Reassessment based on search-derived information without independent prior Section 151 sanction is invalid.

ORDER

Smt. Beena Pillai, Judicial Member. – This appeal by the assessee is directed against the order dated 28/11/2025 passed by the NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for A.Y. 2019-20 on following grounds of appeal:

“1. The Learned Commissioner of Income-Tax [“Ld. CIT(A)”], NFAC has erred in passing the order under section 250 of the Income Tax Act, 1961 [“the Act”] without considering the Written Submissions filed on 06th October, 2025. Hence, the order deserves to be set aside.

2. Ld. CIT(A) has erred in not considering the said Written Submissions filed on 6th October, 2025. Hence, the order passed by him is erroneous without considering facts and law, hence, the said order be set side.

3. Without prejudice to the above, the Ld. CIT(A) has not gone through the note on information regarding Circular trading with Summaya Group for A.Y. 2018-19 and 2019-20, where they themselves have held that the transactions with Summaya Group are Circular and not genuine transactions, hence, the addition of Rs. 1,27,57,013/- under Section 69C be deleted.

4. Without prejudice to the above, the provisions of Section 69C are not applicable to bogus transactions of sales and purchases. Hence, the order passed by the CIT(A) is bad law deserves to be squashed.

5. The Ld. AO erred in reopening the assessment without obtaining valid sanction from the specified authority as mandated under Section 151 of the Act for issuance of notice under Sections 148 and 148A. Hence, the notice u/s 148 is bad in law as the conditions prescribed u/s 147 to 151A are not fulfilled.

6. Without prejudice to the above, Appellant submits that more than three years have elapsed from the end of the relevant assessment year, hence, the sanction for issue of notice should have been by the Principal Chief Commissioner or Principal Director or Chief Commissioner or Director General. Appellant submits that no such sanction of designated authority was provided hence, order passed by him is bad in law.

7. Without prejudice to the above, the Appellant submits that the Ld. AO has observed that as per the information available with the department, the assessee was beneficiary for procuring the accommodation entries to the tune of Rs. 1,27,57,013/- and the nature of sales and purchases of goods were without actual delivery. When there are no purchase and sales, the impugned additions of Rs. 1,27,57,013/- deserves to be deleted.

8. Without prejudice to the above, Appellant submits that Ld. AO has observed in the assessment order that the purchase and sales are not genuine and lacks genuineness of the transaction since impugned transactions are accommodation entries. Hence, the addition of Rs. 1,27,57,013/- is bad in law.

9. Without prejudice to the above, Appellant submits that the Instruction No. 1/2011/F.No.187/12/2010-IT(A-1) dated 31st January, 2011 issued under Section 119 of the Income-tax Act, 1961 under the said instructions, the income declared above Rs. 20,00,000/-, the jurisdiction vest with the DC/AC’s. This is applicable with effect from 1st April, 2011, hence, the order passed by the Ld. AO is non-est and bad in law.

10. Without prejudice to the above, Appellant submits that if purchases are bogus, then sales should also be considered as bogus and therefore, no purchase and no sales have taken place. Therefore, the addition of Rs. 1,27,57,013/- made by the AO is bad in law.

11. Without prejudice to the above, the Appellant submits that the Ld. AO has not conducted any examination nor cross-examination with Vinayak Textrade Private Limited. Hence, Order passed by him is unlawful and bad in law and the same be squashed.

12. Without prejudice to the above, Appellant submits that the Ld. AO has not provided the materials what things were seized and search report and other materials which were obtained during search. Hence, the Ld. AO has violated the principles of natural justice and order passed by him should be set aside.

13. Without prejudice to the above, the Appellant submits that the Ld. AO has not complied with the procedure prescribed under law for reopening the assessment. Hence, the Ld. AO erred in reopening the assessment. Hence, the Ld. AO erred in reopening the assessment of the Appellant under Section 148 of the Income-tax Act and the same should be quashed.

14. Without prejudice to the above, the Ld. AO has observed that the transactions of sales and purchases were not genuine without supporting documentary evidences, in such a case addition cannot survive. According to him, sales and purchases were not genuine without supporting documentary evidence. In such as case, addition cannot survive when sales and purchases are held as bogus.

15. Without prejudice to the above, the Appellant submits that no evidence was brought on record before invoking Section 69C that the Appellant incurred unexplained expenditure. Hence, the Appellant prays that the entire addition to income under Section 69C be deleted.

16. Without prejudice to the above, the Appellant submits that purchases and sales were recorded in the books of account which were not disputed, hence, the addition to income under Section 69C is not justified. Hence, the said addition be deleted.

17. Appellant craves leave to add, amend, alter or delete any of the grounds of appeal as the circumstances may arise or demand.”

Information was received by the Ld.AO from the office of the Jt. Commissioner of Income Tax (OSD), Central Circle-4(4), Mumbai, pursuant to a search action conducted on 05/07/2022 in the case of Suumaya Group. As per the information received, Suumaya Group was allegedly engaged in bogus purchase and sale transactions and the proprietary concern of the assessee, M/s.Shraddha Cottworld, was stated to have been involved in circular trading with the said group. The purchases aggregating to Rs.1,27,57,013/- made by the assessee from Suumaya Group were alleged to be non-genuine.

2.1. On the basis of the aforesaid information, proceedings u/s.148A was initiated and thereafter notice u/s.148 dated 29/03/2023 was issued. The reassessment was completed by treating the alleged bogus purchases of Rs.1,27,57,013/- as unexplained expenditure u/s.69C of the Act.

Aggrieved by the order passed by Ld.AO, assessee preferred appeal before Ld.CIT(A).

3. The Ld.CIT(A) after considering the submissions of the assessee sustained the action of the Ld.AO.

Aggrieved, by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

4. The assessee has raised various grounds challenging, inter alia, the validity of the reassessment proceedings, the sanction/approval obtained for reopening the assessment and the addition of Rs.1,27,57,013/- u/s. 69C of the Act. The assessee has also challenged the addition on merits on the ground that no unexplained expenditure was incurred and that the purchases and corresponding sales stood recorded in the books of account.

4.1. The Ld.AR principally challenged the very assumption of jurisdiction u/s.147/148 of the Act. A written note dated 27/08/2026 has also been filed pursuant to the query raised by the Bench during the course of hearing. The Ld.AR submitted that the information forming the foundation of reopening did not arise independently with the jurisdictional Assessing Officer but emanated from material unearthed during the search conducted in the case of Suumaya Group on 05/07/2022. The assessment order itself records that the information was received from the office of Jt.CIT (OSD), Central Circle-4(4), Mumbai and that the assessee’s transactions with Suumaya Group were identified pursuant to such search. This factual position is also apparent from the assessment record.

4.2. The Ld.AR submitted that the statutory scheme applicable at the relevant point of time made a clear distinction between cases in which the procedure prescribed u/s.148A was required to be followed and cases falling within the exceptions contained in the proviso to section 148A. Referring to clause (iv) of Explanation 2 to section 148, as it then stood, read with clause (c) of the proviso to section 148A, it was submitted that where books of account or documents seized in a search conducted in the case of another person pertained or related to the assessee, and the statutory satisfaction was recorded with the requisite prior approval, the procedure u/s.148A was not required to be undertaken. According to the Ld. AR, in such circumstances, notice u/s.148 was required to be issued directly after obtaining the approval contemplated by the statutory provisions.

4.3. The Ld. AR further drew our attention to the approval placed in the assessment records. It was submitted that the approval sought and granted was specifically for passing the order u/s.148A(d) and no separate prior approval for issuance of notice u/s.148 was obtained. It was thus contended that once the case arose from material unearthed in a search conducted in the case of another person, the Ld.AO could not have adopted the procedure u/s.148A and thereafter rely upon the approval obtained for the order u/s.148A(d) as dispensing with the statutory approval otherwise required for issuance of notice u/s.148.

4.4. The Ld.DR relied upon the orders passed by the authorities below and submitted that the reassessment was initiated on the basis of specific information concerning the assessee and that requisite statutory procedure had been complied with.

We have perused the submissions advanced by both sides in light of the record placed before us.

5. The preliminary issue raised by the assessee goes to the very root of the jurisdiction assumed by the Ld. AO and, therefore, deserves to be adjudicated first.

5.1. The undisputed factual position emerging from the assessment order is that the information triggering reassessment emanated from a search conducted on 05/07/2022 in the case of Suumaya Group. The Department received information from Jt. Commissioner of Income Tax (OSD), Central Circle-4(4), Mumbai, that the assessee’s proprietary concern was allegedly involved in circular trading with Suumaya Group and purchases aggregating to Rs.1,27,57,013/- were alleged to be non-genuine. Thus, the source and genesis of the information forming the basis of reopening is not in dispute.

5.2. We have considered the statutory provisions applicable to the relevant proceedings. Clause (iv) of Explanation 2 to section 148, as it then stood, contemplated a situation where books of account or documents seized or requisitioned in the case of another person pertained or pertain to, or any information contained therein related to, the assessee. Correspondingly, clause (c) of the proviso to section 148A, as applicable at the relevant time, excluded such cases from the procedure prescribed u/s. 148A, subject to satisfaction of the statutory conditions and requisite approval.

5.3. Therefore, once the jurisdictional foundation adopted by the Revenue itself is that the information concerning the assessee emanated from the material found during the search conducted in the case of Suumaya Group, the statutory procedure applicable to such category of cases could not be substituted by resorting to the ordinary procedure u/s. 148A. The manner in which jurisdiction is required to be assumed under the statute cannot be regarded as a mere procedural formality.

5.4. More importantly, the material placed before us demonstrates that the approval obtained by the Ld.AO was for passing the order u/s.148A(d). The assessee has specifically pointed out from the approval form that the approval sought in the relevant column was for the order u/s.148A(d) and the approving authority also accorded its approval to the order proposed to be passed u/s.148A(d). No material has been brought before us by the Revenue to demonstrate that an independent prior approval, as required for issuance of notice u/s.148 in the circumstances applicable to the present case, was obtained.

5.5. The distinction assumes significance because the dispensation from obtaining a separate approval for notice u/s.148 operated where an order u/s.148A(d) had validly been passed with the prior approval of the specified authority. In the present case, however, the very applicability of the procedure u/s.148A is displaced by the Revenue’s own case that the information emanated from the search material pertaining/relating to the assessee found in the course of search of another person. The approval obtained for an order under a procedure which was not applicable to the case cannot, in our considered view, substitute the approval statutorily required for issuance of notice u/s.148.

5.6. At this juncture, we may also refer to the decision of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal [2022] 138  444 ITR 1 (SC), rendered in the context of the substituted reassessment regime introduced by the Finance Act, 2021. The statutory scheme emerging from sections 148, 148A and 151 requires the competent authority prescribed under the Act to accord approval at the stages contemplated by the statute. The requirement of such approval is an integral safeguard governing assumption of jurisdiction and cannot be regarded as an empty formality.

5.7. It is equally well settled that when the statute prescribes the manner in which a particular act is required to be performed, it has to be performed in that manner alone. Thus, where assumption of jurisdiction u/s. 147 is conditioned upon compliance with a particular statutory procedure and prior approval, such jurisdiction cannot be sustained by treating compliance with some other statutory procedure as its equivalent.

5.8. In the facts before us, the Revenue’s own material demonstrates that the information forming the basis of reopening emanated from the search conducted in the case of Suumaya Group. The assessee’s alleged transaction of Rs.1,27,57,013/- was identified from such search-related information. Once the case falls within the statutory category carved out by clause (iv) of Explanation 2 to section 148 read with clause (c) of the proviso to section 148A, the procedure prescribed for such category has to be followed. The Revenue cannot sustain the jurisdiction by adopting the ordinary procedure u/s. 148A if the statutory exception applies.

5.9. Further, what is demonstrated before us is an approval for passing the order u/s. 148A(d). No material has been placed before us to establish that the approval required for issuance of notice u/s. 148, applicable to the particular statutory route governing the assessee’s case, was independently obtained. In view of the statutory scheme and the principles discussed hereinabove, we are unable to accept that an approval obtained for passing an order u/s. 148A(d), under a procedure which itself was not applicable on the Revenue’s own factual premise, can cure the jurisdictional defect in issuance of notice u/s. 148.

6. We accordingly hold that the notice issued u/s. 148 dated 29/03/2023 suffers from a foundational jurisdictional defect. Consequently, the reassessment proceedings initiated pursuant thereto and the assessment order dated 22/12/2023 passed u/s. 147 r.w.s. 144B of the Act cannot be sustained and are hereby quashed.

Accordingly Ground no.5 raised by the assessee stands allowed.

6.1. Since we have quashed the reassessment proceedings on the jurisdictional issue, the remaining grounds challenging the addition of Rs.1,27,57,013/- u/s. 69C and other issues raised by the assessee on merits are rendered academic and therefore do not require adjudication.

In the result, the appeal filed by the assessee stands allowed.