If any third-party search (u/s 132) reveals incriminating material related to an assessee, the department should proceed under section 153C, rather than invoking section 147/148.

 

ITAT Jaipur Decision in the Case of DCIT, Central Circle-4, Jaipur vs. Kailash Chand Hirawat (ITA No. 1175/JPR/2024, Dated 06.02.2025) regarding Assessment under section 153C or 148.

Let us have a Short Overview of the case:

Reopening u/s 147/148: The case of the assessee was reopened under section 147, and notice under section 148 was issued on 30.03.2018. The assessee subsequently filed a return declaring an income of ₹17,08,170, which was the same income declared in the original return filed on 29.09.2011.

Basis for Reopening: The department acted upon information received from DCIT, Central Circle-4, Jaipur, regarding alleged large-scale cash loan financing by a group named Ramesh Manihar Group.

Search & Seizure Action (Section 132): A search operation was conducted on 07.01.2016 at the premises of Ramesh Manihar Group (located in Johari Bazar, Jaipur), leading to the seizure of 18 pen drives containing voluminous data, including Excel sheets. The data allegedly showed that the assessee had received unaccounted cash loans and earned interest income that was not disclosed.

Observations of CIT(A)
1. The assessee challenged the reopening u/s 147/148 before CIT(A).
2. Reliance on Rajasthan High Court’s decision in Shyam Sunder Khandelwal (2024) 161taxmann.com 255 (Raj.):
• The Rajasthan High Court had quashed the section 148 notice, thereby rendering the subsequent assessment ineffective.
• CIT(A) held that since the notice was quashed, the assessment order had no legal standing.

Observations of ITAT Jaipur
1. During the appellate proceedings, the Assessee’s Representative (AR) submitted that a notice u/s 153C had already been issued for the same assessment year (2011-12) by ACIT, Central Circle-4, Jaipur.
2. ITAT noted that since the department had issued a valid notice u/s 153C, it had effectively followed the High Court’s ruling.
3. As the department had already taken corrective action by proceeding under section 153C, the present appeal by the department (against CIT(A)’s order quashing the 148 notice) became in fructuous.

Final Verdict by ITAT Jaipur
• The appeal by the department was dismissed as infructuous, since the department had already acted in accordance with the Rajasthan High Court’s ruling by issuing a section 153C notice.

Legal Significance of This Decision
1. Incriminating Material & Section 153C: If any third-party search (u/s 132) reveals incriminating material related to an assessee, the department should proceed under section 153C, rather than invoking section 147/148.
2. Quashing of Section 148 Notices: If a High Court quashes a section 148 notice, any subsequent assessment order under section 147 becomes void.
3. No Parallel Proceedings: Once section 153C proceedings are initiated, reopening under section 147/148 becomes redundant.

Saurashtra Color Tones Pvt. Ltd. vs. ITO, Ward-22(4), Delhi (ITA No. 6276/Del/2018, dated 22 January 2020):

Income Tax Officer, Ward 1(1), Amritsar vs. Anil Kumar Kapoor:

Rajat Saurabh Chatterji vs. ACIT (ITAT Delhi),

The copy of the order is as under:

1738818791-WrkjVW-1-TO