Time-Barred Assessment under Section 153C: Judicial Precedents

Time-Barred Assessment under Section 153C: Judicial Precedents Reinforce Six-Year Limitation

The interpretation of Section 153C of the Income Tax Act, 1961, has consistently turned on one decisive point: for an assessee other than the searched person, the “date of search” is deemed to be the date on which the seized material is handed over to the Assessing Officer (AO) of such other person. Consequently, the six-year block period for issuing notices and initiating assessment under Section 153C is reckoned from this date and not from the date of the original search.

In the present case, the Revenue initiated proceedings under Section 153C for the Assessment Year (AY) 2015-16. The facts were as follows:

• Date of search on the searched person: 14.03.2018

• Date of satisfaction recorded (both for searched person and other person/assessee): 24.11.2021

• Date of notice issued under Section 153C: 06.12.2021

• Jurisdiction: Same AO for searched and other person

Based on the satisfaction date in FY 2021-22, the relevant six assessment years would be AYs 2016-17 to 2021-22. Since AY 2015-16 falls outside this block, the assessment was time-barred and beyond jurisdiction.

The assessee relies on the following authoritative judgments:

1. Rupesh Kantilal Sawla v. ACIT, ITAT Mumbai, decided on 20.12.2024 Held that assessment under section 153C beyond the permissible six-year period from the date of recording satisfaction is void ab initio.

Para no. 7.4 of the order: – The AO had no jurisdiction to initiate proceeding under Section 153C of the Act for the A.Y. 2011-12. Search was conducted before the amendment and also the satisfaction note for the assessee, being a non- searched party in AY 2018-19. Accordingly, the order of the AO passed under section 153C r.w.s. 143(3) of the Act was beyond the permissible period of six years. Therefore, the assessment order passed u/s 153C/143(3) of the Act for the AY 2011-12 is quashed. A.Yr 2011-12 is beyond the permissible limit of preceding six years.

2. DCIT, Central Circle-20, Delhi v. Rajiv Agarwal, ITAT Delhi, 29.08.2024 Reiterated that the relevant six-year block under section 153C is to be computed from the date on which seized material is received by the AO of the assessee.

Para No. 4 of the Order: – We have heard the rival submissions and perused the materials available on record. A search and seizure operation u/s 132 of the Act was carried out by the Income Tax Department at the premises of M/s Paras Mal Lodha Group on 28.06.2016. During the course of that search, certain documents were found and seized which were pertaining to Shri Rajiv Agarwal (assessee herein). Therefore, those documents were handed over to the AO of the assessee herein by the AO of the searched person, for which a satisfaction note stood recorded by the AO of the searched person vide letter dated 16.12.2020. This satisfaction note is enclosed in Pages 3 to 7 of the Paper Book dated 31.05.2024. The AO of the assessee herein received all the documents from the AO of the searched person on 02.03.2021. Hence as per the decision of Honble Supreme Court in the case of CIT vs Jasjit Singh reported in 458 ITR 437 (SC), the date of handing over of documents by the AO of the searched person would have to be construed as the date of search in the hands of the assessee herein. Accordingly, the date of search in the hands of the assessee would be 02.03.2021. Hence it was submitted that the years under consideration would fall beyond the 6 years’ time limit for which action u/s 153C of the Act could be taken on the assessee. Hence no proceedings u/s 153C of the Act could be initiated on the assessee for the years under consideration.

3. Bondalapati Shivaji Rao v. ACIT, ITAT Chennai, 18.09.2024 Clarified that for a person other than the searched person, the date of receipt of documents by the AO is the reference point for jurisdiction under section 153C, both pre and post the 01.04.2017 amendment.

Para No. 6.1 of the order: – 6.1. Considering the facts of the case in the light of above decisions, it is clear that the impounded documents have been received by A.O. on 29.01.2014 when satisfaction under section 153C have been recorded. The First Proviso to Section 153C of the I.T. Act provides that six assessment years in which assessment or re-assessments could be made under section 153C of the I.T. Act would also have to be considered with reference to the date of handing over of the assets or documents to the A.O. of the assessee. Therefore, the six assessment years under section 153C of the I.T. Act in the case of assessee would be A.Ys. 2008- 2009 to 2013-2014. The A.O, therefore, shall have to pass the assessment order under section 153C of the I.T. Act. Further, the A.O. has not issued any notice under section 153C of the I.T. Act, therefore, the issue is covered by the above decision in favour of the assessee. The A.O. in the satisfaction note initiated the proceedings under section 153C only for A.Ys. 2006-2007 to 2011-2012 instead of A.Ys. 2008-2009 to 2013-2014. In view of the above, we are of the view that assessment order is illegal and bad in law and cannot be sustained in Law.”

4. PCIT vs. Karina Airlines International Ltd. (ITA 690/2023), Hon’ble Delhi High Court Held that the date of recording satisfaction by the AO of the “other person” is decisive for the computation of the six assessment years.

Para No. 21 of the Order: – A harmonious interpretation of the main part of Section 153C and its Proviso lead us to hold that in cases where the jurisdictional AO is common, the commencement point would have to be construed as the date when the satisfaction is formed by the said AO with respect to such other person. In our considered view, even though there may not have been an actual exchange of material unearthed in the course of the search between two separate authorities, it would be the date when the AO records its satisfaction with respect to the non-searched entity which would be of seminal importance and constitute the bedrock for commencement of action under Section 153C.

Para No. 22 of the Order: – We consequently find no merit in the appeal. The questions are answered against the appellants. The appeal shall stand dismissed.

5. CIT-7 v. RRJ Securities Ltd., [2015], Delhi High Court Established that the date of receipt of the documents by the AO of the other person is to be construed as the date of initiation of search for computing limitation under section 153C.

Para No. 24 of the order: – 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.

6. CIT v. Jasjit Singh, (458 ITR 437) SC – Affirmed that the date of handing over of documents is the effective date for applying Section 153C provisions in the case of an “other person”.

Para No. 10 of the order: – This Court is of the opinion that the revenue’s argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials – of the search party, under Section 132 – would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually “relate back” as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee’s prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts.

7. Reena Mittal v. DCIT, ITAT Delhi (ITA No. 1238/Del/2024)

Quashed assessment framed under section 153C for being outside the prescribed six-year period.

Para No. 14 of the order: – In the case on hand undoubtedly the satisfaction note u/s 153C of the Act was recorded on 27.09.2022 which falls in the previous year 2022-23 relevant to the AY 2023-24. Therefore, having regard to the first proviso to section 153C, AY 2023-24 relevant to the FY 2022-23 would be the year of search and therefore the Assessing Officer was required to complete the assessment for six assessment years prior to year of search AY 2023-24 u/s 153C for assessment years 2017-18 to 2022-23. However, the Assessing Officer completed the assessment for AY 2021-22 u/s 143(3) which is not permissible under law. In the circumstances, we hold that the regular assessment made u/s 143(3) of the Act despite recording of satisfaction note u/s 153C from Assessing Officer of searched person and also as the AO of the person other than the searched person, is not permissible in law. Thus, we hold that the assessment framed u/s 143(3) of the Act for AY 2021-22 is void ab initio and the same is hereby quashed. The additional ground raised by the assessee is allowed.

8. KSJ Infrastructure Pvt. Ltd. Vs DCIT ITAT Chennai Bench : For that the Ld. CIT(A) ought to have cancelled the assessment u/s 153C of the Act that was made for an assessment year beyond the stipulated period of ten assessment years as laid down under the applicable provision of section 153A ,153C of the Act by appreciating that the date of recording satisfaction note in the case of the ‘other person’ by the assessing officer of the searched person must be constructed as the date of handling over of documents relating to the other person even where the assessing officer is one and the same for both the searched person and the other person.

Para No. 17 of the order: – In this view of the matter and by considering facts and circumstances of this case, and also by following the decision of Hon’ble Supreme Court in the case of CIT vs Jasjit Singh (Supra), we are of the considered view that for the purpose of proviso to section 153C(1) of the Act, in case of such other person, the reference to the date of initiation of search u/s. 132 of the Act in the second proviso to section 153A(1) of the Act, shall be construed as reference to the date of receiving the books of accounts or other documents by the Assessing Officer having jurisdiction over such other person and said date is considered in the present case i.e. on 31.12.2021. The assessment year before us is beyond stipulated six assessment years and four relevant assessment years and thus, notice issued by the Assessing Officer u/s. 153C of the Act, dated 31.12.2021 and consequent assessment order passed u/s. 143(3) r.w.s. 153 of the Act, dated 31.03.2022 is barred by limitation and liable to be quashed. Thus, we quash assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 153C of the Act, dated 31.03.2022.

9. Dinesh Jindal vs ACIT on 27/05/2024: – In the case of search assessment undertaken in term of section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO opposed to the year of search which constitute the basis for an assessment under Section 153A.

Conclusion

The settled judicial position is that the six-year block under Section 153C is to be reckoned from the date of recording satisfaction or handing over of documents to the AO of the other person.

In the instant case, since the satisfaction was recorded on 24.11.2021, the six-year period extended from AY 2016-17 to AY 2021-22. Consequently, initiation of proceedings for AY 2015-16 was beyond the statutory time limit and therefore:

• Time-barred, and

• Without jurisdiction.

The assessee has accordingly prayed that the assessment framed for AY 2015-16 under Section 153C be held null and void and quashed in light of the above judicial pronouncements.