ITAT Jodhpur Annuls Assessment in Miraj Products Case: Jurisdictional Violations Render Proceedings Void Ab Initio
Case Overview
Case Name: Miraj Products Pvt. Ltd. Vs ACIT (ITAT Jodhpur)
Assessment Year: 2022-23
Appeals: ITA No. 412/Jodh/2025 (Assessee) & ITA No. 461/Jodh/2025 (Revenue)
Impugned Order: CIT(A), Udaipur-2, dated 22.02.2025
The ITAT Jodhpur, in a significant ruling, annulled an assessment framed under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2022-23, holding it to be without jurisdiction and void ab initio. The Tribunal identified multiple layers of jurisdictional infirmity — from the illegality of the notice issued under Section 143(2), to the impermissible reliance on third-party seized material, and finally, the appellate authority's excess of power in recharacterizing additions beyond the scope permitted under Section 251. This decision reinforces the principle that procedural and jurisdictional safeguards in search assessment proceedings are not mere technicalities but are foundational prerequisites to valid tax jurisdiction.
Background and Factual Matrix
A search operation under Section 132 of the Income Tax Act, 1961 was conducted on 21.02.2023. The assessee, Miraj Products Pvt. Ltd., had already filed its return of income for AY 2022-23 on 22.10.2022 under Section 139(1), and no notice under Section 143(2) was pending on the date the search took place.
Subsequent to the search, the Assessing Officer (AO) issued a notice under Section 143(2) on 27.06.2023 and proceeded to frame the assessment under Section 143(3). During the course of assessment proceedings, the AO placed heavy reliance on documents and handwritten notepads seized from the premises of a third party, M/s Montage Enterprises Pvt. Ltd. (MEPL), during the same search operation.
On the basis of alleged discrepancies in packaging material pricing discovered from these seized notepads, the AO inferred that the assessee had made unaccounted purchases, engaged in undisclosed production activity, and effected cash sales outside the books. Consequently, substantial additions were made under Section 69A (unexplained money/unaccounted sales) and Section 69C (unexplained expenditure) of the Income Tax Act, 1961.
On first appeal, the CIT(A) granted partial relief by deleting several additions, but sustained others by re-estimating gross profit on alleged suppressed sales and simultaneously enhancing certain additions. Aggrieved by the outcome, both the assessee and the Revenue filed cross-appeals before the Tribunal.
Key Issues Before the Tribunal
The cross-appeals raised the following critical issues:
- Jurisdictional validity of the assessment framed under
Section 143(3)following a post-01.04.2021 search - Mandatory satisfaction and prior approval requirement before invoking third-party seized material against the assessee
- Scope of appellate powers under
Section 251and whether CIT(A) could recharacterize an addition underSection 69Ainto a trading addition - Evidentiary weight of loose handwritten notepads ("dumb documents") seized from a third party
- Applicability of
Section 115BBEto additions recharacterized as business income
Ground I: Assessment Under Section 143(3) Post-Search — Void Ab Initio
The Statutory Framework Post-01.04.2021
The assessee raised an additional ground challenging the very jurisdiction of the AO to frame the assessment under Section 143(3). The contention was straightforward: since the search was conducted on 21.02.2023, AY 2022-23 fell squarely within the block of three assessment years immediately preceding the year of search. Under the newly introduced statutory framework applicable to searches conducted after 01.04.2021, such assessments must mandatorily be made under the reassessment regime governed by Section 147 read with Section 148 — and not under the regular scrutiny framework of Section 143(3).
The Finance Act, 2021 introduced a comprehensive overhaul of the search assessment regime. The Memorandum explaining the provisions of Finance Act 2021 categorically stated:
"Assessments or reassessments or re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure."
The Memorandum further provided that in search, survey, or requisition cases initiated on or after 01.04.2021, it shall be deemed that the Assessing Officer has information suggesting that income chargeable to tax has escaped assessment for the three assessment years immediately preceding the assessment year relevant to the year in which the search is initiated.
This statutory deeming fiction is not merely procedural — it is jurisdictional. The Finance Minister's reply to Lok Sabha Starred Question No. 56 dated 06.02.2023 confirmed unequivocally that: