The Income Tax Appellate Tribunal, Delhi, has held that assessments initiated under Section 153C of the Income Tax Act, 1961, are invalid if the deemed date of search falls on or after 01.04.2021, due to the explicit bar introduced by the Finance Act, 2021. This ruling clarifies a critical jurisdictional limit on the tax department’s power to reassess third parties based on search material, with immediate implications for pending and future cases.
Background & Facts
The Dispute
The appellant, M/s. Sourya Rolling and Energy Private Limited, faced reassessment proceedings under Section 153C of the Income Tax Act, 1961, initiated by the Assessing Officer (AO) following a search and seizure operation conducted under Section 132 against Alankit Group on 18.10.2019. The AO of Alankit Group transmitted incriminating material to the AO having jurisdiction over the appellant, who then issued a notice under Section 153C on 29.08.2022 and passed assessment orders for Assessment Years 2015-16, 2016-17, and 2017-18 on 03.02.2024. The appellant challenged the legality of these proceedings, arguing that the Finance Act, 2021, had rendered Section 153C inapplicable to searches or receipt of material on or after 01.04.2021.
Key Facts
Search under Section 132 conducted in the case of Alankit Group on 18.10.2019
Seized documents and material were transmitted to the AO of the appellant
The AO recorded satisfaction under Section 153C on 22.06.2022
Notice under Section 153C issued to the appellant on 29.08.2022
Assessment orders passed on 03.02.2024 for A.Y. 2015-16, 2016-17, and 2017-18
The appellant had no prior notice or opportunity to rebut the seized material before the AO
The AO relied on cash payments and unexplained expenditures under Section 69A, without independent verification
Procedural History
18.10.2019: Search conducted under Section 132 on Alankit Group
22.06.2022: AO recorded satisfaction under Section 153C
29.08.2022: Notice issued to appellant under Section 153C
03.02.2024: Assessment orders passed under Section 153C read with Section 143(3)
02.02.2026: Commissioner of Income Tax (Appeals) dismissed appellant’s appeal
25.06.2026: Hearing before ITAT Delhi
15.07.2026: ITAT delivered judgment
The Parties' Positions
For the Appellant
Argued that the deemed date of search under Section 153C(1) proviso is 22.06.2022 (date of satisfaction recording), as the actual date of receipt of material by the AO was not on record
Contended that since this date is after 01.04.2021, Section 153C is inapplicable due to the newly inserted subsection (3) by the Finance Act, 2021
Relied on Geetanjali Bhayana v. DCIT and Hargovind v. ACIT to support the argument that proceedings initiated after 01.04.2021 are void
Asserted that the assessment was also procedurally flawed due to lack of prior approval under Section 153D and violation of natural justice
For the Respondent (Department)
Maintained that the assessment was valid as it was based on incriminating material seized during the search of Alankit Group
Argued that the date of search for the appellant was the date of receipt of material, which was prior to 01.04.2021
Contended that the Finance Act, 2021, did not intend to invalidate proceedings already initiated
Relied on the AO’s satisfaction note and the nature of cash payments as sufficient grounds for addition under Section 69A
Relief Sought
The appellant sought quashing of the assessment orders dated 03.02.2024, setting aside the CIT(A)’s order dated 02.02.2026, and a declaration that the proceedings under Section 153C were void ab initio due to lack of jurisdiction.
The Legal Issue
The central question was whether the assessment proceedings initiated under Section 153C of the Income Tax Act are valid when the deemed date of search, as determined under the first proviso to Section 153C(1), falls on or after 01.04.2021, in light of the newly inserted subsection (3) introduced by the Finance Act, 2021.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the first proviso to Section 153C(1) deems the date of recording satisfaction by the AO of the searched person as the date of search if the actual date of receipt of material by the AO of the assessee is not ascertainable. Since satisfaction was recorded on 22.06.2022, the deemed date of search was after 01.04.2021. Subsection (3) of Section 153C, inserted by the Finance Act, 2021, explicitly bars any assessment under Section 153C in relation to searches initiated or material received on or after that date. The appellant relied on Hargovind v. ACIT (180 taxmann.com 197) and Geetanjali Bhayana v. DCIT (183 taxmann.com 95), both of which held that proceedings initiated after 01.04.2021 are ultra vires. The appellant further argued that the AO’s satisfaction was mechanical, lacked independent application of mind, and no prior approval under Section 153D was obtained.
For the Respondent
The Department contended that the search was initiated in 2019 and the material was transmitted in a timely manner, implying the proceedings were validly initiated before the amendment. It argued that the Finance Act, 2021, was prospective and should not invalidate actions already in progress. The Department also maintained that the additions under Section 69A were justified due to unexplained cash credits and that the appellant failed to discharge the burden of proving the source of funds. It did not address the jurisdictional bar under subsection (3) substantively, instead focusing on the merits of the additions.
The Court's Analysis
The Tribunal examined the statutory language of Section 153C, particularly the newly inserted subsection (3), which states:
"Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021."
The Court noted that the provision is unambiguous and absolute in its prohibition. It rejected the Department’s argument that the search was initiated in 2019 and therefore exempted, holding that the relevant date for determining applicability is not the original search date but the deemed date of search for the assessee under the first proviso to Section 153C(1). Since the record did not establish the date of receipt of material by the AO of the appellant, the date of satisfaction recorded by the AO of Alankit Group - 22.06.2022 - became the deemed date of search under the proviso, as affirmed in Ojjas Healthcare Pvt. Ltd. v. DCIT (161 taxmann.com 160).
The Tribunal emphasized that the Finance Act, 2021, was enacted to curtail the use of Section 153C for reassessments based on third-party search material, particularly where the connection to the assessee was tenuous. The Court held that the Department’s reliance on the 2019 search was legally irrelevant once the deemed date of search fell after 01.04.2021. The Madras High Court’s decision in Hargovind v. ACIT was followed, which held that any notice issued under Section 153C after 01.04.2021 is without authority. The Tribunal also noted that the AO’s satisfaction note was recorded without independent application of mind and no prior approval under Section 153D was obtained, further invalidating the proceedings.
The Verdict
The appeals filed by the assessee for A.Y. 2015-16, 2016-17, and 2017-18 are allowed. The notice issued under Section 153C on 29.08.2022 and the assessment orders dated 03.02.2024 are quashed as void ab initio for lack of jurisdiction. The order of the CIT(A) dated 02.02.2026 is set aside. The Department is directed to treat the assessments as non-existent and to take no further action under Section 153C for these years. No costs are awarded.
What This Means For Similar Cases
Section 153C Assessments Are Time-Bound by Deemed Search Date
Practitioners must now calculate the deemed date of search under Section 153C(1) proviso for every assessee - not the original search date
If the deemed date (either receipt of material or satisfaction recording) is on or after 01.04.2021, Section 153C is inapplicable regardless of when the original search occurred
Any reassessment initiated under Section 153C after this date must be challenged on jurisdictional grounds
Procedural Compliance Is Non-Negotiable
AO must record independent satisfaction, not merely adopt the satisfaction of another AO
Prior approval under Section 153D is mandatory; failure renders proceedings void
Statements from third parties during search cannot be used without providing the assessee an opportunity to cross-examine
Additions under Section 69A or 69C require concrete evidence - mere presumption is insufficient
Jurisdictional Challenges Trump Merits
Even if the additions appear substantively valid, they cannot survive if the initiating procedure is invalid
Courts and Tribunals are now strictly enforcing the 01.04.2021 cutoff - no exceptions for pending cases
Practitioners should routinely verify the deemed date of search in all Section 153C cases and file jurisdictional objections at the earliest opportunity
