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Facts
The assessee's appeal challenges an order confirming an addition of Rs. 45,00,000 made by the AO under Section 69 of the Income Tax Act, 1961, as unexplained loan. The addition was based on handwritten notings found in seized documents during a search of a third party. The assessee contended that the notice for reopening under Section 148 was invalid as it should have been issued under Section 153C.
Held
The Tribunal held that the notice issued under Section 148 was bad in law because the seized documents pertained to the assessee but were found during a search of a third party. Therefore, the proceedings should have been initiated under Section 153C of the Income Tax Act. Consequently, the addition made by the AO was quashed.
Key Issues
Whether a notice issued under Section 148 of the Income Tax Act is valid when the incriminating documents are found during a search of a third party, and if Section 153C should have been invoked instead.
Sections Cited
69, 250, 148, 132, 153C, 153A, 147, 131, 271(1)(c), 132(4A), 143(3), 142, 143
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], passed under section 250 of the Income Tax Act, 1961; dated 13.05.2024 for Assessment Year 2012-13. The assessee has raised the following grounds of appeal : “1. The learned CIT(A) erred in confirming the addition of Rs.45,00,000 made by the A.O. u/s 69 towards alleged unexplained loan advanced in cash to Mr. Ramzan Kokanion the basis of handwritten notings made in two loose papers seized during search action conducted on a third party, namely, Mr. Ramzan Kokaniwithout appreciating that the said addition was not justified on facts and in law.
2. The learned CIT(A) failed to appreciate that the said loose paper was unsigned, undated, did not mention the mode in which loan was advanced and also did not mention whether the amount of Rs.45 lakhs was balance of outstanding loan or whether it was the loan advanced as on the date of making the noting and therefore, the inference drawn by the A.O. only on the basis of the noting in the loose papers was not justified on facts and in law.
3. The learned CIT(A) ought to have appreciated that in spite of specific written request made by assessee, the A.O. had neither confronted the statement, if any, of Mr. Ramzan Kokani nor allowed his cross examination and the A.O. had also not confronted the copies of relevant agreement and sale deed entered by Mr. Kokani with some third party which were relied upon by the A.O. to draw adverse inference against the assessee and hence, the addition made by the A.O. was not justified on facts and in law.
4. The learned CIT(A) erred in not appreciating that the presumption u/s 132(4A) was not applicable in respect of documents found with third party in as much as, the searched party may have made such notings in order to suit its own requirements for explaining source of unaccounted payments made byhim and therefore, the addition made by the A.O. only on the basis of notings made by third party at the back of the assessee was not justified in law and on facts of the case.
5. The learned CIT(A) failed to appreciate that the A.Ο. had not brought any material on record to prove that the alleged unaccounted loan stated on the undated seized paper were made during the year under consideration and therefore, the above addition made by the A.O. in A.Y.2012 13 on the basis of suspicion and surmises was apparently unjustified in law and on facts.
6. Without prejudice to ground nos. 1 to 4, the appellant submits that in the instant case, the notice u/s 148 dated 28.03.2017 was issued on the basis of information contained in seized documents allegedly relating to the assessee found in the course of search action u/s 132 conducted on a third party and hence, if at all, any proceedings were to be initiated on the basis of the said seized documents, the same should have been initiated under the specific provisions of section 153C and not under the general provisions of section 148 and therefore, the notice issued u/s 148 on 28.03.2017 may be declared as null and void in law.
7. Without prejudice to ground nos. 1 to 6, the appellant submits that the notice u/s 148 dated 28.03.2017 issued in the instant case may be declared as null and void in law.
8. The appellant craves leave to add/alter/ amend any of the grounds of appeal
.” Submission of ld.AR :
2. Ld.AR for the assessee filed a paper book. Ld.AR submitted that in this case, notice u/s.148 of the Act has been issued on 28.03.2017. Ld.AR read out the reasons recorded which is at page no.7 of the paper book. Ld.AR submitted that as per the reasons recorded, certain documents i.e.page no.35 was seized during the search in the case of Kokani Group. Ld.AR submitted that since there were seized documents based on which the Assessing Officer has issued notice u/s.148 of the Act, is bad in law as notice u/s.153C should have been issued. Ld.AR relied on the decision of the Hon’ble Bombay High court in the cases of Aditi Constructions Vs. DCIT [W.P No.783/2016, dated 04.05.2023 and Sejal Jewellery Vs. Anr [W.P.No.3057/2019 dated 18.02.2025.On merits, ld.AR submitted that the impugned amount was a carried forward loan and [A] therefore, no addition can be made during the year. Ld.AR took us through the Ledger Account which is at page no.19 of the paper book to demonstrate the same. Ld.AR took us through the submission made by assessee before the Assessing Officer, wherein assessee has clearly submitted that the loan pertains to earlier years. Therefore, no addition can be made in A.Y.2012-13. Submission of ld.DR :
3. Ld.DR for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused the records. It is noted that the Assessing Officer had issued notice u/s.148 of the Act on 28.03.2017 for A.Y.2012-13. The Assessee filed a reply stating that the Return of Income filed on 26.09.2012 may be treated as Return of Income in response to notice u/s.148 of the Act. Assessee also requested for reasons for reopening recorded by the Assessing Officer. Assessing Officer provided the copy of the Reasons. Assessee filed elaborate reply. Assessing Officer made an addition of Rs.45 lakhs.
4.1 The relevant paragraph 9 of the Assessment Order is reproduced here as under : “09. It is very clear from the above discussion that the amount of Rs.45,00,000/- as mentioned in the documents found during the search proceedings in the case of Mr. Ramzan Kokani as mentioned therein as loan from the assessee and the same are llable to be added to the assessee's income as unexplained Investment u/s 69 of the Act. Accordingly amount of Rs.45,00,000/- is added to the total Income of the assessee. Penalty proceedings u/s 271(1)(c) of the Income Tax Act are initiated for concealment of income.”
During the assessment proceedings, assessee has submitted a ledger account which shows Opening Balance of Rs.56 lakhs loan given to Mr.Ramzan Kokani. On perusal of the Ledger Account which is at page no.19 of the paper book, it is noted that there is opening balance of Rs.56 lakhs in the name of Mr.Ramzan Kokani. It means, the loan pertains to earlier years. Ld.DR for the Revenue has not rebutted this fact. In these facts and circumstances of the case, the impugned addition of Rs.45,00,000/- cannot be made for A.Y.2012-13. Accordingly, we direct ld.Assessing Officer to delete the addition of Rs.45 lakhs. Accordingly, Grounds Nos.1 to 5 raised by the assessee are allowed.
5.1 It is an admitted fact by the Assessing Officer that there was a search u/s.132 of the Act in the case of Kokani Group. Certain documents were found during the search which the Assessing Officer has referred in the reasons recorded for reopening. The reasons recorded for reopening are reproduced here as under : “In this case, information was received from ADIT(Inv.)-II, Nashik A search & seizure action u/s 132 of the I.T. Act, 1961 was conducted at Kokani Group, Nashik, and certain documents were seized. From, the information received, it is observed that as per Annexure A-1, Item No. 1, Page No. 35 of the seized documents, contains handwritten noting of various amounts in which against the name of Mr. Atul Vijay Madan amount of Rs. 55 lacs noted as 'Loan" and Rs. 22 Lacs as 'settlement. Noting contains various amounts alongwith the names of the parties from whom the amounts were taken by Mr. Ramzan Kokani.
This transaction appears to be loan given by Mr. Atul Vijay Madan. Also as per Annexure A-1, Item No. 2 Page No. 186 of the seized document there are noting of land transaction such as date place, property description, amount & share of the seller. The loan transaction of Rs. 45 lacs with Mr. Atul Vijay Madan is in respect of land transaction of G. No. 332/1 of Talwade dated 25/10/2012 mentioned on the seized document. The Sathe Khat agreement dated 28/09/2011 and purchase deed dated 25/10/2012 of the land at Gat No. 332/1 of Tallwade was also found and seized as per Annexure-A, Item No.
On verification of the sathe Khat agreement and purchase deed there is difference of Rs. 33 lacs which was paid in cash by Mr. Ramzan Kokani to the sellers of the land. In view of the above it is appears that Mr. Ramzan Kokani received loan of Rs. 45 lacs in cash from Mr. Atul Vijay Madan during the F.Y. 2011-12. Further, a summon u/s 131 of the [A] I.T. Act, 1961 issued to assessee by the DDIT(Inv) but assessee did not attended neither submitted submission. ON perusal of Balance-Sheet, P&L Account, Return of Income and Audit-Report on ITD, transaction of Rs.45 lacs is not recorded in books of account and remained unexplained.”
5.2 Thus, Notice u/s.148 was issued based on the seized documents in the case of Kokani Group. Section 153C of the Income Tax Act is reproduced here as under: “Assessment of income of any other person. 153C.(1) 33[Notwithstanding anything contained in section 139, sec- tion 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) 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, 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 34[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 34[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— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, 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.
Section 153C of the I.T.Act starts with “Notwithstanding anything”. Thus, as per section 153C of the Act, whenever certain incriminating documents pertaining to assessee were found during search in the case of some person, then notice u/s.153C of the Act shall be issued in the case of Assessee.
The Hon’ble Bombay High Court in the case of Sejal Jewellers Vs. Union of India [2025] 171 taxmann.com 846 held as under : “22. Applying the principles of law as discussed hereinabove, we are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against one Shilpi Jewellers Pvt. Ltd. and in such search and seizure action, materials were seized and such materials were further explored and enquired. Such enquiry revealed significant information in regard to M/s. Green Valley Gems Pvt. Ltd., which according to the Revenue had provided accommodation entries to the petitioner, in which it was also revealed that Green Valley Gems Pvt. Ltd. was a shell company. We do not find that the record would indicate something which is not on the basis of such new materials gathered under the search and seizure action under Section 132. If this be the case, then certainly the provisions of Section 153C read with Section 153A would be applicable, as held by the Supreme Court in Abhisar Buildwell (P) Ltd. (supra)when the Court interpreted the effect and purport of Section 153C and 153A, as also held by the Rajasthan High Court in Shyam Sunder Khandelwal (supra).
Insofar as Mr. Suresh Kumar's contention supporting the proceedings under Section 147 and 148 of I.T.Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the intention of the legislature as depicted by the provisions of Section 153A and 153C of the I.T. Act. There would not be any difficulty in accepting the proposition as canvassed by Mr. Suresh Kumar, referring to the decision of the Supreme Court in Phool Chand Bajrang Lal (supra), however, the facts in the present case are distinct. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 read with Section 147. We have already observed that the provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wisdom has thought it appropriate to provide for an independent effect, to be given under Section 153A read with Section 153C by incorporating the "non-obstante" clause, in these provisions, which carves out an exception to any normal/regular action being resorted under Section 147.
In this view of the matter, we are of the clear opinion that the impugned notice under Section 147 of the I.T.Act and all actions consequent thereto are required to be held to be without jurisdiction and bad in law. The petition is accordingly allowed in terms of prayer clauses (a) and (b).
Respectfully following the decision of Hon’ble Jurisdictional High Court, we hold that the notice u/s.148 of the Act, dated 28.03.2017 issued in the case of assessee based on the document seized during the search in the case of Kokani Group is bad in law, accordingly, the Ground No.6 of the assessee is allowed.