Section 153C – Assessment of Other Person Based on Search
While Section 153A of the Income Tax Act, 1961, deals with assessment in cases of search or requisition concerning the searched person, Section 153C extends this power to assess or reassess income of "any other person" where incriminating documents or assets belonging to them are found during a search conducted on a different person.
This provision is a critical tool in the hands of the Income Tax Department to tackle interconnected tax evasion and unearth undisclosed income not just of the person searched, but also of those closely associated with them through financial transactions or undisclosed assets. It ensures that the net of assessment can be cast wider based on the findings of a single search operation.
Recent Changes and Interpretations Impacting Section 153C
While the core of Section 153C remains, its application and interpretation have evolved through judicial pronouncements and administrative instructions. Key points to note include:
- Satisfactions are Crucial: Courts have consistently emphasized the importance of proper "satisfaction" recorded by the Assessing Officer (AO) of the searched person that the books of account, documents, or assets seized or requisitioned belong to or pertain to a person other than the searched person. This satisfaction is a jurisdictional prerequisite for initiating proceedings under Section 153C.
- Physical Handing Over: It has been held that there must be a physical handing over of the seized material by the AO of the searched person to the AO of the 'other person' along with the recorded satisfaction. Electronic transfer alone may not suffice in some interpretations, though the faceless assessment regime aims to streamline this.
- Applicability to Specific Documents/Assets: The assessment under Section 153C is limited to the undisclosed income reflected in or relatable to the documents or assets found which belong to the 'other person'. It's not a general power to reassess their entire income unless the documents provide a broader basis.
- Impact of Finance Act, 2021 on Reassessment: While Section 153C operates outside the general reassessment framework of Section 147 and Section 148A, the principles of assessing undisclosed income remain consistent. The time limits for assessments under Sections 153A and 153C are distinct from regular reassessments.
Conditions for Initiating Proceedings under Section 153C
Section 153C can be invoked if the following conditions are met:
- Search/Requisition on Another Person: A search is initiated under Section 132 or books of account, other documents, or any assets are requisitioned under Section 132A on a person (referred to as the 'searched person').
- Seizure/Requisition of Material: During such search or requisition, any books of account, documents, or assets are found.
- Belonging to 'Other Person': The Assessing Officer (AO) of the searched person is satisfied that these books of account, documents, or assets belong to, or pertain to, or any information contained therein relates to, a person other than the searched person (referred to as the 'other person'). This satisfaction must be recorded in writing.
- Handing Over to 'Other Person's AO: The AO of the searched person then hands over such books of account, documents, or assets to the AO having jurisdiction over the 'other person'.
The Process of Assessment under Section 153C
Once the conditions are satisfied and the material is handed over, the AO of the 'other person' proceeds as follows:
- Issuance of Notice: The AO of the 'other person' will issue a notice to the 'other person' requiring them to furnish a return of income for:
- The Assessment Year relevant to the previous year in which the search was conducted or requisition was made.
- Six Assessment Years immediately preceding the Assessment Year relevant to the previous year in which the search was conducted or requisition was made.
This means the assessment can cover a maximum of seven Assessment Years.
- Conducting Assessment/Reassessment: Upon furnishing the return, or if no return is furnished, the AO proceeds to assess or reassess the total income of the 'other person' for these specified Assessment Years.
- Consideration of Material: The assessment under Section 153C is based on the books of account, documents, or assets seized or requisitioned which belong to the 'other person', as well as any other information available with the AO.
- Order Completion: The AO will complete the assessment or reassessment by passing an order under Section 153C.
Crucial Point: Unlike general reassessment proceedings, the procedure under Section 153C does not require a prior notice under Section 148A. The very act of finding incriminating material belonging to the 'other person' during a search triggers these special assessment provisions.
Time Limits for Assessment under Section 153C
The time limit for completing the assessment or reassessment under Section 153C is different from a regular assessment or reassessment. It is generally:
- Twelve months from the end of the month in which the books of account, other documents, or assets are handed over by the AO of the searched person to the AO of the 'other person'.
- This time limit may be extended in certain circumstances as per the provisions of the Act.
Implications for Taxpayers
If you are an 'other person' receiving a notice under Section 153C:
- Immediate Action: Do not ignore the notice. It signifies serious tax implications.
- Identify Connection: Understand how your name or records appeared in the search of another person.
- Review Seized Material: Request access to and review the specific books of account, documents, or assets that form the basis of the notice.
- Consult an Expert: Engage a tax professional specializing in search assessments. They can scrutinize the validity of the notice, particularly the recording of satisfaction by the searched person's AO, which is a common point of contention and litigation.
- Prepare Comprehensive Response: File a detailed return and provide accurate and complete information, supported by evidence, for all the Assessment Years covered by the notice.
Conclusion
Section 153C is a robust provision designed to combat tax evasion by extending the scope of search assessments to persons other than the one subjected to the search. It highlights the interconnected nature of financial transactions and the tax department's power to follow trails of undisclosed income. For anyone falling under its purview, understanding the nuances of this section and seeking professional guidance is paramount to navigate the complex assessment process and ensure proper compliance.
Facing a Section 153C Notice? DisyTax Offers Expert Guidance!
Receiving a notice under Section 153C indicates a serious tax matter with potentially significant implications for multiple assessment years. The specialized nature of search assessments requires expert handling.
DisyTax has extensive experience in managing complex search and seizure related assessments. Our services for Section 153C cases include:
- Thorough analysis of the validity of the notice and the underlying satisfaction.
- Strategic advice on preparing and submitting your return of income and supporting documentation.
- Representation during the assessment proceedings with the tax authorities.
- Guidance on potential penalties and appeal strategies.
Don't navigate this intricate process alone. Contact DisyTax at 7065281345 immediately for specialized assistance on your Section 153C notice.