The Delhi High Court recently remitted matter back to the file of the Income Tax Appellate Tribunal (ITAT) observing that a jurisdictional Assessing Officer (AO) may initiate reassessment proceedings of an Assessee under Section 147 of the Income Tax Act, 1961 on the basis of connected findings uncovered by another AO during search conducted on a third-party.
The ruling was given by the Delhi High Court while adjudicating an Income Tax Appeal filed by the Principal Commissioner of Income Tax -7, Delhi against an Assessee Naveen Kumar Gupta, impugning an order passed by the ITAT in an Appeal filed the Assessee against the Income Tax Officer.
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The Assessee, was engaged in the trading of shares, securities and other investments and had filed his return of income for the Assessment Year (A.Y.) 2011-12, declaring a loss of Rs.2,50,39,010/-. Tangentially, a search was conducted under Section 132 of the Act on the business group operated by Anand Kumar Jain and Naresh Kumar Jain (Jain Brothers) which revealed voluminous documents of alleged shell companies that were utilized for accommodation entries of which the Assessee was the major beneficiary.
The AO was also privy to information received from the Investigation Wing that the Assessee had purchased 1994 units of a penny scrip named SVC Resources Ltd., during the financial year 2010-11. The AO conducted reassessment of the A.Y. 2011-12 subsequent to issuance of notices under Section 148, 143(2) and 142(1), whereby the Assessee’s total income was determined at Rs.11,93,64,350/-.
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The Primary question of law sought to be addressed by the Delhi High Court was whether “the ITAT was correct in holding that provisions of section 153C have overriding effect on the provisions of section 147 of the Income Tax Act, 1961?”
Kapil Sood and Sandeep Goel, appearing for the Assessee submitted that Section 153C of the Income Tax Act contains a special provision effectuating Assessment of a person on the basis of material found during search of any other person under Section 132; since Section 153C is a special provision, the same would override all the other provisions pertaining to assessment or reassessment under Section 147 of the Act.
Puneet Rai, Ashvini Kumar and Rishabh Nangia, representing the Revenue submitted that reassessment had not been initiated on the basis of search findings alone, but on the basis of information received from the Investigation Wing as well.
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The Division Bench of the Delhi High Court composed of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma observed that when Search or Requisition of another person under Section 132 or 132A points towards the conduct of an Assessee, and such information are handed over to the AO of the Assessee, the concerned AO may conduct assessment or reassessment of the income of the Assessee under Section 153C of the Income Tax Act, 1961 provided that the the jurisdictional conditions are met.
In the present case, the Revenue disputed that the AO of Jain Brothers had issued a satisfaction note to the Assessee’s AO, thereby not satisfying the jurisdictional conditions to initiate further steps under Section 153C of the Act.
Since the AO had not proceeded reassessment under Section 153C and rather initiated the same under Section 147 on the basis of information received from the Investigation Wing that the Assessee had purchased penny scrips, the Bench held the order passed by the ITAT to be unsustainable averring that the ITAT failed to examine the ancillary grounds on which the Assessee had filed their appeal.
In light of the analysis made, the Delhi High Court allowed the Revenue’s Appeal, setting aside the impugned order and restoring the case back to the file of ITAT for renewed decision.
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