Jurisdictional Defects Vitiate Entire Assessment: ITAT Strikes Down Additions Based on Search Material

By RATHI Income Tax Judiciary May 30, 2026

TaxGuru Citation: 2026 taxguru.in 6163
Case Name: Miraj Products Pvt. Ltd. Vs ACIT (ITAT Jodhpur)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2022-23
Courts: All ITAT, ITAT Jodhpur

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Miraj Products Pvt. Ltd. Vs ACIT (ITAT Jodhpur)

Conclusion: Assessments arising from searches conducted after 01.04.2021 must strictly comply with the reassessment framework under sections 147 and 148. Failure to adhere to statutory jurisdictional requirements, including mandatory approvals and satisfaction for use of third-party material, rendered the entire assessment void. Loose, handwritten “dumped documents” recovered from a third party hold no evidentiary weight against an assessee. Clandestine manufacturing and sales charges could not stand on raw suspicion or reverse-engineered ledger entries alone. Appellate authorities could not split or recharacterize a singular trading profit estimation into a dual stream of estimated expenditure (Section 69C) merely to artificially trigger the severe, high-rate tax regime of Section 115BBE.

Held: Search under section 132 was conducted. Assessee had already filed its return of income for AY 2022-23 and no notice under section 143(2) was pending on the date of search. Subsequently, AO issued a notice under section 143(2) and completed the assessment under section 143(3). During the assessment proceedings, AO relied extensively on documents and notepads seized during a search conducted in the case of a third party, M/s Montage Enterprises Pvt. Ltd. Based on alleged discrepancies in the pricing of packaging material, AO inferred unaccounted purchases, production and cash sales by the assessee. Consequently, additions were made under sections 69A and 69C towards alleged unaccounted sales, unexplained expenditure and unexplained cash payments. CIT(A) partly granted relief by deleting substantial additions but sustained additions by estimating gross profit on alleged suppressed sales and by making certain enhancements. Aggrieved, both the assessee and the Revenue preferred cross appeals before the Tribunal. Assessee contended that the assessment itself was void ab initio as, after the search conducted post 01.04.2021, the assessment for AY 2022-23 could only be made under the reassessment framework prescribed under sections 147 and 148 and not under section 143(3). It was further argued that the notice under section 143(2) had been issued without mandatory prior approval and by an officer lacking jurisdiction. On merits, it was argued that no evidence of unaccounted production, sales, purchases, cash, stock discrepancies or transportation of goods had been found during the search and that the additions were founded merely on assumptions arising from alleged variations in packaging material prices. Revenue contended that the assessee had indulged in unaccounted purchases of packaging material through inflated invoices and had consequently effected substantial unaccounted sales outside the books of account. It was argued that since all corresponding expenses had already been claimed in the regular books, the entire amount of unaccounted sales constituted undisclosed income liable to be taxed under section 69A read with section 115BBE. Tribunal held that assessment framed under Section 143(3) following a post-2021 search was void ab initio. The statutory scheme mandatorily requires reassessment procedures under Section 147/148, and issuing a Section 143(2) notice without prior administrative approval was a fatal jurisdictional defect that Section 292BB could not cure. Recording formal satisfaction and obtaining prior approval from the Principal Commissioner/Commissioner was an absolute prerequisite to assuming tax jurisdiction over material found with a third party. The mechanical use of supplier documents without establishing a direct nexus with the assessee was invalid. CIT(A) had exceeded the scope of powers conferred under section 251 by transforming additions made under section 69A into trading additions based on estimated gross profit. Such action amounted to introducing a new source and character of income, which was impermissible in law. Tribunal observed that there were multiple jurisdictional defects affecting the assessment proceedings at every stage, including assumption of jurisdiction, framing of assessment and sustenance of additions by the appellate authority. Tribunal held that the notice issued under section 143(2) was invalid and void ab initio; the assessment framed under section 143(3) for AY 2022-23, following a search conducted after 01.04.2021, was without jurisdiction and liable to be quashed; additions based on third-party seized material could not be sustained in the absence of mandatory satisfaction and prior approval as required under the amended provisions governing search-related reassessment proceedings. CIT(A) lacked jurisdiction to convert additions made under section 69A into trading additions by estimating business profits and thereby introducing a new source of income. Consequently, the assessment order stood annulled and the assessee’s legal grounds were allowed.

FULL TEXT OF THE ORDER OF ITAT JODHPUR