TaxTMI 
TaxTMI 
2026 (6) TMI 927
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are decided vide a composite order for the sake of convenience and brevity. We take up the appeal for AY 2017-18 as Lead Case. The decision rendered would apply mutatis mutandis to appeal for AY 2018-19. 2. ITA No. 3956/MUM/2025 (A.Y. 2017-18) The grounds of appeal are as under: "1. That the assessment order passed under Section 143(3) of the Income Tax Act, 1961 is bad in law, being without valid jurisdiction, barred by limitation, and passed in breach of mandatory provisions of the Act. 2. That the CIT(A) erred in law and on facts in upholding the assessment despite the fact that jurisdiction was illegally assumed by the Assessing Officer without granting the Appellant an opportunity of hearing as required under Section 127 of the Act. 3. That the Ld. CIT(A) erred in confirming the finding of the AO that the Appellant was engaged in providing accommodation entries, despite there being no independent investigation, corroborative material, or third-party confirmation on record to support such a conclusion. 4. That the addition of Rs. 54,95,920/- on account of alleged commission at 0.5% of turnover is wholly ad hoc and arbitrary, unsupport....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d procedural intricacies of the Act. Owing to his advancing age and deteriorating health, he was not in a position to actively monitor the Firm's income tax compliances or access the e-filing portal on a regular basis.The impugned order dated 08.11.2024 was not communicated to him by any means. No email, SMS, or any other form of electronic intimation was received from the Income Tax Department. Even upon reviewing the registered email account associated with the e-filing portal, no such order or intimation was found, as of the date of preparation of this application. It became aware of the said order only on 23.05.2025, when its Chartered Accountant accessed the e-filing portal for an unrelated compliance and discovered that the appellate order had been uploaded. Upon receiving this information, the Firm acted immediately and without delay to initiate the process of filing the present appeals. The delay was neither deliberate nor due to negligence, but is attributable to the partner's ill health, age-related constraints, lack of formal education, and absence of any notification or alert from the Department. The assessee acted diligently and promptly once the existence of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the case of NTPC Ltd vs CIT(1998) 229 ITR 383(SC) by the hon'ble Apex Court. The ground goes into the very root of the assessment proceedings, we take up for further adjudication. 6. Ground no.1 is general in nature requiring no adjudication while ground no.2 has not been pressed. 7. We consider it appropriate to take up the additional ground first in which the assessee has contested reopening proceedings u/s148 of the Act claiming that its case emanating from search and seizure action u/s 132(1) of the Act in the case of the partner and related concerns, it is required to be completed u/s 153C of the Act instead. 8. Before us, the ld.AR has pleaded that in this case, return of income was filed by the assessee for the relevant year declaring total income at Rs. 1,31,360/-.The case was selected for scrutiny. A search & seizure action was carried out in the case of M/s. Allanasons Pvt. Ltd. & others on 03.01.2019.The assessee is a firm and one of partners is firm Shri Md. Saleem who was claimed to be one of the purchase parties of Allana Group in his individual capacity as well as in the name of his partnership firm i.e. M/s. Nanne Gulzar & Co. During the search & seizure....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... If the assessments of the assessee under section 143(3) is upheld, it would mean that invocation of provisions of 153C in case of Mohd. Saleem were incorrect and not based on any incriminating material and more so, when both the assessment orders are verbatim. Reference was made to para 3.2 of AO order and on comparison with assessment order of Md. Saleem at Para 7.2 of AO order, it would be noticed that both the orders are replica of each other, founded on the basis of search material but assessed under different sections. 8.3 It is further submitted that the foundation of the present assessment is the material unearthed during search and the statement recorded therein. Once the very basis of assessment is search material, the Revenue is mandatorily required to proceed under section 153C read with section 153A of the Act, and recourse to regular assessment provisions is barred. As held in Sejal Jewellary vs Union of India (171 Taxmann.com 846), once the basis is search, sections 153A/153C of the Act override regular provisions including section 143(3) of the Act and any contrary action is without jurisdiction. This principle is followed by Hon'ble ITAT Mumbai in Zubin Paul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on comparative study of these two orders. 9.1 In such a situation, we find merits in the contentions of the assessee that once the case of the partner was considered as search case liable to be taxed under section 153A of the Act, there seems no reasons why the case of the assessee was taken up u/s 147/148 of the Act since the very foundation of both the assesses remains the same. Accordingly, we find sufficient merits in the arguments that the case of the assessee was required to be assessed u/s 153C of the Act as the case, being of the Other person and not u/s 148 of the Act. More so, when it appears that the Assessing Officer of both the cases is the same person as also the materials relied upon for making the impugned additions. 9.2 The ld.AR has strongly relied upon the decision of hon'ble Bombay High Court in the case of Sejal Jewellery(supra) wherein it held that the use of the non-obstante clause contained in the provisions u/s. 153C of the Act makes it clear that the legislative intent was for AO to proceed only under section 153C upon receipt of material seized or requisitioned. Hon'ble High Court relied on the judgement of Rajasthan High Court in the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A] except in cases where any assessment or reassessment has abated.] [(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the provision. Section 153C also begins with a non-obstante clause, when it provides that notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, to provide that, in a situation which may fall under Section 153C insofar as assessment of income of any other person is concerned, the Assessing Officer shall proceed against such other person and issue notice and assess or reassess the income of other persons in accordance with the provisions of Section 153A, if he is satisfied that the books of account or document or assets seized or requisitioned have a bearing on the determination of the total income of such person for a period as specified in the said provision and after compliance of other provisions as mandated. On the other hand, Section 147 provides for "Income escaping assessment", can be invoked when any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year. In such situation, the Assessing Officer may subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling withi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub- section (2) of Section 153A would be redundant and/or re- writing the said provisions, which is not permissible under the law." 20. It is thus clear that in the event any incriminating material is found during the search, the Revenue necessarily would be required to take recourse to the provisions of Section 153A and in the event no incriminating material found during the search, then the power of the Revenue to have the reassessment under Sections 147/148 of the I.T. Act stands saved, failing which, the Revenue would be left without remedy. It is on such observations the conclusions as rendered by the Supreme Court and which are relevant to the case in hand, are required to be noted, which reads thus: "14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the juris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of a related party. The relevant observations of the Division Bench are required to be noted, which reads thus: "23. The reasons supplied in case in hand for initiation of proceedings under Section 147/148 are based on the incriminating material and documents including Pen Drives seized during the search carried out of the Manihar Group and the statements recorded during proceedings. From the information received the AO noticed that the loan advanced and interest earned thereon were unaccounted. In other words the basis for initiation of Section 148 proceedings is the material seized relating to or belonging to the petitioner, during the search conducted of Manihar Group. 24. In the case where search or requisition is made, the AO under Section 153A mandatorily is required to issue notices to the assessee for filing of income tax return for the relevant preceding years. The AO assumes jurisdiction to assess/reassess 'total income' by passing separate order for each assessment. 25. In cases of the person other than on whom search was conducted but material belonging or relating such person was seized or requisition, the AO has to proceed under Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erials gathered under the search and seizure action under Section 132. If this be the case, then certainly the provisions of Section 153C read with Section 153A would be applicable, as held by the Supreme Court in Abhisar Buildwell P. Ltd. (supra) when the Court interpreted the effect and purport of Section 153C and 153A, as also held by the Rajasthan High Court in Shyam Sunder Khandelwal (supra). 23. Insofar as Mr. Suresh Kumar's contention supporting the proceedings under Section 147 and 148 of I.T. Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the intention of the legislature as depicted by the provisions of Section 153A and 153C of the I.T. Act. There would not be any difficulty in accepting the proposition as canvassed by Mr. Suresh Kumar, referring to the decision of the Supreme Court in Phool Chand Bajrang Lal (supra), however, the facts in the present case are distinct. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 read with Section 147. We have already observed that the provisions of Sections 147, 148 vis-a-vis Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he present case. The foundation of the reopening rests entirely on documents seized during the search and seizure operation conducted on a third party, namely the xxxxxxxxxx. As per the express scheme of the Act, where documents seized in a search pertain to or belong to a person other than the searched party, the appropriate and mandatory course of action is to proceed under Section 153C and not under Section 147................. However, if the pre-conditions of Section 153C were not met, the invocation of Section 147 based solely on the same documents amounts to circumvention of the statutory safeguards embedded in Section 153C. Allowing such a course of action would render Section 153C otiose, defeating the purpose of the special procedure laid down by the legislature." 9.7 It may be relevant to mention here that in the judgement by hon'ble Delhi High Court on the same issue in the case of Naveen Kumar Gupta 2024 (11) TMI 1071- Delhi High Court did not concur with the view taken by Rajasthan High Court in the case of Shyam Sunder Khandelwal (Supra).Further, hon'ble Delhi High Court has also expressed disagreement with the view taken by hon'ble Karnataka High Court in....