Interplay between the provisions of Section 153C and Section 147: Limits on Automatic Reassessment in Search Cases 2024 (11) TMI 1071 - DELHI HIGH COURT - HC

Deciphering Legal Judgments: A Comprehensive Analysis of High Court's Judgment on the issue of Non-Obstante Clause in Section 153C Reported as: 2024 (11) TMI 1071 - DELHI HIGH COURT Introduction The core legal question presented in this case relates to the applicability and interpretation of Sections 153A and 153C of the Income Tax Act. These provisions deal with the assessment and reassessment of income in cases where a search is conducted u/s 132 or a requisition is made u/s 132A concerning another person (referred to as the searched person ). The specific issues are: Whether the Assessing Officer (AO) is obligated to issue a notice u/s 153C for all assessment years when incriminating material is found during a search concerning a third party (referred to as the other person ). Whether the non-obstante clause in Section 153C overrides the provisions for regular assessment/ reassessment u/ss 147 and 148 of the Act. Arguments Presented The Revenue's contention was that once incriminating material is found during a search concerning the searched person, the AO of the other person is mandated to issue a notice u/s 153C for all assessment years comprising the block period, automatically and mechanically. The Assessee argued that the non-obstante clause in Section 153C does not preclude proceedings u/s 147 (for reassessment) when the AO does not assume jurisdiction u/s 153C . Court Discussions and Findings The Court analyzed the provisions of Sections 153A and 153C in detail, highlighting the distinctions between them. It noted that Section 153A mandates the issuance of a notice and assessment/reassessment for the searched person upon the occurrence of certain events. However, Section 153C requires the satisfaction of two conditions before issuing a notice to the other person: The AO of the searched person must record satisfaction that some incriminating material relates to the other person. The AO of the other person must record satisfaction that the incriminating material has a bearing on determining the total income of that other person. Regarding the non-obstante clause, the Court held that it cannot be construed to mean that recourse to Section 153C is necessary, rendering other provisions inoperative. The non-obstante clause kicks in only when the AO assumes jurisdiction u/s 153C by issuing a notice. If the AO does not take recourse to Section 153C , the regular provisions for assessment /reassessment u/ss 147 and 148 are not ousted. Analysis and Decision The Court concluded that the AO of the other person must be satisfied that the incriminating material has a bearing on determining the total income for the specific assessment years before issuing a notice u/s 153C . The issuance of a notice cannot be automatic or mechanical. Further, the non-obstante clause in Section 153C does not preclude proceedings u/s 147 when the AO does not assume jurisdiction u/s 153C . If the AO does not issue a notice u/s 153C and instead proceeds u/s 147 , the due procedure under that section must be followed. In the present case, since the AO did not assume jurisdiction u/s 153C and proceeded u/s 147 based on other information as well, the reassessment proceedings were valid. Doctrinal Analysis The Court discussed and applied the following legal principles; while referring and following various Judgments of High Courts and Supreme Court: The purpose of a non-obstante clause is to provide primacy to certain provisions of an enactment in case of conflict with other statutory provisions mentioned in the clause. It indicates the provisions that are overridden by the main enactment. For an enabling provision with a non-obstante clause, the overriding effect becomes operative only when the enabling provisions are used or the jurisdiction is assumed. It cannot be construed to mean that recourse to the enabling provision is necessary, rendering other provisions nugatory. Sections 153A and 153C are part of a cohesive scheme for assessment/reassessment in search cases, but with distinct conditions and procedures. The AO must apply their mind to the incriminating material and determine the specific assessment years to which it relates before issuing a notice u/s 153C . The Court's decision clarifies the interplay between Sections 153A , 153C , and the regular provisions for assessment/reassessment u/ss 147 and 148 . It upholds the principle that the AO must exercise due diligence and discretion in determining the applicability of Section 153C, rather than mechanically issuing notices for all assessment years. Full Text : 2024 (11) TMI 1071 - DELHI HIGH COURT