Search limitation and third-party material: panchanama timing, corroboration requirements, and infrastructure deduction for subcontract work

In search assessments, limitation under section 153B is linked to the conclusion of search in the assessee's own panchanama, even where a joint warrant covers multiple persons; the assessments were therefore treated as time-barred. Additions based on third-party electronic records, loose sheets, WhatsApp messages and similar material were held unsustainable without independent corroboration, proof of ownership, and a demonstrated nexus or flow of funds to the assessee. Deduction under section 80IA(4) was also recognised for infrastructure work executed as a subcontractor, the governing test being the nature of the work rather than the formal chain of contract.

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Issues: (i) Whether the assessments framed under section 143(3) read with section 153A were barred by limitation under section 153B in a joint warrant search, (ii) whether additions based on electronic material, loose sheets, cash scrolls, WhatsApp messages and other third-party documents retrieved from the email or mobile account of a person associated with the assessee could be sustained without corroboration and nexus, and (iii) whether deduction under section 80IA(4) was allowable to the assessee in respect of infrastructure contracts executed as a subcontractor.

Issue (i): Whether the assessments framed under section 143(3) read with section 153A were barred by limitation under section 153B in a joint warrant search.

Analysis: The limitation under section 153B is computed from the end of the financial year in which the last of the authorisations was executed, and execution in a search case is linked to the conclusion of search as recorded in the last panchanama drawn in relation to the person concerned. Section 292CC permits a joint warrant, but assessment has to be made separately in the name of each person mentioned in the authorisation. The search in the assessee's case stood concluded on the date recorded in the assessee's own panchanama, and not on the later date of conclusion in the case of other persons covered by the same joint warrant. The extended limitation under the COVID relaxation provisions did not rescue the assessments, which were completed beyond the permissible period.

Conclusion: The assessments were time-barred and were rightly quashed.

Issue (ii): Whether additions based on electronic material, loose sheets, cash scrolls, WhatsApp messages and other third-party documents retrieved from the email or mobile account of a person associated with the assessee could be sustained without corroboration and nexus.

Analysis: The disputed additions were founded on material recovered from the personal email account or mobile device of a third party associated with the assessee, or on loose sheets and electronic records that did not themselves establish ownership, actual payment, or a direct link with the assessee. In several instances, the person from whose device the material was recovered was independently engaged in other business activity, and the documents either pre-dated his association with the assessee or contained personal and mixed entries. The Revenue did not conduct independent enquiries to establish the flow of funds, did not produce corroborative evidence, and relied substantially on unverified notings or initial statements recorded during search. Where the documents were only preliminary workings, dumb documents, or uncorroborated chats, they could not by themselves justify additions or estimation of income.

Conclusion: The additions on this account were unsustainable and were deleted.

Issue (iii): Whether deduction under section 80IA(4) was allowable to the assessee in respect of infrastructure contracts executed as a subcontractor.

Analysis: The assessee was engaged in execution of infrastructure development projects and the controversy turned on whether subcontract execution disentitled it from the statutory benefit. The issue had already been decided in the assessee's favour in its own case on similar facts, and the same binding reasoning was followed. The nature of the work, rather than the form of the contractual chain, governed eligibility, and the Revenue's attempt to distinguish the claim on the ground that the contracts were not directly awarded to the assessee was not accepted.

Conclusion: The deduction under section 80IA(4) was allowable and the Revenue's challenge failed.

Final Conclusion: The search assessments did not survive on limitation, the impugned additions based on uncorroborated third-party material were deleted, and the assessee's claim for infrastructure deduction was sustained, resulting in complete success for the assessee and failure of the Revenue's appeals.

Ratio Decidendi: In a search assessment, limitation under section 153B must be reckoned with reference to the conclusion of search in the assessee's own panchanama, and additions cannot be made solely on uncorroborated third-party electronic or loose-sheet material without establishing ownership, nexus and actual flow of funds.

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