ITAT Amritsar Quashes Section 263 Revision Order Where Foundational Reassessment Lacked Jurisdiction

Background and Overview

The ITAT Amritsar, in the matter of Sh. Jagjeet Singh Vs DCIT/ACIT, delivered a significant ruling by quashing revisionary orders passed under Section 263 of the Income Tax Act, 1961, pertaining to Assessment Years 2017-18 and 2018-19. The Tribunal's decision rested on a foundational jurisdictional infirmity — the original reassessment proceedings under Section 147 were themselves void, having been initiated on the basis of material unearthed during a search conducted on a third party, namely the Homeland Group. Since the entire edifice of the reassessment rested on search-derived material belonging to another person, the Tribunal held that Section 153C was the only legally available route, and the invocation of Section 147 was without jurisdiction. As a direct consequence, the revisionary action under Section 263 premised upon that flawed reassessment was equally rendered a nullity.

Facts of the Case

The assessee, Sh. Jagjeet Singh, is a pediatrician practising in Bathinda and runs an establishment known as "The Chandigarh Children & Maternity Hospital." For Assessment Year 2017-18, the assessee had filed his income tax return on 14.10.2017, declaring total income of Rs. 61,92,130/-.

A search operation under Section 132 of the Income Tax Act, 1961 was carried out on 26.02.2020 at the premises of the Homeland Group. In the course of this search, a copy of the ledger account bearing the name of Sh. Jagjeet Singh was discovered and seized from the premises of Sh. Kapil Romanna (of M/s Homeland Group). Based on this material, the assessee's case was reopened under Section 147 after obtaining approval under Section 151. A notice under Section 148 was accordingly issued on 30.03.2021.

In response, the assessee filed a return on 18.05.2021 again declaring income of Rs. 61,92,130/-. The assessment for AY 2017-18 was completed via an order under Section 147 read with Section 144B on 24.03.2022, and the Assessing Officer (AO) accepted the returned income without making any addition.

Initiation of Section 263 Proceedings by the PCIT

Notwithstanding the AO's acceptance of the returned income, the Principal Commissioner of Income Tax-01, Amritsar (PCIT) initiated revision proceedings under Section 263 vide show cause notice dated 22.02.2022. The PCIT alleged that:

  • The AO had failed to carry out adequate inquiry and verification regarding unexplained cash transactions recorded in the seized ledger account, which reflected cash credits totalling Rs. 1,50,69,500/- during November 2016 (the demonetisation period).
  • The said ledger showed Sh. Kapil Romanna charging a commission of Rs. 19,59,035 and crediting interest of Rs. 3,87,926.
  • The AO did not bring on record the treatment of these entries in the assessment records of Kapil Romanna.
  • The assessee had relied on provisions of the Evidence Act, which are not applicable in income tax proceedings.

The PCIT accordingly passed an order under Section 263 on 05.03.2024, directing revision of the assessment.

Grounds Raised by the Assessee Before ITAT

The assessee filed appeals against both Section 263 orders for AY 2017-18 and AY 2018-19, raising the following common grounds: