2026 (2) TMI 1233 - AT - Income Tax

Search-to-handover exclusion applies only to the portion within the limitation period, so assessments beyond recalculated limitation are time-barred.

Clause (xii) of Explanation (1) to Section 153 permits exclusion of the search-to-handover interval only to the extent that that interval falls within the ... Assessment order passed u/s 143(3) - period of limitation in view of Section 153 - search and seizure u/s 132 - period lost by the A.O in the process of search and handing over the books of account - exclusion of the period (not exceeding 180 days) taken by the officer of the searched person to hand over seized material HELD THAT:- As in the present case, the period taken by the AO for handing over books of account is covered in two financial years, i.e. (1) from 4-1-2023 to 31-03-2023 in financial year 2022-23 and (ii) the period from 1-4-2023 to 22-08-2023 in financial year 2023-24. As in the present case, for the AY 2022- 23, limitation period starts from 1-4-2023. The time taken by the AO for handing over books of accounts to the AO of the assessee starting from 4/1/2023 to 31/03/2023 is not included in the above limitation period. Since, in the present case, the time taken by the A.O for handing over the books of account is not fully included in the limitation period, in our considered view, the period lost by the AO in the process of receiving the books of account from the AO and included in the limitation period alone should be excluded. Therefore, if we exclude the period lost by the A.O in the process of search and handing over the books of account, which is covered in the limitation period, then only the period starting from 1/4/2023 and up to 22/08/2023 shall alone be excluded for computing the limitation period. In the present case, the time limit for completion of the assessment is up to 31/03/2024 and the time lost by the A.O in the process of handing over the books of account by the A.O is 144 days from 1/4/2023 to 22/08/2023 and if we add 144 days from 31/03/2024, then the A.O shall get the time limit for passing the assessment order up to 22/08/2024, whereas the AO passed Assessment order on 27-09-2024. Since the A.O passed the assessment order on 27/09/2024, in our considered view, the assessment order passed by the A.O is clearly barred by limitation in view of specific provisions of clause (xii) of Explanation (1) to section 153 of the Act. Thus, we quash the assessment order passed by the A.O under section 143(3) of the I.T. Act, 1961 dated 27/09/2024. Appeal of the assessee is allowed. Issues: Whether the assessment order dated 27/09/2024 passed under Section 143(3) of the Income-tax Act, 1961 for A.Y. 2022-23 is barred by limitation under Section 153(1) read with Clause (xii) of Explanation (1) to Section 153 of the Income-tax Act, 1961.Analysis: The statutory time limit for completion of assessment for the relevant A.Y. is governed by Section 153(1) and the fourth proviso reducing the period to twelve months for A.Ys commencing on or after 1.4.2022. Clause (xii) of Explanation (1) to Section 153 permits exclusion, not exceeding 180 days, of the period commencing from the date of a search under Section 132 until the date on which the seized books or documents are handed over to the assessing officer having jurisdiction over the assessee. The exclusion applies only to that portion of the period which falls within the assessee's limitation period; time lost outside the limitation period is not automatically excluded. In the instant facts, the search commenced on 04/01/2023 and seized material was handed over on 22/08/2023. The limitation period for the assessment began on 01/04/2023 and ended on 31/03/2024. Only the period from 01/04/2023 to 22/08/2023 (144 days) falls within the limitation period and is therefore eligible for exclusion under Clause (xii), subject to the 180-day cap. Applying that exclusion to 31/03/2024 extends the limitation to 22/08/2024; the assessment dated 27/09/2024 therefore falls beyond the computed limitation and is time-barred.Conclusion: The assessment order dated 27/09/2024 under Section 143(3) is barred by limitation and is quashed; the appeal is allowed in favour of the assessee.Ratio Decidendi: For assessments where a search under Section 132 has taken place, Clause (xii) of Explanation (1) to Section 153 of the Income-tax Act, 1961 allows exclusion of only that portion of the search-to-handover period which falls within the assessee's statutory limitation period (subject to the 180-day maximum); exclusion is not available for periods outside the limitation period, and an assessment passed after the recalculated limitation is time-barred.