CROWN AUTO TRADERS,KANDIVALI (EAST) vs. INCOME TAX OFFICER,WARD 42(1)(1), MUMBAI, BKC, BANDRA-EAST
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the assumption of jurisdiction by the AO under Section 147 was bad in law, invalid, and without jurisdiction. The Tribunal relied on the decision of the Hon'ble jurisdictional High Court of Bombay in Sejal Jewellery v. Union of India, which held that once the foundation of reassessment proceedings is a search action on a third party, the provisions of Section 153C read with Section 153A would be applicable, and the Revenue cannot bypass these special provisions by resorting to general provisions of Section 147/148. The Tribunal also referred to the Supreme Court ruling in Abhisar Buildwell Private Limited, emphasizing the exclusivity of Section 153A/153C in search-related matters. Furthermore, a Coordinate Bench of the ITAT Mumbai in Leshark Global LLP v. DCIT, dealing with identical materials from the same search, held that resorting to Section 147/148 to bypass the mandatory provisions and safeguards of Section 153C is impermissible. Since the reassessment order was quashed on this preliminary jurisdictional issue, the remaining grounds raised by the assessee were rendered academic. The reassessment order passed by the AO under Section 143(3) read with Section 147 was quashed.
What were the facts?
The assessee, Crown Auto Traders, filed appeals against the assessment orders for Assessment Years 2011-12 and 2012-13, passed by the Income Tax Officer under Section 147 read with Section 143(3) of the Income-tax Act, 1961. These orders were confirmed by the CIT(A)-51, Mumbai. The appeals were consolidated as they involved identical grounds. The reassessment proceedings were initiated based on information received from the DDIT (Inv.)-Unit 5(4), Mumbai, concerning a search conducted under Section 132 on a third party, M/s. Evergreen Enterprises, and statements of Shri Nilesh Bharani and Shri Ashwin Rathod. The additions made were Rs. 1,00,00,000/- as unexplained money under Section 69A, Rs. 5,23,000/- as interest on undisclosed income under Section 56, and Rs. 60,000/- as undisclosed brokerage expenditure under Section 69C.
What were the issues?
1. Whether the reopening of assessment under Section 147 of the Income-tax Act, 1961, is bad in law and void ab initio when the basis for reopening is information and documents unearthed during a search conducted under Section 132 on a third party, and whether Section 153C read with Section 153A should have been invoked instead of Section 147. Assessee's contentions: The reopening is invalid as it was done beyond four years without new tangible material and on the basis of third-party information without independent satisfaction of the Assessing Officer (AO). The AO lacked jurisdiction as the assessment should have been made under Section 153C, given the information originated from a search on a third party. Reliance was placed on the principles of Sumati Dayal and Durga Prasad More, arguing they were not applicable. Revenue's contentions: The AO possessed valid 'reason to believe' based on tangible information shared by the Investigation Wing.
Which sections of the Income-tax Act were involved?
Section 147,Section 143(3),Section 69A,Section 56,Section 69C,Section 153C,Section 153A,Section 132,Section 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: E BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 3954/MUM/2026 (िनधा�रण वष�/Assessment Year: 2011-12) Crown Auto Traders Income Tax Officer, C-26, Bonanza Indl. Estate, Ward 42(1)(1) Ashok Chakravarti Road, Room No. 703,7th Floor, Kandivali (East), Kautilya Bhavan, BKC, Vs. Mumbai-400101 Bandra-East Maharashtra Mumbai-400051, Maharashtra अपीलाथ� Appellant ��थ� Respondent
ITA 3955/MUM/2026 (िनधा�रण वष�/Assessment Year: 2012-13) Crown Auto Traders Income Tax Officer, Ward 42(1)(1) C-26, Bonanza Indl. Estate, Ashok Chakravarti Road, Kandivali (East), Room No. 703, 7th Floor, Vs. Mumbai-400101, Kautilya Bhavan, BKC Maharashtra Mumbai-400051, Maharashtra अपीलाथ� Appellant ��थ� Respondent
PAN of Assessee: AAAFC1976F
अपीलाथ� �ारा/Appellant represented by: Shri Dharan Gandhi and Ms. Vinita Nara, Advocates ��थ� �ारा/Respondent represented by: Smt. Sujatha Iyyanger, Sr DR
सुनवाई की तारीख / Date of conclusion of hearing: 30.06.2026 घोषणा की तारीख / Date of pronouncement: 22.09.2026 आदेश / ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
These two appeals filed by assessee are against the orders of ld. CIT(A)-51, Mumbai vide order Nos. ITBA/APL/S/250/2025- 26/1086387574(1), dated 23.02.2026 and ITBA/APL/S/250/2025- 26/1086131282(1), dated 17.02.2026 passed against the assessment orders by ld. AO u/s 147 read with section 143(3) of the Income-tax Act, 1961 ["the Act"], for the Assessment Years 2011-12 and 2012-13, respectively.
Since identical grounds are raised in both the appeals, we find it proper to take up both the appeals together by passing this consolidated order. Facts of ITA No.3954/Mum/2026 for AY 2011-12 are narrated as lead case and our observations and findings therein shall apply mutatis mutandis to ITA No.3955/Mum/2026 for AY 2012-13.
2.1. Grounds of appeal, raised by the assessee for AY 2011-12 in ITA No.3954/Mum/2026 are as under: "1. Reopening of assessment is bad in law: 1.1 The Ld. CIT(A) failed to appreciate that reopening of assessment u/s 147 of Income Tax Act (hereinafter referred to as "the Act") in the facts and circumstances of the case is invalid, bad-in-law, without any justification and liable to be quashed. 1.2 The Ld. CIT(A) failed to appreciate that reopening of assessment u/s 147 of the Act is bad-in-law as same is done beyond four years and there is no new tangible material before Ld. AO and reopening is done on the basis of information received (sharing of information) in the form of letter from DDIT (Inv.)-Unit 5(4), Mumbai, and there is no independent satisfaction of AO that income has escaped assessment and hence reopening of assessment is invalid, bad in law and liable to be quashed. 1.3 The Ld. CIT(A) failed to appreciate that reopening of assessment u/s 147 of the Act is bad-in-law as same is done on the basis of third-party statement not supported by any corroborative evidence and thus there existed reason to suspect and not reason to believe that income has escaped assessment and hence reopening is invalid, bad-in-law and liable to be quashed. 1.4 On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that reopening of assessment u/s 147 of the Act is bad-in-law and void ab initio as reopening is without jurisdiction as in the present case, the assessment is sought to be made on the basis of information received with reference to the appellant-firm from third party search and as such the assessment can be made u/s 153C of the Act and hence reopening u/s 147 of the Act is bad in law and liable to be quashed.
Addition made u/s 69A of the Act as unexplained money, etc of Rs. 1,00,00,000/- 2.1 On facts and Circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of Rs. 1,00,00,000/- made u/s 69A of the Act in the assessment order passed u/s. 143(3) r.w.s 147 of the Act without appreciating that – (a) the appellant-firm has not paid any cash to either M/s. Evergreen Enterprise or Mr. Nilesh Bharani, as alleged in the re-assessment order & that provisions of sec. 69A do not apply; (b) no such evidence or material is found proving any such cash is paid and it is not known as to how the figure of Rs. 1 cr. is derived; (c) Shri Nilesh Bharani (i.e. Third Party and witness of Ld. AO) did not appear before Ld. AO in cross examination and; (d) the conclusion drawn in the re-assessment order is merely allegation and suspicion without establishing the same with any conclusive evidence or material; 2.2 The Ld. CIT(A) erred in confirming addition merely relying on the intimation/information received from Investigation wing of Income Tax Department that the appellant-firm has given cash loan of Rs. 1,00,00,000/- either by itself or through so called name of "Crown Auto" and without giving any evidence whatsoever in support of the allegation of cash loan of Rs. 1,00,00,000/- and therefore your appellant-firm prays that addition of Rs. 1,00,00,000/- should be deleted in total. 2.3 The Learned CIT(A) erred in confirming addition of Rs. 1,00,00,000/- made u/s 69A of the Act being alleged cash loan received by Shri Nilesh Bharani from the appellant-firm without appreciating that such addition is made on the basis of statement of Mr. Nilesh Bharani and the statement of Mr. Nilesh Bharani (i.e. third party) do not state that he has received cash loan from the appellant-firm and hence the addition of Rs 1,00,00,000/- may be deleted. 2.4 The Ld. CIT(A) further failed to appreciate that since the Income Tax Department was relying upon some information and statements of some persons, it was for the Income Tax Department to produce such parties as they were witness of the Income Tax Department and for which specific request was also made to the Ld. AO for allowing cross-examination of such persons and thus, the onus was on the Ld. AO to ensure attendance of said parties for cross- examination and hence, the addition of Rs. 1,00,00,000/- is without any justification and liable to be deleted. 2.5 The Ld. CIT(A) failed to appreciate the fact that Mr. Nilesh Bharani has already retracted his statement given before Deputy Director of Investigation, Unit 5(4) vide his letter dated 14.10.2017 and therefore the appellant-firm prays that no evidence value should be attached to the statement of Mr. Nilesh Bharani and therefore, addition of Rs. 1,00,00,000/- should be deleted in total. 2.6 The Ld. CIT(A) erred in confirming addition of Rs. 1,00,00,000/- on basis the contact person's name shown in the telephone diary of Mr. Nilesh Bharani without considering facts that "Mr. Ashwin Khandar" is not partner of Appellant-firm and therefore addition of Rs. 1,00,00,000/- should be deleted. 2.7 On facts and circumstances of the case, the Ld. CIT(A) failed to understand that the principles laid down by the Honourable Supreme Court in the cases of Sumati Dayal (214 ITR 801) and Durga Prasad More (82 ITR 540) is not applicable in appellant-firm's case as name of brother of partner was written in the dairy of Mr. Nilesh Bharani and not in name of any of partner or the appellant-firm and hence human probabilities cannot applicable to such circumstances. 2.8 On the facts and in the circumstances of cases and in law, the Ld. CIT(A) erred in confirming addition of Rs. 1,00,00,000/- u/s 69A of I.T. Act as "unexplained money" without appreciating the fact that section 69A of the Act do not speaks of any "loans or deposits". Hence, your appellant-firm prays that addition of Rs. 1,00,00,000/- made u/s 69A of the Act is bad in law and liable to be deleted. 3. Addition made u/s 56 of I.T. Act as interest on undisclosed income of Rs. 5,23,000/- 3.1 The Ld. CIT(A) erred in confirming addition of Rs. 5,23,000/- by estimating interest income of u/s 56 of the Act without any evidence and therefore your appellant-firm prays that addition of Rs. 5,23,000/- should be deleted in toto. 3.2 The Ld. CIT(A) erred in confirming addition of Rs. 5,23,000/- on the basis of suspicion and presumptions and without verifying evidence and facts and hence your appellant-firm prays that the addition of Rs. 5,23,000/- u/s 56 of I.T. Act should be deleted in toto. 3.3 On facts and circumstances of cases, your appellant-firm prays that provisions of section 56 of the Act are not applicable and therefore addition of Rs. 5,23,000/- should be deleted. 4. Addition made u/s 69C as undisclosed brokerage expenditure of Rs. 60,000/- 4.1 The Ld. AO erred in confirming addition of Rs. 60,000/- by estimating brokerage expenditure u/s 69C of the Act without any evidence and therefore your appellant-firm prays that addition of Rs. 60,000/- should be deleted in toto. 4.2 The Ld. AO erred in confirming addition of Rs. 60,000/- on the basis of suspicion and presumptions and without verifying evidence and facts and hence your appellant-firm prays that the addition of Rs. 60,000/- u/s 69C of I.T. Act should be deleted in toto.
Brief facts of the case are that assessee is a partnership firm. Return of income was filed by assessee in the ordinary course and assessment thereof came to be reopened by issuance of notice u/s 148 on the basis of specific information received from DDIT (Inv.), Unit-5(4), Mumbai, arising out of search action u/s 132 conducted on 06.10.2017 in the case of M/s Evergreen Enterprises/Shri Nilesh Bharani, on the basis of which it was alleged that assessee-firm was one of the persons who had advanced unaccounted cash loans through Shri Nilesh Bharani. As recorded in assessment order, documentary evidences found in the course of said search, together with statement of Shri Nilesh Bharani recorded u/s 132(4) were stated to have revealed undisclosed money-lending activity and identified assessee as one of the alleged cash lenders.
3.1. As noted by ld. AO in the impugned reassessment order, the entire basis for reopening the assessment as well as making the substantive additions comprises: i. Coded diary entries and lender ledgers seized during the third- party search ii. Statement of Shri Nilesh Bharani recorded under Section 132(4) iii. Statement of Shri Ashwin Rathod recorded under Section 132(4) iv. Telephone diary seized from the premises of M/s. Evergreen Enterprises 3.2. Based on the aforesaid search material and third-party statements, ld. AO came to the conclusion that assessee was engaged in undisclosed cash-lending activities and proceeded to make an addition of ₹1,00,00,000/- as unexplained money under Section 69A along with consequential additions of estimated interest under Section 56 and estimated brokerage expenditure under Section 69C.
Before us, ld. Counsel for assessee contended that assumption of jurisdiction under Section 147 is bad in law and void ab initio. Ld. Counsel submitted that where information and documents are unearthed during the course of a search conducted under Section 132 on a third party, the statutory mechanism prescribed under the Act requires procedure to be governed exclusively by Section 153C read with Section 153A of the Act. Revenue cannot bypass the explicit statutory requirement and safeguards of Section 153C by resorting to the general provisions of reopening under Section 147. On the other hand, ld. Sr. DR relied upon the orders of ld. AO and ld. CIT(A), arguing that ld. AO possessed valid "reason to believe" based on tangible information shared by the Investigation Wing.
We have heard the rival submissions, perused the material available on record and carefully considered the relevant statutory provisions and legal precedents cited by both sides. The primary issue before us is whether ld. AO could validly resort to Section 147/148 to frame the reassessment when the entire foundation of the proceedings and the underlying additions rests exclusively on material, documents and statements seized/recorded during a search under Section 132 in the case of a third party. On this issue, we draw strength from the decision of the Hon’ble jurisdictional High Court of Bombay in the case of Sejal Jewellery v. Union of India [2025] 171 taxmann.com 846 (Bom.). In paragraph 22 of the judgment, Hon’ble Court dealt with a similar situation where reassessment proceedings were initiated based on search operations on third parties. Hon’ble Court observed: "22. In the present case, the foundation of the impugned notices/action is the search action... Once the foundation is a search action, the provisions of Section 153C read with Section 153A of the Act would be applicable. The Revenue cannot bypass the special provisions governing search assessments and resort to general provisions of Section 147/148 of the Act..."
5.1. Hon'ble High Court further relied upon the ruling of Hon'ble Supreme Court in Abhisar Buildwell Private Limited [2023] 149 taxmann.com 399 (SC) to emphasized the statutory scheme and exclusivity of the provisions of Section 153A/153C in search-related matters.
5.2. Furthermore, we find that Coordinate bench of ITAT Mumbai, in the case of Leshark Global LLP v. DCIT [2025] 177 taxmann.com 375 (Mum. - Trib.) dealt with identical materials emanating from the very same search on Shri Nilesh Bharani / Evergreen Enterprises. The Bench specifically analysed the applicability of Section 153C vis-à-vis Section 147 regarding additions made on the basis of material unearthed during a search under Section 132. It was held that where the material used for reopening is search material obtained from a third party, assumption of jurisdiction under Section 147 is wholly without jurisdiction, as Section 153C is a special provision overriding general assessment/reassessment provisions. The statutory scheme under the Act clearly delineates the jurisdiction for assessment/reassessment. Sections 153A to 153D constitute a special code designed to deal with search cases. Section 153C specifically governs cases where books of account, documents, or assets seized during a search under Section 132 belong to, or pertain to, or contain information relating to a person other than the searched person. Under Section 153C, specific procedural safeguards, including the recording of satisfaction by the AO of the searched person and transmission of records to the jurisdictional AO of the third party are mandatory preconditions. Resorting to Section 147/148 to bypass the mandatory provisions and safeguards of Section 153C is impermissible in law.
In the case before us, it is an admitted position from the reassessment order itself that the initiation of proceedings under Section 147 as well as the additions made by ld. AO were based solely on the seized lender ledgers, coded diary entries, telephone diary and Section 132(4) statements of Shri Nilesh Bharani and Shri Ashwin Rathod from the search on M/s. Evergreen Enterprises. Therefore, in line with the principles laid down by the Hon’ble Bombay High Court in Sejal Jewellery (supra) and the Coordinate Bench in Leshark Global LLP (supra), we hold that the assumption of jurisdiction by ld. AO under Section 147 is bad in law, invalid and without jurisdiction. Accordingly, the reassessment order passed by ld. AO under Section 143(3) read with Section 147 is hereby quashed. Grounds raised by the assessee in this regard are allowed.
Since the reassessment order itself has been quashed on the preliminary jurisdictional issue, the remaining grounds raised by assessee are rendered academic and do not require separate adjudication.
In the result, appeal filed by the assessee is allowed.
Our aforesaid observations and findings being on an identical issue and identical facts applies mutatis mutandis to ITA No.3955/Mum/2026 for AY 2012-13.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 22 September, 2026.
Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 22 September, 2026 MP, Sr. PS Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT
BY ORDER,
(Dy./Asstt.Registrar) ITAT, Mumbai
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