S. 153C cannot be invoked against Searched Person: ITAT Rules Assessment required u/s 153A, dismisses Revenue Appeal [Read Order]

Arun Kumar Pillai (assessee), a shareholder in the Agnus group of companies, filed a return of income for Assessment Year 2018-19. A search was conducted at the premises of M/s. Skanray Technology Private Limited.

A Search proceedings were carried out at the residence of the assessee, leading to the seizure of various documents as per panchanamas dated November 7 and November 21, 2019. The AO initiated proceedings under Section 153C, treating the assessee as an "other person" whose documents were found during the Skanray search.

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The AO assessed the total income at ₹7,62,09,930, including additions for deemed dividends under Section 2(22)(e)of the Income Tax Act. Aggrieved by the AO’s order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The assessee challenged the validity of the Section 153C notice and argued that since his own residence was searched, he should have been assessed under Section 153A of the Income Tax Act.

The CIT(A) ruled in favor of the assessee by deleting the additions and quashed the assessment. Aggrieved by the CIT(A)’s relief to the assessee, the revenue filed an appeal before the ITAT.

The two-member bench comprising Laxmi Prasad Sahu (Accountant Member) and Keshav Dubey (Judicial Member) observed that the assessee’s residence was covered under the search and panchanamas were drawn in his name, he was a "searched person".

The tribunal observed that for a searched person, it is mandatory for the AO to issue notice under Section 153A of the Income Tax Act. It observed that Section 153C applies only when documents "belonging to a person other than the searched person" are found.

The bench noted that the documents were found at the assessee's own residence. Relying on the Karnataka High Court precedent in DCIT vs. Sunil Kumar Sharma, the bench held that the distinction between a 'searched person' and 'other person' was misinterpreted by the Revenue.

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It was concluded that the essential conditions for invoking Section 153C were not satisfied. The quashing of the Section 153C assessment was upheld and the appeal of the Revenue was dismissed.

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