Gas Supply Co. Pvt. Ltd. Vs ACIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal allowed the appeal of Gas Supply Co. Pvt. Ltd. for AY 2022–23, holding that the Assessing Officer could not complete the impugned assessment under Section 143(3) after a search under Section 132 without following the applicable search-related reassessment procedure. The assessee had filed its return declaring income of ₹4,05,810. Following a search conducted on 10 January 2023 in the Goyal Group cases, the AO issued a scrutiny notice under Section 143(2) and completed the assessment on 31 March 2024, determining income at ₹4,40,81,409.
The assessment included additions of ₹3,65,22,719 under Section 56(2)(x) and ₹71,52,880 towards capital gains involving Section 50CA. The assessee challenged these additions in connection with share transactions arising from an earlier family arrangement. It also raised a jurisdictional objection that the AO had proceeded under Section 143(3), instead of issuing the requisite notice under Section 148 and complying with the approval procedure under Section 148B.
Relying on the coordinate Bench decision in Montage Enterprises Pvt. Ltd. v. DCIT, which discussed Homelife Buildcon (P.) Ltd. and Jamna Das Nikkamal Jain Saraf Pvt. Ltd., the Tribunal accepted the jurisdictional objection. It quashed the assessment dated 31 March 2024, allowed ground No. 3 and held that the remaining grounds on the merits had become academic. Consequently, the assessee’s appeal was allowed, without a substantive adjudication of the share-valuation and family-arrangement disputes.
Accepting the assessee’s jurisdictional objection, the ITAT held that the Assessing Officer could not validly complete the impugned assessment under Section 143(3) after the search without complying with the applicable procedure under Section 148. The Tribunal observed that the Revenue had failed to satisfactorily rebut the assessee’s legal submissions and accordingly quashed the assessment order dated 31 March 2024, allowing ground No. 3 concerning invalid assumption of jurisdiction. Since the assessment itself was annulled, the remaining grounds challenging the additions under Sections 56(2)(x) and 50CA, including the dispute over valuation of shares transferred pursuant to a family arrangement, were treated as academic and were not adjudicated on merits. Consequently, the assessee’s appeal was allowed.
Cases Discussed
- Montage Enterprises Pvt. Ltd. v. DCIT — ITA Nos. 5458 & 5906/Del/2025
- Homelife Buildcon (P.) Ltd. v. DCIT — (2025) 176 taxmann.com 614 (ITAT Chandigarh)
- Jamna Das Nikkamal Jain Saraf Pvt. Ltd. v. DCIT — ITA No. 403/Chd/2025
- CIT v. K.Y. Pilliah & Sons — (1967) 63 ITR 411 (SC)
- CIT v. Surjeet Singh Mahesh Kumar — (1994) 210 ITR 83 (Delhi)
- Bimal Kumar Anant Kumar v. CIT — (2007) 159 Taxman 402 (Allahabad)
- Salem Steel Co. v. CIT — (2010) 322 ITR 349 (Madras)
- Telelinks & Ors. v. CIT — (2015) 377 ITR 158 (Punjab & Haryana)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is against order dated 08.04.2025 of learned Commissioner of Income Tax (Appeals)-30, New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 31.03.2024 passed under section 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2022-23. The word ‘Act’ herein this order would mean
Income Tax Act, 1961.
2. The assessee has raised following grounds of appeal:-
1. On the basis of facts and circumstances of the case, order passed by the learned Commissioner of Income Tax (Appeals) [‘CIT(A)”], is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in passing the order despite the fact that the assessment order has been passed without obtaining valid prior statutory approval under section 148B of the Income Tax Act.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in completing the assessment and passing the order under section 143(3) of the Act without following the statutory conditions and procedure under the provisions of Income Tax Act.
4. (i) On the facts and circumstances of the case the Learned CIT(A), has erred both on facts and in law in confirming the addition of Rs. 71,52,880/- made by the AO on account of long term capital gain on transfer of shares under section 45 read with section 50CA of the Income Tax Act 1961.
(ii) That the learned CIT(A) has erred in confirming the action of AO in re-computing the sale value of shares by adopting the FMV as on 22.03.2022 without appreciating the fact that FMV of shares during the period FY 2016-2017 must be considered since the transfer relates back to the said period.
(iii) That the abovesaid addition has been confirmed by rejecting the contention of the assessee that provisions of Section 50CA has no applicability to the facts of the case of the assessee, as the Section 50CA was not in force in F.Y. 2016-17 when the transaction was conceived and sale consideration was agreed.
(iv) That the abovesaid addition has been confirmed by rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee in this regard
5. (i) On the facts and circumstances of the case the Learned CIT(A), has erred both on facts and in law in confirming the addition of Rs. 3,65,22,719/- made by the AO on account of acquisition of unquoted shares invoking section 56(2)(x) of the Income Tax Act 1961.
(i) That the learned CIT(A) has erred in confirming the action of AO in re-computing the purchase value of shares by adopting the FMV as on 22.03.2022 without appreciating the fact that FMV of shares during the period FY 2016-2017 must be considered when the family settlement agreement was finalized and executed.
(iii) That the abovesaid addition has been confirmed by rejecting the contention of the assessee that provisions of Section 56(2)(x) has no applicability to the facts of the case of the assessee, as the Section 56(2)(x) was not in force in F.Y. 2016-17 when the family settlement agreement was finalized and executed.
(iv) That the abovesaid addition has been confirmed by rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee in this regard.
6. On the facts and circumstances of the case, the learned CIT(A) has erred in rejecting the contention of the assessee that the abovesaid transactions are purely in the nature of family arrangement and not chargeable to tax under the Income Tax Act.
3. It is seen from the above grounds of appeal that the assessee has challenged the order under section 143(3) dated 31.03.2024, which was confirmed by the order of ld. CIT(A) under section 250 vide order dated 07.08.2025 raising both legal grounds as well as on merits of the addition. As the legal ground strikes at the very root of the assessment order challenging the validity of assessment proceedings, we have decided to address the same first. Through the ground of appeal no.3, the assessee has submitted that the notice issued under section 143(2) of the Act dated28.06.2023 was invalid. Explaining the brief factual matrix, it was explained that Return of Income under section 139(1) declaring income of Rs.4,05,810/- was filed on 03.10.2022 which was processed under section 143(1) of the Act on 31.03.2022 accepting the returned income. Thereafter, assessment proceedings under section143(2) were initiated through issue of notice dated 28.06.2023. The ld. AO passed order under section 31.03.2024 making additions under section 56(2)(x) of Rs.3,65,22,719/- and under section 45 of Rs.71,52,880/- so as to determine final income of Rs.4,40,81,409/-. While making the impugned additions, the ld. AO referred in para-2 of his order to a search and seizure action under section 132 in the case of Goyal Group of cases dated 10.01.2023 in which assessee was also a searched party. The ld. AO has recorded in para-3 of his order that the case was selected for compulsory scrutiny under CBDT guidelines dated 24.05.2023.
4. We have heard rival submissions in the light of material placed on record. The ld. Counsel for the assessee submitted that the Appellant filed its return of income for Assessment Year 2022-23 on 03.10.2022. Subsequently, a search under Section 132 of the Income-tax Act, 1961 (the Act) was conducted on 10.01.2023. It was argued that consequently the present year was not closed/ concluded year on the dated of search. It was submitted that as per Explanation 2 to Section 148 of the Act, once a search under section 132 is conducted in a case, assessment proceedings are to be initiated under Section 147 through the issue of notice under Section 148 of the Act. It was submitted that in the present case, however, the AO did not issue the mandatory notice under Section 148 of the Act but had only issued a notice under Section 143(2) without a notice under Section 148 of the Act. It was accordingly argued that the assessment order under section 143(3) dated 31.03.2024 was therefore based upon invalid assumption of jurisdiction by the ld. AO and hence liable to be quashed. The ld. Counsel placed heavy reliance on the decision of this Tribunal, in the case of Montage Enterprises Put. Ltd. v. DCIT (ITA No. 5458/Del/2025 & 5906/Del/2025. Reference was also made to the decisions of Chandigarh Tribunal in the case of Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 taxmann.com 614 and Jamna Das Nikkamal Jain Saraf Pot. Ltd. Vs DCIT (ITA No. 403/Chd./2025).
5. We have noted that on the issue of validity of issuance of notice in cases where search has taken place, this Tribunal, in the case of Montage Enterprises Put. Ltd. (supra) has held as under:-
“….
2. We notice at the outset that there arises the first and foremost issue of validity of the impugned section 143(3) assessment itself framed by the learned DCIT, Central Circle-II, Noida as per the assessee’s pleadings in its appeal ITA No.5458/Del/2025. A combined perusal of both these case files indicates that the assessee/appellant is engaged in the business of manufacturing and sale of flexible packaging material etc. It has filed its return for the impugned assessment year 2022-23 on 29.10.2022, declaring loss of Rs.64,53,88,702/-. And the same was taken for scrutiny. The learned departmental authorities thereafter carried out section 132 search action as well as section 133A survey in its case on 21.02.2023. There is further no dispute that the learned Assessing Officer then proceeded to frame the impugned assessment on 30th March, 2024 in its case inter alia making various disallowances/additions etc., involving varying sums, which stand partly upheld in the CIT(A)’s lower appellate discussion.
3. It is in this factual backdrop that the assessee seeks to raise it’s precise question challenging validity of the impugned assessment for the sole reason that the same ought to have been framed under section 148 with approval under section 148B of the Act in light of Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 taxmann.com 614 (Chandigarh – Trib.) as relied in Jamna Das Nikkamal Jain Saraf Pvt. Ltd. Vs DCIT (ITA No. 403/Chd./2025) decided on 04.11.2025, adjudicating the very issue against the department as under:
“11.4 In conclusion, it was submitted that since the year under appeal formed part of the three assessment years immediately preceding the year in which search was conducted, the assessment ought to have been framed under section 148 with approval u/s 148B. The framing of the assessment u/s 143(3) and approval taken only for the purposes of section 143(3) was thus asserted to be fundamentally defective, non-compliant with statutory mandate, and consequently void ab initio. On these grounds, following the ratio in Homelife Buildcon Pvt. Ltd., it was prayed that the impugned assessment be quashed.
12. The Ld. CIT-DR Shri Manav Bansal opposed the contention, stating that the return for A.Y. 2022-23 was filed prior to the date of search, and validly selected for scrutiny under CASS. The AO was competent to complete the assessment u/s 143(3).
12.1 He contended that section 148B applies only to “re- assessment” and not to “regular assessments.” The AO’s approval from Addl. CIT, being in line with the CBDT Instruction No. 7/2022 dated 15.07.2022, fulfils the supervisory requirement. The DR also submitted that Homelife Buildcon is distinguishable, as the AO therein relied on third-party search data, whereas the present case is based on assessee’s own seized material.
13. We have carefully considered the rival submissions and perused the record. It is undisputed that search u/s 132 was conducted on 24.11.2022, relevant to A.Y. 2023-24. Thus, A.Y. 2022-23 is one of the three preceding years under Explanation 2(iv) to section 148. The Explanation reads that if a search is initiated, “the Assessing Officer shall be deemed to have information suggesting escapement of income for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated.”
13.1 Therefore, the only permissible statutory course was to issue notice u/s 148 and obtain prior approval u/s 148B before passing assessment order.
13.2 As the Assessing Officer completed the assessment under section 143(3) of the Act without issuing the notice under section 148 of the Act. Therefore, the question before us is whether the assessment proceedings initiated under section 143(3) of the Act can be validly continued and completed after a search under section 132 has been conducted in the case of the same assessee, without following the procedure prescribed under section 148 (Explanation 2) of the Act.
13.3 In our considered opinion, the answer lies in the scheme of the Act itself. Section 143 provides the general framework for regular assessment, whereas sections 147–148 (post-2021 regime) deal with reassessment based on information suggesting escapement of income, including that unearthed during a search.
13.4 A plain reading of section 143(2) shows that such notice can be issued only when a return of income is furnished under section 139 or in response to a notice under section 142(1). It empowers the Assessing Officer to scrutinize that return if he considers that income has been understated or tax underpaid. However, when a search under section 132 takes place and materials are found indicating possible escapement of income, the statute envisages a different route for carrying out assessment or reassessment under section 147 read with section 148, which is the special mechanism for bringing to tax the income discovered in consequence of a search.
13.5 Although section 148 (inserted w.e.f. 01.04.2021) does not begin with a non-obstante clause similar to the erstwhile section 153A, its context and Explanation 2 make it clear that where a search is initiated, the jurisdiction thereafter must flow through this special channel, subject to prior satisfaction and approval of the Principal Commissioner or Commissioner. The legislative intent is to ensure that when a search is carried out, the assessment is framed under the specific provisions meant for such cases and not under the general provision of section 143(3). Further we may mention that no notice under section 143(2) could have been issued after 3 months from the from the end of the financial year in which the return is furnished. In the present case the original return of income was filled on 4/11/2022 for the assessment year 202223 and 143 (2) was issued on 21/6/2023 , therefore also the assessment was framed under 143(3) of the Act is not sustainable. In other words the time required for issuing the notice under 143(2) had already expired, and the revnue can not be allowed to issued issue 143(2) on 21.6.2023 after the search was carried out and notice had been issued on 21.6.2023 and assessment was framed under 143(3) of the Act. The relevant portion of section 143(3) reads as under:-
143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be issued after the expiry of three months from the end of the financial year in which the return is furnished.
13.6 This position finds substantial support from the ratio of various decisions of Hon’ble High Court and Hon’ble Supreme Court. The Courts unanimously held that once a search has been conducted and proceedings are triggered under section 153A, the Assessing Officer cannot continue parallel proceedings under section 143(3) or section 147 for the same assessment year, because the entire assessment for that year stands merged in the search assessment. The Courts emphasized that the existence of a special procedure for assessment consequent to a search is a complete code in itself; therefore, ordinary assessments abate and cannot coexist with the search-based assessment.
13.7 Drawing this analogy to the current regime, it is evident that when a search takes place and information is unearthed suggesting escapement of income, the Assessing Officer must act under section 148 (which now performs the role formerly assigned to section 153A) rather than continuing with a pending section 143(3) proceeding. The legislative intent remains the same — to prevent multiplicity of proceedings and ensure that only one comprehensive order is passed, factoring in both the pre-search and postsearch materials.
13.8 The rationale is further reinforced by the well-settled principle of generalia specialibus non derogant — the special provision overrides the general. Section 148 (as a special provision triggered by search information) must prevail over section 143 (the general provision for regular scrutiny). Allowing the Assessing Officer to continue and conclude proceedings under section 143(3) after a search would defeat this legislative scheme and render the safeguards, such as prior approval of the Principal Commissioner, redundant.
13.9 Accordingly, we hold that once a search is initiated under section 132 and material is found relating to the assessee, the pending assessment under section 143(3) cannot validly continue, as the time for issuing the 143(2) in response to original return of income had already expired, therefore the Assessing Officer must necessarily proceed in accordance with the special provisions contained in section 148 of the Act.”
4. Learned CIT(DR) representing the Revenue vehemently supports the impugned assessment that the Assessing Officer had rightly finalized the same under the normal provision once the entire issue was pending before him as on the date of search.
5. We have given our thoughtful consideration to the assessee’s and the Revenue’s foregoing vehement submissions. We find merit in the assessee’s legal ground herein once the impugned search had taken place in its case, no normal assessment under section 143(3) of the Act could have been framed in light of the tribunal’s foregoing twin decisions going against the department. We thus adopt the above extracted reason mutatis mutandis to quash the impugned assessment framed by the learned Assessing Officer on 30th March, 2024 in very terms.
6. We next notice with the able assistance coming from both the parties that the learned CIT(A)’s impugned estimation has considered the assessee’s average GP @ 11.84% in AYs 2012-13 to AY 2021-22 alongwith the flexible packaging material industry’s comparable instances having the GP rate @ 6.96% (pages 122-123) in the lower appellate discussion to arrive at the “mean” profit rate of 9.40% i.e. 11.84% + 6.96%÷ 2, which is challenged by both the parties. That being the case, the assessee takes us to case law CIT Vs. K.Y. Pilliah & Sons (1967) 63 ITR 411 (SC), CIT Vs. Surjeet Singh Mahesh Kumar (1994) 210 ITR 83 (Del.), Bimal Kumar Anant Kumar Vs. CIT (2007) 159 TAXMAN 402 (All.), Salem Steel Co. Vs. CIT (2010) 322 ITR 349 (Mad.), Telelinks & Ors. Vs. CIT (2015) 377 ITR 158 (P&H), quoted in the lower appellate discussion at page 125 onwards that even such an estimation is not to be an unbridled and unguided one but to be based on the very sector’s book results at this relevant point of time. We thus reject the Revenue’s vehement contentions seeking to assess the assessee @ 18% and direct the learned Assessing Officer to estimate it’s GP @ 6.96% going by the segmental trends only. Ordered accordingly. All other remaining issues between the parties stand rendered academic in forgoing terms.
7. This assessee’s appeal ITA No.5458/Del/2025 is allowed and the Revenue’s cross appeal ITA No. 5906/Del/2025 is dismissed. A copy of this common order be placed in the respective case files…”
6. Upon consideration of the matter, we also find merit in the assessee’s legal ground herein that once the impugned search had taken place in its case, no normal assessment under section 143(3) of the Act could have been framed in light of the tribunal’s foregoing twin decisions going against the department. The ld. DR placed heavy reliance upon the order of lower authorities, however, could not satisfactorily controvert the arguments of the appellant assessee on this issue. We thus adopt the above extracted reason mutatis mutandis to quash the impugned assessment framed by the learned Assessing Officer on 31.03.2024 in very terms. The ground of appeal no.3 raised by the assessee qua invalid assumption of jurisdiction is therefore allowed.
7. As the assessee has succeeded qua the legal ground of appeal no.3 all other grounds of appeal raised by the assessee on the merits of the case, etc. have become academic in nature.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 10th April, 2026.
