Reopening under section 147 invalid if based on material from third-party search; section 153C mandatory due to its non-obstante clause overriding general provisions.

ORDER

Per Rajesh Kumar, AM

The present appeal filed by the assessee arises from order dated19.10.2023 passed u/s 250of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Principal Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld.CIT(A)] for assessment year 2011-12.

2. At the outset, we observe from the appeal folder that the appeal of the assessee is barred by limitation by 212 days for which the condonation petition was filed. After perusing the contents of the application, we find that the delay is attributable to bonafide and genuine reasons. Therefore, we are inclined to condone the delay and admit the appeal for adjudication.

3. At the time of hearing, the assessee raised the following grounds which is extracted below:

“1. That the Order passed u/s 250 is bad in law as well as on facts of the case.

2. That the Ld. CIT(A), NFAC, erred in law as well as in facts of the case by not providing the appellant with reasonable opportunity of hearing.

3. That the Ld. CIT(A), NFAC, erred in law as well as in facts of the case by confirming valid the initiation of proceedings u/s 147 of the I. T. Act by the Ld. A.O.

4. That the Ld. CIT(A), NFAC, erred in law as well as in facts of the case and violated the principles of natural justice, by accepting the actions of the Ld. A.O. of not providing the information received from the investigation wing and by not providing an opportunity to cross-examine the persons whose statement were relied upon at the time of making the additions.

5. That the Ld. CIT(A), NFAC, erred in law as well as in facts of the case by confirming the action of Ld. A.O. of treating the Short-Term Capital Gain (u/s 111A) of Rs.77,78,970/-, in the shares of Shri Ganesh Spinners Ltd., as unaccounted income of Rs.78,43,330/- and taxing the changed amount of Rs.78,43,330/- at normal tax rates under the head Income from other sources

6. That the Ld. CIT(A), NFAC, erred in law as well as in facts of the case by confirming the action of the Ld. A.O. of treating the purchase consideration of Rs.73,60,000/-, relating to purchase of shares of Shri Ganesh Spinners Ltd., as unaccounted money and accepting the addition of the same to the total income of the appellant.

7. That the appellant craves to leave, add or amend any of the grounds during the course of appellant proceedings.”

4. The issue raised in ground no. 3 is against the order of ld CIT(A) wrongly confirming the re-opening of assessment u/s 147 of the Act which is invalid and may be quashed.

5. The facts in brief are that the assessment of the assessee was reopened in consequence to search u/s 132 of the Act on Shri Shirish Chandrakant Shah on 09.04.2013 i.e. third party. During the course of search operation, it was found that the Mr. Shah was providing accommodation entries of share capital, share premium, share application money, unsecured loan, long term and short-term capital gain/loss etc. During the course of search, it was revealed that the accommodation entry in the form of penny stock was arranged by Shri Shirish Chandrakant Shah. Accordingly, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 17.11.2015. Assessee vide letter dated 24.11.2015 requested the AO to treat the return filed u/s 139(1) of the Act on 29.07.2011 declaring total income of Rs. 1,66,04,039/- as filed in compliance to notice u/s 148 of the Act. Thereafter, the statutory notices along with questionnaire were issued. There was no any compliance on the part of the assessee and the assessment was completed by the AO by making addition of Rs. 78,43,300/- on account