Reassessment under Section 147 is valid if third-party seized material does not directly belong to assessee.

ORDER

Dr. Manish Borad, Accountant Member.-The captioned appeal at the instance of Revenue pertaining to A.Y. 2012-13 is directed against the order dated 25.09.2025 of CIT(A)-12, Pune passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 30.12.2016 passed u/s.143(3) r.w.s.147 of the Act.

2. Revenue has raised following grounds of appeal :

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in quashing the reassessment orders u/s 147 solely on technical grounds without adjudicating the merits of the additions, despite tangible material (seized documents pertaining to the assessee) found during search u/s 132 on 26.02.2014 in Porwal, Agarwal, Mutha, Karia and B.U. Bhandari Group, which validly formed “reason to believe” after due approval u/s 151.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) made misplaced reliance on the decision of Hon’ble Supreme Court in ITO v. Vikram Sujitkumar Bhatia (453 ITR 417 ), Hon’ble Bombay High Court in Sejal Jewellery v. Union of India (  and the Hon’ble Rajasthan High Court in Shyam Sunder Khandelwal, as these do not bar reassessment u/s 147 when the AO independently forms belief based on third-party search material; Section 153C is not mandatory if no satisfaction is recorded by the AO of the searched person.

3. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in not appreciating the decision of Hon’ble Supreme Court in the ACIT v. Rajesh Jhaveri (SC, 291 ITR 500 ), Hon’ble Allahabad High Court in PCIT v. Gaurav Khanna (Allahabad HC, 2022) and Hon’ble Delhi High Court in CIT v. Nova Promoters (Delhi HC, 342 ITR 169 ), which uphold validity of reopening u/s 147 based on seized documents from third parties pertaining to the assessee.

4. On the facts and in the circumstances of the case and in law, the order is perverse and violative of natural justice as the Ld. CIT(A) ignored that Sections 147 and 153C operate in different fields; availability of Section 153C does not oust jurisdiction u/s 147 when tangible material independently triggers reassessment.

5. The appellant craves leave to add, amend and alter any of the above grounds of appeal.”

3. Brief facts of the case are that the assessee is an individual and return of income filed for A.Y. 2012-13 on 29.09.2012 declaring income of Rs.74,74,184/-. Post search conducted on Porwal, Agarwal, Mutha, Karia and B.U. Bhandari group of cases u/s.132 of the Act on 26.02.2014. Ld. Assessing Officer received certain information from Deputy Director (Investigation) Unit No.1(1), Pune based on which reopening proceedings were initiated by issuance of notice u/s.148 of the Act on 29.03.2016. Reasons recorded were supplied to the assessee and objections were raised thereto by the assessee and the same has been disposed of by ld. Assessing Officer by a speaking order. The assessee is engaged in the business of money lending, rental income of shop and also partner in M/s. Five Star Construction Company. During the course of assessment proceedings, ld. Assessing Officer confronted the assessee about the information of transactions carried out in Cheque/Cash mode at Rs.12.72 crore and Rs.11.35 crore appearing in the seized diary found from the premises of Mr. Vijesh Agarwal. Assessee denied to have carried out any such transaction in the first round of its submissions but thereafter made alternative contentions stating that alleged transactions carried out through banking channel cannot be considered as part of unaccounted income and also the entries of loans in the diaries refer to another person namely Sharman Tejwani and also the entries indicate that on number of occasions the same figures gets repeated. In nutshell, on one hand, the assessee denied to have carried any such transaction but alternatively is claiming that bank transactions should not be treated as part of unaccounted income and that the alleged seized diaries were found at the premises of Mr. Vijesh Agarwal, statement u/s.132(4A) will not apply against him and therefore the alleged unaccounted loans given through Mr. Vijesh Agarwal at Rs.24.09 crore is incorrect and for another figure of Rs.30.00 lakh mentioned in the notice, he submitted that no such amount has been received nor is reflected in his bank statement. Ld. Assessing Officer however taking into consideration the statements given by Mr. Vijesh Agarwal engaged in the business of commission for money transfer and also the details appearing in the seized material observes that there is correlation between assesses and the persons from whose premises diaries are found, names of the person appearing in diary and amount paid through cheque. Ld. Assessing Officer also placed reliance on the decision of this Tribunal in the case of Chander Mohan Mehta v. Asstt. CIT [1999] 71 ITD 245 (Pune) observed that the entries found on the loose papers are matching with the books of the assessee, then the other entries on pages are also true. Ld. Assessing Officer also discussed about the surrounding circumstances, human conduct, nature of incriminating material and made the addition of Rs.15.40 crore u/s.69A of the Act observing as under :

“3.5 In nutshell, matching of cheque/RTGS entries in the diaries; corroboration of the same by the assessee; Mr. Vijesh Agarwal’s submissions, affidavit and additional disclosure of commission (brokerage) income on the basis of the diaries; the Assessee’s own interpretation of the entries in the diaries which coincides with the cheque/RTGS entries and Mr. Vijesh Agarwal’s interpretation; and Mr. Ghanshyam Sukhwani’s acceptance of the cash loans mentioned in the diaries before the Hon’ble Settlement Commission, Mumbai, clearly prove that the entries are genuine. As legal sanctity of dairy is proved, thus amount of Rs.11.35 crore as cash loan given and amount of Rs. 4.05 crore as given though cheque which is not explained by Assessee is added to Assessee’s income as explained money u/s 69A of I.T. act. Thus, total addition of Rs. 15.4 crore is made to Assessee’s income.”

4. Similarly, ld. Assessing Officer also made addition on account of interest earned from alleged cash loan advances at Rs.1,20,10,000/- adopting the interest rate @2% per month allegedly earned on unaccounted income given on loan. Income assessed at Rs.17,34,84,184/-.

5. Aggrieved assessee preferred appeal before ld.CIT(A) and raised technical grounds along with merits of the case. Ld.CIT(A) has only dealt with technical/legal issue and without deciding on merits of the case has held in favour of the assessee observing as follows :

“Findings and decision of the Appellate Authority: MENT

“7.6 I have carefully perused the impugned Assessment Order, submission made by the appellant and the material on record. The ground of appeal relates to the validity of the reopening of assessment u/s 147/148 of the Act, where the additions have been made solely on the basis of certain diaries and loose papers seized from third parties in the course of a search action. The appellant has argued that once such material is unearthed in the case of a third party, the statute mandates that proceedings, if any, should be initiated only u/s 153C and not u/s 147/148.

7.7 The appellant has strongly relied upon several judicial pronouncements, particularly the judgment of the Hon’ble Rajasthan High Court in Shyam Sunder Khandelwal v. ACIT  . In that case, the Hon’ble Court had occasion to consider a situation where additions were made in the hands of the assessee on the basis of documents seized during a search in the case of another party. The Court categorically held that the provisions of section 153A to 153D, including section 153C, have an overriding effect over the general provisions of reassessment u/s 147/148. The Court observed that once the statutory machinery of section 153C is attracted, the Assessing Officer is duty bound to proceed under those provisions alone and cannot invoke section 147. Importantly, the Court emphasized the legislative intent behind introducing a special code for search assessments, and held that permitting reopening under section 147 in such cases would render section 153C otiose. On this reasoning, the reopening of assessment u/s 148 was quashed by the Hon’ble High Court as being without jurisdiction.

7.8 Further, the appellant during the course of the appellate proceedings brought to my notice and relied upon the recent decision of the Hon’ble Bombay High Court in the case of Sejal Jewellery v/s Union of India dated 18.02.2025 reported in [2025]   (Bombay) wherein, the Hon’ble HC has held that where the Assessing Officer reopened assessee’s case u/s147 of the Act on the basis of search action conducted at the premises of a group concern, since foundation of the present case was certainly a search action in which materials were seized and were explored and enquired, provisions of section 1530 r.w.s. 153A of the Act would be applicable and therefore, impugned notice u/s 147 was bad in law. The Hon’ble Bombay HC in this decision has referred to the decision of the Hon’ble Rajasthan HC in the case of Shyam Sunder Khandelwal (supra) and were in complete agreement with the view taken by the Division Bench of Rajasthan HC in the afore-said decision. The Hon’ble Bombay HC has held as under:

7.9 The appellant has also relied on the binding precedent of the Hon’ble Supreme Court in ITO v. Vikram Sujitkumar Bhatia (453 ITR 417 ), where it was clarified that the amendment to section 153C by Finance Act, 2015 (substituting the words “belong to” with “pertain to”) is retrospective in nature. It is a settled position of law that the enunciation of law by the Hon’ble SC is always declaratory having the effect and application ab initio, being, the date of insertion of the provision, unless a judgment is categorically made prospectively applicable. Thus, even prior to 01.06.2015, the law required that any material found in the case of a searched person, which pertains to another assessee, should be assessed under section 153C. The Hon’ble Supreme Court in this case has observed as under:

7.10 On the other hand, the AO has defended the reopening by contending that the AO received tangible information from the Investigation Wing that the appellant had advanced substantial loans routed through intermediaries, and that such information gave the AO “reason to believe” that income had escaped assessment. The Revenue has stressed that the seized diaries contained entries which matched with the appellant’s own books of account, thereby linking him to the material, and hence the AO was justified in resorting to section 147.

7.11 Applying the above ratio in the case of Sejal Jewellery and Shyam Sunder Khandelwal to the present case, I find that the factual position is similar. In the present case also, the seized material forming the very foundation of the additions was not discovered from the possession of the appellant but from third parties such as Shri Vijesh Agarwal and Shri Bhomraj Porwal during a search on Porwal, Agarwal, Mutha, Karia, Bhandari Group. The Assessing Officer, however, chose to reopen the assessment u/s 147/148 instead of proceeding under section 153C of the Act. It is an admitted fact that the papers found with the search party were not belonging to the appellant but they were pertaining to the appellant. The Hon’ble Supreme Court in ITO v. Vikram Sujitkumar Bhatia (453 ITR 417 ), has held that the amendment to section 153C by Finance Act, 2015 (substituting the words “belong to” with “pertain to”) is retrospective in nature.

7.12 The position of law which emerges after a combined reading of the above case laws is that even in a case where a search has taken place before the date of above referred amendment (01.06.2015)and material pertaining or relating to third party is found and seized, then the correct course of action to assess or reassess the income of the third party is as per section 153C and not 148. In light of the above discussion, and respectfully following the ratio of the Hon’ble Bombay and Rajasthan High Courts and the Hon’ble Supreme Court, I hold that the assessment framed u/s 147/148 is bad in law and liable to be quashed. Accordingly, the reassessment order is quashed and Ground No. 1 of the appeal is allowed.”

6. Now the Revenue is in appeal before this Tribunal. Assessee has neither filed any Cross Objection challenging non adjudication of grounds on merits nor filed any cross appeal.

7. Ld. Departmental Representative vehemently argued supporting the observation of Assessing Officer and further stated that provisions of section 153C of the Act have no application in the instant case because there was information received by the Assessing Officer from the Investigation Wing and there is no case of any satisfaction recorded by the Assessing Officer of the searched person with regard to any document pertaining to the assessee and in absence thereof, ld. Assessing Officer has validly initiated the reassessment proceedings u/s.148 of the Act.

8. On the other hand, ld. Counsel for the assessee apart from placing reliance on the written submissions filed before ld.CIT(A) on the legal issue challenging the validity of reopening proceedings u/s.148 r.w.s.147 of the Act also placed reliance on the following decisions :

8.1 Ld. Counsel for the assessee submitted that certain incriminating documents regarding loose papers were impounded and seized from the premises of M./s. Acero Steels and Electricals, Mr. Vijesh Agarwal and Mr. Bhomraj Agarwal including the diaries from Mr. Vijesh Agarwal based on which the ld. Assessing Officer gathered prima-facie evidence that assessee has paid loan through Mr. Vijesh Agarwal at Rs.24.09 crore and that the Assessing Officer alleged that there is escapement of income of Rs.24.09 crore in the notice issued u/s.148 of the Act, he submitted that since the addition has been made on the basis of diary seized from Mr. Vijesh Agarwal found during the search conducted u/s.132 of the Act, then additions, if any, to be made in the case of persons other than searched person which are based on the papers belonging to some other person, then the provisions of section 153C comes into play. He submitted that additions made are based on the alleged documents found at the place of third party and not on the basis of documents found with the assessee. He further submitted that in the statement given by Mr. Vijesh Agarwal there is no reference to any loan given by the assessee through him and there is no mention of the assessee’s name in the statement so recorded. There is also no reference of the assessee in the statement of Mr. Bhomraj Porwal u/s.132(4) of the Act on 20.02.2014. He submitted that the reopening has been carried out on the basis of borrowed satisfaction and presumption and not on concrete evidence. To conclude, he submitted where the foundation of the reassessment is material seized or requisitioned during a search of another person, the Department cannot bypass the special code contained in sections 153A/153C and resort to sections 147/148. For the period relevant to the present case, section 153C was the specific jurisdictional provision meant for assessment of a person other than the searched person. It overrides the general reassessment machinery. Once the Department itself says that the case arises from seized material found in a third-party search, the Department must satisfy the statutory preconditions of section 153C and proceed only under that provision. Recourse to section 148 is jurisdictionally impermissible. This is not a mere technical irregularity. It goes to the root of assumption of jurisdiction. If the correct statutory route is not followed, the notice under section 148, the order disposing objections, and the consequent reassessment order all fail.

9. We have heard the rival contentions and perused the record placed before us. Revenue has raised three grounds of appeal but they all are against the finding of ld.CIT(A) holding that the Assessing Officer erred in carrying out the assessment proceedings u/s.147 r.w.s.148 of the Act rather than carrying out the assessment proceedings by issuing notice u/s.153C of the Act. Since the provisions of section 153C has a direct bearing on the issue raised before us, we would like to go through the said provision which reads as under :

“Assessment of income of any other person.

153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—

a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :

Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—

before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

(3) Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021.”

10. Now on bare perusal of the above provision, the basic condition which is required to carry out the proceedings u/s.153C of the Act are that if the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A, then such books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and thereafter the Assessing Officer of such other person shall proceed and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A after being satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in section 153A(1) of the Act.

11. To summarise, firstly some incriminating material as referred in section 153C(1)(a) and (b) are found during the course of search and if they belong or pertain or relate (as the case may be) to a person other than the searched person then satisfaction has to be recorded by the Assessing Officer of the searched person along with handing over of such seized material belonging to/pertaining to or relating to the person other than the searched person and thereafter the Assessing Officer of the person other than the searched person has also to satisfy that they belong to, pertain to or relate to such other person which have direct bearing on the determination of the total income of such other person and carry out assessment proceeding by invoking section 153C of the Act.

12. Now on careful examination of the facts of the instant case, we find that the search has been conducted on 26.02.2014 in the case of Porwal, Agarwal, Mutha, Karia and B.U. Bhandari group of cases. Certain incriminating documents regarding loan transactions were impounded and seized from the business premises of M/s. Acero Steels and Electricals and residential premises of Mr. Vijesh Agarwal, Yogesh Porwal and Mr. Bhomraj Agarwal. The seized records contain the diaries, loose documents and the seized diaries contain the detail of transactions carried out through cash mode and cheque mode for the funds received from various persons as loan for the purpose of earning interest thereon. Now firstly, there is no satisfaction of the Assessing Officer of the searched person specifying that books of account or documents pertaining to any information contained therein relate to the assessee. Certainly, if satisfaction has not been recorded by the Assessing Officer of the searched person, as provided u/s.153C of the Act, then handing over such seized asset/ document/books of account or information to the Assessing Officer of person other than the searched person will not arise nor will there be any satisfaction to be recorded by the Assessing Officer of the person other than the searched person. So the multiple conditions which are required for an Assessing Officer to carry out the proceedings u/s.153C of the Act are not present in the instant case. Now another situation can be that during the course of search there was seized material/asset/books of account which belong/pertain/relate to a person other than the searched person but the Revenue authorities failed to take note of such details and could not proceed as per provisions of section 153C of the Act.

13. We note that during the course of assessment proceedings, ld. Assessing Officer has confronted the assessee that the documents seized from the premises of Mr. Vijesh Agarwal and Mr. Bhomraj Agarwal and in the reasons recorded, it has been stated that assessee has received amount of Rs.30.00 lakh through RTGS on 24.02.2012 and the assessee has also paid Rs.24.09 crore through Mr. Vijesh Agarwal. However, assessee in its reply to the notice u/s.148 of the Act has completely denied to have received any such amount of Rs.30.00 lakh through RTGS on 24.02.2012 and secondly he stated that he has not paid any amount through Mr. Vijesh Agarwal totalling to 24.09 crore. Further, the assessee has himself stated that in the statement of Mr. Vijesh Agarwal and seized diaries maintained by him, he has only identified the notings pertaining to some other person namely Mr.Sharman Tejwani and since the name of assessee is Mr.Hargobind Tejwani and not Mr. Sharman Tejwani therefore the notings pertain to Mr. Sharman Tejwani and not to the assessee.

14. Now when the assessee has himself denied that there is no specific material containing the name of assessee nor he carried out any such transaction as has been alleged in the notice u/s.148 of the Act then in such situation how can the Assessing Officer of the searched person can draw satisfaction that the seized material pertains to/belong to/relate to a person other than the searched person, i.e. the assessee. In our limited understanding, any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to having a direct bearing or direct relation to the person other than the searched person then only the procedure u/s.153C of the Act (referred supra) can be taken forward. Unless the Assessing Officer of the searched person is not satisfied that any such seized material pertains to/belong to or any information contained anything therein relates to a person other than the searched person, till then there can be no possibility to form a satisfaction by the Assessing Officer of the searched person. In the instant case, the allegation of the assessee is that the impugned addition has been based on the information contained in the seized document which related to the assessee and therefore section 153C of the Act ought to have been invoked rather than section 147 of the Act. However, as discussed above, the assessee in his statement has himself denied the contents of the reasons recorded stating that neither the name is appearing in such documents nor he has carried out any such transaction and that they relate to some other person namely Mr. Sharman Tejwani. When the Assessing Officer of the searched person has also not found in such seized document or any information contained therein relating to the assessee and also the assessee has denied the contents of the reasons recorded based on the information found on the basis of search u/s.132 of the Act, then certainly remains no possibility to invoke section 153C of the Act.

15. What actually transpires is that the information found during the course of search which did not relate directly to the assessee, were examined by the Investigation Wing deeply along with the connected transactions and the information of other persons including assessee were also brought on record. The investigation Wing of Income Tax Department is entrusted with such kind of work only because they have separate dedicated team and also certain special facilities provided to deeply examine and investigate such type of transactions. With the efforts of the Investigation Wing some information has been gathered which gave some indication about the escapement of income by the assessee. Now such information has been passed over to the Assessing Officer which is a normal procedure also. Based on such information ld. Assessing Officer has issued notice u/s.148 of the Act and also recorded the reasons stating the alleged transactions of loans given by the assessee as well as interest income earned thereon. Now the assessee has been given sufficient opportunity to raise objections and he has done so by making detailed submissions but in such submissions at some places he has denied to have carried out any such transaction. Initially he states that the information relates to some other person namely Mr. Sharman Tejwani but again he takes a U-turn because certain transactions which are appearing in such seized diaries but not directly referring the name of the assessee have actually been carried out through bank account of the assessee. Since the transactions have been carried out through bank account of the assessee therefore he accepted those bank transactions and stated that unaccounted income should not be calculated for the transactions carried out through banking channel. This indicates that assessee was intentionally carrying out accounted and unaccounted loan transaction under the name of some other person so as to hide his identity. The objections raised by the assessee to the reasons recorded have been duly noted by the Assessing Officer and has disposed of the same. Thereafter, ld. Assessing Officer has not made any addition for the transactions carried out through banking channel but for the remaining transactions in cash as well as alleged interest income which the assessee might have earned from giving unaccounted income on loan the impugned additions have been made. At this stage, we are not dealing with merits of the case because the assesesee has challenged the merits of the case before ld.CIT(A) and ld.CIT(A) has not dealt with the issues on merit and gave relief to the assessee on legal grounds. Thereafter, the assessee has not raised Cross objection nor filed any cross appeal against which clearly indicates that the assessee has nothing to say on merits and he accepts that the addition made by the Assessing Officer is correct. As of now, we are only dealing with the technical ground as to whether the reassessment proceedings were to be carried out u/s.153C or section 147 of the Act. So far as the decisions referred and relied on by the ld. Counsel for the assessee are concerned, we find that they are not applicable on the facts of the instant case because there is no specific material directly containing the name of the assessee and therefore will not come to the rescue of the assessee.

16. In view of the discussion made hereinabove and the replies given by the assessee during the course of assessment proceedings as well as material available on record and the details referred by the Assessing Officer in the assessment order shows that the incriminating material found during the course of search including seized diaries were not containing any such document which could clearly indicate to be pertaining to/belonging to/relating to the assessee as provided u/s.153A(1)(a) and (b) of the Act. Therefore, there was no possibility for the Revenue authorities to carry out proceedings u/s.153C of the Act. Further, the Investigation Wing has made extra efforts and has dug out the information from the seized material and noticed that even though the assessee’s name is not appearing in the seized material but there are certain transactions which have been carried out through banking channel from the assessee’s account and due to such extra efforts the Investigation Wing has been able to provide the information to the Assessing Officer who has carried out the reassessment proceedings after following the procedure including supplying of reasons recorded, receiving the objections from the assessee and thereafter disposing of the objections raised by the assessee and has passed the assessment order making the impugned addition. We therefore hold that under the given facts and circumstances of the case ld. Assessing Officer has rightly carried out the valid reassessment proceedings u/s.143(3) r.w.s.147 of the Act. We fail to find any consistency in the finding of ld.CIT(A). We therefore allow the grounds of appeal raised by the Revenue.

17. In the result, the appeal of the Revenue is allowed.