TaxTMI 
TaxTMI 
2026 (2) TMI 1235
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....dismissing the ground that the issue of notice u/s. 148 by the Assessing Officer is without Jurisdiction. 3. On the facts and circumstance of the case, the Learned CIT(A) is not justified in dismissing the ground that issue of notice u/s. 148 by the Assessing Officer is bad in law as the Assessing Officer has not fulfilled the prescribed conditions laid down under Section 148 and consequently the Assessment is void-abinitio. 4. On the facts and circumstance of the case, the learned CIT(A) is not justified in dismissing the ground that 'the addition of Rs. 62,16,740/- made by the Assessing Officer and further there is no corroborative evidence to prove that expenditure is bogus. 5. Any other legal and factual ground or grounds that may be urged at the time of hearing of the appeal." 3. The brief facts of the case are that the assessee company filed the return of income for the A.Y 2020-21 on 12.02.2021, admitting total Income of Rs. 103,29,39,000/-. The case was selected for scrutiny and assessment u/s. 143(3) r.w.s. 144B of the Act was completed on 23.09.2022 accepting the returned income. A Search and Seizure operation u/s.132 of the I.T. Act was carr....
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....tted unaccounted income of Rs. 107.63 crores for the 3 companies put together for all assessment years. Out of such unaccounted income, an amount of Rs 39.25 crores pertains to the assessee company for all the A.Ys. 4. The case was selected for scrutiny and during the course of assessment proceedings, the A.O on the basis of incriminating material found during the course of search coupled with the statement of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager and Shri G Raghunath Reddy, MD of the company called upon the assessee to explain as to why the addition should not be made in respect of unaccounted income generated from the sale of scrap etc., and admitted during the course of search. In response, the assessee has submitted detailed explanation along with reconciliation of the incriminating material found during the course of search and submitted revised workings with reference to the entries contained in FOCUS 5.5 software. The A.O after considering the relevant submissions of the assessee and also taking note of admission of undisclosed income during the course of search, has made addition of Rs. 62,16,740/-towards adjustment purchase transactions. 5. Aggrieved by the ....
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....sessment order vide para no.7.17, the A.O has mentioned that the data of FOCUS 5.5 software which was seized as Annexure - A/Exg/CO/LS/07. This annexure is nothing, but the printout taken from the FOCUS 5.5 software on the date of search proceedings. However, the A.O has not made any addition on the basis of this annexure. Therefore, it is necessary to understand the notice issued by the A.O under section 148 of the Act for acquiring jurisdiction as per section 148 of the Act. The AO recorded reasons for reopening of assessment by invoking clause (i) of explanation (2) whereas in the present case clause (iii) or (iv) of Explanation (2) is applicable. Further, as per clause (iii) of Explanation 2, the A.O is satisfied, with prior approval of the Pr. CIT that any books of account or documents seized or requisitioned under section 132 or section 132A of the Act in the case of any other person on or after 1/4/2021 pertains or belongs to or any information contained thereon relate to the assessee, then the A.O must obtain approval from the Pr. CIT under clause (iii) or (iv) of Explanation (2) of section 148 of the Act for recording reasons. Further, the satisfaction recorded by the A.O ....
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....instant case, the A.O has made two additions (i) on the basis of FOCUS 5.5 software and the (ii) addition by relying on the Pen Drive seized from the factory premises. However, on observation of the reasons recorded, the A.O has not demonstrated the escapement of income as envisaged in 1st proviso to section 148 of the Act, which is evident from the reasons recorded by the A.O. Therefore, he submitted that, the notice issued under section 148 on the basis of reasons recorded by the A.O without demonstrating the escapement of income for the relevant A.Y is void ab initio. In this regard, he has relied upon the decision of Hon'ble Bombay High Court in the case of Kartik Suresh Chandra Gandhi vs. Assistant Commissioner of Income Tax (2023) 154 Taxmann.com 193 and the decision of the Hon'ble Delhi High Court in the case of Divya Capital One Pvt. Ltd vs. Assistant Commissioner of Income Tax (TS-5518-HC-2022(DELHI)-O). The assessee had also relied upon the decision of the Hon'ble Karnataka High Court in the case of Smt. Vasanthi Ramdas Pai vs. Income Tax Officer (TS-5059-HC-2024(Karnataka)-O). The assessee also relied upon the decision of the Hyderabad Benches in the case of ....
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....g of the assessment is valid in the given facts and circumstances of the case and thus, the grounds of appeal of the assessee should be rejected. 10. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by the learned Counsel for the assessee and the Ld. CIT-DR present for the Revenue. The learned Counsel for the assessee has made a legal argument in light of provisions of section 148 of the Act and more particularly Explanation (2) and sub clause (iii) & (iv) and argued that, the notice issued by the A.O under section 148 of the Act without fulfilling the conditions provided therein is invalid and consequently, the assessment order passed by the A.O is bad in law and liable to be quashed. Admittedly, there was a search proceeding under section 132 of the Income Tax Act, 1961 in Excel Group of Companies on 04/01/2023 and as part of the search, the assessee company was also searched on 04/01/2023. Consequent to the search, the assessment for the A.Y 2020-21 has been reopened by recording a reason dated 7/2/2024 which is available in pa....
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....atement recorded under section 132(4) of the I.T. Act, and consequent certificate under section 65B of Indian Evidence Act, 1872 drawn during the course of search proceedings. This fact is also further strengthened by the findings of the A.O in the assessment order, where the A.O has clearly stated that the cash receipts recorded in FOCUS 5.5 software were found in the DELL Laptop and copied to the Pen Driver before taking printout during the course of search. Since the A.O has relied upon the seized material found during the course of search in the case of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager, for framing the assessment of the assessee, it is necessary for us to examine the reasons recorded for reopening of the assessment for issuance of notice under section 148 of the Act, in light of provisions of section 148 of the Act. Therefore, for better understanding, we reproduce the provisions of section 148 of the Act, as applicable for the Asst. Year 2020-21 which read as under: "148. Before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice....
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....n or after the 1st day of April, 2021, in the case of the assessee; or (ii) a survey is conducted under section 133A, other than under sub-section (2A) 97[***] of that section, on or after the 1st day of April, 2021, in the case of the assessee; or (iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee 98[where] the search is initiated or books of account, other docume....
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....able to a case, where a search is initiated under section 132 of the Act in the case of the assessee. Clause (iii) & (iv) of Exp (2) is applicable to a situation where the A.O is satisfied with prior approval of the Pr. CIT that any money, bullion, jewellery or other valuable article or things, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1^st day of April, 2021 belongs to the assessee or relates to the assessee. Once clause (iii) & (iv) of Exp. (2) is applicable, then for issuing the notice under section 148 of the Act, the A.O shall satisfy with the prior approval of the Pr. CIT that the books of account or other documents found during the course of search under section 132 in case of any other person belongs to the assessee or relates to the assessee. Only after recording satisfaction with the prior approval of the Pr. CIT, the A.O can record reasons for issuance of notice and then such satisfaction should be forwarded to the specified authority for obtaining approval under section 151 of the Act. In the present case on hand, the A.O has not recorded any satisfaction, nor had taken any prior approval from the Pr. CIT for r....
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....essment in the case of the assessee for the relevant A.Y. Going by the proviso to section 148 of the Act, Explanation 2 provides only a limited relaxation and the 1st proviso to section 148 put a negative condition on the A.O with the rider that information which suggests that income chargeable to tax has escaped the assessment for the relevant A.Ys. Therefore, from the above provisions of the Act, it is very clear that no notice under section 148 shall be issued automatically to the searched person and the A.O needs to apply his mind while seeking approval under section 151 from the specified authority and demonstrate that the information discovered/obtained during the search suggest that income has escaped assessment for the relevant A.Y for which notice under section 148 is issued. Further, the satisfaction of the A.O can be demonstrated from the reasons recorded. However, in the present case, going by the reasons recorded, there is no such demonstration by the A.O which is evident from the relevant reasons where the A.O simply relied upon the information submitted by the ADIT (Inv.), quantifying the undisclosed of Rs. 6,42,24,650/- for the A.Y 2020-21 which is once again based ....
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....148, whereas going by the facts of the present case, clause (iii) & (iv) of Explanation 2 of Section 148 is applicable. Therefore, the reasons recorded by the AO for issuing notice u/s. 148 of the Act contrary to Section 148 of the Act is certainly invalid, void ab initio and vitiate the entire assessment proceedings. 16. At this stage, it is relevant to refer to the decision of ITAT, Chandigarh Bench in the case of Home Life Buildcon vs. DCIT in ITA No.880/Chd/2024, order dated 17/07/2025, where the Coordinate Bench of the Tribunal in para 21 to 24 held that the AO instead of complying with the jurisdictional pre-conditions laid down under the re-assessment proceedings, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has in fact, gone a step further by bypassing the legal safeguards embedded in Section 147 of the Act, thereby vitiating the assessment proceedings ab initio. The relevant findings of the Tribunal in para Nos. 21 to 24 are as under: "21. We have gone through the a....
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.... 23. In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio 24. Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment regime under section 147 of the Income- tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting esca....
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....entirely different, because the AO used the material found in the possession of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager of Exel Group of Companies found during the course of search proceedings in his case and framed the assessment of the assessee. Therefore, in our considered view, the AO is bound to record satisfaction as per clause (iii) of Exp. (2) to Section 148 of the Act. The provisions of Section 148 of the Act is pari materia to section 153C of the Act. Therefore, satisfaction is pre-requisite before issue of notice under section 153C when the seized material pertains to the other person. In the same manner, when the AO has found the material which was seized in the premise of the other person which pertains to the appellant, he has to write satisfaction and take approval from the Pr. CIT for acquiring jurisdiction. Since, the AO has proceeded on the basis that search is conducted in the case of the assessee and clause (i) of Exp. (2) of Section 148 is applicable and recorded reasons, in our considered view, the reasons recorded by the AO for issue of notice u/s. 148 is not in accordance with provisions of Section 148 of the Act and consequently, the notice issued by....
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.... to suggest" under amended law or 'reason to believe' under erstwhile law, the benchmark of 'escapement of income chargeable to tax' still remains the primary condition to be satisfied before invoking powers under section 147 of the Act. 21. Similar issue has come up before the Hon'ble Karnataka High Court in the case of Smt. Vasanthi Ramdas Pai vs. Income Tax Officer (Supra), where it has been held that to say that the A.O can invoke section 148 without any reason, could apart from the contrary to law, also falls foul of Article 14'. The Court has further held that on conjoint reading of provisions of section 147 and 148 of the Act, escapement of income is a sine qua non for initiating proceedings under section 147 of the Act. 22. In this view of the matter and considering the facts and circumstances of this case and also by following the rations of case laws, discussed herein above, we are of the considered view that notice issued under section 148 of the Act, on the basis of reasons recorded for reopening in light of search action conducted under section 132 of the Act is bad in law, because the A.O has considered the material found in the residential premises of Shri ....