Controversy in computing the period of limitation to frame search assessments

Introduction

The period of limitation for completion of assessment u/s 153A of the Income Tax Act'1961 for the searches conducted on or before 31^st Day of March'2021 is governed by the provisions of Section 153B of the act. Even though Section 153A of the Income Tax Act'1961 has been made non-applicable for the searches initiated on or after the 1^st Day of April'2021, the issue is still having vide ramifications for the searches conducted on or before the 31^st Day of March'2021.

For the sake of brevity, the relevant extract provisions of Section 153B of the act are reproduced herein below:-

"Time limit for completion of assessment under section 153A.

153B. (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,—

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(2) The authorisation referred to in clause (a) and clause (b) of sub-section (1) shall be deemed to have been executed,—

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"

The perusal of the relevant part of Section 153B of the act divulges that:-

a. in respect of each assessment year falling within six assessment years and for the relevant assessment year or years] referred to in clause (b) of sub-section (1) of section 153A and

b. in respect of the assessment year relevant to the previous year in which search is conducted under section 132,

The Assessing Officer shall make an order of assessment or reassessment within a period of twenty-one months (*) from the end of the financial year in which last of the authorization for search was executed.

By virtue of deeming provision in shape of 153B (2) of act, it is laid down in the statute that last of the authorization shall be deemed to be executed on the conclusion of search as recorded in the last panchnama.

* The period of 21 months have been further reduced to 18 months and 12 months , if search is executed during Financial Year commencing on the 1^st Day of April'2018 and 1^st Day of April'2019 respectively.

Issue and Analysis

The law as contained in Section 153B(1) and 153B(2), particularily the interpretation of the term used "last authorization" , "conclusion of search" and "last panchnama" and its connected interplay has drawn varied conflicting interpretations and controversy thereby having an important bearing on the period of limitation within which the assessments u/s 153A of the act have to be framed pursuant to a search action u/s 132 of the act. The conflict primarily arises when the execution of authorizations or panchnama falls in two different financial years.

A matrix is hereby prepared putting forth illustrative different scenario(s) in a search action:-

Scenario I: Single warrant of authorization issued dated 09-03-2020 in case of Mr. X

Under this scenario, there can be sub-classifications as under:

Scenario I(a): Single warrant of authorization issued dated 09-03-2020 in case of Mr. X. The search commenced on on 09-03-2020 and search temporary concluded on 10-03-2020 with a prohibitory order (PO) in respect of an almirah u/s 132(3) of the act. 1^st Panchnama drawn on 10-03-2020 showing search as temporary concluded due to PO. The first panchnama also recorded inventory of items seized.

On 02-04-2020, the PO was operated under the same warrant of authorization dated 09-03-2020, with no seizure on account of operation of PO. 2nd Panchnama drawn on 02-04-2020 showing search as concluded. The second panchnama recorded no seizure.

In this scenario, the question arises so far as for the purposes of calculation of limitation u/s 153B, which panchanam should be taken into consideration the 1^st one or the 2^nd one since no seizure has been made in the 2^nd panchnama and a plea may be raised by the person searched citing judicial precedents that the PO has been made only for extension of time limitation by shifting the year.

Scenario I(b): Single warrant of authorization issued dated 09-03-2020 in case of Mr. X. The search commenced on on 09-03-2020 and search temporary concluded on 10-03-2020 with a prohibitory order (PO) in respect of an almirah u/s 132(3) of the act. 1^st Panchnama drawn on 10-03-2020 showing search as temporary concluded due to PO. The first panchnama also recorded inventory of items seized.

On 02-04-2020, the PO was operated under the same warrant of authorization dated 09-03-2020, with seizure on account of operation of PO in shape of jewellery. 2nd Panchnama drawn on 02-04-2020 showing search as concluded. The second panchnama recorded seizure of jewellery.

In this scenario, also the question arises so far as for the purposes of calculation of limitation u/s 153B, why should date of 1^st panchnama should only be considered ignoring the 2^nd panchnama by relying on the decision of the Hon'ble Karnataka High Court in case of C. Ramaiah Reddy v. Asstt. CIT [2012] 20 taxmann.com 781/[2011] 339 ITR 210. The same is discussed in the latter part of this article.

Scenario II: Multiple warrants warrant of authorization issued dated 09-03-2020 and second warrant dated 15-3-2020 in case of Mr. X

Under this scenario, there can be sub-classifications as under:-

Scenario II(a)

In this scenario, the question arises so far as for the purposes of calculation of limitation u/s 153B, which authorization and panchanam should be taken into consideration. As per the mere reading of Section 153A(1) read with 153(2), the last panchnama of last authorization should be considered i.e. panchnama dated 15-03-2020. But if such an interpretation is applied, the provisions of the scheme of law can be rendered as otiose since effective seizure has been made by virtue of execution of 1^st Authorization in shape of 2^nd panchnama dated 10-04-2020. There are numerous judicial decisions in favour of this proposition as discussed in the latter part of this article.

Scenario II(b)

In this scenario also the question arises so far as for the purposes of calculation of limitation u/s 153B, as to why the period of limitation should not be reckoned from 10-04-2020 when the search have been stretched till 10-04-2020.

Therefore, undoubtedly these scenarios as discussed above suggest that the issue of calculation of limitation period for framing assessments can be a challenging one owing to conflicting judicial decisions and interpretations which is discussed in this article at relevant places.

Going further into the discussion, the provisions of Section 153B(1) of the act requires the Assessing Officer to frame the assessment within 21 months from the date from the end of the financial year in which the last of the authorizations was executed as per Section 132 of the Act. The authorization mentioned in Section 153B is deemed to have been executed when the last panchnama is drawn in relation to any person in whose case the warrant of authorization has been issued. This is in terms of Section 153B (2) (a) of the Act.

The word 'panchnama' is not defined in the Act. Even the Code of Criminal Procedure, 1973, the provisions of which relating to search and seizure have been made applicable to the searches and seizures under Section 132 of the Act, does not define the said word. It, however, prescribes the format in which the panchnama is required to be drawn up.

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