Decoding the Interplay of Sections 153A and 153C in Search Assessments: Limitation and Reassessment Dynamics

Deciphering Legal Judgments: A Comprehensive Analysis of High Court's Judgment on Limitation Period for Reassessment of Non-Searched Entities u/s 153C

Reported as:

2024 (8) TMI 293 - DELHI HIGH COURT

Here is a detailed article analyzing the key legal issues and court's reasoning in the case:

INTRODUCTION

This case dealt with the core legal question of determining the relevant assessment years that can be reopened for reassessment of a non-searched entity u/s 153C of the Income Tax Act, 1961 pursuant to a search action. The context involved a search conducted on 07.04.2016, with the Assessing Officer (AO) recording satisfaction for reassessment of the searched person on 29.03.2019 and the non-searched respondent on 15.05.2019. The reassessment order for AY 2012-13 was challenged as being barred by limitation.

ARGUMENTS PRESENTED

The Revenue's primary contention was that post the 2017 amendment, even for non-searched entities, the 6-year period for reassessment should be calculated from the previous year in which the search was conducted, irrespective of when satisfaction was recorded by the AO. It argued that the amendment was clarificatory, merely aligning the provisions for searched and non-searched entities.

The respondent assessee contended that since the search preceded 01.04.2017, the extended 10-year period would not apply, and reassessment beyond 6 years from recording satisfaction (i.e. AY 2012-13) would be barred by limitation. Reliance was placed on the proviso in Section 153A restricting the 10-year period to searches post 01.04.2017.

COURT DISCUSSIONS AND FINDINGS

The Court examined the interplay between Sections 153A and 153C, noting the latter's dependence on the former for procedure. Analyzing the proviso to Section 153A(1), it held the 10-year period would not apply to searches before 01.04.2017, agreeing with the Tribunal's view.

On the Revenue's argument regarding the 2017 amendment aligning provisions, the Court opined the intent was to enable both sections to cover 10 years, not change the commencement point, which remained governed by the proviso.

Regarding cases with a common AO for searched and non-searched entities, the Court rejected the Revenue's contention that no physical handover of documents was required. It held the First Proviso to Section 153C regulated the start date for the 6-year period, following precedents like CIT v. Jasjit Singh  [2023 (10) TMI 572 - SUPREME COURT].. The Court reasoned that the core requirement was the AO's satisfaction about the material's relevance, with physical transmission being only a machinery provision.

ANALYSIS AND DECISION

The Court concluded that for a common AO, the commencement point would be the date of recording satisfaction regarding the non-searched entity's income, not the search date. Even without physical handover, this date would be crucial for initiating action u/s 153C.

Applying this principle, the Court held that reassessment for AY 2012-13, falling beyond 6 years from recording satisfaction on 15.05.2019, would be barred by limitation. The legal principles established were:

1. The 10-year period under the amended Section 153C would not apply to searches before 01.04.2017, due to the proviso in Section 153A(1).
2. For non-searched entities with a common AO, the crucial date is when satisfaction about the material's relevance is recorded, not the search date.
3. Physical handover is only a machinery provision; the AO's satisfaction is the core requirement u/s 153C.

The Court dismissed the appeal, answering the substantial questions of law against the Revenue.

DOCTRINAL ANALYSIS

The Court's decision reinforces the principle that limitation provisions must be strictly construed, especially when they impact the rights of assessees. It upholds the legislative intent behind the 2017 amendment, which aimed to extend the reassessment period for serious cases while protecting assessees' rights through the proviso.

The ruling clarifies the interplay between Sections 153A and 153C, emphasizing that the latter's operation is contingent on the former's conditions, including the proviso. It aligns with precedents like Jasjit Singh [2023 (10) TMI 572 - SUPREME COURT] in recognizing the First Proviso to Section 153C as regulating the commencement point, not just abatement.

By distinguishing between the physical handover and the AO's satisfaction, the Court has provided a pragmatic interpretation for cases with a common AO, avoiding unnecessary procedural formalities while preserving the statutory safeguards.

Full Text:

2024 (8) TMI 293 - DELHI HIGH COURT