The Delhi High Court has held that proceedings initiated against a person under the second explanation to Section 148 of the Income-tax Act, on the basis of material recovered during a search conducted at the premises of another person do not become void merely because the searched person subsequently obtains an interim order, or even if the search is later declared invalid, since the material recovered during the search can still be relied upon in law and such subsequent event does not divest the Assessing Officer of jurisdiction validly exercised on the date of initiation of proceedings.
The Court accordingly dismissed the petition, while leaving it open to the petitioner to file an appeal on the quantum or merits of the additions, and directed that if such appeal were filed within fifteen days, the Appellate Authority should consider it without objection as to limitation.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that although, on first impression, the matter appeared to call for consideration on equity because the searched person was not facing assessment proceedings while the petitioner had already suffered an assessment order, the writ petition lacked merit on a careful consideration of the statutory position. The Bench held that it is well settled that material seized or recovered during a search can be relied upon even if the search is later declared illegal.
The Bench found the petitioner’s reliance on the interim order of the Punjab and Haryana High Court to be untenable, holding that an interim order only reflects a prima facie view and does not amount to a declaration that the search is illegal or void. It further observed that the legality of initiation of proceedings against the petitioner had to be examined as on March 31, 2025, being the date on which such proceedings were triggered, and on that date, there was no stay affecting the search proceedings.
The Bench also noted that the interim order in the case of M/s Kuantum Papers Limited merely restrained the passing of the final assessment order and did not stay either the search proceedings or their effect and operation. It therefore held that the Assessing Officer was justified in proceeding against the petitioner pursuant to the notice issued under the second explanation to Section 148.
The Bench further observed that both contingencies under Section 148 could have been applied against the petitioner, namely, the Assessing Officer could either proceed on the basis of the documents received pursuant to the search as “information or material” or invoke the second explanation to Section 148 on the basis of the search itself. According to the Bench, even a subsequent declaration that the search was invalid would not divest the Assessing Officer of jurisdiction nor vitiate proceedings already initiated against the petitioner.
Lastly, the Bench observed that in the present case, the petitioner was not the searched person and the assessment was triggered by material recovered from the search of another entity. Therefore, referring to the decision of Echjay Industries Pvt Ltd. vs. Rajendra, Director of Income-tax (Investigations) [2024 SCC OnLine Bom 1319], the Bench reiterated that even where a search is held invalid, the Revenue remains at liberty to utilise the information or material gathered during such search in appropriate proceedings permissible in law.
Briefly, the petitioner had challenged the assessment order dated March 25, 2026, which had been passed pursuant to a notice dated March 31, 2025 issued under the second explanation to Section 148 of the Income-tax Act, on the basis of material recovered during a search conducted at the premises of M/s Kuantum Papers Limited. The petitioner argued that since proceedings in the case of the searched person had been stayed by the Punjab and Haryana High Court, the consequential proceedings initiated against the petitioner could not continue, and further contended that if the search was prima facie illegal, the proceedings founded on such search were also liable to be declared illegal.
The respondents raised a preliminary objection that the petition was directed against an assessment order, for which a statutory appellate remedy was available. It was further argued that the proceedings against the petitioner had been initiated much prior to the interim order passed in favour of the searched person, and that even if the search were eventually held invalid, the material recovered during such search could still be used as evidence for assessment proceedings.
Appearances:
Advocates Gautam Swarup, Rudra Deosthli, Ankur Das and Sakshi Pandey, for the Petitioner
Advocates Gaurav Gupta, Shivendra, Yojit Pareek, Surya Jindal, and Chhavi Khandelwal, for the Respondent
