Search Cases Must Follow Reassessment Route: Bangalore ITAT Quashes Section 143(3) Order

Background and Core Issue

In Prasad Shet Vs DCIT (ITAT Bangalore), the Bangalore Bench of the Income Tax Appellate Tribunal examined whether an assessment completed under Section 143(3) could survive when a search under Section 132 had already taken place for the same assessee and year.

The Assessing Officer had:

  • Conducted a search under Section 132 on 20.04.2023
  • Found and seized cash of Rs. 37,49,500/-
  • Subsequently passed an assessment order dated 08.01.2025 under Section 143(3)
  • Treated the seized cash as unexplained money under Section 69A

The dispute centred on whether, after the Finance Act, 2021 amendments, the correct statutory route for such assessment was the special reassessment mechanism under Sections 147/148 (with prior approval under Section 148B) rather than the ordinary scrutiny assessment under Section 143(3).

The assessee challenged the very jurisdiction of the assessment, contending that the assessment year in question fell within the “search-linked” reassessment framework mandated by the amended law.

Appeal Before CIT(A) and ITAT

The assessee appealed against the order of the Ld. CIT(A) passed under Section 250 dated 24.03.2026 for AY 2023-24.

Key Ground Raised by the Assessee

The first and primary ground argued was that:

  • Once a search under Section 132 was conducted for the relevant period,
  • The assessment could not be validly completed under Section 143(3)
  • Instead, the assessment ought to have been framed only under Sections 147/148 in accordance with the post-Finance Act, 2021 regime,
  • With the mandatory prior approval stipulated in Section 148B

Accordingly, the assessee claimed the Section 143(3) order was without jurisdiction, and therefore void and liable to be annulled.

Revenue’s Stand

The Departmental Representative strongly defended the orders of both the Assessing Officer and the CIT(A), asserting that the assessment under Section 143(3) was validly framed.

Tribunal’s Consideration of Precedents

The Bangalore ITAT analysed the legal framework and placed significant reliance on a Delhi Bench decision that addressed an almost identical jurisdictional issue:

  • Montage Enterprises Pvt. Ltd. vs. DCIT, reported in 182 com11

The Tribunal recounted that in Montage Enterprises Pvt. Ltd., the Delhi Bench had to determine whether, once a search was carried out and the assessment year fell within the search-triggered period, the Assessing Officer could still proceed with a regular scrutiny assessment under Section 143(3) instead of invoking Section 148 (post-2021 search-linked reassessment).

The Bangalore Bench extracted and applied the reasoning adopted in Montage Enterprises Pvt. Ltd., which had itself relied on:

  • Homelife Buildcon (P.) Ltd. v. Dy. CIT [2025] 176 com614 (Chandigarh – Trib.)
  • Jamna Das Nikkamal Jain Saraf Pvt. Ltd. v. DCIT [IT Appeal No. 403 (Chd.) of 2025, dated 04.11.2025]

These decisions collectively interpret the post-Finance Act, 2021 reassessment scheme, particularly for search cases, and hold that search-triggered information must be processed under the Section 147/148 framework, not through continued or fresh Section 143(3) scrutiny.

The Bangalore ITAT reproduced and adopted in substance the key legal findings from the Delhi Tribunal’s order in Montage Enterprises Pvt. Ltd. vs. DCIT.

Factual Matrix in Montage Enterprises

In that case: