ITAT Delhi Invalidates Section 153A Assessment for AY 2010-11 Beyond 10-Year Search Block and Cancels Penalties

1. Background of the Litigation

A group of appeals came up before the Income Tax Appellate Tribunal, Delhi Bench, arising out of search assessments and penalty orders for Assessment Year (AY) 2010-11. The assessees had been subjected to search and seizure operations, and assessments were framed under Section 153A of the Income Tax Act, 1961 (“the Act”), followed by imposition of penalties under Section 271A and Section 271B.

The central dispute before the Tribunal revolved around:

  • Whether AY 2010-11 could legally fall within the permissible ten-year block period for framing assessments under Section 153A, and
  • Whether penalties under Section 271A and Section 271B could survive once the Section 153A assessment itself was found to be invalid.

The primary appeal was in the case of Nitish Kumar Nagar Vs JCIT(OSD), along with appeals in the case of Rekha Nagar, all relating to AY 2010-11.

2. Search, Centralisation, and Initiation of Section 153A Proceedings

2.1 Search and Execution of Warrants

  • A search and seizure operation under Section 132 was carried out on the group of Sh. Mahesh Nagar and his associates on 04.03.2020.
  • In the case of the present assessees, the last warrant of authorization was executed on 05.11.2020.
  • Post search, the cases were centralized, and notices under Section 153A were issued for multiple years, including AY 2010-11.

2.2 Issue of Section 153A Notice and Return Filing

For Nitish Kumar Nagar:

  • The original return for AY 2010-11 had been filed on 15.03.2011, declaring income of ₹15,25,410.
  • A notice under Section 153A dated 24.08.2021 was issued, requiring filing of return for AY 2010-11 as one of the ten assessment years preceding the assessment year in which search was conducted.
  • No return was initially filed in response to the Section 153A notice. Subsequently, in response to a notice under Section 142(1), a return was filed on 03.02.2022, again declaring income of ₹15,25,410.
  • The Assessing Officer completed the assessment under Section 153A on 31.03.2022, determining total income at ₹5,74,71,390.

The CIT(A) upheld the assessment, following which the assessee approached the ITAT.

Similarly, in the case of Rekha Nagar, assessment was framed under Section 153A for AY 2010-11 at a substantially enhanced income as compared to the originally returned income of ₹3,00,070.

3. Issues Raised in the Appeals

While the assessees had taken several factual and legal grounds, the Tribunal focused on a foundational jurisdictional challenge:

  1. Lack of jurisdiction under Section 153A for AY 2010-11 on the ground that it fell outside the statutorily permissible ten-year block in terms of Explanation 1 to Section 153A.
  2. Absence or invalidity of approval under Section 153D (raised but not adjudicated after the main ground succeeded).
  3. Various additions on merits, such as:
    • Treatment of profits from sale of agricultural land as business income without allowing cost of acquisition,
    • Unexplained investments under Section 69,
    • Unexplained money under Section 69A,
    • Denial of agricultural income exemption,
    • Disallowance of commission expenditure, and
    • Denial/disallowance of deductions under Chapter VI-A and under Section 24(a) and Section 24(b).
  4. Validity of penalties:
    • Section 271B penalties for alleged failure to get accounts audited,
    • Section 271A penalties for alleged non-maintenance of books of account.

However, the Tribunal first examined whether the very initiation of Section 153A proceedings for AY 2010-11 was legally sustainable.

4.1 Core Contention of the Assessees

The assessees argued that: