Section 153C Cannot Be Invoked After 1 April 2021 for an “Other Person” Merely Because the Search Was Conducted Earlier: ITAT Bangalore
Landmark Ruling Clarifies That the Date of Recording Satisfaction-not the Date of Search-Determines the Validity of Section 153C Proceedings
One of the most significant changes brought about by the Finance Act, 2021 was the overhaul of the reassessment regime under the Income-tax Act. While much attention has been devoted to the new reassessment provisions under Sections 147 to 151, an equally important question has arisen in search-related cases:
Can proceedings under Section 153C still be initiated against an “other person” after 1 April 2021 merely because the original search under Section 132 was conducted before that date?
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has answered this question with an emphatic No.
The Tribunal has held that where the satisfaction note under Section 153C is recorded after 1 April 2021, proceedings against the “other person” under Section 153C are without jurisdiction, even if the original search was conducted before that date.
The ruling is likely to have a far-reaching impact on numerous pending search assessments involving persons other than the searched person.
Why This Judgment Is Important
The decision settles a recurring controversy arising after the Finance Act, 2021.
In many cases:
• searches were conducted before 1 April 2021;
• seized documents relating to another person were examined much later;
• satisfaction under Section 153C was recorded after 1 April 2021;
• notices under Section 153C were nevertheless issued.
The Bangalore ITAT has now clarified that such proceedings may themselves be without jurisdiction.
Understanding Section 153C
Section 153C applies where, during the course of a search on one person, documents, books of account or assets belonging or relating to another person are found.
In such situations:
• the seized material is transferred to the Assessing Officer having jurisdiction over the “other person”;
• the Assessing Officer records satisfaction;
• proceedings are then initiated against that other person.
Unlike the searched person, the “other person” enters the search assessment process only after these statutory steps are completed.
Background of the Case
In the present case:
• the original search under Section 132 had taken place before 1 April 2021;
• however, the jurisdictional Assessing Officer recorded the satisfaction note only on 26 November 2021;
• thereafter notices under Section 153C were issued.
The assessee challenged the very jurisdiction to invoke Section 153C.
The Core Legal Question
The principal issue before the Tribunal was:
For an “other person”, which date determines the applicability of Section 153C-the date of search or the date on which satisfaction is recorded and the seized material is received by the jurisdictional Assessing Officer?
ITAT’s Answer: The Satisfaction Date Is Crucial
The Tribunal answered this question in favour of the taxpayer.
It relied upon the first proviso to Section 153C(1).
The Tribunal observed that, in the case of an “other person”, the relevant date is:
• the date on which the seized material is received by the jurisdictional Assessing Officer; and
• the date on which satisfaction is recorded.
Since the satisfaction note in the present case was recorded only on 26 November 2021, the legal consequences flowing from the Finance Act, 2021 became applicable.
Section 153C(3) Bars Such Proceedings
The Tribunal held that Section 153C(3) clearly governed the situation.
After 1 April 2021, fresh proceedings under Section 153C could not be initiated in the manner adopted by the Revenue.
If any action was legally permissible after that date, it had to be taken under the reassessment provisions introduced by the Finance Act, 2021.
The Revenue could not continue to invoke the earlier search assessment machinery contrary to the amended statutory framework.
Search Date Alone Does Not Save the Proceedings
One of the most significant findings of the Tribunal is that:
The mere fact that the original search was conducted before 1 April 2021 does not preserve the jurisdiction to initiate Section 153C proceedings against an “other person” after that date.
The relevant trigger for the “other person” is not the search itself.
It is the statutory recording of satisfaction.
Reliance on Judicial Precedents
The Bangalore ITAT relied upon several important judicial authorities, including:
• Harigovind v. ACIT (Madras High Court)
• Smt. Geetanjali Bhayana v. DCIT (Delhi ITAT)
• CIT v. Jasjit Singh (Supreme Court)
These decisions collectively support the principle that the statutory requirements governing proceedings against an “other person” must be independently satisfied, and that jurisdiction depends upon the statutory framework prevailing on the relevant date.
Assessment Orders Also Quashed
Having held that the notices themselves were without jurisdiction, the Tribunal quashed:
• the notices issued under Section 153C; and
• the consequential assessment orders.
Since the legal ground itself succeeded, the Tribunal found it unnecessary to examine the other issues raised by the assessee.
Wider Implications of the Judgment
Although the dispute concerned Section 153C, the ratio is likely to affect a large number of pending search cases.
The judgment may apply where:
• search was conducted before 1 April 2021;
• satisfaction for the “other person” was recorded after 1 April 2021;
• seized material was transferred after 1 April 2021;
• notices under Section 153C were issued after the Finance Act, 2021 came into force.
Taxpayers facing such proceedings should carefully examine the chronology of statutory events.
Practical Guidance for Taxpayers
In every Section 153C case, taxpayers should verify:
• the date of search under Section 132;
• the date on which seized material was handed over;
• the date of recording of the satisfaction note;
• the date of issue of notice under Section 153C.
The satisfaction note may now become one of the most crucial jurisdictional documents in search-related litigation.
Key Takeaways
• For an “other person”, the relevant date under Section 153C is the date of recording satisfaction—not merely the date of search.
• Satisfaction recorded after 1 April 2021 may render Section 153C proceedings without jurisdiction.
• After the Finance Act, 2021, action against an “other person” may have to be taken, if otherwise permissible, under the reassessment provisions.
• Invalid notices result in consequential assessment orders also being quashed.
• The chronology of statutory events assumes critical importance in search-related litigation.
Conclusion
The Bangalore ITAT’s ruling provides significant clarity on the transition from the old search assessment regime to the post-Finance Act, 2021 framework.
By holding that the date of recording satisfaction governs the jurisdiction to proceed against an “other person”, the Tribunal has reaffirmed that jurisdictional requirements cannot be bypassed merely because the original search was conducted earlier.
The judgment is likely to become an important precedent in litigation involving Section 153C, particularly where there is a substantial gap between the date of search and the recording of satisfaction.
For taxpayers, tax professionals and assessing authorities alike, the ruling highlights an essential principle of tax law: jurisdiction depends not merely on historical events, but on strict compliance with the statutory conditions prevailing on the relevant date.
The copy of the order is as under:
