No Nexus Required: Clarifying the Scope of Section 153C Assessments

Introduction

This commentary reviews the Delhi High Court’s ruling in Shiv Parkash Bansal v. Deputy Commissioner of Income Tax, Central Circle‑14 & Ors. (delivered on 18 February 2025). The petitioner, Mr. Shiv Prakash Bansal, challenged the Department’s initiation of proceedings under Section 153C of the Income Tax Act, 1961—premised on documents and assets seized during a search of third‑party premises. He argued that the seized materials had no “connection” with the individuals named in the search warrant and thus could not justify assessments against him. The Court’s decision establishes a new precedent on the interpretation of Section 153C: the Assessing Officer may invoke it wherever seized material “belongs to” or “pertains to” a non‑searched person, without needing any further nexus to the searched parties.

Summary of the Judgment

The High Court, by a two‑judge Bench (Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar), dismissed the writ petitions. It held that:

Section 153A empowers assessment of the searched person for a block of six assessment years (plus “relevant” years) when a search under Section 132 yields evidence of escaped income.
Section 153C separately empowers assessment of a “person other than” the searched taxpayer when documents or assets seized during that search “belong to” or “pertain to” that non‑searched person, and are likely to affect the determination of his income.
The statutory scheme does not require any direct link or transaction between the searched and the non‑searched person; the sole trigger is the discovery of incriminating material belonging or relating to the third party.
Citing the Supreme Court’s ruling in Income Tax Officer v. Vikram Sujitkumar Bhatia, the Court confirmed that the 2015 amendment (adding “pertains to”) is clarificatory and applies to searches before its enactment.

Analysis

Precedents Cited

S.R. Batliboi & Co. v. Department of Income‑Tax (Investigation) (2009): Held that “other person” must be interpreted narrowly in block‑assessment context, but did not address Section 153C’s independent scheme.
Manish Maheshwari v. Assistant CIT (2007): Interpreted Section 158BD (block assessments) and stressed “other person” implies a party with transactions; Court here distinguishes that context from Section 153C.
Sir Shankarlal Sunderdas v. UOI (2008) and cases on Section 153A/B/C validity: Rejected vires challenges but did not delve into “pertains to” scope.
Vijaybhai N. Chandrani v. CIT (2013) & Arpit Land Pvt. Ltd. (2017): Bombay High Court emphasized seized documents must “belong to” the non‑searched party; this Court holds that “pertains to” broadens the test.
Income Tax Officer v. Vikram Sujitkumar Bhatia (2024): Supreme Court declared the Finance Act 2015 amendment to Section 153C clarificatory, applying to pre‑2015 searches.

Legal Reasoning

The Court’s reasoning can be broken into key steps:

Statutory Scheme: Section 132 authorizes search; Section 153A governs assessment of the searched person; Section 153C governs assessment of others based on seized material.
Trigger for Section 153C: The only preconditions are that the AO of the searched person is satisfied the materials seized “belong to” or “pertain to” a non‑searched person and are likely to bear on that person’s income.
No “Nexus” Requirement: The judgment rejects any requirement of a commercial or transactional link between searched and non‑searched persons. If the seized asset/document can be linked by ownership or relevance, assessment under Section 153C is valid.
Scope of “Pertains to”: Post‑2015 insertion of “pertains to” expands Section 153C’s reach to documents that relate to the third party’s income, confirmed as clarificatory by the Supreme Court.
Precedent Distinction: Earlier cases (e.g. Batliboi, Arpit Land) addressed different provisions or pre‑2015 text, and cannot override clear legislative intent and subsequent clarifications.

Impact

This ruling has significant implications:

Wider AO Powers: Tax authorities may trigger assessments against non‑searched persons simply upon discovering documents or assets in a search on someone else.
Reduced Threshold for Connection: Taxpayers cannot avoid Section 153C by showing no transaction link to the searched party; only ownership or relevance matters.
Certainty for Revenue: Clarifies that Section 153C’s reach extends to all persons whose undisclosed income is revealed via third‑party searches.
Vigilance for Taxpayers: Entities must ensure that their records—wherever located—are accurate and declarations up to date, as materials found elsewhere may be used to open assessments against them.

Complex Concepts Simplified

Search under Section 132: An authorized raid by the Income Tax Department to unearth undisclosed income or evidence.
Assessing Officer (AO): The tax official responsible for assessing or reassessing a taxpayer’s income.
Section 153A vs. 153C: 153A applies to the person actually searched; 153C applies to any other person to whom seized material belongs or pertains.
Satisfaction Note: The AO’s written record explaining why seized materials justify invoking Section 153C against a third party.
Abatement and Revival: Pending assessments against non‑searched persons abate on initiation under Section 153C and must be freshly completed under its extended timeline.

Conclusion

The Delhi High Court’s decision in Shiv Parkash Bansal decisively clarifies that Section 153C’s scope is not confined by any nexus between the searched and non‑searched persons. The only requirement is that seized documents or assets must “belong to” or “pertain to” the non‑searched individual and potentially affect the computation of his or her income. Tax practitioners and taxpayers must note this expanded interpretative stance: unseen risks may arise from materials discovered in a third party’s search warrant. This ruling thus fortifies the revenue’s ability to pursue escaped income wherever it may surface, while imposing a duty on taxpayers to maintain full compliance and transparency in every context.