2025 (11) TMI 103 - HC - Income Tax

Search-based reassessment notices for 'other person' under s153C: handover date triggers limitation; notices quashed as inapplicable.

The dominant issue was whether a notice issued under s 153C on 07.02.2023 was barred by s 153C(3) as amended w.e.f. 01.04.2021. The HC held that the first ... Validity of notice issued u/s 153C after 01.04.2021 - assessment of income of “other person” - whether the issuance of notice, u/s 153C on 07.02.2023, is in accordance with the provision of Section 153C(3) of the Act? - HELD THAT:- The first proviso to Sub-Section (1) of Section 153C is not only for the purpose of abatement but also for all other purposes, viz., initiation of search for other person in terms of Section 153C(3) of the Act. In such case, the date of initiation of search for the petitioner is the date, on which the documents were handed over to the JAO of the petitioner, i.e., 25.11.2022 is the date of initiation of search for the petitioner. In terms of Sub-Section (3) of Section 153C, the provision of Section 153C will not apply for any search, which is initiated on or after 01.04.2021. As stated above, in this case, the date of handing over of seized material to the petitioner's JAO is on 25.11.2022 and the said date is the date of initiation of search for the petitioner. Thus, in the present case, it is crystal clear like cloudless sky that the initiation of search was subsequent to 01.04.2021, for which, the provisions of Section 153C will not apply. Therefore, the impugned notices dated 07.02.2023 is unsustainable and the same were issued without authority and against the provisions of Sub-Section (3) of Section 153C of the Act. In such view of the matter, all the impugned notices are liable to be quashed and accordingly, all the impugned notices dated 07.02.2023 issued by the 2nd respondent are quashed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the date of 'initiation of search' for purposes of Section 153C(1) and Section 153C(3) of the Income Tax Act is to be construed as (a) the date on which the physical search at the searched person's premises was conducted or (b) the date on which books of account, documents or assets seized/requisitioned in that search are received by the Assessing Officer having jurisdiction over the 'other person'. 2. Whether Section 153C is inapplicable to proceedings initiated after 01.04.2021 where, as to the 'other person', the date of initiation of search (as construed) falls on or after 01.04.2021 pursuant to Section 153C(3). 3. Whether the first proviso to Section 153C(1) is confined only to abatement of pending assessments under the second proviso to Section 153A(1), or whether it governs the date from which the six-year assessment window and other consequences under Section 153C are to be reckoned. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework Legal framework: Sections 153A and 153C read together; Section 153A(1) prescribes assessment/reassessment for six assessment years immediately preceding the assessment year relevant to the previous year in which a search under s.132 or requisition under s.132A is conducted, with a second proviso providing abatement of pending assessments 'on the date of initiation of the search'. Section 153C(1) permits handing over seized books/documents/assets to the Assessing Officer of an 'other person' and requires that officer to proceed 'in accordance with the provisions of section 153A'; its first proviso instructs that 'reference to the date of initiation of the search under section 132 ... 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.' Section 153C(3) excludes application of Section 153C to searches initiated on or after 01.04.2021. Issue 1 - Precedent Treatment Followed: The judgment follows the Supreme Court's decision in CIT v. Jasjit Singh, which rejected the revenue's contention that the 153C proviso is confined only to abatement and held that the proviso also governs the date from which the six-year period is to be reckoned for the third/other person. Other citations referenced: CIT v. Vijaybhai N. Chandrani (on justiciability of s.153C notices writ challenge) and a High Court decision applying s.153A to s.153C (Pavithra Sugichandran), but the Court primarily relied on Jasjit Singh for interpreting the scope of the first proviso to s.153C(1). Issue 1 - Interpretation and reasoning The Court parsed the text of Section 153C and its first proviso and concluded that Parliament deliberately fixed different reference dates for the searched person and for the 'other person': for the searched person the date of search at the searched premises; for the other person the date on which seized/requisitioned materials are received by the Assessing Officer having jurisdiction over that other person. The first proviso to Section 153C(1) therefore does not merely address abatement; it sets the relevant date for reckoning the six-year assessment period and other consequences for the other person. The Court reasoned that accepting the revenue's narrower construction (first proviso limited to abatement) would lead to disproportionate prejudice to third parties because seizure forwarding delays would effectively 'relate back' to the date of seizure, compelling third parties to preserve records for an unduly extended period. The Court relied on Jasjit Singh's reasoning that the proviso was intended to prevent such prejudice and to provide a clear, practical cut-off date for the other person. Issue 1 - Ratio vs. Obiter Ratio: The holding that the first proviso to Section 153C(1) determines the date of initiation of search for an 'other person' (i.e., the date of receipt of seized/requisitioned materials by that other person's Assessing Officer) for all purposes including reckoning the six-year window, not merely abatement, is ratio decidendi. Issue 1 - Conclusion The Court concluded that for the 'other person' the date of initiation of search is the date on which the Assessing Officer having jurisdiction over that other person receives the seized/requisitioned books of account, documents or assets; that date governs the six-year assessment period and other consequences under Section 153C. Issue 2 - Legal framework Legal framework: Section 153C(3) disapplies Section 153C in relation to any search initiated under Section 132 or requisitioned under Section 132A on or after 01.04.2021. Issue 2 - Precedent Treatment Followed: The Court applied the statutory text and the interpretive principle endorsed in Jasjit Singh; it rejected the respondent's submission that the date of actual search (29.01.2019) alone governs applicability of Section 153C to the other person, holding instead that the relevant date for the other person is the date of receipt (25.11.2022). Issue 2 - Interpretation and reasoning Applying its conclusion on Issue 1, the Court held that where the Assessing Officer of the other person received seized materials on or after 01.04.2021, the exclusion in Section 153C(3) applies and Section 153C is inapplicable to that other person. The Court found that in the case at hand the seized materials were handed over to the Assessing Officer of the 'other person' on 25.11.2022 (after 01.04.2021); therefore Section 153C did not apply to permit issuance of notices dated 07.02.2023 under Section 153C. Issue 2 - Ratio vs. Obiter Ratio: The determination that Section 153C(3) renders Section 153C inapplicable where the initiation date for the other person (date of receipt of seized material by that other's AO) falls on or after 01.04.2021, resulting in invalidity of subsequent Section 153C notices, is ratio decidendi for the facts. Issue 2 - Conclusion The Court concluded that Section 153C did not apply to the proceedings initiated against the other person because the date of receipt by the Assessing Officer (25.11.2022) post-dated 01.04.2021; accordingly the impugned Section 153C notices issued on 07.02.2023 were without authority and were quashed. Issue 3 - Legal framework Legal framework: Interaction between the first proviso to Section 153C(1) and the second proviso to Section 153A(1) (abatement), and whether the first proviso's operation is limited to abatement or extends to computation of the six-year period and other procedural consequences. Issue 3 - Precedent Treatment Followed: The Court relied on the Supreme Court's clear rejection of the narrow abatement-only interpretation in Jasjit Singh, adopting the broader textual and purposive construction that the first proviso fixes the reference date for the third person's liabilities and rights under Section 153C. Issue 3 - Interpretation and reasoning The Court emphasized statutory coherence: Section 153C expressly references application 'in accordance with the provisions of section 153A' for the other person and includes a proviso specifying how references to 'date of initiation of the search' in the second proviso to 153A(1) are to be construed when applied to the other person. The Court reasoned that the proviso must therefore govern more than abatement alone; it supplies the relevant temporal anchor for the other person's assessment period and procedural rights, avoiding unfair results that would flow from treating the sought date as the searched person's physical search date. Issue 3 - Ratio vs. Obiter Ratio: The determination that the first proviso to Section 153C(1) governs the date for reckoning the six-year period and related consequences for the other person (not merely abatement) is ratio decidendi. Observations on practical consequences and policy concerns are supportive reasoning. Issue 3 - Conclusion The Court concluded that the first proviso to Section 153C(1) applies for all practical purposes (including computation of the six-year assessment window and applicability under Section 153C(3)), and not solely for abatement, thereby displacing the earlier narrower construction urged by the revenue. Disposition and Effect Applying the above principles to the facts, the Court held that the date of receipt of seized materials by the Assessing Officer of the other person was 25.11.2022, which is after 01.04.2021; therefore Section 153C(3) operates to exclude Section 153C's application and the impugned Section 153C notices dated 07.02.2023 were without authority and were quashed. The Court declined to decide other factual issues as unnecessary in light of this jurisdictional conclusion.