ITAT Holds Section 153C Prevails Over Section 147 in Search-Based Reopening Cases

ITAT Holds Section 153C Prevails Over Section 147 in Search-Based Reopening Cases

The assessee, proprietor of M/s SD Trading Company, was subjected to reassessment proceedings for AYs 2008-09 and 2009-10 after a search under Section 132 was conducted in the case of M/s Uflex Group. Based on information allegedly found during that search, the Assessing Officer (AO) formed a belief that the assessee had made substantial cash purchases exceeding Rs. 1.12 crore, attracting disallowance under Section 40A(3).

Despite issuing notices, the AO completed the reassessment under Sections 143(3)/147 and made additions. The CIT(A) upheld the action of the AO. Aggrieved, the assessee approached the ITAT, challenging both the jurisdiction of reopening and the addition made.

Issue Raised: Whether reassessment proceedings under Section 147 are valid when they are based entirely on material found during a search conducted on a third party, thereby attracting the provisions of Section 153C.

Tribunal Held: The Tribunal held that the reassessment was fundamentally flawed. It observed that the very basis of reopening was information derived from a search conducted on another entity (M/s Uflex Ltd.). In such circumstances, the correct statutory route available to the Revenue was under Section 153C and not Section 147. Relying on judicial precedents, the Tribunal concluded that once Section 153C is applicable, recourse to Section 147 is barred.

Therefore, the notice issued under Section 148 and the consequent assessment framed under Sections 143(3)/147 were declared void ab initio. Since the reassessment itself was quashed on jurisdictional grounds, the issues relating to additions under Section 40A(3) were treated as academic and left open. Both appeals of the assessee were allowed.

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