2022 (10) TMI 569 - HC - Income Tax

Assessment u/s 153A/153C - time frame for framing of an assessment - Capital gains arising from a transaction of sale of property - HELD THAT - The time frame for framing of an assessment in terms of Section 153C has been fixed bearing in mind the practical consideration that, assimilation of materials relating to the third person to whom those assessments relate, is bound to take some time. More often than not, it is only upon completion of the primary assessments (under S.153A) that the Assessing Officer even comes to a reasoned conclusion as to whether proceedings are to be initiated against such other person or not. Thus, the transmission of seized materials/books/financials relating to the third person could take place at some distance of time from the framing of the Section 153A assessments. It is for this reason that Section 153C(2) provides for the framing of the assessment in respect of the year of search as well, subject to the seized materials being received by the Assessing Officer after the due date for furnishing of the return of income for the year of search. The handing over of the materials is before the due date for filing of returns which, in both cases, is 31.08.2018. In addition, the applicability of the situations adumbrated under clauses (a), (b) and (c) must be tested. The three conditions operate on a stand-alone basis, separated by the conjunction 'or', and not concurrently and the satisfaction or otherwise of any one of the three conditions would suffice to decide the question of jurisdiction. The second and third conditions are inapplicable since both petitioners have filed returns of income and no assessments have been framed. Condition (b) reads as follows, (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired'. In the case of the petitioner the return has been filed on 26.09.2018 under Section 139(4), and is thus a valid return. Notice under Section 143(2) has been issued on 27.08.2019, also within time. Condition (b) is thus not satisfied and no proceedings may be initiated under Section 153C. The impugned order of assessment is set aside and this Writ Petition is allowed.

Summary

Issues:
1. Challenge to notices under Section 142(1) of the Income Tax Act, 1961 for A.Y. 2015-16.
2. Validity of assessment order under Section 153C of the Act.
3. Validity of assessment falling outside the block period under the scheme of block assessment.

Analysis:
1. The first set of issues revolved around challenges to notices under Section 142(1) of the Income Tax Act, 1961 for A.Y. 2015-16. The petitioners had previously challenged a regular assessment related to the same year, which was dismissed by a learned single Judge. The petitioners were directed to file an appeal before the Commissioner of Income Tax (Appeals) and pursue statutory remedies. The court emphasized the importance of appearing before the assessing authority and providing necessary materials in support of the returns filed under Section 153C for further proceedings.

2. The second issue involved the validity of an assessment order passed under Section 153C of the Act. The court examined the provisions of Section 153C(2) and the explanatory notes in Circular No.3 of 2006 to interpret the conditions for framing assessments in search and seizure cases. The court noted that the time frame for framing assessments under Section 153C considered practical aspects of assimilating materials related to third parties post-primary assessments. The judgment analyzed the applicability of conditions under Section 153C(2) and set aside an impugned assessment order based on the satisfaction of the conditions.

3. The final issue addressed the validity of an assessment falling outside the block period specified under the block assessment scheme. The petitioners argued that the assessment for the year 2018-19 was beyond the block period due to a search conducted in 2017. The court examined the provisions of Section 153C and the limitation for framing assessments upon other persons post-search. The judgment differentiated between the conditions under Section 153C(2) and concluded that one of the petitioners satisfied the conditions, leading to the confirmation of the assessment order, while the other petitioner did not meet the conditions, resulting in the setting aside of the impugned order.

In conclusion, the High Court of Madras addressed multiple issues related to challenges against notices, validity of assessment orders under Section 153C, and assessments falling outside the block period. The judgment provided detailed analysis of the legal provisions, conditions, and practical considerations to arrive at decisions for each issue presented before the court.