Proper Course of Action for Assessment Based on Information from Search must be u/s 153C: ITAT Rules S. 147 Invocation Invalid [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) quashed the entire reassessment proceedings and ruled that proper course action must be under section 153C for reopening based on search but not section 147 of the Income Tax Act.

Somnath Ramdas Jadhav (assessee) originated when the Assessing Officer (AO) received information from the Central Range regarding cash deposits made by the assessee.

The information specifically related to a cash deposit of ₹50,51,750 for AY 2013-14 in an account maintained with Renuka Mata Multistate Credit Society Ltd., in whose premises a search and seizure action had been conducted on 26/05/2017.

Since the assessee had not filed his Return of Income for the relevant years, the AO proceeded to reopen the assessment under Section 147 of the Income Tax Act, 1961. As the assessee failed to comply with statutory notices, the AO completed the assessment treating the entire cash deposit as unexplained money under Section 69A of the Income Tax Act.

Aggrieved by the AO’s order, the assessee filed appeals before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the AO's action, dismissing the assessee's additional ground that challenged the jurisdiction. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT

The assessee argued that the proper course of action should have been under the special assessment provision for search-related material on third parties, Section 153C, and not the reopening provision under Section 147 of the Income Tax Act.

The two-member bench comprising Manish Borad (Accountant Member) and Vinay Bhamore (Judicial Member) relied on a binding precedent set by a coordinate bench in the case of Vijaykumar Mangilal Chordiya vs. NFAC.

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The Tribunal observed that since the AO's 'reason to believe' that income escaped assessment was directly and solely based on information that 'emerged at the time of search' at the premises of a third party Shri Renuka Mata Multistate Credit Society Ltd., the mandatory procedure prescribed by Section 153C was attracted.

The tribunal held that the initiation of proceedings under Section 147 was not in accordance with law and liable to be quashed. Therefore, the quantum assessment orders and the consequent penalty orders under Section 271(1)(c) for all three assessment years were deleted. The appeal filed by the assessee was allowed.

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