Reassessment Based Only on Third-Party Search Material Must Follow Section 153C: ITAT Ahmedabad in Viru Textile Mills Pvt. Ltd. Vs ITO

The Income Tax Appellate Tribunal, Ahmedabad Bench, in Viru Textile Mills Pvt. Ltd. Vs ITO, examined the legality of reassessment proceedings initiated under Sections 147/148 for AYs 2016-17 and 2017-18. The reassessment was triggered exclusively on the basis of material seized in a search under Section 132 carried out on Shri Sanjay Govindram Agrawal (Sanjay Tibrewal Group).

The central question before the Tribunal was:

Can the Revenue invoke Sections 147/148 where the sole basis for reopening is incriminating material seized during a search conducted on a third party, or is recourse to Section 153C mandatory in such a situation?

The assessee contended that:

  • The seized Excel sheets and bank statements were discovered in a search on another person (Sanjay Tibrewal Group).
  • Therefore, the only permissible route for assessment based on such material was the special code under Section 153C.
  • Resorting to Sections 147/148 amounted to bypassing the statutory scheme governing search-related assessments.

The Tribunal agreed with this primary jurisdictional challenge and set aside the reassessment orders, treating all other issues as academic.

2. Brief Facts of the Case

2.1 Search on Sanjay Tibrewal Group and Seized Material

  • A search and seizure operation under Section 132 was conducted on Sanjay Tibrewal Group, including Shri Sanjay Govindram Agrawal.

  • During this search, authorities seized:

    • Excel files, and
    • Bank statements.

  • Revenue authorities formed a view that certain bank entries revealed alleged accommodation entries.

  • On this premise, they claimed that Viru Textile Mills Pvt. Ltd. was one of the beneficiaries.

2.2 Reopening of Viru Textile’s Assessments

  • Based solely on this third-party search material, the Assessing Officer (AO) reopened assessments for AYs 2016-17 and 2017-18 under Sections 147/148.
  • In the reassessment, the AO:
    • Treated certain credits as unexplained under Section 68, and
    • Made corresponding disallowance of alleged expenditure under Section 69C / Section 37(1) (depending on the year and nature of entry).

The assessee challenged both the jurisdiction and the merits before the CIT(A) and then before the Tribunal.

3. Assessee’s Key Jurisdictional Objections

The assessee raised multiple legal grounds, the critical ones being:

3.1 Mandatory Application of Section 153C

The assessee argued that:

  1. The entire “reason to believe” for reopening arose only from:
    • Seized Excel sheets; and
    • Seized bank statements.
  2. These documents were not seized from the assessee but from Shri Sanjay Govindram Agrawal (Sanjay Tibrewal Group).
  3. Therefore, they constituted material “belonging to” or “relating to” a person other than the searched person, attracting Section 153C.
  4. Section 153C is a special code for such cases and begins with a non-obstante clause, overriding general reassessment provisions.
  5. Hence, jurisdiction could only be assumed under Section 153C after:
    • The AO of the searched person records a satisfaction note that the material pertains to another person; and
    • Such material is then lawfully handed over to the AO having jurisdiction over that other person (here, Viru Textile Mills Pvt. Ltd.).

In absence of such satisfaction and transfer of material under Section 153C, the assessee argued that invoking Sections 147/148 was without jurisdiction.

3.2 Limitation under Section 148A(d)

The assessee also raised a technical plea that: