DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, , LUDHIANA vs. DEEPANKAR JAIN, LUDHIANA

That the assessment framed under section 143(3) is bad in law, as it pertains to a year immediately preceding search year where the mandatory approval as prescribed under section 148B of the Income Tax Act, 1961, has not been followed. That in the absence of compliance with the provisions of section 148B

At the very outset, the Ld. Counsel invited out attention to the Cross Objections filed by the assessee and stated that the Cross Objections are late by 53 days, for which, the condonation application has been filed by the assessee that the assessee was under a bonafide belief that nothing is required to be done as relief had been granted by the CIT (A) and it was only when, the assessee contacted his lawyer and shared with him the grounds of appeals as taken by the department then on the suggestion of his counsel, the cross objections were filed and, thus, was pleaded that the said delay be condoned on account of the bonafide reason.

The Ld.CIT (DR) stated that the decision be taken as per the merits of the case. After considering the application of assessee for condonation, the delay of 53 days as calculated below is being condoned: Memo of appeal of the department received 27.03.2025 by the assessee Due date of filing Cross Objections 26.04.2025 Cross Objections filed on 19.06.2025 Delay 53 days 6. We have gone through the ground of Cross Objections and since the legal issue has been raised about the completion of search assessment u/s 143(3) and all the facts are borne out from the order of AO/CIT(A), the same is admitted for adjudication.

The Ld. Counsel of the assessee on this legal grounds as raised in cross objections argued that the round No.1 & 2 in the grounds of cross objections are not being pressed. With regard to ground No.3, the Ld. Counsel argued that the assessment u/s 143 (3) have been framed, without fulfilling the mandatory condition prescribed u/s 148 read with explanation-2 to clause (iv). Since no mandatory approval has been taken from the Addl. CIT as prescribed u/s 148, the assessment as framed by the Assessing Officer u/s 143(3) deserves to be quashed.

The Ld. Counsel of the assesse had also filed his arguments on the above said legal ground which are being reproduced for the sake of clarity:-

Reference is made to notice u/s 143(2), which is dated 21.06.2023 and which reads as under: - "The Income Tax Department appreciates your contribution, towards development of the Nation by filing of your return of income for the Asstt. Year 2021-22 vide Ack. No.293502530050322 on 05.03.2022. 'While acknowledging the care you may have taken in preparing the return of income, there are certain issues on which further clarification is required. Therefore, the return of income has been selected for scrutiny assessment in accordance with the provisions of the Income-tax Act, 1961'. 'Your may submit or cause to submit any evidence on which you may rely in support of your return of income electronically in 'e- Proceedings' facility through your account in e-Filing website (www.incometax.go.in) at your convenience on or before 11.07.2022. It is advised that you should gather all the information, documents, evidences, etc. in respect of various financial transactions, you have entered during the Assessment Year under consideration, which may be relevant for the scrutiny proceedings. Detailed questionnaire(s) or communication may be issued during the course of assessment proceedings. As and when questionnaire(s) or communication is issued, you are required to provide specific point-wise response within the time specified."

From the above bare perusal of the above notice u/s 143(2), it is very much clear that the said notice is only limited to the issue with regard to the return of income and reference is made to the proviso to section 148 B, which reads as under:- Prior approval for assessment, reassessment or recompilation in certain cass. "148B. No order of assessment or reassessment or recompilation 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."

From the above reading of section and the facts on record, it is very much clear that the assessment for Asstt. Year 2022-23, 'being the preceding three years' had to be framed u/s 148 and the approval had also to be accorded u/s 148B as stated above, but from Assessment order, it is very much clear that the approval has been taken in compliance to the CBDT circular, dated 15.07.2022 and not under the mandatory provisions of section 148B of the Income Tax Act, 1961.

The Ld. Counsel relied upon the approval as sought by the Assessing Officer vide her letter, dated 29.03.2023, which is with regard to the draft assessment order u/s 143(3) and the approval was granted by the Addl. CIT on 31.03.2024. The said approval is of the order as passed u/s 143(3). Thus, there is fundamental error in granting the approval u/s 143(3), instead of148B.

Ld. Counsel relied upon his argument as recorded in the order of the Hon'ble ITAT, Chandigarh Bench, Chandigarh In the case of Homelife Buildcon Pvt. Ltd. in a Others, wherein vide order, dated 17,.07.2025 from para 19, page 13 to page 17, and the finding of the Hon'ble Bench is there from para 21, page 18 and the relevant finding applicable to the case of the assessee is in paras 22,23, 24,26,27,28,29,30,32,33 and 34 of the order.

In nutshell, it was argued that since the Assessment year under consideration falls in "three preceding assessment years" immediately preceding the assessment year relevant to previous year, in which, the search is conducted therefore, the assessment ought to have been framed u/s 148 and mandatorily approval, too ought to have been obtained u/s 148B, which is very much clear. The said mandatory procedure had to be followed in the present case. The framing of assessment u/s 143(3), for the Assessment Year 2022-23, which is immediately preceding to the Assessment year, relevant to previous year, in which, the search is initiated, therefore, the order as passed u/s 143(3) based on the search material and, further that the approval as granted to the order u/s 143(3) is, therefore, bad in law and the assessment as framed deserves to be quashed, following the finding in the case of M/s Homelife Buildcon as cited above.

The Ld. CIT (DR) argued that even in the assessment framed u/s 143(3), the Assessing Officer is at liberty and duty bound to consider all other information relating to assessment year under consideration for the purposes of framing the fair assessment and, thus, there is no illegality in framing of assessment u/s 143(3), after search and seizure and further stated that the Addl. CIT has rightly accorded the approval of assessment framed u/s 143(3) as per para 6, page 10 of the order of Assessing Officer.

We have gone through the cross objections as filed before us and arguments of the Ld. Counsel and the Ld. CIT (DR) alongwith detailed submissions as reproduced above. The facts are not disputed that the search was conducted on 24.11.2022 and the case was centralized on 01.02.2023. The notice u/s 143(2) was issued on 21.6.2023 on the basis of return of income filed by the assessee on 30.07.2022. Thus, the notice u/s 143(2) was issued after the case was centralized and the Assessing Officer was well aware of the information and material found and seized from the assessee during the course of search.

The issue before the Bench is whether in the facts and circumstances of the case, the assessment had to be framed u/s 143(3) or u/s 147 of the Income Tax Act. We find in view of explanation-2 to 148, which is abundantly clear that the legislature has widened the scope of reassessment particularly through Finance Act 2021. Legislative intent to bring all search conducted on or after 1st of April 2022 within the ambit of new assessment regime u/s 147 of the Income Tax Act,1961 is also evident. This 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.

The relevant extract Memorandum explaining the finance bill is reproduced as under: - '(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure (VI) Further, in search, survey or requisition cases initiated or made or conducted, on or after 1st April, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated or requisition is made or any material is seized or requisitioned or survey is conducted." Further, the notice u/s 143(2) which was filed before us, from the same, it is evident that the assessment u/s 143(3) was solely for the purposes of verifying the return of income filed by the assessee.

Furthermore, 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 (AO) 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. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under:

Even we find while framing the assessment under section 143(3), the Assessing Officer (AO) has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, a bare perusal of this approval shows that it was obtained in reference to F. No.299/36/2020/1DAR/INV3(3)/577 dated 15.07.2022, i.e., in accordance with the CBDT Circular dated 15th July 2022, and not under the mandatory provisions of section 148B of the Income tax Act, 1961.

The above view was also before us in the case of Homelife Buildcon Pvt. Ltd. in & Others, where on similar facts and circumstances, the assessment was framed u/s 143(3), though there was search and there was no approval granted as per statutory procedure outlined u/s 148. Herein this case. There is also complete failure to comply with the mandatory provisions of section 148B and, thus, the assessment as framed by the AO vide order, dated 31.03.2024 is hereby quashed. We have also gone through the request for seeking approval of draft assessment order u/s 143(3) by the DCIT, CC-I, Ludhiana vide letter, dated 29.03.2024 and the said approval as sought u/s 143(3) was granted by the Addl. CIT (Central), Ludhiana vide order, dated 31.03.2024 and, thus, we have no hesitation in following the earlier order of 'Homelife Buildcon Pvt. Ltd.', where under the similar facts and circumstances, the assessment as framed u/s 143(3) was quashed.

Though, we have quashed the assessment as framed by the Assessing Officer but we find that both the assessee and the department have raised various grounds on merits and in view of the facts and circumstances of the case, we deem it appropriate to adjudicate the grounds as raised by the assessee and department on merits.

The only ground of appeal raised in the department appeal is about the deletion of addition of Rs. 1,12,50,000/- made by the Assessing Officer on account of unexplained investment u/s 69, based on digital device of Sh. Deepankar Jain. The facts have been discussed by the Assessing Officer from page 2 to page 10 of the order. The facts are that during search from the digital device of the assessee, 'whatsapp chat' with a contact person namely Mr. Manish was noticed by the Assessing Officer from where, it transpired that Mr. Manish had sent a message to the assessee asking "Should I give your 1.5 lakh USD to Hemant Sir which inferred that USD 1.5 lakhs was belonging to Sh. Deepankar Jain were his own funds and given to a contract name 'Hemant.. Sh. Deepankar Jain replied " OK" in response to the said message and, thus, the Assessing Officer formed a view that Hemant received 1.5 lakhs USD (Rs. 1,12,50,000/- on behalf of assessee. The assessee contended that there was just a proposal of loan transfer, which could not materialize and no business commenced in the name of M/s H.L. Exports, an entity set up at Dubai by the assessee. Further, the assessee provided the identity proof of Mr. Manish, establishing that he is resident of Dubai and an affidavit of Mr. Manish Kumar was also filed, where he confirmed that though, he had arranged the funds, through his professional contact in Dubai, which was to be given to the assessee, but since the business proposal did not materialize therefore, no funds were passed to the assessee concerned.

The submissions were made before the CIT(A) on the identical line and also on the fact that merely on the basis of unproved 'whatsApp chat' with no corroborated evidence found from the premises of assessee, the addition is unsustainable in law as held by the Kolkata Tribunal in the case of Atul Tantia Vs DCIT, in dated 28.03.2023 and also in the case of ACIT Vs Machukonda in ITA No. 87A/Viz/2020. Thus, it was concluded that there is no evidencery value of the WhatsApp message. In nutshell, the contention of the assessee that since the confirmatory letter has been filed from one Mr. Manish alongwith his identity proof clarifying that no money was transferred to the assessee and only on the basis of 'WhatsApp chat on standalone basis is not a reliable evidence for making the addition. The contentions of the assessee as per order of CIT(A) are as under as per para 5.2.2 of the order of CIT(A) :-

The Ld. CIT (DR) relied upon the order of the Assessing Officer and on the whatsApp chat and further stated that 'whatsAp chat' is an authenticated piece of evidence and the same deserves to be taken into consideration. The Ld. Counsel of the assessee relied upon the affidavit of Mr. Manish alongwith identity proof and relied upon the contention as raised before the AO and CIT(A).

We have gone through the arguments of both the sides, findings of the CIT(A) and the order of Assessing Officer. It is an undisputed fact that no corroborated evidence have been found during the course of search with regard to the 'WhatsApp chat' as relied upon by the Assessing Officer for making the addition. We also find that the assessee had filed an affidavit from Mr. Manish, alongwith his identity proof and no enquiry, whatsoever, have been made by the Assessing Officer to dispute such identity and the facts as confirmed by Mr. Manish in his affidavit. 27.1 We have also gone through the judgment of Kolkata Bench of the ITAT in the case of Atul Tantia as referred, in which, the following finding of fact have been recorded with regard to whatsApp chat:- "ITAT Kolkata held that addition towards undisclosed income u/s 68 of the Income Tax merely based on the SMS or whatsApp messages without any corroborative evidence is unsustainable in law."

In the present case no corroborated evidence, whatsoever have been found. Further, we find that the CIT(A) has very rightly deleted the addition of Rs. 1,12,50,000/- and, for which, we are in agreement with the finding of the CIT (A) in para 5.2.3.1, which is being reproduced as under:-