The Income Tax Appellate Tribunal, Mumbai Bench “A”, in S F Realty Ventures Private Limited v. Assessing Officer, Ward 11(2)(1), Mumbai, has held that reassessment proceedings initiated under Sections 147 and 148 of the Income-tax Act, 1961 were legally unsustainable where the proceedings were founded entirely upon incriminating material seized during a search conducted on third parties.
The decision was rendered in ITA No. 1098/Mum/2026 for Assessment Year 2011–12 by Shri Anikesh Banerjee, Judicial Member, and Shri Bijayananda Pruseth, Accountant Member, on 16 July 2026. The assessee’s appeal arose from an order passed by the Commissioner of Income Tax (Appeals)-51, Mumbai, affirming an assessment framed under Section 143(3) read with Section 147.
Background of the Dispute
A search under Section 132 had been conducted in the cases of the MAAD Group and the AMEYA Group. During the search, documents were seized from the premises of the searched parties and from the residence of an individual connected with the group. On the basis of those documents, the Revenue alleged that S F Realty Ventures Private Limited had entered into cash transactions aggregating to ₹1.50 crore.
The Assistant Commissioner of Income Tax, Central Circle-3, Thane, forwarded the seized material and related information to the Assessing Officer having jurisdiction over the assessee. The Assessing Officer thereafter reopened the assessee’s assessment under Sections 147 and 148 and ultimately made an addition of ₹1.50 crore under Section 69C.
The assessee challenged the reassessment on the ground that the proceedings were based solely on material seized during a search conducted on another person. It was contended that the special machinery under Section 153C ought to have been invoked and that recourse to the general reassessment provisions under Sections 147 and 148 was impermissible.
Tribunal’s Findings
The Tribunal noted that the reasons recorded for reopening clearly showed that the belief regarding escapement of income was formed exclusively on the basis of documents seized during the search and the satisfaction note received from the Assessing Officer of the searched person. There was no independent tangible material gathered by the assessee’s Assessing Officer outside the search proceedings.
The Tribunal relied upon the judgment of the Bombay High Court in Sejal Jewellery v. Union of India, which held that where the foundation of the proceedings is material unearthed during a search on a third party, the special provisions contained in Sections 153A and 153C assume primacy over the general reassessment provisions.
The Revenue relied upon the Delhi High Court’s decision in Principal Commissioner of Income Tax v. Naveen Kumar Gupta, under which recourse to Sections 147 and 148 may not be automatically barred merely because Section 153C could potentially apply. The Tribunal, however, observed that it was bound by the law declared by the jurisdictional Bombay High Court.
Accordingly, the Tribunal held that the assumption of jurisdiction under Sections 147 and 148 was not sustainable. The reassessment proceedings and the assessment framed pursuant thereto were quashed.
Legal Principle
The ruling reinforces that where reassessment is founded entirely upon incriminating material seized during a search conducted on another person, the Revenue cannot bypass the special statutory procedure governing third-party search assessments and resort to the general reassessment provisions.
The jurisdictional character of the statutory provision is important. When the source and foundation of the proposed assessment arise from a search, the procedure prescribed for search-related assessments must be followed. General reassessment powers cannot be used to circumvent the safeguards and conditions built into the special machinery provisions.
Outcome
The Tribunal allowed the assessee’s legal ground and quashed the reassessment proceedings. Since the assessment itself was annulled on the jurisdictional issue, the remaining grounds relating to the merits of the addition under Section 69C were treated as academic and were not adjudicated. The assessee’s appeal was accordingly allowed.
This decision is relevant for taxpayers, advocates, Chartered Accountants and tax professionals dealing with reassessment notices based on information obtained from searches conducted on third parties. It highlights the need to examine the true source of the information relied upon by the Assessing Officer and whether the correct statutory procedure has been invoked.