Tulsi Enterprise Vs ITO (ITAT Rajkot)
Search-Based Reopening Under Section 147 Invalid: ITAT Quashes Reassessment and Penalty
Introduction
The Income Tax Appellate Tribunal, Rajkot Bench, quashed reassessment proceedings initiated against Tulsi Enterprise under Sections 147 and 148, holding that the applicable search-assessment procedure could not be bypassed.
Following the Gujarat High Court’s decision in Chandreshbhai Koticha Vs. ITO, the Tribunal accepted the assessee’s jurisdictional challenge concerning information arising from a third-party search conducted before 1 April 2021.
It also deleted the penalty under Section 271(1)(c) because the assessment supporting it had been quashed. Both appeals were allowed, while the substantive grounds concerning the addition became academic.
Delay in Filing Appeals Condoned
At the outset, the Tribunal considered delays of 434 days and 526 days in filing the appeals.
The assessee attributed the delays to its tax consultant or advocate’s failure to file the appeals within time. It supported the request through an affidavit and argued that it should not suffer for the professional’s mistake.
The Revenue opposed condonation, contending that sufficient cause had not been established and that the delay reflected negligence.
The Tribunal found the affidavit’s explanation convincing and sufficient. Referring to authorities favouring a pragmatic approach where justified, it condoned the delays and admitted both appeals.
Background of the Reassessment
Tulsi Enterprise manufactured pull handles and mortise handles. For Assessment Year 2011-12, it had filed a return declaring nil income.
The Assessing Officer received information following a search conducted on 19 September 2014 at National Shroff & Co., an entity engaged in shroff and angadiya activities.
The information suggested transactions of ₹15,44,600 involving the assessee. Based on this material, the Assessing Officer recorded reasons, obtained approval and issued a notice under Section 148 on 26 March 2018.
During assessment, information obtained from National Shroff indicated that the receipts represented proceeds from sales not recorded in the assessee’s books. The assessee denied undertaking the transactions and furnished an undertaking from its partners.
Rejecting that explanation, the Assessing Officer estimated profit at 8% of ₹15,44,600, resulting in an addition of ₹1,23,568. The CIT(A) confirmed the addition.
Assessee’s Jurisdictional Challenge
Before the Tribunal, the assessee challenged both the recorded reasons and the statutory route adopted for reassessment.
It relied on Amitkumar Chandulal Rajani concerning mechanically recorded reasons based on information arising from the National Shroff search.
Separately, it argued that, where the assessment arose from search material governed by the pre-1 April 2021 framework, the Department was required to follow Section 153C, rather than proceed under Sections 147 and 148.
For this proposition, it relied on the jurisdictional High Court’s decision in Chandreshbhai Koticha Vs. ITO.
The Revenue defended the reopening and submitted that proceeding under Section 147 rather than Section 153C did not affect the assessment.
Search Procedure Cannot Be Bypassed
The Tribunal accepted the assessee’s argument concerning the applicable statutory procedure and reproduced the relevant Gujarat High Court reasoning.
That reasoning emphasised that the Department cannot bypass Sections 153A and 153C merely because numerous taxpayers’ names emerge during a search. A statutory power must be exercised in the manner prescribed.
The High Court’s analysis also distinguished search material from information obtained through an independent source. It recognised that Sections 147 and 148 may remain available where independent material exists and the statutory conditions are satisfied.
Thus, the principle was not an absolute prohibition against reopening every case having some connection with a search. The relevant distinction concerned the source of material and whether the prescribed search-assessment mechanism governed the action.
Following that precedent on the facts before it, the Tribunal quashed the reassessment proceedings under Sections 147 and 148.
Addition on Merits Became Academic
Once the reassessment was quashed, the Tribunal held that the grounds challenging the addition on merits required no adjudication.
Accordingly, it did not determine whether the alleged transactions occurred or whether estimating an 8% profit was justified.
The quantum appeal succeeded on the jurisdictional defect, rather than a factual finding accepting the assessee’s denial of the transactions.
Consequential Penalty Deleted
In the penalty appeal, the assessee challenged a penalty of ₹1,87,008 under Section 271(1)(c), including on the ground that the notice did not specify the precise charge.
The Tribunal did not need to decide that objection independently. It held that, since the assessment itself had been quashed, the foundation for the penalty no longer existed.
Applying the principle that the consequential structure falls when its foundation is removed, it deleted the penalty.
Cases Discussed
- Garg Bros. Pvt. Ltd. & Others Vs DCIT (ITAT Kolkata); ITA Nos. 2519 to 2521/Kol/2017; 18/04/2018— Delay condonation.
- Investment Trust Vs Ujagarsingh (Supreme Court)— Liberal approach to condonation of delay.
- Gujarat State Fertilizers & Chemicals Ltd. (Gujarat High Court); 283 ITR 149— Substantive justice and limitation.
- Amitkumar Chandulal Rajani Vs ITO (Gujarat High Court); 173 taxmann.com 302— Reassessment reasons based on National Shroff information.
- Paras Chandreshbhai Koticha Vs ITO (Gujarat High Court)— Distinction between Section 153C search material and independently obtained information.
- PCIT Vs Abhisar Buildwell P. Ltd. (Supreme Court); Civil Appeal No. 6580 of 2021; 24/04/2023— Scope of search assessments.
- Amar Jewellers (Gujarat High Court)— Search-assessment principles, cited within the reproduced High Court decision.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned two appeals filed by the assessee, pertaining to assessment years (AY) 2011-12 & 2013-14, are directed against the separate orders passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 30.08.2024 and 22.11.2024, respectively, which in turn arise out of assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Act, and penalty order
2. When the matter was called for hearing, the learned Counsel for the assessee at the outset submitted that the appeal in ITA No.526/RJT/2026 and appeal in ITA No.514/RJT/2026 are barred by limitation by 434 days and 526 days respectively, have been filed by the assessee belatedly. The learned Counsel adverted my attention to the affidavit filed in this regard citing reasons for condonation of delay and urged for a benign view and sought condonation of delay of 434 days and 526 days respectively, in filling these appeals before the Tribunal. Learned Counsel for the assessee submitted that delay in both appeals have resulted because tax consultant/advocate of the assessee was lazy, and did not file these appeals on time. The ld.Counsel stated that assessee should not be penalized because of the mistake committed by the Tax consultant/Advocate of the assessee, for this reliance is placed on the decision of I.T.A.T., ‘C’ Bench, Kolkata in the case of M/s. Garg Bros. Pvt. Ltd. & Others vs. DCIT [ITA Nos.2519 to 2521/Kol/2017, order dated 18.04.2018], wherein under similar set of facts and reasons, the Hon’ble Tribunal was pleased to condone the delay of 211 days by holding as under:
“3. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the application for condonation of delay, we are of the considered opinion that assessee was under a bona fide belief that the impugned order of Pr. CIT was not appealable before this Tribunal since they were not advised by their Tax Consultants about this legal right. Later on, when a Senior Lawyer advised them to file an appeal, the assessees immediately took steps to file the appeals. Therefore, the delay caused. We note that delay was occurred because of the wrong advice of the Tax Professional for which assessees cannot be penalized. For the ends of justice, we condone the delay and admit the appeal for hearing.
3. On the other hand, learned DR for the revenue stated that in this case no in filing of these two appeals. Rather, this is a clear case of deliberate inaction or negligence on the part of the assessee, therefore, delay should not be condoned in both appeals.
4. I have heard both the parties, and I note that reasons for delay in filing these appeals are same and identical. On professional advice, I note that the Courts and Tribunals have consistently held that in the matter of condonation of delay, pragmatic and liberal approach should be taken. The Hon’ble Supreme Court also held the same in case of Investment Trust v. Ujagarsingh observing that unless malafide or negligence writ large, delay should be condoned and appeals should not be rejected on technical ground of delay and they should be ordinarily decided on merits. The Hon’ble Gujarat High Court has also considered this aspect of condonation of delay in case of Gujarat State Fertilizers & Chemicals Ltd. (283 ITR 149) and held that…
“The position in law is well settled that an assessee should be granted due relief where it is due without standing on technicalities and the revenue must bear the established legal position in mind while dealing with applications seeking condonation of delay. It is necessary that liberal approach is adopted in such a matter so as to ensure that substantive rights are not defeated on the basis of technicalities or limitation. “
5. I note that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. Having heard both the parties and after having gone through the affidavit as well the delay condonation, application, I am of the considered opinion that in the interest of justice, the delay deserves to be condoned. I, accordingly, condone the delay in both appeals.
6. The grounds of appeal raised by the assessee in quantum appeal,in ITA No. 514/RJT/2026 are as follows:
(1). That the learned CIT(A) has grievously erred in law and on facts in upholding the action of the learned A.O. in assuming jurisdiction and initiating income escaping assessment proceedings u/s 147 of the Act by way of issuing notice u/s 148 of the Act.
(2). That the learned A.O. has grievously erred in law in assuming jurisdiction under section 147 of the Act in respect of an assessment arising from a search conducted prior to 01.04.2021, whereas the only permissible course under the Act was to proceed, if at all, under section 153C of the Act.
(3). That the learned CIT(A) has grievously erred in law and on facts in confirming the addition to the extent of Rs. 1,23,568/- being 8 percentage of the alleged cash transactions of Rs. 15,44,600/-with M/s. National Shroff.
(4). That the appellant craves leave to add, amend, alter, vary and/or withdraw above ground of Appeal.
7. The assessee has raised additional/legal ground No.1, in quantum appeal, in ITA No. 514/RJT/2026, which is as follows:
“The Income-tax officer, Ward -3(1)(3), Rajkot erred in issuing notice u/s 148 in the light of reasons recorded for issue thereof and consequently the reassessment u/s 147 is bad in law.”
8. The grounds of appeal raised by the assessee in penalty appeal in ITA No.515/RJT/2026, are as follows:
(1). That the order passed u/s 271(1)(c) of the Act is bad in law as the penalty proceedings initiated vide assessment order dated 30.09.2021 and show cause notice dated 30.09.2021 issued under section 271(1)(c) of the Act is invalid as the learned Assessing Officer has failed to specify the exact charge by not striking off the irrelevant limb and thereby mentioning both the limbs i.e. concealment of income as well as furnishing of inaccurate particulars of income.
(2). That the learned CIT(A) has grievously erred in law and on facts in confirming the penalty to the extent of Rs. 1,87,008/-u/s 271(1)(c) of the Act.
(3). That the learned CIT(A) has grievously erred in law and on facts in dismissing the appeal without following the mandate of provisions of section 250(6) of the
(4). That the learned CIT(A) has grievously erred in law and on facts in dismissing the appeal violating the principles of natural justice.
(5). That the appellant craves leave to add, amend, alter, vary and/or withdraw above ground of Appeal.
9. The facts necessary for disposal of the appeal are stated in brief. The assessee had filed original return of income for assessment year (A.Y.) 2011-12, declaring total income of Rs. NIL, on 30.11.2012. During the year under consideration, the assessee was engaged in the business of manufacturing of Pull Handle & Mortise Handle.In this case, assessing officer was in receipt of information from O/o the Dy. CIT, Central Circle-1, Rajkot vide letter No. DCIT/CC1/RJT/Angadiya/National Shroff/17-18 dated 08.02.2018 that a search action u/s 132 of the Act, on 19.09.2014 was carried at the premises of M/s National shroff & Co, who is engaged in the business of shroff/angadiya. In the course of search proceedings, it was gathered that during the year the assessee has obtained cheque/DD/Cash in lieu of cash from M/s. National Shroff of Rs. 15,44,600/-, during the year under consideration. So, after forming belief that income to the tune of Rs.15,44,600/- has escaped assessment and following the procedure for re-opening of the assessment, the case was reopened u/s 147 of the Act after recording the reasons and obtaining necessary approvals from appropriate higher authorities concerned, notice u/s 148 of the Act was issued on 26.03.2018 and duly served upon the assessee.
10. In response to the statutory notices u/s 142(1) of the Act, partner of the assessee -firm attended and furnished the original return of income filed by the assessee.
11. During the course of assessment proceedings, notice u/s.133(6) of the Act was issued to the M/s. Ellora & Co. and National Shroff & Co., Rajkot. In response to the notice, Shri Aniruddhsinh J. Solanki, Proprietor vide his letter dated 22/10/2018 has submitted that M/s Tulsi Enterprise has sold material/items/goods to other parties in Gujarat and other states. The purchasers had deposited the cash in the bank account of National Shroff, the purchaser parties had accounts maintained with National Shroff. M/s Tulsi Enterprise has received Rs. 15,44,600/- in cash from National Shroff for the sale of product to other parties which are not shown in the books of accounts. M/s Tulsi Enterprise has made unaccounted sales, payments for which they were received in cash. Therefore, assessing officer issued show cause notice dated 15.11.2018, wherein the assessee was asked to show cause as to why the amount of Rs.15,44,600/- received by the assessee should not be treated as his unaccounted income and added to the total income.
12. In response to the notice of the assessing officer, the partner of the assessee- firm submitted vide his letter dated 10.12.2018, that the said transaction with M/s. National Shroff was not carried by the assessee- firm during the relevant year. He also submitted the undertaking of partners that the assessee -firm has not carried out such transactions.
13. However, assessing officer, rejected the above contention of the assessee and estimated the profit of Rs. 1,23,568/-, that is, 8% of Rs.15,44,600/-, in the hands of assessee. Hence, an amount of Rs.1,23,568/- was treated as undisclosed income and added to the total income of the assessee.
14. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer, therefore, assessee is in further appeal before this Tribunal.
15. Learned Counsel for the assessee, at the outset, argued, challenging the reopening under section 148 of the Act and stated that based on the identical and similar reasons recorded in case of assessee, the jurisdictional Hon’ble Gujarat High Court, in the case of Amitkumar Chandulal Rajani Prop. 173 taxmann.com 302 (Gujarat), quashed the reassessment proceedings. The findings of the Hon’ble Court is reproduced below:
- Upon perusal of the reasons recorded for the assessment year 2013-14, which is identical to other assessment years, except for the assessment year 2015-16, wherein, it was stated that the assessee had changed the figures of the alleged transactions by the assessee in cash/NSC. It appears that the Assessing Officer has recorded the reasons in mechanical manner, referring on the basis of the information provided by the Dy. Commissioner, which relied on the survey and the search operation carried out in case of NSC. [Para 9]
- There is no reference to the transaction carried out by the assessee. The details of the transactions carried out by the assessee appear to pertain to the reliefs from the seized material or from any other source. It is also pertinent that the Assessing Officer has not provided any documents, statements or any material to the assessee but, on the contrary, in the affidavit-in-reply, it is averred that such information cannot be provided to the assessee because it is a confidential matter of the department. Such a stand taken by the Assessing Officer is contrary to the provisions of the Act inasmuch as unless and until the assessee is provided the material upon which the reasons are recorded the action of the Assessing Officer is illegal. [Para 10]
- Upon perusal of the objection order disposing the objections, it is observed that the Assessing Officer has not made any reference to any demand or request made by the assessee for providing material/information relied upon from the seized material or from such search person and employee. [Para 11]
- After reproducing the objections raised by the assessee, the Assessing Officer has disposed of the objections. It has been observed that such objections have been adequately and properly dealt with and the objections followed by cross-objection is an endless process, which the Assessing Officer should end at a certain point. Therefore, any further objection in this regard will not be entertained under any objections of the assessee in the true perspective and in absence of any material from the aforesaid party pertaining to the details relating to the assessee so as to prove that income has escaped assessment, the Bench is of the opinion that there is no link between the material and the reasons recorded, resulting into dissatisfaction on the part of the Assessing Officer and in such circumstances, the Assessing Officer could not have assumed jurisdiction to issue impugned notices for reopening. [Para 12]
- In view of the foregoing reasons the impugned notices are hereby quashed and set aside. [Para 13]
16. The Ld. Counsel further argued that assuming jurisdiction under section 147 of the Act, in respect of an assessment arising from search conducted prior to 01.04.2021 is not permissible, whereas the only permissible course under the Act is to proceed, if at all, under section 153(C) of the Act, therefore assessment order framed by the Assessing Officer under section 147 of the Act is bad in law and for that Ld. Counsel for the assessee relied on the judgment of the jurisdictional High Court of Gujarat in the case of in the case of Chandreshbhai Koticha Vs. ITO ward-1 (2) (2) R/ special civil application No.16723of 2015.
17. On the other hand, Ld. DR for the revenue so far above technical grounds raised by the assessee, are concerned, stated that the reasons were recorded correctly as per the provisions of the Act, therefore, there is no any defect so far the reopening of assessment is concerned.In so far the assessment order made under section 147 is concerned, Ld. DR for the revenue submitted that it does not make any difference, whether the assessment is framed under section 147 of the Act or under section 153(C) of the Act.
18. I have heard, both the parties and perused the material available on record.I find merit in the submission of ld.Counsel for the assessee to the effect that arising from search conducted prior to 01.04.2021 is not permissible, whereas the only permissible course under the Act is to proceed, if at all, under section 153(C) of the Act, therefore assessment order framed by the Assessing Officer under section 147 of the Act is bad in law and for that Ld. Counsel for the assessee relied on the judgment of the jurisdictional High Court of Gujarat in the case of in the case of Chandreshbhai Koticha Vs. ITO ward-1 (2) (2) R/ special civil application No.16723of 2015. The findings of the hon’ble Court is reproduced below:
“69. We do not endorse the submission of the Revenue expressing its predicament for bypassing the statutory provisions of Sections 153A and 153C of the Act and directly invoking the provisions of Sections 147/148 of the Act in cases where the names of numerous assessees surface during search. The statute does not provide such shortcuts. Merely because the Revenue faces numerous assessees whose names. have been unearthed during search and whom it believes have evaded tax, the statutory provisions cannot be bypassed. The Latin maxim “Quando aliquid prohibetur ex directo, prohibetur et per obliquum” deciphers to mean “What cannot be done directly cannot be done indirectly.” This legal principle is a foundation of the legal system, as it safeguards the interests of citizens. The law cannot be bypassed through incidental means if such actions are directly forbidden by law. It is trite that when a statute vests certain power in an authority to be exercised in a particular manner, that authority has to exercise such power by following the manner prescribed in the statute, and any exercise of power by statutory authorities inconsistent with the statutory prescription is invalid.
ANALYSIS AND OPINION ON THE FACTS OF THE CAPTIONED WRIT PETITIONS:-
70. Having discussed the contours of Sections 132, 147, 148, 153A and 153C of the Act, we shall now examine the facet of recording of satisfaction notes and the invocation of reassessment proceedings under Sections 147/148 of the Act in the respective petitions.
71. The captioned petitions can be divided in to Four Groups, whose petitioners are subjected to reassessment as under:
A) The Petitioners in whose case the information has emerged from the search/raid conducted at Navratna Group (NODPL).
B) The petitioners in whose case the information has emerged from the search/raid
C) The petitioners in whose case the information has emerged from the search/raid conducted at Flamingo (Sanjay Govindram Agarwal).
D) The petitioners in whose case the search was conducted during the search/raid conducted at Affluence Commodities Pvt. Ltd
72. Group-A:- Since most of the writ petitions belong to Group-A (Navratna Group), we are analyzing the legality of reassessment under Sections 147/148 of the Act. In these writ petitions, the facts suggest that pursuant to the warrant issued in the name of one Murlidhar Marutibhai Trivedi, who is a shareholder of Navratna Infrastructure, search was undertaken at his residence and at Navratna Organisers and Developers Pvt. Ltd. (NODPL) on 11.04.2017. During the search at the residence of Murlidhar Trivedi, backup data was taken from his laptop, and a digital Excel sheet was recovered. This Excel file contained details of the Kalhaar Scheme such as unit number, area of unit, selling price of land, construction cost. amount received from purchasers, etc. Thereafter, during the proceedings before the Income Tax Settlement Commission (ITSC), the Navratna Group submitted a list of purchasers (from F.Y. 2011-12 to 2016-17), wherein the unit number, name of purchaser, date of execution of sale deed, cost of land and construction, etc., were mentioned. The said list was compared with the Excel file recovered from the laptop of Shri Murlidhar, and it was observed by the authorities that NODPL had maintained proper records of all receipts in cash as well as through cheque on the sale of units/villas in the Kalhaar Scheme. NODPL, in its application before the ITSC, admitted that it had received “on-money” (cash) for the sale of units/villas at the “Kalhaar Blues and Greens” project, wherein it was disclosed that the purchasers had paid huge amounts in cash. Thereafter, the Deputy Commissioner of Income Tax, Central Circle-1(1), Ahmedabad, vide communication dated 05.03.2021, conveyed to the respective Jurisdictional Assessing Officers (JAOs) to analyze the data and ascertain the names of the purchasers from the Excel sheet submitted by the Navratna Group, from the sale deed value, registration number and dates, and accordingly to take necessary remedial action to protect the interest of the Revenue. Thus, in the proceedings before the ITSC, and on admission of the Navratna Group post-search, the JAOs were directed to analyze the data of the purchasers, which ultimately disclosed the cash transactions undertaken by the petitioners. Albeit, the original source of incriminating material against the petitioners is the Excel sheet recovered during the search from Shri Murlidhar, however, the names and the factum of cash transactions were revealed during the proceedings before the ITSC, that too on an application filed by the Navratna Group admitting the cash transactions from the petitioners. Thus, the information regarding payment of cash was received post-search on the basis of the admission, since during the search the names of the petitioners were never revealed from the incriminating material (Excel sheet). Only when the data supplied by the Navratna Group was compared with the Excel sheet, the exact details emerged. In such circumstances, there was no occasion for the Assessing Officer of the searched entity to record satisfaction and forward it to the jurisdictional Assessing Officer of the petitioners. The proceedings under Sections 147/148 of the Act were initiated subsequently on the Ahmedabad, vide communication dated 05.03.2021. Thus, the material information of names and cash transactions unearthed by the Jurisdictional Assessing Officers (JAOs) subsequently on the basis of data supplied by the Navratna Group before the Settlement Commission constitutes an independent source, and hence such information/material is sufficient to trigger action under Sections 147/148 of the Act. Therefore, the Revenue is justified in reopening the assessment under Sections 147/148 of the Act on the information received subsequently.
73. Group-B: The petitioners of this group are subjected to reassessment under Sections 147/148 of the Act on the basis of incriminating material found during the search at the K-Star Group. There is no satisfaction note recorded by the Assessing Officer of this entity, and the material has been merely supplied to the JAO of the petitioners, who has invoked the provisions of Section 148 of the Act. Hence, the power under Sections 147/148 cannot be invoked by the JAO in the absence of a satisfaction note. There is no independent material, or any material gathered post-search from any other source, apart from the material found during the search at the K-Star Group. pointed out to us.
74. Group-C:- Similar is the position of the petitioners of this group to that of Group- B. The information /incriminating material to the JAO of the petitioners has been transmitted by the Assessing Officer of Flamingo (Sanjay Govindram Agarwal) without recording a satisfaction note. No independent material, or any material gathered post-search apart from the material found during the search, has been pointed out to us.
75. Group-D:- It is interesting to note that in the writ petitions being Special Civil Application Nos. 17933 of 2018, 17935 of 2018, 17938 of 2018, and 17939 of 2018, the assessments for the Assessment Years 2011-12 to 2014-15 are sought to be reopened by resorting to the provisions of Sections 147/148 of the Act on the basis of the search conducted and the panchnama drawn on the petitioners. The contents of the impugned notice and the affidavit-in-reply filed by the Assessing Officer reveal that during the search and survey action conducted on 18.12.2014 covering many commodity traders, where one of them was Affluence Commodities Pvt. Ltd., Dhiren A. Shah and Amee D. Shah Ltd., a search was also conducted at the business premises of the petitioners. The writ petitioners in these writ petitions were subjected to search under Section 132 of the Act and hence fall under the provisions of Section 153A of the Act, and not under Section 153C of the Act. Incriminating material in the form of loose paper files was found during the search at the premises of the petitioners. The cases of these writ petitions are governed by the decisions of the Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra) and Amar Jewellers (supra). Thus, the Assessing Officer was mandated by the provisions of Section 153A to follow the procedure prescribed therein on the basis of incriminating material found during the search conducted under Section 132 of the Act, and hence the statute prohibits him from switching over or resorting to the provisions of Section 148 of the Act from Section 153A unless there is material gathered from an independent source. Hence, Supreme Court and the Division Bench of this Court in the aforesaid decisions, it is always open for the Revenue to resort to the provisions of Sections 147/148 of the Act, subject to fulfilment of the conditions mentioned therein and availability of material from an independent source from which the Assessing Officer has “reason to believe” that income has escaped assessment
76. We answer the issues by summarizing the observations as under:
A) It is mandatory for the Assessing Officer of a “searched person” (Section 153A of the Act) to record satisfaction on the incriminating material found during the search under Sections 132/132A of the Act and communicate the same to the jurisdictional Assessing Officer of the “other/third person”.
B) In the absence of any satisfaction note recorded by the Assessing Officer of the searched person, the jurisdictional Assessing Officer of the other person cannot assume jurisdiction under Section 153C of the Act solely on the basis of material sent to him by the Assessing Officer of the searched person. In other words, the “other person” cannot be subjected to assessment/reassessment under Section 153C of the Act on the material received by him sans a satisfaction note; hence, such an approach would be illegal, without jurisdiction, and liable to be quashed.
C) The jurisdictional Assessing Officer of the “other/searched person” (Section 153C) can invoke the provisions of Sections 147/148 of the Act only on the basis of material available to him from other sources, other than the incriminating material sent to him. In case a satisfaction note is recorded on the incriminating material and transmitted to him/her, then the only recourse available to the jurisdictional Assessing Officer is to proceed under Section 153C of the Act and not under Sections 147/148 of the Act.
D) In the case of assessees who are subjected to reassessment under the provisions of Section 153A of the Act, the Assessing Officer cannot switch over or invoke the provisions of Sections 147/148 of the Act on the basis of incriminating material found during the search and seizure conducted under Sections 132 or 132A of the Act. However, the Revenue cannot be restricted, barred, or left remediless from invoking the provisions of Sections 147/148 of the Act, subject to fulfillment of the conditions mentioned therein, and the assessment can be reopened on the basis of material collected post-search from any other independent source.
:: ORDER::
77. On overall appreciation of the facts and analysis, the following order is passed:-
1) The writ petitions of Group-A, being Special Civil Application Nos. 4890 of 2022, 5350 of 2022, 5855 of 2022, 5858 of 2022, 5861 of 2022, 5864 of 2022, 5901 of 2022, 26206 of 2022, 216 of 2022, 17675 of 2022 and 5422 of 2022, are dismissed. However, we clarify that the dismissal of the writ petitions shall not be construed as detrimental to the petitioners in the reassessment proceedings, which shall proceed in accordance
2) The writ petitions of Groups B, C and D. being SCA Nos. 3563 of 2022, 3564 of 2022, 18983 of 2019. 18985 of 2019, 18986 of 2019, 18987 of 2019, 16341 of 2025, 16723 of 2025, 17933 of 2018, 17935 of 2018, 17938 of 2018 and 17939 of 2018, are allowed. The impugned action of reopening the assessment is quashed and set aside, reserving liberty in favour of the Revenue to resort to proceedings under Sections 147/148 of the Act, subject to fulfillment of the conditions mentioned therein, while keeping in mind the observations made by this Court. Rule made absolute to such extent. No order as to costs.”
19. Therefore, respectfully following the binding precedent of the jurisdictional High Court of Gujarat on identical facts, I quash the reassessment proceedings initiated by the Assessing Officer under section 147/ 148 of the Act.
20. As the reassessment proceedings itself has been quashed, therefore the ground raised by the assessee, on merit, do not require adjudication, as they become academic and infructuous.
21. In the result appeal filed by the assessee in ITA No.514/RJT/2026 is allowed in the above terms.
22. Now, coming to the penalty appeal of the assessee in ITA No.515/Rjt/2026, under section 271(1)(c) of the Act, I note that since the assessment order itself has been quashed, therefore, there is no foundation to levy the penalty under section 271(1)(c) of the Act.Once the foundation fails, the superstructure also fails, that is, the penalty levied also is to be deleted. In this regard, I place reliance on the legal maxim “Sublato fundamento cadit opus” (meaning thereby that foundation being removed, structure /work falls). then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order.
23. In the result, appeal filed by the assessee in ITA No.515/RJT/2026, is allowed.
24. In the combined result, appeal filed by the assessee (in ITA No.514/Rjt/2026 and ITA No.515/Rjt/2026), are allowed.
Order is pronounced in the open Court on 26/10/2026.
