2025 (4) TMI 1455 - HC - Income Tax

Validity of notice issued u/s 153C as barred by limitation - Reckoning of limitation period of 6 years - HELD THAT - In the cases on hand the search was conducted on 10.11.2020. Thereafter on 30.06.2022 the documents/materials were collected from the petitioner who is the other person. In terms of 1st proviso to Section 153C(1) the limitation would start from the date on which the materials were collected from the other person viz. petitioner. In this case the search was conducted on 10.11.2020. Thereafter the documents or assets were seized or requisitioned by the Assessing Officer on 30.06.2022 and the show cause notice dated 30.12.2024 was issued. The claim of the petitioner is that the date of issuance of show cause notice should be considered as the date of initiation of proceedings as far as other person is concerned and hence the limitation period of 6 year has to be calculated from the said date in which case the present proceedings are barred by limitation. In this case on 10.11.2020 the search was not conducted in the petitioner s premises. The petitioner is the other person from whom the documents or assets were seized or requisitioned on 30.06.2022 and thus the said date i.e. 30.06.2022 only has to be considered for calculating the limitation period of 6 years. With regard to all other aspects i.e. for initiation or completion of proceedings it is left open for the petitioner to give suitable reply to the show cause notice dated 30.12.2024 and contest the same in accordance with law if so advised. As far as the settlement arrived at IBS is concerned even though the case was settled before the IBS the liberty is granted to the Department to proceed further in future if any new material is found. When such being the case this Court finds no substance in the submissions made by the petitioner on this aspect. This Court does not find any merits in the submissions made by the petitioner on the aspect of limitation and thus this Court is not inclined to interfere with either the impugned notices. Writ petitions are liable to be dismissed.

Issues Presented and Considered

1. Whether the notice issued under Section 153C of the Income Tax Act dated 30.12.2024 is barred by limitation, considering the date of initiation of proceedings and the date of collection of materials from the petitioner, who is the "other person" under Section 153C.

2. The interpretation of the limitation period under Section 153C, specifically whether the six-year limitation period begins from the date of issuance of the show cause notice or from the date of receiving the seized materials by the Assessing Officer having jurisdiction over the "other person."

3. Whether the petitioner is estopped from contesting the proceedings on the ground of limitation, having previously settled the matter before the Interim Board for Settlement (IBS).

4. The applicability and scope of the provisos to Section 153C(1) of the Income Tax Act, especially in relation to the limitation period and procedural aspects when dealing with "other persons" whose documents or assets are seized during a search conducted on another person.

Issue-wise Detailed Analysis

Issue 1 & 2: Limitation Period under Section 153C

The legal framework centers on Section 153C of the Income Tax Act, which governs the assessment of income of any "other person" when books of account, documents, or assets seized during a search or requisition relate to a person other than the one originally searched. The section provides that the Assessing Officer having jurisdiction over such other person shall proceed to assess or reassess income, subject to a limitation period of six years.

The crucial interpretative question was the starting point for the limitation period: whether it should be reckoned from the date of initiation of the search or requisition (as per usual cases under Section 153A) or from the date when the seized materials are handed over to the Assessing Officer of the other person, as per the first proviso to Section 153C(1).

The petitioner contended that the limitation should be counted from the date of issuance of the show cause notice (30.12.2024), which would render the notice barred by limitation since the relevant assessment year was 2017-18. The petitioner relied on the Apex Court's judgment in CIT vs. Jasjit Singh, which held that limitation runs from the date of issuance of the show cause notice.

The respondent argued that the limitation period starts from the date of receipt of the seized materials by the Assessing Officer having jurisdiction over the other person, which in this case was 30.06.2022, and the notice dated 30.12.2024 was therefore well within the six-year period.

The Court analyzed the statutory language of Section 153C, especially the first proviso which states: "in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person."

The Court noted that the search was conducted on 10.11.2020, but the petitioner was not the searched person; rather, the petitioner was the other person from whom materials were seized on 30.06.2022. Thus, the limitation period for issuing notice under Section 153C began on 30.06.2022, not the date of search (10.11.2020) or the date of issuance of the show cause notice (30.12.2024).

The Court distinguished the petitioner's reliance on the Apex Court judgment by clarifying that the limitation under Section 153C is governed by its specific proviso, which modifies the general rule applicable under Section 153A. Therefore, the limitation period was correctly calculated by the respondent, and the issuance of the notice on 30.12.2024 was within the permissible time frame.

Issue 3: Effect of Settlement Before the Interim Board for Settlement (IBS)

The petitioner submitted that since a settlement was earlier arrived at before the IBS, it is unfair and impermissible for the Department to reopen or raise the same issue again. The petitioner relied on a Delhi High Court decision which emphasized finality in such settlements.

The respondent clarified that the settlement before the IBS was subject to the liberty granted to the Department to proceed with further action if new material was found subsequently. This liberty was explicitly recognized and preserved.

The Court concurred with the respondent's position, holding that the earlier settlement did not bar fresh proceedings if new incriminating material surfaced. Hence, the petitioner's contention that the matter was res judicata or barred by prior settlement was rejected.

Issue 4: Applicability and Interpretation of Section 153C Provisos

The Court undertook a detailed examination of the provisos to Section 153C(1), emphasizing that they are designed to address the procedural and limitation aspects uniquely applicable to "other persons" whose documents or assets are seized during a search conducted on another person.

The first proviso effectively shifts the reference date for limitation from the date of search or requisition to the date of receipt of seized materials by the Assessing Officer of the other person, thereby ensuring fairness and clarity in proceedings against such other persons.

The Court found that the respondent had correctly followed the statutory scheme, and the limitation was calculated in accordance with the law. The petitioner was free to contest the show cause notice on merits by filing a suitable reply within the prescribed time.

Significant Holdings

"In case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person."

This provision clarifies that for limitation purposes under Section 153C, the date of receipt of seized materials by the Assessing Officer of the other person is the relevant date, not the date of search on the original person.

The Court held that the issuance of the notice dated 30.12.2024 was within the six-year limitation period, as the seized materials were handed over on 30.06.2022.

The Court rejected the petitioner's plea that the proceedings were barred by limitation or estopped by prior settlement before the IBS, affirming that liberty to initiate fresh proceedings exists if new material is found.

The writ petitions challenging the notice under Section 153C and the impugned order dated 13.03.2025 were dismissed, with liberty granted to the petitioner to file a reply to the show cause notice within 30 days.

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