Delhi High Court quashes a Section 153C notice for AY 2016-17 as time-barred, relying on Ojjus Medicare and the limitation prescribed under Sections 153A and 153C.
The Delhi High Court has once again emphasised that proceedings under Section 153C of the Income Tax Act, 1961 must remain within the statutory limitation period. In a significant ruling, the Court quashed a notice issued under Section 153C for Assessment Year (AY) 2016-17, holding that the notice was issued beyond the permissible period of limitation.
The judgment reiterates the importance of correctly determining the relevant assessment years while invoking the special assessment provisions applicable to a person other than the person searched. The Court followed its earlier decision in Principal Commissioner of Income Tax-1 (Central-1) v. Ojjus Medicare Pvt. Ltd. (2024).
Background of the Case
The matter arose in Preeti Chadha v. Income Tax Officer, Ward 62(1), Delhi & Ors., W.P.(C) No. 580/2024.
The petitioner challenged a notice issued under Section 153C of the Income Tax Act in relation to AY 2016-17. The impugned notice was issued on 25 July 2022, pursuant to a satisfaction note recorded by the Assessing Officer on 16 June 2022.
The petitioner argued that the notice was legally unsustainable because it had been issued after the expiry of the limitation period prescribed under the statutory framework comprising Sections 153A and 153C.
The petitioner relied upon the Delhi High Court’s earlier judgment in Ojjus Medicare Pvt. Ltd., which had examined the manner in which the limitation period is to be determined for proceedings under Section 153C.
Issue Before the Delhi High Court
The principal question before the Court was whether the Income Tax Department could initiate proceedings under Section 153C for AY 2016-17 through a notice issued on 25 July 2022, when the applicable limitation period was required to be calculated with reference to the assessment year in which the satisfaction note was recorded.
The answer depended upon identifying the relevant assessment year and then applying the statutory six-year limitation period applicable where the alleged escaped income does not meet the higher monetary threshold.
Court’s Analysis of Limitation
The Division Bench comprising Justice Dinesh Mehta and Justice Aditi Choudhary examined the dates relevant to the proceedings.
The satisfaction note was recorded on 16 June 2022. This date fell within Financial Year 2022-23, corresponding to AY 2023-24.
The Court held that the limitation period for the purposes of Section 153C had to be determined by reference to the immediately preceding assessment year, namely AY 2022-23.
Since the escaped income in the matter was stated to be less than ₹50 lakh, the applicable period was six assessment years. When the six-year period was calculated backwards from the relevant assessment year, the permissible period extended from AY 2017-18 to AY 2022-23.
Consequently, AY 2016-17 fell outside the permissible six-year period.
The Court therefore concluded that the notice issued for AY 2016-17 was beyond the statutory limitation prescribed under Sections 153A and 153C.
Reliance on Ojjus Medicare Judgment
A significant aspect of the ruling is the Court’s reliance on its earlier decision in Ojjus Medicare Pvt. Ltd.
The earlier judgment has become important in determining the starting point for calculating the permissible assessment years in Section 153C proceedings involving a person other than the searched person.
The present decision reinforces the principle that the Department cannot mechanically invoke Section 153C merely because material relating to another person has been found during search proceedings. The statutory requirements, including limitation, must be independently satisfied.
The Delhi High Court accordingly found that the impugned notice was time-barred on the plain application of Sections 153A and 153C.
Decision of the Court
Having concluded that the notice was issued beyond the prescribed limitation period, the Delhi High Court allowed the writ petition and quashed the Section 153C notice.
The ruling provides important protection against initiation of search-related assessment proceedings after the statutory period has expired.
The case was decided in favour of the petitioner, with the Court holding that the notice for AY 2016-17 could not survive because the assessment year itself fell outside the permissible period.
Key Takeaway for Taxpayers
The judgment is particularly relevant for taxpayers who receive notices under Section 153C of the Income Tax Act pursuant to search or seizure proceedings involving another person.
A Section 153C notice should not be examined only on the question of whether incriminating material was found. The taxpayer should also verify:
- the date of search or relevant satisfaction;
- the date on which the satisfaction note was recorded;
- the assessment year to which the proceedings relate;
- whether the six-year or extended ten-year period is applicable;
- whether the alleged escaped income satisfies the prescribed monetary threshold; and
- whether the notice has been issued within the statutory limitation period.
A notice issued beyond the legally permissible period can be challenged as being without jurisdiction.
Conclusion
The Delhi High Court’s decision in Preeti Chadha v. Income Tax Officer strengthens the principle that statutory limitation is not a mere procedural formality in Section 153C proceedings. The Income Tax Department must initiate proceedings within the assessment years permitted by law.
By following the ratio of Ojjus Medicare, the Court has reaffirmed that limitation under Sections 153A and 153C must be carefully computed before initiating proceedings against a person other than the searched person.
For taxpayers facing Section 153C notices, therefore, checking the limitation period should be one of the first legal steps before responding to the notice or participating in the assessment proceedings.
Case: Preeti Chadha v. Income Tax Officer, Ward 62(1), Delhi & Ors.
W.P.(C) No.: 580/2024
Court: Delhi High Court
Decision: Section 153C notice for AY 2016-17 quashed as time-barred.