Supreme Court upholds Rajasthan HC Ruling Quashing S. 148 Reassessment Notices Based on Third-Party Search Material [Read Order]
The Supreme Court dismissed the Income Tax Department’s SLP against Rajasthan HC’s ruling quashing Section 148 notices based on third-party search material
The Supreme Court refused to entertain the Income Tax Department’s Special Leave Petition (SLP) against the Rajasthan High Court judgment which had quashed reassessment notices issued under Section 148 based on third-party search material.
The case came from a common judgment of the Rajasthan High Court in a batch of writ petitions, including the petition filed by Gopal Prasad Gupta. The notices under Section 148 were issued on the basis of material seized during a search conducted on the Ramesh Manihar Group.
In the facts discussed by the High Court, the assessee had filed return for AY 2014-15 declaring income of Rs.18,76,890. The reopening was based on documents, pen drives and statements found during the search of the Manihar Group. The AO claimed from this seized material that loan advanced and interest earned were unaccounted.
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Before the High Court, the taxpayers argued that when the case is based on seized material from third-party search, the department cannot use Section 148. They argued the correct provision is Section 153C, because that section is made for “other persons” cases.
The department argued that Section 148 can still be used and Sections 153A/153C does not stop it. The department relied on Supreme Court decisions like M.R. Shah Logistics and Abhisar Buildwell.
The court observed that the department was relying only on seized material from search and in such situation Section 153C is the proper route. The court explained that Section 153C is a special provision and should be followed when material belongs to or relates to another person. So the High Court quashed the Section 148 notices and the orders rejecting objections, but gave liberty to proceed as per law.
After this, the Income Tax Department went to the Supreme Court. On 06 February 2026, the Bench of Justice J.B. Pardiwala and Justice Sandeep Mehta observed that the SLP was filed with gross delay of 560 days and the delay was not explained properly.
The court also observed it found no good reason to interfere. So the SLP was dismissed on delay and also on merits.
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