Reassessment u/s 147 invalid when based solely on incriminating material seized from searched third party without AO of searched person recording satisfaction note; mandatory to proceed u/s 153C.

ORDER

PER M BALAGANESH, A.M.

1. This is an appeal of the assessee arising out of the order of Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ld.CIT(A)] in Appeal Nos. NFAC/2017-18/10217251, NFAC/2019-20/10467224, NFAC/2017- 18/10244539, dt 28.11.2025, 23.12.2025, 10.11.2025 of the A.Y. 2018-19, & 2020-21 against the order passed by National Faceless Assessment Centre/Unit (hereinafter referred to as the ld. A.O) u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).

2. All these appeals have identical issue and emanating out of the same search operation. Hence, they are taken up together and disposed of by this common order for the sake of convenience.

3. The identical issue raised by the assessee in all these appeals is challenging the validity of assumption of jurisdiction u/s. 147 of the Act and consequently framing of assessment by the ld A.O. u/s. 147 of the Act for various assessment orders instead of framing the assessment u/s 153C of the Act.

4. We have heard the rival submissions and perused the materials available on record. A search and seizure operation was conducted on P N Group, Guna on 09.01.2020. During the course of search and seizure operations, various incriminating documents regarding unsecured loans were seized. From the seized documents and enquiries revealed that cash has been deposited in assessee’s bank account and immediately transferred to Shri. Vinod Rathore of PN Group in the sum of Rs 20,00,000/- as unsecured loan. Since the assessee did not have the credit worthiness for advancing such unsecured loan, the genuineness of the transaction together with the credit worthiness was doubted. Accordingly, proceedings stood initiated on the assessee u/s. 148A of the Act and notice u/s. 148 of the Act was issued to the assessee. The assessee filed his return on 06.06.2022 declaring total income of Rs. 4,54,316/- which is the same income as was originally declared by the assessee u/s. 139 of the Act on 16.01.2019. The reassessment was concluded in the hands of assessee u/s. 147 r.w.s. 144B of the Act on 23.03.2023 after making an addition of Rs. 20,00,000/- on account of unexplained investment u/s. 69 of the Act towards unsecured loan. This action of the ld A.O. was upheld by the ld CIT(A).

5. At the outset, we find the assessment proceedings on the assessee stood initiated u/s. 147 of the Act pursuant to the search and seizure operation carried out in the hands of PN Group on 09.01.2020, wherein certain documents pertaining/ relating to assessee herein were found. Hence the right course of action available to the revenue would be to proceed on the assessee by initiating proceedings u/s. 153C of the Act. Since the proceedings stood initiated u/s/ 147 of the Act, it was argued by the ld AR that the entire proceedings gets vitiated. In support of this proposition, the ld AR rightly relied on the decision of Hon’ble Gujarat High Court in the case of Paras Chandreshbhai Koticha & Ors Vs. ITO reported in (2026) 1 CTOCTR 47(Guj). The relevant operative portion of the said order is reproduced below:-

“48. The aforesaid decisions of the Supreme Court and the Circular issued by the CBDT have been considered in numerous judgments. Unequivocally, the law mandates the recording of satisfaction by the AO of the ‘searched person’ (under s. 153A of the Act) at the stage of transmission of seized material to the jurisdictional AO of the ‘other person’ before assuming jurisdiction under s. 153C.

49. When incriminating material pertaining to a ‘third/other person’ is found during the course of a search conducted under s. 132/132A of the Act and such material is transmitted to the jurisdictional AO of such ‘other person’, the statute oblige