ITAT Hyderabad Quashes Rs 287 Crore Addition, Holds Assessment Barred by Limitation Under Section 153

ITAT Hyderabad sets aside assessments for AY 2022-23 and AY 2023-24, finding the order time-barred and third-party seized material insufficient to sustain additions under Section 56(2)(x).

The Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, has allowed both appeals filed by Chennamaneni Mithun Chand against the ACIT, Central Circle-1(1), Hyderabad, covering assessment years 2022-23 and 2023-24. For AY 2022-23, the Tribunal held that the assessment order dated 27 September 2024 was passed beyond the limitation period prescribed under Section 153(1) of the Income Tax Act, 1961, read with Clause (xii) of Explanation 1 thereto, and accordingly quashed it. On the merits, the Tribunal deleted additions of Rs 287 crore and Rs 118 crore respectively under Section 56(2)(x), finding that the Revenue had relied entirely on seized material recovered from third parties without independent corroborative evidence. The bench comprised Shri Vijay Pal Rao, Vice President, and Shri Manjunatha G., Accountant Member.

The Dispute Before the Tribunal

Mithun Chand is an individual who filed his return of income for AY 2022-23 on 30 December 2022, declaring total income of Rs 2,01,70,360. A search and seizure operation under Section 132 was carried out at his premises on 31 October 2022. His case was selected for compulsory manual scrutiny, and a notice under Section 143(2) was issued on 28 June 2023.

The Assessing Officer completed the assessment under Section 143(3) on 27 September 2024, assessing total income at Rs 289,01,70,360. The bulk of the addition — Rs 287 crore for AY 2022-23 and Rs 118 crore for AY 2023-24 — was made under Section 56(2)(x) on the basis of an excel workbook titled “Receipts & Payments 11.04.2022” found in a pendrive seized during a separate search of M/s Phoenix Group and M/s Sreenidhi Group on 23 August 2022. The Assessing Officer treated entries in that workbook as evidence of unaccounted cash receipts by the assessee totalling Rs 405 crore during September 2021 to August 2022, purportedly in connection with a 60-acre land parcel at Moosapet, Hyderabad.

The CIT(A)-11, Hyderabad, dismissed the assessee’s appeals by orders dated 23 March 2026 and 25 March 2026. The assessee then approached the Tribunal.

The Limitation Argument Under Section 153

The assessee’s authorised representative argued that the assessment order of 27 September 2024 was passed after the limitation period had expired. Under Section 153(1) read with the fourth proviso inserted by the Finance Act, 2021, the time limit for completing an assessment for AY 2022-23 is 12 months from the end of that assessment year — meaning the limitation ran from 1 April 2023 and expired on 31 March 2024.

The Assessing Officer had extended the limitation to 27 September 2024 by invoking Clause (xii) of Explanation 1 to Section 153, which excludes the period from the date of search to the date on which books of account or seized material are handed over to the jurisdictional Assessing Officer, subject to a maximum of 180 days. The Assessing Officer calculated this exclusion from the date of search itself.

The assessee contended that the seized material was handed over to the Assessing Officer on 11 May 2023, as confirmed by the Assessing Officer’s own letter dated 25 March 2024. The period from the date of search (31 October 2022) to 31 March 2023 fell entirely outside the limitation period, which only commenced on 1 April 2023. Only the period from 1 April 2023 to 11 May 2023 — 41 days — fell within the limitation period and could properly be excluded. Adding 41 days to 31 March 2024 extended the deadline only to 11 May 2024. The assessment order of 27 September 2024 was therefore time-barred.

The Revenue argued that the exclusion clause permitted deducting the entire period from the date of search to the date of receipt of seized material, up to 180 days, regardless of whether that period overlapped with the limitation window.

How the Tribunal Reasoned on Limitation

The Tribunal agreed with the assessee. It held that Clause (xii) of Explanation 1 to Section 153 is an exclusion clause, not an extension clause. Its purpose is to compensate the Assessing Officer for time actually lost within the limitation period in receiving books of account or seized material. Time lost before the limitation period commenced cannot be excluded, because no inconvenience was caused to the Assessing Officer during a period that had not yet started running.

The Tribunal relied on its earlier order dated 18 February 2026 in Shri Srinivasa Reddy Yeturu v. DCIT, Central Circle-1(2), Hyderabad (ITA No. 1898/Hyd./2025), which arose from the same search and seizure action and decided an identical issue in favour of the assessee. In that case, the Tribunal had held that where the period of handing over seized material straddles two financial years, only the portion falling within the limitation period can be excluded.

Applying that reasoning to the present facts: the search was on 31 October 2022; the seized material was received by the Assessing Officer on 11 May 2023; the limitation period ran from 1 April 2023. Only 41 days of the handover period fell within the limitation window. Adding 41 days to 31 March 2024 gave a deadline of 11 May 2024. The assessment order was passed on 27 September 2024, well beyond that date. Ground no. 3 was allowed and the assessment order was quashed.

The Merits: Third-Party Seized Material and Section 56(2)(x)

Having quashed the AY 2022-23 assessment on limitation, the Tribunal also addressed the merits, since the same additions arose for AY 2023-24 and the limitation ground did not independently apply to that year in the same way.

The assessee’s case on merits was that the entire addition rested on an excel workbook seized not from him but from the premises of M/s Phoenix Group and M/s Sreenidhi Group during a search on 23 August 2022 — a separate search conducted more than two months before the search at the assessee’s own premises on 31 October 2022. The assessee was neither a signatory to the seized material nor had he prepared or acknowledged any transaction recorded in it. No undisclosed cash, unaccounted investment, or unaccounted assets were found during the search at the assessee’s own premises.

The assessee further pointed out that the Assessing Officer had added two zeros to the figures recorded in the seized material, relying on statements and confessions obtained during the search, meaning the seized document itself did not reflect the alleged cash amounts. The key witness, Sri Naresh Girisala, had retracted his statement by filing an affidavit on 9 September 2022 before the DDIT, Mumbai. During cross-examination before the CIT(A) on 3 March 2026, Sri Naresh Girisala denied making any cash payment to the assessee. A general statement by an employee of a third party, the assessee argued, cannot bind a person who was not party to it.

On the admissibility of the electronic evidence, the assessee contended that the excel sheet extracted from the pendrive was inadmissible without a certificate under Section 65B of the Indian Evidence Act. The assessee relied on a CBDT digital evidence investigation manual and on the decision of ITAT Visakhapatnam in M/s. Polisetty Somasundaram v. DCIT (ITA Nos. 172 to 180/Viz./2023).

On the presumption under Section 132(4A) read with Section 292C, the assessee argued that the presumption that seized documents belong to the person from whose possession they are found can only be raised against the person from whose custody the material was actually seized. Since the excel workbook was seized from the third parties, no such presumption could be raised against the assessee.

The Revenue maintained that the seized material was confronted with the assessee during the search at his premises, that the buyer of the land had admitted cash payments as recorded in the workbook, and that this admission constituted corroborative evidence sufficient to sustain the addition.

Tribunal’s Findings on Merits

The Tribunal found that the Assessing Officer had made the addition solely on the basis of material seized from M/s Phoenix Group and M/s Sreenidhi Group, without any independent corroborative evidence. The assessee had denied any connection with the alleged transactions or any financial dealings with those entities. The statement of Sri Naresh Girisala had been retracted and, during cross-examination, the witness denied any cash payment to the assessee. No agreement signed by the assessee, no document acknowledged by him, and no cash or unaccounted assets were found during the search at his own premises.

The Tribunal held that unilateral entries made by a third party in a document, without the knowledge or authentication of the assessee, carry no evidentiary value in the assessee’s hands in the absence of independent corroborative evidence. The provisions of Section 56(2)(x) were not attracted when the underlying transaction itself had not been proved. The addition for AY 2022-23 was deleted on merits as well.

For AY 2023-24, the Tribunal noted that the addition was based on the same seized material and the same statements. The findings recorded for AY 2022-23 were applied mutatis mutandis, and the addition of Rs 118 crore was deleted.

Outcome

Both appeals — ITA No. 979/Hyd./2026 for AY 2022-23 and ITA No. 980/Hyd./2026 for AY 2023-24 — were allowed. The assessment order dated 27 September 2024 for AY 2022-23 was quashed as barred by limitation under Section 153(1) read with Clause (xii) of Explanation 1. The additions under Section 56(2)(x) were deleted for both years. The order was pronounced in open court on 15 May 2026.