Gujarat HC quashes Section 148 reassessment notice based on material from a search conducted before April 2021

A search under Section 132 of the Income Tax Act, 1961, was conducted at the petitioner’s residence on 11 April 2017. During the search, silver weighing approximately 39 kg was found in a cupboard; the petitioner was questioned about its source and stated that 15 kg belonged to his wife.

For A.Y. 2018–19, the petitioner filed a return declaring total income of Rs. 1,92,72,870; the return was not selected for scrutiny.

The Assessing Officer subsequently issued a notice under Section 148A(b), passed an order under Section 148A(d), and issued a notice under Section 148. The petitioner challenged those actions, contending that reassessment concerning the 2017 search could not be initiated under Sections 147/148.

Whether, in relation to material found during a search conducted before 1 April 2021, the Assessing Officer could initiate reassessment under Sections 148A and 148, rather than proceeding under the applicable search-assessment provisions.

Whether the impugned notice under Section 148A(b), order under Section 148A(d), and notice under Section 148 were liable to be quashed as without jurisdiction.

Section 149 of the Income Tax Act, as set out in the judgment, limits the time for issuing a notice under Section 148 and contains provisions addressing cases involving searches and the applicability of Sections 153A/153C.

Relying on Paras Chandreshbhai Koticha v. Income Tax Officer, Ward 1(2)(2), the Court applied the principle that where reassessment is based on incriminating material found during a search and the statutory conditions for search assessment apply, the Assessing Officer must proceed under Section 153A or Section 153C, as applicable, and cannot use Sections 147/148 on that same material; reassessment under Sections 147/148 may be considered on the basis of independent material from other sources.

The search in this case took place on 11 April 2017, before 1 April 2021, and the reassessment action was based on material arising from that search.

Applying Section 149 and the rule stated in Paras Chandreshbhai Koticha, the Court held that the Assessing Officer could not assume jurisdiction under Sections 148A and 148 on the basis of the search material; the applicable course was under the search-assessment provisions.

The Rule was made absolute, with no order as to costs.