Introduction

The case of Karina Airlines International Limited, New Delhi v. ACIT Circle-05, New Delhi, adjudicated by the Income Tax Appellate Tribunal (ITAT) on February 28, 2022, addresses critical issues surrounding the scope and applicability of Section 153C of the Income Tax Act, 1961. The appellant, Karina Airlines International Limited, challenged the assessment order passed by the Assessing Officer (AO) under Section 153C, contending that the assessment was initiated without proper jurisdiction and was barred by limitation periods. This commentary delves into the intricate legal arguments presented, the Tribunal's reasoning, and the broader implications of the judgment on future tax assessments.

Summary of the Judgment

In the assessment year 2011-12, Karina Airlines filed a return declaring a substantial loss. However, a subsequent search and seizure operation under Section 132 of the Income Tax Act in April 2016 led to the discovery of incriminating material. Based on these findings, the AO initiated proceedings under Section 153C, ultimately determining the company's income and imposing additions. The appellant disputed this assessment on multiple grounds, primarily arguing that the proceedings were initiated beyond the statutory period and that the amendments introduced by the Finance Act, 2017, were inapplicable retrospectively. The ITAT, after evaluating the submissions and precedents, concurred with the appellant, quashing the assessment order and setting aside the previous decision of the Commissioner (Appeals).

Analysis

Precedents Cited

The Tribunal extensively referenced several key judicial precedents to substantiate its decision:

• PCIT Vs. Sarwar Agency P. Ltd. [2017]:
• Anil Kumar Gopikishan Arawal vs. CIT [418 ITR 25]:
• RRJ Securities Ltd. [Del, 399 ITR 202]:
• ARN Infrastructure India Ltd vs. ACIT [394 ITR 569]:
• MIKADOREALTORS P. LTD. vs. Pr. CIT (Central) Gurugram [2021] (5)TMI 722:
• Piyush Infrastructure India Pvt. Ltd. vs. ACIT [397 ITR 400]:

These cases collectively emphasized the prospective nature of the amendments brought by the Finance Act, 2017, particularly concerning the computation of the block period under Sections 153A and 153C. The Tribunal aligned its reasoning with these precedents, reinforcing the principle that statutory amendments are not retroactively applicable unless expressly stated.

Legal Reasoning

The core legal issue revolved around the applicability of the amended Sections 153A and 153C following the Finance Act, 2017. The appellant contended that since the search operation occurred before the amendment, the new provisions should not apply. The Tribunal examined the dates meticulously:

• Search and seizure conducted on 07.04.2016, which predates the amendment.
• Satisfaction recorded by the AO of the searched person on 29.03.2019.
• Satisfaction recorded by the AO of the assessee on 15.09.2019.

Given that the amendment was effective from 01.04.2017, and the search occurred before this date, the Tribunal concluded that the amended provisions were inapplicable. The decision was further reinforced by the lack of jurisdiction of the AO to assess for years beyond the stipulated six-year period preceding the relevant assessment year post-amendment. Consequently, the assessment under Section 153C was deemed invalid.

Impact

This judgment has significant implications for taxpayers and tax authorities alike:

• Clarity on Prospective Application: It reinforces that statutory amendments, unless specified, are applicable only prospectively, safeguarding against retrospective tax assessments.
• Limitations on AO's Jurisdiction: Empowers taxpayers by limiting the scope of assessments based on the timing of search and amendment applications.
• Guidance for Future Assessments: Provides a clear framework for interpreting and applying Sections 153A and 153C in light of legislative changes.

Tax authorities must exercise due diligence in adhering to the temporal boundaries set by amendments, ensuring assessments are both legally and procedurally compliant.

Complex Concepts Simplified

Section 153C of the Income Tax Act

Section 153C allows the tax authorities to reassess or assess income based on documents or assets seized during a search operation, especially when a person other than the one searched possesses such assets.

Amendments by Finance Act, 2017

The Finance Act, 2017 amended Sections 153A and 153C to harmonize the assessment periods for both searched and non-searched persons, extending the block period to six assessment years preceding the year of search.

Prospective vs. Retrospective Application

Prospective Application: The law applies to events occurring after the enactment of the amendment.
Retrospective Application: The law applies to events that occurred before the amendment was enacted.

Conclusion

The ITAT's decision in Karina Airlines International Limited vs. ACIT underscores the judiciary's commitment to upholding the temporal integrity of legislative amendments. By affirming that the Finance Act, 2017's amendments to Sections 153A and 153C are to be applied prospectively, the Tribunal has provided a clear precedent that protects taxpayers from retrospective assessments. This judgment serves as a pivotal reference point for future cases involving tax assessments post-legislative changes, ensuring that the principles of legality and fairness are consistently maintained within the Indian tax system.