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Judgment
PER BRAJESH KUMAR SINGH, AM,
This appeal by the Revenue (ITA No.- 7507/Del/2025) and Cross Objection (C.O.) No. – 46/Del/2026 filed by the assessee are directed against the order dated 15.09.2025 of the National Faceless Appeal Centre (NFAC) [hereinafter referred to as the ‘Ld. CIT(A)] order dated 15.09.2025 arising out of the Assessment Order dated 31.05.2023 passed under section 147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the NFAC, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2013-14. Since this Appeal and C.O were heard together and, therefore, they are being disposed of by way of this common order for the sake of convenience and brevity.
Brief facts of the case are : The Assessee is a Private Limited Company. The assessee e-filed its original return of income for the A.Y. 2013-14 on 26.08.2013 vide acknowledgment number 759079151260813 declaring total income at Rs. 13,500/-. The return of income was processed u/s 143(1) of the Income Ta Act, 1961. Meanwhile, an information was in possession of the office of the AO that accommodation entry of 1,52,55,668/- flagged through investigation wing Ambala that bogus accommodation entry to M/s Mitter Sain Rajesh Kumar Proprietor Sh. Hitesh Jain during the financial year under consideration and provided accommodation entries. Accordingly, the assessment was reopened vide notice u/s 148 of the Act, dated 31.03.2021.
Upon considering the replies of the assessee, the AO noted that in view of the non-submission of the bank statement by the assessee for the current F.Y. and other facts as stated in the order, the AO added a sum of Rs. 1,52,55,168/- u/s 68 of the Act r.w.s. 115BBE of the Act.
Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) quashed the assessment order on the ground that the assessment was framed u/s 148 of the Act, whereas the assessment should have been framed u/s 153C of the Act.
Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before us, whereas the assessee has filed the above C.O No. – 46/Del/2026. In the C.O., the ground no. 2 is reproduced as under:
“Ground 2. That on the basis of facts and circumstances of the case the Ld. CIT(A) has correctly decided the appeal in favour of appellant as the Ld. AO was not entitled to take cognizance of the incriminating material seized from the third party by invoking provisions of section 147/148 of the Act ignoring the specific provision u/s 153C of the Act dealing with such material. So, the order of Ld. CIT(A) should be sustained.”
At the time of hearing, the ld. Sr. DR supported the order of the AO and the grounds of appeal.
The Ld. Sr. AR relied upon the order of the Ld. CIT(A) and the order dated 07.03.2025 of the Co-ordinate Bench of the Tribunal in the case of Rahul Rastogi vs. ACIT in ITA No.- 845/Del/2024 and the decision of the Hon’ble Rajasthan High Court in the case of Shaym Sunder Khandelwal vs. ACIT[ 2024] 161 taxmann.com 255 dated 19.03.2024. In respect of ground no. 2 of the C.O., the assessee filed a written submission and the relevant extract are reproduced as under:
“SUBMISSION OF GROUND NO.2 of Cross objection and Ground No. 1 to 4 of Revenue Appeal
Ground No.2 of Cross objection
That on the basis of facts and circumstances of the case the Ld. CIT(A) has correctly decided the appeal in favour of appellant as the Ld. AO was not entitled to take cognizance of the incriminating material seized from the third party by invoking provisions of section 147/148 of the Act ignoring the specific provision u/s 153C of the Act dealing with such material. So, the order of Ld CIT(A) should be sustained.
The assessee's case falls u/s 153C, as the reopening was on the basis of search and seizure operations carried out in the case of Mitter Sain Rajesh Kumar proprietor Hitesh Jain and which was the foundation of issuing Notice u/s 148 dated 31.03.2021
Since the search was prior to 01.04.2021, the AO was mandatorily required to proceed under Section 153C.Issuance of notice u/s 148 is without jurisdiction, as no fresh information surfaced independently-only seized material from the search is relied upon.
That all the proceedings revolve on the basis of incriminating documents were seized during the search, details are as under: -
Page-161 of paper book details of information received with notice u/s 148A(b) dated 01.06.22 Page-168 of paper book order u/s 148A(d) dated 30.07.22 para 7.2 The initiation held u/s 148 to be null and void as the same ought to have been done u/s 153C.
Reliance has been placed on the following Judgments for 153C vs 148 :-
Rahul Rastogi VS ACIT [ITA No.845/Del/2024] by Jurisdictional ITAT DELHI dated 07.03.2025.
Shyam Sunder KhandelwalVs ACIT [2024] 161 taxmann.com 255dt.
19.03.2024 by High Court of Rajasthan ACIT Vs Pramod Jain [2025] 176 taxmann.com 762 (SC) pronounced on 17.07.2025 by SUPREME COURT OF INDIA.”
We have heard both the parties and perused the material available on record.
The relevant extract of the order of the Ld. CIT(A) in quashing the assessment order is reproduced as under:
“5.2Ground of Appeal no. 14:In this ground the appellant has challenged that assessment has to be completed under section 153C instead of section 147. The Appellant's case falls within the provisions of section 153C, as the incriminating document seized in the case of search in case of M/s Mitter Sain Rajesh Kumar Proprietor Hitesh Jain. The AO, on satisfying the above condition is under obligation to issue notice to the person requiring him to furnish the return.
That in the present case the Assessing Officer issued notice u/s 148 to reopen the assessment. Therefore, in view of the non-abstante clause begin with section 153C, the Assessing Officer has no jurisdiction to issue notice u/s 148 to reopen the assessment of the appellant company. Though, both provisions of the Act empowers the AO to assess or reassess the income escaped from assessment, both sections are dealing with different situations.
No fresh information was collected by the AO or no information has come to the notice of the AO in normal course other than the information collected during the course of search from the searched person.
Therefore, appellant company's case falls within the provisions of section 153C, as the document seized in the case of search in case of M/s. MitterSain Rajesh Kumar Proprietor Hitesh Jain.
From the perusal of the above facts, it is evident that seized material pertaining to the appellant containing information related to the appellant was found and seized during the search action on the M/s MitterSain Rajesh Kumar Proprietor Hitesh Jain.
In the instant case, it is clear from the assessment records and correspondence on record that the material relied upon by the AO were unearthed in the course of the search action on the M/s MitterSain Rajesh Kumar Proprietor Hitesh Jain, and not in relation to any independent inquiry against the appellant.
The AO, having relied entirely on such third-party search material, nonetheless proceeded to initiate reassessment proceedings under Section 147 rather than following the special procedure envisaged under Section 153C of the Act.
It mandates that the AO of the searched person must record satisfaction that the seized material belongs to, or pertains to, such third person and must forward such material to the AO having jurisdiction over the said third person. Thereafter, the AO of the third person is also required to record satisfaction that such material has a bearing on the determination of the income of the third person, prior to initiating proceedings under Section 153C.
Applying the above principles to the present case, Assessing Officer erred in invoking jurisdiction under Section 147 of the Act when the correct legal recourse was under Section 153C of the Act. The statutory scheme does not admit of an alternative pathway where the pre-conditions of Section 153C are satisfied.
Consequently, the entire reassessment proceedings initiated by issuance of notice under Section 148, culminating in the reassessment order under Section 147. are rendered void-ab-initio and are liable to be quashed for want of jurisdiction Accordingly, the reassessment proceedings for A.Y. 2013-14 are hereby quashed.
Reliance also placed on the decision of Hon'ble Supreme Court of India in the case of ACIT vs Pramod Jain [2025] 176 taxmann.com 762(SC)dated 17.07.2025. Accordingly, the legal Grounds No. 6 and 14 of the appellant are allowed.
5.3Since the assessment order passed by the AO has been held void-ab-initio and has been quashed as held in the preceding paragraphs and allowed in favour of the appellant, the remaining grounds of appeal raised in the present appeal becomes academic and therefore, not adjudicated.
6.In the result, the appeal of the appellant is allowed.”
In this case also, as noted by the AO, the re-opening u/s 148 of the Act was based on the on the basis of information on record which was obtained after conducting detailed investigation pursuant to the search operation that the assessee had provided accommodation entries to shell entities controlled by Sh. Hitesh Jain. The relevant extract of the said fact as mentioned in para no. 7.2 of the order u/s 148A(d) of the Act dated 30.07.2022 is reproduced as under:
“7.The response of the assessee, including that made during the course of incomplete assessment proceedings, has been perused and found not to be acceptable on the following grounds: XXXXXXXXX
2.It is mentioned that accommodation entries may be provided in more than one modes. It is not necessary that these entries are taken in the guise of loans or advances only. For example, accommodation entries can be provided in multiple modes of 'share application money', 'capital gains on shares', 'expenditure entries after charging commission' etc. The department has information on record which has been obtained after conducting detailed investigation pursuant to the search operation that the assessee has provided accommodation entries to shell entities controlled by Sh. Hitesh Jain. The exact amount of accommodation entries may vary, but it is beyond doubt that the assessee has provided fake credit entries in this case.”
On similar facts, where the assessment was proceeded u/s 148 of the Act on the basis of material found in search instead u/s 153C of the Act, the co-ordinate Bench of the Tribunal in the case of Rahul Rastogi vs. ACIT (supra) had quashed the said assessment proceedings u/s 148 of the Act. The relevant extract of the said order is reproduced as under:
“17.After taking into consideration the aforesaid facts, we are also convinced that if the reopening was on the basis of the search and seizure operations carried out in the case of Kundu group of Rohtak and which was the foundation for issuing notice u/s 148 of the Act, then, in that case, the provisions of section 153C of the Act would have come into effect and the case of the assessee could not have been on the basis of the provisions of section 147/148 of the Act. The reliance in this regard can be placed on the decision of the Hon'ble Bombay High Court in the case of Sejal Jewellary & Anr., in Writ Petition No.3057 of 2019 and Others, order dated 18.02.2025 wherein a decision of the Hon'ble Rajasthan High Court in the case of Shyam Sunder Khandelwal vs. ACIT in Civil Writ Petition No.18363/2019 dated 19.03.2024 has been relied.
18.Thus, we are of the considered view that the challenge of assumption of jurisdiction in the case of the assessee u/s 147/148 of the Act raised by the assessee vide jurisdictional grounds No.10.1 to 10.6 deserve to be sustained. Consequently the appeal is allowed and impugned reassessment order is quashed.”
The revenue has not been able to controvert the factual submission of the assessee that the assessment was re-opened u/s 148 of the Act in this case on the basis of the incriminating document seized in the case of M/s MitterSain Rajesh Kumar Proprietor Hitesh Jain. Further, the Revenue also could not controvert the legal position relied upon by the assessee that in this case the proceedings could have been only initiated u/s 153C of the Act and not u/s 148 of the Act, as done by the AO in this case.
Therefore, in view of the factual / legal position, no interference is called for in the order of the Ld. CIT(A) in quashing the assessment order on this ground and therefore, the same is upheld. Ground no. 2 of the C.O. is allowed.
In view of the ground no. 2 of the C.O. being allowed, the other grounds of C.O. become academic and are left open in this case. Consequently, the appeal of the Revenue becomes infructuous and the same is dismissed.
To sum up, the C.O. by the assessee (46/Del/2025) is allowed and the Revenue’s appeal in ITA No. 7507/Del/2025 is dismissed.