2025 (5) TMI 107 - AT - Income Tax

Assessment u/s 153C - Deemed date of search - period of limitation - HELD THAT - As in the present case a search and seizure operation u/s 132 of the Act was conducted on Tirupati assessee u/s 153C of the Act by recording satisfaction on 02.12.2016 for AY 2009-10 to AY 2014-15. The copy of satisfaction note recorded by the AO of the assessee has been placed assuming the date of search as 11.11.2014. However the deemed date of search in the present case will be 02.12.2016 in view of case of JASJIT SINGH 2023 (10) TMI 572 - SUPREME COURT and hence the period of block assessment of six years immediately preceding assessment year relevant to previous year in which search was conducted has to be reckoned from 02.12.2016. Therefore in the present case assessment proceedings for AY 2015-16 assessment should have been framed u/s 153C of the Act after issuing notice under section 153C of the Act. However proceedings in the case of the assessee were wrongly framed under section 143(3) of the Act without issue of notice u/s 153C assuming the date of search as 11.11.2014 instead deemed date of search of 02.12.2016 and hence the assessment order is bad in the eyes of the law on account of jurisdictional error and therefore liable to be quashed. As relying on case of Akansha Gupta 2024 (7) TMI 1133 - ITAT DELHI the assessment order passed in this case dated 31.12.2016 is bad in law in as much as no notice u/s. 153C has been issued hence the said assessment order deserve to be quashed and accordingly the same is quashed. Accordingly the legal grounds raised by the assessee are allowed in the aforesaid manner. Appeal of the assessee is allowed.

Summary

The core legal questions considered in this judgment pertain to the validity and jurisdictional competence of the assessment proceedings initiated under section 153C of the Income Tax Act, 1961, specifically:

1. Whether the assessment framed under section 153C/143(3) without issuance and service of a valid notice under section 153C is legally sustainable or liable to be quashed.

2. Whether the proceedings initiated under section 153C and the assumption of jurisdiction by the Assessing Officer (AO) are illegal and void ab initio due to jurisdictional errors, particularly concerning the correct "date of search" for reckoning the period of limitation for block assessments.

Issue-wise Detailed Analysis:

Issue 1: Validity of Assessment Proceedings under Section 153C without Issuance of Notice under Section 153C

Relevant Legal Framework and Precedents:

Section 153C of the Income Tax Act empowers the AO to assess or reassess the income of a person other than the one searched, based on books of account or documents seized during a search under section 132 conducted on another person. The provision mandates that the AO must record satisfaction that the seized documents pertain to the other person and issue a notice under section 153C to initiate proceedings against that person. The limitation period for such assessments is reckoned from the date of search or the date of receiving the seized documents, as clarified by judicial pronouncements.

Key precedents relied upon include:

• The Supreme Court judgment in Commissioner of Income Tax v. Jasjit Singh (2023), which established that the "deemed date of search" for the purpose of limitation under section 153C is the date when the AO records satisfaction and takes possession of the seized documents, not the original date of search under section 132.
• Coordinate Bench decisions of the ITAT Delhi in Akansha Gupta v. ACIT (2024), Raja Varshney v. DCIT (2024), and Vaibhav Jain v. DCIT (2024), which consistently held that the limitation period and the relevant assessment years under section 153C must be reckoned from the date of recording satisfaction and taking possession of seized documents, and that assessments framed without issuance of notice under section 153C are bad in law.

Court's Interpretation and Reasoning:

The Tribunal noted that in the present case, the search was conducted on 11.11.2014, but the AO recorded satisfaction on 02.12.2016 that the seized documents pertained to the assessee. Following the Supreme Court's ruling in Jasjit Singh, the deemed date of search for the assessee under section 153C is 02.12.2016, not the original search date.

The Tribunal emphasized that the assessment year relevant for the previous year in which the search was conducted must be reckoned from this deemed date, and the six-year block period for assessment under section 153C is calculated accordingly.

However, the AO framed the assessment for AY 2015-16 assuming the date of search as 11.11.2014 and issued notices under section 143(2) instead of section 153C. This procedural lapse was held to be a jurisdictional error, rendering the assessment order bad in law.

Key Evidence and Findings:

The satisfaction note recorded by the AO on 02.12.2016 was crucial evidence establishing the deemed date of search. The absence of any notice under section 153C to the assessee was also a critical fact.

Application of Law to Facts:

The Tribunal applied the legal principle that the limitation period and validity of proceedings under section 153C hinge on the date of recording satisfaction and possession of seized documents. Since the AO did not issue any notice under section 153C and proceeded under section 143(3) based on an incorrect date of search, the assessment order was held invalid.

Treatment of Competing Arguments:

The Revenue argued in favor of the original date of search, relying on earlier orders and decisions. However, the Tribunal found these arguments unpersuasive in light of the Supreme Court's ruling and consistent ITAT decisions. The Tribunal also rejected reliance on a High Court decision which supported the Revenue, explaining that the High Court judgment actually affirmed the principle that the date of receiving seized documents is the relevant date for limitation and jurisdiction under section 153C.

Conclusions:

The Tribunal concluded that the assessment framed without issuance of notice under section 153C and based on an incorrect date of search is bad in law and liable to be quashed.

Issue 2: Jurisdictional Validity and Limitation Period for Proceedings under Section 153C

Relevant Legal Framework and Precedents:

Section 153C read with section 153A and provisos thereto governs the initiation of block assessments for six assessment years preceding the assessment year relevant to the previous year in which the search was conducted or documents were received. The Supreme Court in Jasjit Singh clarified that for a person other than the one searched, the date of receiving the seized documents is the deemed date of search. This affects the limitation period and the scope of assessments permissible under section 153C.

ITAT Delhi decisions in Akansha Gupta, Raja Varshney, and Vaibhav Jain reiterated this principle and held that assessments outside the six-year block period reckoned from the deemed date of search are barred by limitation and invalid.

Court's Interpretation and Reasoning:

The Tribunal found that the AO had assumed the original search date (11.11.2014) for reckoning the limitation period instead of the deemed date (02.12.2016) when satisfaction was recorded. Consequently, the AO proceeded with assessments for years outside the permissible block period.

The Tribunal held that this constituted a jurisdictional error as the AO lacked authority to initiate proceedings for assessment years beyond the six-year block period calculated from the deemed date of search.

Key Evidence and Findings:

The satisfaction note dated 02.12.2016 and the absence of any valid notice under section 153C were critical to establishing the jurisdictional defect. The Tribunal also relied on the detailed reasoning in the cited ITAT decisions which analyzed the statutory provisions and limitation periods.

Application of Law to Facts:

The Tribunal applied the statutory provisions and judicial precedents to the facts, concluding that the AO's assumption of the original search date and failure to issue notice under section 153C resulted in proceedings barred by limitation and without jurisdiction.

Treatment of Competing Arguments:

The Revenue's reliance on the original search date and procedural regularity was rejected. The Tribunal emphasized adherence to the Supreme Court's ruling and consistent ITAT precedents.

Conclusions:

The Tribunal held that the assessment proceedings initiated under section 153C without regard to the deemed date of search and limitation period are illegal and void ab initio.

Significant Holdings:

The Tribunal preserved crucial legal reasoning, including the following verbatim excerpt from the decision in Akansha Gupta v. ACIT:

"The date of recording of the satisfaction will be the deemed date for the possession of the seized documents... and the date of search and six years period would be reckoned from this date... Therefore, the assessment for AY 2021-22 should have been carried out by issuing notice u/s 153C of the Act and not u/s 143(2) of the Act... the assessment order... passed u/s 143(3) of the Act by the issuance of notice u/s 143(2) of the Act... is bad in law and hence the notice u/s 143(2) of the Act... and the consequent assessment order... are hereby quashed."

Core principles established include:

• The deemed date of search for a person other than the one searched under section 132 is the date when the AO records satisfaction and takes possession of the seized documents.
• The limitation period for block assessments under section 153C is reckoned from this deemed date, not the original date of search.
• Issuance of a valid notice under section 153C is mandatory before framing assessment proceedings against such other person.
• Assessment proceedings initiated without adhering to these requirements are jurisdictionally invalid and liable to be quashed.

Final determinations on the issues were:

• The assessment framed under section 153C/143(3) without issuance of notice under section 153C and based on an incorrect date of search is invalid and quashed.
• The assumption of jurisdiction by the AO under section 153C without recording satisfaction and issuing notice is illegal and void ab initio.
• Since the assessment order was quashed on jurisdictional grounds, other grounds of appeal challenging additions did not survive for adjudication.