2025 (5) TMI 979 - HC - Income Tax

Validity of reopening proceedings as barred by limitation - Scope of six-year and ten-year periods - HELD THAT - Since there is no mandatory requirement for an Assessing Officer of a searched person to record his satisfaction that the assets or documents found during the search belong to a person other than the one searched or contained information regarding such other person. Thus for the purposes of considering the limitation under Section 153C of the Act it is apposite to consider the date on which the decision is taken by the Assessing Officer to take steps for initiating re-assessment proceedings as the relevant date. The block of ten assessment years is required to be reckoned from the end of the AY 2024-25 being the assessment year relevant to the financial year in which the impugned notice under Section 148 was issued on 30.03.2024. Concededly the issue involved in the present case is covered by the earlier decisions of this court in Dinesh Jindal 2024 (6) TMI 75 - DELHI HIGH COURT KAD Housing Private Limited 2024 (11) TMI 433 - DELHI HIGH COURT and Pankaj Jain 2025 (1) TMI 1534 - DELHI HIGH COURT The present petition is allowed. The impugned notice is set aside as being barred by limitation.

Summary

The core legal questions considered in this judgment revolve around the validity and limitation period for issuance of a notice under Section 148 of the Income Tax Act, 1961, specifically in the context of reopening assessment for the Assessment Year (AY) 2014-15 following a search conducted under Section 132(1) of the Act. The principal issues addressed include:

1. Whether the impugned notice issued under Section 148 for reopening the assessment of AY 2014-15 is barred by limitation.

2. The applicability and relevance of Sections 153A and 153C of the Income Tax Act, especially considering the amendments effective from 1 April 2021, and their impact on the limitation period for reopening assessments post-search.

3. The appropriate date for reckoning the limitation period in cases where reassessment proceedings are initiated based on material found during a search of a third party.

4. Interpretation of the proviso to Section 149(1) of the Act in determining the limitation period for reopening assessments in cases involving searches conducted after 31 March 2021.

Issue-wise detailed analysis:

Issue 1: Whether the impugned notice under Section 148 is barred by limitation

The petitioner challenged the notice dated 30.03.2024 issued under Section 148 for reopening the assessment of AY 2014-15, contending that the notice was issued beyond the prescribed limitation period.

The relevant legal framework includes Section 148 read with Section 149 of the Income Tax Act, which prescribe limitation periods for reopening assessments. The limitation period is generally four years from the end of the relevant assessment year, extendable to six years or ten years in certain cases involving income escaping assessment.

The Court examined whether the reopening complies with these limitation periods, especially in light of the search conducted on 09.06.2022 at premises of a third party and the subsequent issuance of the notice on 30.03.2024.

Key evidence included the date of filing the original return (21.09.2014), the date of search (09.06.2022), and the date of issuance of the impugned notice (30.03.2024).

The Court applied the law to the facts by analyzing the limitation periods relevant to the AY 2014-15 and concluded that the notice was issued beyond the permissible period, rendering it barred by limitation.

Issue 2: Applicability of Sections 153A and 153C and interpretation of limitation periods post-1 April 2021

Sections 153A and 153C of the Income Tax Act govern reassessment proceedings consequent to search and seizure operations. However, amendments effective from 1 April 2021 modified these provisions, including a sunset clause in Section 153C(3) that excludes its applicability to searches conducted after this date.

The Court considered whether a notice under Section 153C could be issued for AY 2014-15 and, more importantly, how limitation is to be computed in such cases, particularly when the search was conducted on a third party and the reassessment notice was issued subsequently.

Precedents relied upon include the Division Bench decision in Dinesh Jindal v. Assistant Commissioner of Income Tax, which clarified that for searches conducted after 1 April 2021, Section 153C ceases to apply, but the proviso to Section 149(1) requires limitation to be considered as per the law prior to amendments.

The Court noted that the date of initiation of reassessment proceedings (date of issuance of notice under Section 148) is the relevant date for reckoning limitation under Section 153C, and that the limitation period must satisfy the timelines prescribed under Sections 149, 153A, and 153C as they stood before the 2021 amendments.

The Court also referred to the decision in Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd., which elaborated on the computation of six-year and ten-year blocks for limitation purposes, emphasizing that the starting point for limitation in cases involving third-party searches is the date of receipt of seized books of accounts by the jurisdictional Assessing Officer, not the date of search.

This interpretation was applied to the facts, demonstrating that the impugned notice issued on 30.03.2024 for AY 2014-15 falls outside the permissible limitation period.

Issue 3: Appropriate date for reckoning limitation period in cases of reassessment following third-party search

The Court examined whether the limitation period should be reckoned from the date of search or the date when the jurisdictional Assessing Officer receives the seized documents and initiates reassessment proceedings.

The Court held that there is no mandatory requirement for the Assessing Officer to record satisfaction that seized assets or documents belong to a person other than the searched individual for initiating proceedings under Section 153C.

Accordingly, the date of initiation of reassessment proceedings (i.e., issuance of notice under Section 148) is the relevant date for limitation computation.

The Court relied on authoritative precedents including SSP Aviation, RRJ Securities, and the Supreme Court's decision in Jasjit Singh, which established that the limitation period for reassessment of a non-searched person is computed from the date of receipt of seized material by the jurisdictional AO, not the date of search.

Applying these principles, the Court found that the impugned notice issued on 30.03.2024 was outside the permissible limitation period for AY 2014-15.

Issue 4: Interpretation of the proviso to Section 149(1) of the Act

The proviso to Section 149(1) stipulates that where reassessment proceedings are initiated following a search, the limitation period for reopening assessments must be computed with reference to the timelines prescribed under Sections 153A and 153C as they stood prior to the Finance Act, 2021 amendments.

The Court interpreted this proviso as requiring the limitation period to be reckoned by reference to the date of initiation of reassessment proceedings and the applicable timelines existing before 1 April 2021, even if the search occurred after that date.

This interpretation ensures that the limitation period is not arbitrarily curtailed by the sunset clause in Section 153C(3) and maintains consistency in limitation computation.

The Court applied this interpretation to the facts and concluded that the impugned notice is barred by limitation as per the timelines prescribed under the pre-amendment provisions.

Significant holdings:

"The First Proviso to Section 149 (1), however, bids us to go back in a point of time, and to examine whether a reopening would sustain bearing in mind the timeframes as they stood embodied in Section 149 (1) (b) or Section 153A and 153C, as the case may be. The First Proviso essentially requires us to undertake that consideration bearing in mind the timeframes which stood specified in Sections 149, 153A and 153C as they stood prior to the commencement of Finance Act, 2021."

"The identification of the starting block for the purposes of computation of the six and the ten year period is governed by the First Proviso to Section 153C, which significantly shifts the reference point spoken of in Section 153A (1), while defining the point from which the period of the 'relevant assessment year' is to be calculated, to the date of receipt of the books of accounts, documents or assets seized by the jurisdictional AO of the non-searched person."

"The reckoning of the six AYs' would require one to firstly identify the FY in which the search was undertaken and which would lead to the ascertainment of the AY relevant to the previous year of search. The block of six AYs' would consequently be those which immediately precede the AY relevant to the year of search."

"While the identification and computation of the six AYs' hinges upon the phrase 'immediately preceding the assessment year relevant to the previous year' of search, the ten year period would have to be reckoned from the 31st day of March of the AY relevant to the year of search."

"There is no mandatory requirement for an Assessing Officer of a searched person to record his satisfaction that the assets or documents found during the search belong to a person other than the one searched or contained information regarding such other person."

"The date on which the decision is taken by the Assessing Officer to take steps for initiating re-assessment proceedings is the relevant date for the purposes of considering the limitation under Section 153C of the Act."

Based on the above, the Court concluded that the impugned notice issued under Section 148 for reopening assessment of AY 2014-15 on 30.03.2024 is barred by limitation and accordingly set aside the notice.