ITAT Quashes Seven Section 153C Assessments After 2021 Cut-Off

What ITAT Bengaluru decided

The Tribunal held that the proceedings started under Section 153C were without jurisdiction. It therefore quashed the assessment orders for all seven years and allowed the taxpayer's appeals.

The actual search on the third parties had taken place on 3 January 2019. However, the satisfaction connecting the seized material to Umapathy Srinivasa Gowda was recorded only on 26 November 2021. A notice under Section 153C followed on 6 December 2021.

For an other person, meaning a person who was not directly searched, the law creates a deemed search date. On the facts of this case, that relevant date fell after 1 April 2021. Section 153C(3) therefore prevented the Department from using Section 153C.

Background of the search proceedings

A search under Section 132 was conducted on 3 January 2019 in the cases of T. Vijayakumar, C. R. Manohar and others. A search was also conducted at the residential premises of Sanjeev Sudeep.

The Department stated that documents and information relating to Umapathy Srinivasa Gowda were found during these searches. The taxpayer was an individual engaged in the film business as a producer.

After receiving information and recording satisfaction, the Assessing Officer issued notices under Section 153C for seven assessment years. The assessments were completed on 31 March 2023 with additions and disallowances for different years.

Why the taxpayer challenged jurisdiction

The taxpayer argued that the Department had selected the wrong legal route. His case was not the case of the person directly searched. Section 153C applied only because material found in another person's search was said to relate to him.

For such an other person, the first proviso to Section 153C(1) creates a special rule. The relevant date is the date on which the seized books, documents or assets are received by the Assessing Officer having jurisdiction over that other person.

The satisfaction in the taxpayer's case was recorded on 26 November 2021. Therefore, the deemed date arose after 1 April 2021, when the old search assessment system under Sections 153A to 153D had already been closed for new searches by the Finance Act, 2021.

What changed from 1 April 2021

The Finance Act, 2021 introduced a dividing date for search assessments. Searches initiated up to 31 March 2021 continued under Sections 153A to 153D. Searches initiated on or after 1 April 2021 moved to the substituted reassessment framework under Sections 147, 148 and 148A.

Section 153C(3) states that Section 153C does not apply to a search initiated under Section 132 or a requisition made under Section 132A on or after 1 April 2021.

The dispute arose because there were two possible dates. The Department relied on the actual third-party search date of 3 January 2019. The taxpayer relied on the deemed date applicable to him as the other person, which arose only in November 2021.

Why the deemed date was decisive

The Tribunal read Section 153C(1), its first proviso and Section 153C(3) together. It held that the first proviso changes the relevant date for a person other than the person searched.

For the searched person, the actual search date remains important. For the other person, the statute treats the date of receipt of seized material by the jurisdictional Assessing Officer as the date of initiation for the Section 153C scheme.

This legal fiction cannot be ignored when applying the 1 April 2021 sunset clause. If the deemed date falls on or after that cut-off, proceedings cannot continue under Section 153C. If the Department wishes to take lawful action, it must use the procedure applicable under the post-2021 reassessment regime, subject to its conditions and limitation.

Revenue's arguments before the Tribunal

The Revenue argued that the original search was conducted in January 2019, well before the cut-off. According to it, the later transmission of material or recording of satisfaction was only an administrative step and could not change the actual date of search.

It also pointed out that the Assessing Officer of the searched persons and the Assessing Officer of the taxpayer were the same officer. Therefore, a physical handover of material from one officer to another was not required.

The Revenue relied on the principle that a legal fiction should be limited to the purpose for which it was created. It submitted that the deemed date should be used only for identifying the assessment years covered and not for applying Section 153C(3).

Why ITAT rejected the Revenue's position

The Tribunal found that the statutory language itself provided a deemed date for the other person. That date was not merely an internal administrative event. It determined when Section 153C jurisdiction arose against that person.

The fact that the same Assessing Officer handled both cases did not remove the need to identify when the officer formally recorded satisfaction and assumed jurisdiction against the other person.

The Tribunal noted that the Revenue could not show any High Court or Tribunal decision taking a contrary view on the sunset provision. The available authorities supported the taxpayer's interpretation.

Earlier judgments followed

The Tribunal followed the Madras High Court decision in Harigovind v. Assistant Commissioner of Income Tax. That judgment held that there cannot be two different search dates for applying the Section 153C mechanism to the other person.

It also referred to the Supreme Court principle in CIT v. Jasjit Singh and decisions in Geetanjali Bhayana and Shanmugasundaram Manoharan. These authorities recognise the importance of the date on which material is received and satisfaction is recorded for the other person.

The Tribunal found the legal position uniform: where the deemed date for the other person falls after 1 April 2021, Section 153C cannot be used.

Effect on the additions made by the Department

The Section 153C assessments covered AY 2013-14 to AY 2019-20. They included additions relating to expenditure claims, bank credits and unexplained investments for different years.

Once the Tribunal held that the Assessing Officer lacked jurisdiction under Section 153C, it did not separately decide these factual additions. The remaining grounds became academic.

This distinction is important. The ruling does not declare that every receipt or expense claimed by the taxpayer was correct. It holds that the assessment orders could not survive because the Department used a provision that was not legally available on the relevant deemed date.

Practical importance for taxpayers

A person receiving a Section 153C notice should not look only at the date of the original search. The date on which the seized material was received by the jurisdictional Assessing Officer, the date of the satisfaction note and the date of notice can be equally important.

This issue is especially relevant where a third-party search occurred before 1 April 2021 but the Department started Section 153C action against the other person after that date.

A jurisdiction objection should be raised at the earliest available stage with supporting dates and documents. However, taxpayers must continue responding to statutory notices unless a competent authority grants protection or sets the proceedings aside.

Documents to check in a Section 153C case

• Panchnama and date of the original search under Section 132.
• Identity of the person or premises actually searched.
• Description of seized books, documents, digital records or assets said to relate to the taxpayer.
• Satisfaction note recorded by the Assessing Officer of the searched person.
• Satisfaction recorded by the Assessing Officer having jurisdiction over the other person.
• Date on which the seized material was received or treated as received.
• Section 153C notice and proof of service.
• Assessment years covered by each notice.
• Copies of relied-upon material supplied to the taxpayer.
• Assessment order, appellate order and complete order sheets.

Key takeaways

• The case is Umapathy Srinivasa Gowda v. DCIT, decided by ITAT Bengaluru on 24 July 2026.
• Seven appeals covering AY 2013-14 to AY 2019-20 were allowed.
• The original third-party search took place on 3 January 2019.
• Satisfaction against the taxpayer was recorded on 26 November 2021.
• For the other person under Section 153C, the deemed date is linked to receipt of seized material by that person's Assessing Officer.
• The deemed date fell after the 1 April 2021 cut-off in Section 153C(3).
• The Section 153C notices and resulting assessments were therefore without jurisdiction.
• The Tribunal did not decide the underlying additions because they became academic after the jurisdiction finding.
• The decision does not prevent every possible action under another valid provision, subject to statutory conditions and limitation.

Conclusion

Umapathy Srinivasa Gowda is an important ruling on the transition from the old search assessment system to the post-2021 reassessment regime. It confirms that the actual date of the third-party search is not the only date that matters in a Section 153C case.

Where the taxpayer is the other person, the deemed date created by the first proviso to Section 153C(1) must be considered. If that date falls on or after 1 April 2021, Section 153C is unavailable and an assessment made under it lacks jurisdiction. Taxpayers and professionals should therefore prepare a complete date-wise record before responding to any search-related notice.