Amended S. 153C Will Be Applicable To Searches Under S. 132 Retrospectively

DATE OF ORDER

06TH APRIL ,2023

CASE TITLE

 INCOME TAX OFFICER VS VIKRAM SUJITKUMAR BHATIA 

BENCH

HON’BLE JUSTICE MR. M.R.SHAH 

PARTIES

 APPELLANT- INCOME TAX OFFICER

 RESPONDENT- VIKRAM SUJITKUMAR BHATIA     (CLUBBEED WITH OTHER APPEALS )

SUBJECT

The substantial question of law that arose in this case was whether amendment from to sex 153C of INCOME TAX ACT,1961 would apply to searches under Sec 132 of the Act which were initiated before the amendment i.e 01.06.2015

OVERVIEW

•  The case deals with appeals against the judgement and order of High Court of Gujarat dated 02.04.2019 wherein the court held that Sec 153C of INCOME TAX ACT, 1961 (as amended by Finance Act,2015) does not apply to searches under Sec 132 of the said act initiated before the amendment.
• Civil appeal against high court order in Special Civil Application No. 12825 of 2018 is considered as the lead matter.
• The original writ petitioner filed his income tax return for the assessment year 2012-13 in which he declared his total income of Rs 44,73,820 as business income. A search was conducted and panchnama was prepared on 7.9.2013. On the basis of seized material, proceedings were initiated against the assesse under sec 153C and noticed was issued on 8.02.2018.
• The assesse filed his reply which was satisfied by the Assessing Officer. From the satisfaction recorded, a hard disk was received which contained an excel sheet of data of the computer wherein there were references to the petitioner’s name.
• On receiving details , thr petitioner raised objections against the proceedings under sec 153C contending that merely reference of his name in the excel sheet cannot be a reason to initiate proceedings under Sec 153C by the Assessing Officer. It was submitted that the Assessing Officer had merely reproduced the satisfaction of the searched person and had not recorded the requisite satisfaction as per Sec 153C of the INCOME TAX ACT,1961.
• Similar petitions were filed by different persons by different writ petitions are hereby clubbed together which involves same question of law.
• The HC ruled out that the amendment was brought subsequent to the date of search and based on the amendment, the petitioners were not included within the ambit of the amendment. It ruled out that amendment won’t be applicable retrospectively. This judgement of the HC is the subject matter of the appeals.

ARGUMENTS ADVANCED BY APPELLANT-  

• The counsel vehemently submitted that while passing the impugned judgement and quashing and setting aside the notice under Sec 153C, the HC has not properly considered and appreciated the object and purpose, which necessitated the amendment in Sec 153 C.
• It was submitted that the amendment was necessitated in view of the observation made by Delhi HC in the case of Pepsico India Holdings Private Ltd vs Commissioner of Income Tax, 2014. It was observed in that case that the provision could not be invoked unless the documents/materials ‘belong to’ the person other than searched person. The words ‘belongs/belongs to’ should not be understood same as ‘refers/refer to’.
• The amendment was therefore brought to comply with the observation made by the Delhi HC. The amendment replaced the words ‘belongs/belongs to’ with ‘pertains/pertains to’ insofar as to books of accounts and documents are dealt.
• It was contended that while interpreting the amendment made to Sec 153C, the legislative intent must be considered. The interpretation which best expresses the intention must be acknowledged.
• It was further contended by the counsel that Sec 153C of INCOME TAX ACT, 1961 is a machinery provision. While interpreting this statute, court has to give Manifest to its purpose which Gujarat HC has failed to do.
• The legislature is competent to make laws retrospectively and it should be given effect by the courts. Through the impugned order and judgement, HC has committed error in holding that Sec 153C is applicable prospectively.
• It was prayed to allow the appeals and quash the impugned order and judgement by the Gujarat HC.

ARGUMENTS ADVANCED BY RESPONDENT-  

• The counsel contended that on the basis of amendment, the notices were issued under sec 153C to the assesses, who were not included within the scope of the amendment as it stood on the date of the search.
• It was submitted that the provision is machinery and Procedural and the amendment is retrospective and thus is applicable to searches conducted before it but the notices were issued after the amendment.
• It was submitted by the counsel on behalf of the respective assesses that a machinery provision which affects the substantive rights cannot be held retrospective. Though the provision is a machinery provision, amendment cannot be retrospective.
• The counsel contended that the HC has rightly held that amendment cannot be made applicable retrospectively as it affects the substantive rights. 
• Reference to the judgement in the case of Controller of Estate Duty vs M.A Merchant, 1989 was made where the court refused to interfere vested rights.
• The counsel submitted that even Procedural laws grants substantive rights and the amendments to those are prospective in nature.
• The amendment has not merely changed the procedure, it has brought a new class of assesses hence it cannot be given retrospective effect.
• Making above submissions, it was prayed to the court to dismiss the appeals.

JUDGEMENT 

• The apex court held the impugned common judgement and order by the HC as unsustainable.
• It answered the substantial question of law that whether amendment from to sex 153C of INCOME TAX ACT,1961 would apply to searches under Sec 132 of the Act which were initiated before the amendment i.e 01.06.2015 in favour of the appellants.
• The court held that  the amended Sec 153C will be  applicable to searches under Sec 132 retrospectively.
• It said that any interpretation which may frustrate the very object and intention of the Act or statute should be avoided.
• If the Sec 153C is made prospective as contended by the respondents then it would frustrate the purpose of the amendment i.e assessment of income of any other person ( other than the searched person).

CONCLUSION 

It can be concluded from the present judgment of the Supreme Court that it is important to emphasize and consider the object and intention of the legislation. It is the duty of the court to interpret the act or statute in such a way to extract the essence and objective of it. It is necessary to establish harmony between provisions so as to ensure that none defeat the purpose of the other.