Search Assessment Quashed: A Scrutiny Notice Could Not Replace Section 148

L N Enterprises Vs DCIT (ITAT Mumbai)

Search Assessment Quashed: A Scrutiny Notice Could Not Replace Section 148

The Mumbai ITAT has quashed an assessment arising from the Polycab group search because the Assessing Officer used the ordinary scrutiny route under sections 143(2) and 143(3) for a year preceding the year of search. According to the Tribunal, the applicable search assessment framework required a notice under section 148 and prior approval under section 148B. Neither statutory requirement was shown to have been met.

L N Enterprises traded in electrical wires and cables and was associated with the Polycab distribution network. A search was conducted on 22 December 2023, during FY 2023–24. The Department relied on a parallel Tally data set known as “Ka”, along with statements and other material found during the search, to allege unaccounted cash sales of approximately ₹95.27 crore for AY 2023–24. The Assessing Officer estimated profit on those sales at 2.30%, making an addition of ₹2.19 crore. The CIT(A) accepted the allegation in principle but reduced the profit rate to 1.72%, sustaining ₹1.64 crore.

Before the Tribunal, the assessee raised an additional legal ground: could the Department assess AY 2023–24 under section 143(3) when the addition itself arose from a search conducted in the following financial year? The Tribunal admitted the ground because it went to jurisdiction and required no fresh investigation of facts.

The Tribunal noted that the search fell within the period beginning 1 April 2021, when search cases were brought into the reassessment framework through Explanation 2 to section 148. AY 2023–24 preceded the assessment year relevant to the year of search. Once the Department sought to assess that year on the strength of search material, the Tribunal held that it had to follow sections 147 and 148. A timely scrutiny notice under section 143(2) did not give the Assessing Officer a choice between the two routes.

The Revenue argued that the return had been selected for compulsory scrutiny, that the section 143(2) notice was within time, and that the assessee had participated in the proceedings. The Tribunal rejected those arguments. Administrative selection cannot supply statutory jurisdiction, and participation cannot turn a scrutiny notice into the notice required under section 148. In the Tribunal’s view, the defect concerned the very assumption of jurisdiction, not a procedural lapse that the assessee’s participation could cure.

There was a second, independent defect. Section 148B requires prior approval from the specified senior authority before an assessment order is passed in a case covered by the relevant clauses of Explanation 2 to section 148. Its wording refers to an order of “assessment or reassessment or recomputation”; it is not confined to an order labelled a reassessment. The Revenue did not establish that approval under section 148B had been obtained with reference to the seized material. The Tribunal also distinguished such statutory approval from approval given under a general administrative instruction.

The later return of block assessments did not alter the result. That regime applies to searches initiated on or after 1 September 2024. For searches initiated from 1 April 2021 but before that date, section 152(3) preserves the earlier version of sections 147 to 151. The relevant date was therefore the search date, 22 December 2023, even though the assessment order was passed in January 2025.

The Tribunal accordingly quashed the assessment for AY 2023–24. It left open the factual disputes about the Tally data, the statements, the alleged cash sales and the profit rate. The Revenue’s cross-appeal concerning expense relief was dismissed because the assessment on which it depended no longer survived.

Author’s comment: This decision is particularly relevant where an assessment for a year preceding a search has been completed under section 143(3) using material found in that search. The first checks should be the date of search, the year assessed, the source of the addition, the notice actually issued, and the approval obtained before the order. The ruling gives the assessee a jurisdictional argument even where the ordinary scrutiny notice was issued in time. It does not decide whether the alleged cash sales were genuine or whether the estimated profit rate was correct; those questions were expressly left open.

Cases Discussed

• National Thermal Power Co. Ltd. v. CIT (Supreme Court), (1998) 229 ITR 383 — relied upon for admitting a purely legal additional ground going to jurisdiction.
• Pilot Industries Ltd. & Ors. v. DCIT (ITAT Delhi) — relied upon on the requirement to follow sections 147/148/148B for preceding years after a post-01.04.2021 search.
• Deepak Agarwal v. DCIT, CC-25, New Delhi (ITAT Delhi) — relied upon on the mandatory statutory route for post-search assessments.
• Montage Enterprises Pvt. Ltd. v. DCIT/ACIT (ITAT Delhi) — relied upon regarding assessment under section 148 following a post-01.04.2021 search.
• Malbros International Pvt. Ltd. v. DCIT (ITAT Chandigarh) — considered on the jurisdictional requirements governing search-related assessments.
• Om Sons Marketing Pvt. Ltd. v. DCIT (ITAT Chandigarh) — considered on the jurisdictional requirements governing search-related assessments.
• Jamna Dass Nikkamal Jain Saraf Private Ltd. Vs DCIT (ITAT Chandigarh) — relied upon regarding mandatory section 148B approval.
• Homelife Buildcon Private Limited Vs DCIT (ITAT Chandigarh) — followed on the statutory safeguards applicable to search-related assessments.
• Rajesh Kumar Jain v. DCIT (ITAT Mumbai) — followed for the proposition that compulsory scrutiny cannot substitute the jurisdictional notice under section 148.
• Ashok Kumar Palresha Vs DCIT (ITAT Mumbai) — followed on the absence of an option between section 143(2) and section 148 after the search framework is attracted.
• Life Insurance Corporation of India v. D.J. Bahadur (Supreme Court), (1981) 1 SCC 315 — relied upon for the principle that a special provision excludes the general provision governing the same field.
• CIT v. Anjum M.H. Ghaswala (Supreme Court), (2001) 252 ITR 1 — referred to for the rule that a statutory power prescribed to be exercised in a particular manner must be exercised in that manner.
• Nazir Ahmad v. King Emperor, AIR 1936 PC 253 — referred to for the prescribed-manner principle.
• State of U.P. v. Singhara Singh, AIR 1964 SC 358 — referred to in applying the prescribed-manner principle.
• Kalpataru Retail Ventures Ltd. (ITAT Mumbai), ITA No. 6744/Mum/2026 — relied upon for distinguishing administrative approval from statutory approval under section 148B.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI

These cross-appeals by the Assessee and the Revenue are directed against order dated 15.09.2025 passed by the learned Commissioner of Income-tax (Appeals)-53, Mumbai [in short ‘the ld. CIT(A)’] for A.Y. 2023-24. The assessee has challenged, inter-alia, the validity of the assessment framed under section 143(3) of the Income-tax Act, 1961 (“the Act”), besides disputing the additions sustained by the learned CIT(A). The Revenue, on the other hand, is aggrieved by the relief granted by the learned CIT(A) in respect of certain business expenses. Since both appeals arise from a common impugned order and involve overlapping questions of fact and law, they were heard together and are being disposed of by this consolidated order for the sake of convenience.

2. The grounds raised by the assessee are reproduced as under:

1. On the facts and circumstances of the Appellant’s case and in law, the Id. CIT(A) erred in confirming the action of ld. A.O. in relying on the statements of employees/promoters of the appellant group during the course of search action, despite the fact that such statements were subsequently retracted, for reasons stated in the impugned order or otherwise.

2. On the facts and circumstances of the Appellant’s case and in law, the Id. CIT(A) erred in confirming the action of Id. A.O. in relying on contents of certain tally data which was found and seized from the premises of a third party with no co-relation with the appellant, for reasons stated in the impugned order or otherwise.

3. On the facts and circumstances of the Appellant’s case and in law, the Id. CIT(A) erred in confirming the action of ld. A.O. in holding that the appellant has made unaccounted cash sales of Rs. 95.27 Crs. in the absence of any incriminating material found during the course of search, for reasons stated in the impugned order or otherwise.

4. On the facts and circumstances of the Appellant’s case and in law, the ld. CIT(A) erred in restricting the addition made by the Id. A.O. on account of alleged unaccounted cash sales made by the appellant by applying a gross profit rate of 1.72% amounting to Rs. 1,63,74,023/-, for the reasons stated in the impugned order or otherwise.

5. On the facts and circumstances of the Appellant’s case and in law, the Id. CIT(A) erred in confirming the action of the ld. AO in making an addition of gross profit @1.72% on the alleged unaccounted cash sales made by the appellant, for the reasons stated in the impugned order or otherwise. The Appellant submits that the aforesaid gross profit rate as computed by the Id. AO being excessive on facts and prays that the same be suitably reduced.

6. The Appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.

The appellant prays this Hon’ble Tribunal to delete the disallowance made by the Learned Assessing Officer, which is confirmed by the Learned CIT (A).”

3. Grounds raised by the Revenue are reproduced as under:

i) “Whether on the facts and circumstances of the case and in law, whether the Ld. CIT(A) is justified in allowing entire general expenses of the assessee despite the fact that the A.O. has correctly disallowed general expenses to the extent of 20% as it is not related to business expense.”

ii) “Whether on the facts and circumstances of the case and in law, whether the Ld. CIT(A) is justified in allowing entire ‘Haryana expenses & Nikhil wedding Expenses’ of the assessee despite the fact that the A.O. has correctly disallowed entire ‘Haryana expenses & Nikhil wedding Expenses’ amounting to Rs.3,60,01,938/-.”

iii) The Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing.

4. By way of an application, the ld. counsel for the assessee sought leave to raise the following additional grounds, being purely legal in character and going to the very root of the assumption of jurisdiction by the Assessing Officer:

“1. On the facts and circumstances of the case and in law, no notice u/s. 148 was issued by the assessing officer and hence, the assessment proceedings initiated and the assessment order passed u/s 143(3) are liable to be quashed.

2. On the facts and circumstances of the case and in law, the assessment proceedings initiated without complying with the provisions of section 148 of the Act is bad-in-law and without jurisdiction and therefore, the assessment order passed by the assessing officer is liable to be quashed.

3. On the facts and circumstances of the case and in law the assessment framed u/s. 143(3) is bad-in-law, as it pertains to a year preceding search year where the mandatory approval as prescribed u/s. 148B of the Act has not been followed.

4. The Appellant craves leaves to add, to amend, alter, modify and / or withdraw any or all of the above grounds of appeal, each of which are without prejudice to one another.”

5. We have heard rival submission of the parties on the admissibility of the additional ground. Since, the additional ground raised by the assessee are purely legal in nature, challenge the jurisdictional foundation of the assessment and do not require investigation into any fresh facts, therefore same are admitted in terms of the law laid down by the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT, (1998) 229 ITR 383 (SC). Since these grounds go to the root of the matter, we consider it appropriate to adjudicate them first.

6. Briefly stated, the assessee carries on the business of trading in electrical wires and cables and is one of the distributors of Polycab India Limited, associated with the Sunrise group of concerns (Sunrise Enterprises, L.N. Enterprises, S.P. Electrosolutions Pvt. Ltd. and Hans Wires & Cables). A search and seizure action under section 132(1) of the Act was carried out on 22.12.2023 in the case of the ‘Polycab’ group and its associated distributors, including the assessee, pursuant to which the Investigation Wing recovered, digital devices and documents said to contain a parallel tally maintained under the name ‘Ka’, recording unaccounted cash transactions of the group for the period Financial Year 2013-14 to 2023-24. On the basis of this data, read with the statements of certain employees and promoters recorded during the search, the Assessing Officer alleged unaccounted cash sales, unaccounted cash purchases routed through third parties, and non-genuine book entries designed to introduce a part of the unaccounted cash into the regular books.

6.1 The assessee filed its returns of income on 22.09.2023 and, subsequently, a return on 27.02.2024 declaring total income of Rs. 92,56,470/-. Subsequently, the case was selected as per guidelines under compulsory selection for the year under consideration and notice u/s 143(2) was issued on 27/06/2024, which was duly served upon the assessee. In the assessment order passed under section 143(3) of the Act, dated 30/01/ 2025, the Assessing Officer computed unaccounted cash sales for the year under consideration at Rs. 95,26,58,560/- and applying profit margin on those cash sales at the rate of 2.30 percentile, determined addition for the unaccounted cash sales at Rs.2,19,11,147/- and assessed the total income at Rs.3,11,67,617/-.

6.2 On further appeal, ld CIT(A) restricted the addition by applying a profit margin rate of 1.72%, resulting in a sustained addition of ₹1,63,74,023/-. The ld. CIT(A), followed his own findings rendered for Assessment Year 2017-18 in the case of assessee, which he adopted mutatis mutandis, upheld the Assessing Officer’s conclusion that the tally data ‘Ka’ belonged to the assessee group and reflected unaccounted cash sales, relying upon (a) the chain of custody of the seized laptop as spoken to by Shri Kalpesh Kumbhar, Shri Prashant Rajpurohit, Shri Mohanlal Pahuja and Shri Deepak Chhabaria; (b) corroborative WhatsApp communications between employees regarding cash collections, godown dispatches and cash balances; (c) the correlation of loose papers, lorry receipts and delivery challans with entries in the tally; and (d) the clarification letter dated 17.04.2024 addressed by the group to Polycab India Limited accepting unaccounted cash purchases of Rs. 980.15 crore routed through named intermediaries. On this basis, the ld. CIT(A) sustained the addition in principle, while granting partial relief by (i) directing that the entire general expenses be allowed instead of the ad-hoc 20% disallowance made by the Assessing Officer, and (ii) allowing the ‘Haryana expenses’ component while confirming the disallowance of the Nikhil wedding expenses as personal in nature. It is against this common order that both sides are in appeal before us. The Revenue is in appeal against the relief granted by the learned CIT(A), whereas the assessee has challenged the addition as well as the very validity of the assessment proceedings.

7. While adjudicating the appeal, we consider it appropriate to take up Additional Grounds No. 3 and 4 at the threshold, since a finding thereon determines whether it is necessary or even permissible for us to enter upon the merits of the addition at all. Two questions arise for determination:

First — where a search under section 132 is initiated on or after 01.04.2021, can an assessment for a year preceding the year of search validly be framed under section 143(3) simpliciter, or must the Assessing Officer proceed only under section 147 read with section 148, subject to the approval mandated by section 148B?

Second — if such approval was required, what is the consequence where none was obtained, or where only a mechanical approval under a general administrative circular was recorded?

8. The ld. counsel for the assessee took us through the Memorandum explaining the provisions of the Finance Bill, 2021, and submitted that with effect from 01.04.2021, Parliament effected a deliberate and structural shift in the scheme of search assessments. Under the pre-amendment regime, assessments consequent to a search conducted under section 132 were completed under sections 153A to 153D of the Act, but by the Finance Act, 2021, the erstwhile section 153A regime was withdrawn for searches initiated on or after 01.04.2021, and such cases were, instead, brought within the fold of income escaping assessment under sections 147 and 148, by the insertion of Explanation 2 to section 148, which creates a statutory deeming fiction in cases where a search under section 132 is initiated on or after 01.04.2021.

8.1 It was submitted that in the present case, search under section 132 was conducted on 22.12.2023, i.e. in Financial Year 2023-24 relevant to Assessment Year 2024-25. Assessment Year 2023-24, being the year under appeal, therefore falls within the years preceding the year of search to which Explanation 2 to section 148 squarely applies. The ld Counsel submitted that once the search took place and the deeming fiction under clause (i) of Explanation 2 to section 148 is attracted, the Assessing Officer is deemed, ipso-facto, to possess information suggesting escapement of income, and the only statutorily sanctioned route thereafter is a notice under section 148, followed by an assessment order passed with the prior approval of the specified authority under section 148B. The Assessing Officer could not bypass that statutory mechanism and proceed directly under sections 143(2) and 143(3). Simultaneously, section 148B was inserted with effect from 01.04.2022, as a safeguard requiring prior approval of an authority not below the rank of Additional/Joint Commissioner before any order of assessment, reassessment or recomputation could be passed in a case falling within Explanation 2 to section 148. It is undisputed that no notice under section 148 was issued in the present case; the assessment has been completed under section 143(3) simpliciter, without the approval contemplated under section 148B ever having been sought or granted with reference to the seized material relied upon.

8.2 In support, reliance was placed on the consolidated order of the Coordinate Bench in Pilot Industries Ltd. & Ors. v. DCIT (ITA Nos. 6122 to 6127/Del/2025, 6841/Del/2025, 6565/Del/2025, 6842/Del/2025, 6566/Del/2025 & 6843/Del/2025 — batch of Ardee Industries Ltd. and connected assessees), wherein, after an elaborate consideration of Explanation 2 to section 148 and section 148B, the Tribunal followed and applied the ratio of Deepak Agarwal v. DCIT, CC-25, New Delhi [2025 (10) TMI 1101 – ITAT Delhi]; Montage Enterprises Pvt. Ltd. v. DCIT/ACIT (ITA Nos. 5458 & 5906/Del/2025); Malbros International Pvt. Ltd. v. DCIT and Om Sons Marketing Pvt. Ltd. v. DCIT [2026 (1) TMI 983 – ITAT Chandigarh]; Jamna Dass Nikkamal Jain Saraf Pvt. Ltd. v. DCIT [2025 (12) TMI 171 – ITAT Chandigarh]; and Homelife Buildcon Pvt. Ltd. v. DCIT [2025 (7) TMI 1231 – ITAT Chandigarh], to hold that assessments for years preceding the year of a post-01.04.2021 search, framed under section 143(3) without recourse to sections 147/148/148B, are without jurisdiction and void ab initio. Reliance was further placed on the decisions of the Coordinate Benches in Rajesh Kumar Jain v. DCIT (ITA No. 4768/Mum/2026, A.Y. 2022-23) and Ashok Kumar Palresha Vs DCIT (ITA No. 4551/Mum/2026, A.Y. 2022-23), which, on materially identical facts, held that the availability of unexpired time for issuance of notice under section 143(2) does not confer upon the Assessing Officer an option to bypass the special machinery of sections 147 to 148B once a search has occasioned the deeming fiction.

8.3 Without prejudice, the learned counsel submitted that section 148B, inserted by the Finance Act, 2022 with effect from 01.04.2022, expressly mandates prior approval before an order of assessment, reassessment or recomputation is passed in respect of an assessment year falling within clauses (i) to (iv) of Explanation 2 to section 148. It was submitted that the present assessment year squarely falls within the statutory provision and that no approval under section 148B was obtained before passing the assessment order. Reliance was also placed upon Pilot Industries Ltd.(supra), wherein the Tribunal considered the requirement of approval under section 148B as an independent statutory safeguard. The said decision records that an assessment for a preceding year, consequent upon a post-01.04.2021 search, could not be sustained when the prescribed reassessment procedure and section 148B approval had not been followed. The learned counsel accordingly submitted that the assessment is independently vitiated for non-compliance with section 148B.

9. The learned Departmental Representative (DR) supported the orders of the authorities below and submitted that the procedure adopted by the Assessing Officer was consistent with law; that the return for the year had been selected for compulsory scrutiny in accordance with the CBDT guidelines governing search cases, and that a valid notice under section 143(2) had been issued within the time permitted. It was contended that section 148 does not contain a non obstante clause overriding section 143 and that, unlike the erstwhile section 153A regime, the amended provisions do not expressly provide for abatement of pending assessment proceedings. It was further submitted that, so long as the limitation for issuance of notice under section 143(2) had not expired, the Assessing Officer could proceed with the scrutiny assessment. It was urged that section 148B applies only to reassessment proceedings and not to a regular assessment completed under section 143(3), and that the approval obtained from the Additional Commissioner, being referable to the CBDT administrative instructions governing centralised search assessments, satisfies the requirement of supervisory oversight. The Revenue also relied upon the fact that the assessee had participated in the assessment proceedings. The Revenue, accordingly, opposed the additional grounds.

10. We have considered the rival submissions and perused the material available on record. It is necessary, at this stage, to set out the relevant statutory provisions as they stood for the year under consideration. Explanation 2 to section 148, inserted by the Finance Act, 2021, reads, insofar as relevant, as under:

“Explanation 2. — For the purposes of this section, where — (i) a search is initiated under section 132 … on or after the 1st day of April, 2021, in the case of 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 …”

10.1 The Section 148B, inserted by the Finance Act, 2022 with effect from 01.04.2022, provides:

“148B. No order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.”

10.2 The Memorandum explaining the provisions of the Finance Bill, 2021 records the legislative object in unambiguous terms: assessments, reassessments or recomputation in cases where search is initiated under section 132, or requisition made under section 132A, after 31.03.2021, are to proceed under the new procedure; and that in such cases the Assessing Officer shall be deemed to have information suggesting escapement of income for the assessment years preceding the year of search. The Memorandum explaining the insertion of section 148B by the Finance Bill, 2022 clarifies that the safeguard of prior approval by an officer not below the rank of Joint Commissioner was engrafted precisely because the ordinary approval mechanism under section 153D, available only for assessments completed under sections 153A/153C, ceased to apply once the special procedure under sections 147/148 was substituted for search-related assessments after 01.04.2021. Section 148B was thus intended to replicate, in the reassessment regime, the very safeguard that section 153D provided in the erstwhile search-assessment regime, so that the quasi-judicial check on the exercise of this extraordinary power is not diluted merely because of the change in statutory nomenclature.

10.3 In the additional grounds raised by the assessee, two distinct jurisdictional questions arise: Firstly, whether, after initiation of search under section 132 on 22.12.2023, the assessment for A.Y. 2023-24 could validly be initiated and completed under the ordinary scrutiny provisions of sections 143(2) and 143(3), without recourse to sections 147 and 148. Secondly, whether, independently of the above, the assessment could be validly completed without the prior approval contemplated by section 148B. The two questions operate at different stages and, therefore, require separate consideration. In the arguments, both parties addressed various facets of the two questions raised, which are discussing below.

(i) Whether the assessment could be completed under section 143(3) or whether the Section 143 and section 148 operate in different fields

10. 4 The starting point is the statutory scheme introduced by the Finance Act, 2021. Prior to 01.04.2021, assessments consequent upon search were governed by the special machinery contained in sections 153A and 153C. With effect from 01.04.2021, the Legislature substituted that scheme for searches initiated thereafter and brought the relevant cases within the reassessment framework contained in sections 147 to 151. Explanation 2 to section 148, as applicable to the present search, provides that where a search under section 132 is initiated on or after 01.04.2021, the Assessing Officer shall be deemed to have information which suggests that income chargeable to tax has escaped assessment for the assessment years specified therein. The provision therefore attaches a statutory consequence to the initiation of search. The search in the present case was initiated on 22.12.2023, and the assessment year under consideration is A.Y. 2023-24, whereas the assessment year relevant to the previous year in which the search was initiated is A.Y. 2024-25. Thus, the year under consideration falls within the statutory period contemplated by Explanation 2 to section 148.

10.5 Section 143(2) empowers the Assessing Officer to scrutinise a return furnished under section 139, or in response to a notice under section 142(1), where he considers it necessary to ensure that the assessee has not understated income, computed excessive loss or underpaid tax. This is the general machinery for regular assessment.

10.6 Sections 147 and 148, as substituted by the Finance Act, 2021, constitute a distinct and self-contained code for assessing income that has escaped assessment, including income that is deemed, by statutory fiction, to have escaped assessment upon the happening of a specified event, namely, a search under section 132 initiated on or after 01.04.2021. After 01.04.2021, Parliament itself specified in Explanation 2 to section 148 the consequence which follows upon a search initiated under section 132. Once that statutory event occurs, and the assessment year falls within the period contemplated by the Explanation, the question is not merely whether the return could also have been selected for ordinary scrutiny. The anterior question is under which statutory provision jurisdiction is to be assumed in consequence of the search.

10.7 The special machinery of sections 147/148/148B excludes the general power under section 143(2)/143(3) once Explanation 2 to section 148 is attracted. This follows from the settled canon that a special provision excludes a general one governing the same field — generalia specialibus non derogant — applied by the Supreme Court in Life Insurance Corporation of India v. D.J. Bahadur, (1981) 1 SCC 315. Parliament’s use of the word “shall” in Explanation 2 leaves no room for an election between the general and the special provision.

10.8. This is reinforced by the reasoning of the Coordinate Bench in Deepak Agarwal v. DCIT (supra), which, relying upon the observations of the Hon’ble Supreme Court in CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC), following Nazir Ahmad v. King Emperor, AIR 1936 PC 253, and State of U.P. v. Singhara Singh, AIR 1964 SC 358 that ‘that where a statute prescribes a particular manner of exercising a power, that power must be exercised in that manner alone or not at all. Once the statute channels search-related information through the reassessment gateway, resort to the general scrutiny provision is impermissible; the resulting assessment is void for want of jurisdiction, not merely irregular.

10.9 We find considerable force in the submission of the assessee that an administrative instruction for compulsory selection of a return cannot become an alternative source of statutory jurisdiction. Administrative instructions may regulate the selection and allocation of cases; they cannot override or supplant the jurisdictional machinery enacted by Parliament. This distinction was lucidly brought out by the coordinate Bench in Rajesh Kumar Jain v. DCIT, (supra), wherein it was held that administrative selection of a return for scrutiny cannot substitute the statutory jurisdictional notice under section 148 in a case governed by Explanation 2 to section 148. The Tribunal further observed that subsequent approval cannot retrospectively create jurisdiction which was required to be assumed at the inception of the proceedings. We respectfully agree with that reasoning.

(ii) Whether the pendency of time for issuance of notice under section 143(2) confers an option upon the Assessing Officer.

10.10 The ld DR submitted that since the limitation for issuing notice under section 143(2) had not expired when the return for the year was selected for scrutiny, the Assessing Officer was at liberty to proceed thereunder. We are unable to accede to this submission. The Coordinate Bench in Rajesh Kumar Jain v. DCIT (supra) has, in our respectful view, correctly held that ‘the availability of time under section 143(2) merely means that an ordinary scrutiny notice would not have been barred by limitation; it does not mean that section 143(2) could replace the specific jurisdictional mechanism which became applicable once the Department proceeded consequent to the search.’ To hold otherwise would be to make the applicability of a mandatory statutory safeguard turn upon the fortuitous circumstance of whether a return happened still to be open for regular scrutiny, a construction that would permit the Revenue to circumvent, at its option, a jurisdictional pre-condition that Parliament has made mandatory. Such a construction cannot be countenanced. The Coordinate Bench in Ashok Kumar v. DCIT (supra) has reached an identical conclusion, holding in terms that the law does not confer upon the Assessing Officer an option to choose between section 143(2) and section 148 merely because the limitation for the former had not run out.

(iii) The absence of a non obstante clause does not create an election

10.11 The Revenue has contended that section 148 does not contain a non obstante clause and that the amended provisions do not expressly provide for abatement of proceedings under section 143. We have considered the submission. In our opinion, the absence of a non obstante clause, by itself, cannot be determinative. The question is one of harmonious construction of provisions operating in different fields. Section 143 remains available for ordinary scrutiny assessments. Section 147 read with section 148, however, prescribes the manner in which jurisdiction is to be assumed where income has escaped assessment in the circumstances expressly identified by Parliament, including the post-01.04.2021 search contemplated by Explanation 2. To accept the Revenue’s contention would effectively confer upon the Assessing Officer an unrestricted choice: where a search has occurred, he could either invoke the reassessment mechanism carrying the statutory safeguards of sections 147 to 151 or, depending upon the availability of scrutiny proceedings, bypass those safeguards by resorting to section 143(2).

10.12 We find no provision in the Act which confers such an election. Such an interpretation would make the applicability of statutory safeguards dependent upon the fortuitous circumstance that a return for the preceding year happened to be available for scrutiny. It would also enable an administrative selection mechanism to determine whether the safeguards enacted by Parliament in consequence of a search are to operate. In Pilot Industries Ltd. (supra), the Delhi Bench of Tribunal specifically held that for the preceding assessment years falling within Explanation 2 to section 148, the assessment could not be framed directly under section 143(3) without following the statutory reassessment route and obtaining the approval contemplated by section 148B.

(iv) Whether participation of the assessee in the section 143(3) proceedings cures the jurisdictional defect.

10.13 It is not in dispute that the assessee had participated in the proceedings pursuant to the notice issued under section 143(2) and furnished the material called for. We are, however, of the view that such participation does not, and cannot, cure an absence of jurisdiction and cannot confer jurisdiction which the statute required to be assumed through a different statutory mechanism. It concerns the very source and manner of assumption of jurisdiction. Participation in proceedings cannot convert a notice under section 143(2) into a notice under section 148. Nor can a return originally filed under section 139 enlarge the scope of section 143(2) so as to make it a substitute for the jurisdictional notice contemplated by section 148. The two notices serve different statutory purposes. The objection raised goes not to any irregularity in the exercise of a jurisdiction otherwise validly assumed, but to the anterior and more fundamental question of whether the jurisdiction contemplated by the statute was ever assumed at all. Participation before an authority that never validly acquired seisin of the matter cannot, by any principle of waiver or estoppel, invest that authority with jurisdiction it did not possess in law. This is squarely in line with the reasoning of the Coordinate Bench in Rajesh Kumar Jain v. DCIT (supra).

(v) Effect of Finance (No. 2) Act, 2024

10.14 We also find it appropriate to deal with the subsequent amendment, since the assessment order was passed on 30.01.2025. The Finance (No. 2) Act, 2024 introduced a new block-assessment regime for searches initiated on or after 01.09.2024. The present search, however, was initiated on 22.12.2023. Section 152(3), as applicable to such cases, expressly provides that where a search under section 132 was initiated on or after 01.04.2021 but before 01.09.2024, sections 147 to 151 shall apply as they stood immediately before commencement of the Finance (No. 2) Act, 2024. The Department’s own current statutory material recognises the same distinction between searches initiated before and after 01.09.2024. Thus, the fact that the impugned assessment order was passed after 01.09.2024 does not alter the statutory regime applicable to the search dated 22.12.2023.

(vi) Whether the assessment independently fails for want of approval under section 148B

10.15 The Section 148B, inserted by the Finance Act, 2022 with effect from 01.04.2022, expressly employs the words “order of assessment or reassessment or recomputation”. It is, therefore, not confined merely to an order described as a “reassessment”. The statutory safeguard applies where the assessment year falls within the circumstances specified in Explanation 2 to section 148. The provision was inserted with effect from 01.04.2022. The assessment year before us falls within the statutory framework of Explanation 2 to section 148 for the reasons already recorded.

10.16 The Section 148B does not merely require an approval; it requires the prior approval of a specified authority, which approval is in the nature of a quasi-judicial check upon the exercise of an extraordinary power to reopen or complete an assessment on the strength of search material. As explained by the Coordinate Bench in Jamna Dass Nikkamal Jain Saraf Pvt. Ltd. v. DCIT (supra), following Homelife Buildcon Pvt. Ltd. v. DCIT (supra), the approving authority is obliged to apply its mind to the seized material itself, and not merely to record a formulaic satisfaction. Where the approval placed on record is traceable only to a general CBDT circular governing centralised assessment of search cases and makes no reference whatsoever to the specific seized material said to implicate the assessee, it cannot be equated with the approval mandated by section 148B. In our opinion, in search-related assessments, strict adherence to the prescribed approval protocol, including the Manual of Office Procedure, is essential to the validity of the assessment; a mechanical or ritualistic approval, granted without independent application of mind to the material forwarded, does not satisfy this statutory requirement and renders the approval, and consequently the assessment, void.

10.17 In Kalpataru Retail Ventures Ltd., in ITA No. 6744/Mum/2026, the assessment order specifically recorded that approval of the Additional Commissioner had been obtained pursuant to CBDT Instruction F.No.299/36/2021-Dir(Inv.III)/577 dated 15.07.2022. This Tribunal (supra) held that such administrative approval could not be treated as equivalent to the statutory approval prescribed under section 148B. The source and character of the approval, rather than merely the identity of the approving authority, were held to be material. The principle applies with greater force in the present case.

10.18 The Revenue has placed nothing on record to show that the seized material was forwarded to, or independently examined by, the approving authority before passing the assessment order as contemplated by law. Thus, the statutory requirement has not been shown to have been fulfilled. An approval contemplated by an administrative instruction and the approval expressly mandated by Parliament under section 148B operate in different fields. The former may regulate internal administration and supervision; the latter is a statutory condition attached to the passing of the assessment order. The one cannot substitute the other.

10.19 We are conscious that in the present case, unlike in some of the precedents cited, the primary infirmity pressed before us is not merely that the approval was mechanical, but that no approval under section 148B, as distinct from an administrative approval under a general circular, was ever sought or granted at all, for the simple reason that the Assessing Officer proceeded, from inception, on the footing that section 143(3) rather than section 147/148 was the governing provision. This, if anything, presents a more serious infirmity than a mechanical approval, since it reflects a threshold failure to invoke the correct jurisdictional gateway itself, rather than a failure merely in the manner of its exercise.

11. Applying the foregoing principles to the facts before us, it is not in dispute that the search under section 132 in the case of the ‘Polycab’ group, including the assessee, was conducted on 22.12.2023, i.e. in the previous year relevant to Assessment Year 2024-25. Assessment Year 2023-24, being the year under appeal, is a year preceding the year of search and squarely falls within clause (i) of Explanation 2 to section 148. The addition made in the assessment is founded, in its entirety, on the tally data ‘Ka’ and connected material recovered in the course of, and in consequence of, the said search action. It was, therefore, obligatory upon the Assessing Officer to assume jurisdiction under section 147 by issuance of a notice under section 148, and to obtain, prior to passing the assessment order, the approval of an officer not below the rank of Additional/Joint Commissioner as mandated by section 148B. It is an admitted position, borne out by the assessment order itself and not controverted by the Revenue before us, that no notice under section 148 was at any stage issued, and that the assessment order does not record any approval traceable to section 148B with reference to the seized material relied upon. The very foundation of the assessment, therefore, is inconsistent with the statutory scheme applicable to the search.

11.1 In these circumstances, we find no reason to take a view different from the one taken by the Coordinate Benches in the batch of Pilot Industries Ltd. & Ors. (supra) and in Rajesh Kumar Jain v. DCIT (supra) and Ashok Kumar Palresha v. DCIT (supra), each of which considered materially identical facts — a post-01.04.2021 search, an assessment year preceding the year of search, and an assessment completed under section 143(3) without recourse to sections 148/148B.

11.2 We accordingly hold that the assessment order dated 30.01.2025 passed under section 143(3) of the Act for Assessment Year 2023-24 has been framed without valid assumption of jurisdiction, inasmuch as the Assessing Officer was obliged to proceed under section 147 read with section 148 of the Act, subject to the prior approval mandated by section 148B, and has failed to do so. The assessment order is, for this reason, unsustainable in law and is liable to be quashed. Additional Grounds No. 3 and 4 raised by the assessee are accordingly allowed.

12. The foregoing discussion leads us to two independent conclusions. First, having regard to the search initiated under section 132 on 22.12.2023 and the applicability of Explanation 2 to section 148, the assessment for A.Y. 2023-24, being the assessment year preceding the assessment year relevant to the previous year of search, could not validly be assumed and completed merely under the ordinary scrutiny provisions of sections 143(2) and 143(3). The statutory route prescribed under sections 147 and 148 was required to be followed. Second, independently, the Revenue has failed to establish compliance with the mandatory requirement of prior approval under section 148B before passing the assessment order. The statutory safeguard contained in section 148B cannot be dispensed with or substituted by an administrative mechanism. These are not two aspects of the same procedural irregularity. They constitute two distinct statutory defects, each of which goes to the legality of the impugned assessment.

13. Once the assessment itself is held to be without valid jurisdiction, the additions made pursuant thereto cannot survive independently. Consequently, it is neither necessary nor appropriate to adjudicate, on merits, the assessee’s grounds concerning the alleged unaccounted cash sales, the evidentiary value of the tally data, statements recorded during search, alleged retractions, alleged violation of Rules 112(6) and 112(7), the allegation of borrowed satisfaction, the rate of profit, or any other factual or evidentiary controversy arising from the impugned assessment. Those grounds have become academic. Likewise, the Revenue’s grounds challenging the relief granted by the learned CIT(A) in respect of general expenses and the Haryana/Nikhil wedding expenses cannot survive once the assessment itself has been quashed. Ground Nos. 1 to 5 raised by the assessee on merits, and both grounds raised by the Revenue in its cross-appeal, are rendered academic and are left open, without expression of any opinion thereon. Our decision is confined to the jurisdictional validity of the impugned assessment.

14. Accordingly, (a) the additional grounds raised by the assessee are admitted; (b) Additional Ground Nos. 3 and 4 are allowed, and the assessment order dated 30.01.2025 passed under section 143(3) of the Act for Assessment Year 2023-24 is quashed as being without jurisdiction; (c) the remaining grounds raised by the assessee on merits, being rendered academic, are left open; (d) the cross-appeal of the Revenue, the foundation whereof does not survive, is dismissed.

15. In the result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

Order pronounced in the open court on 22/09/2026.