Search assessment jurisdiction: mechanical approval and third-party material without prescribed procedure invalidate assessments and related additions.
Section 153D requires meaningful, year-wise prior supervisory approval; a consolidated approval without demonstrated examination of records or reasons is treated as mechanical and incapable of supporting search assessments. Completed, unabated assessments may be disturbed in search proceedings only on the basis of incriminating material. Material belonging to another person requires the prescribed third-party assessment procedure, and ordinary assessment provisions cannot replace that route where it applies. Consistently followed Project Completion Method cannot be displaced by estimated Percentage Completion Method income without defects in the books or evidence of profit distortion. Unverified loose sheets require independent corroboration. Project-profit estimation is unsupported where the assessee neither owned nor developed the project, and documented agricultural receipts and cash availability explain cash deposits.
Issues: (i) Whether the consolidated approval under Section 153D, granted without demonstrated application of mind or year-wise consideration, validly supported the search assessments; (ii) Whether completed and unabated assessments could be disturbed under Section 153A without incriminating material; (iii) Whether an assessment for AY 2014-15 could be framed under Section 143(3) read with Section 144 instead of under Section 153C; (iv) Whether an assessment under Section 153A could be based on material belonging to a third person without following Section 153C; (v) Whether income could be estimated at 20% of customer advances by substituting the Percentage Completion Method for the consistently followed Project Completion Method; (vi) Whether additions for unaccounted receipts and payments could rest solely on unverified loose sheets; (vii) Whether income from a project could be estimated where the assessee was neither the landowner nor the developer and had transferred the customer advances; (viii) Whether cash deposits were taxable as unexplained money despite documentary evidence of agricultural income and cash availability.
Issue (i): Whether the consolidated approval under Section 153D, granted without demonstrated application of mind or year-wise consideration, validly supported the search assessments.
Analysis: Section 153D requires a meaningful prior supervisory approval and is an inbuilt safeguard against arbitrary search assessments. The approval covered numerous cases and years on the same date, did not record examination or movement of assessment records and search material, did not contain year-wise approval, and disclosed no reasons. It therefore evidenced a mechanical exercise rather than application of mind.
Conclusion: The Section 153D approval was invalid, and the assessments founded on it were void ab initio and quashed, in favour of the assessee.
Issue (ii): Whether completed and unabated assessments could be disturbed under Section 153A without incriminating material.
Analysis: An assessment that had attained finality before the search could be interfered with in search proceedings only on the basis of incriminating material found during the search. The 20% addition on customer advances was an estimate based on information sought during assessment and was not linked to any incriminating material.
Conclusion: The completed assessments could not be disturbed in the absence of incriminating material, and the respective assessments were quashed, in favour of the assessee.
Issue (iii): Whether an assessment for AY 2014-15 could be framed under Section 143(3) read with Section 144 instead of under Section 153C.
Analysis: Where the satisfaction for initiating proceedings under Section 153C was recorded in AY 2016-17, the statutorily relevant six assessment years included AY 2014-15. Search-derived assessment for that year was consequently required to follow the mandatory Section 153C procedure rather than the ordinary assessment route.
Conclusion: The assessment framed under Section 143(3) read with Section 144 without invoking Section 153C was without jurisdiction and quashed, in favour of the assessee.
Issue (iv): Whether an assessment under Section 153A could be based on material belonging to a third person without following Section 153C.
Analysis: Material found in a search which belongs to or pertains to a person other than the searched person can be used against that other person only through the procedure prescribed by Section 153C, including recording of satisfaction and transfer of material to the jurisdictional Assessing Officer. No material belonging to the concerned assessee was found in the search, and the assessment nevertheless relied on third-party material without complying with that procedure.
Conclusion: Assumption of jurisdiction under Section 153A on third-party material without Section 153C compliance was invalid, and the assessment was quashed, in favour of the assessee.
Issue (v): Whether income could be estimated at 20% of customer advances by substituting the Percentage Completion Method for the consistently followed Project Completion Method.
Analysis: The Project Completion Method was consistently followed for real-estate projects, and no defect, incorrectness, incompleteness, or unreliability in the books was established. A real-estate developer could not be compelled to adopt the Percentage Completion Method merely on estimation, particularly where the project had not been completed and no material showed distortion of profits.
Conclusion: The ad hoc addition of 20% of advances by imposing the Percentage Completion Method was deleted, in favour of the assessee.
Issue (vi): Whether additions for unaccounted receipts and payments could rest solely on unverified loose sheets.
Analysis: The seized papers contained rough notings without narration, signature, reliable dates, or reference to the assessee. No independent enquiry, statement, or other corroborative evidence established either a nexus with the assessee or the alleged transactions. Unverified loose sheets without corroboration lacked evidentiary value for making additions.
Conclusion: The additions for alleged unaccounted receipts and payments were deleted, in favour of the assessee.
Issue (vii): Whether income from a project could be estimated where the assessee was neither the landowner nor the developer and had transferred the customer advances.
Analysis: The assessee was neither the owner of the land nor the eventual developer of the project. Following termination of the relevant arrangement, the customer advances received were transferred to the landowners and project developers. Estimation of the project profit in the assessee's hands was therefore unsupported.
Conclusion: The estimated income addition relating to the project was deleted, in favour of the assessee.
Issue (viii): Whether cash deposits were taxable as unexplained money despite documentary evidence of agricultural income and cash availability.
Analysis: Agricultural land records, purchase deeds, Form-J sale evidence, the agricultural-income ledger, and the cash book established agricultural activity, sale proceeds, and availability of cash. No defect in these documents or contrary evidence emerged from the departmental enquiry.
Conclusion: The cash deposits were satisfactorily explained and the addition under Section 69A was deleted, in favour of the assessee.
Final Conclusion: The jurisdictional defects independently nullified the affected assessments, and the challenged additions also failed on the merits.