Section 143(3) Assessment Using Search Material Legally Unsustainable: ITAT Mumbai

Kalpataru Retail Ventures Ltd. Vs  DCIT (ITAT Mumbai)

Search During Pending Scrutiny: Mumbai ITAT Quashes Assessment for Bypassing Sections 148 and 148B

Summary: Can an Assessing Officer complete an assessment under section 143(3) after a search, using material found in that search, simply because scrutiny had already begun? In Kalpataru Retail Ventures Ltd., the Mumbai Tribunal answered no on the facts before it. It quashed the assessment on two independent procedural grounds: the Assessing Officer had proceeded under section 143(3) instead of the search-related mechanism under sections 147 and 148, and the Revenue had not established the statutory approval required under section 148B.

Scrutiny had begun before the search

Kalpataru Retail Ventures Ltd., engaged in real estate development and allied activities, had filed its return for assessment year 2022–23 declaring a loss of ₹69.14 crore. Its case was selected for scrutiny and a notice under section 143(2) was issued. While those proceedings were pending, a search under section 132 was conducted on 4 August 2023 in the Kalpataru Group, including premises connected with the assessee and its employees.

The search yielded diaries, loose sheets and electronic records. According to the Assessing Officer, some entries related to cash expenditure on approvals for real estate projects. Statements of persons associated with the group were also recorded. The Assessing Officer linked certain entries to the assessee’s “Sona Residential” project and ultimately added ₹44,96,000 as unexplained expenditure under section 69C, applying section 115BBE. He completed the assessment on 27 March 2025 under section 143(3).