ITAT Pune: Reassessment Annulled Where Section 148 Notice Incorrectly Alleged Search in Assessee’s Case

1. Background and Context

The Pune Bench of the Income Tax Appellate Tribunal in Rehana Shaikh Ishaq Vs ITO (ITAT Pune) has struck down a reassessment initiated under Section 147 / Section 148 of the Income Tax Act 1961, where the very foundation of the Section 148 notice rested on a demonstrably incorrect factual assertion.

The core jurisdictional defect identified by the Tribunal was that the Section 148 notice stated that a search under Section 132 had been conducted in the case of the assessee, though the records clearly showed that no such search was ever carried out against her. The information used for reopening actually emanated from a search conducted in the cases of Manjeet Pride group, Gadiya group, and their associated concerns.

The ruling reinforces a consistent judicial principle that:

“Reason to believe” under Section 147 must be founded on correct, verifiable facts. Where the recorded or notified basis is factually wrong, the jurisdiction to reopen fails at inception.

The Tribunal rejected the Department’s plea that this was a mere “typographical error” curable under Section 292B/Section 292BB, and treated it instead as a fatal jurisdictional flaw.

2. Brief Facts of the Case

2.1 Status of the Assessee

  • The assessee, Rehana Shaikh Ishaq, is an individual engaged in agricultural activities.
  • She did not have income from business or income from other sources as per the record referred to in the order.

2.2 Search in Third-Party Cases and Flow of Information

  1. On 30.11.2023, a search operation under Section 132 was carried out by the DDIT (Inv.), Aurangabad in the cases of:

    • Manjeet Pride group
    • Gadiya group
    • Their related entities

  2. During this search, certain materials/information allegedly relating to the assessee were found and seized.

  3. This material was then transmitted by the Investigation Wing (DDIT (Inv.), Aurangabad) to the Assessing Officer having jurisdiction over the assessee.

  4. Relying on this information, the Assessing Officer proceeded to reopen the assessment of the assessee under Section 147 and issued a notice under Section 148.

2.3 Return and Assessment Proceedings

  • In response to the Section 148 notice, the assessee filed a return of income declaring total income of Rs. 4,33,780.
  • Statutory notice under Section 143(2) was issued thereafter.
  • The Assessing Officer ultimately accepted the income as declared in the return.
  • Despite accepting the returned income, the Assessing Officer initiated penalty proceedings under:
    • Section 271D(2)
    • Section 271E(2)

These penalty proceedings appeared to relate to alleged cash transactions in connection with a property transaction.

3. Proceedings Before CIT(A) / NFAC

The assessee carried the matter in appeal before the CIT(A) / NFAC, Delhi.

3.1 Grounds Before First Appellate Authority

Among other contentions, the assessee:

  • Challenged the validity of reassessment proceedings initiated under Section 147 based on the Section 148 notice.
  • Also disputed the proposed penalties under Section 271D and Section 271E on merits and on facts.
  • Raised objections regarding:
    • Alleged jurisdictional defect (issue of notice by JAO instead of FAO),
    • Vague and pre-printed notice format,
    • Absence of DIN, and
    • Lack of proper approval under Section 151.

However, the CIT(A) / NFAC did not accept these arguments and upheld the reassessment and consequential actions.

4. Appeal Before ITAT Pune

Aggrieved by the appellate order dated 21.10.2025 for AY 2020-21, the assessee preferred an appeal before the ITAT Pune. Several grounds were raised, including:

  • Jurisdictional infirmity in the issuance of Section 148 notice,
  • Incorrect route of reassessment (arguing that Section 153C should have been invoked instead of Section 147),
  • Incorrect computation relating to cash components in a property transaction, and
  • Improper enhancement by CIT(A) without adequate reasoning.

However, the Tribunal disposed of the appeal primarily on the jurisdictional ground.

5. Key Jurisdictional Objections to Section 148 Notice

5.1 Wrong Statement of Search in Assessee’s Case

The assessee’s counsel drew the Tribunal’s attention to the bullet point No. 1 in the Section 148 notice, where the Assessing Officer had categorically stated that:

  • A search under Section 132 was initiated in the case of the assessee.

The Tribunal noted from the assessment order and records that:

  • No search under Section 132 had ever been executed in the assessee’s case.
  • The only search referred to was in the case of Manjeet Pride group, Gadiya group, and related entities.

This made the basic factual assertion in the notice patently incorrect.