Supreme Court Clarifies Third-Party To Furnish ITR from Date When Documents Are Assigned, Not From Date Of Search

Supreme Court Clarifies Third-Party To Furnish ITR from Date When Documents Are Assigned, Not From Date Of Search

The assessing officer had held that some documents and material belonging to the entity, other than the assessee, were involved

The Supreme Court has rejected the argument of the tax department that the Income Tax Act, 1961 empowers the assessing officer (AO) to seek information from a third party regarding the assessees’ six years of Income Tax Returns (ITR) preceding the date of the search of his premises.

A bench comprising Justice S. Ravindra Bhat and Justice Aravind Kumar clarified that under Section 153C, a third party would only have to furnish ITR beginning from the date when the AO assigned the third party’s documents to the concerned officer, and not from the date of the original search.

Section 153C does not contemplate the calculation of a six-year period from the date of search and seizure. Any delay caused by AO in assigning the documents to the concerned officer would obligate the third party to preserve the records of more than six preceding years.

As per Section 153A of the IT Act, when a search is initiated against a person under Section 132, the books of account, documents, or assets are requisitioned under Section 132A after 31 May 2003 but on or before 31 March 2021. Then the AO could seek the ITR of the six preceding assessment years and re-assess those.

On 19 February 2009, search, and seizure were conducted in the premises of the Kouton Group. The AO held that some documents and material belonging to a third-party named Jasjit Singh (respondent/assessee) were involved. Accordingly, the AO served the respondent with a notice.

The respondent argued that the period for which he was required to file the ITR, commenced from the date the materials were forwarded to the AO. The department urged that the date (related to the period for which six years ITRs were to be filed) be from the date when the search and seizure proceedings were conducted.

However, the Income Tax Appellate Tribunal (ITAT) affirmed the assessee’s arguments.

Earlier, in an appeal, the Delhi High Court had upheld the ITAT’s order and dismissed the appeal.

Thereafter, the IT department approached the Supreme Court against the order of the high court. It contended that the date referred under proviso to Section 153(1) of the IT Act was relatable to the second proviso to Section 153A, only as far as it concerned abatement. It relied on the ruling of the Delhi High Court in the SSP Aviation Ltd. vs. Deputy Commissioner of Income Tax case.

Section 153C allows the revenue department to proceed against a party other than the person being searched if incriminating articles against the other party are found. If any books of accounts or documents, belonging to a party other than the one being searched are discovered during the search proceedings, Section 153C enables the department to proceed against the party if the materials indicate undisclosed income or assets.

Thus, the apex court held that the intent of the Parliament behind enacting proviso to Section 153C (1) of the IT Act was to cater not merely to the question of abatement, but also to the date from which the six-year period was to be reckoned. This related to when the ITRs were to be filed by the third party (whose premises were not searched) and for whom the specific provision under Section 153-C was enacted.

The bench stated that the argument of the IT department that the proviso to Section 153(c)(1) was applicable only to abatement, was unsustainable. It held that the AO would require time to forward the documents belonging to the third party to the concerned officer.

The judges added, “In that event, if the date would virtually ‘relate back’ as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is disproportionate.”

While dismissing the appeal of the IT department, the bench held, “If the papers are assigned under Section 153-C after a period of four years, the third-party assessee’s prejudice is writ large, as it would have to virtually preserve the records for at latest 10 years, which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to the Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this court adopts.”