2025 (5) TMI 2113 - AT - Income Tax

Assessment u/s 153C - period of limitation - beyond the block of six years in the case of assessee - whether AO erred in issuing notice u/s 153C which is beyond six years and the impugned two assessment years do not fall in the block of six years to frame the assessment order u/s 153C of the Act? HELD THAT - Surprisingly the assessment order is completely silent on the date on which the incriminating material relating to the third person i.e. the assessee was received by the AO nor there is any mention of any satisfaction recorded in respect of those incriminating material. As per the information gathered the notice in the case of the searched person was issued in May 2013 therefore it can be safely presumed that the notice in the case of the other person i.e. the assessee must have been issued after the proceedings initiated in the case of searched person. As mentioned elsewhere the notice in the case of the assessee was issued on 24/09/2014 and the block of six assessment years starts from AY 2009-10 till AY 2014-15. Therefore in the light of provisions of Section 153C of the Act the impugned assessment years i.e. 2007-08 and 2008- 09 are beyond the block of six assessment years and therefore the assessment framed u/s 153C of the Act has to be treated as null and void. We have no hesitation in holding that the assessment orders for the impugned assessment years i.e. 2007-08 2008-09 are null and void and deserve to be quashed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the assessment orders framed under Section 153C read with Section 144 of the Income Tax Act for the assessment years 2007-08 and 2008-09 are valid, given that the notices under Section 153C were issued beyond the six-year limitation period applicable to the assessee.
• Whether the issuance of notice under Section 153C of the Act to the assessee, based on incriminating material seized during a search under Section 132 conducted on a third party (searched person), complies with the procedural and jurisdictional requirements prescribed by law, including the timing of receipt of such material by the Assessing Officer (AO) of the assessee.
• Whether the assessment orders are null and void due to the absence of any recorded satisfaction or mention of the date on which the incriminating material relating to the assessee was received by the AO, as required for invoking Section 153C.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of assessment orders framed under Section 153C beyond the six-year block period

Relevant legal framework and precedents: Section 153C of the Income Tax Act empowers the AO to initiate assessment proceedings against a "third person" (other than the searched person) in respect of income found during a search conducted under Section 132 on another person. The limitation period for such proceedings is governed by the proviso to Section 153C(1), which stipulates that the six-year period for assessment or reassessment shall be reckoned from the date on which the AO of the third person receives the seized material from the AO of the searched person.

The Supreme Court's decision in CIT vs. Jasjit Singh (2023) is pivotal, wherein it was held that the six-year limitation period for the third person does not "relate back" to the date of search or seizure on the searched person. Instead, it begins from the date the AO of the third person receives the incriminating material. The Court rejected the revenue's argument that the proviso applies only to abatement and emphasized that a plain reading of Section 153C supports this interpretation to avoid disproportionate prejudice to third parties.

Court's interpretation and reasoning: The Tribunal noted that the notice under Section 153C was issued to the assessee on 24/09/2014, following a search on the "searched person" on 21/03/2013. The six-year block period for the assessee thus runs from AY 2009-10 to AY 2014-15. The impugned assessment years 2007-08 and 2008-09 fall outside this block period. Therefore, the assessments framed under Section 153C for these years are beyond the permissible limitation period.

Key evidence and findings: The assessment orders did not record the date of receipt of incriminating material by the AO of the assessee nor any satisfaction note, which is critical for invoking Section 153C jurisdiction. The absence of such recording undermines the validity of the assessment proceedings.

Application of law to facts: Applying the Supreme Court's ratio, the Tribunal held that since the AO of the assessee received the seized material only after the search in 2013, the six-year period for assessments under Section 153C could not extend to AY 2007-08 and AY 2008-09.

Treatment of competing arguments: The revenue contended that the limitation period should relate back to the date of search and seizure on the searched person, effectively allowing assessments beyond six years. This argument was rejected based on the Supreme Court's authoritative ruling and the principle of protecting third parties from undue prejudice.

Conclusion: The Tribunal concluded that the assessments for AY 2007-08 and AY 2008-09 framed under Section 153C are null and void for being time barred.

Issue 2: Jurisdictional and procedural compliance in issuing notice under Section 153C

Relevant legal framework and precedents: Section 153C requires that the AO of the searched person must forward the seized material to the AO of the third person, who then assumes jurisdiction to proceed. The CBDT Circular dated 31st March 2014 provides guidelines emphasizing that the AO of the third person should record receipt of seized material and the satisfaction of the AO of the searched person, although no statutory requirement mandates recording satisfaction before issuing notice.

The Delhi High Court in CIT vs. Jasjit Singh (2023) upheld the requirement that the date of receipt of seized material by the AO of the third person is the relevant date for limitation and jurisdiction purposes. The High Court relied on the precedent set by SSP Aviation Ltd. v. Dy.CIT, which clarified that the date of initiation of search applies only to the searched person, while for the third person, the date of receipt of seized material governs the limitation period.

Court's interpretation and reasoning: The Tribunal observed that the assessment order was silent on the date of receipt of incriminating material and did not mention any satisfaction recorded by the AO. This procedural lacuna is significant because jurisdiction under Section 153C arises only upon receipt of such material. The Tribunal inferred from the timeline that the notice was issued after the proceedings against the searched person had commenced, but the absence of explicit recording of satisfaction or date of receipt weakens the jurisdictional foundation.

Key evidence and findings: The search was conducted in March 2013, and the notice to the assessee was issued in September 2014. The AO of the searched person had issued notice in May 2013, indicating that the material was forwarded after that date. However, the assessment order did not document the receipt or satisfaction, contrary to CBDT guidelines and judicial expectations.

Application of law to facts: The Tribunal applied the legal principle that jurisdiction under Section 153C is triggered only upon receipt of seized material and recording of satisfaction by the AO of the searched person. The failure to document these crucial steps renders the assessment order procedurally defective and invalid.

Treatment of competing arguments: The revenue did not provide sufficient evidence to demonstrate compliance with the procedural requirements. The Tribunal relied on judicial precedents and CBDT circulars to emphasize the necessity of such compliance.

Conclusion: The Tribunal held that the assessment order is invalid for lack of jurisdiction and procedural non-compliance, reinforcing the nullity of the assessments.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal determinations include:

• "The impugned assessment years i.e., 2007-08 and 2008-09 are beyond the block of six assessment years and, therefore, the assessment framed u/s 153C of the Act has to be treated as null and void."
• "It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party."
• "Without the kind of interpretation which SSP Aviation adopted, ... the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly ... is dis-proportionate."
• "The AO of the other person assumes jurisdiction under Section 153C with the receipt of the relevant seized material from the AO of the searched person."
• "Though there is no statutory requirement for the AO of such other person to record any satisfaction/reason before issuing notice under Section 153C ... it is advisable for maintaining institutional memory that the AO records receipt of the seized material and the satisfaction from the AO of the searched person."

The Tribunal concluded that the revenue's appeals are dismissed and the assessee's cross-objections are allowed, effectively quashing the assessments framed under Section 153C for AY 2007-08 and AY 2008-09 on grounds of limitation and procedural non-compliance.