Notices under Section 153C quashed for lack of seized material linking petitioners to undisclosed income

HC quashed the notices issued u/s 153C against the petitioners, holding that the jurisdictional precondition of seized material "relating to" or "pertaining to" them was not satisfied. The search on the third-party broker did not yield any incriminating document linking undisclosed income to the petitioners; the 7/12 extracts and Form 6 were supplied post-search, and the sale deed was obtained from the public domain. Such material could not form a valid basis for 153C satisfaction. The AO was found to have acted de hors Section 153C, rendering the initiation of proceedings and impugned notices unsustainable in law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the conditions precedent for assumption of jurisdiction under Section 153C of the Income-tax Act, 1961 were satisfied when the documents seized in the search of a third party did not "relate to" or "pertain to" the assessees.

1.2 Whether the Assessing Officer could validly record satisfaction under Section 153C based on documents/information gathered from the "public domain" and materials obtained post-search, rather than on incriminating material seized during the search.

1.3 Whether reliance on the Supreme Court decision in the context of the 2015 amendment to Section 153C advanced the Revenue's case on the facts of the present matter.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction under Section 153C where seized document does not relate to the assessees

Legal framework (as discussed): Section 153C empowers assessment of a person other than the searched person if any books of account, documents or assets seized or requisitioned "relate to" or "pertain to" such other person. Post-2015 amendment, the expression "pertains or pertain to" was added in clause (b).

Interpretation and reasoning:

2.1 A search under Section 132 at the premises of a land broker yielded images of an MoU for land bearing Survey No. 329, executed between the seller and a proposed buyer. The MoU recorded total sale consideration of Rs. 39,32,25,000/- and cash payment of Rs. 1,00,00,000/-.

2.2 The MoU did not bear the names of the assessees, and the Court found that the assessees' names did not figure anywhere therein and the document did not even remotely connect them with the MoU.

2.3 The Assessing Officer, in the satisfaction note, ascertained from the "public domain" that the same land was subsequently sold by the seller to the assessees for Rs. 12,00,00,000/- under a registered sale deed. On that basis, the Assessing Officer presumed that the seller, having once agreed for Rs. 39.32 crores, could not have sold for Rs. 12 crores without receiving "on-money", and recorded satisfaction of undisclosed investment of Rs. 27,32,00,000/- for the relevant assessment year.

2.4 The searched broker, in his statement, asserted that he did not broker the land deal in question and had merely supplied 7/12 and Form No. 6 after the search. These forms were not seized during the search but were handed over post-search, and the sale deed details were then gathered from the public domain.

2.5 The Court held that no document seized during the search on the broker "related to" or "pertained to" the assessees or their undisclosed income. The live link between the seized material and the assessees was missing; the connection was built only by subsequent inquiries and presumptions of "on-money" based on difference between the MoU value (Rs. 39.32 crores) and the registered sale consideration (Rs. 12 crores).

2.6 The Court, therefore, found that the satisfaction recorded roping the assessees into Section 153C proceedings on the basis of digital data impounded in the search, which had no nexus with them, was dehors the statutory requirement.

Conclusions:

2.7 Since no incriminating material seized in the search "related to" or "pertained to" the assessees, the jurisdictional preconditions under Section 153C were not met.

2.8 The impugned notices issued under Section 153C on this basis were without authority of law and liable to be quashed.

Issue 2: Use of post-search information and public domain material for Section 153C satisfaction

Interpretation and reasoning:

2.9 The Assessing Officer's satisfaction was founded on (a) the MoU recovered from the broker's device, which did not name the assessees, and (b) details of the subsequent registered sale deed and land records obtained from the public domain and from the broker and seller post-search.

2.10 The Court noted that the forms (7/12 and Form No. 6) and sale deed details were not part of the material seized or requisitioned during the search and were gathered only thereafter.

2.11 It held that information/documents collected after the search from the broker or seller and from the public domain could not be treated as seized material under Section 153C, nor could such post-search collection create the statutory "live link" between the assessees and the seized documents required to invoke Section 153C.

2.12 The presumption of escaped assessment, resting solely on the difference between the MoU value and the registered sale consideration, was held to be unsustainable for want of incriminating material obtained in the search relating to the assessees.

Conclusions:

2.13 Satisfaction under Section 153C cannot validly rest on materials obtained post-search or from the public domain when the seized document itself does not relate to the other person; such an exercise is beyond the scope of Section 153C.

2.14 The assessment proceedings initiated against the assessees under Section 153C on this basis were invalid.

Issue 3: Effect of Supreme Court precedent on amended Section 153C

Legal framework (as discussed): The Revenue relied on a Supreme Court decision interpreting Section 153C in the context of the Finance Act, 2015 amendment inserting the expression "pertains or pertain to" and its applicability to searches conducted before 01.06.2015.

Interpretation and reasoning:

2.15 The Revenue argued that, after the 2015 amendment, any information emanating from seized documents during search that relates to a person other than the searched person suffices to attract Section 153C, and that this broadened scope justified the impugned notices.

2.16 The Court held that the cited Supreme Court decision addressed only the temporal applicability of the amendment to Section 153C, i.e., whether it applied to searches prior to 01.06.2015.

2.17 On the facts of the present case, where the core question was whether the seized material "related to" or "pertained to" the assessees at all, the Court found that the precedent did not assist the Revenue.

Conclusions:

2.18 The Supreme Court decision relied upon by the Revenue did not govern the factual controversy herein, and did not cure the jurisdictional defect arising from absence of seized material relating to the assessees.

2.19 The impugned notices under Section 153C were quashed and the writ petitions were allowed, with no order as to costs.

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