Written By: Apoorv Agarwal
Introduction
Search and seizure under the section 132 of the Income Tax Act[1] are among the strongest powers available to the Income Tax Department. During a search, officials can enter premises, seize documents, valuables, and digital records, and reopen past assessments. Since these powers directly affect the rights of taxpayers, the Income-tax Act lays down strict conditions and time limits within which they can be exercised.
A recent judgment of the Delhi High Court in Pr. Commissioner of Income Tax (Central)-1 v. Ojjus Medicare Pvt. Ltd., along with a batch of connected cases including Ashwani Kumar Gupta and Vineeta Gupta, has clarified how these provisions apply when the Department initiates proceedings against a person who was not searched but whose documents are found during the search of someone else. The judgment reinforces that the Department must strictly follow the law and cannot reopen old assessments beyond the limits prescribed by Parliament.
The search and seizure are conducted by Assessing Officer under Section 132 of the Income Tax Act, the person on who’s the search is conducted is called ‘searched person’. And during the search some documents regarding some other person may also be procured which requires further scrutiny by the Department. The governing section which prescribed the authorities to assess the income of ‘non-searched person’ is prescribed under Section 153C.
Block Assessment under Section 153C
A bare perusal of the provision contained in the Section 153C of the Income Tax Act leaves no doubt that, where the Assessing Officer, while proceeding under section 153A against a person who has been subjected to search and seizure under section 132(1) or has been proceeded under section 132A, is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A[2]
Before initiating proceedings against this “other person,” the Assessing Officer of the searched person must first record a Satisfaction Note, stating that the seized material actually belongs to or relates to the third party and has a bearing on their income. Only after this satisfaction is recorded can the material be transferred to the Assessing Officer having jurisdiction over that other person, who can then proceed.[3]
Thus, Section 153C acts as a bridge that allows search assessment proceedings to be extended to persons who were never searched themselves.
Section 153C and Section 153A prescribed certain Block period for search assessments which is six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A.[4]
Further Explanation 1 of the Section 153A of the Income Tax Act clarifies the relevant assessment year which shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made[5].
Computation of the Assessment Period for a Non-Searched Person
The biggest question is that from which date the six-year assessment period should be calculated for a person covered under Section 153C. For a searched person, the calculation of the Assessment year starts from the year in which the search takes place.
But for a ‘non-searched person’, the position is different because that person was never searched. Their Assessing Officer receives the seized material only after the Satisfaction Note is recorded and the documents are formally handed over. For calculation of the Assessment year for a ‘non-searched person, there are two different point of views, one is that the assessment period shall be calculated from the date of search of ‘searched person’ and other is that it should be from the date when satisfaction note is handed over to the Assessing officer of a ‘non-searched person’.
The taxpayers argued that for a person covered under Section 153C, the relevant date should not be the date of search but the date on which the seized documents are handed over to their Assessing Officer.
This difference in opinion changes the relevant year for which the assessment proceedings can be initiated. For instance, the Department conducts a search on one company in 2019. During the search, it finds documents relating to another company. However, these documents are transferred to the Assessing Officer of the other company only in March 2022, after recording the Satisfaction Note.
In such a situation, the assessment years that can be reopened must be calculated with reference to March 2022, not the original search conducted in 2019. This significantly changes the assessment years that fall within the permissible period. As a result, very old years such as AY 2010-11, AY 2011-12 or AY 2012-13 may fall completely outside the permissible block, leaving the Department without jurisdiction to reopen them.
The Delhi High Court’s Interpretation of the ‘Date of Search’ under Section 153C
Delhi High Court in the case Principal Commissioner of Income-tax Vs. Ojjus Medicare (P.) Ltd. Held that the date of search cannot be treated as the starting point for calculating the assessment period in the case of a person covered under Section 153C.
The Court explained that a person who has not been searched stands on a different footing from the person on whom the search was actually conducted. Since proceedings against the “other person” begin only after the seized documents are transferred to their Assessing Officer, it is this date of receipt of the seized material that becomes relevant for calculating the block of assessment years.
In other words, the Court held that the words used in Section 153C must be given their plain meaning. The law itself in the 1st Provision of the Section 153C of the Income Tax Act substitutes the date of search with the date on which the Assessing Officer of the other person receives the seized documents or assets. Therefore, Block period was to be computed from date of receipt by Assessing Officer of non-searched person of books or documents or assets seized or requisitioned, where date of handing over of documents was not available, date of issuance of satisfaction note by Assessing Officer under section 153C would be pertinent for purpose of first proviso to section 153C (1)[6]. This interpretation is significant because it prevents the Department from relying on an earlier search date to reopen assessment years that would otherwise be outside the permissible time limit.
Conclusion
The decision by the Delhi High Court in Principal Commissioner of Income-tax v. Ojjus Medicare Pvt. Ltd. clarifies the calculation of block assessment period for ‘non-searched persons. The Court ruled that the block assessment period for someone who was not searched should start from the date their Assessing Officer receives the seized material, not from the date of the original search.
The ruling also supports a key idea that the Income Tax Department has broad powers to search and assess, but those powers must follow the rules set by law. Recording a Satisfaction Note and transferring the seized material are not just formalities; they are necessary steps that determine when actions under Section 153C can be legally taken.
This judgment is an important reminder that even though the Income Tax Department has extensive powers to conduct search assessments, those powers must be exercised strictly in accordance with the law. A person who has never been searched cannot be treated in the same manner as the person on whom the search was conducted. By clarifying that the assessment period under Section 153C must be computed from the date on which the seized material reaches the Assessing Officer of the non-searched person, the Delhi High Court has removed a long-standing ambiguity in the law. The decision provides greater certainty for both taxpayers and the tax authorities and is likely to guide the interpretation of Section 153C in future cases involving search assessments.
[1] The Income Tax Act, 1961, § 132
[2] Commissioner of Income-tax (Central) vs. Gopi Apartment [2014] 46 taxmann.com 280 (Allahabad)/[2014] 365 ITR 411 (Allahabad)/[2014] 270 CTR 447 (Allahabad)[01-05-2014]
[3] [2012] 20 taxmann.com 214/252 CTR 291/346 ITR 177/207 Taxman 260 (Delhi)
[4] The Income Tax Act, 1961, § 153C
[5] The Income Tax Act, 1961, § 153A
[6] Principal Commissioner of Income-tax (Central-1) vs. Ojjus Medicare (P.) Ltd. [2024] 161 taxmann.com 160 (Delhi)/[2024] 465 ITR 101 (Delhi)[03-04-2024]
