Reopening Invalid When Search Material Triggers Section 153C

ITO Vs Sagar Construction Company BA Gateway (ITAT Pune)

Search-Based Information Triggers Section 153C, Not Reopening u/s 147 — ITAT Pune Dismisses Revenue Appeal

The Pune Bench of the ITAT upheld the order of the CIT(A)/NFAC deleting additions of ₹1.61 crore (u/s 68) and ₹17.80 lakh (interest disallowance) and also accepted the assessee’s cross-objections on jurisdictional grounds, holding that reassessment under section 147 was invalid.

The Tribunal held that:

• The entire basis of reopening was information and seized material arising from a search u/s 132 in the case of a third party (Sachin Nahar), which allegedly contained loan details relating to the assessee.
• Once incriminating material “pertains to” or “relates to” a person other than the searched person, the only lawful route is section 153C, which overrides sections 147/148.
• Issuance of notice u/s 148 instead of following the mandatory procedure u/s 153C (including recording of satisfaction and handing over of material) is a jurisdictional defect and cannot be cured u/s 292B.
• On merits also, the AO’s stand was contradictory: while reopening alleged cash loans, the assessment itself accepted that loans were received through banking channels, supported by confirmations, PANs, bank statements and audit records.
• The CIT(A) rightly held that once identity, genuineness and creditworthiness were proved, addition u/s 68 and consequential interest disallowance could not survive.
• Admission of evidence did not violate Rule 46A, as most material was already part of the assessment record and the AO failed to make further enquiry despite opportunity.

Relying on jurisdictional Bombay High Court judgment in Sejal Jewellery and several co-ordinate bench decisions involving the same entry operator, the ITAT dismissed the Revenue’s appeal and allowed the assessee’s cross-objections, holding the reassessment itself to be void ab initio.

FULL TEXT OF THE ORDER OF ITAT PUNE