Introduction
In a significant ruling that reinforces the mandatory nature of search‑based assessment procedures, the Income Tax Appellate Tribunal (ITAT), Delhi “H” Benches, has quashed two separate scrutiny assessments passed under section 143(3) of the Income Tax Act, 1961 (“the Act”) for Assessment Year 2023‑24. The common order, pronounced on 03‑09‑2026, in ITA No. 995/DEL/2026 (Ghanshyam Gupta) and ITA No. 996/DEL/2026 (Sanjay Gupta), holds that where a search under section 132 is initiated on or after 01‑04‑2021, the Assessing Officer (AO) must necessarily follow the special reassessment mechanism under section 147 read with section 148 of the Act. The Tribunal’s reasoning demonstrates that the issuance of a notice under section 143(2) and completion of the assessment under section 143(3) cannot cure a jurisdictional defect where the statutory scheme mandates the search‑based route. This commentary analyses the facts, statutory framework and the legal principles that led to the invalidation of both assessment orders.
Facts
The facts common to both appeals may be summarised as follows. A search and seizure action under section 132 of the Act was carried out on 15‑02‑2024 in the cases of the assessees as part of the Satya Prakash & Bros Pvt. Ltd. Group and others. Prior to the search, each assessee had filed his return of income for AY 2023‑24 on 28‑07‑2023 — declaring a total income of INR 74,91,940/‑ in the case of the first assessee. Thereafter, a statutory notice under section 143(2) was issued on 28‑06‑2024, despite the fact that the search had already taken place on 15‑02‑2024.
During the assessment proceedings, the assessees filed partial responses. The AO found that adequate documentary evidence was not furnished, and a show‑cause notice was issued on 27‑03‑2025. Ultimately, the AO framed separate assessment orders dated 31‑03‑2025 under section 143(3), assessing total income at INR 1,52,14,715/‑ after making various additions/disallowances. The CIT(A), by separate orders dated 24‑11‑2025 passed under section 250 of the Act, partly allowed the appeals. Aggrieved and still challenging the validity of the assessment orders, the assessees preferred the present appeals before the ITAT.
The assessee in ITA No. 995/DEL/2026 took a preliminary legal ground: since a search was conducted under section 132 on 15‑02‑2024, i.e., on or after 01‑04‑2021, the assessment for that year ought to have been completed under section 147 read with section 148 of the Act by issuance of notice under section 148, and not under the normal scrutiny regime of section 143(3). The assessee relied on the coordinate bench decisions in the cases of Montage Enterprises Pvt. Ltd. (ITA No. 5458/Del/2025 dated 29‑12‑2025), Homelife Buildcon (P.) Ltd. reported in (2025) 176 taxmann.com 614 (Chandigarh – Trib.) and Jamna Das Nikkamal Jain Saraf Pvt. Ltd. (ITA No. 403/Chd./2025 dated 04‑11‑2025).
The departmental representative, in contrast, argued that the return was filed on 28‑07‑2023, that notices were issued from time to time, and that since the limitation for issuance of notice under section 143(2) had not expired as on the date of search, the assessment order passed under section 143(3) was in accordance with law.
Reasoning
The core of the Tribunal’s reasoning rests on the plain text of Explanation 2 to section 148 of the Act, supplemented by well‑settled principles of statutory interpretation and jurisdictional discipline.
First, the Tribunal referred to Explanation 2(i) to section 148, which provides that where a search is initiated under section 132, or books of account, other documents or any assets are requisitioned, on or after 01‑04‑2021, in the case of the assessee, the AO shall be deemed to have information which suggests that income chargeable to tax has escaped assessment in the case of the assessee. Clause (ii) similarly covers surveys under section 133A on or after 01‑04‑2021, while clauses (iii) and (iv) deal with seized assets, books or documents belonging to, or pertaining to, the assessee but found in the case of any other person. Reading Explanation 2 literally, the Tribunal observed that once a search is conducted on or after 01‑04‑2021, a statutory deeming fiction of “income escaping assessment” is triggered.
In the present case, the search was carried out on 15‑02‑2024 — well after the cut‑off date of 01‑04‑2021. The AO was fully aware of the search because the case had been transferred to his jurisdiction under section 127 of the Act. Even so, the AO proceeded to initiate scrutiny assessment proceedings by issuing notice under section 143(2) on 28‑06‑2024. The Tribunal emphasised that, under these circumstances, the proper course of action was to initiate proceedings under section 148, as outlined in Explanation 2(i) to that section, on the basis of the deemed escapement of income. The failure to comply with the statutory procedure as provided under the Act constitutes a jurisdictional defect — not a mere irregularity that could be cured by the otherwise timely issuance of a notice under section 143(2).
The Tribunal buttressed this conclusion by invoking the fundamental canon of law prescribed in section 31 of the judgment of the Hon’ble Apex Court in Babu Verghese v. Bar Council of Kerala, (1999) 3 SCC 422: “It is the basic principal [sic] of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all.” This principle traces its origin to the classic formulation in Nazir Ahmed v. King Emperor — “where a power is given to do certain thing in certain way, the thing must be done in that way or not at all” — and has been consistently approved by the Apex Court in subsequent decisions. The Tribunal observed that this rule has been applied to the exercise of jurisdiction by courts and recognised as a statutory principle of administrative law. Applying that rule to the facts, the AO should have acted strictly in terms of the amended provisions of section 148 for searches carried out on or after 01‑04‑2021.
The Tribunal further followed the coordinate bench decision of the Delhi Tribunal in Montage Enterprises Pvt. Ltd. (supra), which concerned an almost identical factual matrix. In that case, the assessee had filed its return for AY 2022‑23 declaring a loss, and the revenue authorities had conducted a search under section 132 as well as a survey under section 133A on 21‑02‑2023. The AO nevertheless proceeded to frame an assessment on 30‑03‑2024 under section 143(3), making various disallowances and additions. The Montage Enterprises Bench held that the assessment ought to have been framed under section 148 with approval under section 148B of the Act, in the light of Homelife Buildcon (P.) Ltd. (supra). The coordinate bench in Chandigarh, in Homelife Buildcon, had already adjudicated the very issue against the department, and that ruling was also followed by another coordinate bench in Jamna Das Nikkamal Jain Saraf Pvt. Ltd. (supra). The Delhi Tribunal found no reason to take a contrary view.
In essence, the Tribunal held that section 148 is a special provision triggered by a search and prevails over the general provision in section 143(3) of the Act. The language of Explanation 2 makes it clear that the legislature intended a distinct and exclusive route — notice under section 148, preceded by the necessary approvals — for all search‑based assessments initiated on or after 01‑04‑2021. This special mechanism overrides the ordinary scrutiny machinery. If the AO chooses the general provision instead of the special one, the resultant assessment order is invalid ab initio. The Tribunal accordingly held that both assessments framed under section 143(3) suffered from a jurisdictional defect and were not sustainable.
Since the preliminary legal ground itself succeeded, the Tribunal found it unnecessary to adjudicate the other grounds raised on the merits of the additions and disallowances. Both the impugned assessment orders, and the consequent appellate orders of the CIT(A) to the extent they rested on those invalid assessments, were quashed. Both appeals were allowed.
Conclusion
This common order provides a clear, practical guidance for taxpayers, tax professionals and revenue authorities alike. When a search under section 132 takes place on or after 01‑04‑2021 — even for an assessment year for which a return has already been filed and for which the time for issuance of a notice under section 143(2) has not expired — the AO cannot fall back on the ordinary scrutiny mechanism. The statutory deeming fiction in Explanation 2 to section 148 obliges the AO to form an opinion of escapement of income and to proceed under section 148. Any departure from that prescribed manner of assessment renders the order bad in law, since jurisdiction is conditioned upon the observance of the statutory procedure. The decision is a important reminder that procedural compliance in tax proceedings is substantive in nature, and that even a search‑based addition made on merits cannot salvage an assessment which is procedurally invalid under the Act.