Delhi High Court Quashes Initiation Of Section 153C Assessment Proceedings Falling Beyond Maximum 10 Years Block Period

The Delhi High Court has quashed the initiation of assessment proceedings under Section 153C of the Income Tax Act, which was falling beyond the maximum 10-year block period.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has allowed the writ petitions placed in Lists I and II and pertaining to AYs' 2010-11, 2011-12, 2012-13, and 2013-14, all of which fall beyond the maximum 10-year block period.

The bench observed that while a statute may denude an authority of the power to enforce a liability and, in that limited sense, confer finality upon an assessment, the said position would prevail only till such time as that halo of impregnability is not statutorily removed. As was eloquently observed by the Supreme Court, the deprivation of a power to enforce would not lead to the creation of a vested right. As was pertinently observed, the liability to the state exists and operates de hors a consideration of time and in the absence of the statute itself imposing a time limit. The only limitations that were introduced while enacting Sections 153A and 153C were the period within which the search had been conducted.

The batch of writ petitions and income tax appeals was filed under Section 260A of the Income Tax Act, 1961,challenging the initiation of assessment proceedings pursuant to the provisions of Section 153C of the Income Tax Act.

The challenge was raised with the petitioners questioning the identification and computation of the block of six assessment years immediately preceding the AY relevant to the previous year in which the search was conducted or a requisition made.

The petitioners additionally impugn the manner in which the respondents have reckoned the years that would be included within the phrase “relevant assessment year” as defined by Explanation 1 to Section 153A(1) of the Income Tax Act.

The petitioners contended that insofar as the notices pertaining to AYs' 2010-11, 2011-12, 2012-13, and 2013-14 are concerned, they would be liable to be quashed since they fall beyond the ambit of “relevant assessment year” as defined by Explanation 1 to Section 153A when computed from the date of handover of the requisite material to the Assessing Officer of the “other person," with the phrase being an allusion to the non-searched entity. The petitioners additionally challenge notices insofar as they purport to commence assessment or reassessment in respect of AYs' 2010-11 and 2011-12 on the ground that since the period within which the respondents could have reopened or reassessed as per the provisions of the Act as it stood prior to April 1, 2017 has come to an end, Therefore, the department would be denied the jurisdiction to reopen those assessments. The enlarged period of ten years that could become subject to reopening or reassessment in cases emanating from a search, introduced by virtue of the amendments made by the Finance Act of 2017, would not apply to AYs' 2010–11 and 2011–12.

The department contended that the years that are thrown open by virtue of Sections 153A and 153C are predicated upon the previous year in which the search was conducted or a requisition was made. The expression “relevant assessment year” cannot be accorded a general meaning since that expression, as appearing in Section 153A, is envisaged to mean the four assessment years in addition to the preceding six AYs'. The Circular No. 2/2018, dated February 15, 2018, correctly explains the intent of the Legislature while introducing the 2017 Amending Act. The amendments were introduced in order to rationalize the provisions of the search assessment. The amendments seek to align and harmonize the provisions of Section 153C with Section 153A and thus construct a holistic scheme of assessment pertaining to searches. In the absence of Section 153C independently defining “relevant assessment year," the expression would have to be necessarily understood in light of its definition as appearing in Section 153A.

The department argued that the identification of “relevant assessment year” must be construed and interpreted harmoniously since it could not have been the intent of the Legislature to provide two separate yardsticks for the purposes of computing the assessment period under Sections 153A and 153C. The phrase “six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted” reiterates the position that prevailed even prior to April 1, 2017. The phrase already existed in the Second Proviso to Section 153C, and thus the curative amendments introduced in 2017 were aimed primarily at aligning and harmonizing the two provisions.

The court noted that for the purposes of facilitating disposal of the batch of writ petitions, the petitioners have classified individual matters dependent upon the date when the satisfaction note, as contemplated under Section 153C, came to be recorded in the case of the non-searched entity, and the same is set out in Lists I and II.

The court, while expressing gratitude towards the counsel for the petitioner, stated, “We deem it appropriate at this juncture to express our gratitude and appreciation for the herculean task undertaken by Mr. Sumit Lalchandani and Ms. Ananya Kapoor, learned counsels for the petitioners, in classifying individual matters into three broad categories and thus enabling the Court to take up this batch for expeditious disposal.”

The court held that the writ petition would fall within the eighth year of the “relevant assessment year." The asset that is mentioned in the notice is valued at INR 25,20,000. While the court allowed the writ petition, quashed the notice, and accorded liberty to the AO to examine whether the income that has allegedly escaped assessment is likely to amount to INR 50 lakhs or more in light of the principles enunciated in this judgment, In the event that the AO comes to the conclusion that the initiation of action would meet the prerequisites placed by virtue of the Fourth Proviso to Section 153A, it would be open to it to commence proceedings afresh if otherwise permissible by law.

Counsel For Appellant: Ruchir Bhatia

Counsel For Respondent: Sumit Lalchandani

Case Title: PCIT Versus Ojjus Medicare Pvt. Ltd.

Citation: 2024 LiveLaw (Del) 407

Case No.: ITA 52/2024

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