Validity of Assessment u/s 153C: Reckoning the Limitation Period

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Deciphering Legal Judgments: A Comprehensive Analysis of Judgment on "Assessing Income of Third Parties: Strict Compliance with Section 153C Mandated"

Reported as:

2024 (9) TMI 1625 - ITAT DELHI

INTRODUCTION

This article examines a recent order of the Income Tax Appellate Tribunal (ITAT) that dealt with the crucial issue of determining the appropriate assessment years for initiating proceedings u/s 153C of the Income Tax Act, 1961, in cases involving search and seizure operations. The case highlights the importance of correctly identifying the starting point for calculating the six-year limitation period prescribed u/s 153C.

The core legal question presented was whether the assessment order for the Assessment Year (AY) 2021-22, passed u/s 143(3) by the Assessing Officer (AO), was valid or should have been framed u/s 153C, considering the search and seizure operation conducted on a third party.

ARGUMENTS PRESENTED

Assessee's Contentions:

The assessment order for AY 2021-22, passed u/s 143(3), was illegal and void since it should have been framed u/s 153C, given the search and seizure operation conducted on a third party.
The six-year limitation period u/s 153C should be reckoned from the date of receiving the seized documents by the AO, which was 03-10-2022 in this case.
Consequently, the relevant assessment year for the previous year in which the search was conducted would be AY 2023-24, and the six assessment years immediately preceding it would be AY 2018-19 to AY 2022-23.
The assessee relied on various judicial precedents, including the decisions of the coordinate Benches of the ITAT, to support their contentions.

Revenue's Contentions:

The Revenue supported the orders passed by the lower authorities, contending that they were in accordance with the law.

COURT DISCUSSIONS AND FINDINGS

The ITAT admitted the additional grounds raised by the assessee, as they were purely legal in nature and all the relevant facts were on record. The Tribunal then proceeded to analyze the legal issues in detail.

Examining the satisfaction note recorded by the AO on 10-10-2022, the ITAT observed that the AO had found the seized assets, documents, and digital data to be related to the assessee and had initiated proceedings u/s 153C read with Section 153A for the AYs 2015-16 to 2020-21.

Relying on the coordinate Bench decision in the case of Jasjit Singh, the ITAT held that the date of receiving the seized documents would be considered the deemed date of search, and the six-year period would be reckoned from that date.

The ITAT agreed with the assessee's submission that the assessment year relevant for the previous year in which the search was conducted would be AY 2023-24, and the six assessment years immediately preceding it would be AY 2018-19 to AY 2022-23. Consequently, the assessment for AY 2021-22 should have been carried out by issuing a notice u/s 153C, and not u/s 143(2).

ANALYSIS AND DECISION

The ITAT concluded that the assessment order dated 29-12-2022, passed u/s 143(3) for AY 2021-22, was bad in law and liable to be quashed. The Tribunal quashed the assessment order accordingly and allowed the additional grounds raised by the assessee.

The legal principle established by this order is that in cases involving search and seizure operations on third parties, the limitation period of six assessment years u/s 153C should be reckoned from the date of receiving the seized documents by the AO having jurisdiction over the assessee. Failure to comply with this requirement would render the assessment order invalid and liable to be quashed.

DOCTRINAL ANALYSIS

This order reaffirms the well-established principle that the provisions of Section 153C, which deal with the assessment of income of persons other than those subjected to search and seizure operations, must be strictly adhered to. The Tribunal relied on the coordinate Bench decision in Jasjit Singh's case, which had extensively analyzed the interplay between Sections 153A and 153C and the proviso to Section 153C.

The order highlights the importance of correctly determining the starting point for calculating the limitation period u/s 153C. It aligns with the judicial precedents that have consistently held that the date of receiving the seized documents by the AO having jurisdiction over the assessee should be treated as the deemed date of search for the purpose of reckoning the six-year period.

The decision underscores the principle that assessment proceedings initiated in violation of the mandatory provisions of the Income Tax Act, such as Section 153C, are invalid and liable to be quashed. It reinforces the taxpayers' right to have their assessments carried out in accordance with the prescribed statutory procedures and safeguards.

Full Text:

2024 (9) TMI 1625 - ITAT DELHI