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.
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