Delhi HC: S.153C of IT Act Doesn’t Bar AO from Reopening Assessments U/S 147 Based on Information from Searches on Third Parties

S.153C Income Tax Act doesn’t bar the jurisdiction of AO to reopen the assessment under section147 when information against the taxpayer is received from a search conducted on another person: Delhi High Court

It was carried by the Delhi High Court that section 153C of the Income Tax Act, 1961 does not by itself preclude an assessing officer from reopening the assessments u/s 147/148 of the Act, based on the data discovered at the time of the investigation performed u/s 132 or requisition made u/s 132A of the act concerning another person.

Section 153C of the act includes special provisions for the assessment of a person as per the material discovered in the investigation u/s 132 on any other person or as a consequence of requisition made u/s 132 of the Act.

It provides authority to the assessing officer of the investigated person, to hand over the undisclosed assets records of the other person (discovered in the books of account of the searched person), to the assessing officer of that other person. The assessing officer of the other person has the authority to move against the other person to evade the tax on this undisclosed income.

The provisions legislated towards the objective of easing the process in these matters, a division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma mentioned. Therefore it carried that the import of these provisions could not be to oust the recourse to the normal provisions which in any case are available for the assessment/reassessment of the taxpayer’s income.

It mentioned that the jurisdiction u/s 147 will remain restricted when AO chooses to move u/s 153C. It provides reason that the act does not reflect the parallel assessment proceedings.

Delhi High Court Mentioned

“In a case where pursuant to search conducted under Section 132 of the Act or requisition made under Section 132A of the Act in respect of another person (searched person), assets, documents or books of account, which either belong to the assessee or contain information pertaining to the said assessee, are found. And, the same are handed over to the AO of the assessee; he would subject to satisfaction of the other jurisdictional conditions stipulated under Section 153C of the Act, having the jurisdiction to make a reassessment/assessment of the income of the assessee under Section 153C of the Act. However, the same does not mean that he is bound to exercise the said jurisdiction. In the event, the AO does not assume it’s jurisdiction to proceed with making an assessment/ reassessment under Section 153C of the Act, recourse to Section 147/148 is not ousted.”

Concerning the matter the revenue asserted that on the investigation of the documents seized from Jain Brothers, it was discovered that the assessee-respondent was the major beneficiary of the accommodation entry operations.

As per that the notices were furnished before the respondent u/s 148 for the income reassessment which came to contest via the respondent to the ITAT. Therefore the appeal has been filed.

As per the taxpayer, as section 153C is a special provision that starts with a non-obstante provision, it shall override the other provisions of the assessment/reassessment along with section 147 of the act, it was furnished that as section 153C of the act designates a particular process to perform the assessment, it could not be avoided.

The revenue has laid on the Amar Jewellers Ltd. v. Assistant Commissioner of Income Tax (2022) where the Gujarat High Court carried that the non-obstante clause u/s 153C of the Act did not override the provisions of Section 147 of the Act.

Findings

The Delhi High Court at the beginning designated the specified “jurisdictional conditions” required to be fulfilled for invoking Section 153C:

• AO of the investigated person is pleased that the assets along with the material discovered at the time of the investigation or requisitioned are accusing insofar as the taxpayer (other than the searched person) is concerned;
• recording its satisfaction to the aforementioned effect;
• transmitting it to the AO of the other person (person other than the searched person);

The High Court in this phase mentioned that,

“it is not necessary for the AO to form any opinion that the valuable articles, books of account or documents would reflect any undisclosed income of such a person. The AO has to merely forward the said material to the AO of the other person exercising jurisdiction in respect of the other person.”

Thereafter proceeded to designate the additional jurisdictional pre-requisites as follows-

• AO of the non-searched individual being pleased that the obtained material information has a bearing on the determination of the total income;
• AO of these non-searched persons issuing a notice to begin assessment/reassessment proceedings.

Court marked that if any of the aforementioned prerequisites are not fulfilled then the income of these other persons could not be computed or recomputed u/s 153C of the Act.

Concerning disagreements towards the non-obstante clause, the High Court cited that the same kicks in merely to the AO carrying the jurisdiction u/s 153C of the Act, to make an assessment/ reassessment.

If the AO does not opt for the recourse to provision of section 153C of the act then the non-observant provisions do not get applied, it ruled.

Read Also: Delhi HC: IT Assessment Can’t Be Re-opened Without Any Evidentiary Material U/S 148

“By its very nature, Section 153C of the Act is an enabling provision, which enables the Assessing Officer to assume jurisdiction to assess/reassess the income of the Assessee, in cases where the jurisdictional conditions as set out in Section 153C are satisfied. The non obstante provision as contained in Section 153C(1) of the Act must necessarily be construed in the aforesaid context,” Court mentioned in its 56-page order.

It added, “The non obstante provision, in such circumstances, cannot be construed to mean that recourse to a provision, which by nature is an enabling provision, is necessary and by implication, the other provisions in respect of which, the main enactment is accorded primacy are inoperative and nugatory.”

The HC disregards the judgment of the Karnataka High Court in The Pr. Commissioner of Income Tax & Anr. v. M/s VSL Mining Company Pvt. Ltd. in which it carried that once the material as per the investigation is laid then the AO is needed to comply with the process as said u/s 153A, 153B and 153C of the Act and recourse of regular proceedings are restricted.

It was indeed disregarded by the Rajasthan High Court which in Shyam Sunder Khandelwal v. Assistant Commissioner of Income Tax (and connected petitions) interpreted the non-obstante clause of Sections 153A and 153C to include an overriding effect on the statutory provisions for assessment/reassessment along with under Sections 139,147,148, 149 and 153 of the Act.

Closure to that HC cited that the non-obstante clause in section 153C could not be read to not include the provisions of sections 143 or 147 in matters where the income of the taxpayer is asked to be computed based on the data discovered at the time of search proceedings.

As per the court, it will not be open for the AO to take recourse to section 147 in which the Assessing Officer (AO) has taken steps u/s 153C of the act.

Therefore if the prerequisites for the practice of jurisdiction u/s 153C of the act are fulfilled and the AO provides a notice as needed u/s 153C of the act any reassessment u/s 147 of the act shall become prohibited.

The Order Read

“The assumption that provisions of Section 153C of the Act precludes any proceeding under Section 147 of the Act by virtue of the non obstante clause, is unpersuasive. The scheme of Sections 153C of the Act indicates that the said provision was enacted to simplify the procedure, while maintaining the necessary safeguards, for assessment / reassessment in cases where assets belonging to the assessee or books of account or documents, which contain information pertaining to the assessee are found pursuant to a search conducted under Section 132 of the Act or requisition made under Section 132A of the Act, in respect of a person other than the assessee.”

As per that the Delhi High Court has rejected the contention of the respondent and marking that the AO in this matter does not consider the jurisdiction u/s 153C, the HC carried that the re-assessment proceedings u/s 147 could not be ineffective.