In Civil Appeal No. 6566 of 2023 -SC- Supreme Court holds that 6-year period for filing income tax returns by third parties commences from date of receipt of materials by AO, not date of main assessee's search & seizure operation
Justice S. Ravindra Bhat & Justice Aravind Kumar [26-09-2023]

Read Order: Commissioner of Income Tax 14 V. Jasjit Singh

Chahat Varma

New Delhi, October 12, 2023: In a recent judgment, the Supreme Court has held that the 6-year period for filing income tax returns by third parties commences from the date of receipt of materials by the Assessing Officer (AO), and not from the date of the search and seizure operation conducted on the premises of the main assessee.

In the present batch of appeals, the revenue had questioned four sets of orders of the Delhi High Court, which had dismissed its appeals under Section 260A of the Income Tax Act, 1961.

The brief facts of the case were that a search and seizure operation had been conducted at the premises of M/s KOUTON Group on 19.02.2009. During the scrutiny process, the AO had issued a notice under Section 154 A of the Income Tax Act, to the searched party. The AO believed that certain documents and materials belonging to the respondent assesses were relevant to the case, and accordingly, notices were sent to the said assesses. The assesses contended that the period during which they were required to file their returns should commence from the date when the materials were forwarded to their respective AOs. On the other hand, the revenue argued that the relevant date for the six-year return filing period should be from the date when the search and seizure proceedings were conducted concerning the main assessee under Section 132 of the Income Tax Act. The impugned order upheld the decision of the Income Tax Appellate Tribunal (ITAT), which, in turn, supported the arguments made by the assesses.

On behalf of the revenue, it was argued that the impugned order was erroneous because the date referred to in the proviso to Section 153(1) is only related to the second proviso to Section 153A, specifically in relation to matters concerning abatement.

The division bench comprising of Justice S. Ravindra Bhat and Justice Aravind Kumar observed that a straightforward interpretation of Section 153C (1) made it evident that the legislative intent behind the proviso was not limited to addressing the issue of abatement alone. Instead, it also pertained to determining the date from which the six-year period should commence for filing returns by the third party, whose premises were not subject to a search and for whom the specific provision under Section 153-C was enacted.

The bench rejected the revenue's argument, deeming it to be unsubstantiated. It pointed out that it was entirely plausible for the AO in charge of the seized materials from the search party under Section 132 to take a considerable amount of time to transfer the documents and materials belonging to the third party to the relevant AO. In such a scenario, if the date were to be linked back to the date of seizure, as contended by the revenue, it would result in disproportionate prejudice to the third party. They might unwittingly be drawn into proceedings, even in cases where they have no real connection to the matter at all.

The bench provided an example to illustrate its point, highlighting that if the papers were indeed assigned under Section 153-C after a span of four years, it would place a substantial burden on the third-party assesses. They would essentially need to maintain their records for a period of at least 10 years, which is not a legal requirement. Such severe and unjust consequences could not be attributed to the intent of the Parliament.

For the foregoing reasons, the court determined that there was no merit in these appeals, and consequently, dismissed the same.