Prahlad Roy Goenka Vs DCIT (ITAT Kolkata)
Third-Party Search Material Required Section 153C Proceedings: ITAT Quashes Reassessment
Introduction
The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT), in Prahlad Roy Goenka vs. DCIT, quashed reassessment proceedings initiated under Sections 147 and 148 on the basis of documents seized during a third-party search. The Tribunal held that, since the search was conducted before 1 April 2021, the assessment should have been initiated under Section 153C.
The reassessment involved an addition of ₹2 crore towards alleged unexplained cash loans and disallowance of ₹6,84,224 towards maintenance and electricity expenses. However, the Tribunal decided the appeal on the jurisdictional objection and declared both the reopening proceedings and the resulting assessment invalid in law.
Facts of the Case
The assessee had filed his original return declaring income of ₹7,30,250. Subsequently, the Assessing Officer received information through the Insight portal, uploaded by the Investigation Wing, concerning alleged beneficiaries of cash loans arranged through finance brokers Sanwaria and Kasera.
The information originated from a search conducted on the brokers on 30 November 2018. According to the Assessing Officer, documents recovered during the search indicated that the brokers were involved in substantial unaccounted cash transactions.
The brokers allegedly arranged cash loans through documents described as “Rukkas”. The Assessing Officer stated that the assessee’s group name appeared in the seized material and that decoded documents indicated potential cash borrowings aggregating to ₹2 crore from various lenders.
Based on this information, a notice under Section 148 was issued on 29 March 2022. The assessee responded by filing a return of income. Notices under Sections 143(2) and 142(1) followed, with partial compliance recorded during the proceedings.
Additions Made by the Assessing Officer
The assessee denied having undertaken the alleged cash transactions through the finance brokers. Nevertheless, the Assessing Officer relied on the information and documents recovered during the search.
He treated ₹2 crore as unexplained money not recorded in the assessee’s books and added it to the assessed income.
The Assessing Officer also disallowed maintenance and electricity expenses of ₹6,84,224, which had been claimed under Section 57. The assessment was framed under Section 147 read with Section 144.
The Commissioner (Appeals), National Faceless Appeal Centre, upheld the assessment by order dated 8 June 2026, leading the assessee to approach the Tribunal.
Assessee’s Jurisdictional Objection
At the hearing before the ITAT, the only issue pressed was that the assessment had been initiated under the wrong statutory provisions.
The assessee contended that the proceedings arose directly from documents seized during a search on another person. Accordingly, the assessment should have been framed under Section 153C, rather than through reassessment under Sections 147 and 148.
The objection therefore concerned the Assessing Officer’s jurisdiction to adopt the reassessment route, rather than merely the evidentiary value of the seized documents or the calculation of the additions.
Tribunal’s Findings on Section 153C
The Tribunal found it undisputed that the reopening was based on documents seized during the search on the Sanwaria and Kasera Group on 30 November 2018.
The timing of that search was central to its decision. Since it had taken place before 1 April 2021, the Tribunal held that proceedings should have been initiated under Section 153C.
The Bench described Section 153C as an exclusive code for dealing with assessments of this nature, overriding the other assessment provisions relevant to the dispute.
Consequently, initiating proceedings under Section 147 by issuing a notice under Section 148 was held to be a nullity and unsustainable in law.
Judicial Decisions Relied Upon
The Tribunal relied on several decisions supporting its conclusion, including DCIT vs. Nawal Kumar Kanodia, Sri Dinakara Suvarna vs. DCIT, Shyam Sunder Khandelwal vs. ACIT, Sejal Jewellary vs. Union of India, and ACIT vs. Pramod Jain.
It also referred to the Kolkata Tribunal’s decision in Maan Steel & Power Limited vs. DCIT, dated 26 June 2026, observing that the same view had been adopted there.
Applying these authorities to the facts before it, the Tribunal concluded that the reassessment route chosen by the Assessing Officer could not be sustained.
Conclusion
The ITAT quashed the proceedings initiated under Section 148 and the assessment framed pursuant to them, allowing the assessee’s appeal.
The ruling highlights the importance of identifying the applicable statutory assessment mechanism when proceedings originate from third-party search material. The relief was granted on jurisdictional grounds; the Tribunal did not separately adjudicate the merits of the alleged ₹2 crore cash borrowings or the Section 57 expenditure disallowance
Cases Discussed
- DCIT Vs Nawal Kumar Kanodia (ITAT Kolkata); ITA No. 1952/Kol/2025; AY 2019-20: Relied upon by the Tribunal in support of the jurisdictional objection concerning reassessment initiated on the basis of third-party search material.
- Sri Dinakara Suvarna Vs DCIT (Karnataka High Court); [2022] 143 taxmann.com 362: Relied upon for the legal position concerning the applicability of Section 153C where proceedings arise from material seized during a search. The order records that the special leave petition was dismissed, reported at [2023] 151 taxmann.com 489.
- Shyam Sunder Khandelwal Vs ACIT (Rajasthan High Court); [2024] 161 taxmann.com 255: Relied upon in support of the proposition that the statutory procedure applicable to search-related material cannot be bypassed through ordinary reassessment proceedings.
- Sejal Jewellary Vs Union of India (Bombay High Court); [2025] 171 taxmann.com 846: Relied upon in examining the validity of reassessment proceedings founded on material seized during a third-party search.
- ACIT Vs Pramod Jain (Supreme Court); [2025] 163 taxmann.com 762: Cited among the authorities supporting the Tribunal’s conclusion concerning the applicable assessment mechanism.
- Maan Steel & Power Limited Vs DCIT, Central Circle-1(2), Kolkata (ITAT Kolkata); ITA Nos. 1167, 2354, 1096 & 2609/Kol/2025; 26/06/2026: The Tribunal observed that the Kolkata Bench had adopted the same view in this decision.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal preferred by the assessee is against the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as the “ld.CIT(A)”], dated 08.06.2026 for the same Assessment Years (AY) 2018-19.
2. The only issue pressed at the time of hearing is against the order of ld. CIT(A) upholding the order passed u/s 147 r.w.s. 144 of the Income-tax Act, 1961 (In short, ‘the Act’), which is bad in law and should have been framed u/s 153C of the Act.
3. The facts of the case in brief are that case of the assessee was re- opened after AO received credible information from insight portal uploaded by DDIT (Inv.) – 2(4), Kolkata as dissemination of information in the case of beneficiaries of cash loans received through finance brokers Sanwaria and Kasera which was found during search on finance brokers Sanwaria and Kasera. The Assessing Officer (In short, ‘the AO’) has provided some documents allegedly found from the premises of the finance brokers who have been arranging cash loans by executing Rukkas. According to AO, assessee’s group name was found in the materials found and seized from the brokers. Several incriminating documents were recovered which showed that said finance brokers were engaged in unaccounted cash transactions on a large scale and assessee was also found to be beneficiary of the same. Accordingly, the assessee has been identified as borrower of cash loans and the documents decoded from hard copies obtained from DDIT showed that the assessee was potential cash borrower from various lenders for amounts aggregating to Rs.2,00,00,000/-. Accordingly, a notice u/s 148 of the Act was issued on 29.03.2022, which was complied with by the assessee by filing a return of income. Notices u/s 143(2) and 142(1) of the Act were issued and there was part compliance on the part of the assessee. The assessee totally denied the said cash transactions outrightly through the above finance brokers. The AO after considering the reply of the assessee and the documents found during the search from Sanwaria and Kasera, treated the said money of ₹ 2,00,00,000/- as unexplained money which was not recorded in the books of accounts by the assessee and added to the income of the assessee. The AO also disallowed and added the maintenance and electricity expenses of ₹ 6,84,224/- claimed u/s 57 of the Act.
4. In the appellate proceedings, the ld. CIT(A) has confirmed the order of AO.
5. We have heard rival submissions and perused the materials available on record. We find that undisputedly the proceedings u/s 147 read with section 148 were initiated on the basis of documents seized during the search operation on third party i.e. Sanwaria and Kasera Group, which was conducted on 30.11.2018. The AO issued notice u/s 148 of the Act on 29.03.2022 which was complied with by the filing the return of income. The assessee filed original return of income, declaring income of Rs.7,30,250/-. We observe from the facts before us that the search has been conducted prior to 01.04.2021 on the third party, the assessment proceedings should have been initiated u/s 153C of the Act, which is an exclusive code in the /act to deal with such type of assessment and also overrides the other sections provided in the Act assessment of income. However, the AO initiated the proceedings u/s 147 of the Act by issuing notice u/s 148 of the Act. In our opinion the same is nullity and bad in law and cannot be sustained. The case is squarely covered by the decisions namely i) in DCIT vs. Nawal Kumar Kanodia (ITA No. 1952/Kol/2025, A.Y. 2019-20) ii) Sri Dinakara Suvarna vs. DCIT, [2022] 143 taxmann.com 362 (Karnataka) (special leave petition dismissed, [2023] 151 taxmann.com 489) iii) Shyam Sunder Khandelwal vs. ACIT, [2024] 161 taxmann.com 255 (Rajasthan) iv) Sejal Jewellary vs. Union of India, [2025] 171 taxmann.com 846 (Bombay) and ACIT vs. Pramod Jain, [2025] 163 taxmann.com 762 (SC). The same view has since been taken by this Hon’ble Tribunal in Maan Steel & Power Limited vs. DCIT, Central Circle-1(2), Kolkata, ITA Nos. 1167, 2354, 1096 & 2609/Kol/2025, order dated 26.06.2026.
6. Therefore, considering the facts of the case in the light of the above decisions, we are inclined to quash the proceedings initiated under section 148 of the Act as well as the assessment framed as nullity and invalid in the eyes of law. The appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
The order is pronounced on 26/10/2026.
