In a recent ruling, the Rajasthan High Court has upheld the application of Section 153C of the Income Tax Act for third-party searches, thereby quashing income tax notices and orders issued under Section 148 of the Income Tax Act, 1961.
The case, initiated by petitioner Shyam Sunder Khandelwal, arose from a notice issued in March 2021 under Section 148 for the Assessment Year 2014-15. The petitioner contested the notice, arguing that materials seized during the search of the Ramesh Manihar Group warranted proceedings under Section 153C instead.
The bench of Justices Bhuwan Goyal and Avneesh Jhingan observed that Sections 153A to 153D provide a specialised framework for assessments in search or requisition cases, overriding general assessment provisions under Sections 139, 147, and 148 and also a non-obstante clause.
Central to the petitioner’s argument was the assertion that Section 153C, which governs cases involving seized material not belonging to the searched party, should have been invoked. This argument drew support from precedents set by the Karnataka and Bombay High Courts, which emphasize distinct procedural mandates under Sections 148 and 153C.
In contrast, the respondent’s counsel argued that the enactment of Sections 153A to 153D does not render Section 148 obsolete. They cited decisions from the Supreme Court in support of their stance.
The Rajasthan High Court reviewed the facts and noted that the initiation of proceedings under Section 148 was based on incriminating materials, including Pen Drives, seized during the search of the Manihar Group. These materials indicated unaccounted loans advanced by the petitioner and the interest earned thereon, forming the basis for the Section 148 proceedings.
Regarding the procedural aspects, the court highlighted that Section 153A mandates the Assessing Officer ( AO ) to issue notices to assesses for filing income tax returns for the relevant preceding years in cases of search or requisition. For cases where seized materials belong to a person other than the searched party, Section 153C applies, requiring the AO to satisfy specific conditions before proceeding with assessment under Section 153A.
In response to arguments from the Department, the court observed that “The argument that by enactment of Section 153A to 153D has not eclipsed Section 148 does not enhance the case of respondent to initiate the proceedings under Section 148.” Thus, dismissed the argument.
Placing the reliance on the decisions of the case Saloni Prakash Kumar of Madras HC and M/s. Aditi Constructions of Bombay HC, the Rajasthan High Court quashed the notices issued under Section 148 and the impugned orders.
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