TaxTMI 
TaxTMI 
2026 (9) TMI 1399
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....ory regime governing searches initiated on or after 01.04.2021, the assessment for the year under consideration could not have been initiated merely by issuance of notice under section 143(2) and thereafter completed as an ordinary scrutiny assessment under section 143(3), without first invoking and complying with the jurisdictional machinery provided under sections 147 and 148 and the other provisions engrafted by the Legislature in the post-Finance Act, 2021 regime. Since this challenge strikes at the very authority of the Assessing Officer to assume jurisdiction and the material facts relevant for deciding the same are undisputed and already borne out from the assessment record, we consider it appropriate to first deal with the additional grounds before entering upon the merits of the additions. 2. The material facts, insofar as they are germane to the aforesaid jurisdictional challenge, are not in dispute. The assessee is an individual who filed his return of income for the Assessment Year 2022-23 on 29.12.2022 declaring total income of Rs. 2,40,15,770/-, which return was processed under section 143(1) of the Act. Thereafter, a search and seizure action under section 132 of ....
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....atement recorded during search and the subsequent explanation of the assessee, noticed that the expression "Mamera" appearing in the seized document supported, to an extent, the assessee's explanation regarding marriage-related receipts. He accordingly accepted the explanation to the extent of Rs. 9,18,577/- and directed deletion thereof, while sustaining the balance addition of Rs. 12,88,400/- out of Rs. 22,06,977/-. The separate addition of Rs. 4,30,144/- representing cash found during search was confirmed. The assessee is, therefore, in appeal before us against the additions which survive after the order of the learned CIT(A). 4. Before us, apart from challenging the aforesaid additions on merits, the assessee has raised the following additional grounds challenging the very validity of the assessment proceedings: "1. On the facts and circumstances of the case and in law, no notice u/s 148 was issued by the Assessing Officer and hence, the assessment proceedings initiated and the assessment order passed u/s 143(3) are liable to be quashed. 2. On the facts and circumstances of the case and in law, the assessment proceedings initiated without complying with the....
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....us mention of the provision under which the assessment has been framed. According to him, sections 147 to 151, as substituted/amended by the Finance Act, 2021 and further rationalised by the Finance Act, 2022, constitute an integrated statutory mechanism governing assumption and exercise of reassessment jurisdiction. Section 148 requires issuance of a statutory notice before making an assessment, reassessment or recomputation under section 147; Explanation 2 thereto specifically deals, inter alia, with a search initiated under section 132 on or after 01.04.2021; section 149 prescribes the temporal limits within which jurisdiction under section 148 may be invoked; the approval contemplated in connection with the issuance of notice under section 148 is linked with the specified authority referred to in section 151; and section 148B, inserted by the Finance Act, 2022 with effect from 01.04.2022, further provides that where an assessment year falls within clauses (i) to (iv) of Explanation 2 to section 148, no order of assessment, reassessment or recomputation can be passed by an Assessing Officer below the rank of Joint Commissioner except with the prior approval of the authority spec....
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....nt Year 2022-23, consequent upon a search initiated on 31.01.2023, could at all have been assumed by issuing only a notice under section 143(2) and proceeding under section 143(3), without invoking section 147 and issuing the jurisdictional notice contemplated under section 148. It is this question which requires us to examine the legislative transition brought about by the Finance Act, 2021, the subsequent amendments by the Finance Act, 2022, and the interrelationship between sections 147, 148, 148A, 148B, 149 and 151 on the one hand and the ordinary scrutiny provisions contained in section 143 on the other. We, therefore, proceed first to examine the statutory architecture as it stood applicable to the search in the present case. 6. Per contra, the Ld. DR relied upon the assessment order and opposed the additional grounds raised by the assessee. He submitted that the assessee's case had been selected for complete scrutiny under the compulsory category in terms of the applicable guidelines governing cases where search and seizure action under section 132 had been conducted on or after 01.04.2021. Pursuant thereto, notice under section 143(2) was duly issued, the assessee partic....
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....ly an inference drawn from the amendment; the legislative material accompanying the Finance Act, 2021 makes it explicit that assessment or reassessment in cases where search or requisition was initiated or made on or after 01.04.2021 was brought within the new procedure governing income escaping assessment. The legislative change, therefore, did not leave a vacuum after the cessation of section 153A for post-31.03.2021 searches; it simultaneously relocated such assessments within the newly recast framework of sections 147 to 151. The subsequent legislative material also describes the Finance Act, 2021 as having restricted sections 153A and 153C to searches/requisitions initiated on or before 31.03.2021. 8. The starting point of the substituted regime is section 147. As substituted by the Finance Act, 2021 with effect from 01.04.2021, section 147 empowers the Assessing Officer, where income chargeable to tax has escaped assessment for any assessment year, subject to sections 148 to 153, to assess or reassess such income and also any other income chargeable to tax which has escaped assessment and comes to his notice subsequently in the course of proceedings. What is material for t....
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....s that the income chargeable to tax has escaped assessment in the case of the assessee..." 8.2. Thus, Parliament itself identified initiation of a search under section 132 on or after 01.04.2021 as a circumstance giving rise to the statutory deeming of information suggesting escapement of income. The provision is of considerable importance because it demonstrates the legislative bridge between a post-01.04.2021 search and the reassessment machinery. Under the earlier law, search itself activated section 153A. Under the substituted regime, section 153A ceased to apply to a search initiated after 31.03.2021 and Explanation 2 to section 148 brought the specified search circumstances within the jurisdictional architecture of reassessment. The Finance Act, 2021 Memorandum likewise explained that assessments/reassessments/recomputations in searches initiated after 31.03.2021 would fall under the new procedure. 9. At this stage, it is equally necessary to notice section 148A, because the architecture of the substituted law cannot be correctly understood by reading section 148 in isolation. Section 148A introduced a pre-notice enquiry and opportunity mechanism before issuance of noti....
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.... called upon to determine whether the limitation under section 149 had actually expired or whether a particular authority under section 151 did or did not grant approval in the assessee's case. No such wider enquiry is necessary at this stage. Their relevance lies in demonstrating that Parliament did not confer an unstructured power to reopen years preceding a post-01.04.2021 search. Once the assessment of such preceding year travels through the reassessment regime, the jurisdiction is circumscribed by the statutory conditions accompanying that regime, including the notice prescribed under section 148, limitation under section 149 and approval of the specified authority wherever statutorily required. Indeed, section 149 itself preserved the distinction between the old and new search regimes by providing separately for cases where notices under sections 153A/153C were required in relation to searches initiated on or before 31.03.2021. The legislative architecture, therefore, consistently recognises 31.03.2021/01.04.2021 as the dividing line between the erstwhile section 153A search-assessment mechanism and the substituted reassessment regime. 11. The statutory position was furthe....
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....t the stage of passing the final order can substitute the statutory mode by which jurisdiction over the preceding assessment year was required to be assumed in the first place. That question shall be examined separately while applying the statutory scheme to the facts of the present case. 12. On a conjoint reading of the above provisions, the legislative progression becomes discernible. Until 31.03.2021, a search under section 132 attracted the special machinery contained in section 153A, which itself overrode the ordinary reassessment provisions. The Finance Act, 2021 drew a statutory line at that date: sections 153A and 153C continued for searches/requisitions initiated or made on or before 31.03.2021, whereas searches initiated thereafter were brought within the redesigned reassessment architecture. Section 147 supplied the substantive power to assess or reassess escaped income; section 148 prescribed the notice preceding such assessment or reassessment; Explanation 2 to section 148 statutorily treated the specified post-01.04.2021 search circumstances as information suggesting escapement of income; section 148A prescribed a preliminary enquiry but expressly dispensed with th....
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....ra 2.2 of the revised guidelines dated 26.09.2022 applicable to cases in which search and seizure action/requisition under sections 132/132A had been conducted on or after 01.04.2021. Notice under section 143(2) dated 28.06.2023 was thereafter issued and the proceedings culminated in the order dated 26.06.2024 passed specifically under section 143(3). These are not disputed facts; indeed, they emanate from the assessment order itself. The question, therefore, is not whether the Assessing Officer possessed information arising from the search, nor whether the case could otherwise attract examination by the Department. The question is anterior and jurisdictional: having regard to the statutory regime applicable to a search initiated on 31.01.2023, could jurisdiction for Assessment Year 2022-23 be assumed merely by selecting the existing return for compulsory scrutiny and issuing notice under section 143(2), without invoking section 147 and issuing notice under section 148? 14. In our considered opinion, the answer has to be in the negative. The distinction between selection of a return for scrutiny and assumption of jurisdiction consequent upon a search is fundamental and cannot be....
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....o Explanation 2 to section 148, the Assessing Officer could nevertheless assess the preceding years simply by issuing an ordinary notice under section 143(2), the legislative migration from one special jurisdictional mechanism to another would lose much of its content. The statutory provisions must be read so as to give meaningful operation to the change consciously brought about by Parliament. The new regime did not leave the Assessing Officer without authority in consequence of a post-01.04.2021 search; it identified the source and manner of exercising that authority differently. Therefore, the question is not whether income detected pursuant to such search could be brought to tax it undoubtedly could, subject to law but through which jurisdictional channel Parliament authorised it to be brought to tax. 16. This also answers the reliance placed in the assessment order upon the revised guidelines dated 26.09.2022 for compulsory selection of search cases. There can be no quarrel with the proposition that administrative guidelines may prescribe categories of returns which are required to be taken up for scrutiny and may regulate the internal process of selection. But such guideli....
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.... identifies the specified authority for the approval contemplated by the reassessment framework as applicable. Thus, issuance of notice under section 148 is not a dispensable ceremonial step which can be replaced by a notice under section 143(2). The two notices perform different statutory functions. A notice under section 143(2) cannot perform the office of a notice under section 148, just as participation in scrutiny proceedings cannot retrospectively supply the jurisdiction which the statute required to exist at their inception. 18. The Revenue's reliance upon the approval of the Additional Commissioner recorded in the assessment order does not, in our view, answer this fundamental defect. We have already noticed that paragraph 9 of the assessment order records that the order was passed with prior approval of the Additional Commissioner of Income Tax, Central Range-I, Mumbai. We, therefore, do not rest our conclusion upon an assumption that no approval of any nature was obtained before passing the final order. Equally, however, the existence of such approval cannot be transposed backwards so as to supply an altogether absent assumption of jurisdiction under sections 147 and 1....
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....or the conclusion which we have reached flows principally from the statutory scheme itself. The decisions relied upon reinforce that construction rather than constitute its foundation. 20. At this juncture, it is necessary to clarify the precise ambit of our conclusion. We are not laying down an abstract proposition that the expression "section 143(3)" can under no circumstances find place in an order ultimately made pursuant to reassessment proceedings, nor is the validity of an assessment to be determined merely from the label placed upon the final order. The infirmity in the present case lies much deeper. There was no invocation of section 147 and no notice under section 148 at all. The assessment was conceived, initiated and completed as an ordinary scrutiny assessment on the premise that compulsory selection of the existing return under the administrative guidelines was sufficient to confer jurisdiction. It is this course which cannot be reconciled with the statutory scheme governing the assessment of a preceding year consequent upon a search initiated after 31.03.2021. Likewise, we are not holding that proceedings were invalid because the Assessing Officer failed to undert....
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.... Officer as permissible would mean that, whenever a return for a preceding year happens to be available for scrutiny, the Revenue could choose between two parallel jurisdictional routes after a search-one under sections 147 and 148 carrying the conditions, limitation and approval architecture enacted by Parliament, and another through ordinary scrutiny under section 143(2) merely because the return was capable of selection. Nothing in the statutory scheme confers such an election. An interpretation producing such a result would make compliance with the reassessment safeguards dependent upon the fortuitous circumstance whether a return remained amenable to scrutiny and would permit an administrative mode of selection to determine whether statutory safeguards enacted specifically in the context of post-01.04.2021 searches are attracted. Such a construction cannot be accepted. The provisions have to operate harmoniously: section 143 continues to govern ordinary assessment of returns within its field, whereas sections 147 and 148, read with Explanation 2 and the allied provisions, govern assumption of jurisdiction over escaped income in the circumstances legislatively identified therei....
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....arches. 24. We accordingly hold, on the peculiar and undisputed facts of the present case, that for Assessment Year 2022-23, which precedes the assessment year relevant to the previous year in which search under section 132 was initiated on 31.01.2023, the Assessing Officer could not have assumed jurisdiction merely by selecting the return for compulsory scrutiny and issuing notice under section 143(2). The legislative scheme brought into force from 01.04.2021 had confined the erstwhile section 153A regime to searches initiated on or before 31.03.2021 and had brought searches initiated thereafter within the redesigned reassessment framework. Explanation 2(i) to section 148 expressly treated initiation of search under section 132 on or after 01.04.2021 as a circumstance in which the Assessing Officer was deemed to possess information suggesting that income chargeable to tax had escaped assessment. The jurisdiction for the preceding year was, therefore, required to be assumed under sections 147 and 148, subject to the statutory conditions and safeguards forming part of that regime. Admittedly, no notice under section 148 was issued in the present case. The assessment was initiated....