Supreme Court refuses to revive Section 153C proceedings absent clear search linkage to assessee

The Supreme Court in ACIT Vs Sandhya Maulik Patel has declined to interfere with a Gujarat High Court decision that had annulled notices issued under Section 153C of the Income Tax Act 1961. The central issue was whether digital material recovered during a search on a third party created a sufficient and direct connection with the assessee to validly trigger Section 153C proceedings.

The apex court dismissed the Revenue’s Special Leave Petition (Civil) Diary No. 21426/2026 by order dated 10/09/2026, thereby leaving intact the Gujarat High Court’s ruling in Sandhya Maulik Patel Vs ACIT, Special Civil Application No. 4162 of 2023, decided on 24.11.2025.

Background: Search under Section 132 and initiation of Section 153C

Search action and seized digital material

  • A search under Section 132 was carried out on 15.10.2019 in the case of land broker Shri Dhaval Teli at Ahmedabad.
  • During this search, authorities obtained digital content from his mobile phone, including images of a Memorandum of Understanding (MoU) pertaining to land bearing Survey No. 329.
  • The MoU showed a proposed transaction between seller Dilipbhai Patel and intended buyer Dhirenbhai Bharvad for Rs.39.32 crore, and mentioned a cash component of Rs.1 crore.

Crucially, the names of the assessee (petitioners before the High Court) did not figure anywhere in this MoU.

Initiation of Section 153C proceedings

  • Based on the material collected in the search, the Assessing Officer (AO) later obtained details of a registered sale deed dated 12.04.2018, which revealed that the assessee had purchased the same parcel of land (Survey No. 329) for Rs.12 crore.
  • On comparing the MoU value of Rs.39.32 crore with the registered sale consideration of Rs.12 crore, the AO inferred the existence of an alleged undisclosed investment of Rs.27.32 crore in the hands of the assessee.
  • Thereafter, notices dated 13.10.2021 were issued under Section 153C for **AYs 2014-15 to 2020-21`.

The assessee filed returns in response and obtained copies of the satisfaction notes recorded by the AO under Section 153C. They then mounted a jurisdictional challenge before the Gujarat High Court, contending that the conditions for invoking Section 153C were not satisfied.

Proceedings before Gujarat High Court

Assessee’s core objections

The assessee objected to the very assumption of jurisdiction under Section 153C, principally on the following grounds:

  • Absence of name/link in MoU:
    The MoU discovered during the search mentioned only a transaction between Dilipbhai Patel (seller) and Dhirenbhai Bharvad (proposed buyer). The assessee was not named in the MoU, nor was there any indication in the seized MoU that the assessee had any role in that arrangement.

  • No seized material “belonging to” or “relating to” the assessee:
    The material directly found during the search under Section 132 neither belonged to the assessee nor related to them in the sense contemplated under Section 153C (as interpreted in prior jurisprudence).

  • Subsequent collection from public domain insufficient:
    The assessee contended that the AO had later sourced the registered sale deed from the public domain (registration records) after the search. This subsequent information, they argued, could not retrospectively transform the seized MoU into incriminating material relating to the assessee for the purpose of Section 153C.

  • No live link between seized MoU and assessee’s transaction:
    Merely because both documents concerned the same land (Survey No. 329), the assessee asserted that no presumption of undisclosed investment could be drawn without a direct and specific link emerging from the search material itself.

Case law relied upon by assessee

To buttress these contentions, the assessee cited the following authorities: