Alka Ajit Shah Vs ITO (ITAT Mumbai)
Can Reassessment Under Section 147 Bypass Section 153C When Based Entirely on Third-Party Search Material?
The controversy
The Mumbai Tribunal quashed a reassessment involving an alleged cash payment of ₹16,20,000 towards purchase of a flat, holding that the Assessing Officer could not invoke sections 147 and 148 to bypass the applicable section 153C procedure.
The alleged escapement was founded entirely on material emerging from a third-party search. Following the jurisdictional Bombay High Court’s decision in Sejal Jewellary, the Tribunal held that the statutory route chosen by the Department was incorrect. Significantly, it considered the contrary Delhi High Court view in Naveen Kumar Gupta, but followed the binding jurisdictional decision.
The flat purchase and alleged cash component
The assessee jointly purchased Flat No. 2001 in Raj Splendour from Rajesh Estate and Nirman Pvt. Ltd. The agreement consideration was ₹98,55,000. Her return for AY 2011-12 had been processed under section 143(1).
Following a search on the Rajesh Lifespaces Group on 10 March 2016, the Assessing Officer received information from the Central Circle concerning alleged cash receipts on flat sales.
A flat-wise entry named the assessee and Ajit P. Shah as purchasers, recorded the agreement consideration of ₹98,55,000 and specified an alleged cash component of ₹16,20,000.
Based on this information, the Assessing Officer issued a section 148 notice on 31 March 2018. The reassessment was completed on 24 December 2018, adding ₹16,20,000 substantively in the assessee’s hands. The same amount was added protectively in Ajit P. Shah’s assessment.
CIT(A) sustained the addition
The CIT(A) upheld the reopening, reasoning that the flat-wise details established a nexus between the information and the belief of income escapement. Since the original return had only been processed under section 143(1), she also rejected the change-of-opinion objection.
On merits, the CIT(A) relied on the flat-wise entry, statements of persons connected with the builder group and its Settlement Commission proceedings. She considered the matching agreement consideration supportive of the reliability of the alleged cash component and sustained the addition under section 69B.
The assessee had sought copies of the statements and cross-examination of Jignesh Waghela, Vishal Doshi and Rajesh Patel. The CIT(A) rejected the cross-examination grievance, observing, among other things, that it was “humanly not possible” for the promoter to appear in every buyer’s case.
Borrowed satisfaction: the Tribunal draws a distinction
The assessee argued that the Assessing Officer had merely adopted information from another officer without independent application of mind.
The Tribunal examined PCIT v. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bom.), which requires reopening to rest on the Assessing Officer’s own satisfaction.
However, it distinguished that decision. Here, the recorded reasons identified the assessee, the particular flat and a specified cash amount. The mere fact that the information originated from the Central Circle did not establish complete absence of application of mind.
Applying ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC), the Tribunal distinguished prima facie material supporting a reopening belief from conclusive proof supporting an addition. The assessee therefore did not succeed on the broader contention that the reasons contained no assessee-specific material.
Section 153C was the decisive issue
The Tribunal held that the real difficulty lay in the statutory procedure adopted.
For the search conducted on 10 March 2016, section 153C already contained the amended formulation covering seized documents that pertain to another person, or information contained therein that relates to that person. The earlier requirement based on documents “belonging to” the other person could not govern this search.
The search was not merely the remote origin of a separate investigation. The recorded reasons reproduced the flat-wise entry, and the CIT(A) expressly treated it as a document found during the search. No independent material providing a different foundation for reopening was identified.
Bombay and Delhi High Courts: differing approaches
In Sejal Jewellary & Anr. v. Union of India, judgment dated 18 February 2025, the Bombay High Court held that the search-assessment provisions applied where incriminating search material formed the foundation of the action.
The Tribunal also considered PCIT v. Naveen Kumar Gupta [2025] 479 ITR 586 (Delhi), which adopted the approach that mere availability of section 153C did not necessarily exclude section 147 unless jurisdiction under section 153C had been assumed.
Nevertheless, the Tribunal followed Sejal Jewellary as the binding jurisdictional authority, consistent with the coordinate Bench decision in Vijay Bihari Kandhari v. ACIT, dated 10 August 2026.
It further clarified that failure to demonstrate the requisite section 153C satisfaction did not confer jurisdiction under section 148.
The ruling and author’s comments
The Tribunal quashed the section 148 notice and consequential reassessment for want of jurisdiction. The appeal was allowed. Cross-examination, section 69B and the truth of the alleged cash payment were not adjudicated.
Assessee-specific information may justify examination, but the examination must follow the applicable statutory route. This is the central lesson: the Tribunal accepted that the reasons identified relevant material, yet held the reassessment invalid because the Department used the wrong procedure.
The differing High Court approaches also make jurisdiction crucial when citing this decision. It should be understood in its search-derived factual setting and the applicable pre-2021 search-assessment framework.
The ruling does not establish that the alleged on-money payment was false. It establishes that the Department could not sustain this assessment through section 148 by bypassing section 153C.
Cases Discussed
- NRS Developers v. DCIT, ITA Nos. 5910 and 5911/Mum/2018, dated 22.05.2019 — Search of the same group; section 153C upheld, additions deleted on merits.
- ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., (2007) 291 ITR 500 (SC) — Relevant prima facie material at reopening stage.
- PCIT v. Shodiman Investments (P.) Ltd., (2020) 422 ITR 337 (Bom.) — Reopening must not rest on borrowed satisfaction; distinguished on facts.
- Sejal Jewellary & Anr. v. Union of India & Ors., W.P. No. 3057 of 2019, dated 18.02.2025 (Bombay HC) — Binding authority for section 153C route.
- PCIT v. Naveen Kumar Gupta, (2025) 479 ITR 586 (Delhi HC) — Contrary approach considered but not followed.
- Vijay Bihari Kandhari v. ACIT, ITA No. 6941/Mum/2025, dated 10.08.2026 — Coordinate Bench followed Sejal Jewellary.
Five Alternative SEO Titles
- ITAT Mumbai Quashes ₹16.20 Lakh Addition Over Wrong Reassessment Route
- Section 153C Prevails Over Section 148 for Third-Party Search Evidence: ITAT
- Flat Purchase Cash Allegation: Mumbai ITAT Sets Aside Reassessment
- Bombay HC Sejal Jewellary Followed in ₹16.20 Lakh Search Case
- Search-Based Reopening Invalid Without Correct Section 153C Procedure
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against the order dated 12.12.2025 passed by the Additional/Joint Commissioner of Income Tax (Appeals)-3, Bengaluru [hereinafter referred to as “the CIT(A)”] , under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”]. The first appeal arose from the assessment order dated 24.12.2018 passed under section 143(3) read with section 147 of the Act for assessment year 2011-12. The assessee challenges the validity of the reassessment and the addition of Rs.16,20,000/- sustained by the learned CIT(A).
2. The grounds raised by the assessee are:
1. On the facts and in law, the Ld. CIT (Appeal) erred in confirming the addition made by the Ld. Assessing Officer vide impugned Assessment Order to the tune of Rs.16,20,000.
2. On the facts and in law, the Notice issued under Section 148 of the act is bad in law, since the mandatory conditions of Section 147 of the act which are jurisdictional requirements to issue Notice u/s 148 of the act are not met and therefore the impugned Notice under Section 148 of the Act is bad in law.
3. On the facts and in law, the impugned Notice issued under Section 148 of the Act is bad in law as the basis on which the said Notice has been issued is emanating from search proceedings conducted on third party therefore if there is any incriminating material found during the search of a third party, then appropriate Section would be to initiate proceedings under Section 153C of the Act.
4. On the facts and in law, the impugned Notice issued under Section 148 of the Act is based on suspicion and lacks reason to believe therefore the impugned Notice issued under Section 148 of the Act is bad in law.
5. On the facts and in law, the impugned addition has been made on the basis of statement of a third party taken at the time of search and seizure operation. Thus, the impugned addition is not based on any tangible material and therefore the said addition is bad in law.
6. On the facts and in law, the Ld. CIT(A) erred in failing to consider that the Ld. Assessing Officer has made the impugned addition merely on the basis of presumption. The Ld. Assessing Officer has failed to bring on record any independent, cogent, or corroborative material on the basis of which the impugned addition has been made.
7. On the facts and in law, the Ld. CIT(A) ought to have appreciated that the Ld. Assessing Officer has made the addition solely on the basis of a third-party statement and material which is beyond the control of the Appellant–Assessee. Therefore, no adverse inference could have been drawn on the basis of such third-party statement in the absence of any corroborative evidence.
8. On the facts and in law, the Ld. CIT (Appeal) erred by failing to appreciate that the impugned addition has been made on the basis of a third-party statement without affording any opportunity to cross examine the third party based on whose statement the impugned Notice under Section 148 of the Act has been issued.
9. On the facts and in law, the Ld. CIT (Appeal) ought to have appreciated that there is no nexus between the alleged incriminating material cited by the Ld. Assessing Officer. The impugned Notice under Section 148 of the Act has been issued on the basis of conjectures and surmises which is impermissible in law.
10. On the facts and in law, the Ld. CIT (Appeal) erred by invoking Section 69B of the Act, when the requisite conditions of the said Sections are not met and neither the Assessing Officer has invoked Section 69B in Assessment Order.
11. The Appellant craves leave to add, amend, alter or withdraw any of the above grounds at or before the time of hearing of the appeal.
3. Facts in brief are such that the assessee jointly purchased Flat No. 2001 in the project Raj Splendour from Rajesh Estate and Nirman Pvt. Ltd. The stated agreement consideration was Rs.98,55,000/-. Her return for the year was processed under section 143(1). Following a search conducted on the Rajesh Lifespaces Group on 10.03.2016, the Assessing Officer received information from the Central Circle concerning alleged cash receipts on sale of flats. The information included a flat-wise entry naming the assessee and Shri Ajit P. Shah as purchasers, stating the agreement consideration of Rs.98,55,000/- and a cash component of Rs.16,20,000/-.
4. On that basis, the Assessing Officer issued notice under section 148 dated 31.03.2018. The reasons were communicated to the assessee by letter dated 05.05.2018. The assessee filed objections to the reopening, which the Assessing Officer rejected by order dated 04.09.2018. During reassessment, the assessee sought copies of the statements relied upon and cross-examination of Shri Jignesh Waghela, Shri Vishal Doshi and Shri Rajesh Patel. The assessment was completed on 24.12.2018 at a total income of Rs.19,15,540/-, including the disputed addition of Rs.16,20,000/-
5. In the recorded reasons, the Assessing Officer referred to the information received from the Central Circle, the statements recorded during the search and the flat-wise entry. He recorded his belief that income of Rs.16,20,000/- had escaped assessment. As no scrutiny assessment under section 143(3) had earlier been made, he considered that the case could be reopened under section 147. In the reassessment order, he treated the alleged cash payment towards the flat as the assessee’s unaccounted income and made the addition on a substantive basis in her hands. The addition of the same amount was made on a protective basis in the assessment of Shri Ajit P. Shah. 6. The assessee preferred appeal before the learned CIT(A). The learned CIT(A) upheld the reopening. She held that the information received following the search and the flat-wise details supplied a nexus between the material and the Assessing Officer’s belief regarding escapement of income. She also observed that the return had only been processed under section 143(1), so the objection based on a change of opinion did not arise.
7. On the addition, the learned CIT(A) referred to the entry naming the joint purchasers, the builder group’s statements and its proceedings before the Settlement Commission. She reasoned that the recorded agreement consideration matched the assessee’s disclosed payment and treated this as supporting the reliability of the cash component in the entry. In paragraph 5.1.6, she rejected the grievance concerning cross-examination, observing, among other things, that it was “humanly not possible” for the promoter to appear for cross-examination in all buyers’ cases. She ultimately sustained the addition as an unexplained investment under section 69B.
8. The learned AR drew our attention to the reasons communicated on 05.05.2018 and particularly to paragraphs 4 and 5 of the objections dated 26.06.2018. He submitted that the Assessing Officer adopted information concerning the searched group without independently recording satisfaction that income had escaped assessment in the assessee’s hands. He further referred to the assessee’s written requests for the statements and for cross-examination of the three persons named above. Inviting our attention to paragraph 5.1.6 of the impugned order, he submitted that the practical difficulty stated by the learned CIT(A) could not answer the assessee’s objection to reliance upon statements she had sought to test. 9. The learned AR also relied on NRS Developers v. DCIT, ITA Nos. 5910 and 5911/Mum/2018, order dated 22.05.2019. He submitted that the co-ordinate Bench, while considering allegations arising from the search of the same group, held that the group’s Settlement Commission application “ipso facto cannot be a reason to draw adverse inference against the assessee”. The learned AR relied on that decision in support of his contention that the alleged payment must be established by evidence pertaining to this assessee.
10. The learned DR relied upon paragraph 3 at page 2 of the assessment order and the findings of the learned CIT(A). He also referred to the proceedings before the Settlement Commission in the case of the searched person in support of the Revenue’s reliance on the material obtained during the search.
11. We have considered the rival submissions and examined the reasons communicated to the assessee on 05.05.2018, the objections dated 26.06.2018, the order disposing of those objections, and the findings of the learned CIT(A). Grounds 2, 3, 4 and 9 call for a determination of two related questions: whether the Assessing Officer recorded a legally sustainable belief of escapement of income, and whether, on the Revenue’s own description of the material, proceedings founded on the search of another person could have been initiated under sections 147 and 148 instead of section 153C.
12. The search was conducted on the Rajesh Lifespaces Group on 10.03.2016. The Assessing Officer’s recorded reasons refer to an intimation dated 19.03.2018 from the Central Circle, the statements recorded during that search, and a project-wise list furnished by Shri Rajesh Patel. The reasons reproduce an entry for Flat No. 2001 in Raj Splendour. It names the assessee and Shri Ajit P. Shah, gives the stated consideration as Rs.98,55,000/-, and specifies an alleged cash component of Rs.16,20,000/-. The Assessing Officer concluded from these particulars that income of Rs.16,20,000/- had escaped assessment for A.Y. 2011-12. No source of information concerning the alleged cash payment, independent of the search and its consequential material, is identified in the recorded reasons.
13. We first address the submission that the Assessing Officer merely adopted another officer’s satisfaction. Paragraphs 4 and 5 of the assessee’s objections expressly raised that contention and questioned whether the underlying statements and list had been examined. The proposition advanced by the assessee is supported in principle by the jurisdictional High Court’s decision in PCIT v. Shodiman Investments (P.) Ltd., (2020) 422 ITR 337 (Bom.), which states that a reopening notice must be issued “on his own satisfaction and not on borrowed satisfaction”. The relevant para is reproduced herewith for ready reference: 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.
14. In that case, however, the recorded reasons did not connect the information about the searched entity with any transaction of the assessee. Here, the reasons themselves identify the assessee, the flat and a specified cash figure. That difference prevents us from holding, merely because the information originated with the Central Circle, that the Assessing Officer made no application of mind at all.
15. Equally, the mention of a specific entry does not establish that the alleged cash was paid. At the stage of a notice under section 148, the material must furnish a rational basis for the belief; its conclusive proof is a matter for assessment. In ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., (2007) 291 ITR 500 (SC), the Hon’ble Supreme Court explained that, at the notice stage, the question is “whether there was relevant material on which a reasonable person could have formed a requisite belief.” Since the original return was processed under section 143(1), the learned CIT(A) was also correct that this is not a case of changing an opinion formed in an earlier scrutiny assessment. The assessee’s disagreement with the truth of the entry, or her request to cross- examine the persons who made the statements, cannot by itself answer the anterior question whether the recorded reasons identified prima facie material. Those matters remain significant to the proof of the addition.
16. The decisive question, however, is the statutory route chosen on the material described by the Revenue. Section 153C, as applicable to a search conducted on 10.03.2016, extends to seized books or documents that pertain to a person other than the searched person, or information contained therein that relates to such person, subject to the satisfaction and other conditions prescribed in that section. The substitution of “pertains or pertain to” for the earlier “belongs or belong to” formulation had taken effect on 01.06.2015, before this search. The provision therefore cannot be examined here on the footing that the seized document must be owned by the assessee.
17. This is not a case in which the search is mentioned only as the remote origin of a separate inquiry. The recorded reasons reproduce the flat-wise entry said to have emerged from the search proceedings. The learned CIT(A), while sustaining the Revenue’s case, expressly describes the flat-wise details as material found at the searched premises and treats the entry naming the assessee as a seized document. Her finding on the alleged cash payment also rests upon that entry and the statements and admission of persons connected with the searched group. The proceedings before the Settlement Commission, upon which the learned DR relied, concern that same searched group. They do not constitute an independently identified transaction or source of information showing payment of Rs.16,20,000/- by this assessee outside the search material.
18. The decision relied upon by the learned AR in NRS Developers v. DCIT, ITA Nos. 5910 and 5911/Mum/2018, dated 22.05.2019, arose from the search of the Rajesh Lifespaces Group, although it concerned a different assessee, project and assessment years. It must be read in its entirety. On jurisdiction, the co- ordinate Bench upheld action under section 153C, holding in paragraph 4 that Shri Vishal Doshi’s statement concerning that assessee’s project “does constitute material for issue of notice to the assessee.” Its later deletion of the additions on the merits does not decide the validity of a section 148 notice in the present case. The decision is relevant here to the character of the search-derived material, while its evidentiary findings require separate consideration if the merits arise for adjudication.
19. The jurisdictional High Court has since considered the choice between the search-assessment procedure and reopening under section 147 in Sejal Jewellary & Anr. v. Union of India & Ors., W.P. No. 3057 of 2019 and connected petitions, judgment dated 18.02.2025. Having examined a reopening founded on material emerging from a search, the Hon’ble High Court held that the provisions of sections 153A and 153C apply where the foundation is incriminating material from that search. In paragraph 23, it explained that the non-obstante clause “carves out an exception to any normal/regular action being resorted under Section 147.” The Court consequently set aside the section 148 notice and the action following it. That is the declaration of the jurisdictional High Court which governs this Bench.
20. We have also considered the contrary approach in PCIT v. Naveen Kumar Gupta, (2025) 479 ITR 586 (Delhi), under which the mere availability of section 153C does not, without assumption of jurisdiction under that provision, necessarily exclude recourse to section 147. That decision explains why the point cannot be resolved simply by citing the non-obstante clause. Nevertheless, where the foundation of the proposed action is search material of the kind described above, we are bound to apply the subsequent decision of the jurisdictional Bombay High Court in Sejal Jewellary. The co-ordinate Bench in Vijay Bihari Kandhari v. ACIT, ITA No. 6941/Mum/2025, order dated 10.08.2026, applied the judgment in Sejal Jewellary to a reassessment founded entirely upon material seized during a third-party search. In paragraph 13, the Bench declined to follow the contrary view expressed by the Hon’ble Delhi High Court in Naveen Kumar Gupta, holding that the judgment of the Hon’ble jurisdictional Bombay High Court was binding upon it.
21. Applying that law to the recorded reasons, we find that the alleged escapement of Rs.16,20,000/- was founded on the flat-wise information and statements emanating from the search of the Rajesh Lifespaces Group. The learned CIT(A)’s own findings proceed on the footing that the entry concerning the assessee was found in that search. No independent material forming a different foundation for the section 148 notice has been identified. The Assessing Officer could not, in these circumstances, bypass the procedure prescribed for the assessment of a person other than the searched person by issuing the notice under section 148. Whether every condition for an assessment under section 153C, including the requisite satisfaction and handing over of material, was fulfilled is a distinct matter. The absence of a demonstrated section 153C satisfaction does not confer jurisdiction to sustain the particular section 148 notice before us.
22. Accordingly, ground 3 is allowed. The notice dated 31.03.2018 under section 148 and the assessment order dated 24.12.2018 passed in consequence thereof are held to be without jurisdiction and are quashed. Grounds 2, 4 and 9, insofar as they challenge the same assumption of jurisdiction, stand disposed of in these terms. We do not accept the broader proposition that the recorded reasons failed to identify any assessee-specific material; our conclusion rests on the statutory procedure applicable to the search-derived material. The grounds concerning cross-examination, section 69B and the merits of the addition of Rs.16,20,000/- consequently do not require adjudication once the reassessment itself is quashed.
23. In the result, the appeal of the assessee is allowed in above terms.
Order pronounced in the open court on 01.10.2026
