Relationship Between Searched And Non-Searched Entity Not Mandatory For Invocation Of Proceedings U/S 153C Income Tax Act: Delhi High Court

Section 153A deals with the procedure for assessment which may be set in motion in respect of an entity searched under Section 132 of the Act. Upon such a search being conducted, the AO of the searched person is statutorily enabled to issue notice to the searched entity requiring him to furnish return of income for the six AYs immediately preceding the AY relevant to the previous year in which such search was conducted.

Section 153C on the other hand, caters to a contingency where the search may lead to the unearthing of money or other valuable articles which belong to a person other than the one referred to in Section 153A (non-searched entity).

A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar held that the trigger for Section 153C is the discovery of articles in the course of a search which pertain or belong to a third party, and which may have a bearing on the determination of the total income of such other person.

“An action under Section 153C is premised solely on the discovery of incriminating material and which is likely to have an impact or bearing on the assessed income of a non-searched entity. The statute neither requires nor obliges the AO of the other person to find or uncover a relationship or an association between the searched and the non-searched person. The provision is merely concerned with the evaluation of the material unearthed in the course of a search and an assessment of whether it is likely to have a bearing on the income of a non-searched entity,” it held.

The development comes in a case where the Petitioner had challenged initiation of action against it under Section 153C on the premise that the material gathered had no correlation or connection with the individuals who were subjected to the search.

It was contended that action under Section 153C would have to necessarily be founded upon material gathered in the course of a search, though belonging to the other person, being relevant and pertinent to the individuals who had been subjected to the search itself.

In other words, it was submitted that unless the material gathered could be said to have a correlation with the determination of income of the searched persons, the commencement of action under Section 153C would not sustain.

The High Court however held that from a perusal of Section 153C it becomes apparent that the provision neither envisages nor mandates the existence of a connection between persons and individuals who may fall within the ambit of Section 153A and those against whom action under Section 153C may be initiated.

“The latter provision is solely concerned with the discovery of documents and articles belonging or pertaining to a person other than the one subjected to search and which are likely to have an impact on the total income of such other person as assessed. Section 153C is thus premised on material or information alone as opposed to the discovery of a connection or link between the searched person and the non-searched entity,” it said.

The Court explained that in terms of the procedure prescribed under Section 153C, the AO of the searched entity, on being satisfied that the books or articles discovered in the course of the search belong or pertain to a person other than one referred to in Section 153A, would transmit the same to the jurisdictional AO of the non-searched entity.

That jurisdictional AO is thereafter obliged to form an opinion whether the books of account, documents or assets seized are likely to have a bearing on the determination of the total income of such other person.

“Thus, the AO of the searched person has to merely examine the documents or articles unearthed from the point of view of examining whether they pertain to the searched entity or are concerning someone who may not have been named in the search warrant. Once the said AO comes to the conclusion that the document or asset belong or pertain to a non-searched entity, it has to merely transmit the same to the concerned AO and who may then examine whether further action in terms of Section 153C is warranted.

Thus, the entire edifice of Section 153C is built on incriminating material that may be gathered in the course of a search. The submission that action under Section 153C must be premised upon some connection between the searched and the non-searched entity or for that matter on the material gathered having some link with the searched person is clearly misconceived,” the Court held.

As such, the petitions were dismissed.

Appearance: Mr. Ruchesh Sinha and Mr. Prakash Sinha, Advs. for Petitioner; Mr. Vipul Agrawal, SSC for Respondent

Case title: Shiv Parkash Bansal v. Deputy Commissioner Of Income Tax Central Circle-14 Delhi & Ors.

Citation: 2025 LiveLaw (Del) 394

Case no.: W.P.(C) 11156/2023

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