ITAT Bangalore on Section 153C, Search Person Status & Reasonable Profit in Liquor Trade

The decision of the Income Tax Appellate Tribunal, Bangalore Bench, in DCIT Vs Kalkar Seetharam Rai examines three core aspects of search-related assessments:

  • When an assessee whose premises are covered in a search can be treated as a “searched person” for Section 153A, and when he remains an “other person” under Section 153C;
  • Whether material relating to one assessment year, particularly AY 2016-17, can be used to support additions in earlier completed (unabated) years under Section 153C;
  • How net profit from the liquor business should be reasonably estimated where books are incomplete and statements are partly retracted.

The Tribunal also condoned an appeal delay of 612 days, taking a liberal approach in line with Collector, Land Acquisition v. Mst. Katiji; 167 ITR 471 (SC) owing to the assessee’s advanced age and medical condition.

1. Condonation of 612-Day Delay in Filing Appeal

1.1 Factual background on delay

For AY 2016-17, the assessee filed his appeal before the Tribunal with a delay of 612 days. He supported his request for condonation with a notarized affidavit dated 14.07.2025, explaining that:

  • He is around 77 years old and residing in a village;
  • He is not conversant with tax law and relies entirely on his consultant for appellate work;
  • His consultant’s office is about 70 kilometres away, with poor road conditions making travel difficult;
  • He suffers from high blood pressure, leg pain, and had undergone permanent pacemaker implantation in 2019;
  • After the Covid-19 outbreak, his movements were substantially curtailed, and he managed affairs from home;
  • Due to age-related memory issues, he forgot to give the CIT(A)’s order to his consultant;
  • Once this omission was noticed, a copy was obtained from the ITBA portal and the appeal was filed without further delay.

The Revenue argued that the delay was excessive and the reasons were general and unsupported for the entire delayed period.

1.2 Tribunal’s reasoning

Relying on the principles laid down by the Supreme Court in Collector, Land Acquisition v. Mst. Katiji; 167 ITR 471 (SC), the Tribunal emphasised:

  • A litigant typically does not gain by filing an appeal late.
  • Refusing to condone delay may defeat substantial justice by shutting out potentially meritorious matters at the threshold.
  • The requirement that “every day’s delay must be explained” should be applied in a common-sense, pragmatic manner.
  • When substantial justice and technicalities clash, substantial justice should prevail.
  • There is no presumption that delay is deliberate or mala fide.

Applying these principles, the Tribunal noted:

  • The affidavit was duly sworn and remained uncontroverted by the Revenue;
  • There was no material indicating mala fide, negligence or benefit to the assessee by delaying;
  • Given the assessee’s advanced age, medical condition, distance issues and Covid-related constraints, the explanation was acceptable.

Accordingly, the delay of 612 days was condoned and the appeal was admitted for decision on merits.

2. Whether the Assessee Was a “Searched Person” or an “Other Person”

2.1 Search action and initiation of Section 153C proceedings

  • A search under Section 132 was conducted on 01.02.2017 in the case of M/s Ramakrishna Credit Co-operative Society Limited.
  • In the course of that action, the residential premises of the assessee were also covered.
  • The Assessing Officer (AO) initiated proceedings against the assessee under Section 153C, finally completing assessment by determining total income at Rs. 2,96,00,816/-.

Before the CIT(A) and the Tribunal, the assessee contended that:

  • Since his residential premises were subjected to search, he should be treated as a “searched person”; and
  • Therefore, proceedings should have been initiated under Section 153A rather than Section 153C.

The CIT(A) rejected this jurisdictional challenge, and the matter was carried to the Tribunal.

The Tribunal examined:

  • The text and scheme of Section 132;
  • The distinction between the person against whom “reason to believe” is formed and the premises where search is executed;
  • The jurisprudence laid down by the Karnataka High Court in DCIT v. C.R. Ram Mohan Raju; W.A. No. 382 of 2026, dated 24.04.2026; 185 taxmann.com 1012;
  • The principles in CIT v. Calcutta Knitwears; [2014] 43 taxmann.com 446 (SC) on machinery provisions in search assessments.

The resulting principles:

  • Clauses (a) to (c) of Section 132(1) deal with satisfaction regarding a person (reason to believe that the person has undisclosed income or will not produce records).
  • Clauses (i) to (v) of Section 132(1) govern the place/premises where the search is to be carried out and the actions to be taken.
  • The “searched person” is therefore the person in whose name the warrant of authorisation is issued and against whom satisfaction is recorded under clauses (a) to (c).
  • The premises identified in the warrant are simply the locations where items are suspected to be kept; ownership of such premises does not determine who is the “searched person”.

In DCIT v. C.R. Ram Mohan Raju, the Karnataka High Court explicitly held that:

A search under Section 132 is person-centric, not premises-centric. The identity of the searched person is determined with reference to the person against whom satisfaction is recorded and in whose name the warrant is issued; the place searched is not decisive.

2.3 Application to the assessee’s case

Applying these principles: