Vijay Bihari Kandhari Vs ACIT (ITAT Mumbai)
Summary: The ITAT Mumbai allowed the appeal of Vijay Bihari Kandhari for assessment year 2011-12 and quashed a reassessment under sections 147 and 148 of the Income-tax Act, 1961. The Tribunal held that when the reassessment is founded entirely on material seized in a search of another person, the Assessing Officer must resort to the special mechanism under section 153C, subject to statutory conditions, rather than ordinary reassessment proceedings.
The assessee filed a return declaring income of Rs.10,79,09,970. A search of the Ahuja Group on 25 June 2015 yielded pen drives and records allegedly indicating cash transactions with the assessee. Following information received from the searched person’s Assessing Officer, a notice under section 148 was issued on 28 March 2018. The Assessing Officer alleged a cash loan of Rs.3,26,00,000 and assessed total income at Rs.14,05,09,970. The CIT(A) sustained both the reopening and addition.
The assessee argued that section 153C exclusively governed the use of third-party search material and disputed the cash-loan allegation, reliance on third-party records, the electronic evidence without a section 65B(4) certificate, and the quantum of the addition. The Revenue defended reopening on the basis of tangible information and cited Delhi and Madras High Court decisions.
The Tribunal found that the assessment order itself traced the entire information and alleged transaction to the seized Ahuja Group material and search statement, without independent material. Applying the binding Bombay High Court judgment in Sejal Jewellary, it held that the general reassessment route could not circumvent section 153C. The Revenue’s reliance on Naveen Kumar Gupta did not displace the jurisdictional High Court precedent.
Consequently, the section 148 notice and assessment under section 143(3) read with section 147 were declared without jurisdiction. The Tribunal allowed ground 1 and left the other substantive grounds open as academic, allowing the assessee’s appeal. The order was pronounced on 10 August 2026.
Cases Discussed
Sejal Jewellary & Anr. v. Union of India & Ors., 2025:BHC-OS:2735-DB (Bombay High Court, 18 February 2025) — binding precedent followed.
PCIT v. Abhisar Buildwell (P.) Ltd., (2023) 454 ITR 212 (SC) — Supreme Court decision considered in the controlling precedent.
Shyam Sunder Khandelwal v. ACIT, Civil Writ Petition No.18363 of 2019 (Rajasthan High Court, 19 March 2024) — relied upon by assessee.
PCIT v. Naveen Kumar Gupta, (2025) 479 ITR 586 (Delhi) — relied upon by Revenue; not followed in preference to jurisdictional precedent.
Karti P. Chidambaram v. PDIT, (2021) 128 taxmann.com 116 (Madras) — relied upon by Revenue.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by the assessee is directed against the order dated 02.09.2025 passed by the learned Commissioner of Income-tax (Appeals)-52, Mumbai [‘the learned CIT(A)’] under section 250 of the Income-tax Act, 1961 (‘the Act’) for the assessment year 2011-12, arising from the assessment order dated 26.12.2018 passed by the Assessing Officer under section 143(3) read with section 147 of the Act.
2. The assessee has raised the following grounds of appeal:
“1. That on the facts and circumstances of the case and in law, the learned Assessing Officer erred in issuing reopening notice under section 147 of the Act without appreciating the fact that in the case of search and seizure of a third party, the Assessing Officer is duty-bound to initiate proceedings under section 153C in the case of a person relating to whom some material is found. Thus, the action of the Assessing Officer in initiating proceedings under section 148 instead of section 153C is null and void and deserves to be set aside.
2. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the reopening assessment ignoring the fact that the Assessing Officer reopened the assessment without application of mind and the entire reopening is based on borrowed satisfaction of information received from the Investigation Wing; hence, the order of assessment passed under section 147 is bad in law and liable to be deleted.
3. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that no reassessment can be made merely to make an enquiry or verification.
4. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.3,26,00,000 as undisclosed income of the appellant on account of an alleged cash-loan transaction with Ahuja Properties and Associates and adding the same to the total income of the appellant in view of section 68 of the Act.
5. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition without appreciating that the appellant has categorically and repeatedly denied any cash transactions with the Ahuja Group.
6. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition without appreciating that third-party records are not binding on an assessee and cannot be relied upon for making the addition.
7. Without prejudice to the above, that on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition without appreciating that data retrieved from the pen drive cannot be relied upon and is not admissible in evidence without a certificate under section 65B(4) of the Indian Evidence Act, 1872.
8. Without prejudice to the above, if any addition is required to be made, the same should be restricted to Rs.2,26,00,000 since, as per the alleged ledger account, Rs.1,00,00,000 was returned during the assessment year. Therefore, the addition, if any, should be restricted to Rs.2,26,00,000.
9. The appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.”
3. Brief facts of the case are that the assessee, an individual, filed the return of income on 28.09.2011 declaring total income of Rs.10,79,09,970/-, which was processed under section 143(1) of the Act. A search and seizure action was carried out on 25.06.2015 in the case of the Ahuja Group and its associate concerns. The Assessing Officer recorded that information was received from the DCIT, Central Circle- 6(2), Mumbai and that, during the search, pen drives, loose papers and other documents were found from the premises of the Ahuja Group and from the driver of Shri Jagdish Ahuja. The data retrieved from the seized pen drive allegedly reflected cash transactions of the assessee with the Ahuja Group.
4. On the basis of the aforesaid search material, notice under section 148 dated 28.03.2018 was issued. In response, the assessee filed the return on 23.11.2018 declaring the same income. The assessee denied having advanced any cash loan to the Ahuja Group. The Assessing Officer, however, relying upon the seized data and the statement of Shri Jagdish Ahuja recorded during the search, held that the assessee had advanced a cash loan of Rs.3,26,00,000/- to the Ahuja Group. The said amount was added as undisclosed income under the head ‘Income from other sources’ and the total income was assessed at Rs.14,05,09,970/-. 5. The learned CIT(A), by the impugned order, upheld the assumption of jurisdiction under section 147 as well as the addition. The learned CIT(A) held, inter alia, that tangible information had been received from the Investigation Wing pursuant to the search on the Ahuja Group and that the notice under section 148 was valid. The assessee is therefore in appeal before us.
6. The learned Authorised Representative submitted that the foundation of the reassessment was not any material independently available with the Assessing Officer but the material seized during the search on the Ahuja Group. He drew our attention to the assessment order, wherein the Assessing Officer himself recorded that the information was received from the DCIT, Central Circle-6(2), Mumbai, and that the impugned transaction was found in the data backup of the pen drive seized in the course of the search. It was contended that section 153C is a special provision governing assessment of a person other than the searched person where seized material pertains or relates to such other person. Consequently, the Assessing Officer could not bypass section 153C and resort to the general reassessment provisions of sections 147 and 148.
7. The learned Authorised Representative relied principally upon the judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary & Anr. v. Union of India & Ors., Writ Petition No.3057 of 2019 and connected matters, judgment dated 18.02.2025, 2025:BHC-OS:2735-DB. He also relied upon PCIT v. Abhisar Buildwell (P.) Ltd. (2023) 454 ITR 212 (SC), Shyam Sunder Khandelwal v. ACIT, Civil Writ Petition No.18363 of 2019, judgment dated 19.03.2024 (Raj.), and decisions of the coordinate benches. It was submitted that the issue is squarely covered and that the reassessment order deserves to be quashed.
8. Per contra, the learned Departmental Representative supported the orders of the authorities below. He relied upon the decision of the Hon’ble Delhi High Court in PCIT v. Naveen Kumar Gupta (2025) 479 ITR 586 (Delhi) and the decision of the Hon’ble Madras High Court in Karti P. Chidambaram v. PDIT (2021) 128 taxmann.com 116 (Madras), and submitted that the proceedings under section 147 were validly initiated on tangible information received by the Assessing Officer.
9. We have heard the rival submissions and perused the material available on record. The short question for our consideration is whether, when the very foundation of the impugned reassessment is material seized during a search conducted on a third party, and the material has been forwarded by the Assessing Officer of the searched party, the Assessing Officer could assume jurisdiction under sections 147 and 148 instead of proceeding under section 153C of the Act.
10. The assessment order leaves no manner of doubt about the source of the information. In paragraph 2 thereof, the Assessing Officer has recorded that information was received from the DCIT, Central Circle- 6(2), Mumbai, pursuant to the search conducted on 25.06.2015 in the case of the Ahuja Group and its associate concerns. The Assessing Officer
further recorded that the impugned entries were contained in the data backup forming part of the seized records of the Ahuja Group. The addition was ultimately made by treating that seized material and the statement recorded during the search as primary evidence. Thus, this is not a case where the Assessing Officer possessed material independent of the search. The jurisdiction assumed under section 147 is founded entirely upon material emanating from the search on the Ahuja Group. 11. The controversy is directly covered by the judgment of the Hon’ble Bombay High Court inSejal Jewellary (supra). After considering the scheme of sections 147, 153A and 153C and the judgment of the Hon’ble Supreme Court inAbhisar Buildwell (supra), the Hon’ble jurisdictional High Court held that where incriminating material is found during a search, recourse must be taken to the special search-assessment provisions. The relevant observations in paragraphs 20, 22, 23 and 24 are reproduced below:
“20. It is thus clear that in the event any incriminating material is found during the search, the Revenue necessarily would be required to take recourse to the provisions of Section 153A and, in the event no incriminating material is found during the search, then the power of the Revenue to have the reassessment under Sections 147/148 of the Income Tax Act stands saved, failing which, the Revenue would be left without remedy.
22. … If this be the case, then certainly the provisions of Section 153C read with Section 153A would be applicable….
23. … To avoid any overlapping of these provisions, the legislature, in its wisdom, has thought it appropriate to provide for an independent effect to be given under Section 153A read with Section 153C by incorporating the non obstante clause in these provisions, which carves out an exception to any normal or regular action being resorted to under Section 147.
24. In this view of the matter, we are of the clear opinion that the impugned notice under Section 147 of the Income Tax Act and all actions consequent thereto are required to be held to be without jurisdiction and bad in law.”
12. The above judgment is binding upon us. On facts, in the present case the Assessing Officer has expressly traced the information, the alleged transaction and the evidence relied upon to the material seized during the search on the Ahuja Group and information has been received from the Assessing officer of the searched person. Therefore, the special machinery under section 153C alone could have been invoked, subject of course to fulfilment of the statutory conditions contained therein. The general provisions of sections 147 and 148 could not have been resorted to for making an assessment founded on such third-party search material.
13. The decision of the Hon’ble Delhi High Court in Naveen Kumar Gupta (supra), relied upon by the Revenue, cannot govern the present appeal in view of the subsequent and direct judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary (supra). Where there is a conflict of views, we are bound to follow the law declared by the Hon’ble Bombay High Court.
14. Respectfully following the binding judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary (supra), we hold that the notice issued under section 148 and the consequent assessment order passed under section 143(3) read with section 147 are without jurisdiction and bad in law. Accordingly, ground no.1 raised by the assessee is allowed and the impugned reassessment is quashed. In view of our decision on the jurisdictional ground, grounds nos.2 to 8 on the validity of reopening and merits of the addition are rendered academic and are left open. Ground no.9 is general in nature and requires no separate adjudication.
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 10/08/2026.
