2025 (7) TMI 1098 - AT - Income Tax

Validity of assessment orders as barred by limitation u/s 153B - validity of restraint order u/s 132(3) - provisions regarding restraint orders and limitation periods - HELD THAT - In the visit pursuant to the restraint order there was a seizure. However nothing new was found so as to constitute the visit as a Search. The facts recorded in the Panchnama clearly exhibit that there was no search conducted on 24.05.2021. This is because everything had already been searched out and found and there was nothing further to be searched and found. On 24.05.2021 the search team merely visited the premises went straight to the Prakash Nair cabin wherein they had put the things and locked it on 26.03.2021 on the strength of a restraint order issued u/s 132(3) of the Act. Even Restraint Order u/s 132(3) is bad in law as the same is in violation of the provisions of Section 132(3) of the Act. As Section 132(3) provides that a restraint order can be passed if it is not practicable to seize something for reasons other than those mentioned in the second proviso to section 132(1). This means that the decision to seize has already been taken only it is not practicable to seize. In the case of the Appellant the order passed under section 132(3) does not specify any reason why the things could not be seized on 26.03.2021. Out of 4 things placed under restraint 200 SIM Cards were seized and backup of one server was taken on 24.05.2021. Thus such an order does not extend the search thus has been held in the case of Om Parkash Jindal vs Union of India 1975 (7) TMI 49 - PUNJAB AND HARYANA HIGH COURT Even in the present case no reason has been recorded that ingredients of Section 132(3) are satisfied. No reason has been given for the gap in the search from 26/3/2021 till 24/5/2021. Hence in our considered view the Panchnama dated 24/5/2021 cannot be accepted as a last drawn Panchnama so as to extend the period of limitation. Therefore taking into consideration the entire facts and circumstance and also the decisions as discussed by us above the period of limitation is crystallised when the search ends. The exclusions as prevailing on that day can only apply. Thus a vested right to obtain the Assessment order by a particular date is created at the end of Search. Thus in the facts of the present case as Search commenced and concluded prior to 1/4/2021 and also Asst Year 2021-2022 is not involved therefore clause (xi) in Section 153B cannot be applied. Even in the case of Ismail Khan the Panchnama dated 25/3/2021 states that the Search is concluded There is no restraint order passed u/s 132(3). Therefore the last date to pass the Assessment Order is 31/3/2022. Hence the Assessment orders passed are barred by limitation. We conclude that the search in the present case was in fact concluded on 26.03.2021 and the restraint order dated 26.03.2021 was in valid and the panchanama dated 24.05.2021 was not a valid panchanama evidencing the conclusion of search u/s 132 of the Act but was taken to inspection therefore we are of the view that restraint order passed in the present case will not extent the period of limitation for completing the assessment. As the last valid panchanama is dated 26.03.2021 and consequently the impugned assessment orders are barred by limitation u/s 153B of the Act. Thus we allow this ground raised by the assessee and quashed the assessment as being time barred.

Summary

ISSUES:

Whether the assessment orders passed under section 153A of the Income Tax Act, 1961 are barred by limitation due to the date of conclusion of search and seizure proceedings.Whether the restraint order issued under section 132(3) of the Income Tax Act extends the time limit for completion of assessment proceedings.Validity and legal effect of the Panchnama dated subsequent to the initial search, particularly whether a Panchnama drawn pursuant to a restraint order can be treated as the last Panchnama for limitation purposes.Whether the restraint order under section 132(3) was validly passed, including the requirement to record reasons and the practical difficulty in seizing items.Applicability of CBDT Circulars and instructions vis-à-vis statutory provisions governing restraint orders and limitation periods.Applicability of Explanation (xi) to section 153B relating to exclusion of period from commencement of search till handing over of seized materials for computing limitation.

RULINGS / HOLDINGS:

The assessment orders passed beyond the limitation period are barred by limitation as the last valid Panchnama evidencing conclusion of search was dated 26/03/2021; the subsequent Panchnama dated 24/05/2021 pursuant to the restraint order is not relevant for limitation computation.The restraint order under section 132(3) does not extend the time limit for completion of assessment proceedings; "by passing a restraint order, the time limit available for framing of the Assessment order cannot be extended."The Panchnama drawn on 24/05/2021 was a mere inspection pursuant to the restraint order and did not constitute a fresh search or conclusion of search; therefore, it cannot be considered as the last Panchnama for limitation purposes.The restraint order under section 132(3) was invalid as it was passed without specifying any practical difficulty in seizing the items on 26/03/2021, contrary to statutory requirements and judicial precedents.CBDT Circulars and instructions cannot override the statutory provisions of the Income Tax Act; therefore, the instruction requiring lifting of restraint order within one month is not binding if contrary to section 132(8A) which limits restraint order duration to 60 days.Explanation (xi) to section 153B, inserted w.e.f. 01/04/2021, is prospective and not applicable to searches conducted prior to that date; hence, exclusion of period for handing over seized materials cannot be applied in the present case.

RATIONALE:

The Court applied the statutory framework under sections 132, 153A, 153B, and 158BE of the Income Tax Act, 1961, focusing on the definitions of "search," "restraint order," and the computation of limitation periods based on the last Panchnama drawn.Judicial precedents relied upon include C. Ramaiah Reddy v. ACIT (2011), CIT v. Sandhya P. Naik (2002), PEIT v. PPC Business & Products (2017), Om Parkash Jindal v. Union of India (1976), Dr. C. Balkrishnan Nair v. CIT (1999), Maa Vaishnavi Sponge Ltd v. DGIT (2012), CIT v. S.K. Katyal (2009), VLS Finance Ltd. v. CIT (2016), Anil Minda v. CIT (2023), and Polisetty Somasundaram v. DCIT (2023).The Court emphasized that the search is continuous and concludes when the search party leaves the premises with seized material; a restraint order under section 132(3) is only permissible when there is a practical difficulty in seizing items and does not extend the search or limitation period.The Court rejected the Department's reliance on the later Panchnama and the CBDT Circular, holding that statutory provisions prevail over administrative instructions and that the restraint order must be justified with reasons recorded in writing.The Court distinguished the facts of VLS Finance Ltd. and Anil Minda cases, noting that those decisions involved continuous searches with multiple Panchnamas, unlike the present case where the subsequent visit was not a fresh search but an inspection under an invalid restraint order.The Court followed the reasoning in Agni Estates and Foundations (P.) Ltd. v. DCIT (2023) regarding the prospective applicability of Explanation (xi) to section 153B and limitation computation.The Court found the restraint order and subsequent Panchnama invalid for failing to comply with statutory requirements and for being used as a ruse to extend limitation unlawfully.As a consequence, the assessment orders passed beyond the limitation period were quashed, rendering other grounds of appeal academic.