In Civil Appeal No. 911 of 2022 - SC - Supreme Court rules amended Section 153C of the Income Tax Act shall apply to searches conducted under Section 132 of the Act prior to the date of the amendment
Justice M.R. Shah & Justice B.V. Nagarathna [06-04-2023]

Read Order: Income Tax Officer v. Vikram Sujitkumar Bhatia

Chahat Varma

New Delhi, June 6, 2023: The Supreme Court has quashed the order of the Gujarat High Court and decided that the amendment to Section 153C of the Income Tax Act, 1961, introduced by the Finance Act, 2015, will apply to searches conducted under Section 132 of the Act prior to 01.06.2015.

The Revenue had filed the present appeals against the judgment of the Gujarat High Court, which had quashed the notice under Section 153C of the Income Tax Act, 1961, issued to the respondent – assessee and had set aside the consequent Assessment Orders, by holding that the amendment to Section 153C, introduced by the Finance Act, 2015, would not apply to searches conducted under Section 132 before the date of amendment.

The division bench of M.R. Shah and Justice B.V. Nagarathna observed that the Delhi High Court's observation in the case of Pepsico India Holdings (P.) Ltd v. Assistant Commissioner of Income Tax [LQ/DelHC/2014/2434] led to a situation where the Revenue was unable to take action against third parties, even if incriminating material was found during search proceedings under Section 132. It was observed that the aforesaid decision was coming in the way of suppressing the very mischief which the legislature intended to suppress, which necessitated the amendment in Section 153C. Therefore, the amendment can be seen as a substitution of words to address this issue.

The court said, “As per the settled position of law, the Courts, while interpreting machinery provisions of a taxing statute, must give effect to its manifest purpose by construing it in such a manner so as to effectuate the object and purpose of the statute.”

The court said that if the submission on behalf of the respondents – assesses, that despite the fact that the incriminating materials have been found in the form of books of account or documents or assets relating to them from the premises of the searched person, still they may not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted prior to the amendment was accepted, in that case, the very object and purpose of the amendment to Section 153C, shall be frustrated. The court held that the amendment aimed to substitute the words ‘belongs or belong to’ with ‘pertains or pertain to’ in order to ensure that incriminating materials found from the premises of the searched person can be used against other persons related to the searched person.