisdictional ground, it expressly stated that there was no need to adjudicate the other grounds raised by the assessees.

Holding and Implications

Holding: The Tribunal allowed the appeals and held that the notice issued under section 148 and the assessment framed under section 147 read with section 143(3) were void ab initio because proceedings should have been initiated under section 153C where the material originated from a search of a third party. The reassessment was therefore quashed.

Implications:

The direct effect of the decision is that both appeals are allowed and the reassessment (order dated 11.03.2015 under sections 147/143(3)) is quashed.
The Tribunal did not decide other substantive or procedural grounds (such as limitation, natural justice, burden of proof on capitation fees, or the merits of the addition of Rs. 25,50,000) because the reassessment was quashed on the jurisdictional point.
The Tribunal followed existing coordinate-bench precedents as the basis for its decision; the opinion does not purport to lay down a new principle of law beyond applying those precedents to the facts of these appeals.

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Sushil Gaur v. Cit

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 Assessee's 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 Assessee's appeal (ITA NO. 1501/DEL/2017) (AY 2007–08) read as under:—

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.

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 Assessee's 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 v. 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. 153C 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 v. Arun Kapur, 140 TTJ 249 (Amritsar);

ii) Cargo Clearing Agency v. JCIT, 307 ITR I (Guj.);

iii) Rajat Shubra Chatterji v. 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 v. 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 v. 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 v. 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 v. Arun Kapur, 140 TTJ 249 v. (Amritsar) and the ITAT, Delhi decision in the case of Rajat Shubra Chatterji v. 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.

Sushil Gaur v. Cit

Tribunal Opinion Summary — ITA No.1500/Del/2017 (AY 2007–08)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments (Ld. DR / Respondent)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Sushil Gaur v. Cit

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