Aristocrat Residences LLP Vs ITO (ITAT Kolkata)
Income Tax Appellate Tribunal (ITAT) recently ruled that an assessment initiated under Section 147 of the Income-tax Act, 1961, based on information obtained from a search operation, is invalid. The Tribunal emphasized that when materials related to an assessee are found during a search on another person, the assessment must be conducted under Section 153C, which contains overriding provisions. The case involved an assessee whose assessment was reopened under Section 147/148 based on materials seized during a search on Mukesh Banka and his group of companies. The assessee contended that the reassessment proceedings were void ab initio since the proper procedure under Section 153C was not followed.
The assessee relied on several judicial precedents to support its argument, including the Bombay High Court ruling in Sejal Jewellery & Anr. vs. Union of India & Ors. (W.P. No. 3057 of 2019), where the court held that assessments based on search findings must be conducted under Section 153C. Similarly, the Rajasthan High Court in Shyam Sunder Khandelwal vs. ACIT (C.P. No. 18363 of 2019) and the Karnataka High Court in Sri Dinakara Suvarna vs. DCIT (2022) 143 taxmann.com 362, upheld that reopening under Section 147 is not permissible when information is derived from a search. The Tribunal noted that Section 153C specifically overrides Sections 147 and 148, requiring the Assessing Officer to proceed under the search-related provisions.
The Revenue, however, argued that the information received from the investigation wing indicated the assessee had obtained bogus unsecured loans of ₹1 crore, justifying reassessment under Section 147. The Department contended that the reassessment was based on credible evidence and was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)). However, the Tribunal found that the source of this information was a search operation under Section 132, which mandated proceedings under Section 153C, not Section 147.
The Tribunal relied on the Supreme Court’s ruling in Abhisar Buildwell Pvt. Ltd., which clarified that when a search occurs, assessments must follow Section 153A/153C. It further referenced CIT vs. Kabul Chawla (Delhi High Court), which established that once a search is conducted, reassessment must be confined to incriminating material found during the search. Since the Revenue had not initiated proceedings under Section 153C, the Tribunal held that the assessment under Section 147 was legally unsustainable. Consequently, the reassessment order was quashed, and the appeal was allowed in favor of the assessee.
This ruling reaffirms that the Income Tax Department cannot bypass specific statutory provisions and must follow the prescribed procedures when reopening assessments based on search findings. It highlights the importance of adhering to procedural safeguards to ensure assessments are legally valid.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
