2025 (2) TMI 606 - AT - Income Tax

Validity of proceedings u/s 153C - period of limitation - reckoning of six assessment years - HELD THAT - Hon ble Supreme Court in the case of ITO Vs. Vikram Sujitkumar Bhatia 2023 (4) TMI 296 - SUPREME COURT held that six assessment years has to be computed from the assessment year relevant to the financial year in which the bogus documents or assets are received by the ld. AO of the other persons from the ld. AO of the search person. Therefore considering the facts of the case in the light of the above decisions we are inclined to hold that the assessment year 2015-16 is beyond the period of six assessment years which could be reopened u/s 153C of the Act. Accordingly the assessment order framed u/s 153C of the Act is quashed. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the proceedings under Section 153C of the Income Tax Act for the assessment year 2015-16 are barred by limitation, given the timeline for reopening assessments.
Whether the additions made by the Assessing Officer (AO) under Section 153C are valid, particularly in the absence of incriminating material seized during the search.
Whether the amendment made by the Finance Act, 2017, affects the computation of the six-year period for reopening assessments under Section 153C.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation Period for Reopening Assessments under Section 153C

Relevant Legal Framework and Precedents: Section 153C of the Income Tax Act deals with assessments of income of any other person, other than the person searched, based on seized materials. The first proviso to Section 153C specifies that the date of initiation of search for such other persons is the date on which the AO receives the seized materials.
Court's Interpretation and Reasoning: The Tribunal interpreted the first proviso to Section 153C, emphasizing that the six-year period for reopening assessments should be computed from the assessment year relevant to the financial year in which the AO of the other person received the seized materials.
Key Evidence and Findings: The AO received the seized materials on 26.09.2022. Thus, the six-year period should be computed from the assessment year 2023-24, making the assessment year 2015-16 fall outside this period.
Application of Law to Facts: The Tribunal applied the first proviso to Section 153C and concluded that the assessment year 2015-16 is beyond the permissible period for reopening under Section 153C.
Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the six-year period should be reckoned from the date of the search but found it unpersuasive in light of the proviso and relevant case law.
Conclusions: The Tribunal concluded that the assessment year 2015-16 is barred by limitation under Section 153C, rendering the proceedings void.

Issue 2: Validity of Additions Made Under Section 153C

Relevant Legal Framework and Precedents: Additions under Section 153C require a connection to incriminating material seized during the search.
Court's Interpretation and Reasoning: The Tribunal noted that the additions were not based on any incriminating material seized during the search, making them invalid.
Key Evidence and Findings: The CIT(A) had already ruled that the additions were not linked to seized materials, and the Tribunal upheld this finding.
Application of Law to Facts: The Tribunal applied the requirement for a nexus between seized materials and additions, determining that the lack of such a nexus invalidated the additions.
Treatment of Competing Arguments: The Tribunal did not find any compelling arguments from the Revenue to counter the lack of incriminating material.
Conclusions: The Tribunal concluded that the additions made by the AO were not maintainable due to the absence of relevant seized materials.

Issue 3: Impact of the Finance Act, 2017 Amendment

Relevant Legal Framework and Precedents: The Finance Act, 2017, amended Sections 153A and 153C, affecting the computation of the six-year period for reopening assessments.
Court's Interpretation and Reasoning: The Tribunal interpreted the amendment as not altering the requirement that the six-year period be computed from the date the AO receives the seized materials.
Key Evidence and Findings: The Tribunal relied on case law and the unchanged proviso to Section 153C to support its interpretation.
Application of Law to Facts: The Tribunal determined that the amendment did not impact the computation of the six-year period in this case.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's interpretation that the amendment equated the dates for Sections 153A and 153C.
Conclusions: The Tribunal concluded that the Finance Act, 2017, did not affect the application of the first proviso to Section 153C in this case.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the assessment year 2015-16 is beyond the six-year period for reopening under Section 153C, making the proceedings void.
The Tribunal upheld the CIT(A)'s finding that the additions were not based on incriminating material, rendering them invalid.
The Tribunal confirmed that the Finance Act, 2017, did not alter the computation of the six-year period from the date the AO receives seized materials.
The Tribunal's decision was influenced by precedents from the Delhi High Court, Madras High Court, Gujarat High Court, and the Supreme Court, which supported the interpretation of the first proviso to Section 153C.

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