2015 (12) TMI 627 - HC - Income Tax

Validity of assessment under section 153A - whether the assessments were completed within the time stipulated therein? - Held that - In the present case, as noted by the ITAT, there is only one authorisation which was issued on 20th March 2007. The panchnama drawn up on 23rd March 2007 shows that the search that commenced on that date i.e., 23rd March 2007 stood finally concluded on that date itself. It appears that no further authorisation had been issued for the search of the Assessees who are the Respondents in these appeals. Consequently, the Revenue cannot take advantage of the restraint orders passed in respect of other persons in order to seek extension of the time period for completion of the assessment proceedings in terms of Section 153B qua the Respondent Assessees herein. Even assuming that the restraint orders were validly passed, once the search stood concluded on 23rd March 2007 in respect of these Assessees, in the absence of a fresh authorisation for another search, the time period for conclusion of the assessment in terms of clause (i) of the second proviso to Section 153 B (1) of the Act does not get extended only because their names were included in the panchnama drawn up on 15th May 2007. It is possible that their names were included in the said panchnama drawn up on 15th May 2007 in order to avoid the consequence of expiry of the period of limitation which, as far as these Assessees are concerned, commenced on 23rd March 2007, when the search finally concluded . Thus the impugned order of the ITAT, holding that the assessments in question were barred by limitation, and therefore liable to be quashed, does not call for any interference. - Decided against revenue.

Summary

Issues:
1. Assessment completion time under Section 153B of the Income Tax Act.
2. Validity of restraint orders and their impact on assessment completion time.
3. Presence of incriminating material for assessment validity.

Issue 1: Assessment Completion Time under Section 153B:
The appeals by the Revenue under Section 260A of the Income Tax Act, 1961 challenged the order passed by the Income Tax Appellate Tribunal (ITAT) for the Assessment Years 2001-02 to 2007-08. The crux of the matter revolved around whether the assessments were completed within the stipulated time under Section 153B. The Assessees contended that the assessments should have been completed by 31st December 2008 but were finalized on 31st December 2009, beyond the prescribed twenty-one months period. The Revenue argued that the search did not conclude on 23rd March 2007 but on 15th May 2007 due to restraint orders. The ITAT, citing precedents, emphasized that passing a restraint order does not extend the assessment completion time. It highlighted that if all search actions were completed, the officer's action under Section 132(3) would be illegal. The ITAT concluded that the last panchnama prepared for the last authorization would be relevant for computing the limitation period.

Issue 2: Validity of Restraint Orders and Their Impact:
The ITAT noted that the search concluded on 23rd March 2007, and since no fresh authorization was issued for another search, the time period for assessment conclusion did not extend, even if the Assessees' names were included in a panchnama on 15th May 2007. The court held that the Revenue could not use restraint orders passed for other persons to extend the assessment period for the Respondent Assessees. Even if the restraint orders were valid, without a fresh authorization, the assessment period did not extend. The ITAT's decision to invalidate the assessments due to the absence of incriminating material found during the search was upheld.

Issue 3: Presence of Incriminating Material for Assessment Validity:
The ITAT invalidated the assessments due to the absence of incriminating material found against any of the Respondents/Assessees during the search. Citing a previous court decision, it emphasized that without incriminating material, assessment under Section 153A or 153C of the Act would not be valid. Notably, the Revenue did not contest the absence of incriminating material against J.H. Finvest Pvt. Ltd. The court dismissed the appeals, stating that no substantial question of law arose from the ITAT's order.

In conclusion, the High Court upheld the ITAT's decision, emphasizing the importance of adhering to the prescribed timelines for assessments, the necessity of incriminating material for valid assessments, and the limitations on extending assessment periods based on restraint orders.