Third-party search material requires Section 153C procedure before reopening; failure nullified the reassessment notice under Section 147.

Where reopening under the income-tax provisions relied exclusively on information and documents seized during a search of a third party, the statutory scheme requires invocation of the special procedure for third party seizures so that the assessing officer of the searched person records satisfaction, forwards material to the AO of the third person, and that AO records satisfaction before initiating reassessment; absent compliance, initiating proceedings under the general reopening provision circumvents these preconditions and is invalid. Applying that principle, the ITAT held such reassessment void ab initio and allowed the assessee's challenge.

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Issues: Whether reassessment proceedings initiated under Section 147/148 of the Income-tax Act, 1961 are valid where the information and documents forming the basis of reopening were found and seized during a search under Section 132 of a third party and the statutory procedure under Section 153C (read with Section 153A) was not followed.

Analysis: The issue requires examination of the statutory scheme that governs proceedings arising from material seized during a search of a third party. Section 153C (as framed with its non-obstante clause and read with Section 153A) prescribes a specific and mandatory procedure where seized books, documents, or information found in the course of a search of one person pertain to another person. That procedure contemplates recording of satisfaction by the AO of the searched person that the seized material belongs to or pertains to the third person, forwarding of the material to the AO having jurisdiction over the third person, and recording of satisfaction by that AO before initiating proceedings. Where the foundation of reopening rests entirely on material seized from a third party and no independent information is unearthed by the AO in the normal course, invoking Section 147/148 circumvents the statutory safeguards of Section 153C and renders the special procedure otiose. Authorities and precedents addressing the requirement that seized documents must "belong to" or "pertain to" the assessee were considered in assessing whether the pre-conditions of Section 153C applied; where these pre-conditions are satisfied, the statutory scheme admits no alternative route under Section 147. The Tribunal analysed the facts showing that the AO relied exclusively on third-party search material and therefore ought to have invoked Section 153C rather than Section 147.

Conclusion: The reassessment proceedings initiated by notice under Section 148 and completed under Section 147 are void ab initio because the information and documents forming the basis of reopening were seized from a third party and the mandatory procedure under Section 153C (read with Section 153A) was not followed. The additional ground challenging jurisdiction is allowed and the appeal is allowed in favour of the assessee.

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