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Facts
The assessee, M/s. Exel Rubber (P) Ltd, was subjected to a search and seizure operation. During the search, unaccounted income of Rs. 107.63 crores was admitted by the group, with Rs. 39.25 crores pertaining to the appellant. The Assessing Officer made additions based on this and other findings, which were challenged by the assessee.
Held
The Tribunal held that the assessment order passed by the Assessing Officer was barred by limitation. The period taken by the AO to receive the seized material was considered, and it was found that the assessment order was passed beyond the extended time limit.
Key Issues
The primary issue was whether the assessment order passed by the Assessing Officer was barred by the limitation period prescribed under Section 153 of the Income Tax Act, 1961, considering the exclusion of time due to search and seizure operations.
Sections Cited
153, 143(2), 132, 132A, 148, 250
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Income Tax Appellate Tribunal, Hyderabad ‘B‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha G.
ORDER Per MANJUNATHA, G. A.M. This appeal is filed by the assessee is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-11, Hyderabad dated 09/10/2025 for the A.Y 2022-23.
The assessee has raised the following grounds of appeal:
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On the facts and circumstances of the case, Learned CIT(A) is not justified in not properly appreciating the provisions of Clause xii of explanation 1 to Section 153 and in consequence the Assessment Order passed by the Assessing Officer is barred by limitation as per the provisions of Section 153 of Income Tax act.
On the facts and circumstances of the case, Learned CIT(A) is not justified in dismissing the ground that issue of notice under Section 143(2) for the Asst Year 2022-23 which is bad in law and also notice U/s 143(2) issued is without Jurisdiction.
On the facts and circumstances of the case, Learned CIT(A) is not justified in dismissing the ground that the addition of Rs.96,66,667/- made by the Assessing Officer towards undisclosed business income arising out of the adjustment purchases transactions is not justified as per law and facts.
On the facts and circumstances of the case, Learned CIT(A) is not justified in dismissing the ground that the addition of Rs.96,66,667/- made by the Assessing Officer relying on the Seized Annexure A/EXG/LS/CO/6 which is downloaded from the personal mail of Sri Maheswara Rao without bringing the Corroborative evidence in support of the said annexure.
On the Facts and circumstances of the case, Learned CIT(A) is not justified in dismissing the ground that the Assessing Officer is not justified in making the addition of Rs.2,31,58,002/- towards undisclosed business income.
Any other ground or grounds that may be urged at the time of hearing of the appeal.”
The brief facts of the case are that the Assessee company is part of Exel group and was subjected to Search on 04.01.2023. The group consists of M/s Exel Rubber Private Limited, M/s Ace Tyres Private Limited and M/s Vilas polymers
Page 2 of 14 of 2025 Exel Rubber P Ltd 2022-23 private Limited. The Assessments were made for all three companies for 10 years for each company. Simultaneous search proceedings were also conducted in the residential premises of Sri Sanaka Ramesh Kumar, Sr. Accounts Manager who looks after the financial and accounting matters of M/s Exel Rubber group of business Concerns. During the course of Search in the residential premises of Sri Sanaka Ramesh Kumar, the department has found certain loose sheets, promissory notes and excel sheets and a del laptop were found and also seized. On verification of the laptop, it was found that there was FOCUS 5.5 software loaded in the laptop and some MS excel workbooks containing details of several hundreds of transactions representing receipts and payments in cash were found recorded for several financial years. Sri. Ramesh Kumar Sanka in his statement explained that the transactions recorded in the Focus 5.5 software is unaccounted receipts generated from sale of scrap, scrap of intermediate mixing products, scrap generated in packing products etc., This software also contains the expenditure incurred in cash for all the three companies put together specifically for the purpose of business. This software also includes loans given and repaid back and some contra entries etc., Based on the unaccounted transactions the MD of the group admitted unaccounted income of Rs.107.63 crores for the three companies put together. Out of such unaccounted income, an amount of Rs.39.25 crores pertained to the appellant company.
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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 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.2,31,58,002/- towards undisclosed income as per the transactions entered in FOCUS 5.5 software. The AO had also made addition of Rs.96,66,667/- towards undisclosed business income arising out of the adjustment purchase transactions.
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 Page 4 of 14 of 2025 Exel Rubber P Ltd 2022-23 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 dismissed the appeal filed by the assessee.
Aggrieved by the order of Learned CIT(Appeals) the appellant is 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 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
Page 5 of 14 of 2025 Exel Rubber P Ltd 2022-23 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) commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A of the Act and ending on the date on which the books of account or other documents or any money, bullion or jewellery or other valuable articles or thing seized under section 132 or requisitioned under section 132A of the Act, as the case may be are handed over to the A.O having the jurisdiction over the assessee shall be excluded. In the present case, as per the letter of the A.O, the seized material in the group was received by the A.O on 22/08/2023 and if we consider clause (xii) of Exp.(1) to section 153 of the Act, the period needs to be excluded for the purposes of computing the limitation is the period lost by the A.O in the process of receiving the books or other valuable articles from the A.O for the purpose of assessment and such exclusion to be made only in a case where
Page 6 of 14 of 2025 Exel Rubber P Ltd 2022-23 time taken by the A.O for handing over books. In the present case, the time limit for completing the assessment for the A.Y under consideration starts from 1/4/2023 and ended on 31/03/2024. Further, in the above 12-month period, the time taken by the A.O of the person searched for handing over the books and other valuable articles to the A.O of the assessee should be excluded not exceeding 180 days as per Explanation (1) to clause (xii) of section 153 of the Act. The search in the present case was on 4/1/2023 and the A.O received the seized material on 22/08/2023. The above period taken by the A.O of the searched person falls in two financial years i.e. from 4/1/2023 to 31/3/2023 falls in financial year 2022-23 and from 1/4/2023 to 22/08/2023 falls in financial year 2023-24. Since the limitation for passing the assessment order starts from 1/4/2023, whatever time lapsed by the A.O from 1/4/2023 alone needs to be excluded for the purpose of computing the limitation and if we exclude the said period from 1/4/2023 to 22/08/2023, then the A.O shall get exclusion of 144 days and if we add 144 days from 31/03/2024, the A.O shall get extension of time up to 22/08/2024 for passing the assessment order, whereas in the present case, the A.O has passed the assessment order on 24/07/2024 which is beyond the limitation provided under section 153 of the Act and thus, the assessment order passed by the AO is liable to be quashed. Therefore, he submitted that the assessment order passed by the A.O is barred by limitation and the same should be annulled.
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The Ld. CIT (DR), Dr. Narendra Kumar Naik, 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 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
Page 8 of 14 of 2025 Exel Rubber P Ltd 2022-23 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 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
Page 9 of 14 of 2025 Exel Rubber P Ltd 2022-23 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 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
Page 10 of 14 of 2025 Exel Rubber P Ltd 2022-23 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 2023-24. In the present case, admittedly, the limitation period for completing the assessment starts from 1/4/2023 and in fact the A.O had issued notice under section 143(2) of the Act on 20/06/2023. The time taken by the A.O for handing over the books of account and other materials from 4/1/2023 to 22/08/2023 is 231 days. As per clause (xii) of explanation (I) of section 153, the period taken by the A.O shall not exceed 180 days. As we have already noted in the earlier paragraphs of this order, Exp.(1) of clause (xii) is only an exclusion clause and therefore, whatever time lost by the A.O in the limitation period alone can be excluded for the purpose of computation of limitation period. In other words, if the time taken by the A.O from the date of search to the handing over of the books of account does not fall
Page 11 of 14 of 2025 Exel Rubber P Ltd 2022-23 under the limitation period, then obviously there is no inconvenience is caused to the A.O because of such proceeding and consequent handing over of the books of account and consequently, there is no question of exclusion of the period which is not covered in the limitation period. For example, if the search is conducted on 04/01/2022 and the books of account and other materials are handed over to the A.O on 22/08/2022, in such a situation, the A.O has lost the period from 04/01/2022 to 22/08/2022 and the entire period is not covered in the limitation period and therefore, the question of excluding the period not exceeding 180 days shall not arise. Suppose if the search is conducted on 25/03/2023 and the books of account are handed over on 30/09/2023, then the period not exceeding 180 days shall be excluded, because the entire period is covered under limitation period for the Assessment. Year 2022-23. However, in a situation like in the present case, if search is initiated on 4/1/2023 and the books of accounts are handed over on 22/08/2023, although the A.O had taken more than 180 days for handing over the books of accounts, but in view of clause (xii) of explanation (1) of section 153, the period not exceeding 180 days shall be excluded for the purpose of computing the limitation period. However, the fact remains that, in the present case, the period taken by the AO for handing over books of account is covered in two financial years, i.e. (1) from 4-1-2023 to 31-03-2023 in financial year 2022-23 and (ii) the period from 1-4-2023 to 22-08-2023 in financial year 2023- 24. Further, in the present case, for the Assessment. Year 2022-
Page 12 of 14 of 2025 Exel Rubber P Ltd 2022-23 23, limitation period starts from 1-4-2023. The time taken by the AO for handing over books of accounts to the AO of the assessee starting from 4/1/2023 to 31/03/2023 is not included in the above limitation period. Since, in the present case, the time taken by the A.O for handing over the books of account is not fully included in the limitation period, in our considered view, the period lost by the A.O in the process of receiving the books of account from the A.O and included in the limitation period alone should be excluded. Therefore, if we exclude the period lost by the A.O in the process of search and handing over the books of account, which is covered in the limitation period, then only the period starting from 1/4/2023 and up to 22/08/2023 shall alone be excluded for computing the limitation period. In the present case, the time limit for completion of the assessment is up to 31/03/2024 and the time lost by the A.O in the process of handing over the books of account by the A.O is 144 days from 1/4/2023 to 22/08/2023 and if we add 144 days from 31/03/2024, then the A.O shall get the time limit for passing the assessment order up to 22/08/2024, whereas the AO passed Assessment order on 27-09-2024. Since the A.O passed the assessment order on 27/09/2024, in our considered view, the assessment order passed by the A.O is clearly barred by limitation in view of specific provisions of clause (xii) of Explanation (1) to section 153 of the Act. Thus, we quash the assessment order passed by the A.O under section 143(3) of the I.T. Act, 1961 dated 27/09/2024. We order accordingly.
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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 Prasad / sps Copy to: S.No Addresses 1 M/s. EXEL RUBBER PRIVATE LIMITED SURVEY NO.315, 316 BACHUPALLY BACHUPALLY ,BACHUPALLY B.O MALLAMPET K.V.RANGAREDDY 500049 ,Telangana 2 Dy. CIT, Central Circle 1(2), Aayakar Bhavan, Basheerbagh, Opp: LB Stadium, Hyderabad 500004 3 Pr. CIT – Central, Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.02.18 RAO 12:00:15 +05'30'
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