Assessment Quashed for Failure to Follow Mandatory S. 148B Procedure in Search-Based Additions: ITAT

The Chandigarh Bench of Income Tax Appellate Tribunal has quashed the assessment framed against M/s Malbros International Pvt. Ltd. for Assessment Year (AY) 2022–23, holding that the Assessing Officer (AO) erred in invoking Section 143(3) instead of following the mandatory reassessment procedure under Sections 147, 148, and 148B of the Income Tax Act, 1961. The bench of Rajpal Yadav (Vice President) and Manoj Kumar Aggarwal (Accountant Member) has observed that after the amendments introduced by the Finance Act, 2021, any assessment based on search material (including third-party material) for years preceding the search year must follow the reassessment framework under Sections 147–148B. The AO failed to record mandatory satisfaction under Explanation 2(iv) to Section 148. No proper prior approval under Section 148B was obtained. The approval allegedly obtained under Section 143(3) was mechanical and did not satisfy statutory requirements. The assessee, M/s Malbros International Pvt. Ltd., is engaged in the manufacture of grain-based Extra Neutral Alcohol (ENA), ethanol, and country liquor at its distillery in Zira, Punjab. The company belongs to the Oasis Group, which was subjected to a search operation under Section 132 of the Income Tax Act on 18 May 2023. Although no incriminating material was found at the company’s business premises, digital data, loose sheets, and a hard disk were seized during searches conducted at the residences of two former employees—Shri Prem Singh and Shri Rajinder Singh. The Revenue relied heavily on this third-party material to make substantial additions in the hands of the assessee. The AO alleged that the assessee had made bogus purchases of rice nakku and rice husk through RTGS payments, which were later returned in cash after deducting commission. These allegations were based primarily on WhatsApp chats extracted from a former employee’s mobile phone and tally data recovered from another ex-employee’s residence. Before the Tribunal, the assessee raised additional legal grounds challenging the very jurisdiction of the AO. The primary contention was that the AO relied entirely on material seized from third parties. Under Explanation 2(iv) to Section 148 (as amended by the Finance Act, 2021), such material triggers the reassessment mechanism. The AO was required to record satisfaction that the material pertained to the assessee. Obtain prior approval from the Principal Commissioner. Follow the procedure under Section 148 and Section 148B. Instead, the AO proceeded directly under Section 143(3) without complying with the mandatory safeguards introduced post-1 April 2021. The Tribunal found substantial merit in the assessee’s legal arguments. The Bench categorically observed that bypassing the reassessment mechanism amounted to a jurisdictional defect, rendering the entire assessment void ab initio. Holding that the assessment suffered from fundamental jurisdictional error, the Tribunal quashed the assessment framed under Section 143(3). Case Details Case Title: M/s Malbros International Pvt. Ltd. Versus DCIT Citation: JURISHOUR-28-ITAT-2026(Cha) Case No.: ITA No.48/CHANDI/2025 Date: 13-01-2026 Counsel For Appellant: Sudhir Sehgal (Advocate) – Ld. AR Counsel For Respondent: Abhishek Pal Garg (CIT) – Ld. DR (Virtual) Click Here To Read Order Read More: Denial of Effective Hearing During Insolvency: Delhi HC Quashes Rs. 232 Crore Ex Parte Income Tax Assessment

Assessment Quashed for Failure to Follow Mandatory S. 148B Procedure in Search-Based Additions: ITAT

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