Facts of the Case

The assessee’s original assessment for Assessment Year 2016-17 was completed under Section 143(3) read with Section 153A on 31.12.2018. A search under Section 132 was conducted on 30.11.2018 in the cases of certain finance brokers, namely the Kasera and Sanwaria groups, during which documents and papers were seized and statements were recorded describing their alleged modus operandi of arranging cash loans. None of the seized documents or statements named the assessee. Subsequently, a survey under Section 133A was conducted on the assessee on 19.02.2020, during which certain papers were impounded and a statement was recorded on 20.02.2020, wherein the assessee allegedly admitted to cash loan transactions and made a disclosure of ₹50 crores. The assessee retracted the statement within three days by filing an affidavit. Based primarily on material seized during the search on the brokers and the survey statement, the Assessing Officer reopened the assessment under Section 147 and completed reassessment making additions of ₹36.65 crores under Section 69A and ₹1,64,92,500 towards alleged interest income. The CIT(A) annulled the reassessment, leading to the Revenue’s appeal and the assessee’s cross-objection before the Tribunal.

Issues Involved

Whether reassessment proceedings initiated under Sections 147 and 148 were valid when the entire basis of reopening was material seized during a third-party search, whether the correct provision applicable was Section 153C, and whether additions under Section 69A based on retracted statements and uncorroborated seized documents were sustainable.

Petitioner’s Arguments

The Revenue contended that the Assessing Officer was justified in invoking Section 147 on the basis of information received from search and survey proceedings and that the CIT(A) erred in annulling the reassessment without examining the merits of the additions.

Respondent’s Arguments

The assessee argued that the sole basis of reopening was material seized during search conducted on third parties and therefore the only permissible course was to proceed under Section 153C after recording satisfaction, which was not done. It was further contended that statements relied upon by the Assessing Officer were retracted promptly and were not supported by any corroborative evidence. Reliance was placed on several High Court and Tribunal decisions holding that where Section 153C is applicable, jurisdiction under Section 147 is ousted.

Court Order / Findings

The ITAT Kolkata held that the incriminating material relied upon by the Assessing Officer emanated exclusively from the search conducted on the Kasera and Sanwaria groups and that the assessee was, at best, an “other person” within the meaning of Section 153C. The Tribunal observed that Section 153C is a special provision containing a non-obstante clause and overrides Sections 147 and 148 where its conditions are satisfied. Since the Assessing Officer failed to invoke Section 153C and instead proceeded under Section 147, the reassessment proceedings were held to be without jurisdiction and void ab initio. The Tribunal further noted that even on merits, the additions were unsustainable as they were based solely on retracted statements and uncorroborated seized papers described as “dumb documents”, with no independent evidence linking the assessee to the alleged cash loan transactions.

Important Clarification

The Tribunal clarified that where incriminating material relating to an assessee is found during search on a third party, the statutory mandate requires proceedings to be initiated only under Section 153C. Jurisdictional defects of this nature strike at the root of the assessment and cannot be cured by recourse to Section 147. Additions based solely on retracted statements or unverified jottings, without corroborative evidence, are unsustainable in law.

Final Outcome

The appeal filed by the Revenue was dismissed. The cross-objection filed by the assessee was partly allowed. The reassessment proceedings initiated under Sections 147 and 148 and the consequential additions of ₹36.65 crores under Section 69A and ₹1,64,92,500 towards interest income for Assessment Year 2016-17 were held to be without jurisdiction and void ab initio.

 Source Link-

https://itat.gov.in/public/files/upload/1768297809-aauFCT-1-TO.pdf

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