ITAT Kolkata Ruling on Search-Based Reassessment & Third-Party Evidence in Shakambhari Ispat & Power Limited Vs DCIT

1. Background and Context of the Dispute

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated a batch of cross-appeals filed by Shakambhari Ispat & Power Limited Vs DCIT and the Revenue for Assessment Years (AYs) 2016-17 to 2021-22. The appeals arose from reassessment proceedings initiated subsequent to a search conducted on the Agarwal Group on 17.09.2021.

For analytical convenience, the Tribunal treated ITA No. 931/Kol/2025 for AY 2019-20 as the lead matter and applied its reasoning, with suitable adjustments, to the connected years and cross-appeals.

The legal and factual controversies before the Tribunal can broadly be grouped into three heads:

  • Jurisdictional challenge to reassessment under Section 147/Section 148 post 01.04.2021, particularly where:
    • The assessee was searched as part of a group,
    • No incriminating material was allegedly found during the assessee’s own search, and
    • The additions were sourced from materials found in third-party searches (Kasera Group, Anup Majee Group).
  • Substantive additions based on:
    • Alleged unrecorded coal purchases from the Anup Majee Group, inferred from seized documents of that group and its transporters,
    • Alleged bogus purchases from Reeja Trading Pvt. Ltd., primarily relying on a CGST investigation report,
    • Alleged hundi loans and related interest based on documents found with finance broker Praveen Kumar Kasera.
  • Principles of evidence and natural justice, including:
    • Whether additions can rest purely on loose sheets/diaries seized from third parties,
    • The necessity of corroboration and cross-examination,
    • The extent to which only profit element can be taxed where purchases and corresponding sales are otherwise accepted.

Ultimately, the assessee’s appeals were partly allowed, and all Revenue appeals were dismissed by the ITAT in its order pronounced on 02.01.2026.

2. Jurisdiction: Validity of Reassessment under Section 147/148

2.1 Assessee’s Grounds against Notice under Section 148

In the lead appeal for AY 2019-20, Shakambhari Ispat & Power Limited raised several jurisdictional grounds (Ground Nos. 1–5), in essence contending:

  • The notice dated 06.09.2022 issued under Section 148 was invalid and not in conformity with Section 147/Section 148.
  • The reasons recorded for reopening were not supplied.
  • No incriminating material was allegedly found during the search under Section 132 on 17.09.2021 in the Agarwal Group case insofar as the assessee was concerned.
  • The underlying “information” supporting the additions stemmed from searches on:
    • Kasera Group (30.11.2018), and
    • Anup Majee Group (05.11.2020),
      both of which predated 01.04.2021.
  • According to the assessee:
    • For such pre-01.04.2021 search materials, the correct route was Section 153C, not Section 148.
    • Under the post-01.04.2021 regime, even for search-based reassessment, additions in an “unabated” year could not be made absent incriminating material found during the search on the assessee.
    • Conditions of Section 149(1)(b) (pre-Finance Act 2022 version), especially “income represented in the form of asset”, were not satisfied because the alleged escapement was said to be only based on “expenditure/entries” in third-party records, not assets held by the assessee.

The assessee relied, inter alia, on decisions such as:

  • Rosha Alloys (P) Ltd. v. DCIT, Central (ITAT Chandigarh); 2025 (7) TMI 238 (Chd.)
  • Tirupati Construction Company v. ITO (Rajasthan High Court); (2024) 165 taxmann.com 165 (Raj.)
  • Shiv Vegpro Pvt. Ltd. v. DCIT (Rajasthan High Court); D.B. Civil W.P. No. 15350/2022; dated 25.11.2024
  • Shyam Sundar Khandelwal v. ACIT (Rajasthan High Court); D.B. Civil Petition No. 18363/2019; dated 19.03.2024
  • Jagjit Singh v. DCIT (ITAT Amritsar); 164 taxmann.com 324
  • Koteshwar Rao v. DCIT (ITAT Visakhapatnam); (2015) 64 taxmann.com 159 (Viz.)

2.2 Revenue’s Stand: Deeming Fiction under Explanation 2 to Section 148

The ld. CIT-DR defended the reopening by drawing attention to Explanation 2 to Section 148, which creates a deeming fiction:

Where a search is initiated under Section 132 or books of account, documents or assets are requisitioned under Section 132A on or after 01.04.2021 in the case of the assessee, the Assessing Officer shall be deemed to have information suggesting escapement of income for purposes of Section 148.

Key points from the Revenue’s side:

  • The assessee’s case was centralized on 20.12.2021 after the search on 17.09.2021.
  • Subsequently, notice under Section 148 was issued on 06.09.2022 (and similar dates for other years) with prior approval of the competent authority.
  • By operation of Explanation 2, the AO was deemed to be in possession of information for reopening; existence of specific incriminating material was not a jurisdictional prerequisite at the notice stage.
  • The validity of reopening under such deeming provisions had judicial backing, including reliance on principles discussed in Pr. CIT v. NRA Iron & Steel (P) Ltd. (Supreme Court); (2019) 11 SCC 312 (cited for the scope of scrutiny and powers of the AO in reassessment contexts).

2.3 Tribunal’s View on Jurisdiction

The ITAT noted the following factual sequence:

  • The assessee filed its original return for AY 2019-20 under Section 139(1) on 31.10.2019 declaring:
    • Income under normal provisions: Rs. 17,25,39,330/-,
    • Book profit under Section 115JB: Rs. 51,82,85,619/-.
  • The return was processed under Section 143(1) on 03.06.2020.
  • A search and seizure action under Section 132 was carried out on the Agarwal Group and associates on 17.09.2021, in which a warrant also covered the assessee.
  • Post search, reassessment proceedings were initiated under Section 147 and notice under Section 148 was issued on 06.09.2022, and the assessee filed a return in response on 13.10.2022, repeating the originally declared income.
  • Assessment was finally completed under Section 143(3)/147 on 28.07.2023 making several additions.

On the legal question, the Tribunal held:

  • Under the new search-reassessment framework effective from 01.04.2021, the AO is mandated to reopen specified years by issuing notice under Section 148 where a search is initiated on or after that date.
  • This framework replaces the earlier code of Section 153A–Section 153C for such searches.
  • The Tribunal found that, under this new regime:
    • There is no requirement that incriminating material be found during the search on the assessee for the very act of issuing notice under Section 148.
    • The role of incriminating material is to be examined during the assessment stage for justifying additions, not at the threshold stage of reopening.
  • The Tribunal expressly disagreed, with due respect, with the contrary approach taken in **Rosha Alloys (P) Ltd. v.