Gujarat High Court Clarifies: Section 147 and Section 153C Cannot Be Used Interchangeably

Background: Why this Case was Important~

Under the Income-tax Act, the department has different provisions to reopen or reassess income. Two such provisions are:

• • Section 147 – used when the Assessing Officer (AO) believes that income has escaped assessment.
• • Section 153C – used when, during a search on one person, the department finds documents or material belonging to another person.

Although these sections serve different purposes, the department often uses them interchangeably, especially after search operations. This practice led to several reassessment notices being challenged before the Gujarat High Court.

The Court heard a batch of petitions raising a common issue:

Can the department bypass Section 153C and reopen assessment under Section 147 when the case is based entirely on search material found from a third party?

What the Court Examined~

The Court examined cases where:

• • A search was conducted on one person, and
• • Certain documents or material allegedly related to another taxpayer, and
• • Instead of following Section 153C, the AO issued reassessment notices under Section 147.

In many cases:

• • No proper satisfaction note was recorded by the AO of the searched person.
• • The reassessment was based only on search material, with no independent evidence.

Key Findings of the Gujarat High Court~

1. Satisfaction Note Is Mandatory

When a search is conducted and material relating to a third person is found, the AO of the searched person must first record a satisfaction that:

• • The seized material belongs to or pertains to another person, and
• • It has a bearing on that person’s income.

Without this satisfaction:

• • Section 153C cannot be invoked, and
• • The proceedings themselves become invalid.

This requirement is not optional.

2. Department Cannot Take a Shortcut via Section 147

The Court made it very clear:

If the law requires action to be taken under Section 153C, the department cannot avoid it by using Section 147.

In simple words:

• • If reassessment is based on search material found from someone else,
• • The AO cannot reopen assessment under Section 147 just because Section 153C conditions were not fulfilled.

Failure to follow the correct procedure cannot be cured by choosing another section.

3. Section 153C Overrides Section 147

Section 153C is a special provision and contains a non-obstante clause (meaning it overrides other sections).

Therefore:

• • When a case falls under Section 153C,
• • Section 147 automatically steps aside.

The AO does not have discretion to choose whichever section is convenient.

4. Exclusive Domain Must Be Respected

The Court held that:

• • Matters arising exclusively due to search material related to a third person
• • Must be dealt with only under Section 153C

Using Section 147 in such cases is legally impermissible.

5. When Can Section 147 Still Be Used?

The Court clarified that Section 147 is not completely barred.

It can still be used only if:

• • The AO possesses independent material, and
• • Such material is not part of the documents seized during the search.

In other words:

• • If reassessment is based on fresh information unrelated to the search, Section 147 may apply.
• • If it is based on search material, Section 153C alone applies.

Practical Impact of this Judgment~

This judgment is extremely helpful for taxpayers where:

• ✔️ Assessment or reassessment is based only on search material, and
• ✔️ No proper satisfaction note exists, and
• ✔️ The AO has invoked Section 147 instead of Section 153C.

Such assessments are now legally vulnerable and can be challenged successfully.

Final Takeaway~

The Gujarat High Court has sent a strong message:

Each section of the Income-tax Act has a specific role.
Authorities must follow the correct legal route and cannot mix provisions at their convenience.

This ruling reinforces:

• • Procedural discipline,
• • Protection against arbitrary reassessment, and
• • Fair treatment of taxpayers.

For downloading full judgment- https://counselvise.com/direct-tax/judgements/paras-chandreshbhai-koticha-income-tax-officer-ward-1-2-2-c-sca-17933-2018

Print