Re-Anchoring Block Period under Section 153C of Income Tax Act 1961: From Legal Fiction to Legislative Silence

[Akshat and Kartik are students at Gujarat National Law University.]

In an income tax proceeding, following a search under Section 132 of the Income Tax Act 1961 (IT Act), Section 153A governs the assessment of the searched person, while Section 153C applies to persons other than the searched person if relevant documents are found.

Pursuant to the 2017 amendment, both sections prescribe assessment for the six years preceding the year of search. However, time and time again, courts have held that, for the purposes of Section 153C, this six-assessment period preceding the year of search (block period) should be calculated from the date on which the seized material is transferred to the Assessing Officer (AO) having the relevant jurisdiction. The first proviso to Section 153C has been the foundation for such court rulings that hold the block period must be computed from the date on which the AO of the other person’s jurisdiction receives the seized books of account/documents/assets. 

Notably, the proviso explicitly refers to the second proviso to Section 153A(1), which deals solely with the abatement of proceedings, not with the determination of the block period, highlighting a disconnect between its wording and how courts have interpreted its application.

This article interrogates how Section 153C’s block period moved from a court-crafted “date of handover” legal fiction to a post-2017 text that points back to the “year of search,” and why, even after Parliament expressly inserted the “six assessment years immediately preceding” formulation, courts continue to compute limitation from the receiving AO’s date of receipt, leaving the upcoming Clause 295 regime to risk repeating the same interpretive fault line.

Statutory Framework of Sections 153A and 153C: Pre-Amendment Regime

Section 153A(1)(b) mandates that following a search under Section 132, the AO shall assess income for the block period preceding the assessment year of the year of search, with an upper limit of ten assessment years (Explanation 1), to be assessed if undisclosed assets of more than INR 50,00,000 is found. On the other hand, Section 153C outlines the process for assessing a person’s income who was not directly searched. If, during a search, the AO of the searched individual determines that any seized documents or books of account relate to another person, the AO is required to forward these materials, including any books, documents, or assets, to the AO responsible for assessing the income of that other person.

A perusal of Section 153C, before the amendment, makes it clear that there is no stipulation in the section as to the period of limitation for making an assessment, except for a reference to procedure in Section 153A. However, for abatement, the first proviso to Section 153C(1) provided that the reference to the date of initiation of the search under Section 132 ought to be considered as the date of receiving the books of account or documents by the jurisdictional AO.

From SSP Aviation to Ojjus Medicare: Pre-2017 Judicial Necessity

Moving on with time, the bare terms of these sections were expanded by the courts while coming to the interpretation of Section 153C, where the relevant date of calculation of assessment years was considered to be the date of transfer of books of account to the relevant AO. This has possibly stemmed from the idea of CIT v. Jasjit Singh (Jasjit Singh) that since the AO of the searched person may take unnecessary time to forward the seized material, the non-searched person, often unconnected with the search, could be taken into proceedings years later and be forced to furnish records for more previous years, causing prejudice to the assessed. 

The Delhi High Court, in CIT v. RRJ Securities Limited, has supported this position by stating that the block period should be construed from the date of handing over of assets to the relevant AO. 

Drawing from the precedent set in the Delhi High Court’s judgment of SSP Aviation Limited v. Deputy CIT, the Supreme Court in Jasjit Singh and Vikram Sujitkumar Bhatia and Others (Vikram Sujitkumar Bhatia) expanded the scope of Section 153C(1), holding that the legislative intent behind the insertion of its proviso was not limited to abatement alone but also extended to determining the block period.

Furthermore, the same court in CIT v. Ojjus Medicare (Private) Limited (Ojjus Medicare) seemed to have settled the position by holding that the first proviso to Section 153C creates a legal fiction that alters the reference point for computing the block period to be calculated from the date on which the AO receives the seized books of account, documents, or assets related to the non-searched person.

Legislative Intent Versus Judicial Reasoning: Judicial Inertia in a Clarified Statute 

On the other hand, the Parliament sought to bring Section 153C at par with Section 153A in this regard by amending the provision through the Finance Act 2017 (Finance Act), where “for six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or the requisition is made” was added to the provision. 

The Memorandum to the Finance Bill 2017 and the accompanying Notes on Clauses to the Finance Bill 2017 clarify that the primary goal of the amendment to Section 153C is to include an explicit mention of the applicable assessment years. Similarly, the 80th Explanatory Note relating to the Finance Act points out that this revision is meant to make Section 153C consistent with Section 153A by referencing the relevant assessment years.

Logically, a dichotomy exists; while the main provision treats the year of search as the starting point for assessment under Section 153C, the second proviso to Section 153A(1) (on abatement) considers the date the AO receives the seized material. This interpretation is logical, as there may be a significant time difference between the search and assumption of jurisdiction, leaving nothing to abate. 

The cases of Vikram Sujitkumar Bhatia, Jasjit Singh, and Ojjus Medicare were pronounced well after the 2017 amendment but still followed the legal fiction interpretation, further sticking to the pre-2017 purposive amendment. 

The other side of the spectrum is the judgment of the Delhi High Court in CIT v. Sarwar Agency (Sarwar Agency) and the Madras High Court in RKM Powergen Private Limited v. ACIT (RKM Powergen) cognizant of the amendment, stated that the reassessment period for both the person searched and any other person will cover the block period prior to the year of search. It also makes clear that the proviso does not apply when determining this block period, as Section 153C(1) itself contains a built-in framework.

Clause 295: A Return to the Pre-2017 Position

The new Income Tax Bill of 2025, set to take effect from April 2026, comes to no rescue in this circumstance, as Clause 295 of the bill embodies the principle of Section 153C, which only states that the seized documents/assets are to be handed over to the relevant AO and the assessment to be done in accordance with Clause 294, i.e., the relevant date to be the year of search. Evidently, this takes us back to the pre-2017 position where courts had to step in to correct the lacuna.

The real dilemma arises here; as an AO, one must rely on the procedures outlined in the bare act. However, the legal fiction upon which the courts based their decisions, primarily the idea put forward by Jasjit Singh, favors the interest of the assessed in a scenario where the IT Act works in a way to minimize any prejudice to the Revenue. It is in this background that the readers should adjudge the legislative stubbornness where the act has brought changes without correcting the provision.

Ensuring the Cure of Jasjit Singh Problem: The Way Forward

As a way forward, firstly, the revenue may ensure that Clause 295 is structured in a way to ensure that it is specifically written in the section that the valid date of calculation is the date of transfer of books of account to the concerned AO. Secondly, the revenue may ensure that there exists a strict time limit of not more than one financial year for the transfer of relevant books/assets/documents, as any other time limit will cause the non-searched person to preserve the previous records, thereby eliminating the core reason behind the legal fiction. Additionally, it should be ensured that Sarwar Agency and RKM Powergen, although following a literal interpretation of the provision, are successfully overruled due to their ignorance of Jasjit Singh.

Nevertheless, courts have consistently computed the period of limitation from the date of transfer of the seized material, premised on the need to avoid prejudice to non-searched persons who may otherwise be subjected to assessment at a belated stage. This judicial construction has resulted in a divergence from the plain text of the statute, thereby generating uncertainty for both taxpayers and the revenue and placing AOs in the difficult position of having to reconcile the statutory scheme with binding judicial precedent. 

A durable resolution can, therefore, be achieved only through a targeted legislative intervention, either by expressly incorporating the “date of transfer” principle into the new clause or by prescribing definitive timelines for such transfer, failing which the dissonance between legislative design and judicial pragmatism is likely to endure.