In a recent ruling, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) quashed the assessment order, clarifying that the both the Assessing Officer and Commissioner of Income Tax (Appeals) erred in law by ignoring the established legal position that any material found during a search belonging to a person other than the one searched should be assessed under Section 153C, not under Section 147 of the Income Tax Act, 1961.
In an appeal brought by the assessee, Karshni Metals Pvt. Ltd against an order under Section 250 of the Income Tax Act, 1961, passed by CIT(A)-8, dated March 8, 2019, the issue arose from an assessment made under Sections 147/143 of the Act by the ITO, Ward 23(3), New Delhi, for the Assessment Year 2010-11. The CIT(A) upheld the addition of Rs. 1,00,00,000 made by the Assessing Officer under Section 68 of the Act, regarding receipt of share application money, along with an additional Rs. 2,00,000 for commission at 2% on the unexplained investment.
The addition stemmed from a search conducted on the Surendra Kumar Jain Group, leading to the assessment in the present case under Section 147 based on material found during the search.
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Mr. Ved Jain, representing the assessee, argued that the jurisdiction under Section 147 was illegally exercised instead of Section 153C, citing the non-obstante clause in Section 153A and the principle of abatement within search assessments, asserting that the assessment should be concluded under Section 153C only.
In contrast, Mr. Shyam Manohar Singh, representing the Department, relied on the judgment in Saloni Kumar Prakash Vs. ITO, defending the AO’s decision to complete the assessment under Section 147 based on information found during the search.
The bench, consisting of Accountant Member M. Balaganesh and Judicial Member Anubhav Sharma, observed that both the AO and CIT(A) erred in law by ignoring the established legal position that any material found during a search that belongs to a person other than the one searched should be assessed under Section 153C, not under Section 147.
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The bench carefully considered the matter and observed that the judgment cited by the Departmental Representative from the Madras High Court had already been reviewed by the Rajasthan High Court in the case of Nishit Gupta Vs. ACIT on March 19, 2024. They determined that the jurisdictional prerequisites for invoking Sections 147-148 were not satisfied, as there was no failure on the part of the petitioner to fully and truthfully disclose material facts. As a result, the specific provisions of Section 153C were deemed to take precedence over the general provisions of Section 147, leading to the allowance of the assessee’s appeal.
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