The Income Tax Appellate Tribunal, Delhi, has clarified that the validity of assessment proceedings under Section 153C of the Income Tax Act hinges not on the date of search but on the date incriminating material is handed over to the Assessing Officer. This ruling invalidates assessments initiated after 01.04.2021, even if the underlying search occurred earlier, reinforcing statutory timelines over procedural convenience.
Background & Facts
The Dispute
The dispute centers on the validity of assessment proceedings initiated under Section 153C of the Income Tax Act, 1961, for Assessment Years 2017-18 and 2018-19. The Assessing Officer (AO) relied on documents seized during a search conducted on 18.10.2019 on the Alankrit Group of entities, which allegedly contained incriminating evidence linking the assessee, Shri Mukesh Jain, to bogus transactions and accommodation entries. The AO issued a notice under Section 153C on 15.06.2022 and completed the assessment on 27.02.2024, making additions of Rs. 30,00,000 under Section 69A and Rs. 90,000 under Section 69C.
Key Facts
- The assessee filed original returns for A.Y. 2017-18 on 18.10.2017 declaring income of Rs. 67,86,900
- A search under Section 132 was conducted on the Alankrit Group on 18.10.2019
- Incriminating documents relating to the assessee were discovered during the search
- The incriminating material was handed over to the AO of the assessee after 01.04.2021
- The satisfaction note under Section 153C was recorded after 01.04.2021
- Notice under Section 153C was issued on 15.06.2022
- The assessee filed a return on 07.10.2023 declaring the same income of Rs. 67,86,900
- Assessment order dated 27.02.2024 added Rs. 30,90,000 as undisclosed income
- The Ld. CIT(A) dismissed the appeal on 11.09.2025
Procedural History
- 18.10.2017: Assessee filed return for A.Y. 2017-18
- 18.10.2019: Search conducted under Section 132 on Alankrit Group
- 01.04.2021: Section 153C repealed with effect from this date under Finance Act, 2021
- After 01.04.2021: Incriminating material handed over to AO of assessee
- 15.06.2022: Notice under Section 153C issued to assessee
- 07.10.2023: Assessee filed return in response to notice
- 27.02.2024: AO passed assessment order under Section 153C
- 11.09.2025: Ld. CIT(A) dismissed appeal
- 30.06.2026: ITAT Delhi delivered judgment on both appeals
The Parties' Positions
For the Assessee
The assessee contended that Section 153C was repealed with effect from 01.04.2021 and therefore any proceedings initiated after that date are void. He relied on the Madras High Court judgment in Harigovind v. ACIT [2025] 180 taxmann.com 197, arguing that the triggering event under Section 153C is the handover of incriminating material to the AO of the other person, not the date of search. Since the material was handed over and the satisfaction note recorded after 01.04.2021, the proceedings lacked jurisdiction.
For the Revenue
The Revenue argued that the search was conducted in 2019, prior to repeal, and therefore the proceedings were validly initiated. It further contended that the jurisdictional challenge was raised for the first time before the Tribunal and was not raised before the Ld. CIT(A), rendering it ineligible for consideration.
Relief Sought
The assessee sought quashing of the assessment orders dated 27.02.2024 for both A.Y. 2017-18 and 2018-19 on the ground of lack of jurisdiction under Section 153C, and requested that the assessments be set aside.
The Legal Issue
The central question was whether Section 153C of the Income Tax Act permits assessment proceedings to be initiated after 01.04.2021 if the incriminating material was handed over to the Assessing Officer after that date, despite the search having occurred earlier.
Arguments Presented
For the Appellant/Petitioner
The assessee relied on the plain language of Section 153C(3), which explicitly states that the provisions of Section 153C shall not apply to any search initiated on or after 01.04.2021. He argued that the phrase "search initiated" in the provision must be interpreted in context with the procedural trigger under Section 153C(1), which requires the handover of incriminating material to the AO of the other person. Citing Harigovind v. ACIT, he contended that the date of handover, not the date of search, is the operative event for jurisdiction. He further emphasized that the Revenue failed to produce any evidence to rebut the claim that handover occurred after 01.04.2021.
For the Respondent/State
The Revenue argued that the search under Section 132 was conducted on 18.10.2019, which was before the repeal, and therefore the entire proceeding was validly initiated. It contended that the assessee had not raised the jurisdictional objection before the Ld. CIT(A), and thus the issue was not maintainable before the Tribunal. It further submitted that the legislative intent was to allow continuation of proceedings initiated before the repeal, regardless of subsequent procedural steps.
The Court's Analysis
The Tribunal examined the statutory scheme of Section 153C and noted that subsection (3) clearly bars application of the section to searches initiated on or after 01.04.2021. The key issue was the interpretation of the term "search initiated". The Tribunal held that while the physical act of search occurred in 2019, the legal trigger for invoking Section 153C is the handover of incriminating material to the AO of the other person, as mandated by subsection (1). The Tribunal observed that the provision is designed to ensure that the assessment against the other person is linked to the discovery of incriminating material, not merely to the occurrence of a search.
"The provisions of this section shall not apply to any search initiated on or after 1st April, 2021."
The Tribunal noted that the Revenue failed to discharge its burden of proving that the handover of documents and recording of satisfaction under Section 153C occurred before 01.04.2021, despite being specifically directed to file evidence. The Tribunal relied on the Madras High Court’s reasoning in Harigovind v. ACIT, which held that the date of handover is the decisive factor for jurisdiction under Section 153C. The Tribunal further held that the failure to raise the issue before the Ld. CIT(A) does not bar consideration when the jurisdictional defect is patent and goes to the root of the proceeding.
The Tribunal emphasized that jurisdictional errors cannot be waived by acquiescence or procedural lapse, as they render the entire proceeding void ab initio. The Revenue’s argument that the search date controls jurisdiction was rejected as inconsistent with the statutory language and legislative intent behind the repeal.
The Verdict
The appeals of the assessee are allowed. The assessment orders dated 27.02.2024 for A.Y. 2017-18 and 2018-19 are quashed. The proceedings under Section 153C are set aside for want of jurisdiction. The Revenue is directed to treat the assessee’s return filed on 07.10.2023 as valid and proceed accordingly under the regular assessment provisions, if necessary. No costs are awarded.
What This Means For Similar Cases
Jurisdictional Trigger Is Handover, Not Search
- Practitioners must now verify the exact date of handover of incriminating material to the AO, not just the search date, when challenging Section 153C assessments
- Any assessment notice issued after 01.04.2021 based on material handed over after that date is void, regardless of when the search occurred
- Tax officers must maintain clear records of handover dates to avoid invalid assessments
Procedural Lapse Does Not Cure Jurisdictional Defect
- Failure to raise jurisdictional objections before lower authorities does not bar the Tribunal from examining the validity of proceedings
- Jurisdictional errors under Section 153C are fundamental and go to the root of the assessment
- Practitioners should raise jurisdictional challenges at the earliest opportunity, but even belated challenges may succeed if the defect is clear
Legislative Repeal Has Immediate Effect on Pending Procedures
- The repeal of Section 153C effective 01.04.2021 is not merely prospective for future searches but also retrospective in effect on procedural triggers
- Assessments based on post-repeal handover are invalid even if the search was pre-repeal
- This creates a narrow window for valid Section 153C assessments: search must occur before 01.04.2021 AND handover must occur before 01.04.2021
