Kiran Raj

The Bombay High Court has quashed reassessment notices issued under Section 148 of the Income Tax Act, 1961, ruling that the Revenue should have invoked the provisions of Section 153A and 153C for assessment following a search operation. The court observed that the foundation of the proceedings was a search and seizure action under Section 132, making Section 147 inapplicable in the given circumstances.

The writ petitions were filed by multiple petitioners, including Sejal Jewellery, Shineshilpi Jewellers Pvt. Ltd., and others, challenging reassessment notices issued under Section 148 of the Income Tax Act. The primary issue was whether the Revenue was correct in reopening assessments for the assessment year 2012-13 based on a search action conducted on October 4, 2018, at the premises of Shilpi Jewellers Pvt. Ltd. and its associate concerns. The petitioners contended that any assessment pursuant to the search should have been made under Section 153C and not under Section 147.

Petitioner No.1, a partnership firm engaged in the business of manufacturing and trading in gold and diamond jewellery, had originally filed its income tax return on September 28, 2012, declaring a total income of Rs. 25,52,692. However, six years later, a search action was conducted under Section 132 of the Act at the petitioner's premises. The petitioners argued that no incriminating material had been found in relation to any bogus loan or accommodation entry. In contrast, the Revenue asserted that the search had uncovered substantial material indicating that unsecured loans were received from shell companies without creditworthiness.

Following the search, the Assessing Officer issued a notice under Section 148 on March 29, 2019, stating that there were reasons to believe that the petitioner's income had escaped assessment for the assessment year 2012-13. The petitioners were required to file a return in the prescribed form within 30 days. The petitioners objected to the reopening notice, contending that such an assessment should only be made under Section 153C.

In response, the Revenue argued that the search action conducted at Shilpi Jewellers Pvt. Ltd. revealed that the group had obtained unsecured loans from various entities that lacked creditworthiness. A detailed profiling of loan creditor companies indicated that these entities were shell companies providing accommodation entries. The authorities further noted that the petitioner had received Rs. 25,00,000 from Green Valley Gems Pvt. Ltd., which was alleged to be a shell company used to launder funds.

The court examined the validity of the reassessment notices in light of the materials relied upon by the Revenue. The court noted that the reasons recorded for reopening the assessment explicitly referred to the search and seizure action under Section 132. The court stated:

"The reasons furnished by the Revenue explicitly refer to the search and seizure action under Section 132 of the Income Tax Act. In such a scenario, the provisions of Section 153A and 153C stand attracted, and any attempt to invoke Section 147 is contrary to the statutory scheme."

The court examined whether the Assessing Officer had jurisdiction to proceed under Section 147 when the assessment was directly linked to a search operation. Referring to the legislative framework, the court pointed out: "Section 153A begins with a non-obstante clause, making it clear that it overrides Sections 147 and 148. The Revenue cannot circumvent this by selectively invoking reassessment provisions when the law mandates otherwise."

The court also referred to the Supreme Court’s ruling in Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell Pvt. Ltd., which held that if an assessment is based on a search, the Revenue must necessarily invoke Section 153A rather than Section 147. The court observed: "In cases where an assessment is based on search findings, the proper recourse is Section 153A or 153C. The invocation of Section 147 in such circumstances is without jurisdiction."

The petitioners also placed reliance on judgments of the Rajasthan High Court and Karnataka High Court, which had ruled that assessments linked to search proceedings must be dealt with under Section 153A or 153C and not under reassessment provisions.

The Bombay High Court ruled in favour of the petitioners and quashed the reassessment notices. It concluded that the notices issued under Section 148 were without jurisdiction and contrary to the statutory framework. The court ruled: "The notices issued under Section 148 and all consequential proceedings are hereby quashed. The Revenue is not precluded from taking appropriate steps in accordance with the law, should circumstances so warrant."

Case Title: Sejal Jewellery & Anr. vs. Union of India & Ors. (and connected matters)
Case Number: Writ Petition No. 3057 of 2019 (and others)
Bench: Justice G. S. Kulkarni & Justice Advait M. Sethna

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