2024 (4) TMI 268 - HC - Income Tax

Assessment u/s 153C/153A - certain pre-conditions which must be satisfied before assessment or reassessment action can be commenced in respect of the relevant assessment year - computation of the six AYs and then ten year block - Satisfaction note for initiating proceedings u/s 153C by AO of other than the searched person - whether notices for AYs 2010-11, 2011-12, 2012-13 and 2013-14 fall beyond the ambit of relevant assessment year as defined by Explanation 1 to Section 153A when computed from the date of handover of the requisite material to the AO of the other person , with the said phrase being an allusion to the non-searched entity - Interim order was passed to the effect that while the AO would have liberty to continue the reassessment proceedings, any adverse orders if passed against the petitioner, would not be given effect to until further orders of the Court. Whether the limit of INR 50 lakhs which is spoken of must be satisfied in each of the relevant assessment year or could the prescriptions of clause (a) be said to be satisfied if that monetary precondition is met on a cumulative calculation of the total asset value pertaining to the years opened up for assessment or reassessment as the case may be? - HELD THAT - Prior to the insertion of Sections 153A, 153B, and 153C in the Chapter pertaining to procedure for assessment, an assessment in respect of search cases was governed and regulated by Chapter XIVB of the Act. The said Chapter comprising of Sections 158B to 158BH set out the procedure for assessment or reassessment proceedings being undertaken as a fallout of a search which may have been conducted. Chapter XIVB spoke of assessments being undertaken for a block period comprising of six AYs preceding the previous year in which the search may have been conducted or a requisition made. In terms of Section 158BA, the total undisclosed income relating to the block period as determined was to be taxed at rates specified in Section 113 as income of the block period irrespective of the previous year or years to which such income related. As would be manifest from a reading of the various provisions that stood placed in that Chapter, they essentially contemplated and envisaged two separate assessments being undertaken, namely, one pertaining to the block period and which would get triggered pursuant to a search or a requisition made and the second consisting of a regular assessment proceeding parallelly and unconcerned with the computation of the undisclosed income identified for the said block period. Sections 153A, 153B and 153C were introduced by virtue of Finance Act, 2003. The trinity provisions constituted a paradigm change in the manner in which search assessments were liable to be conducted. They set up a procedure clearly distinct from that which was envisaged under Chapter XIVB and were ordained to apply in respect of all searches or requisitions made after 31 May 2003. The fact that these provisions were envisaged to now govern and regulate all search assessments came to be reinforced by virtue of the introduction of Section 158BI and thus bringing the curtains down on the block period assessment procedure set out in Chapter XIVB and which had held the field till then. While Section 153A pertained to assessment in case of the person searched, it undoubtedly laid in place the assessment machinery for the non-searched person and in respect of whom the search may have led to the identification of money, bullion, jewellery or other valuable article or thing, books of account, documents belonging to that other person . Section 153C did not lay in place a separate procedure for assessment and merely postulated that assessment or reassessment, as the case may be, would have to be undertaken in accordance with the provisions of Section 153A. The next and crucial amendments which came to be made in Sections 153A, 153B and 153C were introduced by virtue of the Finance Bill, 2017 and which for the first time adopted the concept of the relevant assessment year and provided an explanation for the said term. The definition of the expression relevant assessment year also came to be introduced by virtue of this Bill. Reverting then to the principal provisions made in Section 153A and as the provision stands presently, we find that it essentially enables the AO to issue notice to the searched person requiring it to submit a return of income in respect of each AY falling within the six AYs as well as for the relevant assessment year . As noticed hereinabove, all pending assessments or reassessments pertaining to the period of six AYs or the relevant assessment year would abate in light of the Second Proviso to Section 153A(1). Identifying the point of origin for the purposes of computation of the six AYs and then ten year block and the relevant assessment year as defined by Section 153A - As is manifest from a plain reading of Section 153C, the six AYs are ordained to be those which immediately precede the AY relevant to the previous year in which the search may have been conducted or requisition made. The block of six AYs would thus have to be identified bearing in mind the AY pertaining to the FY in which the search had been conducted or requisition made. The aforesaid AY would thus constitute the anchor point for the purposes of identification of the six AYs . The statute envisages a similar process to be adopted for the purposes of computation of the relevant assessment year and where applicable constructs a block of ten AYs . The significant difference between the two however is that while the six AYs hinge upon the phrase immediately preceding the AY pertaining to the search year, the ten AYs are liable to be computed or reckoned from the end of the AY relevant to the year of search. In our considered opinion, the petitioners have correctly identified the aforesaid distinction as being crucial and determinative for the purposes of reckoning the six and the ten AY block period. Computation of the Six and Ten year Block in present batch of WPs - Viewed in that light, and while keeping the period of 01 April 2021 to 31 March 2022 as the constant, the relevant AY would be AY 2022-23. The ten AYs would have to be computed from 31 March 2023 with the said date indubitably constituting the end of the AY relevant to the previous year of search. Viewed in light of the above, it would be manifest that AY 2022-23 would form the first year of the block of ten AYs and with the maximum period of ten AYs terminating in AY 2013-14. The petitions forming part of List I pertain to AYs 2010-11, 2011-12 and 2012-13. So far as the aforenoted writ petitions are concerned, undisputedly AY 2010-11, 2011-12 and 2012-13 fall beyond the maximum period of ten AYs . Since the ten AYs , when computed from the end of AY 2022-23 would terminate upon AY 2013-14, AYs 2010-11, 2011-12 and 2012-13 would clearly fall outside the block period of ten AYs and cannot legally or justifiably be reopened under Section 153C read with Section 153A of the Act. Proceeding then to List II, we find that the petitions placed in that list pertain to cases where the hand over occurred in FYs 2022-23 and 2023-24. Consequently, the relevant AYs would be AY 2023-24 and AY 2024-25 respectively. In light of the principles enunciated by us and which explain how the period of six and ten AYs is liable to be computed, the reopening of assessments pertaining to AYs 2010-11, 2011-12, 2012-13 and 2013-14 would clearly fall beyond the ambit of ten AYs as provided under Section 153C read with Section 153A. We note in this behalf that all of the writ petitions forming part of List II pertain to the aforenoted AYs 2010-11, 2011-12, 2012-13 and 2013-14. We are therefore of the opinion that the Section 153C notices issued against the writ petitioners placed in List I and insofar as they pertain to AYs 2010-11, 2011-12 and 2012-13 would not sustain being beyond the relevant assessment year which could have possibly formed the basis for initiation of action under that provision. Similarly, the Section 153C notices impugned by the writ petitioners placed in List II and insofar as they pertain to AYs 2010-11, 2011-12, 2012-13 and 2013-14 and which have been found to fall outside the net of relevant assessment year , being the ten year block, would be liable to be set aside on this score alone. Thresholds as per the fourth proviso of section 153A - The notice u/s 153C would have to clearly reflect due application of mind by the AO in this respect and be prima facie sustainable. The formation of opinion in this respect would have to be based not on mere ipse dixit but reflective of being based on a fair assessment of the quantum of income likely to have escaped assessment as opposed to being speculative and conjectural. In case the AO intends to reopen assessment for the ten year block period, it would have to be shown that the formation of opinion in that respect is referenced to the material obtained in the search and in its possession and the same having the prospect or likelihood of escaped income being pegged at INR 50 lakhs or more. The Fourth Proviso, when interpreted along the lines suggested by us, and which commends acceptance, would strike a just and appropriate balance between the right of the respondents to initiate proceedings on the basis of material gathered in the course of the search and that of the assessee who could assail the reopening of ten assessment years if the prerequisites are not shown to have been met. We are also of the firm opinion that the figure of INR 50 lakhs is not meant to be the qualifying criteria for each of the relevant assessment year independently. Clause (a) in unambiguous terms uses the expression in aggregate in the relevant assessment years . Consequently, even if the income likely to have escaped assessment on a cumulative computation be in excess of INR 50 lakhs, the same would qualify the statutory requirements as placed by the Fourth Proviso. Issue of Finality/ Closure for AYs' 2010-11 and 2011-12 and applicability of 2017 Amending Act - Sections 153A and 153C are provisions which are triggered by material that may be fortuitously recovered in the course of a search. Both those provisions override and are ordained to operate above and beyond the normal assessment or reassessment provisions. At the time when they were originally introduced in the statute in 2003, they enabled the AO to carry out an assessment exercise stretching over six AYs . In 2017, the provisions came to be amended and the AO consequently came to conferred further power to reopen ten AYs . The power to initiate an assessment under Sections 153A and 153C is separate and distinct from the ordinary reassessment provisions comprised in Section 148. Both sets of provisions are intended to operate in separate silos. The power to assess over a larger period of ten years when introduced in the concerned provisions was made subject only to the preconditions comprised in the Fourth Proviso to Section 153A. All that the Legislature deemed appropriate to provide was to restrict the application of that power to searches conducted on or after 01 April 2017 subject of course to the fulfilment of the other stipulations placed in the provisions and the existence of the jurisdictional prerequisites. The very fact that the statute in unequivocal terms provisioned for it to be applicable to all searches conducted or requisitions made post that date is evidence of the manifest legislative intent for it applying to the relevant assessment year computed in accordance with Explanation 1 placed in Section 153A. We also bear in mind the pertinent observations of the Supreme Court in S.C. Prashar, Income Tax Officer 1962 (12) TMI 53 - SUPREME COURT when it had observed that finality which may ordinarily come to imbue an order of assessment does not result in the creation of a corresponding vested right in the assessee. In any case and for reasons aforenoted, we are of the firm opinion that the judgements rendered in the context of Sections 145-151 would not constitute a prudent basis to interpret Sections 153A and 153C insofar as the argument of closure as canvassed by the writ petitioners is concerned. We consequently find ourselves unable to hold in favour of the writ petitioners insofar as this aspect is concerned. Order - A. Prior to the insertion of Sections 153A, 153B and 153C, an assessment in respect of search cases was regulated by Chapter XIVB of the Act, comprising of Sections 158B to 158BI and which embodied the concept of a block assessment. On a search being undertaken in terms of Section 153A, the jurisdictional AO is enabled to initiate an assessment or reassessment, as the case may be, in respect of the six AYs immediately preceding the AY relevant to the year of search as also in respect of the relevant assessment year , an expression which stands defined by Explanation 1 to Section 153A. B. Both Sections 153A and 153C embody non-obstante clauses and are in express terms ordained to override Sections 139, 147 to 149, 151 and 153 of the Act. By virtue of the 2017 Amending Act, significant amendments came to be introduced in Section 153A. The 2017 Amending Act also put in place certain prerequisite conditions which would have to inevitably be shown to be satisfied before the search assessment could stretch to the relevant assessment year . The preconditions include the prescription of income having escaped assessment and represented in the form of an asset amounting to or likely to amount to INR 50 lakhs or more in the relevant assessment year or in aggregate in the relevant assessment years . C. Section 153C, pertains to the non-searched entity and in respect of whom any material, books of accounts or documents may have been seized and were found to belong to or pertain to a person other than the searched person. As in the case of Section 153A, Section 153C was also to apply to all searches that may have been undertaken between the period 01 June 2003 to 31 March 2021. In terms of that provision, the AO stands similarly empowered to undertake and initiate an assessment in respect of a non-searched entity for the six AYs as well as for the relevant assessment year . The AYs , which would consequently be thrown open for assessment or reassessment under Section 153C follows lines pari materia with Section 153A. D. The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO. 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. E. 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. In the case of a search assessment undertaken in terms of Section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO as opposed to the year of search which constitutes the basis for an assessment under Section 153A. F. 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. G. Thresholds put in place by virtue of the Fourth Proviso to Section 153A are concerned and the argument of the writ petitioners of the condition of INR 50 lakhs being an unwavering precondition, we find ourselves unable to sustain that submission bearing in mind the indubitable fact that proceedings for search assessment commence upon the issuance of a notice and the AO at that stage having really not had the occasion to undertake a detailed or in depth examination of the evidence collected or come to a definitive opinion with respect to the total income which may have escaped assessment. The usage of the phrase likely to is indicative of the Legislature being conscious of the provisional character of the opinion that the AO may have formed at that stage. H. Even if the identified asset at that stage be quantified as less than INR 50 lakhs, the AO must for reasons to be duly recorded, be of the opinion that the ultimate computation of escaped income is likely to exceed INR 50 lakhs. The aforesaid satisfaction would have to be based on an assessment of the material gathered and the potentiality of the same being indicative of the escaped assessment exceeding INR 50 lakhs. T I. Since the precondition of INR 50 lakhs or more constitutes a sine qua non for initiating action for the extended ten year block, the aforesaid satisfaction and the reasons in support thereof would have to borne out from the Satisfaction Note itself. Precondition of INR 50 lakhs is not liable to be viewed as being the qualifying criteria for each relevant assessment year that may be thrown open and that the said condition would stand satisfied if the escaped income cumulatively or in the aggregate meets the minimum benchmark of INR 50 lakhs. J. The contention of finality and closure addressed with respect to AYs 2010-11 and 2011-12 on the basis of the statutory timeframes prescribed for assessment or reassessment and as those provisions stood prior to 01 April 2017 is misconceived, since it proceeds on the assumption that once the period of assessment or reassessment were to come to an end, it would inevitably lead to the creation of a vested right in favour of the assessee. The aforesaid argument proceeds on the incorrect premise of the reassessment provisions controlling or cabining the power conferred by Sections 153A and 153C. Acceptance of the aforesaid contention would amount to ignoring the plain and evident intent of the Legislature for Sections 153A and 153C operating above and beyond the reassessment powers. K. The submission of closure and finality also fails to bear in consideration the indubitable fact that a search is an eventuality which is inherently unpredictable, a circumstance which would defy prophecy and it consequently being wholly irrational to read the time frames pertaining to reassessment as regulating or controlling the period within which an assessment predicated on that event may be initiated. It would be wholly illogical to conceive of a connection between the statutory time frames which are otherwise embodied in the Act and search assessments. In fact the acceptance of this submission would amount to virtually erasing the non obstante clause contained in Sections 153A and 153C. L. The legislative intent of those provisions having retroactive application is clearly evidenced from the statue declaring that they would apply to all searches conducted between 31 May 2003 to 31 March 2021, and the Fourth Proviso in unambiguous terms extending the applicability of those provisions to all searches conducted post 01 April 2017 and Sections 153A and 153C superseding the provisions for reassessment, otherwise appearing in the Act. M. The argument of closure also fails to take note of the accepted distinction between the liability to tax under the Act and the right to assess and enforce a liability created pursuant thereto. As was pertinently observed, the liability to the State exists and operates de hors a consideration of time and in the absence of the statute itself imposing a time limit. The only limitations which are introduced while enacting Sections 153A and 153C was of the period within which the search had been conducted.

Note:- Interpreting the Scope and Limits of Sections 153A and 153C: A Judicial Perspective

Issues Involved:
1. Identification and computation of the block of six and ten Assessment Years (AYs) under Section 153C.
2. Applicability of the 2017 Amending Act to AYs 2010-11 and 2011-12.
3. Satisfaction of the threshold conditions under the Fourth Proviso to Section 153A.
4. Date of commencement for computation of the six and ten-year block periods under Section 153C.

Summary of the Judgment:

1. Identification and Computation of the Block of Six and Ten AYs under Section 153C:
The court held that the six AYs under Section 153C should be computed from the date of receiving the books of account, documents, or assets seized by the jurisdictional Assessing Officer (AO) of the non-searched person, as per the First Proviso to Section 153C(1). This date is different from the date of the search, which is relevant for the searched person under Section 153A. The court affirmed the principles laid down in SSP Aviation Ltd. v. Deputy CIT and RRJ Securities Ltd. v. CIT, which were upheld by the Supreme Court in Jasjit Singh and Vikram Sujitkumar Bhatia. Consequently, the block of six AYs for List I (01 April 2021 to 31 March 2022) would be AYs 2016-17 to 2021-22, and for List II (01 April 2022 to 31 March 2023) would be AYs 2017-18 to 2022-23.

2. Applicability of the 2017 Amending Act to AYs 2010-11 and 2011-12:
The court rejected the argument that the 2017 Amending Act does not apply to AYs 2010-11 and 2011-12 because the period for assessment or reassessment had ended before 01 April 2017. The court emphasized that Sections 153A and 153C, which override Sections 139, 147, 148, 149, 151, and 153, do not prescribe a specific period within which a notice must be issued. The amendments introduced by the 2017 Amending Act, which expanded the block period to ten AYs, apply to all searches conducted after 01 April 2017. The court held that the legislative intent was clear in applying these provisions retroactively.

3. Satisfaction of the Threshold Conditions under the Fourth Proviso to Section 153A:
The court held that the threshold of INR 50 lakhs mentioned in the Fourth Proviso to Section 153A is a preliminary condition that the AO must be satisfied with before issuing a notice. The AO must form an opinion based on the material gathered during the search that the income likely to have escaped assessment amounts to or is likely to amount to INR 50 lakhs or more. This threshold can be satisfied on a cumulative basis across the relevant assessment years.

4. Date of Commencement for Computation of the Six and Ten-Year Block Periods under Section 153C:
The court reiterated that the date of commencement for computation of the six and ten-year block periods under Section 153C is the date of receipt of the books of account, documents, or assets seized by the jurisdictional AO of the non-searched person. This date is different from the date of the search, which is relevant for the searched person under Section 153A. The court held that the computation of the ten-year block period should be from the end of the AY relevant to the previous year in which the search was conducted.

Disposition:
The court quashed the impugned notices for AYs 2010-11, 2011-12, 2012-13, and 2013-14 in Lists I and II as they fall beyond the maximum ten-year block period. The court also quashed the impugned notices in WP(C) Nos. 400/2024, 384/2024, and 383/2024 for the same reason. However, in WP(C) 694/2024, the court quashed the notice but allowed the AO to re-examine the escaped income's likelihood of exceeding INR 50 lakhs. ITA 52/2024 filed by the Department was dismissed.

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