ITAT Quashes Section 153A Assessment When Wrong Year Selected and Second Search Abates First

Introduction

The Income Tax Appellate Tribunal, Delhi Bench 'E', delivered a landmark ruling in the case of Amolak Singh Bhatia Vs DCIT, striking down an assessment order completed under Section 153A for Assessment Year 2020-21. The Tribunal held that the proceedings suffered from fundamental jurisdictional defects and were legally unsustainable on multiple grounds.

The key legal issue revolved around determining the proper assessment year for search proceedings and whether the issuance of a second search warrant effectively abated the first search operation, thereby rendering the use of materials from the first search impermissible.

Factual Background of the Search Operations

First Search Operation

The Income Tax Department initiated search proceedings under Section 132 of the Income Tax Act, 1961 against the Bhatia Group on 27th February 2020. The assessee's premises were included in this comprehensive search action. According to official records:

The final panchnama in relation to the assessee was executed on 1st March 2020. On the same date, a prohibitory order under Section 132(3) was issued concerning a wooden almirah at one of the premises.

Second Search Operation

Subsequently, the Deputy Director of Income Tax, Unit 1(4), New Delhi, lifted the prohibitory order on 20th November 2020. The Department recorded the assessee's statement under Section 132(4) on the same date. Following this, a fresh warrant of authorization was issued and executed on 21st November 2020.

Assessment Proceedings Timeline

• Transfer of Case: 20th January 2021 - Case transferred from Central Circle Bilaspur to Central Circle-8, Delhi via order under Section 127
• Original Return Filed: 17th March 2021 under Section 139 declaring income of Rs. 26,21,330
• Notice under Section 153A: 7th September 2021
• Revised Return: 24th January 2022 declaring income of Rs. 26,12,330
• Notice under Section 143(2): 2nd February 2022
• Assessment Order: 31st March 2022 under Section 153A read with Section 143(3)

The assessee challenged this assessment before the Commissioner of Income Tax (Appeals)-25, New Delhi, who dismissed the appeal vide order dated 28th March 2025.

Grounds of Appeal Before ITAT

The assessee raised multiple substantive grounds challenging the validity of the assessment proceedings:

Jurisdictional Challenge

The primary contention was that since the search was conducted on 27th February 2020 during Financial Year 2019-20, the relevant assessment year would be AY 2020-21, making it the "search year." For the search year itself, assessment should be framed under Section 143(3) of the Income Tax Act, 1961, not under Section 153A.

Limitation Period

The assessee argued that even assuming the validity of Section 153A proceedings, the assessment order was barred by limitation since:

1. It was dispatched on 1st April 2022, beyond the statutory deadline
2. The Document Identification Number (DIN) was generated only on 6th April 2022
3. The order was uploaded on the e-filing portal after 31st March 2022

Procedural Irregularities

Additional grounds included:

• Assessment order passed without mentioning DIN on its body
• Approval under Section 153D granted mechanically without proper application of mind
• Violation of principles of natural justice by denying cross-examination
• Reliance on inadmissible electronic data and statements

Merit-Based Challenges

The assessee contested additions made under:

• Section 69C - Rs. 55,00,00,000 as unexplained expenditure
• Section 69B - Rs. 3,00,000 and Rs. 1,75,000 as unexplained investments
• Section 69A - Rs. 57,53,000 as unexplained money

Assessee's Detailed Legal Arguments

Prohibition Order Lapsed Statutorily

The assessee's counsel comprehensively argued that the prohibitory order issued on 1st March 2020 could not extend the search timeline. Under Section 132(8A) of the Act, such orders automatically cease after 60 days, meaning the order lapsed on 30th April 2020.

Supporting case law included:

• Pr. CIT v. PPC Business & Products (P.) Ltd. [2017] 84 taxmann.com 10 (Delhi High Court)
• CIT v. D.D. Axles (P.) Ltd. [2010] 195 Taxman 277 (Delhi)
• CIT v. Deepak Aggarwal [2008] 175 Taxman 1 (Delhi)
• M/s. Polisetty Somasundaram Versus The Deputy Commissioner of Income Tax [2024] 115 ITR (Trib) 548 (ITAT Visakhapatnam)

The counsel emphasized that no reason regarding impracticability of seizure was recorded when passing the prohibitory order, making it invalid ab initio.

Unauthorized Officer Lifted Prohibition Order

Critically, the prohibition order was lifted by DDIT (Inv.) Unit 1(4), whereas the authorized officers in the original panchnama were DDIT (Inv.) Unit 3(3) and ITO (Inv.) Unit 2, Delhi. This unauthorized action vitiated subsequent proceedings.

Reliance was placed on:

• CIT v. Sandhya P. Naik [2002] 124 Taxman 384 (Bombay)
• DCIT CC-40, Mumbai Versus M/s. N.H. Securities Ltd. 2016 (5) TMI 788 (ITAT Mumbai)

No Fresh Seizure Upon Lifting Prohibition

The assessee argued that nothing new was seized when the prohibition order was lifted on 20th November 2020. The almirah had already been searched on 1st March 2020. Mere revisitation cannot postpone the search conclusion date.

Judicial precedents cited:

• PPC Business and Products (P.) Ltd. (supra)
• D.D. Axles (P.) Ltd. (supra)
• White & White Mineral (P.) Ltd. [2011] 12 taxmann.com 120 (Rajasthan)

Admission by Revenue Authorities

Significantly, both the Assessing Officer in the remand report and the CIT(A) in the appellate order acknowledged that AY 2020-21 was indeed the search year. The Assessing Officer admitted that the time limit for issuing notice under Section 143(2) had expired before issuing the Section 153A notice on 7th September 2021.

Meaning of "Made" Under Section 153B

The assessee extensively relied on judicial interpretations of when an order is deemed "made":

• Collector of Central Excise, Madras v. M/s M.M. Rubber and Co. [1991 AIR 2141] (Supreme Court)
• Smt. Mema Paul v. Income-tax Officer [2024] 164 taxmann.com 778 (Manipur High Court)
• Instrumentation Laboratory India Pvt. Ltd. v. DCIT 2024 (4) TMI 925 (ITAT Delhi)

These judgments establish that an order is "made" only when issued/dispatched to the assessee, not merely when signed internally.

DIN Generated in Subsequent Financial Year

The Document Identification Number reflected in the assessment order was ITBA/AST/M/1/153A/2022-23/104255229(1), clearly showing generation in FY 2022-23, i.e., after 31st March 2022.

The counsel cited Acropolis Realty (P.) Ltd. v. ITO [2024] 168 taxmann.com 406 (Delhi), where the Delhi High Court held:

"In the present case, the impugned notice was digitally signed on 01.04.2023. Thus, the process of digitally generating the same on the system was completed on 01.04.2023. Plainly, the impugned notice could not have been issued prior to the same being signed."

Search Year Cannot Be Assessed Under Section 153A

The statutory framework of Section 153A provides for assessment of six years preceding the search year and relevant assessment years up to ten years. Notably, it does not provide for framing assessment of the search year itself under this provision.

Tribunal decisions supporting this position: