Recourse To Section 147 Of Income Tax Act Not Barred In Cases Where Assessing Officer Is Empowered To Proceed U/S 153C: Delhi High Court

S.153C Income Tax Act doesn't bar AO's jurisdiction to reopen assessment u/S 147 when information against assessee is received from search conducted on another person: Delhi High Court

The Delhi High Court has held that Section 153C of the Income Tax Act, 1961 does not by itself preclude an Assessing Officer from reopening assessments under Section 147/148 of the Act, on the basis of information found during a search conducted under Section 132 or requisition made under Section 132A of Act in respect of another person.

Section 153C of the Act contains a special provision relating to assessment of a person pursuant to material found during the search operations conducted under Section 132 on any other person or as a result of requisition made under Section 132A of the Act.

It empowers the Assessing Officer of the person searched, to handover records of undisclosed assets belonging to the other person (found in the books of account of the searched person), to the Assessing Officer of that other person. The Assessing Officer of that other person is empowered to proceed against such other person for evading tax on such undisclosed income.

A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma said the provisionis enacted for the purpose of simplifying the procedure in search cases. Thus, it held that the import of such provisions cannot be to oust the recourse to the normal provisions, which in any event are available for assessment / reassessment of an income of an assessee.

However, it clarified that the jurisdiction under Section 147 will stand barred when the AO decides to proceed under Section 153C. It reasoned that the Act does not contemplate parallel assessment proceedings.

The High Court held,

“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.”

In the case at hand, Revenue claimed that upon examination of documents seized from Jain Brothers, it was revealed that the Assessee-Respondent was the major beneficiary of accommodation entry operations. Accordingly, notices were issued to the Respondent under Section 148 for reassessment of income, which came to be successfully challenged by the Respondent before ITAT. Hence, this appeal.

The Assessee claimed that since Section 153C is a special provision which commences with a non obstante provision, the same would override the other provisions relating to assessment/ reassessment, including Section 147 of the Act. it was submitted that since Section 153C of the Act sets out a specified procedure for conducting the assessment, the same cannot be sidestepped.

The Revenue on the other hand relied upon Amar Jewellers Ltd. v. Assistant Commissioner of Income Tax (2022) where the Gujarat High Court held that the non-obstante clause under Section 153C of the Act did not override the provisions of Section 147 of the Act.

Findings

At the outset, the High Court set out the following “jurisdictional conditions” necessary to be satisfied for invoking Section 153C:

(a) the AO of the searched person being satisfied that the assets and material found during the search proceedings or requisitioned are incriminating insofar as the assessee (other than the searched person) is concerned;

(b) recording its satisfaction to the aforesaid effect;

(c) transmitting the same to the AO of the other person (person other than the searched person);

At this stage, the High Court clarified,

“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.”

It then proceeded to set out further jurisdictional conditions as follows:

(d) the AO of the non-searched person being satisfied that the material information received has a bearing on the determination of the total income;

(e) the AO of such non searched person issuing a notice to commence assessment / reassessment proceedings.

Court observed that if any of the aforesaid conditions are not satisfied, the income of such other person cannot be assessed or reassessed under Section 153C of the Act.

Coming to the arguments on the non obstante clause, the High Court said that it kicks-in only on the AO assuming the jurisdiction under Section 153C of the Act, to make an assessment/ reassessment.

The non obstante provisions do not come into play, if the AO does not take recourse to provision of Section 153C of the Act, it held.

“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 said 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.”

Significantly, the High Court disagreed with the decision of Karnataka High Court in The Pr. Commissioner of Income Tax & Anr. v. M/s VSL Mining Company Pvt. Ltd. where it was held that once material pursuant to a search is relied on, the AO is required to follow the procedure as contemplated under Sections 153A, 153B and 153C of the Act and recourse of regular proceedings are barred.

It also disagreed with the Rajasthan High Court which in Shyam Sunder Khandelwal v. Assistant Commissioner of Income Tax (and connected petitions) which interpreted the non obstante clause of Sections 153A and 153C to have an overriding effect on the legal provisions for assessment / reassessment including under Sections 139,147,148, 149 and 153 of the Act.

In conclusion, the High Court said that the non obstante clause in Section 153C cannot be read to completely exclude the provisions of Sections 143 or 147, in cases where the assessee's income is sought to be assessed on the basis of information found during search proceedings.

However, the Court clarified that it will not be open for the AO to take recourse to Section 147, where the AO has taken steps under Section 153C of the Act.

Thus, if the conditions for exercise of jurisdiction under Section 153C of the Act are satisfied and the AO issues a notice as required under Section 153C of the Act, any reassessment under Section 147 of the Act would become impermissible.

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.”

Accordingly, the High Court rejected Respondent's contention and noting that the AO in this case had not assumed jurisdiction under Section 153C, the High Court held that re-assessment proceedings initiated under Section 147 cannot be faulted.

Appearance: Advocates Puneet Rai, Ashvini Kumar and Rishabh Nangia for Appellant; Advocates Kapil Sood and Sandeep Goel for Respondent

Case title: Pr. Commissioner Of Income Tax -7, Delhi v. Naveen Kumar Gupta

Case no.: ITA 401/2022

Click Here To Read/Download Order