Amended ten-year limit under Section 153A upheld; notices valid for AYs 2009-12, quashed for AY 2008-09

HC held that the 2017 amendment extending the period for initiating proceedings u/s 153A to ten years applied to the assessee's case, as the search was conducted on 21.08.2017 and the impugned notices dated 05.12.2019 pertained to AYs 2008-09 to 2011-12. The challenge to notices for AYs 2009-10, 2010-11 and 2011-12 failed, these years falling within the extended ten-year block; the Revenue was permitted to proceed, with all contentions on the Satisfaction Note kept open. The writ petition was partly allowed by quashing the notice u/s 153A for AY 2008-09 as being beyond the permissible ten-year period.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the extended ten-year period for search assessments introduced in Section 153A by the Finance Act, 2017 could be invoked for the assessment years in question, notwithstanding that the earlier limitation for assessment/reassessment had expired prior to 01 April 2017.

1.2 How the six-year and ten-year blocks under Section 153A, as amended in 2017 (including the concept of "relevant assessment year"), are to be reckoned with reference to the year of search, and whether AYs 2009-10, 2010-11 and 2011-12 fall within that permissible window.

1.3 Whether the notice issued under Section 153A for AY 2008-09 is sustainable when that year falls beyond the extended ten-year block reckoned in terms of the amended Section 153A.

1.4 Whether legal heirs of the deceased petitioner could be brought on record in the writ proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Applicability of the extended ten-year period introduced by the Finance Act, 2017 to the impugned assessment years

Legal framework (as discussed):

2.1.1 The Court relied upon and followed its earlier decision interpreting Sections 153A and 153C, including the amendments introduced by the Finance Act, 2017, in particular: (i) the extension of the search assessment block to ten assessment years by introduction of the concept of "relevant assessment year"; (ii) the non obstante clauses in Sections 153A and 153C overriding Sections 139, 147 to 149, 151 and 153; and (iii) the Fourth Proviso to Section 153A specifying the extended ten-year reach subject to specified conditions.

2.1.2 The earlier decision, as quoted and adopted, held that: (a) the contention that expiry of the then-existing limitation for assessment/reassessment created a vested right of finality in favour of the assessee is misconceived; (b) the reassessment provisions do not control or cabin the separate search assessment code in Sections 153A and 153C; (c) search is an inherently unpredictable event and it is illogical to read general reassessment time limits as regulating search assessments; (d) the non obstante clauses in Sections 153A and 153C operate above and beyond reassessment provisions; (e) the legislature intended retroactive application of the amended search provisions to all searches conducted between 31 May 2003 and 31 March 2021; and (f) the mere cessation of power to assess at an earlier point does not create a vested right of immunity from assessment when the statute later extends or restores that power.

Interpretation and reasoning:

2.1.3 The Court rejected the petitioner's argument that, because the earlier limitation periods for assessment/reassessment of the impugned assessment years had expired before 01 April 2017, the extended ten-year period introduced by the 2017 amendment could not be applied to those years.

2.1.4 It held, in line with the earlier judgment, that the contention of "closure" and "finality" was premised on an incorrect assumption that the expiration of earlier reassessment limitation periods creates a vested right immune from subsequent legislative extension of the power to assess in search cases.

2.1.5 The Court endorsed the view that the liability to tax exists independently of limitation, and that limitation only restricts the authority's power to enforce such liability at a given time, which restriction can be altered by subsequent legislation; the removal or extension of such restriction does not infringe any vested right of the assessee.

2.1.6 The Court also accepted that Sections 153A and 153C, by their design and by the express non obstante clauses, form a distinct and overriding code for search assessments, not governed by the ordinary reassessment limitation scheme.

Conclusions:

2.1.7 The Court held that the extended ten-year period for search assessments under the amended Section 153A is applicable to the impugned assessment years arising out of the search in question, and the petitioner's foundational challenge on the ground of non-applicability of the 2017 amendments was not sustainable.

2.2 Computation of the six-year and ten-year blocks under amended Section 153A; inclusion of AYs 2009-10, 2010-11 and 2011-12

Legal framework (as discussed):

2.2.1 The Court, drawing from the earlier decision, noted that:

(a) Section 153A, as amended by the Finance Act, 2017, enlarges the search assessment block to ten assessment years by introducing the concept of "relevant assessment year", being those years beyond the basic six-year block but not later than ten assessment years.

(b) For the six-year block, the statute uses the phrase "immediately preceding the assessment year relevant to the previous year" in which the search is conducted.

(c) For the ten-year block, Explanation 1 to Section 153A requires the period to be reckoned "from the end of the assessment year relevant to the previous year" in which the search is conducted.

(d) In a Section 153A assessment, the "previous year of search" is the previous year in which the search is undertaken; the six assessment years immediately preceding the assessment year relevant to that previous year form the basic block; the additional four years up to a total of ten years are governed by the amended provisions and the Fourth Proviso.

Interpretation and reasoning:

2.2.2 Applying these principles, the Court took the undisputed facts that the search on the petitioner was conducted on 21 August 2017 and the impugned notices under Section 153A were issued on 05 December 2019 in respect of AYs 2008-09 to 2011-12.

2.2.3 It held that, when the ten-year window prescribed by the amended Section 153A is computed in the manner explained in the earlier decision, AYs 2009-10, 2010-11 and 2011-12 fall within the maximum ten-year block referable to the search conducted on 21 August 2017.

2.2.4 The Court further noted that, as to these years, the only aspect not determined at this stage was compliance with the substantive conditions in the Fourth Proviso to Section 153A (such as the requirement of income represented in the form of assets of INR 50 lakhs or more), because no Satisfaction Note or material was before the Court; it therefore did not decide those factual/contentious aspects and kept all such contentions open.

Conclusions:

2.2.5 The Court concluded that, in law, AYs 2009-10, 2010-11 and 2011-12 are within the permissible ten-year search assessment block under Section 153A as amended by the Finance Act, 2017.

2.2.6 Accordingly, the writ petition failed to the extent it challenged the notices dated 05 December 2019 for AYs 2009-10, 2010-11 and 2011-12 on the ground of limitation or non-applicability of the amended ten-year regime; the respondents were left free to proceed in accordance with law, with all other contentions of the petitioner on merits and on the satisfaction of the Fourth Proviso expressly kept open.

2.3 Validity of the notice under Section 153A for AY 2008-09, falling beyond the ten-year block

Legal framework (as discussed):

2.3.1 The Court adopted the interpretative framework from the earlier decision that: (a) the ten-year block for search assessments under Section 153A is to be reckoned from the end of the assessment year relevant to the previous year in which the search is conducted; and (b) only those years that fall within that ten-year outer limit can be brought within the search assessment regime, subject to the conditions in the Fourth Proviso.

Interpretation and reasoning:

2.3.2 Applying this reckoning to the search conducted on 21 August 2017 and the impugned notices for AYs 2008-09 to 2011-12, the Court found that AY 2008-09 lies outside the maximum ten-year block permitted by the amended Section 153A.

2.3.3 The Court specifically recorded that, unlike AYs 2009-10, 2010-11 and 2011-12, AY 2008-09 falls beyond the extended ten-year period and therefore cannot be validly brought within the ambit of search assessments under Section 153A.

Conclusions:

2.3.4 The Court held that the impugned notice dated 05 December 2019 issued under Section 153A, insofar as it pertains to AY 2008-09, is unsustainable as it relates to a year beyond the ten-year block.

2.3.5 The writ petition was, therefore, partly allowed to this limited extent, and the notice under Section 153A was quashed in respect of AY 2008-09 alone.

2.4 Substitution of legal heirs of the deceased petitioner

Interpretation and reasoning:

2.4.1 An application was moved seeking permission to bring the legal heirs of the deceased petitioner on record. The Court considered the disclosures made in the application.

Conclusions:

2.4.2 The Court allowed the application and permitted the legal heirs to be brought on record, and the application was disposed of accordingly.

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