ITAT: Reopening Based on Third-Party Info Without Rejecting Books Is Illegal

The assessee filed its return under Section 139(1) for A.Y. 2013-14 on 28.09.2013, assessed at Rs. 7.61 crore on 15.03.2016. Later, after statements during a proprietor’s search for bogus billing and entries, the Assessing Officer initiated reassessment under Section 147, issuing notices on 14.01.2021, and final assessment on 22.03.2022 increased income to Rs. 35.51 crore. Similar reassessments were made for 2014-15 and 2015-16.

The assessee challenged the reopening, arguing the search was on a third party and proceedings should have been under Section 153C, and that its books and sales were accepted, making additions under Sections 68 or 69A unsustainable. The CIT(A) partly allowed the appeal, reducing additions to 2%. Both Revenue and Assessee filed cross-appeals before the ITAT against the CIT(A)’s order.

Issue Raised: Whether reassessment under Section 147, based on a third-party search, was valid or should have been done under Section 153C, especially when the assessee’s books and sales were accepted.

Tribunal Held: The ITAT held that reopening the assessment under Section 147 based solely on information from a search conducted on a third party was legally unsustainable. It ruled that such proceedings, if any, should have been initiated under Section 153C. The Tribunal further observed that the assessee’s books of account, stock records, and declared sales were accepted by the Department, and no incriminating material was found during any search on the assessee itself.

Therefore, the additions made under Sections 68 and 69A were unjustified. The ITAT set aside the additions and allowed the assessee’s appeals while dismissing the Revenue’s appeals.

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