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Alankar Mishra

April 26, 2025

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Section 153c: Key Amendments to the Income Tax Act Explained

Section 153c: Key Amendments to Income Tax Act Explained

Each year, the Indian Income Tax Act publishes provisions for the supervision, investigation and assessment of undisclosed income within a given jurisdiction. One of the most noteworthy constituents is Section 153c, which is almost always associated with search and seize procedures handled by the Income Land and Revenue Department (ILRD). This section has been amended several times over the years to make it more applicable and clear, avoiding abuse of the provisions.

Overview Table

Feature	Details
Applicable Act	Income Tax Act, 1961
Section Number	Section 153C
Related To	Assessment of income of other persons (not directly searched)
Trigger	Documents, assets, or evidence found during search or survey of another person
Primary Objective	To tax undisclosed income of a person other than the searched party
Applicable From	Inserted by Finance Act, 2003
Latest Amendments	Finance Act 2021, Finance Act 2023

What is Section 153c of the Income Tax Act?

Section 153c operates as an annexe to Sub-Clauses 132 (Search & Seizure) and 132a (Requisition of Books).

This subsection is relevant when the Income Tax Department performs a raid or search on a person whom we hypothetically call Person A. Now, let’s assume that during the search, the department discovers certain documents, cash, jewellery, assets, or any other records relating to another person; we will call this person Person B.

In such scenarios, Section 153c empowers the department to start assessment proceedings against Person B, even though the initial search was conducted on Person A.

In simple terms, Section 153c = Side Effects of Income Tax Raid for the other party connected.

Why Was Section 153c Introduced?

Previously, tax authorities could only assess the person on whom the search was conducted under Section 153a. But criminals, black money holders, and tax evaders were smart enough to keep assets in someone else’s name.

To plug this loophole, Section 153c was introduced.

Its primary aim was:

Taxing benami assets.

To tax cash, documents, or property held indirectly.

To bring persons under scrutiny who were indirectly involved in tax evasion.

Key Conditions for Invoking Section 153c

The Income Tax Officer (AO) can use Section 153c if:

During the search of Person A:

Any document, asset, or evidence is found.

That asset or document belongs to Person B.

The AO must record satisfaction that this belongs to Person B.

The AO then transfers that evidence to Person B’s AO.

Notice under Section 153c is issued to Person B for assessment or reassessment.

Assessment Years Covered Under Section 153c

Normally covers 6 Assessment Years immediately preceding the year of search.

After the amendment (post-2021), this has been aligned with Section 132 and Section 132a timelines.

This means that if a search is conducted in FY 2023-24, the assessment under Section 153c may cover AY 2018-19 to AY 2023-24.

Major Amendments to Section 153c

1. Finance Act 2015 Amendment

Clarified that "belongs to" means that the document or evidence must be owned by the other person, not just related to or referred.

Reduced misuse by Income Tax authorities.

2. Finance Act 2021 Amendment

Introduced the Faceless Assessment Scheme.

Timelines were restructured.

Aligned search assessments under Section 153a & 153c to the new Section 148a provisions (Reassessment Notice Rules).

3. Finance Act 2023 Amendment

Added provision for deemed satisfaction — means that if the officer is satisfied that seized materials relate to another person, assessment under Section 153C can proceed directly.

The time limit for completing the assessment is fixed at 12 months from the end of the financial year in which the evidence was handed over.

Importance of the Satisfaction Note in Section 153c

This is the most critical part of this section.

The Assessing Officer must record in writing why he believes that documents/assets belong to another person.

Without this Satisfaction Note, the assessment under Section 153c is invalid.

Many court judgments have quashed such assessments due to the absence of this written note.

Impact of Section 153c on Taxpayers

For Taxpayer (Person B)

They can be assessed for the past 6 years.

If unaccounted assets or income are found, tax demands, penalties, and prosecution may follow.

Filing updated returns becomes necessary.

Need to prove ownership and source of funds/assets.

For Businesses

Impact on directors, shareholders, or key managerial personnel.

If business transactions are recorded in seized documents, the entire company could face reassessment.

Impact of related-party transactions.

For Tax Professionals

Advising clients on document safety.

Proper documentation and audit trails are essential.

Helps in defence if the wrong proceedings are initiated.

Key Court Judgements on Section 153c

1. Pepsi Foods Pvt Ltd vs. ACIT (Delhi HC): Mere reference to a person’s name in a document does not mean it belongs to that person.

2. Sinhgad Technical Education Society vs. ACIT (Supreme Court): A Satisfaction Note is mandatory before transferring documents from one AO to another.

3. RRJ Securities Ltd vs. CIT (Delhi HC): For invoking Section 153c, the evidence must belong to the other person and not just be related to or refer to him.

Documents Required in Section 153c Proceedings

If you receive a notice under Section 153c, you should be ready with:

Income Tax Returns for the past 6 years.

Books of accounts.

Bank statements.

Details of assets & liabilities.

Source of funds proof.

Property documents.

Loan agreements.

Gift deeds (if any assets are gifted).

PAN, Aadhaar, Identity Proof.

Steps to Handle a Notice under Section 153c

Consult a Tax Expert Immediately.

Review the Satisfaction Note carefully.

Respond to the Income Tax Department within the deadline.

File required returns for past years.

Disclose income honestly.

Prepare defence documents.

Appeal to the court if the satisfaction note is vague or invalid.

Penalties & Prosecution Under Section 153c

Tax demands on undisclosed income.

Interest under Section 234A, 234B & 234C.

Penalty up to 200% of the tax evaded (Section 270a).

Prosecution in extreme cases (imprisonment).

Latest Updates Related to Section 153c

Year	Update	Impact
2021	Faceless Assessment	Ease and transparency
2023	Deemed Satisfaction Added	Faster assessments
2024	Use of AI Tools in Search Cases	Smarter detection of benami assets

Conclusion

Section 153c of the Income Tax Act is a powerful tool in the hands of the Income Tax Department to tackle tax evasion beyond the searched person. But at the same time, it demands utmost transparency and strict compliance from taxpayers.

If your name, assets, or documents surface in someone else’s search case, be ready for questions under Section 153c. Proper accounting, clean transactions, and maintaining source documents can save you from unnecessary harassment.

FAQs

1. What is Section 153c of the Income Tax Act?

Section 153c allows the Income Tax Department to assess a person other than the searched person if any document, asset, or evidence found during the search belongs to that other person.

2. When is Section 153c applicable?

Section 153C is applicable when, during a search or survey on a person (Person A), any document, money, or asset is found that belongs to another person (Person B). The department can then start a tax assessment on Person B.

3. How many years are covered under Section 153c?

Normally, Section 153c covers the 6 previous assessment years immediately before the year of the search. Recent amendments have aligned these timelines with reassessment rules under the new Income Tax provisions.

4. Is it necessary for the Income Tax Officer to record a Satisfaction Note under Section 153c?

Yes, it is compulsory for the Assessing Officer to record a proper Satisfaction Note before initiating proceedings under Section 153C. Without this, the assessment may be declared invalid by the courts.

5. Can Section 153c be applied without any search operation?

No, Section 153c is triggered only when a search under Section 132 or requisition under Section 132a is conducted, and during that search, documents or assets related to another person are found.

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