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Judgment
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)-23 (‘Ld. CIT(A)’ for short), New Delhi dated 04/02/2025 for the Assessment Year 2021-22.
There is a delay of 152 days in filing the present Appeal. The Assessee filed an application for condonation of delay contend that the Assessee was having no knowledge of passing of the order impugned as the mail sent by the Ld. CIT(A) could not be checked by the Assessee and the Assessee came to know only when its Chartered Accountant informed the passing of the order impugned, thus sought for condonation of delay.
We have heard both the parties and perused the material. For the reason stated in the application for condonation of delay, the delay of 152 days in filing the captioned appeal is hereby condoned.
Brief facts are that, the Assessee is not business activity of construction of buildings and trading business of stones and marbles. The Assessee filed return of income declaring total income at Rs. 82,40,500/- and the same was processed u/s 143(3) of the Income Tax Act, 1961 ('Act' for short) determining total income of Rs. 82,54,820/-.
The case of the Assessee was selected for complete scrutiny and an assessment order came to be passed u/s 143(3) of the Act by making an addition of Rs. 44,96,010/- by applying NP rate of 8% and also made addition of Rs. 14,318/- u/s 36(1)(va) of the Act. Aggrieved by the assessment order dated 31/12/2022, Assessee preferredan appealbefore the Ld. CIT(A). The Ld. CIT(A) vide order dated 04/02/2025,sustained the addition of Rs. 17,31,206/- made by the A.O. on account of alleged bogus purchases. As against the order of the Ld. CIT(A) dated 04/02/2025, Assessee preferred captioned appeal.
The Ld. Counsel for the Assessee vehemently submitted that the entire genesis for framing the assessment order against the Assessee is the survey conducted u/s 133A of the Act on 10/09/2021. Further submitted that the addition is not based on any independent scrutiny of return of income and the assessment proceedings has been initiated and addition has been based on the alleged electronical/impounded material gathered during survey proceedings u/s 133A of the Act. The Ld. Counsel further submitted that, once the survey material formed the basis for the addition, the A.O. was required to proceed under the special statutory mechanism prescribed u/s 147/148 r.w. Explanation 2 to Section 148 of the Act and the A.O. should also comply with the mandatory procedure contemplated u/s 148 and 148B of the Act. Further submitted that the A.O. by passed the statutory mandate and proceeded to complete the assessment u/s 143(3) of the Act, thereby assumed jurisdiction erroneously.
The Ld. Counsel also submitted that the additional ground of the Assessee is deserves to be allowed by the Tribunal as per the settled principal of law declared by the Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT reported in 229 ITR 383 (S.C). Further, the Ld. Assessee's Representative also relied on order of the Co-ordinate Bench of the Chandigarh Tribunal in the case of Homelife Buildcon Pvt. Ltd. vs. DCIT in ITA No. 880/Chd/2024, thus, sought for allowing the Appeal.
We have heard both the parties and perused the material available on record. As per the law declared by the Hon'ble Supreme Court of India in the case of NTPC Ltd. vs. CIT, the additional ground raised by the Assessee should be admitted in the appellate stage. Accordingly, the additional grounds of Appeal raised by the Assessee is hereby admitted.
It is not in dispute that survey operation has been conducted on 10/09/2021 u/s 133A of the Act on the Assessee and during the survey operation certain electronic data in the form of excel sheet/loose documents was impounded by the revenue. Pursuant to the same, the assessment proceedings has been initiated and assessment order has been passed u/s 143(3) of the Act on 31/12/2022. The A.O. made addition on allegation of bogus purchase which is the subject matter to the present appeal and the said addition emanates from material already found/impounded during the course or survey. Thus, the foundation of the addition is not based on any independent scrutiny of return of income and it is clear that the electronic/impounded material gathered during the survey proceedings u/s 133A of the Act was resulted in the addition.
It is the specific case of the Assessee that once such survey material formed the basis for alleged undisclosed income/bogus purchases, the A.O. is required to proceed under the special statutory mechanism prescribed u/s 147/148 of the Act read with explanation 2 to Section 148 of the Act by following mandatory procedure contemplated u/s 148A/148B of the Act.
In an identical situation the Co-ordinate Bench of the Chandigarh Tribunal in the case of Homelife (supra) held that, once the addition admittedly founded on material impounded during survey, the assessment framed u/s 143(3) of the Act is fundamental defective. The relevant portion of the order of the Tribunal is reproduced as under:-
“"22. The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, particularly through the Finance Act, 2021, which introduced significant changes to the reassessment regime. These amendments explicitly include instances involving third-party search material and make it incumbent upon the Assessing Officer (AO) to follow the procedure under section 148, including obtaining prior approval from the Principal Commissioner of Income Tax (PCIT).
23.In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio.
25.In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under 2021 section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments."”
In view of the above, considering the fact that the impugned addition has been made on the basis of material impounded during the survey, by following the ratio laid down in the case of Homelife (supra), we are of the opinion that that the assessment framed u/s 143(3) is defective. Accordingly, the assessment order of the year under consideration is hereby quashed.
In the result, Appeal of the Assessee is allowed.