JCIT Vs RNT Metals Private Limited (ITAT Delhi)
Search Changes the Route — Once Search u/s 132 Happens, AO Cannot Continue on the Ordinary 143(3) Highway; Assessment Quashed for Not Following 147/148
Summary:
The Delhi ITAT dealt with an important jurisdictional issue arising under the post-01.04.2021 search assessment regime — whether, after a search u/s 132, the AO can continue with regular scrutiny proceedings & complete assessment u/s 143(3), or whether he is mandatorily required to follow the special route prescribed by sections 147/148.
The assessee, RNT Metals Pvt. Ltd., filed its original return for AY 2022-23 declaring income of ₹2.12 crore. Subsequently, a search & seizure action u/s 132 was conducted on 12.12.2022 at the business premises & residences of its directors. Jurisdiction was thereafter transferred to Central Circle-7, Delhi. However, instead of proceeding through section 148, the AO issued notice u/s 143(2) on 29.06.2023 & ultimately completed assessment u/s 143(3), making additions of approximately ₹1.92 crore & determining total income at ₹4.04 crore.
CIT(A) partly allowed the assessee’s appeal. Revenue therefore approached the ITAT, while the assessee filed a cross-objection raising a fundamental jurisdictional challenge to the very validity of the assessment.
Assessee’s Objection — After Search, 143(3) Was the Wrong Door
The assessee contended that once search u/s 132 had been conducted after 01.04.2021, Explanation 2 to section 148 came into operation. The AO was deemed to possess information suggesting escapement of income & therefore ought to have initiated proceedings u/s 147 by issuing notice u/s 148.
Accordingly, assessment completed directly u/s 143(3), without issuing notice u/s 148, was argued to be jurisdictionally invalid.
Reliance was placed upon Montage Enterprises Pvt. Ltd., Homelife Buildcon (P.) Ltd. v. DCIT [2025] 176 taxmann.com 614 (Chd.-Trib.) & Jamna Das Nikkamal Jain Saraf Pvt. Ltd. v. DCIT.
Revenue countered that the original return had already been filed u/s 139(1), the case was validly selected for compulsory scrutiny & notice u/s 143(2) was issued. According to Revenue, since scrutiny proceedings were available, completion of assessment u/s 143(3) was valid notwithstanding the subsequent search.
Explanation 2 to Section 148 — Search Itself Creates Deemed Escapement
The ITAT rejected Revenue’s approach.
Explanation 2 to section 148 specifically provides that where search u/s 132 is initiated on or after 01.04.2021, the AO shall be deemed to have information suggesting that income chargeable to tax has escaped assessment.
The Tribunal therefore held that once the search had taken place, the proper statutory course was to discontinue the ordinary proceedings & initiate proceedings in accordance with section 148. The AO was fully aware of the search, particularly because jurisdiction itself had been transferred pursuant thereto.
Failure to follow the procedure prescribed by statute was not regarded as a mere technical irregularity. It constituted a jurisdictional defect.
The ITAT invoked the classic principle recognised by the Supreme Court in Babu Verghese v. Bar Council of Kerala (1999) 3 SCC 422 — where a statute requires something to be done in a particular manner, it must be done in that manner or not at all.
143 Is General — 148 Is the Special Search Route
The Tribunal followed Montage Enterprises Pvt. Ltd., which in turn had considered the post-2021 statutory scheme.
The reasoning was that section 143 provides the general framework for regular assessment, whereas sections 147/148 constitute the special mechanism where information suggesting escapement arises, including information generated by search.
Once a search takes place, the statutory jurisdiction must therefore flow through the special channel prescribed by section 148 rather than through the ordinary scrutiny machinery u/s 143(3).
The Tribunal also drew support from the pre-2021 search assessment regime. Under section 153A, courts had consistently recognised that once search proceedings were triggered, parallel regular assessment proceedings could not independently coexist for the same assessment year because the special search assessment procedure took over.
The ITAT considered the same underlying legislative logic applicable under the post-2021 regime — section 148 now performs the role assigned to the special search assessment machinery for the relevant period, thereby preventing multiplicity of proceedings & ensuring one comprehensive assessment incorporating both pre-search & post-search material.
Generalia Specialibus Non Derogant — Special Beats General
The Tribunal further invoked the principle generalia specialibus non derogant — a special provision prevails over a general provision.
Once the search triggered the special statutory mechanism, section 148 prevailed over the general assessment provisions of section 143. Permitting the AO to continue regular scrutiny notwithstanding the search would defeat the legislative scheme & could render statutory safeguards associated with the special procedure redundant.
This distinction is significant. The defect was not merely that the AO had used a wrong section number while otherwise possessing jurisdiction. Rather, the very source & manner of exercising jurisdiction after search had changed.
Pending Scrutiny Does Not Save the Assessment
Revenue’s principal argument was that scrutiny proceedings were already available & therefore the AO could finish what had been started.
The Tribunal did not accept this proposition. Once search intervened, normal assessment u/s 143(3) could no longer be framed. The AO was required to proceed through the special statutory mechanism.
Following the coordinate Bench decisions, the ITAT categorically concluded that the assessment for AY 2022-23 “should have been completed u/s 148 of the Act and not u/s 143(3)”. Consequently, the assessment order was held invalid & quashed.
Once the assessee succeeded on this jurisdictional ground, there was no occasion to adjudicate the additions on merits. The other grounds in the assessee’s cross-objection became infructuous & Revenue’s appeal also became infructuous.
Accordingly, assessee’s cross-objection was allowed & Revenue’s appeal was dismissed.
Takeaway
This decision carries considerable significance for searches conducted under the post-01.04.2021 regime. The proposition emerging is that once a search u/s 132 attracts Explanation 2 to section 148, the AO cannot simply continue with ordinary scrutiny proceedings merely because the return had already been filed or scrutiny was otherwise pending.
The search creates deemed information suggesting escapement, thereby triggering the special statutory route. Failure to adopt that route goes to jurisdiction itself, rather than being a curable procedural lapse.
The ruling also provides a useful litigation principle: whenever an assessment for the relevant post-2021 period follows a search, one should first examine which jurisdictional provision the AO invoked, what notice was issued & whether the statutory search/reassessment machinery was followed before debating the additions on merits.
Once search entered the assessment, section 143(3) had to leave the field – the AO continued on the old road, & the entire assessment reached a jurisdictional dead end.
Cases Discussed
- Babu Varghese Vs Bar Council of Kerala (1999) 3 SCC 422
- Montage Enterprises Pvt. Ltd. Vs DCIT/ACIT (ITAT Delhi)
- Homelife Buildcon (P.) Ltd. Vs DCIT (ITAT Chandigarh), (2025) 176 taxmann.com 614
- Jamna Das Nikkamal Jain Saraf Pvt. Ltd. Vs DCIT, ITA No. 403/Chd./2025
- Taylor Vs Taylor (1875) 1 Ch.D 426
- Nazir Ahmed Vs King Emperor
- Rao Shiv Bahadur Singh & Anr Vs State of Vindhya Pradesh
- Deep Chand Vs State of Rajasthan
- State of Uttar Pradesh Vs Singhara Singh & Others
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The captioned cross-appeals are filed by the Revenue and the assessee against the order dated 06.11.2025 passed by Ld. Commissioner of Income Tax (A)-24, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-24/10043/2021-22 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 31.03.2024 passed u/s 143(3) of the Act pertaining to Assessment Year 2022-23.
2. Both the cross-appeals filed by the Revenue and the assessee are having common issues therefore, both are decided by a common order for sake of convenience.
3. Brief facts of the case are that the assessee is a company, filed its original return of income u/s 139(1) of the Act on 28.09.2022, declaring total income of INR 2,12,14,440/- which was processed u/s 143(1) of the Act. A search and seizure action was carried out u/s 132 of the Act at the business and residential premises of its Directors on 12.12.2022. Thereafter, the jurisdiction in the case of assessee was transferred to AC/DC, Central Circle-7, Delhi and statutory notice u/s 143(2) was issued on 29.06.2023. After considering the submissions filed by the assessee, the assessment was completed vide order dated 31.03.2024 passed u/s 143(3) of the Act by making various additions of INR 1,92,35,043/- and accordingly total income was assessed at INR 4,04,49,480/-.
4. Against the said order, assessee filed an appeal before the ld. CIT(A) who vide impugned order dated 06.11.2025, has partly allowed the appeal of the assessee.
5. Aggrieved by the order of ld. CIT(A), Revenue has filed the present appeal before the Tribunal and assessee has filed cross-objection. In cross-objections, assessee has challenged the validity of order passed u/s 143(3) of the Act as a result of search carried out u/s 132 of the Act and claimed that the orders should have been passed u/s 147 of the Act after issue of notice u/s 148 as per Explanation (2) of clause (1) of section 148 of the Act.
6. In respect of Ground of appeal No.1 of the assessee in Cross-objection wherein no notice u/s 148 was issued by AO and the assessment proceedings initiated and the assessment order passed is liable to be quashed.
7. As observed above, a search and seizure operation was carried out on the assessee u/s 132 of the Act on 12.12.2022 and simultaneously search conducted at the business and residential premises of its Directors. Prior to that, the return of income for the year under appeal was filed on 28.09.2022. The claim of the assessee was that the assessment for the year under appeal was completed u/s 143(3) of the Act however, when a search action was taken u/s 132 of the Act in the case of the assessee, therefore, in terms of Explanation 2 sub clause (i) to Section 148, the assessment proceedings should have been initiated u/s 147 by issue of notice u/s 148 of the Act and thus the order passed u/s 143(3) of the Act was invalid. For this reliance is placed on the judgement of the coordinate bench in the case of Montage Enterprises Pvt. Ltd. in ITA No. 5458/Del/2025 dt. 29.12.2025 wherein the judgement of Co-ordinate Bench of Chandigarh Tribunal in the case of Homelife Buildcon (P.) Ltd. Vs. DCIT, reported in (2025) 176 taxmann.com 614 (Chandigarh – Trib.) was followed. The assessee further relied on the judgement in the case of Jamna Das Nikkamal Jain Saraf Pvt. Ltd. Vs DCIT in ITA No. 403/Chd./2025 dt. 04.11.2025. He prayed accordingly.
8. On the other hand, the ld. Sr. DR submits that the return of income was filed u/s 139(1) on 28.09.2022 and subsequently, the case of the assessee was selected for compulsory scrutiny as per CBDT Guideline Vide F.No.225/81/2022/ITA-II dated 26.09.2022 with prior approval of the Competent Authority and statutory notice u/s 143(2) on 29.06.2023 was issued and duly served upon the assessee company. The assessee filed response to the said notice and thereafter, various notice issued u/s 142(1) alongwith questionnaires were issued from time to time. The assessee has submitted replies and requisite details as and when called for thereafter, the assessment order was passed u/s 143(3) of the Act on 31.03.2024. Since the limitation for the issue of notice u/s 143(2) was not expired as on the date of search and therefore, the AO has rightly initiated the assessment proceedings by issue of notice u/s143(2) of the Act and the consequent order passed is in accordance with law.
9. Heard both the parties and perused the material available on record. In the present case, a search and seizure operation us/s 132 of the Act was carried out on 12.12.2022 and prior to that ITR for the year under appeal was filed on 26.09.2022. The notice u/s 143(2) of the Act for taking the case of the assessee for scrutiny assessment was issued on 29.06.2023. Claim of the assessee was that when search is conducted u/s 132 of the Act on or after 01.04.2021, assessment must be framed u/s 147/148 of the Act and not under Section 143(3) of the Act. Before going further, it is necessary to refer Explanation-2 to section 148 of the Act, which reads as under:
Explanation 2- for the purpose of this section :
(i) A search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned on or after 1st day of April 2021 in the case of the assessee or
(ii) a survey is conducted under section 133A, other than under sub-section (2A) [***] of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or 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,
the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.
10. From the plain reading of the above explanation, it is conferred that the assessment ought to have been made under Section 148 of the Act where a search was conducted on or after 01.04.2021. Despite the fact that search was conducted in the case of the assessee and the AO being fully aware of this fact as the case was transferred to his jurisdiction in terms of the order passed u/s 127 of the Act, he had proceeded to conclude the assessment proceedings initiated by issued the notice u/s 143(2) on 29.06.2023. Thus, under these circumstances, proper course of action would be to drop the proceedings already initiated and to initiate fresh proceedings u/s 148 as outlined in Explanation 2(i) to section 148 of the Act as there was deemed escapement of income. Failure to comply the statutory procedure as provided under the Act constitutes a jurisdictional defect. The Hon’ble Apex Court in the case of Babu Varghessee Vs Bar Council of Kerala reported in (1999) 3 SCC 422, wherein at paragraph 31 and 32, it is held as follows:
“31. It is the basic principal of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all. The origin of this rule is traceable to the decision in Taylor vs Taylor (1875) 1.Ch.D 426 which was followed by Lord Roche in Nazir Ahmed v King Emperor who stated as under :-
“where a power is given to do certain thing in certain way, the thing must be done in that way or not at all.”
32. This rule has since been approved by this court in Rao Shiv Bahadur Singh & Anr Vs State of Vindhya Pradesh and again in Deep chand Vs state of Rajasthan 1962, (1) SCR =AIR 1961 SC 1527. These cases were
considered by a three Judge Bench of this court in state of Uttar Pradesh vs Singhara Singh & Others and the rule laid down in nazir Ahmed’s case (Supra) was again upheld. This rule has since been applied to the exercise of jurisdiction by courts and also been recognized as statutory principal of administrative Law.
11. Therefore, the AO should have acted strictly in terms of the amended provisions of section 148 of the Act for the searches carried out on or after 01.04.2021. The coordinate bench of Delhi Tribunal in the case of Montage Enterprises Pvt. Ltd. (supra) held as under:
“Heard both the parties. Case files perused.
2. We notice at the outset that there arises the first and foremost issue of validity of the impugned section 143(3) assessment itself framed by the learned DCIT, Central Circle-II, Noida as per the assessee’s pleadings in its appeal ITA No.5458/Del/2025. A combined perusal of both these case files indicates that the assessee/appellant is engaged in the business of manufacturing and sale of flexible packaging material etc. It has filed its return for the impugned assessment year 2022-23 on 29.10.2022, declaring loss of Rs.64,53,88,702/-. And the same was taken for scrutiny. The learned departmental authorities thereafter carried out section 132 search action as well as section 133A survey in its case on 21.02.2023. There is further no dispute that the learned Assessing Officer then proceeded to frame the impugned assessment on 30th March, 2024 in its case inter alia making various disallowances/additions etc., involving varying sums, which stand partly upheld in the CIT(A)’s lower appellate discussion.
3. It is in this factual backdrop that the assessee seeks to raise it’s precise question challenging validity of the impugned assessment for the sole reason that the same ought to have been framed under section 148 with approval under section 148B of the Act in light of Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 taxmann.com 614 (Chandigarh – Trib.) as relied in Jamna Das Nikkamal Jain Saraf Pvt. Ltd. Vs DCIT (ITA No. 403/Chd./2025) decided on 04.11.2025, adjudicating the very issue against the department as under:
“11.4 In conclusion, it was submitted that since the year under appeal formed part of the three assessment years immediately preceding the year in which search was conducted, the assessment ought to have been framed under section 148 with approval u/s 148B. The framing of the assessment u/s 143(3) and approval taken only for the purposes of section 143(3) was thus asserted to be fundamentally defective, non-compliant with statutory mandate, and consequently void ab initio. On these grounds, following the ratio in Homelife Buildcon Pvt. Ltd., it was prayed that the impugned assessment be quashed.
12. The Ld. CIT-DR Shri Manav Bansal opposed the contention, stating that the return for A.Y. 2022-23 was filed prior to the date of search, and validly selected for scrutiny under CASS. The AO was competent to complete the assessment u/s 143(3).
12.1 He contended that section 148B applies only to “re- assessment” and not to “regular assessments.” The AO’s approval from Addl. CIT, being in line with the CBDT Instruction No. 7/2022 dated 15.07.2022, fulfils the supervisory requirement. The DR also submitted that Homelife Buildcon is distinguishable, as the AO therein relied on third-party search data, whereas the present case is based on assessee’s own seized material.
13. We have carefully considered the rival submissions and perused the record. It is undisputed that search u/s 132 was conducted on 24.11.2022, relevant to A.Y. 2023-24. Thus, A.Y. 2022- 23 is one of the three preceding years under Explanation 2(iv) to section 148. The Explanation reads that if a search is initiated, “the Assessing Officer shall be deemed to have information suggesting escapement of income for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated.”
13.1 Therefore, the only permissible statutory course was to issue notice u/s 148 and obtain prior approval u/s 148B before passing assessment order.
13.2 As the Assessing Officer completed the assessment under section 143(3) of the Act without issuing the notice under section 148 of the Act. Therefore, the question before us is whether the assessment proceedings initiated under section 143(3) of the Act can be validly continued and completed after a search under section 132 has been conducted in the case of the same assessee, without following the procedure prescribed under section 148 (Explanation 2) of the Act.
13.3 In our considered opinion, the answer lies in the scheme of the Act itself. Section 143 provides the general framework for regular assessment, whereas sections 147-148 (post-2021 regime) deal with reassessment based on information suggesting escapement of income, including that unearthed during a search.
13.4 A plain reading of section 143(2) shows that such notice can be issued only when a return of income is furnished under section 139 or in response to a notice under section 142(1). It empowers the Assessing Officer to scrutinize that return if he considers that income has been understated or tax underpaid. However, when a search under section 132 takes place and materials are found indicating possible escapement of income, the statute envisages a different route for carrying out assessment or reassessment under section 147 read with section 148, which is the special mechanism for bringing to tax the income discovered in consequence of a search.
13.5 Although section 148 (inserted w.e.f. 01.04.2021) does not begin with a non-obstante clause similar to the erstwhile section 153A, its context and Explanation 2 make it clear that where a search is initiated, the jurisdiction thereafter must flow through this special channel, subject to prior satisfaction and approval of the Principal Commissioner or Commissioner. The legislative intent is to ensure that when a search is carried out, the assessment is framed under the specific provisions meant for such cases and not under the general provision of section 143(3). Further we may mention that no notice under section 143(2) could have been issued after 3 months from the end of the financial year in which the return is furnished. In the present case the original return of income was filled on 4/11/2022 for the assessment year 202223 and 143 (2) was issued on 21/6/2023 , therefore also the assessment was framed under 143(3) of the Act is not sustainable. In other words the time required for issuing the notice under 143(2) had already expired, and the revenue can not be allowed to issue issue 143(2) on 21.6.2023 after the search was carried out and notice had been issued on 21.6.2023 and assessment was framed under 143(3) of the Act. The relevant portion of section 143(3) reads as under:-
143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be issued after the expiry of three months from the end of the financial year in which the return is furnished.
13.6 This position finds substantial support from the ratio of various decisions of Hon’ble High Court and Hon’ble Supreme Court.
The Courts unanimously held that once a search has been conducted and proceedings are triggered under section 153A, the Assessing Officer cannot continue parallel proceedings under section 143(3) or section 147 for the same assessment year, because the entire assessment for that year stands merged in the search assessment. The Courts emphasized that the existence of a special procedure for assessment consequent to a search is a complete code in itself; therefore, ordinary assessments abate and cannot coexist with the search-based assessment.
13.7 Drawing this analogy to the current regime, it is evident that when a search takes place and information is unearthed suggesting escapement of income, the Assessing Officer must act under section 148 (which now performs the role formerly assigned to section 153A) rather than continuing with a pending section 143(3) proceeding. The legislative intent remains the same — to prevent multiplicity of proceedings and ensure that only one comprehensive order is passed, factoring in both the pre-search and post search materials.
13.8 The rationale is further reinforced by the well-settled principle of generalia specialibus non derogant — the special provision overrides the general. Section 148 (as a special provision triggered by search information) must prevail over section 143 (the general provision for regular scrutiny). Allowing the Assessing Officer to continue and conclude proceedings under section 143(3) after a search would defeat this legislative scheme and render the safeguards, such as prior approval of the Principal Commissioner, redundant.
13.9 Accordingly, we hold that once a search is initiated under section 132 and material is found relating to the assessee, the pending assessment under section 143(3) cannot validly continue, as the time for issuing the 143(2) in response to original return of income had already expired, therefore the Assessing Officer must necessarily proceed in accordance with the special provisions contained in section 148 of the Act.
4. Learned CIT(DR) representing the Revenue vehemently supports the impugned assessment that the Assessing Officer had rightly finalized the same under the normal provision once the entire issue was pending before him as on the date of search.
5. We have given our thoughtful consideration to the assessee’s and the Revenue’s foregoing vehement submissions. We find merit in the assessee’s legal ground herein once the impugned search had taken place in its case, no normal assessment under section 143(3) of the Act could have been framed in light of the tribunal’s foregoing twin decisions going against the department. We thus adopt the above extracted reason mutatis mutandis to quash the impugned assessment framed by the learned Assessing Officer on 30th March, 2024 in very terms.”
12. In view of above discussion, and by respectfully following the judgement of Co-ordinate Benches of the Tribunal as referred herein above, we are of the considered view that the assessment for the year before us, should have been completed u/s 148 of the Act and not u/s 143(3) of the Act and thus, the order so passed is invalid order and is quashed.
13. Since we have allowed the Cross objection No.1 taken by the assessee and quashed the assessment order thus, the Grounds of appeal taken by the Revenue and other cross objections raised by the assessee become infructuous.
14. In view of the above, Cross-objection of the assessee is allowed,
15. As observed above, we have already allowed Cross-objection filed by the assessee, the appeal filed by the Revenue became infructuous hence, dismissed.
16. In the result, appeal of the Revenue in ITA No.970/Del/2026 for Assessment Year 2022-23 is dismissed and Cross-objection filed by the assessee in C.O. No.234/Del/2026 for Assessment Year 2022-23 is allowed.
Order pronounced in the open court on 03.09.2026.
