Section 153C Quashed for Failure to Show Bearing on Total Income: ITAT Delhi

Deepak Sahu Vs DCIT (ITAT Delhi)

Section 153C Cannot Be Invoked For The Entire Block Through A Mechanical Satisfaction Note—Delhi ITAT Quashes Assessment

Summary: The Delhi Bench of the Income-tax Appellate Tribunal has quashed an assessment under section 153C after finding that the Assessing Officer of the non-searched person failed to record the mandatory satisfaction that the seized material had a bearing on the determination of the assessee’s total income for the relevant assessment year.

The Tribunal held that the mere receipt of seized documents or digital data from the Assessing Officer of the searched person does not automatically justify proceedings under section 153C for every year falling within the block period. The Assessing Officer must independently examine the material, identify the relevant assessment year and record its potential impact on the assessee’s total income.

Background of the search

A search under section 132 was conducted on the Sushen Mohan Group on 2 January 2020. During the search, documents, books, mobile phones and other digital material were seized, and statements of various persons were recorded.

The assessee, Deepak Sahu, was stated to be working as Manager-Finance and described as a key employee of the searched group.

The Assessing Officer of the searched person recorded a satisfaction note on 30 September 2021. Thereafter, the Assessing Officer having jurisdiction over the assessee recorded another satisfaction note on 9 April 2022 and issued notice under section 153C on the same day.

The assessment was eventually completed under section 153C read with section 143(3) on 31 March 2023.

Additions based on WhatsApp chats and digital material

The additions were principally based upon WhatsApp chats and other digital material allegedly found during the search. These included:

• ₹71,10,000 towards alleged commission income;
• ₹8,26,778 towards alleged commission on bogus purchases;
• ₹11,02,000 relating to alleged committee transactions;
• ₹7,79,000 based upon other WhatsApp chats; and
• ₹2,14,500 based upon alleged notings.

The aggregate additions disputed by the assessee amounted to approximately ₹1,00,32,278.

The assessee contended that the additions were based entirely upon uncorroborated chats, images and vague notings without evidence of the payer, mode of receipt, possession of money or nexus with him. It was also argued that no cross-examination had been provided and no valid certificate under section 65B(4) of the Indian Evidence Act accompanied the electronic evidence.

Challenge to section 153C jurisdiction

The principal contention before the Tribunal was that section 153C requires two distinct jurisdictional satisfactions where the Assessing Officer of the searched person and the Assessing Officer of the other person are different.

First, the Assessing Officer of the searched person must be satisfied that the seized books, documents or information pertain or relate to a person other than the searched person.

Secondly, after receiving the material, the Assessing Officer of the other person must independently examine it and record satisfaction that it “has a bearing on the determination of the total income” of that person for the relevant assessment year.

The assessee argued that the second requirement had not been satisfied. The Assessing Officer merely reproduced information received from the Assessing Officer of the searched person and stated that the documents belonged to the assessee and that it was a fit case for issuing notice under section 153C.

Contents of the satisfaction note

The satisfaction note referred to WhatsApp chats between the assessee and another person. It recorded that on payment of ₹1.10 crore to a company, an amount of ₹1 crore was allegedly received back in cash and collected by the assessee.

It also alleged that undisclosed income of ₹37,42,500 arose from the digital material. However, after referring to this information, the Assessing Officer issued notices for AYs 2014-15 to 2020-21 collectively, without recording a separate year-wise nexus between the material and the determination of total income.

According to the Tribunal, the note did not record the potential impact of the seized material on the total income of the assessee for the impugned assessment year.

Tribunal’s decision

The Tribunal followed the Delhi High Court judgment in Saksham Commodities Limited, which held that the receipt of material by the jurisdictional Assessing Officer does not make the issue of notice under section 153C an inevitable consequence.

The Assessing Officer must examine whether the material could potentially influence the computation of total income and identify the particular assessment year or years to which it relates. Incriminating material for one year cannot trigger a cascading or waterfall effect across the entire block.

The Tribunal found that the assessee’s Assessing Officer had not recorded the satisfaction required by section 153C. The note did not contain an assessment of the potential impact of the material on the income declared by the assessee or explain its bearing upon the total income for AY 2020-21.

The proceedings were consequently held to have been initiated without valid jurisdiction. The jurisdictional ground was allowed, and the assessment under section 153C was quashed.

Since the assessment itself was annulled, the Tribunal did not adjudicate the remaining jurisdictional and substantive grounds. Those issues were expressly kept open.

Author’s comments

The ruling reinforces that section 153C is not a machinery provision that automatically springs into operation whenever the name of a third party appears in seized documents or electronic data.

The satisfaction of the Assessing Officer of the non-searched person is an independent jurisdictional safeguard. It cannot be borrowed from the satisfaction of the searched person’s Assessing Officer or reduced to the statement that the documents “belong to” the assessee and that it is a “fit case” for action.

The authority must identify three elements: the seized material relied upon, the assessment year to which it relates, and how it may affect the determination of total income for that year. A consolidated notice for all years within the permissible block, without this year-wise exercise, is vulnerable to challenge.

The case also demonstrates an apparent mismatch between the satisfaction note and the ultimate assessment. While the satisfaction note referred to alleged undisclosed income of ₹37.42 lakh, the assessment involved multiple additions exceeding ₹1 crore. Although the Tribunal did not decide the additions on merits, such a variation highlights why the statutory requirement of recording a precise nexus at the jurisdictional stage is important.

At the same time, the ruling may generate debate because the satisfaction note did refer to chats dated 30 December 2019, which fell within the previous year relevant to AY 2020-21, and mentioned an alleged amount. The Tribunal nevertheless found that the note failed to record the statutory conclusion regarding its bearing on total income. The case therefore underlines the importance of using the statutory language and demonstrating conscious, year-specific application of mind.

The other objections—including mechanical approval under section 153D, absence of section 65B certification, denial of cross-examination and lack of corroboration of WhatsApp chats—were not decided. The ruling cannot therefore be cited as having accepted those propositions on merits.

The essential principle is that section 153C jurisdiction must precede the assessment and must be visible from the satisfaction note itself; it cannot be supplied later through the assessment order, appellate findings or arguments of the Revenue.

Cases Discussed

• Canyon Financial Services Ltd. v. ITO, [2017] 399 ITR 202 (Del.)
• Saksham Commodities Limited v. ITO, 2024 (4) TMI 461 (Del. HC)
• Pr. CIT-7, Delhi v. Naveen Kumar Gupta, 2024 (11) TMI 1071 (Del. HC)
• Neeraj Bharadwaj v. ACIT, 2025 (7) TMI 1240 (Del. HC)
• Shri Anil Chaudhary v. ACIT, 2024 (9) TMI 1274 (ITAT Delhi)
• Sakshi Agarwal & Ors. v. DCIT, 2026 (1) TMI 595 (ITAT Delhi)
• Giriraj Pugalia v. ACIT, D.B. Civil Writ Petition No.3152/2025, dated 04.03.2025 (Rajasthan High Court)
• Super Malls Private Limited v. PCIT, (2020) 423 ITR 281 (SC)
• CIT v. Classic Enterprises, (2013) 358 ITR 465 (Allahabad)
• CIT v. RRJ Securities Ltd., [2016] 380 ITR 612 (Delhi)
• CIT v. Sinhgad Technical Education Society, (2018) 11 SCC 490 (SC)
• PCIT v. Abhisar Buildwell P. Ltd., (2023) 454 ITR 212 (SC)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH

1. This appeal is filed by the assesseeagainst the order passed by the ld. Commissioner of Income-tax (Appeals), Delhi – 26 [for short ‘ld. CIT (A)] dated 02.02.2026 for the Assessment Year 2020-21 raising following grounds of appeal :-

“1. That the order dated 02.02.2026 passed by the Ld. Commissioner of Income Tax (Appeals) under section 250 of the Income Tax Act, 1961 is bad in law, perverse, and unsustainable on facts and deserves to be set aside.

2. That the Ld. CIT(A) erred in law and on facts in upholding the validity of proceedings initiated under section 153C of the Act despite absence of mandatory jurisdictional satisfaction as required under section 153C(1) in as much as:

2.1 The satisfaction recorded by the JAO of the assessee does not state, even remotely, that the seized material had any bearing on the determination of total income of the assessee

2.2 The satisfaction recorded is a borrowed, mechanical and consolidated satisfaction for multiple assessment years, without any year-wise nexus or quantification of alleged undisclosed income.

3. That the Ld. CIT(A) erred in sustaining the assessment order dated 31.03.2023 passed u/s 153C/143(3) of the Act, despite the admitted fact that legal and jurisdictional objections raised by the assessee against initiation of proceedings under section 153C were never disposed of by the Ld. AO by a speaking order.

4. That the Ld. CIT(A) erred in law in upholding the assessment framed without compliance of mandatory approval under section 153D of the Act, which was granted in a mechanical, consolidated and non-application-of-mind manner.

5. That the Ld. CIT(A) erred in law and on facts in sustaining the addition of Rs.71,10,000/- as alleged commission under section 69A, which is based solely on uncorroborated WhatsApp chats, without any evidence of receipt, payer, mode or nexus with the assessee.

6. That the Ld. CIT(A) erred in confirming the addition of Rs.8,26,778/- towards alleged commission on bogus purchases, without any independent enquiry, third-party confirmation, or evidence linking the assessee to such transactions.

7. That the Ld. CIT(A) erred in sustaining the addition of Rs.11,02,000/- allegedly relating to committee transactions, despite absence of any seized cash, investment, corroborative material or admission by the assessee.

8. That the Ld. CIT(A) erred in law in confirming additions aggregating to Rs.7,79,000/- which is based solely on uncorroborated WhatsApp chats, without any evidence of receipt, payer, mode or nexus with the assessee.

9. That the Ld. CIT(A) erred in law in confirming addition of Rs.2,14,500/- on the basis of vague, dumb and unverified notings, which do not constitute incriminating material in the eyes of law.

10. That the Ld. CIT(A) failed to appreciate that WhatsApp chats, images and digital data relied upon by the Assessing Officer are inadmissible in evidence in absence of certificate under section 65B( 4) of the Indian Evidence Act, 1872.

11. That the Ld. CIT(A) erred in law in upholding additions based on digital material without granting cross-examination of alleged third parties whose statements and chats were relied upon, in violation of principles of natural justice.

12. That the Ld. CIT(A) erred in accepting incorrect factual findings that the assessee admitted earning commission income, whereas no such admission exists in any statement recorded under section 132(4) of the Act.

13. That the Ld. CIT(A) erred in law in sustaining taxation of alleged income under section 69A read with section 115BBE without establishing ownership, possession or actual receipt of any unaccounted money by the assessee.

14. That the Ld. CIT(A) failed to appreciate that the entire assessment is based on suspicion, conjectures and presumptions, without any legally sustainable incriminating material, and therefore liable to be quashed.”

2. At the time of hearing, ld. AR of the assessee brought to our notice relevant facts and his submissions are as under. First of all, he brought to our notice the relevant dates and documents, which are placed below in a tabulated form:-

DATE	PARTICULARS	REMARKS
02.01.2020	Search u/s 132 carried out on Sushen Mohan Group
30.09.2021	Satisfaction note was recorded by the AO of ‘searched person’ [DCIT Central Circle 15, New Delhi]	P. NO. 2-21 of PB
09.04.2022	Satisfaction note was recorded by the AO of ‘other person/assessee’ [ITO Ward 70(1), New Delhi]	P.NO. 1 of PB
09.04.2022	Notice u/s 153C was issued by the AO of the assessee[ITO Ward 70(1), New Delhi]	P.NO. 22 of PB

3. Ld AR for the assessee submitted that in respect of Grounds No.2, 2.1 and 2.2 of grounds of appeal, the issue involved is assumption of jurisdiction u/s 153C of the Income-tax Act, 1961 (for short ‘the Act’).

4. It was submitted that section 153C contemplates two distinct and independent jurisdictional satisfactions where the Assessing Officer of the searched person and that of the other person are different, namely, first, the AO of the searched person must be satisfied that the seized books/documents “pertain to”, or the information contained therein “relates to”, a person other than the searched person, and thereafter, the AO of such other person must independently record his satisfaction that the material so received “has a bearing on the determination of the total income” of such other person for the relevant assessment year(s).

5. Ld. AR placed reliance on the decision of the Hon’ble Delhi High Court in Canyon Financial Services Ltd. v. ITO, [2017] 399 ITR 202 (Del.) / 2017 (7) TMI 539 (Del.), SLP dismissed in 2018 (7) TMI 896 (SC) to contend that where the two AOs are different, the satisfaction recorded by the AO of the other person has to be independently examined to ascertain whether the statutory requirement of section 153C stands fulfilled and, therefore, any deficiency in such satisfaction cannot be supplemented or cured by reference to the satisfaction recorded by the AO of the searched person.

6. Ld. AR further submitted that in the present case, the satisfaction note recorded by the AO of the assessee i.e. ITO Ward 70(1), New Delhi does not satisfy this jurisdictional requirement, inasmuch as it fails to record that the seized material found during the course of search has any bearing on the determination of the total income of the assessee. It is submitted that it merely reproduces the information received from the AO of the searched person, without even identifying the nature of the seized documents or independently demonstrating as to how such material has a bearing on the determination of the total income of the assessee for the impugned years; rather, the concluding paragraph merely states that the documents belong to the assessee and that it is a fit case for issuance of notice under section 153C, which substantially reiterates the satisfaction required at the stage of the AO of the searched person and does not discharge the separate statutory obligation cast upon the AO of the assessee. Such a mechanical and borrowed satisfaction cannot confer jurisdiction under section 153C.

7. In this regard, he placed reliance on the following judicial precedents :-

a) Saksham Commodities Limited, 2024 (4) TMI 461 (Del HC), SLP dismissed in 2024 (12) TMI 1068 (SC) [paras 40, 44 & 47];

b) Pr. CIT-7, Delhi v. Naveen Kumar Gupta, 2024 (11) TMI 1071 (Del HC) [paras 81 & 82];

c) Neeraj Bharadwaj v. ACIT, 2025 (7) TMI 1240 (Del HC) [para 19];

d) Shri Anil Chaudhary v. ACIT, 2024 (9) TMI 1274 (ITAT Delhi); and

e) Sakshi Agarwal & Ors. v. DCIT, 2026 (1) TMI 595 (ITAT Delhi).

8. On the other hand, ld. DR of the Revenue relied on the detailed findings of the lower authorities and specifically brought to our notice the detailed findings of Ld CIT(A) at Para 6.2 to 6.4 of the impugned order. In this regard, placed reliance on the following decisions :-

• Hon’ble High Court of Judicature for Rajasthan at Jodhpur D.B. Civil Writ Petition No.3152/2025 dated 04.03.2025 in Giriraj Pugalia vs. ACIT
• Hon’ble Supreme Court in the case of Super Malls (P.) Ltd. vs. Pr.CIT (2020) 423 ITR 281 (SC)
• Hon’ble High Court of Allahabad in CIT vs. Classic Enterprises (2013) 358 ITR 465 (Allahabad)

9. Considered the rival submissions and material placed on record. We find that the satisfaction note of the AO of the non-searched person i.e. the assessee, was recorded which is at page 1 of the paper book filed by the assessee and the same is reproduced as under:

“Satisfaction note for initiating proceedings under section 153C read with section 153A of the Income Tax Act, 1961 in the case of Sh. Deepak Sahu (PAN: ATBPS1398D).

A search action u/s 132 of the I.T. Act, 1961 was conducted in the case of Sushen Mohan Garg Group on 02.01.2020. It has been brought to the notice by the A.O. of searched person in whose case action under section 132 of the Income Tax Act was taken and various documents/books of account, Mobile phone etc. were found and seized during the course of search and statement of various persons were recorded. The above named assessee i.e. Shri Deepak Sahu is a key employee working with the above group. At the time of search, Shri Deepak Sahu was employed with the Sushen Mohan Gupta Group as Manager Finance.

The A.O. of the searched persons has recorded his satisfaction that the following seized papers/documents belongs to the assessee i.e. Shri Deepak Sahu having PAN: ATBPS1398D (Person other than person searched) who is assessed in ITO, Ward-72(1), New Delhi. During the course of search proceedings, statement of Shri Deepak Sahu was recorded on 02.01.2020 under section 132(4) of the Act at 1405-1410, 14th Floor, Narain Manzil, 23, Barakhamba Road, New Delhi from where various companies of Sushen Mohan Gupta Group are functioning. On the analysis of the whatsapp chats between Deepak Sahu and Vikas Bhaiya Je as noted from the mobile phone of Deepak Sahu a specific set of messages dated 30.12.2019 indicating dealings related to cash were found, whereby on payment of Rs.1.10 crores to M/s Highrise Securities and Trading Pvt. Ltd. an amount of Rs.1 crore was prima facie received back in cash, collected by Deepak Sahu. Based on the incriminating material found from the mobile phone of Sh. Deepak Sahu his whatsapp chats with Vikas Gupta, it is clear that the corresponding undisclosed income based on these incriminating, digital evidence was earned by Sh. Deepak Sahu. The said income comes to Rs.37,42,500/-.

On the basis of documents as forwarded by the DCIT, Central Circle-15, New Delhi (A.O. of searched person) and after examination of these documents, I am also satisfied that these documents belong to Sh. Deepak Sahu having PAN: ATBPS1398D and it is fit case for initiating proceedings u/s 153C r.w.s. 153A of the Income Tax Act, 1961. Accordingly, notice u/s 153C r.w.s. 153A is being issued as per provisions of the I.T. Act, 1961 for the assessment years 2014-15 to 2020-21.

Sd/-
09.04.2022
ITO, Ward-70(1), New Delhi”

10. In our view, the proceedings u/s 153C can be initiated only upon recording of satisfaction by the AO of the other person on receipt of the seized material from the AO of the searched person and then Assessing Officer shall proceed against such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153Athat, if, Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. We observe that the satisfaction note recorded by the AO of the assessee, he has not recorded how the documents seized have a bearing on the determination of the total income of the assessee for the impugned year. It clearly shows that the satisfaction note recorded is not as per the provisions of section 153C of the Act. We observe from the decision of Saksham Commodities Ltd (Delhi) (Supra), in which it is held as under:

“40. It is thus apparent that it is only when the transmitted documents and material reaches the desk of the jurisdictional AO that it becomes empowered to initiate action under Section 153C of the Act. This is evident from a plain textual reading of that provision and which speaks of the commencement point being the handing over of documents or assets seized or requisitioned to the AO of the “other person” and it in turn proceeding to issue notice to assess or reassess the income of the non-searched entity in accordance with Section 153A. However, the initiation of action under Section 153C is significantly premised upon the AO being satisfied that the books of account or documents and assets seized or requisitioned having “a bearing on the determination of the total income of such other person”. This is manifest from the provision employing the expression “if, that Assessing Officer is satisfied.”. It would therefore necessarily follow that the issuance of a notice under Section 153C is clearly not intended to be an inevitable consequence to the receipt of material by the jurisdictional AO. That the AO before commencement of action under Section 153C is also obliged to be satisfied that the material so received would “have a bearing on the determination of the total income of such other person” is an aspect of significance and constitutes a fundamental point of distinction between Section 153A and Section 153C. This distinguishing element of the two provisions would become further apparent from the discussion which ensues.

41. Firstly, and from a historical perspective of the legislation itself, we find that one of the significant amendments which came to be introduced in Section 153C was ushered in 2014. The Finance (No. 2) Bill, 2014, while seeking to explain the objective of the amendments which were proposed to be incorporated declared as follows:

“Assessment of income of a person other than the person who has been searched

Section 153C of the Act relates to assessment of income of any other person. The existing provisions contained in sub-section (1) of the said section 153C provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to any person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

It is proposed to amend section 153C of the Act to provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to any person, other than the person referred to in section 153A, then books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A if he is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A.

The amendment will take effect from 1st October, 2014.”

42. It would also be apposite to notice the Notes on Clause 53 of the Finance Bill, 2014, which sought to amend Section 153C and which is reproduced herein below:

“Clause 53 of the Bill seeks to amend section 153C of the Income-tax Act relating to assessment of income of any other person.

The existing provisions contained in sub-section (1) of the aforesaid section provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

It is proposed to amend the said sub-section so as to provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, such Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A.

This amendment will take effect from 1st October, 2014.”

43. It was consequent to the passing of the aforesaid Act that Section 153C came to incorporate provisions relating to the AO being satisfied that the books of accounts, documents or assets seized or requisitioned must “have a bearing on the determination of the total income of such other person” for the six preceding AYs’ or the “relevant assessment year” as referred to in Explanation 1 to Section 153A. Prior to the promulgation of these amendments, the AO of the non-searched party was not obliged to form an opinion that the material received by it was likely to impact the estimation of income of that person. Significantly, although this prerequisite came to be incorporated in Section 153C, no such corresponding precondition was included in Section 153A. This, although the legislative history of the search assessment provisions placed in the Act would indicate that they were amended from time to time in order to constitute a complete and homogeneous code. This becomes apparent from the legislative mandate of those two provisions being applicable to searches undertaken in a particular time period, the principles of abatement being replicated and the search assessment power being available to be invoked for the “relevant assessment year”, and which extended the power to be exercised over a ten year block, being simultaneously introduced in those provisions. The Legislature clearly intended both these provisions to form part of a cohesive scheme and to be complementary to each other. However, the aspects of satisfaction and of the material likely to implicate or influence were not added in Section 153A. The fact that any additions that may be ultimately made upon a culmination of assessment under Section 153A being indelibly founded on the material gathered in the course of the search is a separate issue all together.

44. The usage of the expression “have a bearing” would necessarily lead one to conclude that the mere discovery of books, documents or assets would not justify the initiation of proceedings under that provision. Upon receipt of that material, the jurisdictional AO must additionally be satisfied that those are likely to have an impact on “the determination of the total income”. The Shorter Oxford English Dictionary 18 assigns the following meaning to the word “bearing”:

“1. The action of BEAR verb: carrying, bringing; supporting, sustaining, enduring; giving birth, producing; thrusting, pressing.

2. Manner of carrying oneself, bodily attitude; demeanour.

3. A material support; a supporting surface.

4. A heraldic charge or device: in pl., that which is depicted on a coat of arms; a heraldic achievement, a coat of arms.

5. The direction in which a place, object, etc., lies; direction of movement, orientation; in pl., (knowledge of) relative position.

6. sing. & (freq.) in pl. Part of a machine which bears friction, esp. between a rotating part and its housing.

7. Practical relation or effect (up)on; influence, relevance.”

As is manifest from the aforesaid extract, “bearing” would include something which would lend support or credence. It has also been defined to mean something which may have a practical relation or effect upon, influence or relevance.

45. The Major Law Lexicon 19, authored by P. Ramanatha Aiyar explains “Bearing on, Having” as referring to something having a relation with. For ease of reference, the meaning assigned to the aforesaid expression is reproduced herein below:

“Bearing on, Having. Having relation with”

46. The New Lexicon Webster’s Dictionary 20 defines the word “bearing” as follows:

“The action of carrying // carriage, deportment// (heraldry) a single charge // relevancy, that has no bearing on the matter // endurance, the capacity to tolerate, behaviour past all bearing // (pl.) position in relation to some reference point // (pl/) grasp of one’s situation, to find one’s bearings // a part of a machine that bears the friction set up by a moving part. Sliding friction is reduced by making the bearing of Babbitt metal, and by separating it and its moving part by a thin film of lubricant. By the introduction of ball bearings (or roller bearings) sliding friction is replaced by rolling friction, which is must less in effect // an angle measured from true north, magnetic north, or from some given survey line to lose one’s bearings to be lost // to be puzzled.”

47. This too speaks of “relevancy” as one of the meanings one may gather where that particular expression is used. This leads us to the inevitable conclusion that the initiation of action under Section 153C would have to be founded on a formation of opinion by the jurisdictional AO that the material handed over and received pursuant to a search is likely to influence the “determination of the total income” and would be of relevancy for the purposes of assessment or reassessment.

F. INCRIMINATING MATERIAL- CASCADING EFFECT?

48. In terms of the Second Proviso to Section 153A, all assessment or reassessment proceedings relating to the six AYs’ or the “relevant assessment year” pending on the date of search are statutorily envisaged to abate. Abatement is envisioned to be an inevitable consequence of the initiation of action under Section 153A. Neither issuance of notice nor abatement are predicated upon a formation of opinion by the AO of the searched person that the material is likely to impact the total income of that assessee. However, the spectre of abatement insofar as the “other person” is concerned would arise only after the jurisdictional AO has formed the requisite satisfaction of the material having “a bearing on the determination of the total income of such other person” and having formed the opinion that proceedings under Section 153C are liable to be initiated. It would be pertinent to bear in mind that Kabul Chawla was a decision rendered in the context of Section 153A. It was in the aforesaid backdrop that the Court significantly observed that once a search takes place under Section 132 of the Act, notice under Section 153A(1) would mandatorily issue. The abatement of assessment and reassessment pending on that date would, in the case of a Section 153A assessment, be a preordained consequence. However, and in light of what has been observed hereinabove, it is apparent that Section 153C constructs a subtle and yet significant distinction insofar as the question of commencement of proceedings or assumption of jurisdiction is concerned.

49. That takes us to the principal question and which pertains to the nature of the incriminating material that may be obtained and the years forming part of the block which would merit being thrown open. Regard must be had to the fact that while Section 153C enables and empowers the jurisdictional AO to commence assessment or reassessment for a block of six AYs’ or the “relevant assessment year”, that action is founded on satisfaction being reached that the books of accounts, documents or assets seized “have a bearing on the determination of the total income of such other person”. We in this regard bear in mind the well settled distinction which the law recognizes between the existence of power and the exercise thereof. Section 153C enables and empowers the jurisdictional AO to assess or reassess the six AYs’ or the “relevant assessment year”. The Act thus sanctions and confers an authority upon the AO to exercise the power placed in its hands for up to a maximum of ten AYs’. Despite the conferral of that power, the question which would remain is whether the facts and circumstances of a particular case warrant or justify the invocation of that power. It is the aforesaid aspect which bids us to reiterate the distinction between the existence and exercise of power.

50. What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs’ immediately preceding the AY pertaining to the search year or for the “relevant assessment year”.

51. Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment which may be undergoing or which may have been completed. The words “have a bearing on the determination of the total income of such other person” as appearing in Section 153C would necessarily have to be conferred pre-eminence. Therefore, and unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all over again all the ten AYs’ that could possibly form part of the block of ten years.

52. The decisions which hold that an assessment is liable to be revised only if incriminating material be found, even if rendered in the context of Section 153A, would clearly govern the question that stands posited even in the context of Section 153C. It would be relevant to recall that the Division Bench in Kabul Chawla had observed that in the absence of any incriminating material, a completed assessment may be reiterated and the abated assessment or reassessment be concluded. The importance of incriminating material was further underlined in Kabul Chawla with the Court observing that completed assessments could be interfered with, only if some incriminating material were unearthed. This aspect came to be reiterated in RRJ Securities when the Court held that it would be impermissible to either reopen or reassess a completed assessment which may not be impacted by the material gathered in the course of the search and which may have no plausible nexus. The aforesaid position also comes to the fore when one reads para 17 of ARN Infrastructure and which annulled an action aimed at reopening assessments for years to which the incriminating document which was found did not relate.

53. Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs’ 2000-01 to 2003-04 would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.

54. In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section 153C. Here too, the AO would have to firstly identify the AYs’ to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs’ falling within the block of six AYs’ or for that matter all years forming part of the block of ten AYs’, appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made applicable both with respect to Section 153A as well as Section 153C ex abundanti cautela. Which however takes us back to what had been observed earlier, namely, the existence of the power being merely enabling as opposed to a statutory compulsion or an inevitable consequence which was advocated by the respondents.

55. Take for instance a case where the material gathered in the search is contemplated to have an adverse impact on the declarations and disclosures made by an assessee pertaining only to AYs’ 2016-17 and 2017-18. What we seek to emphasise is that pending assessments for those two years could validly form subject matter of action under Section 153C and pending assessments in that respect would surely abate. However, that by itself would not be sufficient to either reopen or issue notices in respect of AYs’ prior to or those falling after those two AYs’ and which may otherwise fall within the maximum block period of ten years merely because the statute empowers the AO to do so. Unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical or an enblanc exercise of power, or to put it differently, one which is uninformed by a consideration of the factors indicated above.

56. We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to “necessarily” be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY.

57. It becomes pertinent to note that both Sections 153A and 153C require the assessee upon being placed on notice to furnish ROIs’ for the six AYs’ or the “relevant assessment year”. All that the two provisions mandate is that notwithstanding the submission of those ROIs’, the AO would frame one assessment order in respect of each of the years which were made subject matter of the notice and which would deal with both disclosed and undisclosed income. This too reinforces our view that Section 153C would apply only to such AYs’ where the jurisdictional AO is satisfied and has incriminating material for those AYs’ and which may be concerned with disclosed and undisclosed income.

58. The aforesaid position stands further fortified from a reading of the First Proviso to Section 153A and which speaks of the power of the AO to assess or reassess the total income in respect of “each assessment year”. The aforesaid phraseology stands replicated in Section 153B(1)(a) which again alludes to “each assessment year” falling within the six AYs or the “relevant assessment year”. The aforesaid language is then reiterated in Section 153D and which prescribes that no order of assessment or reassessment shall be passed by an AO in respect of “each assessment year” referred to in Section 153A or 153B of the Act, except with the prior approval of the Joint Commissioner. We note that once the aforesaid principles are borne in mind, there would exist no discernible distinction between abated and completed assessments. This, since in both situations, the AO would be bound to base its decision to abate or reopen on material that is likely to impact the assessment of the total income for a particular AY. In case of assessment proceedings which are ongoing on the date when the AO proceeds to draw its satisfaction and in respect of which no incriminating material has been discovered, there would exist no justification to initiate proceedings under Section 153C.

59. It would be pertinent to recall that Section 153C essentially seeks to merge ongoing assessments with a search assessment which may be triggered by the discovery of material obtained in a search and which was the statutory procedure which prevailed in terms of the provisions contained in Chapter XIV B. However, and in cases where on facts it is found that the material gathered is unlikely to have any impact on the computation of total income for a particular year, there would exist no justification to invoke the powers conferred by Section 153C.

60. Before concluding, we also deem it imperative to briefly notice certain aspects which emerge from a reading of the Satisfaction Notes themselves. As is manifest from a reading of the Satisfaction Note drawn by the jurisdictional AO of the assessee in W.P. (C) 1459/2024, after noticing the material which was recovered during the search and related to FYs’ 2009-10, 2010-11 and 2011-12 [corresponding AYs’ thus being AYs’ 2010-11, 2011-12 and 2012-13], it has proceeded to observe that the assessments which were liable to abate or be reopened would be AYs’ 2010-11 to 2020-21. A similar note appears in W.P. (C)1117/2024. Here again, after referring to the material pertaining to FY 2009-10 [and thus relating to AY 2010-11], the AO proceeded to seek approval for initiating action under Section 153C in respect of AYs’ 2010-11 up to 2020-21.

61. A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs’ appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the “relevant assessment year” as defined in Section 153A. In our considered opinion, the aforesaid understanding of Section 153C is clearly erroneous and unsustainable. As explained hereinabove, the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY is not intended to set off a chain reaction or have a waterfall effect on all AYs’ which could form part of the “relevant assessment year”. This, more so since none of the Satisfaction Notes record any reasons of how that material is likely to materially influence the computation of income for those AYs’.

62. Hypothetically speaking, it may be possible for the material recovered in the course of a search having the potential or the probability of constituting incriminating material for more than one assessment year. However, even if such a situation were assumed to arise, it would be incumbent upon the AO to duly record reasons in support of such a conclusion. The Satisfaction Notes would thus have to evidence a formation of opinion that the material is likely to be incriminating for more than a singular assessment year and thus warranting the drawl of Section 153C proceedings for years in addition to those to which the material may be directly relatable.

G. CONCLUSIONS

63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs’ which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the “relevant assessment year”.

64. In our considered view, abatement of the six AYs’ or the “relevant assessment year” under Section 153C would follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs’ that may form part of the block often AYs’. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to “have a bearing on the determination of the total income”. It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case may be.

65. We would thus recognize the flow of events contemplated under Section 153C being firstly the receipt of books, accounts, documents or assets by the jurisdictional AO, an evaluation and examination of their contents and an assessment of the potential impact that they may have on the total income for the six AYs’ immediately preceding the AY pertaining to the year of search and the “relevant assessment year”. It is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to “have a bearing on the determination of the total income” that a notice under Section 153C would be issued. Abatement would thus be a necessary corollary of that notice. However, both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity.

66. Therefore, and in our opinion, abatement of the six AYs’ or the “relevant assessment year” would follow the formation of that opinion and satisfaction in that respect being reached.

67. On an overall consideration of the aforesaid, we come to the firm conclusion that the “incriminating material” which is spoken of would have to be identified with respect to the AY to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs’ immediately preceding the AY corresponding to the year of search or the “relevant assessment year” would not justify a sweeping or indiscriminate invocation of Section 153C.

68. The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs’ and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.”

11. Respectfully following the above decision and we observe from the satisfaction recorded in this case, the AO failed to record the satisfaction as per the provisions of the Act and failed to record the assessment of the potential impact on the income not declared by the assessee earlier and the impact that may have on the total income for the impugned AY. Therefore, non-recording of proper satisfaction to initiate the proceedings u/s 153C of the Act, the proceeding initiated in the present case is without proper jurisdiction. With regard to case laws relied by Ld DR, the same are distinguishable to the facts on record. Accordingly, the ground raised by the assessee is allowed.

12. We observe that the assessee also raised several issue relating the jurisdictional issues on initiation of proceedings u/s 153C of the Act, since we already decided the issue on non-recording the satisfaction on the basis of bearing on or impact on the total income of years or block of years to initiate the proceedings u/s 153C is bad in law. Hence other jurisdictional issues are not adjudicated. These issues are kept open at this stage.

13. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on this 18TH day of September, 2026.