Back
2026 Supreme(Online)(ITAT) 13085
INCOME TAX APPELLATE TRIBUNAL (AGRA BENCH)
M. Balganesh, Accountant Member
Raju Rathore – Appellant
Versus
ITO – Respondent
ITA No. 240/AGR/2026 | ITA No. 241/AGR/2026
For the Appellants/Petitioners: Rajendra Sharma, Manuj Sharma
For the Respondents: Anil Kumar
Reassessment under Section 147 for income based on search material is invalid. Proceedings must be initiated under Section 153C, a special provision, which requires a satisfaction note by the searched person's Assessing Officer.
Headnote:(A) Income-tax Act, 1961 - Sections 147, 148, 148A, 153A, 153C, 69, 144B, 132, 132A - Reassessment - Jurisdiction - Search and seizure - Where incriminating material pertaining to a person other than the searched person is found during a search, the Assessing Officer must proceed under Section 153C, not under Section 147/148, unless the material is from an independent source - The absence of a satisfaction note recorded by the Assessing Officer of the searched person vitiates jurisdiction under Section 153C and precludes resort to Section 147/148 based solely on that incriminating material - The special provisions (Ss. 153A & 153C) prevail over the general provisions of Section 147/148 for assessments based on search material. (Paras 5, 6, 7)
(B) Income-tax Act, 1961 - Sections 147, 148, 153C - Satisfaction Note - It is mandatory for the Assessing Officer of the searched person to record satisfaction on incriminating material found during search and communicate it to the jurisdictional Assessing Officer of the other person before proceedings can be initiated under Section 153C - In the absence of such satisfaction note, the jurisdictional Assessing Officer of the other person cannot assume jurisdiction under Section 153C, nor can he invoke Section 147/148 based solely on that material. (Paras 6, 76)
Facts of the case:
A search and seizure operation was conducted on a group (the searched person) on 09.01.2020. During the search, incriminating documents regarding unsecured loans were seized, which revealed that cash had been deposited in the assessee's bank account and immediately transferred to the searched group as unsecured loans (Rs 19,94,000 for AY 2018-19 and Rs 38,75,000 for AY 2019-20). The Assessing Officer initiated proceedings under Section 147/148 of the Act and completed reassessments, making additions for unexplained investment under Section 69. The assessee challenged the validity of the assumption of jurisdiction under Section 147, arguing that the correct course was to proceed under Section 153C since the proceedings were based on incriminating material found during a search.
Findings of Court:
The Tribunal held that the reassessment proceedings under Section 147 were invalid. It found that since the incriminating material was found during a search, the revenue should have proceeded under Section 153C. The Tribunal relied on the decision of the Gujarat High Court (Paras Chandreshbhai Koticha), which held that when incriminating material of a third person is found during a search, the Assessing Officer of the searched person must record a satisfaction note and transmit the material to the Assessing Officer of the third person. The absence of such satisfaction means the Assessing Officer of the third person cannot directly invoke Section 147/148 based on that material. The proceedings under Section 147 were therefore quashed.
Issues: The main issue was whether the Assessing Officer could validly assume jurisdiction under Section 147 of the Act to reassess the assessee when the proceedings were based on incriminating material found during a search, instead of following the procedure under Section 153C.
Ratio Decidendi: The court reasoned that the special provisions under Sections 153A and 153C, which begin with non obstante clauses, are intended for assessments arising from search material. These provisions override the general provisions of Section 147/148. Therefore, when incriminating material pertaining to a third person is found during a search, the revenue must follow the procedure under Section 153C, which includes a mandatory satisfaction note from the Assessing Officer of the searched person. Resorting to Section 147/148 on the same material is impermissible.
Result: Both appeals of the assessee were allowed, and the reassessment proceedings were quashed. (Para 8) (Para 7)
| Table of Content |
|---|
| 1. this group introduces the appeals, their background, and establishes that they are being heard together due to identical facts. (Para 1 , 2 , 3) |
| 2. the preliminary issue is the validity of the reassessment under section 147 versus section 153c. (Para 4) |
| 3. the factual background of the search, seizure, and subsequent reassessment proceedings is provided. (Para 5) |
| 4. the legal principle is that when incriminating material is found during a search, proceedings must be initiated under section 153c, not 147/148, and failure to do so vitiates the reassessment. (Para 6) |
| 5. the reassessment is quashed as the assumption of jurisdiction under section 147 was flawed, and the appeals are allowed. (Para 7 , 8) |
ORDER
1. The appeal in ITA No. 240/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 18.03.2026 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 28.03.2023 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’).
2. The appeal in ITA No. 241/AGR/2026 for AY 2019-20, arises out of the order of the ld National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 18.03.2026 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 08.03.2024 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’).
3. Both the appeals are heard together in view of identical facts involved therein except with variance in figures.
4. 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.
5. 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 19,94,000/- as unsecured loan in AY 2018-19 and Rs 38,75,000 in AY 2019-20. 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 28.03.2023 for AY 2018-19 and on 08.03.2024 for AY 2019-20 after making an addition of Rs. 20,00,000/- and Rs 38,75,000/- respectively 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).
6. 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.
