The ITAT Delhi has clarified a critical procedural boundary in income tax assessments: when a search is conducted under Section 132, the tax authorities cannot proceed with a regular assessment under Section 143(3) for years falling within the three preceding assessment years. The only legally permissible route is reassessment under Section 147. This ruling reinforces statutory compliance and curbs procedural overreach by revenue authorities.
Background & Facts
The Dispute
The appellant, Sunil Kumar Agarwal, was subjected to a search operation under Section 132 of the Income-tax Act, 1961 on 17.11.2021. The assessment year under dispute is A.Y. 2021-22, which falls within the statutory window of "three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated." Despite this, the Assessing Officer proceeded to frame a regular assessment order under Section 143(3) dated 04.02.2023, without initiating proceedings under Section 147.
Key Facts
- The search under Section 132 was conducted on 17.11.2021
- The assessment year in question is A.Y. 2021-22
- The previous year relevant to A.Y. 2021-22 is P.Y. 2020-21
- The three assessment years preceding P.Y. 2020-21 are: A.Y. 2018-19, A.Y. 2019-20, and A.Y. 2020-21
- A.Y. 2021-22 is the assessment year relevant to the previous year in which the search was conducted, making it eligible for reassessment under Section 147
- The impugned order was issued on 04.02.2023 by the Assessing Officer under Section 143(3)
- The CIT(A) upheld this order on 19.09.2025 via DIN & Order No. ITBA/NFAC/S/250/2025-26/1080922303(1)
Procedural History
- 17.11.2021: Search conducted under Section 132 at the assessee’s premises
- 04.02.2023: Assessing Officer framed regular assessment order under Section 143(3)
- 19.09.2025: CIT(A) dismissed the assessee’s appeal and upheld the Section 143(3) order
- 09.04.2026: Hearing held before ITAT Delhi
- 09.04.2026: Oral order pronounced allowing the appeal
- 29.04.2026: Written order signed and dated
Relief Sought
The appellant sought quashing of the Section 143(3) assessment order dated 04.02.2023, and a direction to the Assessing Officer to initiate reassessment proceedings under Section 147 for A.Y. 2021-22.
The Legal Issue
The central question was whether, in the wake of a search under Section 132, the tax authorities are legally empowered to frame a regular assessment under Section 143(3) for an assessment year that falls within the statutory ambit of Section 153A, or whether they are mandatorily required to initiate reassessment under Section 147.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the search on 17.11.2021 triggered the applicability of Section 153A, which mandates that assessments for the three preceding assessment years (including A.Y. 2021-22) must be undertaken under Section 147, not Section 143(3). He relied on the decision in Montage Enterprises (P) Ltd. vs DCIT (2026) 182 taxmann.com 11 (Del), which held that once a search is conducted, the regular assessment route under Section 143(3) is legally closed for years covered under Section 153A. He further cited multiple judicial precedents affirming that Section 143(3) assessments are incompatible with the statutory framework of search and seizure.
For the Respondent
The Revenue contended that the assessment under Section 143(3) was valid because no notice under Section 148 was issued, and the AO had sufficient material to complete the assessment under the regular procedure. It argued that Section 153A does not automatically override Section 143(3), and that the AO had discretion to proceed under either provision. The Revenue did not cite any binding precedent to support this position.
The Court's Analysis
The Tribunal observed that the statutory scheme under Section 153A is clear and unambiguous: when a search is initiated under Section 132, the Assessing Officer is statutorily mandated to assess or reassess the income for the assessment years relevant to the six previous years, including the year of search, under Section 147. The Tribunal emphasized that Section 143(3) is a mechanism for regular assessment in the absence of any suspicion or incriminating material. Once a search is conducted and incriminating material is found, the statutory mechanism shifts entirely to reassessment under Section 147.
"The moment a search is initiated under Section 132, the legislative intent is to trigger a special regime under Section 153A, which excludes the applicability of regular assessment under Section 143(3) for the years covered therein."
The Tribunal noted that the Revenue’s reliance on general powers under Section 143(3) ignored the specific and overriding nature of Section 153A. It held that the decision in Montage Enterprises was squarely applicable and binding. The Tribunal further observed that allowing a Section 143(3) assessment after a search would render Section 153A otiose and defeat the legislative purpose of ensuring comprehensive scrutiny in cases involving undisclosed income.
The Verdict
The appeal was allowed. The ITAT Delhi set aside the Section 143(3) assessment order dated 04.02.2023. The case was remanded to the Assessing Officer to initiate reassessment proceedings under Section 147 for A.Y. 2021-22 within eight weeks from the date of receipt of this order. All other grounds were rendered academic.
What This Means For Similar Cases
Regular Assessment Is Barred After Search
- Practitioners must immediately challenge any Section 143(3) assessment order issued after a Section 132 search for years covered under Section 153A
- The burden shifts to the Revenue to prove that reassessment under Section 147 was not initiated due to procedural lapse, not discretion
Section 153A Overrides Section 143(3)
- The statutory hierarchy is clear: Section 153A is a special provision that displaces general assessment procedures
- Any assessment under Section 143(3) post-search is void ab initio, regardless of whether a notice under Section 148 was issued
Procedural Compliance Is Non-Negotiable
- Tax officers must initiate reassessment proceedings under Section 147 within the stipulated time under Section 153A(1)
- Failure to do so may result in the assessment being quashed, as in this case, even if the underlying income is undisclosed
