2025 (5) TMI 287 - HC - Income Tax

Assessment of income of any other person u/s 153C - period of limitation - HELD THAT - In terms of proviso to Section 153C in respect of such other person (a person other than the searched person) the date of the search is required to be construed in reference to the date of receiving the books of account or documents or assets seized or requisitioned by the AO having jurisdiction over such other person (person other than the one searched). The main body of Section 153C (1) of the Act and the proviso do not contemplate a hiatus between the handing over of the documents by the AO having jurisdiction over such person and receipt of the same by the AO having jurisdiction over person other than the searched person. In terms of Section 153B (1) of the Act read with third proviso to said Section in case of the search executed during the financial year commencing on or after 01.04.2019 the period of limitation for assessment or reassessment under Section 153C of the Act has been specified as twelve months from the end of financial year during which the last authorisation to search under section 132 of the Act or requisition under section 132A of the Act was executed. In terms of proviso to Section 153C of the Act the date of receiving of the documents or material by the AO having jurisdiction over the other person the person other than the one searched from the AO having jurisdiction over the searched person is required to be considered as the date of initiation of search u/s 132 of the Act or the date of requisition u/s 132A of the Act. In the present case the said date is required to be considered as 24.06.2022. Thus the period available for making an assessment pursuant to the impugned notice had lapsed on the expiry of twelve months from the end of the financial year in which the documents were handed over that is on 31.03.2024 the twelve months from the end of the FY 2022-23.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the proceedings initiated under Section 153C of the Income Tax Act, 1961 (the Act) in respect of the Assessment Year (AY) 2015-16 were valid, given the time limits prescribed for framing an assessment order;

(b) The interpretation and applicability of the time limitation provisions under Section 153C, particularly the effect of the date of receipt of seized documents by the Assessing Officer (AO) having jurisdiction over the "other person" (i.e., the person other than the searched person);

(c) Whether the satisfaction note dated 24.06.2022, recording the handing over of documents to the AO of the other person, can be relied upon as the operative date for limitation purposes;

(d) The legal effect of the provisos to Section 153C and the interplay with Section 153B regarding limitation periods for assessment or reassessment following search and seizure operations under Section 132.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of proceedings under Section 153C and interpretation of limitation period

The relevant legal framework includes Section 153C of the Income Tax Act, which governs the assessment of income of any other person when documents or assets seized or requisitioned during a search under Section 132 pertain to a person other than the searched person. The section mandates that such documents be handed over to the AO having jurisdiction over the other person, who shall then proceed to assess or reassess the income of that other person.

Section 153C(1) states:

"Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, where the Assessing Officer is satisfied that-

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in Section 153-A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of Section 153-A..."

The proviso to Section 153C clarifies that for such other person, the date of initiation of search under Section 132 or requisition under Section 132A shall be construed as the date of receiving the seized documents by the AO having jurisdiction over the other person.

The Court emphasized that the interpretation of Section 153C does not contemplate any gap or delay between the handing over of documents by the AO of the searched person and receipt by the AO of the other person. The date of receipt of documents by the AO of the other person is the operative date for limitation purposes.

Section 153B(1), read with its provisos, prescribes the limitation period for assessment or reassessment under Section 153C as twelve months from the end of the financial year during which the last authorization to search was executed. In cases concerning other persons under Section 153C, the date of receipt of documents by the AO of the other person is treated as the date of search for limitation calculation.

Issue (c): Reliance on the satisfaction note dated 24.06.2022

The satisfaction note recorded by the AO of the searched person on 24.06.2022 explicitly states that the documents containing information relating to the other person (the Assessee) were handed over to the AO having jurisdiction over that person for necessary action under Section 153C. The relevant extract reads:

"In view of the above, I am satisfied that these documents also contain information which relates to above referred 'other person' and have a bearing on the determination of its total income. Accordingly, these documents are handed over to the AO of other person, for necessary action in the case of the above referred 'other person' under Section 153C of the I.T. Act 1961 for the relevant assessment years as per the seized documents."

The Court found no basis to dispute the authenticity or correctness of this satisfaction note. The Revenue did not contest the fact that the documents were handed over on this date, and any contrary contention would imply a false statement in the official record, which was not advanced.

Issue (d): Application of limitation provisions and conclusion on time bar

Applying the legal framework to the facts, the Court held that the operative date for limitation under Section 153C is 24.06.2022, the date on which the AO of the searched person handed over the documents to the AO of the other person.

Accordingly, the limitation period for making an assessment or reassessment under Section 153C expired twelve months from the end of the financial year in which the documents were received-that is, twelve months from 31.03.2023, i.e., on 31.03.2024.

The impugned notice under Section 153C was issued on 19.12.2023, which prima facie fell within the limitation period. However, the petition was filed on 22.03.2025, well after the expiry of the limitation period on 31.03.2024.

The Court concluded that since the assessment order could not be framed beyond the limitation period, the proceedings initiated pursuant to the impugned notice were time-barred and could not be sustained.

In this context, the Court rejected the Revenue's argument that the date of receipt of documents by the AO of the other person was later (09.06.2023), which would have extended the limitation period. The Court held that the satisfaction note dated 24.06.2022 was the operative document recording the handing over of documents, and there was no evidence to contradict this.

The Court also rejected any contention that the documents were not served or received by the AO of the other person on the date recorded in the satisfaction note, as such a contention would imply falsification of official records, which was not advanced by the Revenue.

3. SIGNIFICANT HOLDINGS

The Court established the core principle that for the purpose of limitation under Section 153C, the date of receipt of seized documents by the AO having jurisdiction over the other person is the operative date to be treated as the date of search or requisition.

The Court held that the limitation period for framing an assessment order under Section 153C is twelve months from the end of the financial year in which the AO of the other person receives the seized documents or assets.

The Court further held that the satisfaction note recording the handing over of documents is a conclusive record for determining the date of receipt by the AO of the other person, and in the absence of any contrary evidence, it must be accepted as true.

Applying these principles, the Court concluded that the proceedings initiated under Section 153C for AY 2015-16 were barred by limitation as on the date of filing the petition, and accordingly allowed the petition.

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