Section 153C Assessment for AY 2016-17 Quashed by ITAT Jaipur

Ajay Singh Vs DCIT (ITAT Jaipur)

Section 153C: Completing Assessment Within Time Cannot Cure Reopening of an Assessment Year Outside the Permissible Period

The controversy

The Jaipur Tribunal quashed an assessment under Section 153C for AY 2016-17, holding that the assessment year fell outside the permissible period for proceedings against the assessee.

The Revenue defended the assessment by demonstrating that it had been completed within the deadline under Section 153B. The Tribunal held that this did not answer the assessee’s objection.

The period within which an assessment must be completed and the assessment years which can lawfully be reopened are separate questions. Compliance with the former cannot supply jurisdiction where the latter requirement is not satisfied.

Search on developer led to alleged on-money addition

A search under Section 132 was conducted on the Friends SPS Group, Kota, on 1 August 2019.

According to the Revenue, the material found and the subsequent investigation disclosed receipt of unaccounted cash consideration from purchasers of flats in the Royal Palm project.

The assessee had purchased Flat No. B-602 under an agreement dated 21 July 2015. The agreement consideration was ₹37 lakh, whereas the Revenue alleged that the actual consideration was ₹57 lakh.

The difference of ₹20 lakh was treated as cash paid from undisclosed sources.

Notice under Section 153C was issued on 13 October 2023. The assessment was completed on 23 March 2024, making an addition of ₹20 lakh under Section 69. The Commissioner (Appeals) sustained the assessment and addition.

Assessee challenged the permissible assessment-year range

Before the Tribunal, the assessee raised the legal objection that AY 2016-17 was beyond the years assessable under Section 153C.

He relied upon Section 153C, its first proviso and the provisions of Section 153A. His submission was that, for a person other than the searched person, the relevant starting point was the date on which the seized material was received by the Assessing Officer having jurisdiction over that other person.

The assessee also submitted that the alleged escaped income was ₹20 lakh and that the conditions for extending proceedings beyond the ordinary six-year period had not been satisfied.

The Tribunal sought the Revenue’s response and granted time for an Assessing Officer’s report.

Supreme Court’s Jasjit Singh ruling applied

The Tribunal referred to CIT v. Jasjit Singh, (2025) 476 ITR 157 (SC).

As explained in the order, the Supreme Court held that the proviso to Section 153C was relevant not merely to abatement of pending assessments, but also to reckoning the six-year assessment period for the other person.

The statutory reference to receipt of seized material by that person’s Assessing Officer therefore assumed importance in determining the permissible assessment years.

The assessee’s case was that the notice date, 13 October 2023, represented the relevant handover date. On that footing, the corresponding assessment year was AY 2024-25, and the six preceding years were AYs 2018-19 to 2023-24.

AY 2016-17 consequently fell outside that range.

Revenue answered the completion deadline instead

The Assessing Officer’s report stated that information had been passed to the jurisdictional Assessing Officer on 17 January 2023.

However, its substantive defence focused on Section 153B. It argued that the assessment, completed on 23 March 2024, was within the asserted completion deadline of 31 March 2024.

The Tribunal found that the report did not address the assessee’s actual argument concerning the assessment years open to proceedings under Section 153C.

It expressly distinguished Section 153B’s completion deadline from the provisions governing which assessment years could be assessed.

The defence therefore failed to meet the jurisdictional objection.

Notice lacked authority and assessment was void

The Tribunal recorded that the assessee’s factual and legal position concerning the permissible assessment period remained uncontroverted before it.

It held that the Section 153C notice for AY 2016-17 had been issued without authority of law. Consequently, the Assessing Officer’s assumption of jurisdiction was invalid.

The assessment was quashed as void ab initio, and the assessee’s jurisdictional ground was allowed.

Since the assessment itself had been annulled, the Tribunal did not examine the remaining objections concerning the alleged on-money payment, the supporting spreadsheet, cross-examination or the year of the alleged investment.

The appeal was allowed on the jurisdictional ground.

Author’s comments

The decision highlights a distinction that can be decisive in search-related assessments: an assessment completed before its deadline may still concern a year which the Assessing Officer had no power to reopen.

The record also contains different dates concerning transmission of information and the assessee’s asserted handover date. Although the Tribunal accepted the jurisdictional objection, the precise receipt date should be established from the relevant records when applying this decision elsewhere.

The useful principle is therefore to examine both the permissible assessment-year range and the completion deadline independently. A defence addressing only the latter leaves the former unanswered.

Cases Discussed

• CIT Vs Jasjit Singh (Supreme Court), (2025) 476 ITR 157 — Proviso to Section 153C governs the starting point for the six-year period in the case of a person other than the searched person.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax, Appeal CIT(A), Udaipur 02 (hereinafter referred to as “Ld. CIT(A)”), dated 17.12.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. The grounds raised by the assessee read as under:-

1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of notice issued u/s 153C of IT Act, 1961 and the consequent order passed by the AO. Further the notice issued u/s 153C is barred by limitation.

2. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 20,00,000/-u/s 69 of IT Act, 1961 on account of alleged cash paid for purchase of flat in the project Royal Palm even when no evidence of any receipt indicating payment of such amount was found in search of Friends SPS Group, Kota and neither the copy of the statement of the concerned person of the group OR the opportunity to cross examine such person was provided.

3. The Ld. CIT(A) has erred on facts and in law in confirming the addition relying on the excel sheet containing details of 55 flats which was not found in search but subsequently got prepared from the searched person on 03.08.2019 and therefore making the addition relying on such excel sheet is unjustified and unwarranted.

4. The Ld. CIT(A) has erred on facts and in law in confirming the addition in the AY under consideration ignoring that when payment of sales consideration was made in different FY and the sale deed of the flat was executed on 16.10.2020 which falls in AY 2021-22, the addition of the entire alleged cash payment in the year under consideration is uncalled for.

5. The appellant craves to alter, amend and modify any ground of appeal.

6. Necessary cost be awarded to the assessee.

3. We shall first be dealing with ground No.1 raised by the assessee challenging the validity of the notice issued u/s 153C of the Act and the consequent order passed by the AO, on the ground that it is barred by limitation.

4. The arguments of the ld. Counsel for the assessee on this ground were heard on the 15^th of September 2026 and since the Ld. DR sought some time to obtain a report on the arguments made by the Ld. Counsel for the assessee, the case was adjourned to 06.10.2026. The order sheet entry dated 15.09.2026 records the arguments made by the assessee as under:-

Arguments at length were made by the ld. Counsel for the assessee before us, contending that the assessment order passed in the present case u/s 153C r.w.s. 153A of the Act was barred by limitation. In this regard, he drew our attention to the provisions of Section 153A read with first proviso thereto also read with Explanation 1 and 4^th proviso thereto pointing out that assessments u/s 153A could be conducted for 6 assessment years prior to the year in which search was conducted and expanded to 10 years only in the circumstances specified in Explanation 1 to the Section i.e. where the income escaping assessment on account of material found during search exceeded fifty lakh rupees along with other requirement mentioned therein. He thereafter pointed out that for the purposes of Section 153C, the provisions of Section 153A of the Act were applicable. In the facts of the present case, he stated, the material found during search conducted on the Friends SPS Group Kota, relating to the assessee, pertained to on money paid for the purchase of property developed by said group amounting to Rs.20 lacs for the impugned year. He stated therefore, that only six assessment years prior to the year in which search was conducted, could be assessed/reassessed as per law.

He thereafter drew our attention to the provisions of Section 153C second proviso of the Act as per which, the date in which documents pertaining to the assessee are handed over to the AO of the assessee by the AO of the searched person, is to be treated as the date of initiation of search, which in the facts of the present case, he contended was that 13.10.2023 when notice u/s 153C of the Act was issued to the assessee. Accordingly, he stated that only assessments upto AY 2017-18 could have been reopened as per the extant provisions of law, while the impugned assessment year before us, was AY 2016-17. That therefore, the assessment proceedings initiated in the present case u/s 153C of the Act was barred by limitation. This legal ground, he contended was being raised for the first time before us.

At this juncture, Ld. DR sought some time to obtain a report of the AO on the contentions so made by the ld. Counsel for the assessee before us. Considering the same, the case is adjourned to 06.10.2026 to continue as part-heard.

Sd/-
T.R. Senthil Kumar
(Judicial Member)

Sd/-
Annapurna Gupta
(Accountant Member)

5. Subsequently, the Ld. DR submitted the comments of the AO on the issue which are reproduced hereunder:-

……

2. In this regard, the brief facts of the cases is as under:-

“A search & seizure operation u/s 132 of the Income Tax Act was carried out on 01/08/2019 at the various premises of “Friends SPS Group Kota. Some incriminating documents were seized during the course of search and seizure proceedings at the premises of M/s Friends SPS International (India) Ltd. Kota, which are related to the assessee regarding payment of on money.

On perusal of theses incriminating documents, it was noticed that M/s Yash Akshaya Builders & Developers Pvt. Ltd and M/s Friends SPS International (India) Pvt. Ltd were jointly involved in real-estate business. M/s Yash Akshaya Builders & Developers Pvt. Ltd. was land owner in project ‘Royal Palm’ and M/s Friends SPS International (India) Pvt. Ltd. was developer of the project. Both the companies have developed a residential project ‘Royal Palm. During search proceedings, many incriminating documents were found and seized in which concrete evidences of tax evasion was evident. During the post search investigation, on the basis of such incriminating documents, it was clearly established that part sale consideration of flats sold was received in cashand same had not been recorded by both of the companies in Project Royal Palm i.e. M/s Friends SPS International (India) Pvt. Ltd. and M/s Yash Akshaya Builders & Developers Pvt. Ltd. Sales consideration shown in agreement was less than actual sales considerations received by the companies. The companies have shown only the agreement value of the flats in the books of account and cash sales consideration have not been shown by them in their books of account. In the case of M/s Friends SPS International (India) Pvt. Ltd., the assessee company accepted this modus oprendi and offered the unaccounted cash receipts for taxation. It was quite clear that the purchasers of the flats of Royal Palm Project paid the on-money in cash from their undisclosed income.

Further, statement of Shri Satya Narayan Garg (Gupta) (one of the directors of M/s Friends SPS International (India) Pvt. Ltd. was recorded during the course of search proceedings and he had admitted that company had received on money from sale of flats of Royal Palm from the individual purchasers. Further, the company M/s Friends SPS International (India) Ltd. also admitted in the settlement application that besides the sale consideration which was received as per the regular books of accounts, it had also been received certain payment in cash which are primarily against the sale consideration.

Out of various purchasers, the details related to assessee (one of the purchasers) with Flat No., Date of sale Agreement, Sales consideration as per agreement, actual consideration and difference amount are as under:-

As per above table, it was clear that the assessee had made payment of Rs. 20,00,000/- in cash as “on money” against the purchase of aforesaid flats in Royal Palm Project from his undisclosed income.

During the search and seizure operation carried out in the case of Friends SPS Group Kota on 01.08.2019, various incriminating documents were found and seized which were related to the payment of on money in cash made against the purchase of flats in Project Royal Palm by individual purchasers, scanned copy of same are annexed here with.

The name of the assessee Sh. Ajay Singh was also reflecting at Sr. No. 26. On perusal of this incriminating document, it was clear that the assesseehad made cash payment of Rs. 20,00,000/- against the purchased of flat M B-602 in Royal Palm Project during the year under consideration. Hence, the case was selected for scrutiny u/s 153C of the Act on the basis of incriminating documents found and seized during the search proceedings conducted in the case of M/s Friends SPS Group. Notice u/s 153C of the 1.T. Act 1961 wan issued to the assessee on 13.10.2023. Further, the assessment was completed in this case on 23.03.2024 at the total income of Rs. 23,46,470/-after making addition of Rs. 20,00,000/- on account of unexplained investment in purchase of flat in Royal Palm and paid on money in cash u/s 69 of the Act.”

Further your kind honor sought comments on case being “barred by time” as the assessee has rose a plea that the matter under consideration is barred by time. In this regard, it is stated that the contention of the assessce is not acceptable as in this case notice u/s 153C of the 1.T. Act was issued on 13.10.2023 by the jurisdiction assessing officer after recording satisfaction note which was duly served upon the assessee. Passing of information to the Jurisdiction Assessing Officer in this case was 17.01.2023. The assessment proceedings in this case was completed on 23.03.2024 duly before its limitation date i.e. 31.03.2024. The relevant provision of IT. Act is produced as under

[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,-

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, within a period of twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed;

b. in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed:

Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or nine months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.

Provided further that in the case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing on the 1st day of April,2018,-

i) the provisions of clause (a) or clause (b) of this sub-section shall have effect, as if for the words “twenty-one months”, the words “eighteen months” had been substituted;

(ii) the period of limitation for making the assessment or reassessment in case of other person referred to in section 153C, shall be the period of eighteen months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed or twelve months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, which-ever is later.”

In view of the above, the contention of the assessee is not acceptable that the case is barred by time as the case was completed u/s 153C of the I.T. Act on 23.03.2024 duly before its limitation date i.e. 31.03.2024.

……..

Ld. Counsel for the assessee reiterated and relied on his submissions made before us which are reproduced above. While Ld. DR relied on the comments made by the AO in this regard.

7. We have heard both the parties. Assessment in the present case has been framed u/s 153C of the Act. The Ld. Counsel for the assessees argument before us is that the impugned assessment year , i.e. A.Y 2016­17, was beyond the scope of powers of the AO to reopen for assessment u/s 153C of the Act. In this regard he has referred to Section 153C read with the first proviso thereto pointing out therefrom that u/s 153C of the Act the AO is empowered to assess/reassess six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted and for the assessment year in which search is conducted. That as per the first proviso the reference to the date of initiation of search is to be construed as reference to the date of receiving books of accounts or documents or assets seized or requisitioned by the AO of the assessee being subjected to assessment u/s 153C of the Act.

8. The provisions of Section 153C read with the first proviso thereto are reproduced hereunder:-

Assessment of income of any other person.

153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—

a. any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

b. any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,

a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub­section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :

9. It was also pointed out that the Hon’ble Apex Court in the case of CIT vs Jasjit Singh (2025) 476 ITR 157 had interpreted the provisions of section 153C r.w first proviso and held that for the purposes of section 153C of the Act the date on which the six year assessment period is to be reckoned in the case of the other person is governed by the statutory proviso referring to the date on which the seized material is received by the Assessing Officer having jurisdiction over that person. Our attention was drawn to the relevant portion of the order of the Hon’ble apex court holding as above :

…….

9. It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153(c)(1)] is confined in its application to the question of abatement.

…….

10. The facts of the case, it was pointed out to us wasthat notice u/s 153C of the Act was issued to the assessee on 13-10-2023 which is to be considered the date on which the documents pertaining to the assessee were handed over by the AO of the searched person to the AO of the assessee. Therefore as per Section 153C of the Act read with first proviso thereto, 13.10.2023 was to be treated as the date of initiation of search on the assessee, pertaining to A.Y 2024-25. That as per the provisions of Section 153C only six assessment years prior to the year in which the search action was initiated on the assessee could be assessed. That accordingly only assessment years A.Y. 2018-19 to A.Y. 2023-24 could have been reopened as per the extant provisions of the law, while the impugned assessment year before us was AY 2016-17. That therefore, the assessment in the present case was beyond the scope of power of the AO to reopen/ take up for assessment u/s 153C of the Act.

11. The above facts and position of law have remained uncontroverted before us. The AO’s report furnished by the Ld. DR before us, we find,contains no comment on the arguments made by the ld. Counsel for the assessee. On the contrary it only refers to the provisions of Section 153B of the Act, which are in relation to the time limit for completion of assessments u/s 153A of the Act and have nothing to do with the assessments prescribed as per law to be considered for assessment y/s 153C of the Act.

12. In view of the above, since the facts and the position of law before us have remained uncontroverted, the argument of the ld. Counsel for the assessee is found to be correct. Accordingly the notice issued u/s 153C of the Act for the impugned year before us is held to be issued without authority of law. The jurisdiction assumed by the AO therefore to frame assessment u/s 153C of the Act for A.Y 2016-17, is held to be invalid and the assessment order passed as a consequenceis quashed as void ab initio.

13. Ground No.1 raised by the assessee is allowed.

14. Since we have quashed the assessment order passed, the other grounds of appeal raised by the assessee are not being dealt with by us, as they are mere academic in nature .

15. In effect, the appeal of the assessee is allowed in above terms.

Order pronounced in the Open Court on 13.10.2026