ITAT Chandigarh Quashes Malbros International Assessment for AY 2022–23 Over Jurisdictional Lapse in Search-Based Additions

January 13, 2026 : The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the assessment framed against M/s Malbros International Pvt. Ltd. for Assessment Year 2022–23, holding that the Assessing Officer committed a fundamental jurisdictional error by invoking Section 143(3) instead of following the mandatory reassessment procedure under Sections 147, 148 and 148B of the Income Tax Act, 1961.

The decision was delivered by a Bench comprising Vice President Rajpal Yadav and Accountant Member Manoj Kumar Aggarwal in ITA No. 48/CHANDI/2025, pronounced on 13 January 2026.

Background of the Case

The assessee, engaged in manufacturing grain-based Extra Neutral Alcohol (ENA), ethanol and country liquor at its distillery in Zira, Punjab, was part of the Oasis Group. A search under Section 132 was conducted on 18 May 2023.

While no incriminating material was found at the company’s business premises, digital data, loose sheets and a hard disk were seized from the residential premises of two former employees, Shri Prem Singh and Shri Rajinder Singh. The Revenue relied extensively on this third-party material to frame additions.

Based primarily on WhatsApp chats extracted from a former employee’s mobile phone and tally data recovered from another ex-employee’s residence, the Assessing Officer alleged bogus purchases of rice nakku and rice husk routed through RTGS payments and allegedly returned in cash after deduction of commission. Additions were made towards:

• Estimated profit on alleged bogus purchases
• Unexplained expenditure under Section 69C
• Gross profit on alleged out-of-books sales
• Certain statutory disallowances

The assessment was framed under Section 143(3).

Jurisdictional Challenge Before the Tribunal

Before the Tribunal, the assessee raised additional legal grounds challenging the very assumption of jurisdiction. It argued that the assessment was founded entirely on material seized from third parties, which, under Explanation 2(iv) to Section 148 as amended by the Finance Act, 2021, mandatorily triggers the reassessment mechanism.

The assessee contended that:

• The Assessing Officer was required to record satisfaction that the seized material pertained to the assessee.
• Prior approval from the specified authority under Section 148B was mandatory.
• No notice under Section 148 was issued.
• The AO bypassed the statutory safeguards and proceeded directly under Section 143(3).

Tribunal’s Findings

The Tribunal accepted the jurisdictional objection and held that the Finance Act, 2021 brought sweeping changes to the reassessment regime. Where material seized during search on another person is relied upon, the AO must necessarily invoke Sections 147 to 148B and comply with the structured procedure laid down therein.

The Bench observed that:

• The assessment under Section 143(3) was initially triggered for scrutiny of the return.
• By importing and relying upon third-party search material without invoking reassessment provisions, the AO exceeded the jurisdiction conferred under Section 143(3).
• Recording of satisfaction and obtaining prior approval under Section 148B are jurisdictional preconditions.

On the issue of approval, the Tribunal noted that the approval obtained for passing the order under Section 143(3) could not substitute the mandatory approval required under Section 148B. The failure to follow the reassessment framework was held to be a jurisdictional defect going to the root of the matter.

Assessment Held Void

Holding that the AO failed to comply with mandatory provisions while relying on third-party seized material, the Tribunal quashed the assessment as void ab initio. In view of the jurisdictional defect, it did not adjudicate the merits of the additions.

The ruling reinforces that under the post-2021 reassessment regime, statutory safeguards are not procedural formalities but jurisdictional requirements. Where additions are founded on search material, especially material seized from third parties, strict adherence to the reassessment framework is indispensable.

Appearance:
For Appellant: Sudhir Sehgal (Advocate) – Ld. AR
For Respondent: Abhishek Pal Garg (CIT) – Ld. DR (Virtual)

Cause Title: M/s Malbros International Pvt. Ltd. v. DCIT
Case No.: ITA No. 48/CHANDI/2025
Coram: Vice President Rajpal Yadav and Accountant Member Manoj Kumar Aggarwal.