S. 153C Reassessment Invalid without Incriminating Evidence, Two-Tier AO Satisfaction Required Even Before 2015 Amendment: Delhi HC [Read Order]

In a recent judgment, the Delhi High Court ruled that the reassessment proceedings initiated under Section 153C of the Income Tax Act were invalid as no incriminating material and that even before the 2015 amendment, the satisfaction of both the Assessing Officer (AO) of the searched person and the AO of the non-searched person was required to justify reassessment under Section 153C of the Income Tax Act.

The case arose from a search conducted on November 20, 2007, at the premises of Suresh Kumar Gupta, a chartered accountant, where a provisional balance sheet dated September 30, 2005, relating to Ridgeview Construction, was seized.

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Based on this, the Income Tax Department sought to initiate reassessment proceedings for AYs 2004-05 and 2005-06, arguing that the document “pertained to” the petitioner and could be used under Section 153C of the Income Tax Act.

The Income Tax Appellate Tribunal (ITAT) quashed the proceedings, stating that the balance sheet did not contain incriminating material linked to the specific assessment years in question. The department challenged this decision before the Delhi High Court, arguing that the 2015 amendment to Section 153C, which expanded the scope of seized materials to include documents “pertaining to” the assessee, should apply retrospectively.

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The court rejected this argument, ruling that the amendment was not retrospective and that, even under the pre-2015 framework, reassessment under Section 153C could not be triggered mechanically. The court observed that the AO of the non-searched entity must independently evaluate whether the seized material indicated undisclosed income for the relevant years.

The court referenced precedents including CIT v. Sinhgad Technical Education Society (2018) and RRJ Securities Ltd. (2015) holding that concluded assessments cannot be reopened merely because a document was found during a search unless it directly establishes undisclosed income for the specified years. The provisional balance sheet did not link the petitioner to any undisclosed income for AYs 2004-05 and 2005-06 so, the court upheld the ITAT’s decision and dismissed the appeal filed by the Income Tax Department.

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