Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 30.05.2024 passed by the Income Tax Appellate Tribunal in ITA No. 886/Del/2020 for Assessment Year 2010–11.

The case arose out of search and seizure operations conducted on 23.07.2015 in the group cases of Shri Deepak Aggarwal, Shri Mukesh Kumar and others, allegedly engaged in providing accommodation entries. During the search, certain documents were stated to have been found relating to the respondent assessee, Pragun Finance Pvt. Ltd.

After recording a satisfaction note, notice under Section 153C was issued to the assessee on 08.10.2018, followed by assessment proceedings making various additions. The Commissioner of Income Tax (Appeals) set aside the assessment on the ground that the notice issued under Section 153C for AY 2010–11 was beyond the permissible six-year period. The ITAT upheld the order of the CIT(A).

Issues Involved

Whether the notice issued under Section 153C for Assessment Year 2010–11 was barred by limitation, whether the amendment to Section 153C introduced by the Finance Act, 2017 had retrospective application, and whether the ITAT was justified in relying on the Delhi High Court judgment in RRJ Securities Ltd.

Appellant’s Arguments

The Revenue contended that the ITAT erred in relying on the judgment of the Delhi High Court in Commissioner of Income Tax-7 vs. RRJ Securities Ltd., arguing that the said judgment was no longer applicable in view of the amendment to Section 153C brought in by the Finance Act, 2017. It was submitted that the amendment was clarificatory in nature and should apply to pending matters, thereby validating the notice issued for AY 2010–11.

Respondent’s Arguments

Though unrepresented before the High Court, the assessee relied on the findings recorded by the CIT(A) and the ITAT. It was contended that the amendment to Section 153C was prospective, that the relevant date for computing the six assessment years was the date of recording of satisfaction and handing over of documents, and that the notice issued for AY 2010–11 was clearly beyond the statutory period as laid down in RRJ Securities Ltd.

Court Order / Findings

The Delhi High Court examined the statutory framework and the binding precedent in RRJ Securities Ltd., which held that for the purpose of Section 153C, the relevant date for computing the six assessment years is the date of recording of satisfaction and handing over of documents to the Assessing Officer of the other person.

The Court noted that the Revenue had failed to show that the amendment to Section 153C introduced by the Finance Act, 2017 was retrospective in nature. The Court held that since the search in the present case was conducted in July 2015, the amendment effective from 01.04.2017 could not be applied retrospectively.

The Court further observed that the notice under Section 153C was issued on 08.10.2018, making Assessment Year 2019–20 the relevant year, and consequently, the six preceding assessment years would be AYs 2013–14 to 2018–19. In that view, issuance of notice for AY 2010–11 was far beyond the permissible period of six years.

The Court concluded that the ITAT had rightly relied on RRJ Securities Ltd. and that no substantial question of law arose for consideration.

Important Clarification

The Court clarified that the amendment to Section 153C by the Finance Act, 2017 operates prospectively and does not dilute or override the law laid down in RRJ Securities Ltd. for searches conducted prior to the amendment. Limitation under Section 153C must be strictly computed with reference to the date of satisfaction and handing over of documents.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that the notice issued under Section 153C for Assessment Year 2010–11 was time-barred, upheld the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, and decided the matter in favour of Pragun Finance Pvt. Ltd. and against the Revenue.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769678603_PR.COMMISSIONEROFINCOMETAX7DELHIVsPRAGUNFINANCEPVT.LTD..pdf

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