Reassessment quashed as AO issued notice u/s 148 instead of 153C as reopening was based on search

Reassessment quashed as AO issued u/s 148 instead of 153C as reopening was based on incriminating material found during search

In a recent judgment, ITAT Pune has quashed the reassessment order as Assessing Officer (AO) should have issued notice u/s 153C instead of notice u/s 148 since the reopening was based on incriminating material found during the course of search and seizure.

ABCAUS Case Law Citation:
4998 (2026) (01) abcaus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A), NFAC and the assessee had also filed the Cross Objections against the appeal filed by the Revenue. 

The assesse was a partnership firm engaged in the business of contractors, promoters, developers, builders and real estate developers. The return was processed u/s 143(1) of the Income Tax Act, 1961 (the Act). Subsequently on the basis of information obtained from a search and seizure operation carried out on a middleman, it transpired that the assessee had taken unsecured loan in cash by a person. As a result, the Assessing Officer reopened the assessment by issue of notice under section 148 of the Act by recording reasons.

During the re-assessment proceedings, AO noted that during the course of search proceedings certain documents / loose sheets were seized wherein it had been found that the assessee had taken unsecured loans in cash through searched person. 

In absence of any details furnished by the assessee to prove the genuineness and creditworthiness of the loan received through searched person, the Assessing Officer, invoking the provisions of section 68 r.w.s. 115BBE of the Act and made addition of the same to the total income of the assessee. 

Before the CIT(A), the assessee challenged the validity of proceedings under section 147 and submitted that the Assessing Officer should have issued notice u/s 153C of the Act instead of notice u/s 148 of the Act since the reopening was based on incriminating material found during the course of search.

So far as the validity of the assessment u/s 147 of the Act was concerned, the CIT(A) /NFAC did not adjudicate the same but deleted the addition on merit

Before the Tribunal the Revenue contended that Section 153C of the Act does not bar the jurisdiction of the Assessing Officer to reopen the assessment u/s 147 of the Act when information against the assessee is received from the search conducted on another person. 

Relying on the judgment of the Delhi High Court it was contended that High Court in the said decision had held that where jurisdictional conditions to initiate further steps under section 153C were not satisfied, non obstante clause as used in section 153C could not be read to completely exclude provisions of section 147 and thus the Assessing Officer could initiate reassessment proceedings under section 147 even if proceedings under section 153C could have been initiated.

The Tribunal further noted that the Co-ordinate Bench of the Tribunal following the decision of Bombay High Court and distinguishing the decision of the Hon’ble Delhi High Court had decided the issue against the Revenue.

The Tribunal held that the Assessing Officer instead of issuing notice u/s 153C, had issued notice u/s 147 of the Act which was not in accordance with law.  Therefore, the same was liable to be quashed. 

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