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Facts
A search warrant under section 132 was executed on the assessee's locker, leading to the recovery of gold coins and jewelry. Subsequently, an assessment order under section 147 was passed after a notice under section 148. The assessee contended that the assessment should have been framed under sections 153A/153C due to the search.
Held
The Tribunal held that the assessee was a search party and therefore, the special provisions of sections 153A to 153D, including the time limit under section 153B, were applicable. The assessment order was found to be time-barred.
Key Issues
Whether the assessment framed under section 147 is valid when a search has been conducted, and if section 153B time limits are applicable.
Sections Cited
147, 148, 132, 153A, 153C, 139, 143(3), 153B, 153D
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the CIT(A) – 11 Bengaluru vide order dated 03-10-2024 in DIN No. ITBA/APL/M/250/2024-25/1069335403(1) for the assessment year 2018- 19.
The first issue raised by the assessee is that the assessment order framed under section 147 of the Act is bad in law as the same was required to be done under section 153A/153C of the Act.
The necessary facts are that the assessee is an individual. An authorization of search warrant under section 132 of the Act was issued as on 15th Nov 2017 in the name of Smt. Seema Goenka, Smt. Sapna Goenka and the appellant assessee Ms. Aakurti Ruia to search Locker No. 884, U & I Vaults Limited at F-41, South Extn, Part-1, Delhi. The impugned Locker was in the name of appellant assessee. Accordingly, the search was conducted as on 16th Nov-2017 and search was again resumed based on same authorization as on 04th Jan-2018 at 5:50 PM and concluded as 05th Jan 2018 at 2:05 PM. At the time of resumed search, the appellant assessee was present at the search premises and in her presence gold coins weighing 1206.73 grams and jewelry weighing 885.62 grams having value of Rs. 76,14,573/- from locker No. 884 have been recovered. Out of which gold coins and jewelry for the value of Rs. 68,52,386/- was seized.
After search proceedings, the case of the assessee was centralized with the office of assistant commissioner of income tax, central circle 1(2), Bangalore (here after the AO) vide order u/s 127 dated 28-Dec-2020. The AO on verification found that the assessee has not filed regular return under section 139 of the Act. Hence, a notice under section 148 of the Act dated 29th March 2022 was issued to initiate the income escapement assessment under section 147 of the Act. The assessee in response to the notice issued under section 148 of the Act filed return of income as on 15th Dec-2022 declaring total income at Rs. 2,07,000/- only. The AO finally completed the assessment under section 147 r.w.s. 143(3) of the Act as on 25th Mar-2023 wherein addition of Rs. 76,14,573/- was made on account of unexplained investment of gold coins and jewelry.
The aggrieved assessee preferred an appeal before the learned CIT(A) and contested the addition made on merit at length. The learned CIT(A) after considering the assessee’s argument and materials made available before him limited the addition to the extent of Rs. 17,09,200/- only.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
For the first time, the assessee before us raised legal grounds challenging the validity of the assessment order. The learned AR before us contended that assessee is searched assessee as evident from the panchnama drawn as on 4th January 2018. Therefore, being the case of search, the assessment was required to be framed u/s 153A/153C of the Act. But the lower authorities erred in framing the assessment under section 147 of the Act which is contrary to the provision of the Act. The learned AR also contended that being a search case, the assessment was required to be completed within the time limit prescribed under section 153B of the Act. Thus, the assessment was required to be completed within 21 months from the end of financial in which last of authorization was executed i.e. F.Y. 2017-18 and the 21 months period from March-2018 expires as 31st December 2018. However, assessment order for year under consideration was passed much after prescribed time limit.
On the contrary, the learned DR before us submitted that the search was conducted on another person/third party therefore the provision of section 153A of the Act is not applicable. Likewise, the . provision of section 153C of the Act applicable only when the condition of material belongs to/ pertain to is satisfied. In the absence of satisfaction with the conditions, the AO is not debarred from reopening assessment under section 147 of the Act.
We have heard the rival contentions of both the parties and perused the materials available on record. The primary issue raised is the validity of the assessment framed under section 147 of the Act. The assessee contends that the assessment is barred by limitation under section 153B of the Act, whereas the Department argues that section 153A/153C does not apply and hence the assessment under section 147 is valid.
9.1 At the outset, we note that a valid search under section 132 was conducted in the case of the assessee. The panchnama dated 05 January 2018, drawn in the name of Ms. Aakruti Ruia, clearly records that the assessee was present at the time of resumed search and that gold coins and jewellery were found and seized from Locker No. 884, which stands in her name. Thus, the assessee was not a third party to the search, but one of the persons searched. Therefore, we hold that argument of the learned DR that the search was on “another person” is contrary to the panchnama itself. Therefore, the departmental argument cannot be accepted.
9.2 Having held that the assessee was a search party, the provision of section 153A to section 153B of the Act will get triggered which have overriding effect over general provisions of the Act. In holding so, we draw support and guidance from the judgment of Hon’ble High Court of .
Page 5 of 8 Rajasthan in the case of Shyam Sunder Khandelwal v. Asstt. CIT [2024] 161 taxmann.com 255 which was followed by Hon’ble Jurisdictional High Court of Karnataka in the case of PCIT vs. VSL Mining Company (P.) Ltd reported in 167 taxmann.com 373. The relevant observation of Hon’ble High Court of Rajasthan in the case Shyam Sunder Khandelwal (supra) is extracted as under: 26. Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 153D have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148.
9.3 Having held that the assessee is search party, the provisions of section 153A, 153B, 153C and 153D are applicable. However, it can be argued that section 153A mandates assessment or reassessment for six assessment years immediately preceding the year of search. In the present case, the search was conducted during FY 2017-18, which corresponds to AY 2018-19. This year is the year in which the search was conducted, and therefore AY 2018-19 does not fall within the six preceding years covered by section 153A of the Act. Hence the assessment for this year is not required to be framed under section 153A of the Act. Thus, the assessee’s argument is rejected.
9.4 Be that as may be, however, the matter does not end there. The provision of section 153B(1) of the Act is very much applicable even though AY 2018-19 is not within the block of six years as prescribed under section 153A of the Act, because the statute expressly provides a time limit for completion of assessment for six years as well as the assessment year relevant to the year of search.
9.5 The provision of section 153B(1)(b) clearly states that the assessment or reassessment for the assessment year relevant to previous year in which search conducted, or requisition made shall be completed within 21 months from the end of the financial year in which the last of the authorisation was executed.
9.6 In the present case, the last panchnama was drawn on 05 January 2018. Therefore, the financial year of execution of search is FY 2017-18, and 21 months from 31 March 2018 expires on 31 December 2019. This statutory time limit is absolute and mandatory. Courts have repeatedly held that once a search is conducted, the assessment for the searched person must thereafter be completed only under the special code of section 153A to 153D of the Act as applicable, and not under the general assessment or reassessment provisions of the Act.
9.7 It is settled law that where a special provision provides a specific time limit and machinery for making assessment in search cases, the general provisions of section 147 cannot override or bypass it. Once the assessee is a searched person, the AO is bound to operate within the time frame and mechanism prescribed under section 153B of the Act.
9.8 In this case, the assessment order was passed on 25 March 2023, which is far beyond the statutory limit of 31 December 2019. The assessment is therefore hopelessly time-barred. The AO could not have invoked section 147 for a searched person in order to circumvent the expiry of time for passing the order under section 153B of the Act. The legislative intent of section 153B of the Act is to bring finality to search . cases within a fixed outer time limit. Any assessment made after this period becomes a nullity.
9.9 Thus, we hold that the assessee was a valid search party, therefore, the DR’s argument that search was conducted on other party not the assessee is rejected. Further the assessment for AY 2018-19 was required to be completed within prescribed time limit provided under section 153B of the Act, as it governs both six preceding years and the year of search. Therefore, the assessment completed on 25 March 2023 is beyond the statutory time limit under section 153B of the Act, hence same is invalid and void ab initio.
9.10 In view of the above, we quash the assessment as time-barred under section 153B of the Act. Since the assessment itself is void, the additions made do not survive for adjudication. Hence the assessee appeal is allowed on legal/technical count whereas the issue raised on the merit of the addition confirmed is hereby dismissed as infructuous.
In the result, the appeal of the assessee is partly allowed.