Assessment for AY 2013-14 under Section 153C invalid as beyond six-year block; revenue's appeal dismissed

ITAT Delhi (AT) upheld the order of CIT(A) deleting the addition made in assessment framed u/s 153C for AY 2013-14. It was held that AY 2013-14 fell outside the permissible block of six assessment years as prescribed under s.153C, reckoned from the date of satisfaction and handing over of seized material. Since the jurisdictional condition of being within the six-year block was not satisfied, the assessment itself was invalid and any addition made therein could not be sustained. The Revenue's grounds were rejected and its appeal dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessment for the relevant year could validly be framed under section 153C when that year did not fall within the block of six assessment years computed with reference to the date of recording of satisfaction / deemed search year.

1.2 Consequentially, whether the additions made in the assessment under section 153C were without jurisdiction and liable to be deleted, rendering other grounds academic.

1.3 Whether the cross objection filed by the assessee survived for adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of assessment under section 153C and computation of six assessment years

Legal framework

2.1 The Tribunal considered section 153C and its interplay with section 153A, particularly the manner in which the "six assessment years" are to be reckoned for a person other than the one searched. The order of the appellate authority analysed and applied the law as laid down by the Supreme Court and the jurisdictional High Court in relation to section 153C(1) and its proviso.

2.2 The appellate authority relied on the interpretation in the decision affirming that, for a person other than the searched person, the relevant date for reckoning the six assessment years under section 153C(1) is the date of recording of satisfaction / date of handing over of seized assets or documents to the Assessing Officer having jurisdiction over such other person, which is treated as the "deemed date of search" for that person.

Interpretation and reasoning

2.3 The appellate authority noted that a search under section 132 was conducted in March 2019 on a third-party group and that, during the search, documents relating to unaccounted cash and layering of funds involving several entities, including the assessee, were found. Based on satisfaction recorded by the Assessing Officer of the searched person and of the assessee, notice under section 153C was issued on 26.07.2021. The satisfaction was recorded in the financial year 2021-22.

2.4 It was recorded that, in terms of the law declared in the binding precedents cited, the six-year period in section 153C(1) for a "person other than the one searched" must be computed with reference to the date of recording of satisfaction and handing over of documents to the Assessing Officer of such person, which is to be treated as the deemed date of search for that person, and not with reference to the original date of search in the case of the searched person.

2.5 The appellate authority extracted and applied the reasoning that: (i) the proviso to section 153C is not confined merely to abatement but also governs the reckoning of the six years for which returns can be required; (ii) for the other person, the date relevant under section 153C(1) is when the Assessing Officer of that person assumes possession of the seized assets/documents on the basis of recorded satisfaction; and (iii) the six assessment years must, therefore, be counted backward from the assessment year relevant to the previous year in which such satisfaction is recorded / assets are handed over.

2.6 The appellate authority observed that, if the Revenue's contention that the six years should be reckoned from the year of the search on the third party were accepted, it would permit reopening for a period beyond six years in the case of a person other than the searched person, contrary to the statutory scheme and the binding judicial interpretation, and would lead to disproportionate prejudice and harsh consequences for such person.

2.7 Applying the above legal position to the facts, the appellate authority held that, since the satisfaction under section 153C was recorded in financial year 2021-22, the deemed search year for the assessee would be that financial year, and the six assessment years immediately preceding the assessment year relevant to that previous year would run from assessment year 2016-17 to assessment year 2021-22.

2.8 On this computation, the assessment year under appeal, namely assessment year 2013-14, fell outside the permissible block of six assessment years under section 153C(1). The appellate authority therefore held that the proceedings under section 153C for that year were barred by limitation and without jurisdiction.

2.9 In view of this jurisdictional finding, the appellate authority allowed the additional ground challenging the validity of the proceedings for being beyond the six-year block and deleted the additions made by the Assessing Officer under section 153C. It further held that, with this relief being granted, the remaining grounds on merits had become purely academic and did not require separate adjudication.

2.10 The Tribunal, on careful perusal of the order of the appellate authority, agreed with its reasoning and conclusions. The Tribunal found no valid reason to interfere with the finding that the assessment year in question was outside the block of six assessment years as per section 153C and upheld the deletion of the additions.

Conclusions

2.11 For a person other than the searched person, the "six assessment years" under section 153C(1) are to be computed with reference to the deemed date of search, being the date of recording of satisfaction / handing over of seized material to the Assessing Officer of such person, and not with reference to the original search date in the case of the searched person.

2.12 Since the satisfaction in the case at hand was recorded in financial year 2021-22, the permissible six assessment years extended only from assessment year 2016-17 to assessment year 2021-22. The assessment year 2013-14 lay outside this block, rendering the proceedings under section 153C for that year without jurisdiction and barred by limitation.

2.13 The additions made under section 153C for assessment year 2013-14 were invalid and were rightly deleted. All other grounds on merits became academic and were not adjudicated.

Issue 3: Status of cross objection

Interpretation and reasoning

2.14 At the hearing, the assessee's counsel stated that the cross objection was not pressed. The Tribunal recorded this statement and treated the cross objection accordingly.

Conclusions

2.15 The cross objection filed by the assessee was dismissed as not pressed.

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