Mr. Krishan Gopal, IRS (IT: 2003)
Addl. CIT (TDS), Indore
krishana.g.goyal@incometax.gov.in

Mr. Krishan Gopal

Author is a 2003 batch IRS officer, currently posted as Additional Commissioner of Income-tax (TDS) at Indore. He holds an MBBS degree from the All India Institute of Medical Sciences, New Delhi.

Executive Summary

Section 153C as part of provisions of search assessment lays down the law relating to the assessment of persons other than the searched person. The author in this article discusses the situation arising from interpretation of provisions relating to the years to be considered u/s 153C assessment in the light of judicial pronouncements and the amendment brought in by the Finance Act 2017.

INTRODUCTION

By the Finance Act 2003, departing from the concept of Block assessment, scheme of search assessments was amended by bringing in provisions of Sections 153A to 153D with effect from 01.06.2003. Section 153A lays down the provisions for the assessment of ‘searched person’ whereas Section 153C deals with the assessments of ‘other person’. The assessments under this new scheme are to be done for six assessment years prior to the assessment year relevant to search year in relation to the total income of the assessee. Assessment of the other person has to be carried out by the AO of such other person, if AO of the searched and other person is not the same; which is the case in majority of the cases, consequent to handing over of the relevant material by the AO of the searched person to the AO of the other person. Since the Act does not provide any time limit for handing over of the material belonging/ pertaining to/ information relating to such other person by the AO of the searched person, hence the Act envisaged the limitations with regard to abatement of the assessment proceedings and completion of assessments under Section 153C with reference to the date of handing over of material.

JUDICIAL PRONOUNCEMENTS

As the new provisions of search assessments came into operation, a dispute arose with regard to the assessment years to be considered while issuing notice and completing assessments under Section 153C in respect of ‘other person’. The Hon’ble Delhi High Court in the case of CIT -7 vs. M/s RRJ Securities Ltd. [2016] 380 ITR 612 (Delhi), held that the date of handing over of material, will be construed as the reference date for initiation of action under Section 153C, as against date of initiation of search construed the reference date for initiation of action under Section 153A. According to the decision, for example in case of search conducted on 05.06.2009, if the material relating to the other person is handed over to the concerned AO on 11.07.2011, the assessment years to be considered for assessment under Section 153C will be taken with reference to the date of handing over of the material rather than the date of search as done for assessment under Section 153A.

The relevant part of the judgment of the Hon’ble High Court reads as under:

14. The proviso to Section 153C(1) of the Act expressly indicates that reference to the date of initiation of search for the purposes of second proviso to Section 153A shall be construed as a reference to the date on which valuable assets or documents are received by the AO of an Assessee (other than a searched person). Thus, by virtue of the second proviso to Section 153A of the Act, the assessments/ reassessments that were pending on the date of receiving such assets, books of accounts or documents would abate.

15. The controversy in this regard is no longer res integra. A Coordinate Bench of this Court in SSP Aviation Ltd. vs. Deputy Commissioner of Income Tax (2012) 346 ITR 177 has held that:

‘in case of the searched person, the date with reference to which proceedings for assessment or reassessment of any assessment year within a period of six assessment years shall abate, is the date of initiation of search under Section 132 or requisition under Section 132A. However, in case of other person, such date will be the date of receiving the books of account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of other person, the question of pendency and abatement of proceedings of assessment or reassessment to the six assessment years would have to be examined with reference to such date’….

22. The aforesaid principles would be equally applicable to proceedings initiated under Section 153C of the Act as Section 153C(1) of the Act expressly provides that once the AO has received ‘money, bullion, jewellery or other valuable articles or thing or books of account or documents seized’ from the AO of the searched person, he would proceed to assess or reassess the income of the person to whom such assets/ books belong in accordance with Section 153A of the Act.

23. In the present case, the Assessee had claimed that the assessments for the concerned assessment years were not pending on the date of recording of satisfaction by the AO and, therefore, would not abate by virtue of the second proviso to Section 153A of the Act. Further, the period of six years would also have to be reckoned with respect to the date of recording of satisfaction note – that is, 8th September, 2010 – and not the date of search.

24. As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of Section 153C(1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recording of satisfaction under Section 153C of the Act, i.e., 8th September, 2010. In this view, the assessments made in respect of assessment year 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recording of satisfaction by the AO of the searched person. It is contended by the Revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If this interpretation as canvassed by the Revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of Section 153C(1) of the Act, which construes the date of receipt of assets and documents by the AO of the Assessee (other than one searched) as the date of the search on the Assessee. The rationale appears to be that whereas in the case of a searched person the AO of the searched person assumes possession of seized assets/ documents on search of the Assessee; the seized assets/ documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/ documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the assessee’s income for that year.

The aforesaid decision of the Hon’ble High Court has inter alia been followed in the case of Pr. CIT vs. Sarwar Agency (P.) Ltd. reported in 397 ITR 400, ARN Infrastructure India Ltd. vs. Assistant Commissioner of Income-tax, Central Circule-28, New Delhi [2017] 394 ITR 569 (Del.) besides multitude of other decisions of the Tribunals and CIT(A)s.

For easy understanding, if the dates given above are taken as example, then as per the decision of the Hon’ble High Court (supra) the assessment years to be considered for action 153C will be as under:

Table 1

Date of Search 05.06.2009 Date of Handing over of Material to the AO of the other Person 11.07.2011
Six prior assessment year for 153A 2009–10 Six prior Assessment years for 153C 2011–12
2008–09 2010–11
2007–08 2009–10
2006–07 2008–09
2005–06 2007–08
2004–05 2006–07

From the illustration above, it may thus be seen that the assessment years to be considered for taking action under Section 153C will be different from the years for action under Section 153A for the searched person. The assessment years under Section 153C would, thus, be contingent upon the date of handing over of the material to the AO of the other person. Since the Act does not provide the time limit for handing over of material, such interpretation would lead to absurd consequence resulting in action under Section 153C for the assessment years much later than search year for which there will not be any material found in the search and at the same time escaping assessments of the relevant year (searched year).

Since the genesis of action under Sections 153A and 153C lies in the same search action, the assessment years should remain the same notwithstanding the date of handing over of material to the AO of the other person or date of initiation of proceedings under Section 153C.

The aforesaid construction in judicial pronouncements apparently arose on account of interpretation of first proviso to Section 153C which reads as under:

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 Sub-section (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.

However, it is evident from the plain reading that this proviso makes the qualification with regard to second proviso to Section 153A (1) only and should not be construed otherwise.

Second proviso to Section 153A (1) deals with the abatement of assessment proceedings pending on the date of search and in the case of Section 153C , the date of handing over of the material. The proviso reads as under:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this Sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate :

The case of the Revenue is that the first proviso to Section 153 C refers only to the second proviso to Section 153 A(1) of the Act, which only indicates that any assessment relating to any AY falling within the period of six AYs which is pending as of the initiation of search shall abate. Therefore, the second proviso to Section 153 C is also concerned only with the aspect of abatement of pending assessments. Accordingly, this makes no difference to the computation of the block of six years preceding the AY relevant to the previous year/ in which the search was conducted. In other words, the block period for both the searched person and the ‘other person’ would remain the same notwithstanding that there may be some delay in transmitting the documents recovered during the search which belong or pertain to the other person’ to the AO of such other person.

AMENDMENT BROUGHT IN 2017

The interpretation rendered in the judgment of RRJ Securities (supra) has been overcome by introducing amendment in Section 153C by the Act by the Finance Act 2017 with effect from 01.04.2017 by inserting the following: ‘for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and’

This amendment in effect states that the block period for the searched person as well as the ‘other person’ would be the same six Assessment Years immediately preceding the year of search.

CONCLUSION

The amendment brought in by the Finance Act 2017 has sought to bring clarity on the dispute relating to the assessment years to be considered for taking action under Section 153C. However, this amendment is not declared as clarificatory and has been made effective from 01.04.2017; hence, the courts and appellate forums are construing it as prospective and rightly so. In these circumstances, question arises as how to defend the point of the revenue in cases relating to period prior to the amendment? An SLP has been admitted by the Hon’ble Supreme Court against the decision of the Hon’ble High Court in the case of CIT-7 vs RRJ Securities Limited 79 taxmann.com124(SC) which is pending for adjudication. It may, therefore, be suggested that to safeguard the interest of revenue-appellate forums may be requested to keep such cases in abeyance till the decision on the said SLP is rendered by the Hon’ble Supreme Court.

Source- Taxalogue 3- April to June 2020

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4 Comments

  1. A K garg says:

    Six years are to be reckoned from the date of handing over because the third person would come to know only at the time of handing over that something ‘ belonging or ‘ pertaining ‘ ( after 2015 amendment) to him has been found. And it has been held by the high court that if the reckoning is done from the date of actual search,  the scope of such six years would stand widened in case of third person. The question arises  that why the AO of searched person should take up years to hand over documents to AO of third person. It is entirely the lapse of the dept not to specify the time for which benefit must accrue to the tax payer. ( in cases prior to 2017 amendment as the position is clear now). Though the case against HC order is lying in SC, but I want to emphasise that in several SC judgements , it is amply clarified that any law, which involves levying of taxes,  cannot be given retrospective effect. Even a clarificatory explanation lateron cannot help the department.

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