Section 147 Reassessment vs Section 153C: ITAT Pune Clarifies When Search Material Must “Pertains To” Assessee

Background of the Dispute

The decision in DCIT Vs Hargobind Hazarimal Tejwani (ITAT Pune) deals with a recurring controversy under the Income Tax Act 1961: when the Revenue can reopen an assessment under Section 147 on the strength of documents found during a search of a third party, and when it is mandatory to proceed only under Section 153C.

The appeal before the Tribunal was filed by the Revenue against the order of the CIT(A)-12, Pune dated 25.09.2025, relating to Assessment Year 2012-13. The CIT(A) had quashed the reassessment framed under Sections 147/148 purely on legal grounds, without examining the additions on merits.

Key factual elements:

  • The assessee, an individual engaged in money-lending, rental income and partnership business, filed a return declaring income of Rs. 74,74,184 on 29.09.2012.
  • A search under Section 132 was conducted on 26.02.2014 in the Porwal, Agarwal, Mutha, Karia and B.U. Bhandari group cases.
  • During this search, certain diaries and loose papers relating to loan and fund transfer transactions were seized from premises of third parties such as M/s. Acero Steels and Electricals, Mr. Vijesh Agarwal, Mr. Yogesh Porwal, and Mr. Bhomraj Agarwal.
  • Based on information forwarded by the Investigation Wing (DDIT (Inv.) Unit No. 1(1), Pune), the Assessing Officer issued a notice under Section 148 on 29.03.2016 and completed reassessment under Section 143(3) r.w.s. 147 on **30.12.2016`.

The core legal issue was whether, in the given facts, the Revenue was bound to invoke Section 153C (assessment of other person based on search material) instead of resorting to reassessment under Section 147/148.

How the Reassessment Was Framed

Basis for Reopening Under Section 147

The Assessing Officer recorded reasons to believe that income had escaped assessment, relying upon:

  • Entries in seized diaries showing alleged loans and transfers through cheque/RTGS and cash,
  • Information from the Investigation Wing linking those entries to the assessee, and
  • Statements of persons such as Mr. Vijesh Agarwal, said to be engaged in commission-based money transfer.

The assessee was confronted with information that:

  • Transactions in cheque/RTGS mode aggregating Rs. 12.72 crore, and
  • Cash transactions of Rs. 11.35 crore,

appeared in seized diaries recovered from the premises of Mr. Vijesh Agarwal.

Initially, the assessee completely denied having undertaken such dealings. Subsequently, as an alternative stance, the assessee argued that:

  • Transactions routed through banking channels cannot be treated as unaccounted income;
  • The diary entries were not in his name but allegedly in the name of another person (“Sharman Tejwani”);
  • The same figures appeared repeatedly in the diaries, suggesting duplication; and
  • Since the diaries were seized from a third party, any presumption under Section 132(4A) could not be used against him.

Additions Made by the Assessing Officer

After examining the seized material, statements and the assessee’s replies, the Assessing Officer concluded that:

  • There was a correlation among the names and cheque/RTGS entries in the diaries,
  • Certain banking transactions in the assessee’s bank account matched the diary entries, and
  • The seized material represented actual unaccounted loan transactions in which the assessee was involved.

Relying inter alia on the decision of Chander Mohan Mehta Vs. ACIT (1999) 71 ITD 245 (Pune) regarding evidentiary value of loose papers, the Assessing Officer treated the diary as a reliable record and made the following additions:

  1. Unexplained money under Section 69A – Rs. 15.40 crore

    • Cash loans allegedly advanced: Rs. 11.35 crore
    • Unexplained cheque-based advances: Rs. 4.05 crore

  2. Interest income on cash loans – Rs. 1,20,10,000

    • Interest was computed at 2% per month on the alleged cash loans.

The assessed income was determined at Rs. 17,34,84,184.

The assessee challenged:

  • The validity of reassessment under Sections 147/148, and
  • The additions on merits.

The CIT(A) confined himself to the legal challenge and set aside the reassessment without touching the merits.

Key Reasoning of the CIT(A)

The CIT(A) accepted the assessee’s contention that:

  • The entire foundation for the additions lay in documents and diaries seized from third parties during a search;
  • Such a situation is squarely governed by the special scheme of Sections 153A to 153D, particularly Section 153C; and
  • Once Section 153C is attracted, the general reassessment power under Section 147 cannot be invoked.

He relied heavily on the following precedents:

  • Shyam Sunder Khandelwal v. ACIT [2024] 161 taxmann.com 255 (Rajasthan)
  • Sejal Jewellery v. Union of India [2025] 171 Taxmann.com 846 (Bombay)
  • ITO v. Vikram Sujitkumar Bhatia (453 ITR 417) (SC)

From these decisions, the CIT(A) drew the following principles: