Section 132 searches carried out prior to 01.06.2015 are also covered by the amendment to section 153C: SC

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned common judgment and order dated 02.04.2019 passed by the High Court of Gujarat in Special Civil Application No. 18777 of 2018 and other connected matters, as well as the impugned judgment(s) and order(s) passed by the High Court of Gujarat in other special civil applications relying upon its earlier decision in the aforesaid case, whereby the High Court has quashed the notice under Section 153C of the Income Tax Act, 1961 (hereinafter referred to as “Act, 1961”) issued to the respondent – assessee – respondents herein and set aside consequent Assessment Orders (where assessment stood completed) by holding that Section 153C of the Act, 1961 (as amended by Finance Act, 2015) would not apply to searches under Section 132 of the Act, 1961 initiated before the date of amendment, the Revenue has preferred the present appeals.

At the outset, it is required to be noted that the question of law that arises for the consideration of this Court is :-

Whether amendment brought to Section 153C of the Income Tax Act, 1961 vide Finance Act, 2015 would be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of amendment?

For the sake of convenience, the Civil Appeal arising out of the impugned judgment and order passed by the High Court in Special Civil Application No. 12825 of 2018 is considered and treated as the lead matter and the facts in the said writ petition are narrated, which in nutshell are as under:-

The original writ petitioner, an individual filed his Return of Income for the Assessment Year (A.Y.) 2012-13 on 11.09.2012 declaring total income of Rs. 44,73,820/-as business income from a partnership firm and other income. A search came to be conducted on various premises of H.N. Safal Group on 04.09.2013. A panchnama came to be prepared on 07.09.2013. On the basis of the seized material, the Assessing Officer initiated proceedings against the assessee under Section 153C of the Act, 1961 by issuing a notice dated 08.02.2018.

The assessee filed his reply dated 01.05.2018 and also submitted his return of income. Vide letter dated 14.5.2018, the Assessing Officer furnished the satisfaction note recorded by him and also attached therewith the satisfaction of the Assessing Officer of the searched person. From the satisfaction recorded, though it was found that no document belonging to the original writ petitioner – assessee was found during the course of search, however, a hard-disk was seized, which contained an excel sheet with the data of the computer of the searched person, wherein there were references to the petitioner’s name. On receiving the details, the original writ petitioner raised objections to the proceedings under Section 153C of the Act, 1961 contending, inter alia, that on the basis of the excel sheet data of the computer of the searched person wherein there were only references to the original writ petitioner’s name, the Assessing Officer could not have initiated proceedings against him under Section 153C of the Act, 1961, inasmuch as the condition precedent for invoking Section 153C of the Act as it stood on the date of the search, namely, that the Assessing Officer should be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned “belongs or belong to” the person other than the searched person, was not satisfied. It was also contended that for the purpose of initiating action under Section 153C of the Act, 1961, independent satisfaction has to be recorded, by the Assessing Officer of the searched person as well as by the Assessing Officer of the person other than the searched person. It was submitted that, however, on a perusal of the satisfaction note recorded by the Assessing Officer of the original writ petitioner, it was evident that the Assessing Officer had merely reproduced the satisfaction of the Assessing Officer of the searched person and had not recorded the requisite satisfaction as contemplated under Section 153C of the Act, 1961.

Observation of the court

While considering the aforesaid question, the reason and the object and purpose of the amendment to Section 153C introduced vide Finance Act, 2015 w.e.f. 01.06.2015 is required to be considered.

As observed hereinabove, in the pre-amended Section 153C, the words used were “belongs or belong to” a person other than the searched person. In the case of Pepsico India Holdings Private Limited (supra), the Delhi High Court interpreted the expression “belong to” and observed and held that there is a difference and distinction between “belong to” and “pertain to”. It was observed and held that on the basis of the registered sale deed seized from the premises of the searched person, it cannot be said that it “belongs to” the vendor. Therefore, the High Court view gave a very narrow and restrictive meaning to the expression / word “belongs to” and held that the ingredients of Section 153C have not been satisfied. To remove the basis of the observation made by the Delhi High Court in the case of Pepsico India Holdings Private Limited (supra), now, Section 153C came to be amended w.e.f. 01.06.2015 by substituting the words “belongs or belong to” with the words “pertains or pertain to” insofar as the books of account and documents are concerned. Thus, having found that the observation made by the Delhi High Court in the case of Pepsico India Holdings Private Limited (supra) led to a situation where, though incriminating material pertaining to third party was found during the search proceedings under Section 132, the Revenue could not proceed against the third parties, it was observed that the said observation made by the Delhi High Court in the aforesaid decision was coming in the way of suppressing the very mischief which the legislature intended to suppress, which necessitated the amendment in Section 153C. Thus, it is a case of substitution of the words by way of amendment.

In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court is held to be unsustainable and the question, i.e., “Whether the amendment brought to Section 153C of the Income Tax Act, 1961 vide Finance Act, 2015 would be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of amendment?”, is answered in favour of the Revenue and against the assessees and is answered accordingly. Therefore, it is observed and held that the amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment. The impugned common judgment and order passed by the High Court, therefore, deserves to be quashed and set aside and is accordingly quashed and set aside. However, as before the High Court respective assessment orders were challenged mainly on the aforesaid issue, which is now answered in favour of the Revenue as above, we reserve the liberty in favour of the respective assessees to challenge the assessment orders before CIT (A) on any other grounds which may be available and it is observed that if said appeals are preferred within four weeks from today, the same be considered in accordance with law and on their own merits, on any other grounds.

Present appeals are accordingly allowed in terms of the above. However, in the facts and circumstances of the case, there shall be no order as to costs.