ITAT Delhi on Section 153C Post 1 April 2021: Handing Over Date to Jurisdictional AO is Crucial

1. Overview of the Decision

In BSC Paints Pvt. Ltd. Vs DCIT (ITAT Delhi), the Delhi Bench of the Income Tax Appellate Tribunal held that notices issued under Section 153C were invalid where, for an “other person”, the deemed date of search fell on or after 1 April 2021.

The Tribunal relied on the principles laid down by the Delhi High Court in PCIT v. Ojjus Medicare Pvt. Ltd., [2024] 465 ITR 101 (Delhi) and by the Madras High Court in Harigovind v. ACIT, [2025] 180 taxmann.com 197. It concluded that in the case of an assessee who is not directly searched, the relevant “date of search” is the date on which seized material is transferred to that assessee’s Assessing Officer, not the date when the original search took place.

Because the Revenue could not substantiate that the seized material relating to BSC Paints Pvt. Ltd. had been handed over to its jurisdictional Assessing Officer prior to 1 April 2021, the Tribunal quashed the Section 153C notices and the consequent assessments for A.Ys. 2019–20 and 2020–21.

2. Factual Matrix

2.1 Original Assessment

  • The assessee, BSC Paints Pvt. Ltd., filed its return for A.Y. 2019–20 declaring income of ₹11,31,580.
  • The return was scrutinized and an assessment under Section 143(3) accepted the returned income.

2.2 Search on Third Party and Alleged Bogus Purchases

  • A search under Section 132 was conducted on 26.10.2020 in the group case of Sanjay Jain, described as an entry operator, along with his associates and beneficiaries.
  • During this search, the Department allegedly unearthed information suggesting that the assessee had made bogus purchases amounting to Rs. 3,83,20,500/- from entities linked to the searched persons.
  • Treating the assessee as a beneficiary of these alleged accommodation entries, the Department decided to initiate proceedings under Section 153C.

2.3 Centralisation and Issuance of Section 153C Notice

  • The jurisdiction over the assessee’s case was shifted to Central Circle 30, New Delhi, by an order passed under Section 127 dated 22.12.2022.
  • A notice under Section 153C was then issued on 30.12.2022 for A.Y. 2019–20.
  • Assessment for A.Y. 2019–20 was completed on 29.03.2023, determining total income at Rs. 2,72,61,580/- by disallowing purchases under Section 37.
  • For A.Y. 2020–21, similar proceedings were carried out, with additions of Rs. 2,61,30,000/- on account of disallowance of purchases under Section 37.
  • The CIT(A) upheld the validity of the Section 153C proceedings and confirmed the additions for both assessment years.

3. Grounds Raised Before the Tribunal

3.1 Core Jurisdictional Challenges

For both A.Ys. 2019–20 (ITA No. 2824/Del/2025) and 2020–21 (ITA No. 2825/Del/2025), the assessee challenged:

  • The very initiation of proceedings under Section 153C as:
    • beyond limitation,
    • without jurisdiction, and
    • non-compliant with statutory preconditions.
  • The validity of satisfaction notes purportedly recorded under Section 153C, contending that they were bad in law and jurisdictionally defective.

Additional grounds reiterated these jurisdictional objections and also raised a plea relating to compliance with Section 153D.

3.2 Challenges to Additions on Merits

The assessee also contested:

  • Disallowance of purchases under Section 37 in both years (Rs. 2,99,37,891/- in A.Y. 2020–21 and Rs. 2,61,30,000/- in the other year, as per the grounds).
  • The assessee argued that these additions were beyond the scope of Section 153C read with Section 153A, particularly because they did not arise from incriminating material in the sense contemplated by these provisions.

3.3 Non-pressed Grounds

Before the Tribunal, the assessee’s counsel categorically stated that:

  • Grounds relating to the absence of DIN on the assessment order, and
  • Grounds concerning approval under Section 153D

would not be pressed. Accordingly, the Tribunal did not adjudicate them.

The assessee’s core argument centred on the statutory scheme of Section 153C read with its provisos and Section 153C(3) after the amendment effective from 1 April 2021.

Key submissions included: