Third-party search material must proceed under section 153C; reassessment and untested additions were invalidated for want of disclosure and cross-examination.

Where reassessment was triggered by material seized in a third-party search, the special search-assessment machinery under section 153C, read with the proviso to section 149(1), governed the matter; resort to sections 147 and 148 was therefore impermissible, and the reopening was held invalid. Additions based on third-party documents and statements also failed because the material was not confronted to the assessee and the deponents were not offered for cross-examination, rendering the findings contrary to natural justice. The reassessment and consequential additions were deleted, with relief granted to the assessee.

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Issues: (i) Whether reassessment initiated under sections 147 and 148 was valid when the trigger material emanated from a search on a third party and the case attracted the search assessment regime under section 153C; (ii) Whether additions based on seized third-party material and statements could be sustained without confronting the material to the assessee and without affording cross-examination.

Issue (i): Whether reassessment initiated under sections 147 and 148 was valid when the trigger material emanated from a search on a third party and the case attracted the search assessment regime under section 153C.

Analysis: The reopening was founded on information and seized documents arising from a search on another group. The relevant assessment year fell within the regime where, on facts of a search on a third party and seized material relatable to the assessee, the special machinery under section 153C, read with the proviso to section 149(1), governed the proceedings. In such circumstances, recourse to reassessment under sections 147 and 148 was held to be impermissible.

Conclusion: The reassessment notice and the consequential assessment were invalid and unsustainable in law, and the finding was in favour of the assessee.

Issue (ii): Whether additions based on seized third-party material and statements could be sustained without confronting the material to the assessee and without affording cross-examination.

Analysis: The additions were based on documents and statements recovered in a third-party search, but the material was not confronted to the assessee and the deponents were not produced for cross-examination. The estimate of alleged purchases and income was thus founded on untested material, contrary to the requirements of fair procedure and natural justice.

Conclusion: The additions were deleted and the relief was granted in favour of the assessee.

Final Conclusion: The assessee succeeded on both jurisdictional and merits grounds, and the Revenue's connected appeals did not survive.

Ratio Decidendi: Where the foundation of reopening is material seized in a third-party search, the exclusive route is the search assessment mechanism under section 153C, and additions based on such material cannot stand unless the material is disclosed to the assessee and tested by cross-examination where relied upon.

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