2025 (11) TMI 658 - HC - Income Tax

S.153C notices time-barred if issued beyond ten-year limit under Explanation 1 to S.153A; AY 2010-11 barred

Ashok Khandelwal Versus Union of India and Ors.

HC held that assessment notices under s.153C are time-barred where issued beyond the ten-year maximum period computed under Explanation 1 to s.153A. ... Assessment u/s 153C as barred by limitation - maximum ten-year period as computed under Explanation 1 to Section 153A - HELD THAT:- As decided in OJJUS MEDICARE PVT. LTD. AND OTHERS [2024 (4) TMI 268 - DELHI HIGH COURT] period of limitation for issuing notice under Section 153C shall commence from the end of the Assessment Year in which records are transferred to the Assessing Officer of the third party by the Assessing Officer of searched party. In the facts of the present case, admittedly, the impugned notice issued by Respondent No.2 under Section 153C of the Act pertains to Assessment Year 2010-11, which is beyond the maximum period of 10 years as mandated under Section 153C. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under Section 153C of the Income Tax Act is time-barred when it relates to an assessment year that falls beyond the maximum ten-year period as computed under Explanation 1 to Section 153A. 2. Whether the period for computing the limitation under Section 153C for a non-searched person commences from (a) the date of search/seizure of the searched person under Section 132, or (b) the end of the assessment year in which the books/documents seized from the searched person are transferred to the Assessing Officer of the other person (i.e., date of transfer/receipt of records). 3. Whether a notice under Section 142(1) issued consequent to a Section 153C notice must be quashed if the parent Section 153C notice is held to be time-barred. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-bar under Section 153C where the assessment year falls beyond the ten-year limit Legal framework: Section 153C permits reassessment in respect of an 'other person' when books/documents seized from a searched person have a bearing on determination of income for six assessment years immediately preceding the relevant previous year or for relevant assessment years as defined in Explanation 1 to Section 153A. Explanation 1(153A) defines 'relevant assessment year' as an assessment year preceding the assessment year relevant to the previous year in which search/requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year in which search is conducted. Precedent treatment: The Court relied on and followed the Supreme Court decision (Jasjit Singh) and the decision of the Delhi High Court (Ojjus Medicare), both of which interpreted the proviso to Section 153C and Explanation 1 to Section 153A to fix the commencement point for calculation of the six- and ten-year blocks. Interpretation and reasoning: A plain reading of Explanation 1 and the first proviso to Section 153C shows Parliament intended the limitation period for a non-searched person to be computed with reference to the date of receipt/transfer of seized books/documents by the jurisdictional AO of the other person, not merely the date of original search. The proviso operates as a legal fiction to treat the date of receiving the books/documents by the jurisdictional AO of the non-searched person as the relevant reference for calculation of the six- and ten-year periods. Allowing computation from the date of seizure would prejudice third parties because the AO of the searched person could delay forwarding materials and thereby effectively extend the period for which the non-searched person must preserve records beyond Parliament's intention. Ratio vs. Obiter: Ratio - The limitation for issuing a Section 153C notice for a non-searched person must be computed from the end of the assessment year in which the Assessing Officer of the searched person transfers/forwards the seized books/documents to the Assessing Officer of the non-searched person (i.e., date of receipt by the jurisdictional AO), thereby making notices beyond the ten-year block time-barred. The reasoning follows the binding interpretation in the Supreme Court decision; the Court treats the Delhi High Court decision as consistent application. Conclusion: A Section 153C notice relating to an assessment year that falls beyond the ten-year period computed from the end of the assessment year in which the records were transferred to the jurisdictional AO of the other person is time-barred and liable to be quashed. Issue 2 - Commencement date for limitation: date of search vs. date of transfer/receipt of seized records Legal framework: The first proviso to Section 153C explicitly provides that, in case of the 'other person,' the reference to the date of initiation of search under Section 132 shall be construed as reference to the date of receiving the books/documents seized by the Assessing Officer having jurisdiction over such other person. Explanation 1 to Section 153A sets the outer limit (ten years) for 'relevant assessment year.' Precedent treatment: The Court followed the Supreme Court's analysis that the proviso must be construed to shift the reference point for computation from the date of search to the date of transfer/receipt of seized materials for the non-searched person, rejecting the Revenue's contention that the proviso only addresses abatement. Interpretation and reasoning: The proviso introduces a legal fiction to identify the appropriate commencement date for the six- and ten-year computation for a non-searched person. If the commencement were the date of the original search, the non-searched person would suffer disproportionate prejudice because the AO of the searched person could delay transfer of materials and thereby impose an extended evidentiary/record-preservation burden. The textual reading, legislative intent to protect third parties from such prejudice, and earlier authoritative rulings support the interpretation that limitation runs from the date of receipt/transfer. Ratio vs. Obiter: Ratio - The period for reckoning the six-year and ten-year limits under Section 153C for a non-searched person begins from the end of the assessment year in which the seized books/documents are received by the jurisdictional AO of that non-searched person (i.e., date of transfer/receipt), not from the date of original search/seizure. Conclusion: The limitation period for issuing a Section 153C notice for a non-searched person commences from the date the seized materials are transferred to/received by the Assessing Officer of the non-searched person; computation from the date of original search is impermissible. Issue 3 - Consequence for consequential Section 142(1) notice when the parent Section 153C notice is time-barred Legal framework: Section 142(1) empowers the Assessing Officer to call for information/records as part of assessment proceedings. A notice under Section 142(1) issued consequent to, or in furtherance of, a substantive notice under Section 153C depends on the validity of the parent Section 153C notice. Precedent treatment: The Court applied the subsidiary legal principle that consequential actions fall with the principal action when the principal action is void or time-barred. Prior authorities addressing quashing of consequential notices where initiating notices were invalid were applied by analogy. Interpretation and reasoning: Since the impugned Section 153C notice was held to be time-barred and quashed, the subsequent Section 142(1) notice issued for the same assessment year and arising from the invalid 153C notice has no legal foundation and must also be quashed. The relief sought against the 142(1) notice is thus consequential on the ruling on the Section 153C notice. Ratio vs. Obiter: Ratio - A Section 142(1) notice issued consequent to an invalid/time-barred Section 153C notice must be quashed as it lacks independent validity when predicated solely on the void notice. Conclusion: The consequential Section 142(1) notice issued for the same assessment year is quashed along with the invalid Section 153C notice. Cross-references and Outcome For Issues 1-3 the Court applied the reasoning in the controlling precedent that limitation for Section 153C in respect of a non-searched person begins from the receipt/transfer of seized materials to the jurisdictional AO; accordingly, a Section 153C notice addressing an assessment year outside the ten-year block so computed is time-barred and must be quashed, and any dependent Section 142(1) notices stand quashed as consequential relief.