Survey, Search & Seizure Updates

1. Deputy Commissioner of Income-tax v. Dharmesh Rameshchandra Gathani* [2026] 188 taxmann.com 1030 (SC)

SLP dismissed against order of High Court that where satisfaction note for initiating proceedings under section 153C was recorded nearly four years by Assessing Officer after search and almost two years after assessment of searched person had been completed, it reflected an inordinate delay in initiation of proceedings under section 153C and, hence, notice issued under section 153C was to be quashed and set aside.

Section 153C, read with sections 132 and 153A, of the Income-tax Act, 1961 / Section 247 of the Income-tax Act, 2025 – Search and seizure – Assessment of any other person (Satisfaction note) – Assessment year 2017-18 – Assessee challenged notice under Section 153C for Assessment year 2017-18 on ground that satisfaction was not recorded at any permissible stage and, in any case, was not recorded “immediately after” completion of searched person’s assessment – Department attributed delay to COVID-19 and Faceless Assessment Scheme – It was noted that though Assessing Officer had an opportunity to record satisfaction note at two stages as specified in Circular No. 24/2015 but same was not done – Further, search was conducted on 15-10-2019, searched person’s assessment was completed in August 2021 – Satisfaction note was recorded on 6-6-2023 by Assessing Officer of searched person, which was forwarded to Assessing Officer of assessee, who in turn recorded satisfaction note on 17-10-2023 – High Court held that satisfaction note must be recorded at any of three permissible stages, and if not recorded “immediately after” completion of searched person’s assessment, proceedings under Section 153C are invalid – Further, since there was a delay of 22 months in recording satisfaction note, which ran contrary to decision in CIT v. Calcutta Knitwears [2014] 43 taxmann.com 446/223 Taxman 115/362 ITR 673 (SC) as well as provision ‘(c)’ of Circular No.24/2015, notice under Section 153C was to be quashed – Whether there was no good ground to interfere with impugned order of High Court and, thus, SLP was to be dismissed – Held, yes [Paras 2 and 3] [In favour of assessee]

CASE REVIEW

2. Assistant Commissioner of Income-tax v. Maulik Jayantilal Patel [2026] 188 taxmann.com 640 (SC)

SLP dismissed against impugned order of High Court that where no incriminating material relating to assessees was found during search on a third party and Assessing Officer relied only on post-search documents and public domain data without establishing any live nexus with assessees, invocation of section 153C and issuance of notices for alleged undisclosed investment based on difference in land sale consideration was unsustainable and liable to be quashed

Income-tax Act, 1961 / Section 102 read with section 251 of the Income-tax Act, 2025 – Cash Credit (Illustration) – Assessment years 2014-15 to 2020-21 – A search under section 132 was conducted upon one ‘DT’, a land broker and financer – During search, digital data/images from mobile phone of DT were acquired wherein an MoU of land was found – Based on same, a notice under section 153C was issued to assessee – It was noted that MoU did not bear name of assessee anywhere – Further, searched person DT in his statement before Assessing Officer asserted that he did not broker land deal and only supplied 7/12 Form and Form No. 6 showing land entries post search – Thus, these forms were not seized during search but were handed over by broker to Assessing Officer post search – After these were supplied, Assessing Officer obtained sale deed information from public domain – However, there was no incriminating material found during search having a direct nexus with assessee – High Court held that satisfaction recorded by Assessing Officer roping assessees into assessment proceedings on basis of digital data impounded during search, was required to be quashed and set aside – Further, Assessing Officer having acted de hors provisions of section 153C, notices were to be quashed and set aside – Whether there was no good ground to interfere with impugned order of High Court and, thus, SLP filed by revenue was to be dismissed – Held, yes [Paras 4 and 5] [In favour of assessee]

3. Chennamaneni Mithun Chand v. ACIT [2026] 186 taxmann.com 735 (Hyderabad – Trib.)

Where assessee was subjected to search and Assessing Officer sought to extend limitation period under clause (xii) of Explanation 1 to section 153 on account of delayed receipt of seized books, since only 41 days were lost between date of search and handing over of seized books, Assessing Officer could not claim exclusion of entire 180-day and thus, assessment completed beyond such period was barred by limitation and liable to be quashed.

Where additions under section 56(2)(x) for alleged cash receipts were based solely on Excel sheets and registers seized from third-party premises, since assessee had no established connection with underlying land transaction and electronic records were unsupported by a certificate under section 65B of Evidence Act, such material lacked evidentiary value and could not sustain additions

I. Section 153, read with section 132, of the Income-tax Act, 1961 / Section 286, read with section 247 of the Income-tax Act, 2025 – Assessment – Time limit for completion of reassessment (Clause xii of Explanation 1) – Assessment year 2022-23 – Assessee was subjected to search and seizure under section 132 on 31-10-2022 – He filed his return of income on 30-12-2022 – Assessing Officer completed assessment under section 143(3) on 27-09-2024 – Assessee challenged assessment as time-barred – Assessing Officer stated that period of limitation stood extended by excluding up to 180 days under clause (xii) of Explanation 1 to section 153, computed from date of search to date seized material/books were handed over – It was noted that Assessing Officer received books of account on 11-05-2023, and thus, only 41 days were lost out of limitation period of 12 months reckoning from 01-04-2023 – Whether after giving benefit of clause (xii) of Explanation 1 to section 153, if clear 12 months period was available with Assessing Officer reckoning from 11-05-2023 then, limitation would expire on 11-05-2024 – Held, yes – Whether, thus, assessment order passed by Assessing Officer on 27-09-2024 was barred by limitation and consequently, same was invalid and liable to be set aside – Held, yes [Para 12.2] [In favour of assessee]

II. Section 56, read with section 132, of the Income-tax Act, 1961 / Section 92, read with section 247 of the Income-tax Act, 2025, and section 65B of the Indian Evidence Act, 1872 – Income from other sources – Chargeable as (Cash receipts) – Assessment years 2022-23 and 2023-24 – During search conducted on P Group and S Group, a pen drive containing an Excel file and certain registers were seized – Said documents allegedly recorded cash payments made to assessee aggregating to Rs. 405 crore in connection with a 60-acre land transaction – Based on same Assessing Officer treated money received without consideration and taxed them under section 56(2)(x) on ground that assessee was not seller of land and failed to explain nature of receipts – Whether additions under section 56(2)(x) for alleged cash receipts were not sustainable when based solely on material seized from third-party premises without independent corroboration, especially where assessee had no role or right in underlying land transaction – Held, yes – Whether further, in absence of certificate under section 65B of Indian Evidence Act, electronic records seized from third-party premises have no evidentiary value and cannot form basis for addition – Held, yes – Whether in absence of satisfaction of conditions as provided under section 65B of Indian Evidence Act extract taken from pendrive was not an admissible evidence and thus, addition made by Assessing Officer on basis of such inadmissible evidence is not sustainable in law – Held, yes – Whether thus, when evidence relied upon by Assessing Officer suffered from infirmities and inadmissibility then, entries in such material are not sufficient to prove that assessee has received cash – Held, yes [Paras 19 and 19.1] [In favour of assessee]

4. Surya Prakash Kacham v. Deputy Commissioner of Income-tax [2026] 186 taxmann.com 744 (Hyderabad – Trib.)

Where addition under section 56 was made solely on basis of unsigned documents seized from premises of a third party and no corroborative evidence was brought on record to establish receipt of cash by assessee, such addition could not be sustained; further, where alleged receipt was stated to be connected with a JDA, same could not be taxed under section 56 in absence of any finding that it was independent of such JDA.

Section 56, read with section 132, of the Income-tax Act, 1961 / Section 92, read with section 247 of the Income-tax Act, 2025 – Income from other sources – Chargeable as (Third party seized material) – Assessment years 2022-23 to 2023-24 – Assessee, an individual-landowner, entered into a Joint Development Agreement (JDA) with a developer – Pursuant to search conducted in case of developer group, certain documents, including tally data/ledger extracts allegedly reflecting cash payment to assessee, were seized – Based on such seized material and statement recorded under section 131, Assessing Officer reopened assessment and made additions under section 56 on account of alleged cash consideration received by assessee in connection with JDA – Assessee contended that addition was made solely on basis of documents seized from premises of a third party without any corroborative evidence and that even assuming receipt of any amount in connection with JDA, same could not be taxed under section 56 since consideration under JDA was primarily in form of built-up area receivable in future – It was noted that seized document neither bore signature of assessee nor contained any acknowledgment evidencing receipt of cash and no independent evidence, cash trail, bank withdrawals, confirmation or other corroborative material was brought on record – It was further noted that Assessing Officer had not established that alleged receipt was independent of JDA, consideration under which was primarily in form of built-up area receivable in future – Whether where documents were found from premises of a third party, presumption under Section 132(4A) read with Section 292C could not be applied against assessee and that addition made solely on basis of such third-party documents without corroborative evidence could not be sustained – Held, yes – Whether, in absence of any finding that impugned amount was received for any purpose other than in connection with JDA, characterization thereof as income from other sources under section 56 was legally unsustainable and issue, if at all, required examination under provisions relating to capital gains – Held, yes [Paras 10 to15] [In favour of assessee]

5. Kamal Kumar Khetawat v. Union of India* [2026] 187 taxmann.com 1118 (Jharkhand)

Where assessee was subjected to search and seizure and cash was seized but no assessment was made within prescribed time, on refund of seized cash, assessee is entitled to interest at 0.5 per cent per month from expiry of 120 days after last search authorisation execution until date of refund, despite pendency of vigilance reference.

Section 132B, read with sections 132 and 132A, of the Income-tax Act, 1961 / Section 250, read with section 247 of the Income-tax Act, 2025 – Search & Seizure – Retained assets, application of (Interest on refund) – Whether where no assessment is made within prescribed time despite seizure and refund is unduly delayed, High Court in exercise of extraordinary jurisdiction under Article 226 of Constitution can award compensatory interest – Held, yes – Whether pendency of vigilance reference to fix responsibility on officials who failed to hold assessment proceedings within statutorily prescribed period is not a sufficient ground to withhold interest – Held, yes – Whether where assessee was subjected to search and seizure under section 132 and cash was seized, however, no assessment was made within prescribed time and subsequently seized cash was refunded, assessee would be entitled to interest at 0.5 per cent per month or 6 per cent per annum on refunded cash – Held, yes – Whether such interest should run from date immediately following expiry of period of 120 days from date on which last of authorisations for search under section 132 or requisition under section 132A was executed to date of refund – Held, yes [Paras 15 to 18] [In favour of assessee]