Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act challenging the order dated 09.12.2021 passed by the Income Tax Appellate Tribunal for Assessment Year 2011-12. The ITAT had allowed the assessee’s appeal and quashed the reassessment order passed under Section 147 read with Section 143(3).

The assessee was engaged in trading of shares, securities, commodities, futures and options, and foreign exchange. He filed his return of income for AY 2011-12 declaring a loss of ₹2,50,39,010. On 17.12.2015, a search under Section 132 was conducted on the Jain Brothers group, during which documents were seized allegedly indicating that the assessee was a beneficiary of accommodation entries.

Based on information from the search and inputs from the Investigation Wing, the Assessing Officer issued a notice under Section 148 on 28.03.2018 and completed reassessment by making additions under Section 68 on account of alleged accommodation entries and penny stock transactions.

Issues Involved

Whether reassessment proceedings under Section 147 could be validly initiated where the information forming the basis of reopening emanated from a search conducted on a third party and the case squarely fell within the scope of Section 153C of the Income-tax Act.

Petitioner’s Arguments

The Revenue contended that reassessment under Section 147 was valid as the information was not limited to seized material alone but also included independent investigation inputs. It was argued that since the seized material did not “belong to” the assessee, proceedings under Section 153C were not mandatory. Reliance was placed on the Supreme Court decision in Abhisar Buildwell to argue that Section 147 remains available even in search-related cases.

Respondent’s Arguments

The assessee argued that Section 153C is a special provision with a non obstante clause overriding Section 147 and that once the foundation of reopening is search-related material, the Assessing Officer must strictly follow the procedure under Section 153C. It was contended that bypassing the statutory safeguards under Section 153C renders the reassessment void. Reliance was placed on Kabul Chawla, RRJ Securities, Saumya Construction and other High Court decisions.

Court Order / Findings

The Delhi High Court examined the entire statutory scheme of Sections 153A and 153C and held that these provisions constitute a special code for assessment in search cases. The Court explained that Section 153C can be invoked once the Assessing Officer of the searched person records satisfaction that seized material pertains to or relates to another person and such material is transmitted to the Assessing Officer having jurisdiction over that person.

The Court held that where conditions for invoking Section 153C are satisfied, the Assessing Officer cannot circumvent the statutory procedure by resorting to Section 147. The non obstante clause in Section 153C was held to override the general reassessment provisions. The Court distinguished Abhisar Buildwell by clarifying that reassessment under Section 147 is permissible only where proceedings under Sections 153A or 153C cannot be initiated due to failure of jurisdictional conditions, not where they are clearly attracted.

The High Court affirmed the ITAT’s finding that the reassessment was invalid as the Revenue had failed to follow the mandatory procedure under Section 153C.

Important Clarification

The Court clarified that reassessment under Section 147 is not barred in every case involving search material; however, where the statutory conditions of Section 153C are met, the Assessing Officer is bound to proceed only under that provision. General reassessment powers cannot be used to bypass the special search assessment framework.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the ITAT’s order quashing the reassessment and held that proceedings initiated under Section 147 were without jurisdiction as the case mandatorily fell under Section 153C of the Income-tax Act.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769856688_PR.COMMISSIONEROFINCOMETAX7DELHIVsNAVEENKUMARGUPTA.pdf

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