Malbros International Pvt. Ltd Vs DCIT (ITAT Chandigarh)
Search-Based Assessment Quashed: ITAT Chandigarh Holds Section 143(3) Invalid Without Following New Reassessment Regime
The Chandigarh Bench of the ITAT allowed the assessees’ appeals (AY 2022-23) and quashed the assessments framed under section 143(3), holding that the entire exercise was without jurisdiction as the Assessing Officer relied extensively on third-party search material without complying with the mandatory post-Finance Act, 2021 reassessment framework.
The Tribunal noted that the additions—relating to alleged bogus purchases, unexplained expenditure under section 69C, and estimated gross profit on alleged out-of-books sales—were entirely founded on digital data, WhatsApp chats, Tally data and statements seized from ex-employees and third parties during a search conducted after 01.04.2021. In such cases, Explanation 2(iv) to section 148 is attracted, making it compulsory for the AO to record satisfaction that the seized material pertains to the assessee and to obtain prior approval of the specified authority, followed by action under the new reassessment provisions, not a routine scrutiny under section 143(3).
The ITAT further held that the mandatory prior approval under section 148B—applicable to assessment years immediately preceding the search year—was not obtained, and the so-called approval taken for passing an order u/s 143(3) was mechanical, perfunctory, and without application of mind, as the seized third-party material was never placed before the approving authority. Relying heavily on coordinate bench decisions (including Homelife Buildcon Pvt. Ltd.) and the legislative intent behind the Finance Act, 2021, the Tribunal held that bypassing the reassessment safeguards defeats the statutory scheme and renders the assessment void ab initio.
In view of these fatal jurisdictional defects, the ITAT did not adjudicate the additions on merits and quashed the assessments in full. Consequently, the Revenue’s cross-appeals also failed, as the very foundation of the assessment was held to be invalid.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
