Assessment order under Section 153C quashed for exceeding limitation period, Section 148 proceedings to continue per Abhisar Buildwell precedent

The Madras HC quashed an assessment order passed under Section 153C of the IT Act, ruling that proceedings under Section 148 initiated against the petitioner could not abate due to the subsequent Section 153C notice. The court found the Section 153C proceedings were incorrectly initiated as they fell outside the prescribed limitation period. Following the Abhisar Buildwell precedent, the court directed completion of the original Section 148 reassessment proceedings within statutory timelines, excluding the time period between Section 153C initiation and receipt of this order's certified copy.

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Issues Involved:
1. Legality of the Impugned Order under Section 143(3) read with 153C of the Income Tax Act, 1961.
2. Validity of proceedings initiated under Section 148 of the Income Tax Act, 1961.
3. Assessment of "undisclosed income" based on evidence from search proceedings.

Summary:

1. Legality of the Impugned Order under Section 143(3) read with 153C of the Income Tax Act, 1961:
The petitioner challenged the Impugned Order dated 31.03.2023, which added a sum of Rs. 299,21,80,940/- as "undisclosed income" for the Assessment Year 2015-2016. The court found that the information gathered by the Department pertained to financial years 2015-2016 to 2020-2021, not the financial year 2014-2015 (Assessment Year 2015-2016). There were no documents showing transactions between the petitioner and the "searched person" during the relevant period. Thus, the invocation of Section 153C for the Assessment Year 2015-2016 was not justified.

2. Validity of proceedings initiated under Section 148 of the Income Tax Act, 1961:
The court noted that the proceedings initiated under Section 148 on 30.03.2021 could abate due to the notice issued under Section 153C on 20.03.2022, provided there was incriminating material for the relevant Assessment Year. The court held that the proceedings under Section 148, which stood abated due to the incorrect trajectory of Section 153C proceedings, would revive. The reassessment proceedings under Section 148 were directed to be completed in accordance with the law.

3. Assessment of "undisclosed income" based on evidence from search proceedings:
The search proceedings against M/s. Mohanlal Jewellers (P) Ltd led to the recording of statements and seizure of documents indicating unaccounted transactions. However, these documents and statements did not pertain to the financial year 2014-2015. The court emphasized that for completed/unabated assessments, no addition could be made without incriminating material found during the search. The reassessment proceedings under Section 148 were to be completed as per the guidelines provided in Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell (P.) Ltd.

Conclusion:
The Impugned Order dated 31.03.2023 was quashed. The reassessment proceedings initiated under Section 148 were directed to be completed within the timelines provided under Section 153(2) of the Income Tax Act, 1961, excluding the time between the initiation of proceedings under Section 153C and the receipt of the certified copy of this order. The writ petition was disposed of with these observations and directions.

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