A knock on the door from the Investigation Wing changes everything. Once a search under Section 132 is conducted, the tax department doesn't just examine what they find on the spot. They go back in time. A section 153A assessment empowers the Assessing Officer to reopen and reassess your income for the six assessment years preceding the search, plus the search year itself. And if seized documents reveal assets belonging to someone other than the searched person, Section 153C extends the same scrutiny to that third party. Understanding how these provisions work is essential for anyone facing post search assessment proceedings. This guide covers the procedure, time limits, legal safeguards, and defense strategies for both sections.
How Section 153A Works: Assessment After Search
Section 153A was introduced through the Finance Act 2003, replacing the older block assessment provisions under Chapter XIV-B. It applies when a search is initiated under Section 132 or when books of account and assets are requisitioned under Section 132A. Once triggered, the AO issues a notice requiring you to file returns for six assessment years preceding the year of search. You must file these returns even if original assessments for those years were already completed.
The scope is broad. For years where assessments were pending on the date of search, those proceedings abate entirely and merge into the Section 153A assessment. For completed assessments, the AO can reassess your total income, but judicial precedent has established an important limitation. In cases where assessments were already finalised, additions can only be made based on incriminating material found during the search. The Supreme Court's landmark ruling in PCIT v. Abhisar Buildwell reinforced this principle, holding that without incriminating evidence, completed assessments cannot be disturbed under Section 153A.
The return filed under Section 153A effectively replaces your original return under Section 139 for all purposes. The AO must then issue a notice under Section 143(2) after receiving this return. Failure to issue this mandatory notice renders the entire assessment void. Maintaining accurate income tax records for prior years strengthens your position significantly during these proceedings.
Section 153C: Assessment of Third Parties
Section 153C assessment extends the reach of search proceedings to persons other than the one searched. When money, bullion, jewellery, documents, or other assets seized during a search belong to a third party, the AO of the searched person hands over those materials to the AO of that third party. The third party then faces the same assessment procedure as the searched person under Section 153A.
The trigger for Section 153C is the AO's satisfaction that seized materials "belong to" or "pertain to" a person other than the searched individual. This satisfaction must be recorded before proceedings begin. Courts have interpreted "belongs to" strictly. Documents merely referring to a third party, without actually belonging to them, don't qualify for Section 153C proceedings. This was an important distinction drawn in LMJ International Ltd. v. DCIT.
A critical timeline difference exists between Sections 153A and 153C. For the searched person, the six assessment years are counted from the year of search. For the third party under Section 153C, the relevant date is when the AO of the third party receives the seized materials, not the original search date. This distinction can significantly affect which years fall within the assessment window. If your name surfaces in someone else's search proceedings, proper accounting documentation for the relevant years becomes your primary line of defense.
Time Limits and Procedural Safeguards
Section 153B prescribes strict time limits for completing assessments. The AO must finish the post search assessment within 21 months from the end of the financial year in which the last search authorisation was executed. For example, if a search concluded in January 2024, the assessment must be completed by 31 December 2025. Missing this deadline renders the assessment time-barred.
Section 153D adds another procedural layer. No assessment order under Section 153A or 153C can be passed by an AO below the rank of Joint Commissioner without prior approval from a Joint Commissioner or higher authority. This approval must involve genuine application of mind. Courts have struck down assessments where approval was granted mechanically, such as the case where bulk approval of 85 cases in a single day was held invalid.
The Finance Act 2017 expanded the assessment window. Where the AO has evidence that income escaping assessment amounts to or exceeds Rs. 50 lakh, the assessment can now cover up to ten years preceding the search instead of the standard six. This extended period applies only when specific conditions are met and doesn't grant blanket authority to reopen a decade of returns. Keeping clean TDS records and well-documented tax filings for extended periods is prudent for anyone in industries prone to search actions.
Defending Against Section 153A and 153C Assessments
Effective defense starts with understanding jurisdictional requirements. The search under Section 132 must satisfy all pre-conditions, including a valid warrant of authorisation. A search without proper authorisation creates a jurisdictional defect that cannot be cured, making the entire Section 153A assessment invalid.
For completed assessments, insist on the incriminating material requirement. The AO cannot add to years where assessments were already finalised unless incriminating evidence for those specific years was found during the search. Generic references to seized documents without linking them to particular assessment years are insufficient for additions.
Verify that the mandatory Section 143(2) notice was issued after your Section 153A return was filed. Non-issuance of this notice is a jurisdictional defect that invalidates the assessment. Also check whether Section 153D approval was obtained properly, not as a mechanical formality. Professional assistance from experienced practitioners at firms like Patron Accounting ensures these procedural safeguards are thoroughly examined and enforced during the assessment and appellate stages.
Conclusion
Section 153A and Section 153C assessments carry significant consequences, but they also come with strict procedural requirements protecting taxpayers. The mandatory Section 143(2) notice, the incriminating material requirement for completed assessments, proper Section 153D approval, and strict time limits under Section 153B are all enforceable safeguards.
If you're facing post search assessment proceedings, act promptly. Engage professional representation, verify every procedural step, and build your defense around both the facts and the law. For expert assistance with Section 153A and 153C matters, Patron Accounting provides experienced guidance through every stage of search assessment proceedings.
