Facts of the Case

The assessee was subjected to assessment proceedings under section 153C read with section 144 of the Income-tax Act, 1961 for Assessment Years 2011-12 to 2014-15 and 2016-17, pursuant to a search conducted in the case of a third party. During the course of the search, certain incriminating documents were seized, which were alleged to be connected with the assessee.

The searched person was the brother of the assessee. During proceedings arising out of the search, the assessee furnished a notarised affidavit admitting that the amounts reflected in the seized documents belonged to him and not to the searched person. Based on the seized material and the said affidavit, the Assessing Officer recorded satisfaction under section 153C and issued notices for the relevant assessment years.

The assessee did not file returns in response to the notices under section 153C and did not properly comply with the notices issued during the assessment proceedings. Consequently, the Assessing Officer completed the assessments ex-parte under section 144 read with section 153C, making substantive additions in the hands of the assessee while restricting himself to protective additions in the hands of the searched person.

 

Issues Involved

  1. Whether the proceedings initiated under section 153C were barred by limitation in light of the law governing the deemed search year.
  2. Whether the assessments framed under section 144 read with section 153C for the impugned years were time-barred.
  3. Whether the Commissioner (Appeals), after quashing the assessments on legal grounds, could issue binding and consequential directions under section 150(1).
  4. Whether an affidavit, unsupported by corroborative evidence, could be relied upon to determine substantive tax liability.
  5. Whether directions regarding initiation of proceedings under sections 269SS and 269T could validly be issued in such circumstances.

 

Petitioner’s Arguments

The assessee challenged the validity of proceedings under section 153C by contending that the notice under section 153C was issued in Financial Year 2021-22, making Assessment Year 2022-23 the deemed search year. Accordingly, only six assessment years preceding that year could be validly reopened, subject to the statutory conditions.

It was submitted that the assessments for Assessment Years 2011-12 to 2014-15 were clearly beyond the permissible period and therefore void ab initio. For Assessment Year 2016-17, it was argued that even after granting the benefit of time exclusion pursuant to the Supreme Court’s COVID-19 orders, the assessment was barred by limitation.

It was further contended that once the assessments were quashed on jurisdictional grounds, the Commissioner (Appeals) had no authority to issue directions under section 150(1), particularly directions that effectively reopened concluded matters, mandated substantive taxation in the hands of another assessee, or initiated penal proceedings.

 

Respondent’s Arguments

The Revenue relied upon the observations of the Commissioner (Appeals) and contended that the assessee’s conduct, including filing of a sworn affidavit, justified issuance of directions under section 150(1). It was argued that such directions were necessary to ensure that the income reflected in the seized documents was ultimately brought to tax in the correct hands and that the interests of the Revenue were duly protected.

 

Findings and Order of the Tribunal

The Tribunal observed that the chronology of events was undisputed and decisive. Proceedings against the assessee were initiated long after the appellate proceedings in the case of the searched person had already been concluded. The inordinate delay in initiating proceedings rendered the assessments vulnerable on the ground of limitation.

The Tribunal held that once the assessments had been quashed on legal and jurisdictional grounds, there was no scope for the Commissioner (Appeals) to issue further binding directions under section 150(1). Such directions could not be used to cure jurisdictional defects, overcome limitation, or revive proceedings that were otherwise barred by law.

The Tribunal further held that an affidavit, though a binding statement, cannot by itself determine substantive tax liability unless supported by independent corroborative evidence. In the absence of such evidence, reliance solely on the affidavit was unsustainable.

It was also held that there was no occasion for issuing directions regarding applicability of sections 269SS and 269T. If at all such provisions were applicable, it was always open to the Assessing Officer to examine the same independently in accordance with law, subject to fulfilment of statutory conditions. Such directions were neither necessary nor germane for disposal of the appeals.

Accordingly, the Tribunal quashed the directions issued under section 150(1) and allowed the appeals of the assessee for all the assessment years under consideration.

 

Jurisdictional Limits on Appellate Directions: Can Revenue Revive a Quashed Assessment?

A fundamental question examined in this ruling was:

When an assessment is quashed on jurisdictional grounds, can the Revenue still resurrect the case through appellate “directions”?

In the present case, while the Commissioner (Appeals) quashed the assessments under section 153C and on limitation, the appellate order simultaneously issued far-reaching directions under section 150(1), including reopening assessment of another person, mandating substantive taxation in another assessee’s hands, and directing initiation of consequential proceedings.

The Tribunal decisively rejected this approach and held that:

  • Directions cannot outlive the assessment from which they emanate; once the assessment itself is quashed, all consequential directions necessarily fall.
  • Section 150(1) cannot be used to cure departmental delay or revive barred proceedings.
  • An appellate authority cannot unsettle concluded findings or create fresh causes of action, particularly where issues have already been adjudicated on merits in another case.
  • Appellate directions must be strictly necessary and incidental to disposal of the appeal and cannot be used as a tool for jurisdictional reconstruction.

 

Important Clarification and Principle Reaffirmed

The Tribunal reaffirmed a foundational principle of tax jurisprudence:

Jurisdictional defects cannot be neutralised by appellate directions and cannot be repaired through appellate fiat or ingenuity.

Limitation goes to the root of jurisdiction. Once an assessment is rendered void on this ground, the clock cannot be reset through indirect or consequential directions, however wide their language may be.

 

Precedential Value

This ruling has significant implications for:

  • Search and seizure litigation under sections 153A and 153C,
  • Cases involving protective versus substantive assessments, and
  • Situations where appellate authorities attempt to issue expansive directions after granting relief on legal grounds.

It clearly delineates the outer boundaries of appellate powers and reinforces the principle that appellate jurisdiction is corrective, not creative.

 

Conclusion

The ITAT Ahmedabad has decisively held that once an assessment is quashed on jurisdictional grounds, the Revenue cannot resurrect proceedings through directions under section 150(1). The decision stands as a strong precedent ensuring certainty, finality, and discipline in income-tax proceedings and provides valuable guidance for search-related litigation.

LINK TO DOWNLOAD THE ORDER
https://mytaxexpert.co.in/uploads/1768656492_ITATOrder1768630709.pdf 

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