Income Tax Act | Section 153C Power Barred For “Other Person” Searches Initiated On/After 01.04.2021; Madras High Court
Isabella Mariam
The High Court of Madras Single Bench of Justice Krishnan Ramasamy allowed writ petitions challenging income-tax reassessment action against persons treated as “other persons” and quashed the impugned notices issued under Section 153C. The dispute concerned whether Section 153C, which permits assessment of a third party when documents or assets belonging to that third party are found during a search, could be invoked when the search for the “other person” is taken to have been initiated after 01.04.2021. The Court held that, in view of Section 153C(3), which excludes the operation of Section 153C for searches initiated on or after April 1, 2021, the notices were unsustainable.
A batch of writ petitions was instituted before the High Court of Madras challenging notices issued under Section 153C of the Income Tax Act, 1961 for multiple assessment years. The petitioners were assessees treated as “other persons” in relation to a search conducted at third-party premises. The Income Tax Department asserted that incriminating materials pertaining to the petitioners were recovered during a search conducted on 29 January 2019 at such third-party premises.
Subsequently, proceedings under Section 148A were initiated for one assessment year, which were later dropped after objections were considered. Thereafter, notices under Section 153C dated 07 February 2023 were issued for assessment years ranging from 2013–14 to 2019–20. The petitioners contended that the seized materials were handed over to their jurisdictional Assessing Officer only on 25 November 2022. Relying on Section 153C(3), they argued that where the initiation of search, as deemed for an “other person”, occurred on or after 01 April 2021, Section 153C could not be invoked.
The Revenue disputed this interpretation, asserting that the relevant date was the original search date in 2019 and that the proviso to Section 153C applied only for abatement purposes.
The Court examined the statutory framework of Sections 153A and 153C of the Income Tax Act and the effect of the provisos contained therein. It observed that “the common issue involved in all these writ petitions is as to whether the issuance of impugned notice, under Section 153C of the Act, is sustainable and in accordance with the provision of said Section of the Act.”
On the interpretation of the first proviso to Section 153C(1), the Court recorded that “the reference to the date of initiation of the search under Section 132… shall be construed as reference to the date of receiving the books of account or documents or assets seized… by the Assessing Officer having jurisdiction over such other person.” It rejected the Revenue’s contention that this construction was confined only to abatement.
The Court stated that “there cannot be two different dates for initiation of search for the other person” and clarified that “for all practical purpose, the initiation of search would be the same date”—namely, the date on which the seized materials were handed over to the jurisdictional Assessing Officer of the other person.
Placing reliance on the Supreme Court decision in CIT v. Jasjit Singh, the Court noted that the Apex Court had expressly rejected the argument that the proviso to Section 153C(1) was limited to abatement. It quoted the Supreme Court’s view that “the revenue’s argument is insubstantial and without merit” and that the proviso governed not only abatement but also the reckoning of limitation and initiation for other persons.
Applying Section 153C(3), the Court observed that “nothing contained in this Section shall apply in relation to a search initiated… on or after the 1st day of April, 2021.” Since the handing over of seized material occurred on 25 November 2022, the Court held that the initiation of search for the petitioners fell after the statutory cut-off.
The Court directed that “all the impugned notices dated 07.02.2023 issued by the 2nd respondent are quashed. These writ petitions are allowed” and that “no cost” was imposed. The connected miscellaneous petitions are also closed.” No further factual or legal issues were adjudicated in view of the finding on jurisdiction.
Advocates Representing the Parties
For the Petitioners: Mr. R. Sivaraman, Advocate
For the Respondents: Mr. A. P. Srinivas, Senior Standing Counsel, assisted by Mr. A. N. R. Jayaprathap, Junior Standing Counsel
Case Title: Shri Harigovind & Another v. Assistant Commissioner of Income Tax & Others
Case Number: W.P. Nos. 23014 of 2023 etc., Batch
Bench: Justice Krishnan Ramasamy
