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2026 Supreme(Online)(ITAT) 13083
INCOME TAX APPELLATE TRIBUNAL (AGRA BENCH)
SUSHMA RATHORE GUNA – Appellant
Versus
INCOME TAX OFFICER GUNA GUNA – Respondent
ITA 149/AGR/2026[2018-19]
Incriminating material found during a search of a third party must be dealt with under Section 153C, not Section 147/148; failure to record satisfaction under Section 153C vitiates reassessment.
Headnote:(A) Income-tax Act, 1961 - Sections 132, 144B, 147, 148, 148A, 153A, 153C, 69 - Search and seizure - Reassessment - Validity of proceedings u/s 147/148 when incriminating material is found during a search of a third party - Requirement of recording satisfaction by Assessing Officer of searched person before invoking Section 153C. (Paras 2-4, 48-58, 76, 77)
(B) Income-tax Act, 1961 - Section 153C - Jurisdictional precondition - The Assessing Officer of the searched person must record satisfaction on incriminating material before transmitting it to the jurisdictional Assessing Officer of the other person; failure to do so vitiates proceedings under Section 153C, and the Assessing Officer of the other person cannot directly invoke Section 147/148 based solely on such material. (Paras 48-50, 56, 57, 76)
(C) Income-tax Act, 1961 - Sections 147/148 vs. 153A/153C - Interplay - Special provisions for search cases (Sections 153A/153C) override general reassessment provisions (Sections 147/148); Assessing Officer of an "other person" can only resort to Section 147/148 if there is independent material from sources other than the incriminating search material. (Paras 52-58, 64, 68, 69, 76)
Facts of the case:
A search and seizure operation was conducted on a group on 09.01.2020. During the search, incriminating documents regarding unsecured loans were seized, revealing that cash had been deposited in the assessee's bank account and immediately transferred to the searched group as an unsecured loan of Rs. 20,00,000/-. Proceedings were initiated against the assessee under Section 148A and Section 148 of the Act, and reassessment was concluded under Section 147 r.w.s. 144B, making an addition of Rs. 20,00,000/- as unexplained investment under Section 69. The assessee challenged the validity of assuming jurisdiction under Section 147 instead of following the procedure under Section 153C, since the material was found during a search of a third party. The Tribunal relied on the decision of the Gujarat High Court in Paras Chandreshbhai Koticha & Ors Vs. ITO, which held that when incriminating material pertaining to a third person is found during search under Section 132, the Assessing Officer of the searched person must record satisfaction before transmitting material to the jurisdictional Assessing Officer of the other person, and the other person's Assessing Officer cannot directly invoke Section 147/148 on the same material unless there is an independent source. (Paras 1-4, 48-58, 70-76)
Findings of Court:
The assumption of jurisdiction under Section 147 of the Act by the Assessing Officer was flawed, and the reassessment proceedings were quashed. The Tribunal held that since the material was found during a search of a third party, the correct course of action was to initiate proceedings under Section 153C, and the failure to do so vitiated the entire proceedings. (Paras 4, 5, 76, 77)
Issues: The main issue was whether the Assessing Officer could validly assume jurisdiction under Section 147 of the Act for reassessment based on incriminating material found during a search of a third party, or whether the proceedings should have been initiated under Section 153C of the Act. (Para 2)
Ratio Decidendi: The court ruled that when incriminating material pertaining to an "other person" is found during a search conducted under Section 132/132A, the Assessing Officer of the searched person must record satisfaction on such material as a jurisdictional precondition before transmitting it to the jurisdictional Assessing Officer of the other person under Section 153C. The other person's Assessing Officer cannot bypass the special provisions of Section 153C and directly invoke the general reassessment provisions under Section 147/148 based on the same incriminating material, unless there is independent material from other sources. (Paras 48-58, 64, 68, 69, 76)
Result: Appeals allowed. The reassessment proceedings were quashed, and the additional ground raised by the assessee was allowed. (Paras 5, 6, 9)
| Table of Content |
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| 1. appeals from reassessments under s. 147 (Para 1 , 7) |
| 2. jurisdiction under s. 153c vs s. 147 (Para 2 , 3 , 4 , 5 , 6 , 8 , 9) |
ORDER
1. The appeal in ITA No. 149/AGR/2026 for AY 2018-19, arises out of the order of the ld National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 08.01.2026 against the order of assessment passed u/s 147 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.03.2023 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’).
2. The preliminary issue raised by the assessee is challenging the validity of assumption of jurisdiction u/s. 147 of the Act and consequently framing of reassessment by the ld A.O. u/s. 147 of the Act instead of framing the assessment u/s 153C of the Act.
3. I 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 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 reassessment was concluded in the hands of assessee u/s. 147 r.w.s. 144B of the Act on 25.03.2023 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).
4. At the outset, I 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 obliges the AO to record satisfaction on such material before proceeding further. The legislative scheme does not carve out any exception permitting the jurisdictional AO of the third person to assume jurisdiction under s. 153C of the Act in the absence of satisfaction recorded by the AO of the searched person in the first place, and, as a necessary corollary, unequivocally not under s. 147/148 of the Act as a second instance on the same material.
50. In other words, the absence of satisfaction recorded by the AO of the searched person does not vest jurisdiction in the AO of the third person to directly invoke the provisions o
