Section 147 Reopening Invalid Where Section 153C Applies: SC

DCIT Vs Dinakara Suvarna (Supreme Court of India)

The matter concerned the validity of reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961 for Assessment Years 2005-06, 2006-07 and 2007-08, and the addition of Rs. 28,75,500 under Section 69B towards alleged unexplained investment. The Supreme Court considered a challenge to the Karnataka High Court judgment, which had allowed the assessee’s appeals. The Supreme Court condoned the delay and dismissed the Special Leave Petition, holding that the impugned High Court order did not call for interference. Consequently, the High Court judgment remained undisturbed.

Read HC Judgment in this case: Section 147 Reopening Invalid Where Section 153C Procedure Applies: Karnataka HC

The assessee, an individual engaged in contract works, had filed returns of income for the relevant assessment years. A search under Section 132 was conducted at the residence of Shri Ashok Kumar Chowta, during which a diary containing details of payments allegedly made to the assessee was seized. Thereafter, a survey was conducted at the assessee’s business premises, and his statement was recorded. The assessee agreed to offer 8% of additional receipts as income but did not file revised returns. The Assessing Officer subsequently issued notices under Section 148, completed reassessment proceedings for the three assessment years, and made additions. The Commissioner of Income Tax (Appeals) partly allowed the appeals. Both the assessee and the Revenue appealed before the ITAT, which partly allowed the appeals and cross-objections, including reversing the Commissioner (Appeals) on the Section 69B addition for Assessment Year 2007-08.

Before the Karnataka High Court, the principal questions were whether reopening under Section 147 was valid, whether the mandatory conditions for reopening had been satisfied, and whether the Tribunal was justified in restoring the addition under Section 69B.

The assessee contended before the High Court that the reassessment was founded entirely on material seized during the search of a third party and that the proper statutory procedure was under Section 153C, not Section 147. Reliance was placed on Manish Maheshwari v. ACIT and Commissioner of Income Tax v. IBC Knowledge Park (P.) Ltd., it being argued that Section 153C overrides the normal reassessment provisions where search material relating to another person is involved. The Revenue submitted that Shri Ashok Kumar Chowta had offered lump-sum income and that the ITAT had recorded that the assessee had signed the seized diary, making the reassessment sustainable.

The High Court accepted the assessee’s challenge. Referring to Manish Maheshwari, it observed that proceedings of this nature require compliance with the prescribed statutory procedure. Relying on IBC Knowledge Park (P.) Ltd., it noted that Section 153C is pari materia with Section 158BD. The High Court found that no proceedings had been initiated under Section 153C, resulting in patent non-application of mind. It also observed that the author of the seized diary had died before the search and that the Assessing Officer had not recorded satisfaction regarding escapement of income, instead relying entirely on the assessee’s statement. Referring to Pullangode Rubber Produce Co. Ltd. v. State of Kerala, the High Court held that an admission is an important piece of evidence but is not conclusive. It therefore answered the questions relating to the reopening under Section 147 in favour of the assessee and against the Revenue.

On the Section 69B addition of Rs. 28,75,500, the High Court noted the assessee’s contention that the addition rested solely on entries in the diary seized from Shri Chowta’s premises. The Revenue argued that the Tribunal had rightly relied upon the fact that the assessee had acquired the properties from Shri Chowta. After examining the orders of the Commissioner (Appeals) and the ITAT, the High Court observed that the Commissioner (Appeals) had found the diary entries unreliable due to the death of the author and absence of corroborative evidence. The Commissioner (Appeals) had also observed that the relevant diary entries were not relied upon in Shri Chowta’s own case but had been used against the assessee, who was a third party. Although the ITAT relied on the assessee’s signature in the diary, the High Court held that the author of the diary had died, the entries were not used in Shri Chowta’s case, and, applying Pullangode Rubber Produce Co. Ltd., an admission could not be regarded as conclusive evidence. The High Court also referred to Commissioner of Income-tax v. S. Khader Khan Son, where it was contended that a statement recorded under Section 133A has no evidentiary value as a sworn statement. The High Court concluded that the Tribunal’s reversal of the Commissioner (Appeals) was unsustainable and answered this question also in favour of the assessee. Accordingly, the appeals were allowed.

The Revenue challenged the Karnataka High Court judgment before the Supreme Court. The Supreme Court condoned the delay but held that the impugned judgment did not warrant interference. The Special Leave Petition was dismissed, thereby leaving the High Court judgment intact.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

Delay condoned.

This Court is of the opinion that the order impugned does not call for interference. The Special Leave Petition is, accordingly, dismissed.

All Pending applications are disposed of.