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

Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2024 (4) TMI 268 - DELHI HIGH COURT

Here is a comprehensive analysis of the judgment in the form of an article, covering all the relevant issues:

Interpreting the Scope of Search Assessment Provisions: A Judicial Analysis 

Introduction

This article delves into a significant judgment by the High Court, providing a comprehensive analysis of the provisions governing search assessments under the Income Tax Act. The judgment tackles intricate issues related to the interpretation of Sections 153A and 153C, the time frames for initiating search assessments, and the interplay between these provisions and the regular assessment or reassessment procedures.

Arguments Presented

The primary contention raised by the petitioners revolved around the argument of finality and closure of assessments. They asserted that once the statutory time frames prescribed for assessment or reassessment u/ss 147 and 148 had lapsed, it would inevitably lead to the creation of a vested right in favor of the assessee, precluding any further action.

The petitioners further challenged the applicability of the extended ten-year block period introduced by the 2017 amendments to Section 153A, arguing that it could not be applied retrospectively to searches conducted prior to April 1, 2017.

Additionally, the petitioners contended that the condition 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, as stipulated in the Fourth Proviso to Section 153A, constituted an unwavering precondition for initiating action for the extended ten-year block.

Discussions and Findings of the Court

The Court engaged in a comprehensive analysis of the search assessment provisions, examining their legislative intent, scope, and interplay with the regular assessment procedures.

Distinction between Liability to Tax and Right to Assess

Relying on the decision in CB. RICHARDS ELLIS MAURITIUS LTD. Versus ASSISTANT DIRECTOR OF INCOME TAX AND ORS - 2012 (6) TMI 37 - DELHI HIGH COURT, the Court emphasized the distinction between the liability to tax under the Act and the right to assess and enforce that liability. While a statute may restrict an authority's power to enforce a liability, conferring finality upon an assessment, this position prevails only until the statutory restrictions are removed. The Court highlighted that the deprivation of the power to enforce does not lead to the creation of a vested right in favor of the assessee.

Overriding Effect of Sections 153A and 153C

The Court underscored that Sections 153A and 153C embody non-obstante clauses and are expressly ordained to override Sections 139, 147 to 149, 151, and 153 of the Act. These provisions operate above and beyond the ordinary reassessment provisions, triggered by the fortuitous recovery of material during a search.

Computation of the Six-Year and Ten-Year Block Periods

Regarding the computation of the six-year and ten-year block periods, the Court provided the following guidance:

• The six assessment years (AYs) would be those immediately preceding the AY relevant to the previous year of search.

• For a non-searched entity u/s 153C, the previous year of search is substituted by the date or year when the seized books of accounts or documents are handed over to the jurisdictional Assessing Officer (AO).

• The ten-year period is reckoned from the 31st day of March of the AY relevant to the year of search, as per Explanation 1 of Section 153A.

Precondition of INR 50 Lakhs

Concerning the precondition 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, the Court held:

• The precondition constitutes a sine qua non for initiating action for the extended ten-year block.

• The AO's satisfaction and reasons for the same must be borne out from the Satisfaction Note itself.

• The condition is not required to be met for each "relevant assessment year" individually but can be satisfied if the escaped income cumulatively or in the aggregate meets the minimum benchmark of INR 50 lakhs.

Retrospective Application and Legislative Intent

The Court recognized the legislative intent for Sections 153A and 153C to have retroactive application, as evidenced by their applicability to all searches conducted between May 31, 2003, and March 31, 2021. The Fourth Proviso expressly extended the applicability of these provisions to all searches conducted after April 1, 2017.

Analysis and Decision by the Court

Based on the comprehensive analysis, the Court arrived at the following conclusions:

1. The writ petitions pertaining to AYs 2010-11, 2011-12, 2012-13, and 2013-14, which fell beyond the maximum ten-year block period, were allowed, and the impugned notices for those AYs were quashed.

2. For AY 2016-17, which fell within the eighth year of the "relevant assessment year," the Court quashed the impugned notice but granted liberty to the AO to examine whether the income that allegedly escaped assessment was likely to amount to INR 50 lakhs or more, as per the principles enunciated in the judgment.

3. The Court dismissed the Department's appeal (ITA 52/2024), finding no perversity in the Income Tax Appellate Tribunal's (ITAT) findings regarding the computation of the six-year block and the non-applicability of the 2017 amendments to searches conducted prior to their introduction.

Doctrine or Principle Discussed

The judgment primarily revolves around the interpretation and application of Sections 153A and 153C of the Income Tax Act, which govern search assessments. It also touches upon the doctrine of finality of assessments and the distinction between the liability to tax and the right to assess and enforce that liability.

Relied Upon or Followed Judgments

The Court relied upon and followed the principles established in the following judgments:

• C.B. Richards Ellis: Recognized the distinction between the liability to tax and the right to assess and enforce that liability.

• SSP AVIATION LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX - 2012 (4) TMI 335 - DELHI HIGH COURT and Commissioner of Income Tax-7 Versus RRJ Securities Ltd. And Vica-Versa - 2015 (11) TMI 19 - DELHI HIGH COURT: Settled the issue of identifying the starting block for computation of the six-year and ten-year periods u/s 153C.

• Jasjit Singh and Income Tax Officer Versus Vikram Sujitkumar Bhatia - 2023 (4) TMI 296 - Supreme Court: Reiterated the legal position regarding the shift of the relevant date for non-searched persons under the First Proviso of Section 153C(1).

Comprehensive Summary

The judgment provides a comprehensive interpretation of Sections 153A and 153C, clarifying the scope, time frames, and applicability of search assessments. It establishes that these provisions operate above and beyond the regular assessment or reassessment procedures, overriding the time limitations imposed by Sections 147 and 148.

The Court elucidated the computation of the six-year and ten-year block periods, highlighting the distinction between the previous year of search and the date of receipt of seized documents for non-searched entities. It also addressed the precondition 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, emphasizing the AO's obligation to record reasons for the satisfaction of this condition.

Furthermore, the judgment recognized the retrospective application of Sections 153A and 153C, subject to the time frames specified in the provisions. It also upheld the principle that the finality of assessments does not create a vested right in favor of the assessee, as the liability to tax exists independently of time limitations, unless statutorily imposed.

Overall, the judgment provides clarity on the interpretation and application of search assessment provisions, striking a balance between the revenue's power to initiate assessments and the assessee's rights.

 

 

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Full Text:

2024 (4) TMI 268 - DELHI HIGH COURT