Supreme Court: Affirms Limits on Section 153C Reassessment Powers under the Income-tax Act
- Maarij Ahmad
- Feb 15
- 3 min read
Updated: 1 day ago
Introduction
In Assistant Commissioner of Income-tax v. Mamta Agarwal[i], the Supreme Court addressed the mandatory jurisdictional requirements under s. 153C of the Income-tax Act, 1961 (‘IT Act’), while discussing the key issue regarding whether the Assessing Officer (‘AO’) could initiate reassessment proceedings against an assessee for multiple years without specific incriminating materials linked to each assessment year (‘AY’).
The present matter owes its genesis to a search and seizure operation conducted by the Income-tax Department (‘Revenue’), after which it sought to reopen ten years of assessments, qua Mamta Agarwal (‘Assessee/Respondent’), without demonstrating a clear nexus between the seized material and the Assessee’s income for each AY. The Delhi High Court quashed the reassessment notices, holding that the AO must establish a direct nexus between the seized material and the relevant AY before invoking s. 153C of the IT Act. The Apex Court upheld this view by dismissing the special leave petition (‘SLP’) filed by the Revenue.
Facts
The Income-tax Department (‘Petitioner’) conducted a search and seizure operation at the premises of M/s Alankit Group of Companies in 2019, and subsequently, a notice under s. 153C of the IT Act, for AYs 2010-11 to 2020-21, was issued qua Assessee/Respondent. As per the said notice, certain incriminating material was found by the Petitioner during the course of search proceedings, particularly pertaining to financial years (FYs) 2009-10, 2010-11 and 2011-12.
The Assessee challenged the aforementioned notice, contending that the invocation of s. 153C was arbitrary as the referenced material found during the search conducted at the premises of M/s Alankit Group pertained to unrelated AYs.
The Assessee further contended that it would be impermissible for the AO to initiate action under s. 153C of the IT Act for the six AYs preceding the year of search. Further, it was also asserted that although s. 153C of the IT Act empowers the AO to reopen the assessment for ten AYs; the same is not justified in the absence of any incriminating material that may ‘have a bearing on the determination of the total income’ for the particular AY.
The Delhi High Court, while ruling in favour of the Assessee/Respondent, observed that the invocation of s. 153C, with respect to all the AYs for which no incriminating material was found during the search, was erroneous and unsustainable. The Court, therefore, held that s. 153C of the IT Act could not have been invoked merely because some material exists; rather, it must ‘have a bearing on the determination of the total income’ of the assessee for the given AY. The reassessment notices were consequently quashed, prompting the Petitioner to file the present SLP.
Held
The Supreme Court dismissed the SLP, citing an unexplained delay of 142 and 172 days in filing. It further held that, even otherwise, there was no reason to interfere with the Delhi High Court’s judgment.
Our Analysis
In this case, the Supreme Court reaffirmed the jurisdictional safeguards built into s. 153C of the IT Act. It upheld the Delhi High Court’s decision in Saksham Commodities Ltd. v. ITO[ii], which held that reassessment cannot be initiated across multiple years unless there is specific incriminating material that has a clear and direct nexus with the income of the assessee for each assessment year.
The SLP filed by the Revenue was dismissed not merely on the grounds of delay. The Court made it clear that, even otherwise, there was no justification to interfere. The High Court’s reasoning was thereby accepted on merits, giving binding force to the ratio it laid down.
The ruling confirms that s. 153C is not intended to be a sweeping power. The AO must be satisfied, with reasons recorded, that the seized material genuinely impacts the income determination for a particular year. Anything short of this would render such proceedings unsustainable.
By leaving the High Court’s judgment undisturbed, the Supreme Court has now settled the law on this issue. The ratio in Saksham Commodities, which limits reassessment only to years connected with relevant and incriminating material, is no longer just persuasive; it is now authoritative. This decision strengthens procedural accountability and acts as a crucial safeguard against indiscriminate reassessment.
End Notes
[i] [2025] 171 taxmann.com 54 (SC).
[ii] 2024 SCC OnLine Del 3851 dated 09.04.2024.
Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.