The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a massive income-tax assessment of ₹14.49 crore framed against the assessee for Assessment Year (AY) 2023-24, holding that the Assessing Officer (AO) could not proceed under the regular assessment mechanism of Section 143(3) after a search was conducted against the assessee on May 2, 2024.
The bench of Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) has observed that under the post-2021 statutory framework, the assessment ought to have been initiated through Section 148 read with Sections 147 and 148B of the Income Tax Act, 1961.
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The appellant/assessee described in the order as the Chief Promoter of the Mahananda Group, had filed his return of income for AY 2023-24 on August 24, 2023, declaring total income of ₹9.10 lakh. The group is engaged in real estate and hospitality activities in Uttarakhand and Delhi. The assessee held directorship and key managerial positions in several group companies and was also a partner in various partnership firms.
According to the Tribunal’s order, his income for the relevant year principally comprised salary received from Shri Mahanand Leisure Valley Private Limited and Sky Ganga Construction Private Limited. He also reported rental income from a property in Rishikesh, profit shares from partnership firms, interest income from savings and fixed deposits, and a loss from his proprietary concern, Mahanand Hotels.
A search and seizure operation under Section 132 of the Income Tax Act was subsequently conducted at the residential and office premises of the assessee and the Mahanand Group on May 2, 2024.
Despite the search, the AO proceeded to complete the assessment under Section 143(3). By an order dated May 29, 2025, the AO determined assessee’s total income at ₹14,49,02,837, making aggregate additions of ₹14,39,92,837 over and above the returned income.
The assessee challenged the assessment before the Commissioner of Income Tax (Appeals), Delhi-26. However, the CIT(A) dismissed the appeal on February 12, 2026. He thereafter approached the ITAT challenging, among other matters, the very validity and jurisdiction of the assessment order.
The central issue before the Tribunal was whether the AO could continue with and complete a regular scrutiny assessment under Section 143(3) when a search under Section 132 had subsequently been conducted against the assessee.
The assessee specifically challenged the assessment on the ground that it was invalid, void ab initio and without jurisdiction, because the AO had failed to follow the statutory procedure under Section 148. A further challenge was raised concerning the absence of the prescribed prior statutory approval under Section 148B.
The assessee’s counsel pointed out that the search had taken place on May 2, 2024—well after the amendments introduced by the Finance Act, 2021. According to the assessee, the AO nevertheless bypassed the reassessment framework under Sections 147 and 148, read with Section 148B, and instead issued a notice under Section 143(2) on June 28, 2024.
The Tribunal examined Explanation 2 to Section 148, which was inserted as part of the post-2021 reassessment framework.
The provision treats a search initiated under Section 132 on or after April 1, 2021, as information suggesting that income chargeable to tax has escaped assessment in specified circumstances. The Tribunal noted that the provision specifically covers searches initiated on or after April 1, 2021.
The assessee argued that because the search was conducted during FY 2024-25, corresponding to AY 2025-26, AY 2023-24 fell within the three assessment years immediately preceding the search year. Consequently, the assessment for the year in question should have been undertaken through the Section 148 mechanism rather than under Section 143(3).
The Tribunal accepted this fundamental legal contention.
The Tribunal observed that, following a search conducted on or after April 1, 2021, the assessment ought to be made under the mechanism prescribed by Section 148 where the conditions of Explanation 2 are attracted. It found that the AO was aware that a search had been conducted but nevertheless proceeded by issuing a Section 143(2) notice and completing the assessment under Section 143(3).
The Tribunal emphasized that the Finance Bill, 2021 memorandum had clarified the legislative framework under which assessments for years immediately preceding the year of search were to be undertaken under Section 147, subject to the procedures prescribed under Sections 147, 148 and 148B.
According to the Tribunal, the correct course was therefore to initiate proceedings under Section 148. The failure to comply with the prescribed statutory procedure constituted a jurisdictional defect.
In reaching its conclusion, the Tribunal relied on the Supreme Court’s ruling in Babu Varghese v. Bar Council of Kerala, concerning the fundamental principle that where a statute prescribes a particular manner for exercising a power, the authority must follow that manner.
The ITAT invoked this principle to underline that the prescribed statutory route could not simply be bypassed in favour of a different assessment mechanism.
The Tribunal accordingly held that the AO was required to act strictly in accordance with the amended Section 148 provisions applicable to searches conducted on or after April 1, 2021.
The Delhi Bench also considered a series of decisions dealing with the interaction between search proceedings and regular assessments under the post-2021 regime.
Among the decisions cited were Montage Enterprises Pvt. Ltd., Homelife Buildcon (P.) Ltd. v. DCIT, and Jamna Das Nikkamal Jain Saraf Pvt. Ltd. v. DCIT. The assessee had also relied on decisions including Gas Supply Co. Pvt. Ltd., Miraj Products Pvt. Ltd., Torque Pharmaceutical (P) Ltd. v. DCIT, and Homelife Buildcon.
The Tribunal reproduced reasoning from the earlier cases which treated Section 148 as the special statutory route applicable where a search gives rise to deemed information suggesting escapement of income.
The underlying distinction was between Section 143, which provides the general framework for regular scrutiny assessments, and Sections 147-148, which constitute the reassessment mechanism where information suggesting escapement of income is available, including information arising from a search.
The Tribunal adopted the principle of generalia specialibus non derogant—that a special statutory provision prevails over a general provision.
It reasoned that Section 148, as the special provision triggered by information arising from a search, must prevail over Section 143, which governs ordinary scrutiny assessments. Permitting the AO to continue an assessment under Section 143(3) after the search would, according to the Tribunal, undermine the statutory safeguards and prior-approval requirements built into the Section 148 framework.
The Tribunal’s reasoning also stressed that the statutory scheme seeks to avoid multiplicity of proceedings and ensure that assessment following a search is undertaken through the specific mechanism designed for such circumstances.
The department argued that the assessee had filed his return under Section 139(1), and that on the date of the search there was still time available for issuing a notice under Section 143(2). Since the AO issued the Section 143(2) notice on June 28, 2024, the Revenue maintained that the subsequent Section 143(3) assessment was valid.
The Tribunal, however, found merit in the assessee’s legal objection and rejected the Revenue’s approach. It concluded that the occurrence of the search brought the special statutory mechanism into operation and that the AO could not simply proceed under the ordinary assessment provision.
The Delhi ITAT held that the assessment for AY 2023-24 ought to have been completed under Section 147 after following the procedure prescribed under Sections 148 and 148B, rather than under Section 143(3).
Since that statutory procedure had not been followed, the Tribunal declared the Section 143(3) assessment invalid and quashed it.
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