2025 (9) TMI 39 - HC - Income Tax

Section 153C notice for AY 2010-11 held time-barred as six-year limit runs through AY 2018-19; 2017 amendment non-retrospective

Pr. Commissioner Of Income Tax-7, Delhi Versus Pragun Finance Pvt. Ltd.

HC held that the 2017 amendment was not retrospective and thus irrelevant to a 2015 search. Because material was handed to the appellant's AO and the ... Assessment u/s 153C - Period of limitation - Scope of amendment - HELD THAT:- DR has not shown us anything contrary to say that the amendment of 2017 was given effect from a retrospective date. In other words, the amendment being prospective would surely have no bearing on the issue in hand as the date of search was of the year 2015 and in that sense the issue in hand is covered by the judgment of RRJ Securities Ltd [2015 (11) TMI 19 - DELHI HIGH COURT] which has been relied upon by the ITAT while rejecting the appeal of the Revenue. In the case in hand, the search having been carried out on 23.07.2015 and the notice u/s 153C having been issued on 08.10.2018 and presumption having been drawn by the CIT(A) on the same day, the material has been handed over by the AO of the person searched to the AO of the appellant and in such a situation, the year of relevance would be 2018-19 i.e., AY 2019-20 and six earlier years would be 2013-14 to 2018-19. In that sense, the notice issued u/s 153C for AY 2010-11 is much beyond six years and the same was rightly set aside by the CIT(A), which order has been upheld - No substantial question of law. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under Section 153C of the Income-Tax Act, 1961 is time-barred where the date of search precedes the date on which seized documents/assets belonging to the assessee (other than the person searched) are handed over to the assessing officer, and whether the period of six assessment years is to be reckoned with reference to the date of handing over or the date of search. 2. Whether the amendment to Section 153C effected by the Finance Act, 2017 (effective 01.04.2017) changes the interpretation applied in earlier precedent addressing the timing for reckoning the six-year period under Section 153C, and whether that amendment is applicable to facts where the search occurred in 2015 and notices were issued in 2018. 3. Whether the Appellate Tribunal was correct in upholding the Commissioner (Appeals)'s deletion of additions made under Section 153C on the ground that the notices were beyond the six-year limitation as reckoned with reference to the date of handing over of documents. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the six-year period under Section 153C is reckoned from the date of search or the date of handing over of seized documents/assets to the AO of the person whose documents are seized. Legal framework: Section 153A and Section 153C govern assessments following search and seizure. The proviso to Section 153C and the second proviso to Section 153A concern the temporal scope (six assessment years) for reopening assessments; Section 153C proceedings are required to be in accordance with Section 153A. Precedent treatment: The Tribunal relied on the High Court's earlier decision in RRJ Securities Ltd., which construed the reference to 'date of search' in Section 153C (for persons other than the one searched) as the date on which the AO of that person receives/seizes the assets/documents - i.e., the date of handing over - and hence reckoning the six-year period from that date. Interpretation and reasoning: The Court accepted the rationale that for a searched person the AO assumes possession on the date of search, whereas for a person not searched but whose assets/documents are seized, possession by that person's AO occurs only after the AO of the searched person is satisfied and hands over the seized material. Therefore, construing the 'date of search' as the date of handing over for the non-searched person aligns the scheme and prevents anomalous extension of the six-year window for such third parties. Ratio vs. Obiter: The holding that the relevant date for reckoning the six assessment years under Section 153C for persons other than the one searched is the date of handing over of documents (i.e., date AO of that person assumes possession) is treated as ratio, relied upon by the Tribunal and upheld by the Court. Conclusion: The Court held that the six-year period under Section 153C must be reckoned with reference to the date of handing over of seized documents/assets to the AO of the person whose documents are seized, and not the date of the original search. Issue 2: Whether the 2017 amendment to Section 153C alters the above interpretation and applies retrospectively to searches carried out in 2015 with notices issued in 2018. Legal framework: The Finance Act, 2017 amended Section 153C with effect from 01.04.2017; statutory amendments are presumed prospective unless expressly retrospective. Precedent treatment: The Revenue sought to rely on the amended provision to challenge the applicability of RRJ Securities Ltd. reasoning; the Tribunal and the Court examined whether the 2017 amendment can be invoked for searches predating the amendment. Interpretation and reasoning: The Court observed that no material was shown to demonstrate that the 2017 amendment was given a retrospective effect. Because the search in the case occurred in 2015 (pre-amendment), the prospective amendment could not be applied to alter the legal consequences of events occurring before 01.04.2017. Thus, the pre-amendment interpretation in RRJ Securities Ltd. governs. Ratio vs. Obiter: The determination that the 2017 amendment does not apply retrospectively to searches in 2015 is ratio in context of these facts (governing whether the amendment displaces prior interpretation for pending or subsequent notices arising from pre-amendment searches). Conclusion: The 2017 amendment to Section 153C does not apply to a search carried out in 2015; therefore, the earlier interpretation (that the date of handing over controls reckoning of the six-year period) remains applicable. Issue 3: Whether the ITAT correctly upheld deletion of additions where the notice under Section 153C for the relevant assessment year (AY 2010-11) was issued beyond the six-year period as reckoned from the handing over date in 2018. Legal framework: Where the six preceding assessment years (reckoned from the relevant date under Section 153C) do not include the assessment year sought to be reopened, the assessing officer lacks jurisdiction to make additions under Section 153C. Precedent treatment: Reliance on RRJ Securities Ltd. was affirmed as applicable; the Tribunal endorsed the view that the handing over date was in 2018 and therefore the six-year window ran from 2013-14 to 2018-19. Interpretation and reasoning: The Court noted that the search took place on 23.07.2015 but seized material was handed over to the AO of the person concerned on 08.10.2018; calculating six years backward from AY 2019-20 (relevant to handing over in 2018) excludes AY 2010-11. Since the notice for AY 2010-11 lay outside the six-year period, the CIT(A) rightly set aside the additions for lack of jurisdiction and the ITAT correctly dismissed Revenue's appeal. Ratio vs. Obiter: The conclusion that the notice for AY 2010-11 was beyond the statute-barred period as reckoned from handing over in 2018 is ratio for the present case; the affirmation of the Tribunal's outcome is the operative ratio. Conclusion: The Tribunal was correct to uphold deletion of additions for AY 2010-11 because the notice issued under Section 153C was time-barred when the six-year period was correctly computed from the date of handing over in 2018. Additional procedural determination (condonation of delay): The Court condoned the delay in filing and re-filing the appeal (62 days and 132 days respectively) for reasons stated in the applications and disposed of those applications. Final disposition: The substantial question of law proposed by the Revenue (seeking to displace RRJ Securities Ltd. in light of the 2017 amendment) was found not to arise on the facts; the appeal was dismissed for lack of merit.