The Supreme Court, in a sequence of appeals initiated by the tax department, upheld the ruling of the Delhi High Court. It also made a significant observation regarding the commencement of the 6-year time limit specified in Section 153C(1) of the Income Tax Act, 1961. According to the apex court, this time limit begins from the date when the seized materials are transferred to the Assessing Officer with jurisdiction.
The cases originated from a search and seizure operation carried out on the premises of M/s Kuoton Group on 19.02.2009. During the subsequent scrutiny, the Assessing Officer (A.O.) in charge, after issuing a notice under Section 154 A of the Income Tax Act to the searched party, believed that certain documents and materials pertained to the respondent’s assesses. As a result, notices were issued to them by the A.O. having jurisdiction over their assessments on different dates, including 25.02.2010, 12.03.2009, and 11.08.2014.
The contentious issue revolved around the commencement of the period for filing returns. The assessees argued that this period should begin from the date the materials were forwarded to their respective A.O.s. In contrast, the revenue contended that it should start from the date of the search and seizure proceedings involving the primary assessee under Section 132.
The impugned order upheld the decision of the Income Tax Appellate Tribunal (ITAT), which, in turn, favoured the arguments presented by the assessees. Ms. Bagchi, representing the revenue, argued that the impugned order was flawed because it misinterpreted the date referred to in the proviso to Section 153(1) in connection with the second proviso to Section 153A. The revenue relied on a Delhi High Court ruling in “SSP Aviation Ltd. vs. Deputy Commissioner of Income Tax” to support their stance.
The Supreme Court examined Sections 153A and 153C of the Income Tax Act to provide clarity on the matter. Section 153C(1) was particularly important, as it dealt with cases where materials seized from one party pertained to another. The Court concluded that the proviso to Section 153C(1) was not limited to abatement but also governed the commencement date for the six-year period in which returns should be filed by third parties.
The Court disagreed with the revenue’s position, deeming it unsubstantiated. It highlighted the potential complications if the commencement date were to “relate back” to the date of seizure, causing disproportionate prejudice to third parties inadvertently drawn into proceedings.
The bench of Justice S. Ravindra Bhat and Justice Aravind Kumar has observed that “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.”
In light of these considerations, the Supreme Court found no merit in the appeals, which were subsequently dismissed without ordering costs.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
