Assessment orders quashed as time-barred under Section 153B after invalid restraint order failed to extend limitation period

ITAT Mumbai held that assessment orders were barred by limitation under Section 153B. The tribunal found that a search concluded on 26.03.2021, but authorities issued an invalid restraint order under Section 132(3) and conducted a subsequent visit on 24.05.2021. The restraint order was deemed invalid as it failed to specify reasons why items couldn't be seized initially, violating Section 132(3) requirements. The panchnama dated 24.05.2021 was not accepted as evidence of search conclusion since no actual search occurred - authorities merely visited premises to access previously restrained items. The tribunal ruled that limitation period crystallizes when search ends, and subsequent invalid restraint orders cannot extend this period. Since the valid search concluded on 26.03.2021, assessment orders passed beyond the statutory limitation period were quashed as time-barred.

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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.

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