Section 148 vs Section 153C in Search-Based Reassessments: Bombay High Court Clarifies Jurisdiction

Background and Context

The Bombay High Court, in a batch of writ petitions led by Sejal Jewellary & Anr. vs Union of India & Ors, examined whether the Revenue can validly invoke Section 147 and issue a Section 148 notice where the entire basis of reopening is material unearthed during a Section 132 search. All petitions involved Assessment Year 2012-13.

The central dispute was:

If the trigger for reopening is search material, must the Revenue proceed only under the special search assessment regime of Section 153A/Section 153C, or can it nevertheless invoke the general reassessment provision in Section 147 via Section 148?

The Court concluded that when the reopening is founded fully on search and seizure material, the only permissible route is through Section 153A read with Section 153C. A notice under Section 148 in such circumstances is without jurisdiction and invalid.

Facts of the Lead Case: Sejal Jewellery

Business and Return Filing

  • Petitioner No. 1, Sejal Jewellery, is a partnership firm engaged in the manufacture and trade of gold and diamond jewellery.
  • For A.Y. 2012-13, the assessee filed its return of income on 28 September 2012, declaring income of Rs. 25,52,692.

Search Proceedings

  • A search under Section 132 was conducted on 4 October 2018.
  • The assessee contended that no incriminating material relating to bogus loans or accommodation entries was discovered during the search.
  • The Revenue, however, asserted that search and related enquiries revealed unexplained and suspicious loan transactions in the broader group to which the assessee belonged.

Issue of Section 148 Notice

  • Pursuant to the search, the Assessing Officer (AO) issued a notice dated 29 March 2019 under Section 148 for A.Y. 2012-13, alleging escapement of income under Section 147.
  • The assessee was directed to file a fresh return within 30 days.

On request, the AO supplied the recorded “reasons to believe” on 11 September 2019. These reasons are crucial:

  • They expressly refer to a search and seizure action under Section 132 on M/s Shilpi Jewellers Pvt. Ltd. and its group concerns.
  • They mention seizure of incriminating loose papers and electronic data.
  • They record that M/s Shilpi Jewellers Pvt. Ltd. and its associated concerns accepted large unsecured loans from shell/paper entities during the year ended 31 March 2012.
  • The assessee, M/s Sejal Jewellery, is identified as a group concern that:
    • Received a loan of Rs. 25,00,000 from M/s Green Valley Gems Pvt. Ltd.,
    • Which is characterised as a shell company providing accommodation entries.

The reasons further narrate:

  • Enquiries by the office of DIT(Inv.), Mumbai at Surat did not find the existence of M/s Green Valley Gems Pvt. Ltd. at its stated address.
  • The company’s financials (for A.Y. 2016-17) showed negligible taxable income of Rs. 1,26,100, yet it claimed substantial TDS of Rs. 23,05,962 and refund of Rs. 22,67,000, indicating suspicious patterns.
  • Its balance sheet recorded liabilities of Rs. 29,39,60,435 and “loans and advances” of Rs. 25,93,62,839, inconsistent with normal commercial prudence.
  • Statements of key group individuals recorded under Section 132(4) showed that the loans were arranged through mediators whose identity and current whereabouts could not be established, and even contact details of such mediators were unavailable.

Based on this, the AO concluded that:

  • The genuineness of the assessee’s loan of Rs. 25,00,000 from M/s Green Valley Gems Pvt. Ltd. was not substantiated.
  • Corresponding income had escaped assessment and needed to be assessed to tax for A.Y. 2012-13.

Assessee’s Objections Before the AO

The assessee filed detailed objections on 27 September 2019, raising two broad planks:

  1. Jurisdictional Objection: Wrong Provision Invoked

    • The assessee argued that once the reopening stems from search material, the Revenue must apply the special provisions governing search cases.
    • Specifically, it invoked Section 153C, which contains an overriding non-obstante clause and prescribes a complete code for assessment where material pertaining to “other persons” is found during a search.
    • It was emphasised that Section 153C overrides Sections 147, 148, 149 and 151, and that the entire search assessment framework, including timelines and approvals under Section 153B and Section 153D, is exclusive.
    • On this basis, the assessee asserted that a Section 148 notice was legally unsustainable.

  2. Merits of Alleged Escapement

    • The assessee also contested the factual inferences drawn by the AO regarding alleged bogus loans and accommodation entries.
    • For the purposes of this judgment, however, the High Court confined itself to the jurisdictional question, not the factual merits.

AO’s Rejection of Objections