Case title:
Income Tax Officer v. Vikram Sujitkumar Bhatia
Date of Order:
13th March 2023
Bench:
Justice M R Shah and B V Nagarathna
Parties:
Petitioner: Income Tax Officer
Defendant: Vikram Sujitkumar Bhatia
Facts:
- The initial writ petitioner submitted his Report of Income for the Assessment Year (A.Y.) 2012–13 on September 11, 2012, listing his entire income as business income from a partnership firm and other income, which was around 44 lakhs. The Income Tax Assessing Officer commenced proceedings against the assessee in accordance with Section 153C of the Act, 1961, by issuing a notice dated 08.02.2018.
- The assessee sent the assessed officer his response and income tax return in a letter dated 01.05.2018, and the assessed officer received it to his satisfaction. The assessing officer seized a hard drive holding an Excel sheet with data from the person searched that included references to the petitioner's name even though no evidence was found to be in the petitioner's favour.
- According to the writ petitioner, the need that any cash, bullion, gold, or other valuable item or thing be "belongs to" a person other than the searched child was not met when the steps conducted in accordance with Section 153C of the Income-Tax Act of 1962.
- The Gujarat High Court decided that Section 153C of the Act of 1961 is a mechanism for ascertaining the assessee's income who is being searched by authorities in response to a writ petition lodged by the petitioner.
- The Assessment Officer was pleased with the available evidence and instructed the court to issue a summons to an assessee in the event that records pertaining to him or containing information about him were discovered.
- Due to the fact that the satisfied notes and notices under the Income Tax Act of 1961 were issued after the Amendment Act of 2015 took effect, petitioners who were excluded from the search were now requested to be included. The Income Tax Department appealed the Gujarat High Court's order to quash the Section 153C notice of the Income Tax Act of 1961, and also filed a Special Leave petition with the Supreme Court.
Issue raised:
The Finance Act of 2015 amended Section 153C of the Income Tax Act of 1961. The main question the Apex Court had to decide was whether the alteration would apply to searches performed in accordance with Section 132 of the Act of 1961 prior to the amendment's effective date of 01.06.2015.
Arguments:
- The assesses' attorney vehemently argued against the current appeals, saying that the point of applicability of the current law in search cases—specifically, whether Section 153C of the Income Tax Act, as amended with effect from 01.06.2015 would apply to cases where the search is initiated before that date—was in dispute in the current group of appeals. The Department's position that Section 153C of the Act, 1961 is a procedural and machinery provision means that the amendment, even though it went into effect on June 1, 2015, is retroactive. As a result, it applies to instances in which searches were conducted prior to the amendment but notices under Section 153C of the Act, 1961 were issued.
- The Delhi High Court stated in PepsiCo India Holdings Private Limited v. Assistant Commissioner of Income Tax that the words "belong or belong to" should not be confused with the words "relates to or refers to," making the former much narrower than the latter. The Additional Solicitor General of India, appearing for the respondent, argued that this observation made the concerned amendment to Section 153C necessary. This led the court to rule that the clause could only be used if the documents or other materials "belong" to a third party (other than the person searched).
- The Supreme Court ruled that Section I53C of the Finance Act of 2015 was amended to replace the words with "pertain/pertains to," relying on the Delhi High Court's ruling in the case PepsiCo India Ltd. vs Assistant Commissioner of Income Tax (2014) that had given a restrictive meaning to the words "belong/belongs." A document does not "belong" to someone only because copies of it were taken from them while the originals were with someone else.
- The Supreme Court further stated that the amendment to Section 153C of the Act, 1961 may not be subjected to the proceedings under Section 153C solely on the basis that the search was carried out before the amendment is accepted. Incriminating materials, such as books of account, documents, or assets related to them, from the premises of the searched person may not be included.
- The Court must avoid any construction that could defeat the core aims and objectives of the statute or law. In favour of the revenue and against the assessments the judgement held that the change to Section 153C of the Income Tax Act would not apply to searches made under Section 132 of the Income Tax Act before 01.06.2015, the amendment's effective date.
Analysis:
In this case, a person reported a total income of Rs. 44,73,820 as business revenue from a partnership firm and other income in a Report of Income for the Assessment Year (A.Y.) 2012–13 on September 11, 2012. The H.N. Safal Group's numerous locations were searched, and a Panchama was created. The Assessing Officer started legal action against the Assesses based on the material they had seized. In addition, a hard drive containing an Excel sheet containing information from the computer used by the individual being searched and containing references to the petitioner's name was taken. Others contested similar letters issued under Section 153C of the Act of 1961. "Section 153C of the Act, 1961 is a machinery provision for evaluation of income of a person other than the person searched," the High Court stated. "Section 153C of the Act, as amended with effect from 01.06.2015 by Finance Act, 2015 shall not be made applicable with respect to the searches carried out prior to 01.06.2015." The Supreme Court quashed and reversed the High Court's contested decision and order.
Conclusion:
Therefore, in the present cast the Apex court noted and decided that searches carried out under Section 132 of the Act of 1961 prior to 01.06.2015, the date of the modification, shall be subject to the amendment made to Section 153C of the Act of 1961 by the Finance Act of 2015. Thus, the High Court's contested common decision and order merits being overturned and is as a result overturned and set aside. We do reserve the right for the respective assesses to challenge the assessment orders before CIT (A) on any other grounds that may be available, and it is observed that if said appeals are made within four weeks of today, they will be evaluated in accordance with the law and on their own merits. However, before the High Court, the respective assessment orders were challenged primarily on the aforesaid issue, which is now resolved in favor of the Revenue as stated above
Click here to download the original copy of the judgement
