ITAT Hyderabad Quashes Section 153C Assessments for AYs 2018-19 to 2020-21: Limitation Breach Under Section 153B and Invalid Satisfaction Note
Background and Overview
The Income Tax Appellate Tribunal, Hyderabad Bench, recently disposed of three consolidated appeals filed by M/s. Expressway Services Pvt. Ltd. for Assessment Years 2018-19, 2019-20, and 2020-21. The appeals arose out of assessment orders framed under Section 153C of the Income Tax Act, 1961, following a search and seizure operation conducted under Section 132 at the premises of M/s. Prathima Infrastructure Pvt. Ltd. and its associated group entities. Since the factual matrix and legal issues were common across all three years, the Tribunal addressed them through a single consolidated order.
The assessee, engaged in civil construction and manpower supply to construction companies, had filed its return of income for AY 2018-19 declaring total income of Rs. 5,53,43,355/-. The search was carried out on 06.02.2020, and following centralization of the case with Central Circle-2(4), Hyderabad, a notice under Section 153C was issued on 12.11.2021.
Additions Made by the Assessing Officer
During the assessment proceedings, the Assessing Officer observed that the assessee had received sub-contract work from M/s. Prathima Infrastructure Pvt. Ltd. and had further sub-contracted a significant portion of that work to various sub-contractors. Payments to these sub-contractors ranged from Rs. 1.70 crores to Rs. 1.95 crores per contractor. Based on statements recorded during the search, the AO concluded that several of these sub-contractors had not actually performed any work. Many were found to be employees or persons connected to the Prathima Group. Amounts credited to their bank accounts were allegedly withdrawn in cash and returned to the assessee, suggesting that the sub-contract arrangements were accommodation entries aimed at suppressing taxable income.
On this basis, the AO made two principal additions:
- Estimated commission income at 1% of gross receipts of Rs. 33,97,93,935/-, resulting in an addition of Rs. 33,97,939/-
- Cash alleged to have been returned by sub-contractors, treated as income of the assessee at Rs. 7,32,95,000/-
The assessment for AY 2018-19 was completed under Section 153C, fixing the total income at Rs. 13,20,36,294/- against the declared income of Rs. 5,53,43,355/-.
Proceedings Before CIT(A)
Before the Commissioner of Income Tax (Appeals), the assessee raised multiple contentions — including that the assessment was time-barred under Section 153B, that jurisdiction under Section 153C was invalidly assumed, and that the additions were unsustainable for want of corroborative evidence.
The CIT(A) rejected the limitation challenge and upheld the AO's jurisdictional assumption under Section 153C. On merits, however, the CIT(A) deleted the estimated commission addition of Rs. 33,97,939/-, holding that since the assessee had already disclosed net profit on overall turnover, estimating an additional 1% commission would result in double taxation of the same income. The addition of Rs. 7,32,95,000/- towards alleged cash receipts from sub-contractors was confirmed, with the CIT(A) placing reliance on statements of sub-contractors, the accountant's sworn admission, common IP addresses used to file sub-contractors' returns, and the uniformity of running bills and measurement bills.
Aggrieved by the partial confirmation of additions and the rejection of preliminary legal challenges, the assessee preferred further appeal before the Tribunal.
Issue 1: Whether the Assessments Were Barred by Limitation Under Section 153B
Assessee's Contention on Limitation
The assessee's counsel submitted that the search in the case of M/s. Prathima Infrastructure Pvt. Ltd. was finally concluded on 12.02.2020, as evidenced by the last panchanama drawn in its case. Since the Assessing Officer of the searched person and the assessee was one and the same — DCIT, Central Circle-2(4), Hyderabad — the alternative limb of the limitation provision relating to handing over of seized material to a different AO was inapplicable. Accordingly, the limitation period was to be computed as 12 months from the end of Financial Year 2019-20, i.e., up to 31.03.2021. Further, in view of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and CBDT Notification Nos. 10/2021, 38/2021, and 74/2021, this deadline stood extended to 30.09.2021. Since the assessment orders were passed on 28.03.2022, they were clearly beyond the permissible time limit and liable to be quashed.