Assessments Initiated Under Section 147 Based on Material Seized During Third-Party Search Are Void for Lack of Jurisdiction

ORDER

Sanjay Garg, Judicial Member.- The captioned appeals have been preferred by the assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals), [hereinafter referred to as ‘Ld. CIT(A)’] National Faceless Appeal Centre (in short “NFAC”), Delhi passed u/ s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Years (AYs) 2013-14 to 2017-18 respectively.

2. There is a delay in filing the present appeals ranging from 25 days to 390 days. Separate applications for condonation of delay have been filed, wherein, negligence on the part of the consultant of the assessee has been alleged. Though, the reasons cited in the said applications are somewhat, general and vague, however, considering the peculiar facts and circumstances of the case, and in the interests of justice, the delay in filing the appeal is hereby condoned.

3. The sole issue involved in all the appeals is as to whether the Assessing Officer (hereinafter referred to as “the AO”) was justified in reopening the assessment for all the captioned assessment years u/s 147 r.w.s. 148 of the Income Tax Act and consequently, the assessee has challenged the validity of the assessment order passed u/s 147 of the Act.

4. A perusal of the opening para of the assessment order would reveal that the AO has mentioned that a search and seizure action u/s 132 of the Act was carried out in the case of one Shri Vipul Jasoliya on 06.01.2017 who is based at Surat. During the course of search action, certain documents were found showing that the assessee had carried certain transactions in the assessment year under consideration with the said Shri Vipul Jasoliya. The AO of the searched person i.e. ACIT, Central Circle-2, Surat passed on the said information alongwith seized documents to the AO of the assessee. The AO of the assessee observed that there were transactions involving hefty amount, recorded in the seized documents, whereas, the Return of Income filed by the assessee for the assessment years under consideration did not show the income matching with the said transactions. He, therefore, reopened the assessment for all the assessment years u/s 147 of the Act by serving notice u/s 148 of the Act.

4.1 The legal issue raised by the Ld. AR of the assessee is that the provisions of sections relating to search and seizure action, as envisaged in Section 153A to 153C of the Act, are, in itself, a separate code and that the same have an overriding effect on the other general provisions of the Act including the provisions of Section 147 of the Act. He in this respect has submitted that firstly, there is no allegation that the documents seized from the searched person were incriminating, having any bearing on the income of the assessee; secondly, even, if it is assumed that the said documents, in view of the AO of the assessee had any bearing on the income of the assessee for the assessment years under consideration, even then the proper course of the AO was to proceeded u/ s 153C of the Act and not u/ s 147 of the Act. He, therefore, has pleaded that the impugned assessment orders passed u/s 147 of the Income Tax Act were not sustainable.

4.2 At this stage, it is pointed out here, that in respect of the above submissions of the Ld. AR, a report was called from the AO, a copy of which has been tendered on record today by the Ld. DR. A perusal of the said report furnished by the AO would show that the AO has conveniently ignored the aforesaid plea raised by the Ld. AR and has simply written that in this case, search was not conducted in the case of the assessee and therefore, it was not a case where the AO should have proceeded u/s 153A of the Act. He, therefore, has justified the action of the AO in proceeding u/s 147 of the Act. So far as the query that how was the AO justified in proceeding u/ s 147 of the Act instead of u/s 153C of the Act, the AO has reported in his report that Section 153C can be invoked only when the AO of the searched person records the requisite satisfaction that the books of account, documents, or assets seized or requisition belong to or pertain to another person and such material has a bearing on determination of the total income of such other person. He has further reported that unless these jurisdiction requirements are satisfied, Section 153C has not applicable.

4.3 We note that the AO in this case has not disputed that the assessment in this case of the assessee u/ s 147 of the Act was reopened on the basis of the material received by the AO of the assessee from the AO of the searched person, which was seized during the course of search action in the case of one Shri Vipul Jasoliya. The AO of the searched person had forwarded the said material alongwith his letter dated 26.11.2018 and it is obvious that the said material was forwarded to the AO of the assessee only because the said material either belonged to or pertained to the assessee. This fact is further verified from the reasons recorded by the AO of the assessee, wherein, he has noted that in the seized material, there were certain transactions recorded, which were allegedly done by the assessee with Shri Vipul Jasoliya. Therefore, so far as the requirement on the part of the AO of the searched person was concerned, that had been duly complied with by the AO of the searched person. A perusal of the provision of Section 13C of the Act would reveal that the only requirement on the part of the AO of the searched person is that if, he is of the view, that the material seized during the search action, belong to or pertain to another person, such material has to be forwarded to the AO of the such other person. There is no requirement under law that the AO of the searched person will record a satisfaction that the said seized material has a bearing on the income of such other person. Such a satisfaction is required to be recorded by the AO of such other person, after duly considering the material received from the AO of the searched person. Admittedly, in the reasons recorded, the AO of the assessee has also given an observation that the transactions recorded in the seized material will have a bearing on the determination of the income of the assessee. Though, we have serious doubts about the correctness of such an observation made by the AO of the assessee, as he has not pointed out in the reasons recorded that the said transactions recorded in the seized documents were in the shape of any unaccounted transactions. Merely, recovery of the document, wherein, certain transactions have been noted, would not ifso facto give reasons to believe to the AO that the said transactions are unaccounted transaction or that the income relating to such transactions has escaped assessment. However, at this stage it is to be noted that under the circumstances, the proper course for the AO of the assessee, was to proceed u/s 153C of the Act. It is to be noted here that the provisions of Section 153A of the Act open with a non-obstante clause “notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153.”. There is similarly worded non-obstante clause in the opening lines of the Section 153C of the Act. Therefore, the provisions of Section 153A/153C of the Act have an overriding effect over the other general provisions including that of Section 147 of the Act. The issue has been settled by the decisions of various Hon’ble High Courts including the decision of the Hon’ble Gujarat High Court in the case of “Paras Chandreshbhai Koticha v. ITO 485 ITR 628 (Gujarat). Similar view has been taken by one Rajasthan High Court in the case of “Tirupati Construction Company v. ITO 465 ITR 611 (Rajasthan) and in the case of “Shyam Sunder Khandelwal v. Asstt. CIT  (Rajasthan). In view of this, the assessment order passed u/ s 147 of the Act in all these appeals being without jurisdiction, are not sustainable in the eyes of law. Therefore, the same are hereby quashed. All the appeals of the assessee are allowed on this legal ground.