2019 (6) TMI 746 - HC - Income Tax

Assessment u/s 153C - maintainability of petition - whether proceedings initiated by issuance of notice u/s 153C are wholly without jurisdiction? - effective and efficacious appeal remedy - HELD THAT - This case clearly falls within the exceptions carved out in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai 1998 (10) TMI 510 - SUPREME COURT and hence, the contention that these petitions under article 226 of the Constitution of India are not maintainable, cannot be accepted. Moreover, as noticed earlier, there are a few petitions in which the assessment orders have already been passed. In those cases also, the petitioners have challenged the notices u/s 153C on the ground of lack of jurisdiction. While against the assessment order, there is a remedy of statutory appeal under the provisions of the Income Tax Act, however, in the light of the above decision of the Supreme Court wherein it has been held that when the proceedings are wholly without jurisdiction, the alternative remedy does not operate as a bar to a writ petition under article 226 of the Constitution of India, it is not possible to non suit the petitioners on the ground of maintainability. Effect of amendment in Section 153C w.e.f .1st June, 2015 - law applicability on search prior to amendment and notice u/s 153C issued after amendment - HELD THAT - While it is true that sections 153A and 153C are machinery provisions, but the same cannot be made applicable retrospectively, when the amendment has expressly been given prospective effect. Besides, though such provisions are machinery provisions, the amendment brings into its fold persons who are otherwise not covered by the said provisions and therefore, affects the substantive rights of such person. The test would be whether at the first point of time when satisfaction could have been recorded by the AO of the person searched, could he have recorded the satisfaction as envisaged under the amended provision. Section 153C has also been amended to provide a reference to the relevant assessment year or years as referred to in section 153A. It is also stated therein that thus, the amendment will take effect from 1st April, 2017. Therefore, even the CBDT, in the context of the amended provisions of section 153A, has clarified that it would apply when search or requisition is made after the date of the amendment. Evidently, therefore, even the amended provisions of section 153C would apply when search or requisition is made after the amendment. when the amended provisions of section 153C (1) have been brought into force with effect from 1st June, 2015, it has to be construed that such amended provisions would apply to a search initiated u/s 132 or in relation to books of account, other documents or any assets requisitioned u/s 132A after 31st May, 2015. Consequently, in relation to searches carried out till 31st May 2015, it was not permissible for the AO to assume jurisdiction u/s 153C as amended with effect from 1st June, 2015. Notices u/s 153C as barred by limitation - twenty one months from the end of the FY in which the search was conducted or nine months from the end of the FY in which the books of account or documents or assets seized or requisitioned are handed over - HELD THAT - Thus while computing the period of limitation one has to consider the period of limitation provided under clause (a) or clause (b) of sub-section (1) of section 153B of the Act, as well as the alternative limitation of nine months from the end of the financial year in which the books of account or documents or assets seized or requisitioned are handed over u/s 153C to the AO having jurisdiction over such other person, whichever is later. Therefore, when the statute itself provides for an alternative period of limitation, merely because the period of limitation is provided under the first part has elapsed; it cannot be said that the notices are barred by limitation on this ground. Since on the main issue, viz. on the question of assumption of jurisdiction of the AO u/s 153C, this court has held in favour of the petitioners, it is not necessary to dwell on the issue any further. Similarly, this court also refrains from entering into the larger controversy as to whether the proceedings before the Settlement Commission could be said to be assessment proceedings and whether the AO of the searched person was justified in waiting for the conclusion of the said proceedings before recording the requisite satisfaction u/s 153C Relevant assessment years contemplated u/s 153A - HELD THAT - On a plain reading of section 153A, it is evident that the trigger point for issuance of notice under that section is a search u/s 132 or a requisition u/s 132A. Notice is required to be issued to the searched person calling upon him to file return of income for six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, insofar as computation of the six assessment years in respect of which notice is required to be issued is concerned, the relevant date is the immediately preceding assessment year relevant to the previous year in which such search is conducted or requisition is made. Accordingly, in terms of clause (b) of sub-section (1) of section 153A, in case of HN Safal Group, since the search is conducted on 4.9.2013 the previous year in which such search is conducted or requisition made is 1.4.2013 to 31.3.2014 and the assessment year relevant to such previous year would be 2014-15; therefore, the six years assessment years would be the six assessment years preceding assessment year 2014-15 which would be 2013-14, 2012-13, 2011-12, 2010-11, 2009-10 and 2008-09. In case of Barter Group and Venus Group, since the search is conducted on 4.12.2014 and 13.3.2015 respectively, the previous year in which such search is conducted or requisition made is 2014-15 and the assessment year relevant to such previous year would be 2015-16 and therefore, the six assessment years preceding 2015-16 would be 2014-15, 2013-14, 2012-13, 2011-12, 2010- 11 and 2009-10. Therefore, in case any notices u/s 153C which have been issued for assessment years beyond the six assessment years referred to herein above, such notices would be beyond jurisdiction as the same do not fall within the six assessment years as contemplated u/s 153A - The impugned notices issued u/s 153C in each of the petitions are hereby quashed and set aside. In cases where the assessment orders are subject matter of challenge, the impugned assessment orders are hereby quashed and set aside on the ground that the very initiation of proceedings u/s 153C was without jurisdiction. . - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the amended provisions of Section 153C of the Income Tax Act, 1961, which came into effect from 1st June 2015, apply to searches conducted prior to that date.
2. Whether the notices issued under Section 153C are barred by limitation.
3. Determination of the relevant assessment years under Section 153A in connection with Section 153C.
4. The validity of the satisfaction notes recorded by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Applicability of Amended Provisions of Section 153C:
The court examined whether the amended Section 153C, effective from 1st June 2015, applies to searches conducted before this date. The court noted that the amendment expanded the scope of Section 153C to include documents that "pertain to" or "relate to" a person other than the searched person. The court held that the relevant date for applying the amended provisions is the date of the search, not the date of the satisfaction note or the issuance of the notice. Since the searches in these cases were conducted before 1st June 2015, the amended provisions do not apply. The court emphasized that applying the amended provisions to pre-amendment searches would result in an anomalous situation and affect substantive rights, which cannot be done retrospectively unless expressly stated by the legislature.

2. Limitation for Issuance of Notice under Section 153C:
The petitioners contended that the notices under Section 153C were barred by limitation as the period for assessment under Section 153A had expired. The court clarified that Section 153B provides for the time limit for completion of assessment under Section 153A, and the proviso to Section 153B(1) provides an alternative limitation period for assessments under Section 153C. The court held that the statute does not prescribe a limitation period for the issuance of notices under Section 153C, and therefore, the notices cannot be considered time-barred. The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Calcutta Knitwears, which held that the satisfaction note under Section 158BD (analogous to Section 153C) could be prepared at various stages and does not have a prescribed limitation period.

3. Relevant Assessment Years under Section 153A:
The court addressed the determination of relevant assessment years for which proceedings could be initiated under Section 153C. It held that the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted should be considered. For the HN Safal Group, the search conducted on 4th September 2013 meant the relevant assessment years were 2008-09 to 2013-14. For the Barter Group and Venus Group, searches conducted on 4th December 2014 and 13th March 2015 meant the relevant assessment years were 2009-10 to 2014-15. Notices issued for assessment years beyond these periods were deemed beyond jurisdiction.

4. Validity of Satisfaction Notes:
The petitioners argued that the satisfaction notes recorded by the Assessing Officer were not valid as they merely reproduced the satisfaction of the Assessing Officer of the searched person without independent application of mind. The court refrained from delving into the specifics of each satisfaction note, given its primary finding on the jurisdictional issue. However, it emphasized that the satisfaction note must be recorded immediately after the assessment proceedings in the case of the searched person, as per the Supreme Court's guidelines in Calcutta Knitwears.

Final Order:
The court allowed the petitions, quashing the impugned notices issued under Section 153C and the assessment orders where applicable, on the ground that the initiation of proceedings under Section 153C was without jurisdiction.