ITAT Bangalore Invalidates Section 143(3) Assessment Where Section 153C Was the Correct Route

Background of the Dispute

The Bangalore Bench of the Income Tax Appellate Tribunal, in ITA No. 763/Bang/2025 concerning Assessment Year (AY) 2019-20, dealt with a crucial jurisdictional issue on whether an assessment should have been completed under Section 153C instead of Section 143(3) of the Income Tax Act 1961 where the assessee was treated as an “other person” in the course of a search.

The case involved Thippareddy Govindareddy Malli Reddy Vs DCIT, where the assessee, an individual and a partner in a partnership firm M/s. R K Cortina, was subjected to additions on account of:

  • Alleged unexplained cash loans said to be advanced over multiple years, and
  • Cash seized during a search operation.

While the appeal originally focused on the merits of additions under Section 69A, the assessee later raised an additional, purely legal ground before the Tribunal, challenging the very jurisdiction of the Section 143(3) assessment.

Facts Leading to the Assessment

Status of the Assessee and Return Filing

  • The assessee is an individual and a partner in M/s. R K Cortina.
  • A revised return of income for AY 2019-20 was filed under Section 139(5) on 13/11/2019, declaring total income of ₹ 24,39,330.
  • This return was processed under Section 143(1) on 18/12/2019.

Search and Seizure Action

  • A search under Section 132 was carried out on 10/09/2018 in the case of M/s. R K Cortina and related premises.
  • The residence of the assessee’s wife was also covered in the search.
  • Various books, loose papers and documents were seized and catalogued in annexures.

The Assessing Officer (AO), who was common for both the firm and the assessee, recorded that certain seized documents found during the search on the firm pertained to and had a bearing on the income of the assessee, thereby treating him as an “other person” vis-à-vis the search on the partnership firm.

Consequently, the assessee’s case was centralized in the Central Circle.

Alleged Cash Loans Based on Seized Documents

During the assessment proceedings:

  • The AO noted that, based on seized documents and the assessee’s statement under Section 132(4), the assessee had allegedly given cash loans aggregating to ₹ 79.20 lakh to various parties over Financial Years 2013-14 to 2018-19.
  • These alleged cash loans were stated to be unrecorded in the regular books of account.
  • Particular emphasis was placed on seized pages marked as A/TGMRR/01 (pages 1 and 2).

The AO recorded that in the Section 132(4) statement on 11/09/2018, the assessee:

  • Accepted that he had advanced cash loans to several persons in cash.
  • Admitted that these loans were not reflected in his books.
  • Also mentioned that in some cases interest was received in cash.
  • Agreed to offer the amounts as income.

For FY 2018-19 (relevant to AY 2019-20), the AO concluded that the assessee had advanced cash loans totalling ₹ 31,20,000, not recorded in the books. This amount was treated as unexplained money under Section 69A and added to income.

  • During the search, total cash of ₹ 22,85,000 was found.
  • Out of this, ₹ 20,00,000 was seized.

In the assessment proceedings, when called upon to explain the source of the seized cash of ₹ 20,00,000:

  • The assessee claimed that he had sufficient agricultural income in cash and prepared a cash book (post-search) to substantiate availability of cash.
  • However, the AO held that the explanation was not satisfactory and made an addition of ₹ 20,00,000 under Section 69A.

Assessment Order under Section 143(3)