ITAT Jaipur Quashes Reassessment for Wrong Provision: Section 147 vs Section 153C Examined

Background of the Dispute

The Income Tax Appellate Tribunal, Jaipur Bench, in the case of Kulwant Singh Vs ITO, examined whether reassessment initiated under Section 147 was legally sustainable when the sole foundation of such reassessment was material unearthed during a search conducted on a third party (a builder).

The assessee filed an appeal against the order dated 14.02.2025 passed by the Commissioner of Income Tax (Appeals) under Section 250 of the **Income Tax Act, 1961`. The core issues were:

  • Validity of the reassessment proceedings initiated under Sections 147 and 148
  • Justification of the addition of ₹6,00,000 as unexplained investment under Section 69B
  • Various jurisdictional and procedural challenges, including absence of DIN and digital signature
  • Levy of interest under Sections 234A, 234B and 234C

Facts Leading to Reassessment

Search on Builder and Alleged On-Money

  1. A search operation was carried out in the case of a builder, Shri Surendra Pal Sahni.
  2. During this search, the Department claimed to have found material indicating that the assessee had paid “on-money” over and above the recorded consideration for purchase of a flat.
  3. Based entirely on this seized material from the builder’s premises, the Assessing Officer (AO) formed a belief that income had escaped assessment in the hands of the assessee.

Reopening of Assessment

  • The AO chose to reopen the assessee’s assessment under Section 147 by issuing notice under Section 148.
  • In the reassessment completed under Section 143(3) read with Section 147 on 25.11.2019, the AO made an addition of ₹6,00,000 as unexplained investment under Section 69B, alleging that it represented unaccounted on-money paid for the flat.
  • The CIT(A) upheld both the reopening as well as the addition.

Aggrieved, the assessee approached the ITAT, Jaipur.

Grounds Raised Before the Tribunal

The assessee put forth multiple grounds, which can broadly be grouped as follows:

1. Challenge to Jurisdiction Under Section 147 / 148

  • It was contended that the AO had adopted an incorrect statutory route.
  • Since the entire basis of reassessment was material seized during a search on another person, the only proper provision that could be invoked was Section 153C, not Section 147.
  • Consequently, the notice under Section 148 and the resultant reassessment order under Section 143(3) read with Section 147 were argued to be void ab initio and without jurisdiction.

2. Dispute on Addition of ₹6,00,000 Under Section 69B

  • The assessee challenged the sustenance of the addition of ₹6,00,000 as unexplained investment under Section 69B.
  • It was argued that the addition was not supported by proper evidence and was contrary to facts and law.

3. Procedural Invalidity: DIN and Digital Signature

The assessee raised significant procedural objections: