S.153C Income Tax Act | Preceding 6 Years Period As Regards 3rd Party To Be Calculated From Date When Documents Are Assigned To Concerned AO : Supreme Court

The Supreme Court has rejected the argument of the Income Tax department that Section 153C of the Income Tax Act 1961 empowers the assessing officer to seek information from a third party regarding income tax returns of the period of six years preceding the date of the search of the assessee whose premises was originally searched.

A Bench comprising Justice S. Ravindra Bhat and Justice Aravind Kumar held that under Section 153C, a third party would only have to furnish income tax returns of preceding six years, starting from the date when the Assessing Officer assigns the third party's documents to the concerned Assessing Officer and not from the date of the original search.

Section 153C does not contemplate calculation of six years period from date of search and seizure, as any delay caused by Assessing Officer in assigning documents to concerned Assessing Officer would obligate the third party to preserve the records of more than six preceding years.

BACKGROUND FACTS

Section 153A of Income Tax Act, 1961 (“IT Act”) states that where a search is initiated against a person under Section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31.05.2003 but on or before the 31.03.2021, then the Assessing Officer can seek return of income of six preceding assessment years and shall re-assess such returns.

On 19.02.2009, search and seizure were conducted in the premises of one M/s Kouton Group. The Assessing Officer was of the opinion that some documents and material “belonging to” a third party named Mr. Jasjit Singh (“Respondent/Assessee”) were involved and accordingly a notice was served to the Respondent.

The Respondent argued that the period for which they he was required to file returns, commenced only from the date the materials were forwarded to their Assessing Officer. The Revenue urged that the date (relatable to the period for which six years returns were to be filed by the assessee) was to be from the date when the search and seizure proceedings were conducted, in respect of the main assessee under Section 132 of IT Act.

The Income Tax Appellate Tribunal (“ITAT”) affirmed the assessee's arguments. In appeal, the Delhi High Court upheld the ITAT's order and dismissed the appeal.

The Revenue filed an appeal before the Supreme Court against the Delhi High Court order. It was contended that the date referred under proviso to Section 153(1) of IT Act is relatable to the second proviso to Section 153A, only as far as it concerns abatement. Reliance was placed on Delhi High Court's ruling in SSP Aviation Ltd. vs. Deputy Commissioner of Income Tax, (2012) 346 ITR 177.

RELEVANT LAW

Section 153C allows the revenue department to proceed against a party other than the person who is being searched, if incriminating articles against the "other person" is found during the search. So, if any books of accounts or documents which belonged a person other than the person who is being searched is discovered during the search proceedings, Section 153C enabled the department to proceed against the "other person" if the materials indicated undisclosed income or assets

SUPREME COURT VERDICT

The Court opined that the Parliamentary intent behind enacting proviso to Section 153C (1) of IT Act was to cater not merely to the question of abatement, but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched) and in respect of whom the specific provision under Section 153-C was enacted.

The Court regarded the Revenue's argument that the proviso to Section 153(c)(1) is applicable to the question of abatement alone, as unsustainable.

It was opined that the Assessing Officer would require its own time to forward documents belonging to third party to the concerned Assessing Officer.

“It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials – of the search party, under Section 132 – would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually “relate back” as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate.”

The Bench held that under Section 153C a third party would have to furnish income tax returns of preceding six years starting from the date when the Assessing Officer assigns the third party's documents to the concerned Assessing Officer. Section 153C does not contemplate calculation of six years period from date of search and seizure, as any delay caused by Assessing Officer in assigning documents to concerned Assessing Officer would obligate the third party to preserve the records of more than six preceding years.

“For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee's prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts.”

The appeal has been dismissed.

Also Read - 2015 Amendment To Section 153C Of Income Tax Act Will Apply To Searches Conducted Prior To Date Of Amendment : Supreme Court

Case Title: Commissioner of Income Tax 14 v Jasjit Singh

Citation : 2023 LiveLaw (SC) 878