Addition of Rs. 46.87 Lakhs Based on Partner’s Seized Documents: ITAT Quashes Assessment for Bypassing S.153C Procedure [Read Order]

Amico Textiles,appellant-assessee,was issued a notice under section 148 on 17.05.2017 after a search was conducted on 04.09.2014 in the Longowalla Group cases, which also covered its partners. During the search, notebooks were seized from a partner, containing unaccounted cash transactions. One partner, Shri Sumit Mohan, admitted these transactions related to the firm.

Based on this, and since the entries matched the firm’s books, the Assessing Officer (AO) added Rs. 46.87 lakhs under section 68. The assessee denied any link to the seized material, claiming it belonged only to the partner and could not be used against the firm.

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In appeal, the assessee argued that the assessment should have been made under section 153C, as the documents were found with a third party. The Commissioner of Income Tax (Appeals)[CIT(A)] rejected this, stating the documents did not directly belong to the firm, and upheld the addition. The assessee then filed a further appeal before the tribunal.

The two member bench Rajpal Yadav (Vice President) and Manoj Kumar Aggarwal ( Accountant Member) noted that an identical legal issue had already been decided in a group of appeals titled Subhash Chander Gupta (ITA Nos. 765/Chd/2024, dated 07.04.2025).

In that case, the tribunal examined the amended provisions of Section 153C, which, after the Finance Act, 2015, required that where seized documents pertain to a person other than the one searched, proceedings must be initiated under Section 153C, and not under Section 147/148.

The appellate tribunal observed that the amended section begins with a non obstante clause, thereby overriding the applicability of sections 139, 147, 148, and 149 when Section 153C is attracted. It relied on the Supreme Court’s ruling in Vikram Sujitkumar Bhatia (149 taxmann.com 123), where it was held that the amended Section 153C applies even to searches conducted before 01.06.2015.

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In the present case, the ITAT found that the addition was entirely based on material seized from one of the partners during the search. Since the document did not originate from the assessee-firm directly but pertained to it, the assessment ought to have been made under Section 153C.

However, no satisfaction note, which is a mandatory requirement for invoking Section 153C, was shown. Instead, the assessment was framed under Section 147, which was not valid in such circumstances due to the overriding nature of Sections 153A to 153C.

Respectfully following the earlier decision, the tribunal held that the AO failed to follow the mandatory procedure and quashed the assessment. The assessee succeeded on the legal issue alone, rendering other grounds academic. The appeal was accordingly allowed.

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