-Report by Bhavana Bhandari
In a landmark decision case Income Tax Officer vs Vikram Sujitkumar Bhatia, the Supreme Court of India held that the Assessing officer under the Income Tax Act 1961 shall be authorized to initiate proceedings under Section 153C of the Act even against person non-searched persons, and the same shall have a retrospective effect for searches were conducted before the amendment in 2015.
On 11.09.2012, the original writ petitioner filed his Return of Income for the Assessment Year (A.Y.) 2012-13, declaring a total income of around 44 Lakhs as business income from a partnership firm and other income. A notice dated 08.02.2018 was issued by the Income Tax Assessing Officer to begin proceedings against the assessee under Section 153C of the Act, 1961. In a letter dated 01.05.2018, the assessee submitted his response and his income tax return, and the assessed officer received it to his satisfaction. Although no evidence was found against the petitioner, the assessing officer seized a hard disc containing an Excel sheet containing data from the searched person, which included references to the petitioner’s name.
The writ petitioner objected to the actions taken following Section 153C of the Income-Tax Act of 1962, claiming that the requirement that any money, bullion, jewelry, or other valuable item or thing be “belongs or belong to” a person other than the searched child was not met. In response to a writ petition submitted by the petitioner, the Gujarat High Court ruled that Section 153C of the Act of 1961 is a mechanism for determining the assessee’s income who is on search by authorities.
The Assessment Officer was satisfied with the evidence and directed the court to summon an assessee if books of account or documents about him or containing information about him were found during the search. However, the Amendment Act of 2015 went into effect, and petitioners who were not included during the search were now sought to be included because the satisfaction notes and notices under the Income Tax Act of 1961 were issued after the amendment went into effect. The Gujarat High Court’s decision to invalidate the notice under Section 153C of the Income Tax Act 1961 was challenged by the Income Tax Department in the current set of appeals and a Special Leave petition to the Supreme Court.
The primary issue for the Apex Court to address was whether the Finance Act of 2015’s amendment to Section 153C of the Income Tax Act of 1961 would apply to searches conducted according to Section 132 of the Act of 1961 before 01.06.2015, the amendment’s effective date.
When arguing against the current appeals, the attorney representing the assesses vehemently asserted that the point of applicability of the existing law in search cases specifically, whether Section 153C of the Income Tax Act, as amended with effect from 01.06.2015 would apply to cases where the search is initiated before that date—was the subject of contention in the current group of appeals. It is further argued on behalf of the respective assessees that the Department’s position—that Section 153C of the Act, 1961 is a procedural and machinery provision—means that the amendment, even though it took effect on June 1, 2015, is retroactive and, as a result, applies to situations in which searches were conducted before the amendment but notices under Section 153C of the Act, 1961 were issued after the amendment.
The Additional Solicitor General of India appearing for the respondent submitted that the concerned amendment in Section 153C was necessary given the observation made by the Delhi High Court in the case of PepsiCo India Holdings Private Limited v. Assistant Commissioner of Income Tax, wherein the High Court observed that the words “belong or belong to” should not be confused with the words “relates to or refers to,” making the former much narrower than the latter. Due to this, the court determined that the provision could only be used if the documents or other materials “belong” to a third party (other than the searched person).
Relying on the Delhi High Court in the case PepsiCo India Ltd. vs Assistant Commissioner of Income Tax (2014) had given a restrictive meaning to the words “belong/belongs, the Supreme Court held that Section I53C of the Finance Act of 2015 was amended to replace the words with “pertain/pertains to.” It is incorrect to claim that a document “belongs” to someone simply because copies of it were taken from them because the originals were with someone else.
The Supreme Court further observed that the amendment to Section 153C of the Act, 1961 without the inclusion of incriminating materials in the form of books of account or documents or assets relating to them from the premises of the searched person may not be subjected to the proceedings under Section153C solely on the ground that the search was conducted before the amendment is accepted.
The Court must avoid any interpretation that might undermine the law’s or statute’s fundamental goals and purposes. The judgment stated that the amendment to Section 153C of the Income Tax Act would not apply to searches conducted under Section 132 of the Income Tax Act before 01.06.2015, the amendment’s effective date, which is in the revenue’s favor and against the assesses.
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