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Judgment
PER AMITABH SHUKLA, AM
This appeal filed by the Assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, New Delhi, dated 31.07.2025 arising out of assessment order dated 20.03.2024 passed under section u/s 143(3) r.w.s. 144B of the Act for the Assessment Year 2022-23. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The assessee has raised following grounds of appeal:-
1.That the CIT(A)/NFAC grossly erred in upholding the addition of Rs. 1,19,33,587/- u/s 69/69A of the Income Tax Act, 1961 as unexplained investment and unexplained money for purchase of immovable property. In sustaining the impugned addition, the authorities below failed to appreciate the complete documentary evidence produced, including: • Registered conveyance deeds reflecting the actual sale consideration, • Bank statements evidencing payments through proper banking channels, • Seller’s written declaration confirming receipt of the entire consideration by bank and denial of any cash transaction.
2.That the Ld. CIT(A)/NFAC failed to appreciate that in the case of co-owner of the same property, Mr. Ankur Khanna (PAN: AAMPK6839R), the assessment was completed u/s 143(3) r.w.s 144B vide order dated 28-02-2024 without making any addition, despite being based on the same set of documents and facts. The differential treatment to two identical cases violates the principle of equality before law under Article 14 of the Constitution of India.
3.That the Learned CIT(A)/NFAC made a mistake by only trusting the alleged agreement to sell and the statement recorded during the search, without paying attention to the clear declaration from the seller, Mr. Anubhav Sharma. The seller confirmed that all payments were made through proper bank transfers and no cash was received. Because of this, the addition made by the authorities is wrong and should be removed.
4.That the Ld. CIT(A)/NFAC mechanically upheld the action of the Assessing Officer by adopting an unrealistic rate of Rs. 80,500 per sq. ft. whereas the Department’s own Valuation Cell had determined the fair market rate at only Rs. 11,943 per sq. ft. This finding alone proves that the addition is based on imagination and conjecture rather than evidence.
During the course of present hearing, the assessee has also filed following additional grounds of appeal:-
1.That the learned Assessing Officer has erred in law and on facts in framing the assessment U/s 143(3) r.w.s. 144B of the Income-Tax Act, 1961 (in short Act) without fulfilling the mandatory conditions prescribed under clause (iv). Explanation 2 to section 148 of the Act, particularly by failing to record a valid and proper satisfaction note prior to initiating proceedings based on documents allegedly seized from other person on or after 01.04.2021 - such recording being a sine qua non for using such material against the assessee - rendering the assessment order bad in law and liable to be quashed.
2.That the learned Assessing Officer has further erred in relying documents seized during the search conducted 10.11.2021 on other person by making additions in the hands of the assessee without obtaining the prior approval of the Principal Commissioner of Income Tax (PCIT) thereby rendering the assessment illegal, void ab initio and without jurisdiction.
3.That the assessment framed u/s 143(3) is bad in law, as mandatory approval as prescribed under section 1483 of the Act has not been obtained and in the absence of compliance with the provisions of section 148B, the assessment is vitiated and liable to be annulled.
4.That the learned Assessing Officer has relied upon the material found in the search action U/s 132 of the Act on 32nd Milestone Group of cases on 10.11.2021 for drawing adverse view leading to addition on the basis of material seized from third party premises is void ab initio being without recording, any satisfaction by the Assessing Officer concerned."
The assessee has argued that the abovementioned additional grounds of appeal deserve to be admitted and adjudicated. It was argued that the same goes to the root of the matter as it challenges the very validity of order passed u/s 143(3) r.w.s. 144B of the Act dated 20.03.2024. In support of its contentions, the ld. Counsel placed reliance upon the decision of Hon’ble Apex Court in the case of NTPC 229 ITR 383(SC) and of the Hon’ble Chandigarh Tribunal in the case of Malbros International Pvt. Ltd. in ITA No.48/Candi/2025. The ld. Counsel submitted that the additional grounds 1 to 4 raised by it, raises purely jurisdictional issue and hence deserves to be adjudicated.
The ld. DR contested the admission of the additional grounds. It was argued that the impugned additional grounds are not connected with controversy at hand and deserves to be rejected. The ld. DR vehemently argued that the invocation of explanation-2 of section 148 by the appellant assessee through additional grounds is unwarranted. The ld. DR placed reliance upon the decision of Hon’ble Delhi High Court in the case of Navin Gupta 479 ITR 586(Del.) submitting that in compliance to the decision of Hon’ble High Court, assessment was to be completed u/s 153C and not u/s 148 of the Act. It was argued that the Assessing Officer is entitle to proceed under regular scrutiny proceedings, in a case if jurisdiction was not assumed u/s 148.
Upon considering the arguments of rival parties, we find force in the arguments of the ld. Counsel for the assessee regarding the maintainability of additional grounds raised by it. We, therefore, admit the additional grounds of the assessee and proceed to adjudicate accordingly.
Before proceeding further, we deem it appropriate to briefly recapitulate the factual matrix of this case as discerned from the order of the ld Assessing Officer dated 20.03.2024. Returned declaring income of Rs.9,40,370/- was filed by the assessee on 22.12.2022. Notice u/s 143(2) was issued to the assessee on 02.06.2023. Meanwhile, a search u/s 132 was conducted upon 32nd milestone group of cases on 10.11.2021. Information was communicated of the search by the Investigation Wing to the ld. Assessing Officer As per facts recorded by ld. Assessing Officer on page-3 to 17 of his order, evidences were found during the search indicating cash transactions between the assessee and the key persons of the searched group in respect of sale/purchase of immovable property. The ld. Assessing Officer rejecting submissions of the assessee proceeded to add an amount of Rs.79,83,587/- under section 69 and of Rs.39,50,000/- u/s 69A of the Act holding that assessee has paid amounts in cash for purchase of property no.G-41 and G-42A on the ground floor of the 32nd Galleries, Sector-15, Gurgram. The ld. CIT(A) confirmed the addition made by the ld. Assessing Officer by relying upon the facts and arguments noted by the ld. Assessing Officer in his order.
Reverting to the additional grounds of appeal raised by the assessee, we have noted that through additional ground of appeal no.01, the assessee has primarily contested that the ld. Assessing Officer has relied upon seized material qua search on 10.11.2021 and hence was required to have followed the mandate of Explanation-2 of section 148. The simple argument of the assessee is that as the Assessing Officer has relied upon seized material in respect of a search done after 01.04.2021, the ld. Assessing Officer was required to have initiated proceedings u/s 148 and that the order u/s 143(3) dated 20.03.2024 thus becomes invalid and bad in law. Through other additional grounds of appeal, the appellant has contested that the assessment order is also vitiated by the fact that no satisfaction was recorded by the ld. Assessing Officer before considering the contents of the seized documents nor was any approval obtained from the PCIT concerned.
The ld. Counsel for the assessee vehemently argued that the position of law is crystal clear and that Explanation-2 of section 148 clearly mandates that in respect of search conducted after 01.04.2021, the Assessing Officer would be compulsorily required to conduct assessment proceedings u/s 148 only. It was contended that Finance Act, 2021 excludes invocation of provisions of section 153C(3) in respect of searches conducted on or after 01.04.2021. The ld. Counsel argued that the assessment order dated 20.03.2024 therefore deserves to be null and void and quashed.
The ld. DR opposed the arguments of the assessee while objecting to admission of additional grounds(supra).
We have heard rival submissions in the light of material placed on record. At the outset, we deem it appropriate to reproduce the contents of Explanation-2 of section 148
“…Issue of notice where income has escaped assessment. - Before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:
Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139. xxxxxxxxxxx
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 (it) 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 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 position of law is thus crystal clear that in respect of searches conducted post 01.04.2021, action can be taken for assessment only u/s 148 of the Act. There is no dispute that the ld. Assessing Officer has not used seized material conducted in the case of 32nd Milestone Group qua search u/s 132 dated 10.11.2021. We have noted that on identical facts, this Tribunal in the case of Pawan Kumar, in ITA No.8226/DEL/2025 through its order dated 03.07.2026 has held as under:-
“….8. We have noted that Hon’ble Co-ordinate Bench of the Chandigarh Tribunal, on similar facts in the case of Malbros International Pvt. Ltd in ITA No.48/Chd/2025 through its dated 13.01.2026 have held as under:-
9.After due consideration of material facts on record as well as arguments of Ld. AR, we find substantial merit in legal arguments as urged by Ld. AR. The arguments of Ld. AR are duly backed up by various judicial decisions taking the same view. The pertinent legal ground as raised by Ld. AR is that the assessment has been framed u/s 143(3) without fulfilling the mandatory conditions prescribed u/s 148 read with Explanation 2(iv) thereof. Another pertinent legal issue is that mandatory approval as required u/s 148B has not been obtained from the competent authority even though the impugned AY was immediately preceding the search assessment year. Another line of argument is that approval as obtained by Ld. AO from Addl. CIT before passing the assessment order was invalid one since the approval ought to have been obtained u/s 148B of the Act which was not done in the present case. Further, whatever approval was taken, the same was mechanical and without application of mind. All these legal issues, as rightly been pointed out by Ld. AR, has adequately been dealt with by co-ordinate bench of Chandigarh Tribunal in the case of M/s Homelife Buildcon Pvt. Ltd. (ITA No.880/Chd/2024 & ors. dated 17-07-2024). We find that on identical facts, the coordinate bench held as under
22.The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, particularly through the Finance Act, 2021, which introduced significant changes to the reassessment regime. These amendments explicitly include instances involving third-party search material and make it incumbent upon the Assessing Officer (AO) to follow the procedure under section 148, including obtaining prior approval from the Principal Commissioner of Income Tax (PCIT).
23.In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio.
24.Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment regime under section 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed.
25.In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments.
26.The relevant extract Memorandum explaining the finance bill is reproduced as under:-
‘(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure.
(vi)Further, in search, survey or requisition cases initiated or made or conducted, on or after 1st April, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated or requisition is made or any material is seized or requisitioned or survey is conducted.”
27.The notice issued under section 143(2) was also produced by the AR. Upon perusal of the said notice, it is evident that the assessment under section 143(3) was initiated solely for the purpose of verifying the return of income filed by the assessee. In such circumstances, the importing and reliance upon material seized from third-party searches, namely, those conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, goes beyond the jurisdiction conferred under section 143(3). Particularly, where the applicable law—Explanation 2 to section 148 (as amended by the Finance Act, 2021) mandates prior approval from the Principal Commissioner of Income Tax (PCIT) before initiating reassessment proceedings on the basis of such material, the failure to comply with that requirement renders the assessment legally untenable.
28.In the present case, the AO did not issue a notice under section 148, nor did he follow the due process of law under the new reassessment framework, including recording of satisfaction and obtaining prior sanction from the PCIT. Therefore, the assessment framed under section 143(3), because of being based on third-party material without adhering to statutory safeguards, is bad in law. The AO was only empowered to verify the return of income and restrict his scope of inquiry accordingly; he was not permitted to expand the assessment by importing and relying upon third-party seized material without following the mandatory procedure laid down under the law.
29.Furthermore, there exists a mandatory statutory requirement that in all cases involving search-related assessments falling within the assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner is required under section 148B of the Income-tax Act, 1961. In the present case, the Assessing Officer (AO) has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under:
Prior approval for assessment, reassessment or recompilation in certain
cases. 148B. No order of assessment or reassessment or recompilation 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 (iti) 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.
30.A comparison of the requirement of approval under section 153D and section 148B is drawn, from which it is evident that approval under section 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval under section 148B is now required in all cases where proceedings are initiated pursuant to a search, requisition, or survey, or where asset/material/documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval under section 148B from the specified higher authority.
Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Applicable Period Search initiated between 01.06.2003 to 31.03.2021 Search/survey initiated on or after 01.04.2021 but before 01.09.24 Period 01.06.2003 to 01.04.2021 but before 01.09.24 31.03.2021 Context Search assessment under Section All cases where 153A/153C assessment/reassessment is based 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 Triggering Search or requisition on the assessee 1. Search/requisition 2. Survey Event under Sections 132 /132A or material is (except under 133A(2A)) on used against assessee from third party assessee 3. Search/requisition on search another person, but
assets/documents relate to assessee Purpose of Supervisory check in search assessments assessments to ensure fairness and Approval to ensure fairness and oversight oversight Prevent misuse of powers in reassessment based on search/survey-related information under new regime Who gives Joint Commissioner (mandatory) Any of: Joint Commissioner / Addl. approval Commissioner / Joint Director / Addl. Director Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Deeming Not expressly stated Explanation 2 creates a legal Presumption presumption: AO is deemed to have information suggesting income escaped assessment in specified cases
31. This requirement has also been explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. It is further seen that the Joint Commissioner has not even been supplied seized material relied upon as seized from third-party in the present assessment. There exists a prescribed procedure under which such seized material (including material found from third-party premises) is to be forwarded
Context Search assessment under Section 153A/153C All cases where assessment/reassessment is based 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 Triggering Event Search or requisition on the assessee under Sections 132 /132A or material is used against assessee from third party search 1. Search/requisition 2. Survey (except under 133A(2A)) on assessee 3. Search/requisition on another person, but to the approving authority at least 30 days in advance of granting approval. This procedural safeguard is crucial to prevent arbitrary and unregulated use of third-party material.
32.In the present case, there is no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only. procedurally defective but also without jurisdiction.
33.Even we find while framing the assessment under section 143(3), the Assessing Officer (AO) has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, a bare perusal of this approval shows that it was obtained in reference to F. No. 299/36/2020/1DAR/INV3(3)/577 dated 15.07.2022, i.e., in accordance with the CBDT Circular dated 15th July 2022, and not under the mandatory provisions of section 148B of the Income-tax Act, 1961.
At the outset, it is important to note that the approval so obtained does not mention or consider any of the seized materials sourced from the third party. searches conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, despite the AO having heavily. relied on those materials in framing the additions. The approval merely states that the appraisal report was considered, without any reference to the original documents seized or to the statutory procedure outlined under section 148B.
It is pertinent to refer to the Manual of Office Procedure in February 2003, which lays down a mandatory protocol: that in all search cases, especially where material pertains to persons other than the one searched, such material is to be forwarded in original to the approving authority, and a draft order is required to be submitted for approval at least 30 days in advance. In the present case, the approval letter was issued by the DCIT only on 22nd August 2023, which clearly contravenes this procedural requirement. This procedural lapse is further compounded by the judgment of the Hon'ble Supreme Court in Serajuddin and Co. case, [2024] 163 taxmann.com 118 (SC) wherein it was held that in search cases, strict adherence to the approval protocol as laid down in the departmental Manual of Office Procedure in February 2003 and law is essential to uphold the validity of the assessment.
34.Thus, from the above, it is quite evident from the approval granted by the Addl. CIT(Central), there is no mention or consideration of the seized material sourced from the third party, namely Sh. Ajay Prabhakar and Sh. Ravi Kapoor, though, we find that in the assessment order and in the order of CIT(A), both the authorities have heavily relied upon on such seized material and it only states that the appraisal report have been considered without any reference to any original documents seized for statutory procedure outlined has 16 u/s 148. Thus, in view of above, the assessment as framed by Assessing Officer vide order dated 24.08.2023 is quashed.”
The coordinate bench, on identical facts, held that Ld. AO proceeded to frame the assessment u/s 143(3) despite relying heavily on material found during searches conducted on third-parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. The said conduct not only violates the express mandate of law but also renders the assessment jurisdictionally erroneous. A plain reading of the Finance Act, 2021 coupled with Explanatory Memorandum to the Finance Bill clearly indicate that the legislative intent was to bring all searches conducted on or after 01-04-2021 within the ambit of the new reassessment regime u/s 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to Sec.147 and Sec.148, along with the insertion of Explanations-1 and 2 and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation-2 to Section 147, it would be evident that in cases where a search is initiated on or after 01-04-2021, AO shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT is followed otherwise the assessment would be bad-in-law. It was further observed by the bench that AO relied upon material seized during searches conducted on other persons and therefore, it was mandatory for Ld. AO to invoke the provisions of Sec.147 and not to bypass the statutory framework by proceeding u/s 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards u/s 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments. It was further observed by the bench that assessment u/s 143(3) was initiated solely for the purpose of verifying the return of income as filed by the assessee. In such circumstances, the importing and reliance upon material seized from third-party searches would go beyond the jurisdiction conferred u/s 143(3) particularly, where the applicable law i.e., Explanation-2 to section 148 (as amended by the Finance Act, 2021) mandates prior approval from the Principal Commissioner of Income Tax (PCIT) before initiating reassessment proceedings on the basis of such material. The failure to comply with such requirement would render the assessment legally untenable. The Ld. AO did not issue a notice u/s 148 nor did he followed the due process of law under the new reassessment framework, including recording of satisfaction and obtaining prior sanction from the PCIT. Therefore, the assessment framed u/s 143(3), because of being based on third-party material without adhering to statutory safeguards, would be bad-in-law. The AO was only empowered to verify the return of income and restrict his scope of inquiry accordingly and he was not permitted to expand the assessment by importing and relying upon third-party seized material without following the mandatory procedure laid down under the law. It was mandatory statutory requirement that in all cases involving search-related assessments falling within three assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner u/s 148B would be required. However, Ld. AO proceeded without obtaining such approval which is a clear violation of the procedural safeguards envisaged under the law which would vitiate entire assessment proceedings. In the present case, approval was taken to frame assessment u/s 143(3) only. As against this, the provisions of Sec.148B mandate prior approval of specified authority. These provisions provide that 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 Sec.148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. The bench further observed that under the amended provisions, approval u/s 148B would be required in all cases where proceedings were initiated pursuant to a search, requisition, or survey, or where asset / material / documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval u/s 148B from the specified higher authority. This requirement was explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. The Joint Commissioner was not even supplied with seized material as relied upon by Ld. AO. There exists a prescribed procedure under which such seized material (including material found from third-party premises) is to be forwarded to the approving authority at least 30 days in advance of granting approval. This procedural safeguard is crucial to prevent arbitrary and unregulated use of third-party material. There was no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only procedurally defective but also without jurisdiction. The bench further observed that while framing the assessment u/s 143(3), the AO has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, this approval was obtained in reference to F.No.299/36/2020/1DAR/INV3(3)/577 dated 15-07-2022, i.e., in accordance with the CBDT Circular dated 15-07-2022 and not under the mandatory provisions of section 148B of the Income-tax Act, 1961. It was to be noted that the said approval did not mention or consider any of the seized materials sourced from the third party despite the fact that AO heavily relied upon that material while making the additions. The approval merely states that the appraisal report was considered, without any reference to the original documents seized or to the statutory procedure outlined under section 148B. Pertinently, the manual of office procedure issued in February 2003 lays down a mandatory protocol that in all search cases especially where material pertains to persons other than the one searched, such material is to be forwarded in original to the approving authority and a draft order is required to be submitted for approval at least 30 days in advance. In the present case, the approval letter was issued by the DCIT only on 22-08-2023 which clearly contravenes this procedural requirement. This procedural lapse is further compounded by the judgment of the Hon'ble Supreme Court in Serajuddin and Co. case (163 Taxmann.com 118) wherein it was held that in search cases, strict adherence to the approval protocol as laid down in the departmental Manual of Office Procedure in February 2003 and law is essential to uphold the validity of the assessment. It was quite evident from the approval as granted by Ld. Addl. CIT that there was no mention or consideration of the seized material sourced from the third party though both the lower authorities heavily relied upon such seized material. The approval merely states that the appraisal report has been considered but without any reference to any documents seized from third parties. Finally, on the given facts, the bench quashed the assessment order. We find that similar facts exist in the present appeal before us. No change in facts could be demonstrated by revenue.
10.We further find that the above decision has subsequently been followed and a similar view has been taken by another co-ordinate bench in Jamna Dass Nikkamal Jain Saraf Private Ltd. (ITA No.403/Chd/2025 & ors.). Faced with similar facts / situation, the bench observed that the impugned AY being one of the three preceding years would fall under Explanation 2(iv) to Sec.148. The Explanation provide that if a search is initiated then the AO shall be deemed to have information suggesting escapement of income for the three AYs immediately preceding the AY relevant to the previous year in which the search is initiated. Therefore, the only permissible statutory course was to issue notice u/s 148 and obtain prior approval u/s 148B before passing assessment order. Since the AO completed the assessment u/s 143(3) without issuing the notice u/s 148 the assessment proceedings so initiated could not be validly continued and completed after a search u/s 132 has been conducted in the case of an assessee without following the required procedure of Sec.148, Explanation-2. Though the provisions of Sec. 143 provide the general framework for regular assessment, the provisions of Sec. 147 & 148 (post-2021 regime) deal with reassessment based on information suggesting escapement of income including that unearthed during a search. A plain reading of Sec.143(2) would show that such a notice could be issued only when a return of income was furnished u/s 139 or in response to notice u/s 142(1). It empowers the AO to scrutinize that return if he considers that income has been understated or tax was underpaid. However, when a search u/s 132 takes place and materials are found indicating possible escapement of income, the statute envisages a different route for carrying out assessment or reassessment u/s 147 r.w.s. 148 which is special mechanism for bringing to tax the income discovered in consequence of a search. Although Sec.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 makes 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 Sec.143(3). This position finds substantial support from the ratio of various decisions of Hon'ble High Court and Hon'ble Supreme Court unanimously holding that once a search was conducted and proceedings were triggered u/s 153A, the AO could not continue parallel proceedings u/s 143(3) or u/s 147 for the same AY since 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 and therefore, ordinary assessments abate and could not co-exist with the search-based assessment. Therefore, AO must act u/s 148 (which now performs the role formerly assigned to Sec. 153A) rather than continuing with a pending Sec.143(3) proceeding. The legislative intent was to prevent multiplicity of proceedings and ensure that only one comprehensive order is passed, factoring in both the pre-search and post search materials. This rationale is further reinforced by the well-settled principle of generalia specialibus non derogant i.e., the special provision overrides the general provisions of the Act. Therefore, the special provisions of Sec.148 must prevail over general provisions of Sec.143. Allowing the AO to continue and conclude proceedings u/s 143(3) after a search would defeat this legislative scheme and render the safeguards, such as prior approval of the specified authority, redundant. The bench also observed that the statutory approval was sought by Ld. AO on 31-03-2024 and the same was granted by Addl. CIT on the same date on which the draft assessment order was forwarded by AO. The revenue could not demonstrate that the voluminous seized material was actually forwarded to the approving authority, nor was it shown that the Ld. Addl. CIT made any independent examination thereof. It was difficult to comprehend that a meaningful consideration of such voluminous material in a single day had taken place. The grant of approval was not an empty formality as it would have the trapping of a quasi-judicial function by the competent authority. The approval authority is bound to apply its mind, which reflects the application of its mind and the documents submitted to it. The record shows that there was a tiring hurry for granting the approval without looking into the contents of the underlying documents and placing on record the replies, if any, received in the office and the queries raised by the Addl. CIT. The bench then referred to the decision of Tribunal in the case of AB Alcobev Pvt. Ltd. (ITA Nos. 356/Chd/2024 & ors.) and the decision in Pushpanjali Construction Pvt. Ltd. (ITA No.1001/Del/2025) wherein it was held that approval granted in a mechanical manner without application of mind renders the assessment order invalid. Once the statutory approval suffers from non-application of mind, the consequential assessment cannot survive in the eyes of law. On these facts, the assessment order was held to be without jurisdiction and the assessment order was held to be passed without taking the approval from the competent authority as envisaged under the Act. The approval was mechanical one and was not in accordance with law. Finally, the assessment order was quashed on legal grounds. We find that the above said legal propositions squarely apply to the facts of the present case before us.
11.The Ld. CIT-DR has referred to CBDT Circular F.No.225/66/2023/ITA-II dated 24-05-2023 to state that the jurisdiction was validly acquired by Ld. AO. However, the said circular merely in the nature of guidelines for compulsory selection of returns for complete scrutiny during the financial year 2023-24. After going through the Circular, we find that this circular merely contains parameters for compulsory selection of returns for complete scrutiny. The relevant clause 2(ii) which apply to the facts of present case, provide that assessment in search & seizure cases / requisition cases u/s 132 / 132A conducted on or after 01-04-2021 shall be selected with prior administrative approval of Pr. CIT / Pr. DIT / CIT / DIT concerned who shall ensure that such cases are transferred to central charges u/s 127 of the Act within 15 days of service of notice u/s 143(2) / 142(1) of the act by the jurisdictional AO. The same is thus merely administrative in nature and prescribe a procedure to be followed in search cases which have been conducted after 01-04-2021. The same do not address the various legal issues as raised by Ld. AR before us and which have been enumerated in preceding paragraphs. Therefore, this circular does not render any assistance to the case of the revenue.
12 Finally, considering the entirety of facts and circumstances of the case, we would hold that the assessment ought to have been framed under special provisions of Sec.148. To undertake the same, approval of specified authority as envisaged u/s 148B was required to be taken which is not shown to have been taken. Further, the approval of appropriate authority stood vitiated for application of mind. The procedure as required under the provisions of Sec.148 is not shown to have been fulfilled in the present case. The approval as sought by Ld. AO of the order u/s 143(3) is non-est / bad in law and the granting of the approval of the order u/s 143(3) by the Addl. CIT is null and void and thus, assessment as framed u/s 143(3) vide order dated 26-03-2024 deserves to be quashed on various legal grounds. We order so. Since the assessment order has been quashed on legal grounds, delving into the merits of the case has been rendered mere academic in nature. However, for the sake of completeness we deal with the merits of the additions also which has been raised in these cross-appeals…..”
9.We have further noted that a Co-ordinate Bench of this Tribunal in its decision in ITA No.5036/Del/2025 dated 10th April, 2026, in the case of Gas Supply Ltd, on identical facts have concluded as under:-
“….We have heard rival submissions in the light of material placed on record. The ld. Counsel for the assessee submitted that the Appellant filed its return of income for Assessment Year 2022-23 on 03.10.2022. Subsequently, a search under Section 132 of the Income-tax Act, 1961 (the Act) was conducted on 10.01.2023. It was argued that consequently the present year was not closed/ concluded year on the dated of search. It was submitted that as per Explanation 2 to Section 148 of the Act, once a search under section 132 is conducted in a case, assessment proceedings are to be initiated under Section 147 through the issue of notice under Section 148 of the Act. It was submitted that in the present case, however, the AO did not issue the mandatory notice under Section 148 of the Act but had only issued a notice under Section 143(2) without a notice under Section 148 of the Act. It was accordingly argued that the assessment order under section 143(3) dated 31.03.2024 was therefore based upon invalid assumption of jurisdiction by the ld. AO and hence liable to be quashed. The ld. Counsel placed heavy reliance on the decision of this Tribunal, in the case of Montage Enterprises Put. Ltd. v. DCIT (ITA No. 5458/Del/2025 & 5906/Del/2025. Reference was also made to the decisions of Chandigarh Tribunal in the case of Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 taxmann.com 614 and Jamna Das Nikkamal Jain Saraf Pot. Ltd. Vs DCIT (ITA No. 403/Chd./2025).
5.We have noted that on the issue of validity of issuance of notice in cases where search has taken place, this Tribunal, in the case of Montage Enterprises Put. Ltd. (supra) has held as under:-
“….
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 30th 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. 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 Homelife Buildcon (P.) Ltd. Vs. DCIT, (2025) 176 taxmann.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:
“11.4In 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 Pvt. Ltd., it was prayed that the impugned assessment be quashed.
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).
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.
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.”
Therefore, the only permissible statutory course was to issue notice u/s 148 and obtain prior approval u/s 148B before passing assessment order.
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.
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.
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.
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 revnue 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.
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.
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 153A) 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 postsearch materials.
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.
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.”
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.
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.
We next notice with the able assistance coming from both the parties that the learned CIT(A)’s impugned estimation has considered the assessee’s average GP @ 11.84% in AYs 2012-13 to AY 2021-22 alongwith the flexible packaging material industry’s comparable instances having the GP rate @ 6.96% (pages 122-123) in the lower appellate discussion to arrive at the “mean” profit rate of 9.40% i.e. 11.84% + 6.96%÷ 2, which is challenged by both the parties. That being the case, the assessee takes us to case law CIT Vs. K.Y. Pilliah & Sons (1967) 63 ITR 411 (SC), CIT Vs. Surjeet Singh Mahesh Kumar (1994) 210 ITR 83 (Del.), Bimal Kumar Anant Kumar Vs. CIT (2007) 159 TAXMAN 402 (All.), Salem Steel Co. Vs. CIT (2010) 322 ITR 349 (Mad.), Telelinks & Ors. Vs. CIT (2015) 377 ITR 158 (P&H), quoted in the lower appellate discussion at page 125 onwards that even such an estimation is not to be an unbridled and unguided one but to be based on the very sector’s book results at this relevant point of time. We thus reject the Revenue’s vehement contentions seeking to assess the assessee @ 18% and direct the learned Assessing Officer to estimate it’s GP @ 6.96% going by the segmental trends only. Ordered accordingly. All other remaining issues between the parties stand rendered academic in forgoing terms. This assessee’s appeal ITA No.5458/Del/2025 is allowed and the Revenue’s cross appeal ITA No. 5906/Del/2025 is dismissed. A copy of this common order be placed in the respective case files...”
Upon consideration of the matter, we also find merit in the assessee’s legal ground herein that 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. The ld. DR placed heavy reliance upon the order of lower authorities, however, could not satisfactorily controvert the arguments of the appellant assessee on this issue. We thus adopt the above extracted reason mutatis mutandis to quash the impugned assessment framed by the learned Assessing Officer on 31.03.2024 in very terms. The ground of appeal no.3 raised by the assessee qua invalid assumption of jurisdiction is therefore allowed…..”
We have noted that facts of the present case are identical to those in the above judicial precedents and no distinguishment of facts could be identified. Accordingly, we are of the considered view that there is sufficient merit in the assessee’s legal ground that once search under section 132 had taken place in assessee’s case on 15.02.2024, no assessment u/s 143(3) dated 03.05.2025 could have been concluded qua a Return of Income filed on 30.10.2023. Accordingly, we allow the legal ground of appeal No.A of the assessee and set-aside and quash the assessment order dated 03.05.2025.”
We have noted that facts of the present case are identical to those in the above judicial precedents and no distinguishment of facts could be identified. The ld. Assessing Officer has recorded that search was conducted on 10.11.2021 and that to make the impugned addition, he has used seized documents, pertaining to assessee, which were found from searched premises. The case was therefore fully falling within the purview of action of Explanation-2 of section 148. Accordingly, we are of the considered view that there is sufficient merit in the assessee’s legal ground that once search under section 132 had taken place in assessee’s case on 10.11.2021, no assessment u/s 143(3) dated 20.03.2024 could have been concluded qua a Return of Income filed on 22.12.2022. Accordingly, we allow the additional grounds of appeal of the appellant/assessee challenging jurisdictional insufficiency and set-aside and quash the assessment order u/s 143(3) r.w.s. 144B dated 20.03.2024.
As, we have allowed the additional grounds raised by the assessee on jurisdictional insufficiency, all other grounds raised by the appellant assessee qua merits of the addition have become academic in nature and hence kept open.
In the result, the appeal of the assessee is allowed