ITAT Kolkata on Section 148 Reopening Based on Old Search Material and Third-Party Seizure: Detailed Case Summary

Background of the Dispute

The matter before the Income Tax Appellate Tribunal, Kolkata Bench, in DCIT Vs Ajay Jalan, concerned the validity of a reassessment initiated under Section 147/Section 148 and the consequent addition under Section 69A for Assessment Year (AY) 2019-20.

The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] who had:

  • Quashed the reassessment proceedings initiated under Section 147/Section 148, and
  • Deleted the addition of Rs. 3.50 crore made under Section 69A as alleged unexplained cash loan.

The assessee had originally filed his return for AY 2019-20 under Section 139(1) on 26.08.2019, declaring total income of Rs. 70,57,430/-. This return was processed under Section 143(1) on 18.12.2019 without any variation.

Subsequently:

  1. A search under Section 132 was conducted on 07.12.2020 in the case of Jalan Group of Companies and associated entities, including the assessee.
  2. Consequent to this search, notice under Section 153A was issued and assessment for AY 2019-20 was completed under Section 143(3) read with Section 153A on 28.03.2022.
  3. Later, based on information emanating from search at a third party – Kasera Group (finance brokers) – the case for AY 2019-20 was reopened by issuing notice under Section 148 dated 06.04.2023.

In the reassessment, the Assessing Officer (AO) alleged that the assessee had advanced unaccounted cash loans through the finance broker Kasera and made additions in respect of:

  • Alleged cash loans of Rs. 3,50,00,000/-, and
  • Alleged related interest and commission, treating the cash component under Section 69A.

The CIT(A) annulled the reassessment on both jurisdictional and merits grounds. The Revenue carried the matter in appeal before the ITAT.

CIT(A)’s Key Findings on Reopening under Section 147/148

Simultaneous Search Assessments and Use of the Same Material

The CIT(A) noted that the AO had completed search assessments under Section 153A/Section 143(3) for three assessment years simultaneously:

  • AY 2016-17 – order dated 24.03.2022
  • AY 2017-18 – order dated 24.03.2022
  • AY 2019-20 – order dated 28.03.2022

In the search assessments for AY 2016-17 and AY 2017-18, the AO made additions of:

  • Rs. 7,65,00,000/- for AY 2016-17 under Section 69A as unexplained cash loans through finance brokers Kasera, and
  • Rs. 5,95,00,000/- for AY 2017-18 on similar grounds.

These additions were expressly based on the very same seized material and information which the AO later invoked to reopen AY 2019-20.

However, in the Section 153A/Section 143(3) order for AY 2019-20 dated 28.03.2022, no addition was made under Section 69A in relation to such alleged cash loans for the relevant financial year 2018-19, even though the AO already had possession of the same information.

The CIT(A) thus concluded that:

  • The AO had consciously examined and applied his mind to this material at the time of the search assessment for AY 2019-20,
  • Made additions on that material for AY 2016-17 and AY 2017-18,
  • But chose not to make any corresponding addition for AY 2019-20.

Hence, a subsequent reopening of AY 2019-20 on the very same material amounted to a pure change of opinion.

Stale Information and Judicial Precedents

The CIT(A) relied on judicial principles laid down in:

  • Commissioner of Income Tax vs. Kelvenator of India Ltd.
  • Bharat Petroleum Corporation Ltd.
  • Rasalika Trading and Investment Co. Pvt. Ltd. Vs. Deputy Commissioner of Income Tax and ANR (W.P.(C) 1608/2013 dated 14.02.2014)

These decisions collectively hold that:

Reassessment based merely on reappraisal of existing material or based on stale information already available at the time of original or earlier assessment is not permissible and constitutes an impermissible change of opinion.

Applying these rulings, the CIT(A) held that the reopening under Section 147/Section 148 was vitiated as it was triggered only on the basis of old, pre-existing information which the AO had earlier considered during the Section 153A assessment.

Accordingly, the CIT(A) declared the notice issued under Section 148 on 06.04.2023 as bad in law.

CIT(A) on Applicability of Section 153C vs. Section 147

The CIT(A) further examined the jurisdictional defect in invoking Section 147/Section 148 when the underlying incriminating documents had been seized from Kasera Group, i.e., a third party, in a search under Section 132(1) conducted on 30.11.2018.

The assessee argued that:

  • When documents relating to or belonging to a person are found in a search on another person, the proper statutory route is Section 153C, not Section 147.

The assessee relied on: