2025 (5) TMI 1241 - AT - Income Tax

Validity of proceedings u/s 153C as barred by limitation - addition u/s 68 - Scope of six-year and ten-year periods - HELD THAT - We are of the considered view that this case is squarely covered by the decision of Plaza Fincap (P) Ltd. 2025 (5) TMI 877 - ITAT DELHI wherein held 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. This since undisputedly Explanation 1 of Section 153A requires us to reckon it from the end of the assessment year . This distinction would have to necessarily be acknowledged in light of the statute having consciously adopted the phraseology immediately preceding when it be in relation to the six year period and employing the expression from the end of the assessment year while speaking of the ten year block. Appeal of the Revenue is dismissed.

Summary

The core legal questions considered in this appeal pertain to the interpretation and application of the limitation period for assessments initiated under section 153C of the Income-tax Act, 1961, particularly in the context of search and seizure operations under section 132. The primary issues examined include:

1. Whether the block period for assessments under section 153C should be calculated from the date of receipt of seized books of accounts, documents, or assets by the jurisdictional Assessing Officer (AO) of the non-searched person, or from the date of initiation of the search itself.

2. The relevance and applicability of amendments to section 153C effective from 01.04.2017, especially when the satisfaction for initiating proceedings was recorded after this amendment.

3. Whether the block period of six assessment years (AYs) under section 153C aligns with the six-year period under section 153A, and if both must be calculated from the assessment year relevant to the previous year in which the search was conducted.

4. The necessity of interpreting the implementation provisions harmoniously with the charging provisions to avoid anomalous situations where different limitation periods apply to searched and non-searched persons.

5. The procedural correctness and jurisdictional validity of the assessment order passed under section 153C for the AY 2012-13, considering the limitation period.

Each issue is analyzed below in detail.

Issue 1: Calculation of Block Period under Section 153C - Date of Receipt of Seized Material vs. Date of Search

The legal framework involves section 153C of the Income-tax Act, which empowers the AO of a non-searched person to initiate assessment proceedings based on material seized during a search of another person. The question arises as to whether the limitation period for such assessments begins from the date of search or from the date when the seized material is handed over to the AO of the non-searched person.

The CIT(A) held that the block period must be calculated from the date of receipt of the seized material by the AO of the non-searched person, relying on the first proviso to section 153C, which deals with abatement of proceedings but does not explicitly address the computation of block periods. The Revenue challenged this interpretation, arguing that the proviso relates only to abatement and not limitation.

The Court examined precedents, notably the decisions of the Hon'ble Delhi High Court and the Supreme Court in cases involving similar questions. These authorities clarified that the limitation period for assessments under section 153C is to be reckoned from the date of recording satisfaction by the AO of the non-searched person, which corresponds to the date of search or the date when the satisfaction is recorded, whichever is relevant.

Applying these principles, the Court observed that the satisfaction in the present case was recorded on 20.09.2018, and the notice under section 153C was issued on 24.09.2018. The search itself occurred on 22.10.2016. The Court concluded that the block period should be calculated from the AY relevant to the year in which the satisfaction was recorded, i.e., AY 2019-20, not from the date of receipt of seized material.

Competing arguments by the Revenue, which sought to rely on the date of receipt as the starting point, were rejected on the basis that such interpretation would conflict with judicial pronouncements and the legislative intent behind the amendments.

Issue 2: Applicability of Amendments to Section 153C Effective from 01.04.2017

The Revenue contended that the amendments introduced by the Finance Act, 2017, effective from 01.04.2017, clarified that the block period for assessments under section 153C must be calculated from the date of search. Since the satisfaction in the present case was recorded on 20.09.2018, after the amendment, the amended provisions should apply.

The CIT(A) held that the amended provisions were not relevant to the instant case because the search was conducted on 22.10.2016, prior to the amendment's effective date. The Court examined this position and noted that judicial decisions have held that the limitation period must be computed with reference to the date of recording satisfaction, which in this case was after the amendment.

However, the Court gave precedence to the principle that the block period for assessments under section 153C is to be reckoned from the AY relevant to the year in which the satisfaction is recorded, regardless of the amendment date. The reasoning was that the amendment clarified the law but did not retrospectively affect searches conducted before its commencement.

Thus, the Court affirmed the CIT(A)'s conclusion that the assessment for AY 2012-13 was barred by limitation, as it fell outside the six-year block period reckoned from AY 2019-20.

Issue 3: Harmonization of Block Periods under Sections 153A and 153C

The Revenue argued that the block periods under sections 153A and 153C are identical and must be calculated from the assessment year relevant to the previous year in which the search was conducted, to avoid different limitation periods for searched and non-searched persons.

The Court acknowledged the principle of harmonious construction of provisions to avoid anomalous situations. It observed that the legislative intent is to ensure parity in limitation periods for assessments arising out of search and seizure operations, whether against the searched person or others connected to the seized material.

However, the Court emphasized that the computation of the block period must align with the date of recording satisfaction by the AO, which, in the case of non-searched persons, is often later than the date of search. This interpretation prevents premature limitation expiry and ensures procedural fairness.

The Court rejected the Revenue's contention that the block period must be reckoned from the date of search alone, noting that such a rigid approach would conflict with judicial precedents and create practical difficulties.

Issue 4: Interpretation of Implementation Provisions Consistent with Charging Provisions

The Revenue contended that the implementation provisions of sections 153A and 153C must be interpreted in consonance with the charging provisions to avoid anomalous situations where different limitation periods apply to searched and non-searched persons.

The Court agreed with the principle that statutory provisions should be construed harmoniously to avoid conflict and absurdity. It noted that both sections aim to facilitate assessments in cases involving search and seizure, and limitation periods must be consistent.

However, the Court found that the interpretation adopted by the CIT(A) and supported by judicial precedents did not create any anomaly but rather ensured that the limitation period for non-searched persons commences from the date of recording satisfaction, which is a reasonable and practical approach.

The Court observed that such interpretation aligns with the legislative intent and avoids the risk of assessments being barred prematurely, which could defeat the purpose of the provisions.

Issue 5: Jurisdictional Validity of Assessment Order for AY 2012-13

The appellant challenged the jurisdiction of the AO to issue notice and complete assessment under section 153C for AY 2012-13, arguing that the six-year limitation period had expired.

The CIT(A) allowed the appeal on this ground, holding that the block period of six AYs must be reckoned from AY 2019-20 (the AY relevant to the year in which satisfaction was recorded), and therefore, AY 2012-13 falls outside this period.

The Court concurred with this view, relying on authoritative decisions of the Hon'ble Supreme Court and the Delhi High Court, which held that the limitation period under section 153C is computed from the date of recording satisfaction, not the date of search or receipt of seized material.

Consequently, the assessment order for AY 2012-13 was held to be barred by limitation and thus invalid.

Significant Holdings and Core Principles Established

The Court upheld the following key legal principles:

"The six-year period as referred in section 153C(1) shall be computed with reference to the date of recording of the satisfaction note by the concerned Assessing Officer, which corresponds to the assessment year relevant to the previous year in which such satisfaction is recorded."

"The block periods under sections 153A and 153C have the same meaning and are to be harmoniously construed to avoid anomalous situations, but the limitation period for non-searched persons under section 153C commences from the date of recording satisfaction by the AO of the non-searched person."

"Amendments to section 153C effective from 01.04.2017 clarify the law but do not retrospectively affect searches conducted before the amendment's effective date."

"An assessment order passed under section 153C for an assessment year falling outside the six-year block period reckoned from the AY relevant to the date of recording satisfaction is barred by limitation and thus invalid."

Applying these principles, the Court dismissed the Revenue's appeal and upheld the CIT(A)'s order quashing the assessment for AY 2012-13 as barred by limitation.