Third-Party Loose Papers Cannot Justify Addition Without Cross-Examination: ITAT Delhi

Jagdeep Singh Gill Vs DCIT/ACIT (ITAT Delhi)

Addition Deleted Because Revenue Failed to Verify Alleged Cash Payment From Seller or Co-Buyers; ITAT Holds Search-Related Assessments After 2021 Must Be Made Under Section 148; Assessment Set Aside Because Mandatory Approval Under Section 148B Was Not Obtained; ITAT Rejects Addition Based on Unsigned Loose Paper Found During Search.

In a combined order, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, allowed both appeals filed by the assessee for Assessment Years 2019-20 and 2021-22. The Tribunal examined issues relating to addition based on loose papers seized during search proceedings and the validity of assessment proceedings initiated under section 143(3) after a search conducted post-1 April 2021.

For AY 2019-20, the assessee had originally filed a return declaring income of Rs. 6.61 crore. A search under section 132 was conducted on 04.01.2022 in the ACE & Rudra group cases, during which certain documents were allegedly found from the possession of the assessee and his son. Based on a seized document marked “LP-1”, the Assessing Officer alleged that the assessee had a 35% share in a property at Chandernagar, Ghaziabad and had paid Rs. 20 lakh in cash towards the transaction. The AO treated the alleged payment as unexplained expenditure under section 69C read with section 115BBE.

The assessee challenged the addition on the ground that no enquiry or verification was conducted either from the seller or co-buyers. It was argued that the seized paper neither contained the assessee’s name nor bore his signature. The assessee also contended that the property was purchased by his son and not by him. According to the assessee, no corroborative material existed to establish any cash payment by him.

The Tribunal observed that the property was not registered in the assessee’s name and the loose paper was neither signed by the assessee nor by any other person. It further noted that the Assessing Officer had failed to conduct any independent enquiry from the seller or other co-purchasers to verify the alleged cash transaction. The Tribunal held that the addition was made merely on assumptions and presumptions without corroborative evidence.

While discussing section 292C and section 132(4A), the Tribunal held that presumptions regarding seized material apply only against the person from whose possession the documents are found and not against a third party. It relied upon several judicial precedents, including decisions in Startex (India) Pvt. Ltd., Rama Traders, Kishore Lal Balwani Rai, Umesh Ishrani, and Ajay Gupta, which held that loose papers alone cannot justify additions unless corroborated by evidence.

The Tribunal also observed that the assessee was not given an opportunity to cross-examine the third parties whose statements were relied upon by the department. Referring to the Supreme Court ruling in Kishin Chand Chela Ram, it held that use of third-party statements without granting cross-examination violates principles of natural justice.

Further, the Tribunal noted that in the case of the assessee’s son, who had actually purchased the property, the addition had already been deleted by the CIT(A), while the same addition was sustained in the hands of the assessee. The Tribunal termed this approach contradictory and ultimately deleted the addition of Rs. 20 lakh.

For AY 2021-22, the assessee challenged the validity of assessment proceedings initiated under section 143(3). The assessee argued that since the search under section 132 was conducted on 04.01.2022, falling in FY 2021-22 relevant to AY 2022-23, any assessment for earlier years could only be made through reassessment proceedings under section 148 read with Explanation 2 to section 148 and after obtaining approval under section 148B.

The Tribunal examined the amended statutory framework introduced by the Finance Act, 2021, which replaced the earlier search assessment mechanism under sections 153A to 153D for searches conducted after 01.04.2021. It held that in such cases, the Assessing Officer must proceed under sections 147 and 148 instead of section 143(3).

FULL TEXT OF THE ORDER OF ITAT DELHI

Both the appeals are filed by the assessee against the separate orders dated 08.01.2026 & 13.01.2026 passed by Ld. Commissioner of Income Tax (Appeals)-3, New Delhi [“Ld. CIT(A) in short”] u/s 250 of the Income Tax Act, 1961 [“the Act in short”] arising from the respective assessment orders tabulated as under:

2. First we take ITA No.778/De1/2026 for AY 2019-20, for consideration.

3. Brief facts of the case are that assessee is an individual and filed his return of income on 31.07.2020 declaring total income at Rs. 6,61,56,393/-. A search and seizure action u/s 132 of the Act was carried out on 04.01.2022 at various premises of ACE & Rudra group and residential premises of the assessee was also covered. During the course of search proceedings, some documents were found and seized from the possession of assessee and his son, therefore, case of the assessee was reopened by issue of notice u/s 148 on 17.03.2023. AS the AO, in seized document marked as “LP-1” it is noted that assessee alongwith three other persons purchased a property at C-32, Chandernagar, Ghaziabad for a total consideration of Rs.3.26 crores which is to be paid in two parts i.e. Rs. 2.40 crores as per the circle rate and balance Rs. 86,00,000/- is mentioned as “B”. The AO observed that it appears that amount of Rs. 86,00,000/- was paid in cash. Further in the same paper “Jagga Ji share” mentioned at 35% in the said property who paid “B” Rs.20 Lacs. AO further observed that “Jagga Jr mentioned in the said paper is for the assessee as hos son Angad Singh has stated this fact in his statements recorded u/s 132(4) of the Act. Accordingly, the AO alleged that assessee has made the cash payment of Rs. 20.00 out of his unexplained sources and made the addition of the same u/s 69C r.w.s. 115BBE of the Act as unexplained expenditure.

4. Aggrieved by the said order, assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Thus, the assessee is in appeal before the Tribunal.

5. Before us, in support of Ground of appeal No.1, Ld. AR submits that no enquiry /investigation/verification whatsoever was carried by AO either from the seller regarding receipt of alleged cash of Rs. 20.00 lacs from the assessee. Ld. AR further submits that nowhere in the seized paper as reproduced at page 3 of the assessment order, name of the assessee is appearing and the AO presumed the word “Jagga Ji shares” used for the assessee. The Ld. AR submits that subject property never purchased by the assessee and actually it was purchased by his son, therefore, the addition, if any, it should be made in the hands of son of the assessee. The Ld. AR submits that the addition was made in the hands of assessee without bringing on record any corroborative material/documents from which it could be established that assessee has made the cash payment of R.s20.0 lacs and purchased the subject property having 35% share in it. As per the ld. AR, the alleged paper was seized from the possession of third person and not signed by any person nor any corroborative material was found affirming the cash payment by the assessee, therefore, the paper cannot be treated as a valid document and based on the entries found noted therein, no liability could be fastened upon the assessee. Ld. AR prayed accordingly.

6. On the other hand, the Ld. CIT-DR submits that the payments were made by the assessee and sale deed was got registered in the name of his son. He further submits that Ld. CIT(A) has considered this fact and observed that no addition is made on the basis of the said paper in the hands son of the assessee as the payment was made by the assessee i.e. the father and during the course of search son of the assessee clearly stated in the statement that assessee is commonly known as `Jagga Ji’, therefore, he requested for the confirmation of the addition made.

7. Heard both the parties and perused the materials available on record. It is observed that the case of the assessee is reopened on the basis of material found from the possession of the 3r^d person wherein one document marked as “LP-1” containing noting that assessee had 35% share in the subject property and paid Rs. 20.00 lacs in cash. The AO based on these notings, made the addition in the hands of the assessee by observing that the assesse has made cash payment of Rs.20,00,000/-. It is observed that the said property was not registered in the name of the assessee and the said document is neither signed by the assessee nor by any other person. It is further observed that AO made no enquiry whatsoever either from the seller of the property or by from other co-buyers whose names are appearing in the said paper to find out the true and correct nature of entry noted therein and merely on assumption and presumptions concluded that assessee had made the cash payment of Rs. 20.00 lacs. Since the subject property was never purchased by the assessee, no addition could be made for any alleged cash, if any, paid.

8. Ld. CIT(A) referred the provisions of section 292C as amended by Finance Act, 2008 which provides as under:

“Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search u/s 132 (w.e.f 01.10.1975), or survey u/s 133A (w.e.f 01.06.2002), it may, in any proceeding under this Act, be presumed:

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] “

9. As observed above, the said loose paper was not found from the possession of the possession of the assessee thus the contents thereof cannot presumed to be belonged to the assessee. Further the presumption u/s 132(4A) cannot be taken against the assessee on the material found from the possession of third person. Co­ordinate Bench Mumbai of the Tribunal in Startex (India) (P) Ltd. [2002] (4) TMI 217-ITAT Bombay held that “Presumption under section 132(4A) is only against the person in whose possession the search material is found and not against any other person. It is further held that the presumption is rebuttable and not conclusive and it cannot be applied in the absence of corroborative evidence.

10. In the case of Rama Traders Vs. First ITO reported in 25 ITD 599 (Pat) (TM) it was held that no addition could be made, on the basis of presumption raised by section 132(4A), in the hands of the assessee where in the books of another firm, certain figures were found showing the purchase made by the assessee.

11. In the case of CIT v. Kishore Lal Balwani Rai reported in [2007] 17 SOT 380 (Chd.), it has been held that though the diary seized enable the revenue to presume that its contents are true, such presumptions is available only against the person to whom it belongs and this is a rebuttable presumption.

12. The Hon’ble Bombay High Court in the case of CIT vs. Umesh Ishrani [2019] 108 com 43 held that without making any enquiry from the third person from whom the payments were made, no addition could be made on the basis of loose paper without corroborate the same with any material/evidences.

13. The hon’ble Allahabad high court in the case of Ajay Gupta Vs. CIT reported in [2020] 114 taxmann.com 577 (All.) while reversing the decision of the Tribunal has held as under:

10. We have heard counsel for the parties and perused the material on record. It is not in dispute that two loose papers were found during search from the premises of assessee, however, during block assessment proceedings, the assessee had denied the documents and statement was recorded by Deputy Director of Investigation, he had submitted that he had no concern with the said documents, so seized. Further, the A.O. while passing the assessment order had only on basis of the loose papers found during search made addition to the undisclosed income of assessee while the entries of said papers remained uncorroborated.

11. This Court, in the case of CIT v. Shadiram Ganga Prasad, 2010 UPTC 840 has held that the loose parchas found during search at the most could lead to a presumption, but the department cannot draw inference unless the entries made in the documents, so found are corroborated by evidence.12. As, Section 132(4A) of the Act provides that any books of account, documents, money, bullion, jewellery or other valuable articles or things found in possession or in control of any person in course of search may be presumed to be belonging to such person, and further, contents of such books of account and documents are true. But this presumption is not provided in absolute terms and the word used is “may” and not “shall”, as such the revenue has to corroborate the entries made in the seized documents before presuming that transactions so entered were made by the assessee. Presumption so provided is not in absolute terms but is subject to corroborative evidence.

14. The provisions of section 132(4A) provide a legal presumption that it is incumbent on the person to explain the documents, albeit loose papers in this case, seized from his possession and control. This presumption squarely applies to the persons concerned and addition can certainly be made in his case. However, based upon the incriminating material found at the premises of a third party but not belonging or signed by the appellant the presumption provided u/s 132(4A) will not be applicable until and unless corroborated by other evidence. In other words, it is now a well settled law that presumptions regarding the correctness of paper, documents or books of accounts cannot be raised against a third party in the absence of corroborative evidence. The provisions of section 132(4A) provide that presumption can certainly be drawn against the person in whose case search is authorized and from whose possession or control the books of accounts, loose papers, slips or any other incriminating material or documents are found in the course of search but not against a Third party.

15. As observed above, the alleged transactions noted on the loose paper is not handwritten of the assessee nor has his initials or signatures so as to suggest his involvement in the same. Moreover, the A.O. has not allowed the assessee to cross examine third party in order to use the statements as evidence. This was not done despite request from appellant for cross examination. As has been held in the case of Kishin Chand Chela Ram reported in 125 ITR 713 (SC) by the Hon’ble Apex Court that any addition made on the basis of statement by a Third Party without affording an opportunity for rebuttal or cross examination to the assessee is perverse. It was therefore the obligation of the A.O. to allow the appellant to cross examine the persons whose statements are relied upon in the interest of natural justice before embarking on a final view in this matter.

16. In the last, it is seen that in the case of Shri Angad Singh who has purchased the property, addition made was deleted by ld. CIT(A), and on the other hand addition for the same payment has been upheld in the hands of the assessee which is the contrary approach taken by the ld. CIT(A). In view of aforesaid facts and the discussions made, no addition could be made in the hands of the assessee for this amount, accordingly, the same is hereby deleted.

17. In the result, all the grounds of appeal of the assessee are allowed. The appeal of the assessee is allowed.

ITA No.779/DeU2026 for AY 2021-22

18. Before us, Ld. AR for the assessee in support of the Ground of appeal No.1 submits that in the instant case, a search u/s 132 was conducted on 04.01.2022 which fallen in is Financial Year 2021-22 relevant to Assessment Year 2022-23. As per Explanation 2 to section 148, assessment in the case prior to the year of search should be completed u/s 148 of the Act. It is thus submitted by Ld. AR for Assessment Year 2021-22a i.e. the assessment year before us, only permissible statutory course is to initiate reassessment proceedings by issue of notices u/s 148 and then pass the reassessment order after obtaining the mandatory approval 148B of the Act which has not been done in the instant case, therefore, the assessment proceedings so initiated and the order passed u/s 143(3) based on the search carried on 04.01.2022 is bad in law and is without jurisdiction. He placed reliance on the judgment of the Coordinate Bench of ITAT Delhi in the case of Deepak Agarwal, C/o Kapil Goel, Adv. vs. DCIT, CC-25, New Delhi, 2025 (10) TMI 1101-ITAT Delhi and in the case of Montage Enterprises Pvt. Ltd. vs. DCIT/ACIT, Central Circle-II, Noida in ITA No. 5458/Del/2025 & 5906/De1/2025, ITAT Delhi.

19. On the other hand, the Ld. CIT-DR supported the orders of the lower authorities and submits that the assessee has not challenged this issue before the lower authority and participated in the assessment proceedings, therefore, this issue cannot be raised at this stage. She prayed accordingly.

20. Heard the contention of both the parties and perused the materials available on record. Before us, the claim of the assessee is that the case of the assessee is taken up for assessment u/s 143(3) of the Act based on the search conducted on 04.01.2022 which is Financial Year 2021-22 relevant to Assessment Year 2022-23. As per

Explanation 2 of section 148 of the Act, case of the assessee should be reopen by issue of notice u/s 148 of the Act however, as observed above, the assessment for the impugned year was passed u/s 143(3) of the Act.

21. The relevant Explanation- 2 to section 148 reads as under:

148- Explanation 2. For the purposes of this section, where.-

i. a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or

ii. a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or

iii. the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

iv. the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.”

22. From the above, it is clear that where the search is conducted u/s 132 of the Act on or after Pt April, 2021, the AO should record satisfaction that income has escaped assessment for any assessment year prior to the year of search and after issue the notice u/s 148 of the Act proceed to pass the reassessment order referring to the material found and seized during the course of search.

23. Vide Finance Act, 2021, the Parliament has done away with the existing legal framework for assessment in case of search or requisition forming part of Chapter XIV of the Income Tax Act, 1961- i.e. “Procedure for Assessment i.e. sections 153A to 153D of the Income Tax Act, 1961 in respect of search or requisition conducted on or after 1st April 2021”.

24. For the searches conducted u/s 132(1) of the Act on or after 1st April 2021, the assessments shall now be framed under section 147 read with section 148, 148A, 149,151 of the Income-tax Act, 1961 as substituted by the Finance Act, 2021. As observed above, in the present case, the search was conducted on 04.01.2022 and the assessment year under appeal before us is AY 2021-22 thus as per the new scheme, the assessment should have been completed after reopening the assessment u/s 148 of the Act and not u/s 143(3) as has been done in the present case.

25. Further section 148B of the Act provides that the approval by the Additional Commissioner of Joint Commissioner should be taken as per section 148B of the Act before passing the order u/s 148B of the Act. The relevant provisions of section 148B of the Act is reproduced herein under appeal.

“Provision of section 148B are as under: –

148B. No order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director]

26. The memorandum explanation the provisions of section 148B introduced by Finance Bill 2022 reads as under:

“Memorandum explaining the provision of section 148B introduced by Finance Bill 2022 are as under: –

“Clause 46 seeks to insert a new section 148B in the Income-tax Act relating to prior approval for assessment, reassessment or recomputation in certain cases.

The proposed new section seeks to provide that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, in respect of an assessment year to which clause (i ), clause (ii), clause (iii) or clause (iv) of the Explanation 2 to section 148 apply.

This amendment will take effect from 1st April, 2022.”

27. It is thus clear that in case where search u/s 132 of the Act sis conducted on or after 01.04.2021, the assessment prior to the year of search should be completed by issue of notice u/s 148 of the Act and after obtaining the mandatory approval from the prescribed authority as provided u/s 148B of the Act. The Co-ordinate Bench of Delhi Tribunal in the case of Montage Enterprises Pvt. Ltd. (supra) by placing reliance of order in the case of Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 com 614 (Chandigarh and further in the case of Jamna Das Nikkamal Jain Saraf Pvt. Ltd. vs. DCIT in ITA No.403/Chd./2025 dated 04.11.2025 held that the order passed without following the procedure section 148 and without obtaining approval u/s 148B is bad in law and quashed such order.

28. The relevant observations as contained in para 2 to 5 are as under:

“Heard both the parties. Case files perused.

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 30 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 Home life Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 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 Put. 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 revenue 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 1534) 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 post search 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.”

29. Since the fact are identical, thus, by respectfully following the order of the Co-ordinate Bench of ITAT Delhi in the case of Montage Enterprises Pvt. Ltd. (supra) and of the coordinate bench of ITAT, Chandigarh in the case of Homelife Buildcon (P.) Ltd. (supra), the assessment order passed u/s 143(3) is bad in law as the same should have been passed after issue of notice u/s 148 of the Act and after obtaining mandatory approval u/s 148B of the Act. Therefore, the assessment order passed in the instant case u/s 143(3) of the Act is bad in law and thus quashed. The ground of appeal No. of the assessee is allowed.

30. In the result, both the appeals filed by the assessee are allowed.

Order pronounced in the open Court on 06.05.2026.