NIRAL BHARAT MODI vs. INCOME TAX OFFICER WARD 5(3)(4)

Facts

The assessee, Niral Bharat Modi, filed a writ-application challenging notices dated 03.08.2018 under Section 153C of the Income Tax Act, 1961, and an order dated 10.12.2018 disposing of objections. The challenge stemmed from the initiation of proceedings under Section 153C after the assessment order for the searched person was passed, and the satisfaction note was recorded significantly later. The assessee also contended that the notices were issued for more assessment years than permissible under the first proviso to Section 153C, and that the satisfaction note was a reproduction of the searched person's Assessing Officer's note. The search in question occurred on 04.12.2014, prior to an amendment in Section 153C.

Held

The High Court, applying the principles laid down in a coordinate bench's judgment in similar writ-applications, held that the writ-applications were maintainable. Regarding the applicability of amended Section 153C, the Court held that the amended provisions, effective from 01.06.2015, were prospective and not applicable to searches initiated prior to that date, as applying them retrospectively would affect substantive rights. On the issue of limitation, the Court found that when a statute provides an alternative period of limitation, the mere expiry of the initial period does not render the notices barred. Crucially, concerning the relevant assessment years, the Court held that the six assessment years preceding the assessment year relevant to the previous year of search are the only ones that can be covered. Notices issued for assessment years beyond this period are without jurisdiction. Therefore, the impugned notices under Section 153C were quashed and set aside as being issued without jurisdiction.

Key Issues

1. Whether the amended provisions of Section 153C of the Income Tax Act, 1961, effective from 01.06.2015, are applicable to cases where the search was initiated prior to that date? (Question of law) 2. Whether the notices issued under Section 153C of the Act are barred by limitation, considering the timing of the satisfaction note and the period covered? Assessee's Contentions: - The satisfaction note recorded by the Assessing Officer of the searched person was dated 16.03.2018, more than a year after the assessment order for the searched person (31.12.2016), violating the principles laid down in Commissioner of Income-tax-III v. Calcutta Knitwears and CBDT Circular No. 24 of 2015. - The notices under Section 153C were issued for seven assessment years (2009-10 to 2017-18), exceeding the six years permissible prior to the assessment year relevant to the search, as per the first proviso to Section 153C and indicating non-application of mind. - The satisfaction note preceded the notice, and the satisfaction recorded was not independent but a reproduction of the searched person's AO's note. - Proceedings under Section 153C are invalid as the search occurred prior to the amendment of Section 153C. Revenue's Contentions: - Not recorded in the judgment.