s.158BD — Undisclosed income of any other person
Brings a person who was not searched into the block assessment, once the Assessing Officer of the person searched is satisfied that undisclosed income belongs to, pertains to or relates to him and hands over the material.
Applies where the search was initiated, or the requisition made, from 1 September 2024 to 31 March 2026. The section as substituted by the Finance (No. 2) Act, 2024 was itself substituted by the Finance Act, 2025 with effect from 1 September 2024, so the 2025 text is the law for every such search. The counterpart in the Income-tax Act, 2025 is section 295, which applies to a search initiated on or after 1 April 2026. The Finance Act, 2026 inserted clauses (c) and (d) into section 295(2), which give the other person a shorter block in two cases. The 1961 Act has no counterpart to those clauses.
Income-tax Act, 1961
s.158BD
Income-tax Act, 2025
s.295
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 158BD of the Income-tax Act, 1961 applies where the Assessing Officer is satisfied that any undisclosed income "belongs to or pertains to or relates to" a person other than the person searched. He is the other person; the person with respect to whom the search was initiated under section 132, or the requisition made under section 132A, is the specified person. The money, bullion, jewellery, virtual digital asset or other valuable article or thing, and the books of account or other documents seized or requisitioned, "or any other material or information relating to the aforesaid undisclosed income", are then handed over to the Assessing Officer having jurisdiction over the other person. That officer proceeds against him under section 158BC, and the Chapter applies accordingly, including both approvals. Under the first proviso his block period is the same as that of the specified person and, where more than one specified person is relevant to him, that of the one whose block period ends on a later date. Under the second proviso, for abatement under section 158BA(2) and (3) the date of initiation of the search is read as the date on which the material was received by his own Assessing Officer. His order is due within twelve months from the end of the quarter in which the notice under section 158BC was issued to him, or thirteen where his return period was extended (section 158BE(3)). The section applies to a search initiated, or requisition made, from 1 September 2024 to 31 March 2026. For a search initiated on or after 1 April 2026 the counterpart is section 295 of the Income-tax Act, 2025. Sub-sections (1), (2)(a), (2)(b) and (3) of section 295 are the same in substance. Clauses (c) and (d) of section 295(2), inserted by the Finance Act, 2026, shorten the other person's block in two cases and have no counterpart in the 1961 Act. His limit under section 296(5) is twelve months from the end of the quarter of his notice.
What the provision does
Extends the block assessment to a person who was not searched, fixes his block period, and gives him his own abatement date. It does not dispense with the Assessing Officer's satisfaction about undisclosed income of that person. It sets no time limit for recording that satisfaction or for issuing the notice. It substitutes the date of receipt of the material only for abatement, not for the exclusions from undisclosed income. And under the 1961 Act it does not shorten his block, however narrow the material.
Threshold questions
- Whether the Assessing Officer of the person searched recorded satisfaction that undisclosed income belongs to, pertains to or relates to the other person, and on what material
- Whether the satisfaction note was prepared no later than immediately after the assessment of the person searched was completed, the last of the three stages in Calcutta Knitwears
- Whether the seized or requisitioned material or other information was handed over to the Assessing Officer having jurisdiction over the other person, and on what date he received it
- Whether prior approval was taken before the notice under section 158BC or section 294 was issued to the other person
- Whether the block adopted is that of the person searched or, under the 2025 Act only, the shorter block in section 295(2)(c) or (d)
- Whether the order was passed within twelve months from the end of the quarter in which the notice was issued to the other person, or thirteen under the 1961 Act where his return period was extended
In practice
The recurring disputes.
Whether the decisions on the old section 158BD govern the satisfaction now required
The assessee's case is that the section still opens with the Assessing Officer's satisfaction, as the old section did. In Manish Maheshwari v. ACIT (Supreme Court, Civil Appeal No. 924 of 2007, 23 February 2007) the Court set out the conditions precedent. Satisfaction must be recorded that undisclosed income belongs to a person other than the person searched. The seized books, documents or assets must be handed over to the Assessing Officer having jurisdiction over that person. That officer must proceed under section 158BC. None had been met, the Court found "a patent non-application of mind", and the High Court judgments upholding the block assessments were set aside. In CIT v. Calcutta Knitwears (Supreme Court, Civil Appeal No. 3958 of 2014, 12 March 2014) the Court held at paragraph 44 that a satisfaction note "is sine qua non and must be prepared by the assessing officer before he transmits the records". The Revenue's case rests on the same decision. It described section 158BD as a machinery provision to be construed so that the charge does not fail (paragraphs 37 and 38), found no embargo on the stage at which satisfaction is reached (paragraph 41), and held that the limitation provision does not restrict the time for preparing the note (paragraph 42). Both decisions were given on the old section, which spoke only of income that "belongs to" the other person. Their application to section 158BD as it now stands, and to section 295, has not been decided.
How late the satisfaction note can be recorded
The assessee's case is that Calcutta Knitwears allows three stages and no more: at the time of or along with the initiation of proceedings against the person searched, along with those assessment proceedings, or "immediately after the assessment proceedings are completed" in his case. The Delhi High Court applied the third stage in CIT v. Bharat Bhushan Jain (ITA 648/2009 and connected appeals, 8 January 2015). Satisfaction notes recorded after a delay the Court put at ten months to a year and a half from the searched person's assessment were not contemporaneous, and the Revenue's appeals were dismissed. The Revenue's case is that Calcutta Knitwears dealt with a note dated 15 July 2005 against an assessment of the searched person completed on 30 March 2005. The Court held that the High Court was wrong to reject it merely because it followed that assessment (paragraph 43), and sent the matters back to the High Courts for fresh decision (paragraph 46). Neither Act fixes a time for recording satisfaction or for issuing the notice to the other person, so the three stages are the only outer limit on his exposure. How long after the searched person's assessment a note is still immediate has to be argued on the dates of each file.
Whether material that merely mentions the other person is enough
The Revenue's case is that the standard is wider than under the old chapter. The old section spoke of undisclosed income that "belongs to" the other person. Section 158BD and section 295 say "belongs to or pertains to or relates to", the wider formula that section 153C uses for books and documents. An argument that seized material does not belong to the other person is answered by the text. The assessee's case is that the satisfaction must still be about undisclosed income of the other person, and a document that merely mentions him is not enough. Calcutta Knitwears said that "the existence of cogent and demonstrative material is germane" to the satisfaction (paragraph 41). The wider words have not been tested in a block assessment. Cases on entry providers and accommodation transactions will be argued on the lines developed for satisfaction under section 153C.
The shorter block for the other person under the 2025 Act
Clauses (c) and (d) of section 295(2), inserted by the Finance Act, 2026, shorten the other person's block in two cases. Where his undisclosed income pertains only to the period from the tax year immediately preceding the year of search (the specified year) to the date of initiation of the search, his block comprises only the specified year and the part of the search year up to the last authorisation. Where it pertains to a single tax year out of the five tax years preceding the specified year, his block "shall comprise of only that single tax year". Income spread over two earlier years, or over the specified year and one earlier year, falls within neither clause and attracts the full block. The clauses do not say what happens if the officer, having adopted a short block, later finds income of another year. The assessee's case is that the notice under section 294(1)(a) called for a return "for the block period" and that section 293(4) computes only undisclosed income "falling within the block period", so that the order cannot reach a year outside it. The Revenue's case is that clause (c) applies where the income pertains "only" to the period it describes and clause (d) where it pertains to "a single tax year", so that income of another year found later takes the case out of them. The point is open. The 1961 Act has no counterpart. A third party drawn into a search initiated before 1 April 2026 has the full block of the person searched, even where the material concerns one transaction in one year.
Assessments of the other person made between the search and the receipt of the material
For the other person the date of initiation of the search is replaced by the date his Assessing Officer receives the material, but only for abatement (second proviso to section 158BD; section 295(3)). An assessment of his completed in the interval does not abate. It is also not, on the words, an assessment made before the initiation of the search, so the income assessed in it is not within the exclusion in section 158BB(1A)(a) or section 293(2)(a). The Revenue relies on those words. The assessee's case is that income assessed or returned to the Department before the block proceeding against him began has been disclosed, and that the same income cannot be charged twice. The firm's view is that such income is not undisclosed, although the exclusions do not say so in terms.