Second Search Abates Pending Assessment Proceedings; Subsequent Orders Time-Barred If Passed Beyond Limit Calculated From Second Search Date: ITAT Ahmedabad - 2025-08-11

ITAT Quashes Assessment Orders, Citing Second Search Abated Original Proceedings

Ahmedabad: In a significant ruling on the complexities of overlapping tax search assessments, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has quashed assessment orders against Shri Ashish Prafulbhai Patel for the Assessment Years (AY) 2005-06 and 2007-08. The Tribunal, comprising Vice-President Dr. B.R.R. Kumar and Judicial Member Ms. Suchitra Kamble, held that the orders were passed beyond the statutory time limit prescribed under the Income Tax Act, 1961.

The core issue revolved around the legal consequences of a second search conducted on the assessee while assessment proceedings from a prior search were pending. The ITAT affirmed that pending proceedings from the first search for the overlapping years had "abated" upon the initiation of the second search, thereby resetting the limitation period for completing the assessment.

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Case Background: A Labyrinthine Timeline

The case presented a complex series of events spanning over a decade: -

First Search (August 2006): The Income Tax Department conducted a search on the assessee, a real estate and finance businessman, covering AY 2001-02 to 2007-08. -

Settlement & Litigation: The assessee filed an application before the Income Tax Settlement Commission (ITSC) in May 2007, which was later rejected. This led to a prolonged legal battle before the Gujarat High Court, which stayed the assessment proceedings in May 2008. -

Second Search (October 2009): While the first set of proceedings were stayed by the High Court, the department conducted a second search on the assessee, covering AY 2004-05 to 2010-11. This created an overlap for AY 2004-05 to 2007-08. -

Revival of Proceedings: The High Court and the ITSC eventually passed orders in 2017, restoring the assessment for AY 2005-06 and 2007-08 to the Assessing Officer (AO). -

Assessment Orders: The AO passed the final assessment orders for both years on November 30, 2018.

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Arguments of the Parties

Assessee's Contention: The assessee, represented by Shri Vartik Chokshi, argued that the assessment orders were void and barred by limitation. The central argument was that upon the initiation of the second search on October 7, 2009, the pending assessment proceedings for the overlapping years (2005-06 and 2007-08) from the first search automatically abated as per the second proviso to Section 153A of the Act.

Consequently, the time limit for framing the assessment should be calculated from the date of the second search, which ended on December 31, 2011. After excluding the period of the High Court's stay, the AO had only a brief window (extended to 60 days) to pass the orders. The final orders, passed on November 30, 2018, were therefore severely delayed and legally invalid.

Revenue's Position: The CIT(A) had previously dismissed the assessee's time-barring plea, calculating the available time by adding periods from both search timelines, a view the ITAT found legally untenable. The Department's counsel, Shri Alpesh Parmar, defended the CIT(A)'s order.

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Tribunal's Adjudication and Legal Reasoning

The ITAT first addressed the admissibility of the limitation ground, which was raised generally. Citing precedents, including the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT , the Tribunal held that a legal ground challenging the fundamental jurisdiction of an order can be adjudicated at any stage, as it strikes at the root of the proceedings.

On the merits, the Tribunal's decision hinged on the interpretation of Section 153A and 153B.

"Once the second search was carried out by the Department and by virtue of the provision of section 153A all pending proceedings abate as there is no exception that any proceedings which are stayed or otherwise shall not abate and accordingly all pending proceedings abate as a result of second search carried out by the department."

The Tribunal dissected the timeline and applied the law:

1. Abatement is Absolute: The pending assessments for the overlapping years (AY 2004-05 to 2007-08) abated on the date of the second search (October 7, 2009). The AO acknowledged this by issuing fresh notices under Section 153A for these years on March 8, 2011.

2. Limitation from Second Search: The time limit for completing the assessment was governed by the second search. The last date was December 31, 2011.

3. Calculation of Available Time: The High Court stayed the proceedings on December 19, 2011, leaving only 13 days before the deadline. As per the proviso to Section 153B, when the stay was lifted by the ITSC's final order on November 24, 2017, the available period was extended to 60 days.

4. Final Deadline: This calculation set the final deadline for passing the assessment orders as January 23, 2018.

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The Verdict

The Tribunal concluded that the assessment orders for AY 2005-06 and 2007-08, passed on November 30, 2018, were delayed by 311 days and were therefore passed without valid jurisdiction.

"Accordingly, the Assessment orders passed for A.Y. 2005-06 and 2007-08 are quashed finding it to have been passed vide an invalid jurisdiction. As the order passed is without jurisdiction, we hold the assessment order dated 30.11.2018 for A.Y. 2005-06 is held to be null and void."

As the assessment orders were quashed on the grounds of limitation, the Tribunal dismissed all other grounds raised in the appeals by both the assessee and the Revenue as infructuous.