Post-Finance Act, 2021 Search Assessments Must Follow S.148 Regime: ITAT Quashes Income Tax Assessment [Read Order]
The Tribunal ruled that assessments based on search material must follow the reassessment framework introduced by the Finance Act, 2021.
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) held that for searches conducted after 1 April 2021, assessments for the years immediately preceding the search must mandatorily follow the reassessment framework introduced under the Finance Act, 2021, and cannot be framed directly underSection 143(3) of the Income Tax Act, 1961.
M/s Malbros International Pvt. Ltd., the appellant, is a company engaged in the manufacturing and trading of grain-based Extra Neutral Alcohol, ethanol and country liquor. Subsequently, a search under Section 132 of the Income Tax Act, 1961 was conducted on 18.05.2023 on the assessee group as well as on certain third parties, including former employees.
Based on digital data, loose papers and statements allegedly recovered from third-party premises, the Assessing Officer (AO) completed the assessment under Section 143(3) of the Income Tax Act, 1961 on, making multiple additions on account of alleged bogus purchases, unexplained expenditure under Section 69C of the Income Tax Act, 1961 and estimated gross profit. The assessee challenged the assessment before the Commissioner of Income Tax (Appeals), who partly sustained the additions, leading to cross appeals before the Tribunal.
The Appellant contended that the entire assessment is framed on material seized from third parties under Section 143(3) of the Income Tax Act, 1961 was void ab initio as the search was conducted after 1.04.2021 and, therefore, the mandatory procedure prescribed under Section 148 read with Explanation 2 clause (iv) and Section 148B of the Income Tax Act, 1961 was required to be followed but wasn’t in the present case. Further, submitted that no valid approval under Section 148B of the Income Tax Act, 1961 was obtained before passing the assessment order.
The Revenue argued that the AO was duty-bound to frame the assessment under Section 143(3) of the Income Tax Act, 1961 in accordance with the applicable CBDT instructions
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The Bench comprising Rajpal Yadav, Vice President and Manoj Kumar Aggrawal, Accountant Member, quashed the assessment order, holding that since the search was conducted on 18.05.2023, the amended reassessment regime introduced by the Finance Act, 2021 was fully applicable.
The Tribunal observed that where the material is found during a search on another person, the AO was mandatorily required to record a proper satisfaction under Section 148 read with Explanation 2 clause (iv) of the Income Tax Act, 1961 and obtain prior approval from the specified authority before initiating proceedings.
Subsequently, the assessment year under consideration fell within the period immediately preceding the search year and, therefore, compliance with Section 148B of the Income Tax Act, 1961 was compulsory.
As no such satisfaction or statutory approval was shown to have been obtained, the ITAT held that the assessment framed under Section 143(3) of the Income Tax Act, 1961 was without jurisdiction and liable to be annulled. Consequently, the appeal by the assessee was allowed.
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