ACE TYRES PRIVATE LIMITED,HYDERABAD vs. DCIT, CENTRAL CIRCLE-1(2), HYDERABAD

The case was selected for scrutiny and during the course of assessment proceedings, the A.O on the basis of incriminating material found during the course of search coupled with the statement of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager and Shri G Raghunath Reddy, MD of the company called upon the assessee to explain as to why the addition should not be made in respect of unaccounted income generated from the sale of scrap etc., and admitted during the course of search. In response, the assessee has submitted detailed explanation along with reconciliation of the incriminating material found during the Page 3 of 14 course of search and submitted revised workings with reference to the entries contained in FOCUS 5.5 software. The A.O after considering the relevant submissions of the assessee and also taking note of admission of undisclosed income during the course of search, has made addition of Rs.2,04,91,041/- towards undisclosed income as per the transactions entered in FOCUS 5.5 software.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT (A). During the course of appellate proceedings, the assessee company challenged the assessment order passed by the A.O on the legal ground in light of provisions of section 148 of the Act and submitted that the assessment order passed by the A.O without applying the conditions laid out under section 148 of the Act is bad in law and liable to be quashed. The assessee also challenged the additions made by the A.O towards undisclosed income on the basis of FOCUS 5.5 software. The Ld. CIT (A) rejected the legal ground taken by the assessee challenging the validity of assessment proceedings and adjudicated the issues raised in appeal on merits and partly allowed the appeal filed by the assessee.

Aggrieved by the order of Learned CIT(Appeals) the appellant in in appeal before the Tribunal.

The learned Counsel for the assessee, Shri M.V. Prasad, C.A, referring to the grounds of appeal filed by the assessee and more particularly, ground no.2 submitted that the Page 4 of 14 assessment order passed by the A.O under section 143(3) of the Act, dated 27/09/2024 is barred by limitation going by the provisions of sec 153 of the I.T. Act, 1961. The learned Counsel for the assessee submitted that the assessment order, in question, before us is for the A.Y 2022-23. The A.O issued notice under section 143(2) of the I.T. Act on 20/06/2023. The search in the present case was conducted on 4/1/2023. As per the provisions of sec 153(1) of the I.T. Act, the time limit for completion of the assessment is 21 months from the end of the A.Y, in which the income was first assessable. Further, as per the 4th proviso to section 153 of the Act, which was inserted by the Finance Act, 2021 in respect of an order of assessment relating to A.Y commencing on or after 1st day of April 2022, the provisions of this sub-section shall have effect, as if for the words twenty-one months, the words “twelve” months have been substituted. From the provisions of section 153 and 4th proviso provide thereon, it is undisputedly clear that the assessment for the year is under consideration i.e. A.Y 2022-23 should be completed within 12 months from the end of the relevant A.Y, in which the income was first assessable and therefore, the A.O should have passed the assessment order on or before 31/03/2024. Further, the A.O issued a letter dated 22/03/2024 and claimed that in view of clause (xii) of Explanation (1) of section 153 of the Act, the time limit for completion of the assessment is hereby extended from 31/03/2024 to 27/09/2024. However, as per clause (xii) of Explanation (1) to section 153, the period (not exceeding 180 days)

The Ld. CIT (DR), on the other hand, supporting the orders of the Ld. CIT (A) submitted that, there is no merit in the argument of the learned Counsel for the assessee because, the assessment order passed by the A.O on 27/09/2024 is well within the limitation period provided under section 153 of the Act for passing the assessment order which is evident from clause (xii) of Explanation (1) to section 153 of the Act, where the period not exceeding 180 days commencing from the date on which a search is initiated under section 132 of the Act and ending on the date on which the books of account are handed over to the A.O having jurisdiction of the assessee shall be excluded. In the present case, the search was conducted on 4/1/2023 and the A.O has handed over the seized material on 22/08/2023. Although the A.O has Page 7 of 14 taken 231 days for handing over the seized material to the A.O of the assessee but, as per clause (xii) of Explanation (1), it should not exceed 180 days and if we add 180 days to the normal time limit provided under section 153(1) of the I.T. act, then the time limit available for the A.O to complete the assessment was up to 27/09/2024 and the A.O has rightly passed the assessment order on 27/09/2024. Therefore, the argument of the learned Counsel for the assessee that the order passed by the A.O is beyond the limitation and barred by limitation is devoid of any merit and cannot be accepted.

We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. It is an admitted fact that a search & seizure operation under section 132 of the I.T. Act was carried out in the case of the assessee on 4/1/2023. It is also an admitted fact that the seized material is handed over to the A.O on 22/08/2023, which is evident from the letter of the A.O dated 22/03/2024. The normal time limit for completion of the assessment under section 153(1) of the Act is 21 months from the end of the A.Y in which the income was first assessable. Fourth proviso to section 153 inserted by the Finance Act, 2021 reduced the time limit from 21 months to 12 months in respect of an order of assessment relating to the A.Y commencing on or after 1/4/2022. In other words, as per section 153 and 4th proviso provided thereon, the time limit for completion of the assessment for the A.Y 2022-23 is 12 months from the end of the A.Y, in which the income is first assessable. In Page 8 of 14 the present case, the Asst. Year involved is Asst. Year 2022-23 and time limit for completion of assessment is 12 months from the end of the A.Y 2022-23 i.e. up to 31/03/2024. However, the case of the assessee falls under clause (xii) of Explanation (1) to section 153 of the Act, because a search and seizure operation was conducted under section 132 of the Act on 4/1/2023 and as per clause (xii) of Explanation (1) to section 153, the period (not exceeding 180 days) commencing from the date of search initiated under section 132 of the Act and ending on the date on which the books of account or other document are handed over to the A.O having jurisdiction over the assessee shall be excluded. Therefore, from clause (xii) of Exp. (1) to section 153 of the Act, the A.O gets exclusion of 180 days for the purpose of computing the limitation provided under section 153(1) of the Act, towards the time taken by the A.O of the searched person to hand over the books of account or any other valuable articles or things to the A.O of the assessee up to a maximum of 180 days, even if the time taken by the A.O of the searched person is more than 180 days. If we carefully read clause (xii) of Exp.(1) to section 153 of the Act, it is not an extension of limitation provided for completion of assessment, but it is only exclusion of time taken by the A.O of the searched person which was lost by the A.O of the assessee for assessing the income of the assessee up to a maximum of 180 days. Therefore, while computing the limitation period, the period of 180 days starting from the date of search to ending on the date of handing over books of accounts should be excluded for Page 9 of 14 computing period of limitation. Therefore, in our considered view, if the time taken by the A.O of the searched person covered during the limitation period, then the entire time taken by the A.O for handing over the books of account not exceeding 180 days can be excluded. In case, the time taken by the A.O for handing over the seized material partially goes under the limitation period and partially goes under the other financial year or non-limitation period, then only the time lapsed by the A.O during the limitation period alone should be excluded, because clause (xii) of explanation (1) to section 153 of the Act is only excludes the period taken by the A.O for handing over the books of account but, it shall not extend the period up to 180 days. Therefore, it is necessary for us to examine the argument of the learned Counsel for the assessee, in the light of date of initiation of search and date of handing over of the books of account and other valuable materials and the date of the assessment order in light of clause (xii) of explanation (1) of section 153 of the Act.

In the present case, search was conducted on 4/1/2023. The A.O of the assessee received seized material on 22/08/2023. As per clause (xii) of Exp. (1) to section 153 of the Act, the period commencing from 4/1/2023 to 22/08/2023 shall be excluded for the purpose of computing the limitation period. Admittedly, the period starting from 4/1/2023 and up to 22/08/2023 falls in two financial years i.e. (i) from 4/1/2023 to 31/03/2023 falls under financial year 2022-23 and (ii) date commencing from 1/4/2023 to 22/08/2023 falls in financial year

In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 18th February 2026. Sd/- Sd/- (VIJAY PAL RAO) (MANJUNATHA, G.) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, dated 18th February 2026. VBV/SrPS