ITAT Delhi on Jurisdictional Defects in Search-Based Assessments Under Section 153C

Background of the Dispute

In Kamal Sharma Vs DCIT (ITAT Delhi), the Delhi Bench of the Income Tax Appellate Tribunal examined two critical jurisdictional issues arising out of search-linked assessments for AY 2008-09 and AY 2014-15:

  1. Whether an assessment year falling outside the six-year block prescribed in Section 153C can validly be assessed under that provision.
  2. Whether, where the conditions of Section 153C are admittedly triggered for a particular year, the Assessing Officer (AO) can still lawfully frame a regular assessment under Section 143(3) instead of under Section 153C.

The case stemmed from a search operation conducted on the Sunstar Group on 19.12.2013. During that search, certain documents were seized, which the Revenue claimed had a bearing on the income of the assessee, Kamal Sharma, who was not a searched person. On this basis, proceedings were initiated under Section 153C.

A notice under Section 153C was issued to the assessee on 20.01.2016. Separate assessments were then framed for AY 2008-09 and AY 2014-15, which were challenged by the assessee on jurisdictional as well as substantive grounds.

For AY 2008-09

The assessee argued that:

  • The satisfaction and notice under Section 153C were both dated 20.01.2016, which falls in AY 2016-17.
  • Under the law as interpreted by various courts and Tribunals, the six years for which assessment can be framed under Section 153C are to be reckoned backward from the assessment year relevant to the previous year in which the satisfaction is recorded (i.e., deemed date of search for the “other person”).
  • Consequently, the permissible six-year block in this case would cover AY 2010-11 to AY 2015-16.
  • AY 2008-09 therefore lies beyond this statutory block, and hence any assessment purportedly made under Section 153C for that year is time-barred and without jurisdiction.

The assessee also contended that no incriminating material belonging to him was found in the search on the Sunstar Group, and therefore no addition could be validly made in a completed assessment year. However, once the Tribunal accepted the limitation point, the other grounds became academic for AY 2008-09.

For AY 2014-15

For AY 2014-15, the facts were significantly different:

  • AY 2014-15 clearly fell within the six-year block (AY 2010-11 to AY 2015-16) relatable to the Section 153C satisfaction dated 20.01.2016.
  • The AO nonetheless completed the assessment under Section 143(3), even though:
    • Proceedings were triggered on the basis of seized material from a search.
    • A notice under Section 153C read with Section 153A had been issued.
    • Statutory approval under Section 153D had also been obtained.

The assessee maintained that once Section 153C was attracted, assessment had to be framed only under that provision, and framing it under Section 143(3) constituted a jurisdictional error, not a mere technical defect.