153C Jurisdiction Fails: ITAT Ahmedabad Quashes Rs. 4 Cr Addition and Penalty

A search under Section 132 was conducted on 06.03.2018 in the case of the “SSS Group,” during which a document allegedly evidencing a cash payment of Rs. 4 crore by the assessee, Ms Falguni Suryakant Thakar, for the purchase of a residential unit was found on a third party’s laptop. The assessee was neither a searched person nor had she filed a return for AY 2009-10. A satisfaction note was recorded by the AO of the searched person, followed by a notice was issued under Section 153C on 15.11.2021.

An ex parte assessment under Section 153C read with Section 144 resulted in the addition of Rs.4 crore under Section 69 and levy of penalty under Section 271(1)(c). The CIT(A) quashed the assessment as barred by limitation.

Issue Before ITAT: Whether proceedings under Section 153C for AY 2009-10 against a non-searched person were valid when notice was issued in November 2021, and whether the extended ten-year period, COVID-19 exclusion, or Rs. 50 lakh threshold could sustain jurisdiction.

ITAT Held: The ITAT upheld the CIT(A)’s order and quashed the assessment. It held that, for a non-searched person, the “search-relevant assessment year” must be reckoned from the date the seized material is received by the jurisdictional AO, as per the first proviso to Section 153C. Since notice was issued on 15.11.2021, the six-year block extended only up to AY 2016-17, and even with the additional four years under the Rs.50 lakh threshold, jurisdiction could extend only up to AY 2012-13. AY 2009-10 was therefore clearly time-barred.

The Tribunal also noted the Revenue’s failure to demonstrate timely or immediate recording of satisfaction. Thus, the quantum assessment was quashed, the penalty appeal was dismissed, and the assessee’s cross-objection on merits was rendered infructuous.

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