ITAT Dismisses Revenue’s Appeal as Reassessment Under Section 147/148 Invalid Due to Third-Party Search Evidence [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal(ITAT) dismissed the Revenue’s appeal, holding that reassessment under Section 147/148 of Income Tax Act,1961 was invalid due to reliance on third-party search evidence.

The Revenue-appellant, appealed against the order passed by  Commissioner of Income Tax(Appeals)[CIT(A)] dated 18.07.2024. In this case, Kailash Chand Hirawat, respondent-assessee,was reassessed after the Assessing Officer(AO), in an order dated December 8, 2018, made additions of Rs. 3,61,00,000 and Rs. 17,93,000.

A notice under Section 148 was issued on March 30, 2018, and the assessee filed a return declaring the same income of Rs. 17,08,170 as in the original return filed on September 29, 2011.

The reassessment was based on information from the Deputy Commissioner of Income Tax(DCIT),regarding large-scale cash loan financing by Ramesh Manihar Group. A search conducted on January 7, 2016, led to the seizure of data from the group’s office in Johari Bazar, Jaipur. The data indicated that the assessee had received unaccounted cash loans and earned interest income, which required taxation.

Are You Filing Tax Appeals the Right Way? Learn the Proper Legal Procedures!, Click Here

The CIT(A) relied on a decision by the Rajasthan High Court in Shyam Sunder Khandelwal v. Assistant Commissioner of Income Tax (2024) and held that since the notice under Section 148 had been quashed, the AO's order had become ineffective.

The High Court ruled that when proceedings under Sections 147/148 were based on incriminating material seized during a search of a different entity, the AO was required to proceed under Section 153C instead. In this case, the reassessment had relied on documents, including pen drives, seized from the premises of Ramesh Manihar Group, along with statements recorded during the search.

Read More:Lack of Jurisdiction u/s 153C owing to Absence of Incriminating Materials: ITAT dismisses Revenue’s Appeal

Referring to this decision, CIT(A) concluded that the reassessment proceedings were invalid, as they should have been initiated under Section 153C rather than Sections 147/148. Consequently, the notices issued under Section 148 and the resulting orders were quashed, while allowing the department to proceed as per the appropriate legal provisions.

Read More: Order Passed u/s 147 r.w.s 143(3) under Reassessment Proceedings Initiated before Search and Seizure is Void Ab Initio: ITAT

During the hearing, the Authorized Representative (AR) submitted a copy of the Section 153C notice issued for the 2011-12 assessment year. Since the department had acted on the High Court’s decision by issuing this notice, the appeal was rendered infructuous.

The two member bench comprising Narinder Kumar(Judicial Member) and Gagan Goyal(Accountant Member) dismissed the appeal filed by the Revenue  as infructuous.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates