Amendment In Section 153C Income Tax Act Can't Be Interpreted For Revival Of Already Time Barred Proceedings: Delhi High Court

The Delhi High Court has held that the power to assess the block period of ten years would clearly not be attracted in the case of a search that had taken place prior to April 1, 2017.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that since the date of search was April 7, 2016, the amendments that came to be introduced in Section 153C by virtue of the Finance Act of 2017 would not be applicable. The provisions stood prior to the Finance Act, 2017, and the assessment years that could be thrown open pursuant to a search stood at six assessment years. By virtue of the Finance Act of 2017, the block period for search assessment was extended to ten assessment years on account of the introduction of the concept of “relevant assessment year or years." The expression came to be defined by Explanation 1 to Section 153A as extending to the period that falls beyond six assessment years but not later than ten assessment years from the end of the AY relevant to the previous year in which the search was conducted or a requisition made.

The appeal arose in the backdrop of a search and seizure action that was initiated on April 7, 2016. The search initiated a satisfaction note, as contemplated under Section 153A of the Income Tax Act, 1961, to be recorded by the assessing officer with respect to the searched individual. The respondent-assessee in the appeal is the non-searched entity. A satisfaction note in its respect and referable to Section 153C came to be drawn on May 15, 2019. Pursuant to an assessment being undertaken in terms of Section 153C of the Act, the AO made additions in respect of receipts of foreign inward remittances, on account of the non-deduction of TDS, and in respect of debts written off.

The respondent-assessee preferred an appeal before the Commissioner of Income Tax (Appeals), which, in terms of its order, deleted the addition of INR 32,91,052 and confirmed the addition. In respect of addition, the CIT(A) allowed relief to the extent of INR 2,51,30,576 and pegged the addition to the extent of INR 7,00,000. The income of the assessee consequently increased by INR 2,23,25,000.

The assessee filed the second appeal before the Tribunal, which has essentially struck down the initiation of reassessment proceedings under Section 153C on the ground of limitation. The ITAT held that since the date of search is April 7, 2016, the amendment brought by the Finance Act, 2017 would not be applicable, and consequently, the order of assessment dated December 31, 2019, passed under Section 153C r.w.s. 144 of the Act is bad and is liable to be quashed. We order accordingly. The very assessment itself is bad for being barred by limitation; adjudication of other grounds will only be academic and need not be resorted to.

The department contended that the block of six assessment years stands indelibly connected to the previous year in which a search was conducted or a requisition made. According to learned counsel, this becomes apparent from the aforesaid amendment using the expression “relevant to the previous year in which search is conducted” in conjunction with the expression “six assessment years immediately preceding the assessment year." Post Finance Act, 2017, even in the case of a non-searched entity, the period of six AYs' is liable to be reckoned with reference to the date of search. Where the assessing officer was common for both the searched and non-searched entities, the jurisdictional AO was the same. There would be no occasion for an actual handing over of the books of accounts, documents, or materials unearthed in the search, and consequently, the First Proviso to Section 153C(1) of the Act would be inapplicable.

The court held that in cases where the jurisdictional AO is common, the commencement point would have to be construed as the date when the satisfaction is formed by the AO with respect to another person. Even though there may not have been an actual exchange of material unearthed in the course of the search between two separate authorities, it would be the date when the AO records its satisfaction with respect to the non-searched entity, which would be of seminal importance and constitute the bedrock for commencement of action under Section 153C.

The court dismissed the appeal by the department.

Counsel For Appellant:Anant Mann

Counsel For Respondent: Ruchesh Sinha

Case Title: PCIT Versus Karina Airlines International Ltd

Case No.: ITA 690/2023

Click Here To Read The Order