DCIT Vs Kammna Autopart Sales Private Limited (ITAT Kolkata)
Search Material Must Follow Section 153A Where Its Conditions Are Met: Section 148 Reassessment Quashed
Facts and controversy
The Revenue appealed against the CIT(A)’s order granting relief of ₹9,56,65,000 out of an addition concerning alleged unexplained receipts. The assessee, as respondent, raised a jurisdictional challenge through an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963.
The original assessment for AY 2013-14 had been completed under section 143(3) on 14 December 2015. Subsequently, a search was conducted on the assessee in February 2020.
Based on information and material gathered during that search, the Assessing Officer issued a section 148 notice dated 31 March 2021. The reassessment was completed under section 147 on 29 March 2022, making an addition of ₹10,07,00,000 under section 68 concerning receipts described as arising from the sale of investments.
The assessee contended that the applicable machinery was section 153A, rather than sections 147 and 148.
Assessee’s jurisdictional objection
The assessee submitted that the reopening rested entirely on search material. There was no independent or fresh information obtained after the search that furnished a separate basis for reassessment.
It therefore argued that the notice under section 148 and the assessment pursuant to it were without jurisdiction. The assessee also contended that the relevant transactions had been examined and accepted in the original scrutiny assessment, making the reopening a change of opinion.
The Tribunal decided the jurisdictional objection concerning the applicable search-assessment machinery. Its ultimate conclusion did not depend upon separately adjudicating the change-of-opinion argument.
Rule 27 application entertained
The Tribunal discussed Rule 27 as enabling a respondent to support the CIT(A)’s order on a ground decided against it, even without filing an appeal or cross-objection. It referred to Sanjay Sawhney v. PCIT, (2020) 116 taxmann.com 701 (Delhi).
The Departmental Representative acknowledged that the jurisdictional ground had not been raised before or decided by the CIT(A) and requested that it be restored to that authority for adjudication.
Nevertheless, the Tribunal entertained the legal objection and decided it directly. This procedural feature is relevant because the order’s general explanation of Rule 27 refers to grounds decided adversely, while the particular objection had not been adjudicated below.
Tribunal’s reasoning on sections 153A and 148
The Tribunal found that the entire foundation of reopening was material collected during the search, without any subsequent independent information.
It emphasised the non-obstante clause in section 153A, overriding the specified ordinary assessment and reassessment provisions, and the mandatory language directing the Assessing Officer to proceed under the special search mechanism.
According to the Bench, where the year and facts fell within section 153A, the Assessing Officer could not choose section 148 merely as an alternative route. The special machinery would otherwise lose its intended operation.
AY 2013-14 fell within the extended search period
The Tribunal specifically examined whether AY 2013-14 was covered, since the search occurred during FY 2019-20.
The ordinary six preceding assessment years were AYs 2014-15 to 2019-20. Consequently, AY 2013-14 was outside the normal six-year block, being the seventh preceding year.
The Bench considered the extended period under the fourth proviso and Explanation 1 to section 153A(1). It noted the requirement concerning escaped income represented in the form of an asset and the ₹50 lakh threshold.
The alleged receipts of ₹10.07 crore related to the sale of investments, identified as shares or securities. The Tribunal treated these as falling within the relevant asset category and recorded that the necessary conditions for invoking the extended section 153A machinery had been satisfied.
On that finding, assessment for AY 2013-14 could have been undertaken only through the applicable extended search provisions, rather than section 148.
Decision
The Tribunal held the section 148 notice dated 31 March 2021 and the consequential reassessment to be void ab initio and without jurisdiction.
The assessee’s Rule 27 ground was allowed. Consequently, the Revenue’s challenge to the CIT(A)’s relief became infructuous and was dismissed. The Tribunal did not determine the disputed receipts’ taxability on merits.
Author’s comments
The important point is the statutory route for assessment, particularly where an older year lies beyond the ordinary six-year search block. Here, the Tribunal expressly examined the extended-period conditions rather than treating every searched assessee’s earlier year as automatically covered.
The ruling should therefore be cited with its factual limits: a February 2020 search, reopening founded entirely on search material, and a finding that the extended section 153A conditions were fulfilled. Its broad observations should not be detached from those findings or applied indiscriminately to other search regimes.
Cases Discussed
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-27, (hereinafter referred to as the “Ld. CIT(A)”] dated 22.04.2025 for the AY 2013-14.
2. At the outset, we observe from the appeal folder that there is a delay of 76 days in filing the appeal by the department in support of which a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay may be condoned for genuine and bonafide reasons. The ld. AR, on the other hand, did not oppose the condonation of delay. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing.
3. The revenue has challenged the partly deletion of the addition to the tune of ₹9,56,65,000 whereas the assessee has filed application under rule 27 Income Tax Appellate Tribunal Rules, 1963 challenging the assessment framed by the AO u/s 147 dated 29.3.2022 which according to the assessee should have been u/s 153A of the Act. Since the assessee has raised a legal issue, therefore we are inclined to decide the same first of all. The ground raised by the assessee under rule 27 is as under:
“(i) That the learned Assessing Officer has erred in issuing notice dated 31.03.2021 under Section 148 of the Income-tax Act, 1961, instead of initiating proceedings under Section 153A of the Act, as the basis for reopening the assessment was the Search conducted on 11.02.2020, inter-alia, in the case of the Assessee Company which is evidenced by the Panchnama executed by the Investigation Wing.”
4. The ld. AR submitted that the learned Assessing Officer had grossly erred in issuing notice under Section 148 of the Income-tax Act, 1961 dated 31.03.2021, instead of initiating proceedings under Section 153A of the Act, as the basis for reopening the assessment, as evident from the reasons recorded, was the information and material collected during the search proceedings conducted on 11.02.2020, and there was no fresh information or material available with the Assessing Officer subsequent to the search. Accordingly, the proceedings ought to have been initiated under Section 153A and not under Section 148, and consequently, the notice issued under Section 148 and the proceedings pursuant thereto are void ab initio, bad in law and liable to be quashed.
5. That the act of the AO in making addition of the amount aggregating to Rs. 10,07,00,000/- as unexplained cash credit under Section 68 of the Act is a clear case of Change of Opinion, which is untenable in law, as the veracity and genuineness of the said transactions were verified and accepted in the course of original assessment, which was completed under Section 143(3) of the Act vide order dated 14.12.2015. The counsel of the assessee vehemently submitted while vehemently supporting the order of the ld. CIT(A) that the legal issue raised by virtue of Rule 27 of ITAT Rules may be decided and allowed. On the other hand, the ld. DR left the issue to the wisdom of the bench while candidly admitting that this ground not raised by the assessee before ld. CIT(A) and was not decided. The Dr also prayed that since the ld. CIT(A) has not decided the said ground, therefore, the ground may be restored to ld. CIT(A) for adjudication.
6. Before deciding these grounds, we would like to dwell upon the ambit and scope of Rule 27 of ITAT Rules. We note from the perusal of the rule that Rule 27 of the ITAT Rules provides an opportunity to the respondent, where it has not filed any appeal or cross objection before the Tribunal to support the order of ld. CIT(A) on any ground decided against him by the ld. CIT(A). Therefore, the assessee is within its legitimate and lawful rights to challenge the dismissal of the ground by way of application under Rule 27 of the ITAT Rules and is entitled to defend the order of ld. CIT(A) on all grounds including grounds which have been decided against it. In this regard, reliance is placed on the judgment of the Hon’ble Delhi High Court in the case of Sanjay Sawhney vs. Principal Commissioner of Income-tax [2020] 116 taxmann.com 701 (Delhi)/[2020] 273 Taxman 332 (Delhi) [18-05-2020),
7. A search under Section 132 of the Income-tax Act, 1961 was conducted on the assessee on 12.02.2020. The AO thereafter issued a notice under Section 148 of the Act dated 31.03.2021, alleging that income of Rs. 10,07,00,000/- from sale of investment had escaped assessment for AY 2013-14.
8. The ld. AR submitted that the very foundation of this notice is legally unsustainable in as much as the correct and exclusive machinery for assessing/reassessing income following a search is Section 153A, and not Section 148.
9. We have heard the rival contentions and perused the materials placed before us. A perusal of the assessment order and records shows that the entire basis for reopening u/s. 148 is the information/material gathered during the search conducted on 12.02.2020, and there is no whisper of any independent or fresh material coming into the possession of the AO subsequent to the search. This is a crucial and admitted fact which is decisive of the issue. Since courts have consistently held that where reopening is admittedly founded on search material, the case squarely falls within the domain of Section 153A alone.
10. Section 153A(1) of the Act begins with the words: “Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 but on or before the 31st day of March, 2021, the Assessing Officer shall” issue notice and assess/reassess total income for the specified years. The word “shall” and the non-obstante clause leave no room for the AO to exercise any discretion in choosing between Section 148 and Section 153A once a search has taken place — the latter is mandatorily attracted.
11. It is well settled that Section 153A is a self-contained code for search assessments and on initiation of search, the Assessing Officer can issue a notice calling for the returns of income for six assessment years preceding the previous year in which the search has taken place. Section 153A and 153C starts with non-obstante clause, and the procedure for assessment/reassessment in Section 153A/153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139, 147, 148, 149, 151 & 153. It has been held by Courts in a catena of judgments that the word “shall” used in section 153A makes it clear that the Assessing Officer has no option, but to issue notice and proceed thereafter to assess or reassess the total income, and in view of the non-obstante clause beginning with section 153A, the Assessing Officer had no jurisdiction to issue notice u/s 148 to reopen the assessment of those assessment years which falls within the exclusive jurisdiction of section 153A. It was further observed that if the Assessing Officer was justified in proceeding with section 147 to reopen the assessment, then there would be no relevance to section 153A, which was inserted into the Act to deal exclusively with search cases, and the legislators clearly spelt out that the AO is bound to issue notice u/s 153A or 153C where search is conducted u/s 132(1) of the Act.
12. The provisions of Act provides that where the AO detects incriminating material in search, he has to be processed only under the special search provisions and not under the general reassessment provision, and a notice u/s 148 to assess such undisclosed income is void ab initio. On facts materially identical to the present case, where it is an admitted fact, as also evident from the reasons recorded and the assessment order, that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information available with the AO from search, the Tribunal held that the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio.
13. Applying the statutory formula to the facts at hand: the search having been conducted on 12.02.2020, i.e., during Financial Year 2019-20, the assessment year relevant to the previous year of search is AY 2020-21. The six assessment years immediately preceding AY 2020-21, for which Section 153A mandatorily applies without any further condition, are AY 2019-20, 2018-19, 2017-18, 2016-17, 2015-16 and 2014-15. However, the year under appeal i.e. AY 2013-14 Falls within the Extended “Relevant Assessment Year” under Section 153A. The AY 2013-14, being the seventh year preceding AY 2020-21, falls outside the ordinary six-year block but squarely within the extended “relevant assessment year” contemplated in the fourth proviso and Explanation 1 to Section 153A(1). The statute defines this expression as “the expression ‘relevant assessment year’ shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later” than ten assessment years from the end of the assessment year relevant to the previous year of search. Consequently, even AY 2013-14 remains within the exclusive domain of Section 153A and not Section 148 — subject only to the fulfilment of the conditions in the fourth proviso.
14. The fourth proviso requires that the escaped income represented in the form of an asset be Rs. 50 lakh or more, and that the AO records the requisite satisfaction with the approval of the specified higher authority — it does NOT contemplate resorting to Section 148. The Finance Act, 2017 empowered an assessing officer to issue notice u/s 153A of the Act to an assessee in whose case tangible evidence(s) is/are found during search or seizure, represented in the form of an asset, pertaining to an assessment year beyond 6 assessment years but not beyond ten assessment years (referred as “relevant assessment years”). Since the alleged income of Rs. 10,07,00,000/- for AY 2013-14 is stated to represent bogus receipts in lieu of “sale of investment” — investments being shares/securities, which squarely fall within the statutory definition of “asset” — and since this amount vastly exceeds the Rs. 50 lakh threshold, the only lawful gateway available to the Revenue, if at all, was Section 153A’s extended provision — and not Section 148.
15. We have observe that the mandatory conditions of the fourth proviso (recording satisfaction, requisite approval, and asset-representation of income exceeding Rs. 50 lakh) were duly satisfied before assuming jurisdiction over AY 2013-14 and thus valid assessment for AY 2013-14 could have been made only under the extended Section 153A machinery and not under section 148.
16. It is a settled principle that Sections 153A and 148 operate in mutually exclusive fields. Once a search has taken place, the mere fact that the Revenue chose to make the assessment under Section 148 of the Act will not confer a power to the revenue to frame assessment under Section 147/148 of the Act. Thus, the notice dated 31.03.2021 issued under Section 148 is void ab initio and without jurisdiction and all proceedings/assessment order passed in pursuance thereof are liable to be quashed as void ab initio and bad in law. The ground raised under rule 27 is allowed.
17. In view of our decision on the ground raised under rule 27 allowing the same, the appeal of the revenue becomes infructuous and is accordingly dismissed.
18. In the result, the appeal of the Revenue is dismissed and ground raised under rule 27 is allowed.
Order pronounced on 07.10.2026.
