CHETAN JAYANTILAL PATEL,MORBI vs. INCOME TAX WARD 1, MORBI, MORBI

Succinctly, the factual panorama of the case is that assessee before me is an Individual. The return of income for the year under consideration, that is, assessment year (A.Y.) 2019-20 was e-filed by the assessee on 29.10.2019, declaring therein total taxable income of Rs.20,26,350/-. The return of income so filed subsequently processed u/s 143(1) of the Act by CPC without making any adjustment to the taxable income of the assessee. Now, the assessment proceedings, initiated u/s 147 of the I. T. Act, 1961, are transferred to the assessing officer from NeFAC as per provisions of u/s 144B(8) of the I.T. Act, 1961. In the case of the assessee, assessing officer was in possession of information that a search and seizure action u/s 132 of the Act named "operation blue diamond was carried out on 24.08.2021, in the case of real estate builders of Rajkot. Mainly four groups including R K Group were covered in search action. During the course of search action various business concerns as well as associate Page | 2 persons/key person / family members were covered under section 132 /133A of the Act. Various incriminating documents in the form physical loose papers/diary/register/ print out of accounting ledger as well as digital back up computers, pen drive /Hard Disk, mail etc have been found and seized/ impounded. The seized documents reveal that the RK Group is involved in taking on-money in cash on sale/booking of units of their projects. The assessee is found one of the purchasers who have paid cash on-money for the purchase of units/offices in project "R K Prime". Since the incriminating digital data/ documents seized during the search action contain information pertaining to /and information contained therein relate to the assessee, therefore, in view of the provision of section 148, Explanation 2 clause (iv) of the Act a satisfaction with the approval of the Pr. CIT-1, Rajkot was recorded. It is pertinent to mention here that inadvertently escaped amount was written as Rs.4,00,000/- instead of Rs.9,25,000/- in the satisfaction note. However, the facts of the case remain unchanged. Thereafter, case has been re-opened u/s 147 of the Act with prior approval of the Pr.CIT-1, Rajkot. The notice u/s 148 of the Act was issued on 31.03.2023 and the assessee has been asked to file the return of income (ROI) in response to notice issued u/s 148 of the Act. In response to notice u/s 148 of the Act, the assessee filed income tax return (ITR) on 14.04.2023, showing total taxable income of Rs.20,26,350/-. The notice u/s 142(1) of the Act calling certain details /documents relevant to assessment have been issued and served upon the assessee time to time. All above notices have been issued online through ITBA and duly served upon assessee on his E-filing portal/registered mail. The assessee vide his submission has provided some details and has also taken certain objections against the re-opening of the assessment proceedings.

The assessing officer noticed that a Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading real estate builders of Rajkot and their key associates on 24.08.2021. Four different Page | 3 groups were covered in the operation including the R K Group of Rajkot. All the four groups are in the business of real estate and are mainly concentrated in and around Rajkot. A total of forty-three (43) premises were covered, out of which 32 premises were covered under section 132 of the Income Tax Act 1961 and the other 11 premises were covered u/s 133A of the Income Tax Act 1961. The premises covered were a mix of residential and business premises of their related entities, their family members, key associates and employees. The RK Group has developed/is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. The Group is headed by Shri Sarvanand Sadhuram Sonwani and he is supported by his family members in the management of the business. The important family members, offices, key associates, accountant and employees were also covered in the search and survey operation to get hold of important incriminating evidences. In the RK Group the main persons/partners were Sonwani family. Some projects of RK Group were developed with other groups also. The group was mainly involved in taking on- money/unaccounted cash on selling of units in its projects and giving on money on purchasing of the land. The data of on-money/unaccounted cash was being maintained in a very systematic manner in Miracle software. In Miracle files mainly unaccounted transaction has been entered as well banking transactions. During the search action, the premise of Shri Girish Vanjani was also covered during the search action. Shri Girish Vanjani was a key employee and accountant of the Group. Shri Girish Vanjani was maintaining the accounts of the RK Group (including parallel unaccounted cash transactions). Mr. Girish Vanjani, in his statement recorded on oath during search action has stated that he is the accountant of group and has been associated for last 25 years. He further explained that accounting of financial transactions of RK Group has been maintained in two accounting softwares, that is, tally and Miracle software. The transactions that are reported on regular books of account of group have been maintained in tally software whereas miracle software contain both type of transactions, that is, bank transactions (that are reported in regular books) and cash transactions (unaccounted transaction, not to be reported in regular books).

In view of the above, the assessing officer observed that it is crystal clear that the assessee has purchased shop/office no. 910 in the project "RK Prime" developed by M/s Naresh Organisers Pvt Ltd and sale deed has been executed for Rs. 16,19,000/- only which establishes the fact that the remaining amount has been paid in cash and the same has not been recorded on registered deed or regular books of the assessee. Out of total cash on-money portion, Rs.9,25,000/- has been paid during the year under consideration, however, despite asking again and again, the assessee has refrained himself to explain the sources of the above on- money payment, therefore, unaccounted on-money payment of Rs.9,25,000/- was treated as income in the hands of the assessee as unexplained money within meaning of section 69A r.w.s. 115BBE of the Act and added to the total income of the assessee.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of the assessing officer. Therefore, the assessee is in further appeal before this Tribunal.

I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Shri Kalpesh Doshi, the ld. Counsel for the assessee took me through relevant documents from the site of the Department and explained that the notice u/s 143(2) of the Act was not issued and served on the assessee and therefore re-assessment proceedings initiated by the assessing officer is bad in law and therefore, reassessment proceedings should be quashed. Learned D.R. for the Revenue also fairly agreed that the notice u/s 143(2) of the Act has not been served on the assessee.

I have considered submissions of both the parties and noted that the Assessment order is passed by the assessing officer, without valid issue as well as service of notice u/s 143(2) of the I.T. Act, 1961. I note that the assessment has been reopened by way of issuing notice u/s 148 dated 31/03/2023. The assessee has duly filed return of income in response to notice u/s 148 of the Act, as on 14/04/2023. The return has been filed successfully and has also been e- verified successfully. The copy of acknowledgement of return filed in response to notice u/s 148 is enclosed at page no.110 of the paper book. Once the return of income is filed by the assessee and assessing officer has duly considered return of income, then, the assessing officer shall issue notice u/s 143(2) of the Act for the further assessment proceedings. The notice u/s 143(2) of the Act is the starting point of assessment proceedings whereby assessing officer seeks documents/ evidences from the assessee to support the claims made in the return of income. In this regard the provisions of section 143(2) of the Act is reproduced below: “Assessment 143. ((1).... ((2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (1) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced any evidence or particulars specified therein or on which the assessee may rely, in support of such claim Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003) (1) notwithstanding anything contained in clause (i), if he considers it necessary or expedients to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:

However, even after multiple attempts the notice is not visible and the format after downloading the notice is reflected in code language and the assessee is unable to access the same. Further, various attempts has been made to open the notice in other compatible format. However, there is error while opening the notice u/s 143(2) in other format. The relevant screenshot reflecting such error while opening the notice u/s 143(2) is as under:

Upon the perusal of the aforesaid screenshot, it is clearly discernible that the e-mail communication does not have attachment in the form of PDF/Other Compatible Format of notice u/s 143(2). Therefore, from the aforesaid screenshots it is substantiated that, the notice u/s 143(2) has neither been issued nor served validly on the Income tax portal of the assessee or E-mail. An analysis of section 143(2) indicates that after the return is filed, this clause enables the Assessing Officer to complete the assessment by following the procedures like issue of notice under section 143(2) and complete the assessment. When the assessing officer is in repudiation of the return filed by the assessee, then, the assessing officer has to proceed to make an enquiry and mandatorily follow the provisions of section 142 and sub-sections (2) and (3) of section 143 of the Act. It is also evident that the issue is not limited to block assessment but would apply to every case where a notice under section 143(2) of the Act is necessary. Therefore, even if the assessing officer repudiates the return of income filed by assessee, still the assessing officer is bound to issue notice u's 143(2) of the Act. For this reliance is placed on the following decisions:

Therefore, I note that assessing officer did not issue any notice under section 143(2) of the Act, the reassessment order would not be sustainable and should be quashed. Accordingly, I quash the reassessment order framed by the assessing officer, under section 147 of the Act dated 26.03.2024, being void ab initio.

As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

In the result, the appeal of the assessee in ITA No.969/RJT/2025, is allowed in the terms indicated above.

Now, coming to assessee’s appeal in ITA No. 970/Rjt/2025 for A.Y. 2020- 21, wherein the grounds of appeal raised by the assessee are as follows: “1. That, the Ld. CIT(A) has wrongly confirmed the reopening of assessment u/s 147 of the I.T. Act, 1961. 2. That, the Assessment order is passed in violation of CBDT guidelines F.No.22S/66/2023/IT A-II dated 24-05-2023, the assessment order is bad-in-law and required to be quashed. 3. That, the notice issued u/s 143(2) of the Act is in violation of CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017. 4. That, the Ld. CIT(A) has wrongly confirmed the order passed by the Ld. assessing officer without giving proper opportunity to cross examine the deponent. The order is bad-in-law and required to be quashed. 5. That, the Ld. CIT(A) has wrongly confirmed the addition of Rs. 13,76,000/- on account of unexplained investment u/s 69A of the I.T. Act, 1961. 6. That, the Ld. assessing officer has wrongly confirmed the application of provisions of section 115BBE of the I.T. Act, 1961.

Brief facts qua the issue are that in the assessee’s case Return of Income for the year under consideration, that is, for assessment year (A.Y.) 2020-21 was e-filed by the assessee on 11.02.2021, declaring therein total taxable income of Rs. 10,10,500/-. The return of income so filed subsequently processed u/s 143(1) of the Act by CPC without making any adjustment to the taxable income of the assessee. On perusal of the assessment order, it is evident that the seized Miracle ledger titled 'RKP 910' records both cheque and cash payments. The cheque entries match the entries reflected in the sale deed and bank statement of the assessee, which indicates a clear link with the ledger of the assessee. However, the additional cash entry of Rs. 13,76,000/- does not appear in regular books or the sale deed. The assessee's denial remains unsubstantiated. He has not produced any evidence disproving the ledger entries or explaining the source of alleged cash. The argument that the data is uncorroborated or unreliable is contrary to the facts. The statements of both key persons of the group establish that the Miracle data was parallelly maintained to record unaccounted transactions. The payment of “on-money” was established in the search action and the assessment, and the onus was on the assessee to rebut the allegation. However, the assessee has failed to discharge his onus of explanation and, thus, the assessing officer made addition of Rs. 13,76,000/- u/s 69A of the Act.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the assessing officer, therefore, assessee is in further appeal before this Tribunal.

I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee. Learned Counsel for the assessee vehemently argued that there is a procedural defects in taking approval from the Addl. Commissioner. The procedure was not followed while taking the approval from Addl. Commissioner. The ld. Counsel also pointed out that approval given u/s. 151 of the Act is not signed and therefore entire assessment order should be quashed. On the other hand, ld. D.R. for the Revenue relied on the findings of the assessing officer. 18. I have considered submissions of both the parties. I note that there is failure to obtain approval u/s 148B of the Act at the time of passing of assessment order. I note that assessment has been reopened by way of issuing notice u/s 148 of the Act, dated 30/03/2023 and order u/s 147 has been passed on 26/03/2024. It is stated that before passing the assessment order the assessing officer is required to obtain a prior approval of the authorities prescribed u/s 148B of the Income Tax Act, 1961.In this regard the provisions of section 148B of the Act, read with Explanation 2 to Section 148 of the Act, should be examined, which is reproduced below: “[Prior approval for assessment, reassessment or recomputation in certain cases. 148B. No order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.] The explanation II to section 148 is also given as below: Explanation 2- where assessing officer shall be deemed to have information suggesting escapement of income- (i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or (ii) a survey is conducted under section 133A, other than under subsection (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee, or (iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing. seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

We note that there is a mandatory and statutory requirement that in all cases involving search-related assessments the prior approval of the Joint Commissioner is required u/s 148B of the Act. In the instant case, the assessing officer has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. The section mandates the obtainment of approval u/s 148B of the Act in the case of search and requisition. The provision in this section highlights the necessity for the Assessing Officer to obtain a prior approval from the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director of Income Tax, before passing assessment orders u/s 147 of the Act. A comparison of the requirement of approval u/s 153D and section 148B is drawn, from which it is evident that approval u/s 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval u/s 148B is now required in all cases where proceedings are initiated pursuant to a search, requisition, or survey, or where asset/material/documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval u/s 148B from the specified higher authority.I note that the assessment order has been passed u/s 147 of the Act without obtaining approval required as per provisions of section 148B of the Act.There is no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only procedurally defective but also without jurisdiction. 20. The requirement of obtaining approval u/s 148B of the Act has also been explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. It is further seen that the Joint Commissioner has not even been supplied seized material relied upon as seized from third-party in the present assessment. There exists a prescribed procedure under which such seized material (including material found from third-party premises) is to be forwarded to the approving authority at least 30 days in advance of granting approval. This procedural safeguard is crucial to prevent arbitrary and unregulated use of third-party material. It is a settled proposition of law that prior approval of competent authority u/s 148B of the Act is mandatory, in this regard reliance is placed on following judgements: (i)Serajuddin and Co. [2024] 163 taxmann.com.118 (SC) “SLP dismissed against order of High Court that where assessment orders passed in case of assessee were totally silent about Assessing Officer having written to Additional Commissioner seeking his approval or of Additional Commissioner having granted such approval, Tribunal was correct in holding that such approval was granted mechanically without application of mind by Additional Commissioner resulting in vitiating assessment orders”. (ii) Homelife Buildcon (P.) Ltd. [2025] 176 taxmann.com 614 (Chandigarh - Trib) “Section 69, read with sections 143, 148 and 148B, of the Income-tax Act, 1961- Unexplained investments (Property)- Assessment year 2021-22-Assessee company was engaged in business of real estate - A search and seizure operation was conducted upon it and also a separate search was conducted on one 'AP' (Sale Deed Writer) and 'RK' (Broker in real estate) and distinct and different Panchanama was drawn in their respective names in their cases Assessing Officer passed assessment order under section 143(3) and made addition on account of cash payments made by assessee to one 'GS' for purchase of land on basis of digital data found from mobile of RK-Whether since Assessing Officer, had admittedly relied upon material seized during searches conducted on other persons, i.e., RK and AP, it was mandatory for Assessing Officer to invoke provisions of section 147 and not to bypass statutory framework by proceeding under section 143(3) Held, yes Whether, thus, impugned assessment framed under section 143(3) without obtaining prior approval under section 148B was a clear violation of procedural safeguards envisaged under law and vitiated assessment proceedings - Held, yes - Held, yes [Paras 25, 29 and 33] [In favour of assessee]” (iii) Malbros International (P.) Ltd. v. DCIT [2026] 183 taxmann.com 421 (Chandigarh -Trib.) “Section 143, read with sections 148 and 148B, of the Income-tax Act, 1961-Assessment General (Search and seizure) Assessment year 2022-23. Assessee-company belonged to a group that was searched under section 132 after 1-4-2021-Simultaneous searches were conducted at residence of an ex-employee where digital data/loose papers were seized and his statement under section 132(4) was recorded; post-search, another ex- employee was examined and his mobile data was extracted - For assessment year 2022- 23, assessee had filed its return before search Case was compulsorily selected for scrutiny, notices under sections 143(2) and 142(1) were issued - Assessing Officer framed assessment under section 143(3), relying on third-party seized material and post-search statements to make multiple additions; approval was obtained from Addl. Commissioner specifically for an order under section 143(3) - Whether in a post-1-4- 2021 search scenario, where assessment is framed under section 143 based on third- party search/seizure material, without invoking reassessment mechanism under section 147/148 read with Explanation 2 and without obtaining approval under section 148B, assessment is jurisdictionally erroneous and liable to be quashed - Held, yes - Whether since in instant case, assessment was framed under section 143(3) relying on third- party search/seizure material without invoking special regime of section 148 and without obtaining mandatory prior-approval under section 148B, assessment was liable to be quashed-Held, yes [Paras 11 and 12) [In favour of assessee)”

Therefore, I note that new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated. There exists a mandatory statutory requirement that in all cases involving search-related assessments falling within the assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner is required under section 148B of the Income-tax Act, 1961. In the present case, the Assessing Officer has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. Therefore, I quash the assessment proceedings. 22. In the result, appeal of the assessee in ITA No.970/RJT/2025, is allowed. 23. In the combined result, both appeals of the assessee are allowed. Order is pronounced in the open Court on 13/07/2026.