Manik Somani Vs ACIT (ITAT Delhi)
Delhi ITAT Quashes Reassessment for Ignoring Mandatory Procedure in Search-Based Reopening
The Delhi ITAT quashed the reassessment proceedings after holding that the Assessing Officer failed to comply with the mandatory procedure prescribed for reopening an assessment based on material unearthed during a search on a third party. The reassessment was initiated on the allegation that the assessee had received ₹30,000 in cash as interest on an unsecured loan, based on documents and statements recorded during the search of another person.
The Tribunal held that under Explanation 2(iv) to section 148, reopening the assessment of an “other person” based on search material requires the prior approval of the Principal Commissioner or Commissioner of Income-tax. Since the Revenue failed to produce any evidence of such approval, the notice issued under section 148 was held to be invalid, rendering the entire reassessment proceedings void.
The Tribunal further observed that the Assessing Officer had wrongly invoked the procedure under section 148A, even though the proviso to that section specifically excludes cases involving reopening based on search material relating to another person. This mechanical invocation of section 148A reflected non-application of mind and deprived the Assessing Officer of jurisdiction. Accordingly, the reassessment order was quashed, and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 02.02.2026, for Assessment Year 2019-20.
2. The assessee in appeal has inter alia assailed validity of reopening of assessment. The ld. Counsel for the assessee submitted that the assessment has been reopened consequent to information gathered during search in the case of Shri Monish Nayaar u/s.132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). As per alleged documents found and seized during search in the case of Monsih Nayaar and the statement of Monish Nayyar, the assessee has received interest Rs.30,000/- in cash on unsecured loan extended to Monish Nayyar. Referring to provisions of section 148 of the Act, Explanation 2(iv), the ld. Counsel contended that where the assessment is reopened consequent to search, the assessment in the case of other person can be reopened only with the prior approval of Principal Commissioner or Commissioner of Income Tax. Whereas, in the case of assessee, no such approval was taken. Even, in the assessment order there is no reference to the approval from Competent Authority.
2.1. The ld. Counsel submits that the AO has invoked provisions of section 148A of the Act based on material found in the course of search on third party. He further pointed that as per the provisions of section 148A of the Act where the assessment is reopened consequent to search the provisions of section 148A of the Act would not apply. Referring to Clause c of the proviso to section 148A, he submits that section 148A of the Act has no application, where reopening is in the case of other person consequent to search. In the present case, the Assessing Officer (AO) has issued notice 148A(b) of the Act to the assessee on 30.03.2023 and has also passed an order u/s.148A(d) of the Act on 17.04.2023. This shows that the AO has invoked provisions of section 148A of the Act in the instant case in a mechanical manner. Restoring to provisions of section 148A of the Act by the AO reflects non application of mind by the AO, thus, prayed for quashing the assessment order.
3. Shri Manoj Kumar, representing the department vehemently defending the assessment order and prayed for upholding the assessment and the additions made there under.
4. Both sides heard, orders of the lower authorities examined. The assessment has been reopened by the AO consequent to certain documentary evidences unearthed during search in the case of Shri Monish Nayaar. As per Explanation 2(iv) to section 148 of the Act, where the assessment is reopened in the case of other person, prior approval of Principal Commissioner or Commissions of Income Tax is mandatory. The assessee has alleged that there is no prior approval from the Competent Authority for reopening of assessment. No material is placed on record by the Department to show that the AO obtained approval from Competent Authority for reopening assessment. In absence of approval as envisaged u/s.148 of the Act Explanation 2(iv), the notice u/s.148 of the Act is bad in law. As a sequitur, the assessment proceedings arising from such invalid notice are vitiated.
5. I also find merit in the submissions of ld. Counsel for the assessee that in the present case the provisions of section 148A of the Act have been invoked by the AO to re-open the assessment in contravention of section 148A of the Act. The relevant extract of provisions of section 148A are reproduced herein under:-
“148A.- The Assessing Officer shall, before issuing any notice under section 148,- (a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted. if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where,-
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(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commis sioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A. in the case of any other person on or after the 1st day of April, 2021, belongs to the the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or”
6. A bare perusal of Clause c of proviso to section 148A of the Act makes it explicitly clear that where the assessment has been reopened in the case of other person consequent to search u/s.132 of the Act, the provisions of section 148A of the Act would not operate. The AO in the instant case has issued notice to the assessee u/s.148A(b)of the Act and has also passed order u/s.148A(d) of the Act. This shows that the AO in a mechanical manner without application of mind has invoked section 148A of the Act to reopen the assessment. Where the assessment has not been re-opened in accordance with the provisions of the Act, the same is without jurisdiction. Such reassessment proceedings are liable to be quashed, I hold, accordingly.
7. Since, the appeal of assesse is allowed on the legal issue raised in ground no. 1 and 2 of appeal. The other grounds raised by the assessee assailing addition on merits have become academic, hence, not deliberate upon.
8. In the result, assessment order is quashed and appeal of the assessee is allowed.
Order pronounced in the open court on Friday the 31 st day of July, 2026.
