No ‘incriminating material’ under Section 153C of ITA: Raj HC quashes Rs 18.6-cr addition on Gurgaon farmland sale

Jaipur: The Rajasthan High Court has set aside an Rs 18.63-crore income tax addition made against a Delhi-based company over the sale of agricultural land near Gurgaon. The Income Tax Department had no “incriminating material” to justify reopening the company’s completed assessment under Section 153C of the Income Tax Act. A division bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Sangeeta Sharma delivered the judgment on 13 April 2026, allowing the appeal of Superb Infotech Pvt. Ltd.

Superb Infotech filed its return for assessment year 2007-08 on 29 October 2007, declaring income of Rs 2.31 lakh. The return was accepted and the assessment became final.

A year later, on 17 September 2008, the Income Tax Department searched the Kamdhenu Group — not Superb Infotech. During that search, a Partnership Deed, a Dissolution Deed and some miscellaneous papers were seized that the Assessing Officer believed belonged to Superb Infotech.

Acting on those papers, the Assessing Officer invoked Section 153C of the Income Tax Act. That provision lets the Department reassess a person other than the one actually searched, if documents belonging to that other person are seized. Notice was issued on 10 May 2010. A fresh assessment followed on 28 December 2010.

The AO then treated the company’s profit of Rs 18,63,34,965 from the sale of agricultural land near Gurgaon as business income — an “adventure in the nature of trade.” The Commissioner of Income Tax (Appeals) upheld the addition. The Income Tax Appellate Tribunal (ITAT), Jaipur, modified the treatment slightly, directing the amount be taxed as capital gains rather than business income, but left the addition intact.

Superb Infotech then moved the High Court under Section 260A of the Income Tax Act, which lets a taxpayer appeal on a substantial question of law. The Court admitted the appeal on two issues: whether Section 153C could be invoked here, and whether the profit on rural farmland could be taxed at all.

Senior Advocate R.B. Mathur, leading a team for Superb Infotech, made two core submissions. The Partnership Deed and Dissolution Deed seized from Kamdhenu’s premises were not “incriminating” in any sense. They did not show concealed income. They did not even relate to assessment year 2007-08.

He relied on the Supreme Court’s ruling in Principal Commissioner of Income Tax vs Abhisar Buildwell Pvt. Ltd., which settled that no addition can be made to a completed assessment under the search regime without incriminating material. He also cited Union of India vs Misty Meadows Pvt. Ltd., where the Supreme Court dismissed the Revenue’s challenge to a similar quashing order.

Second, the land was rural agricultural land more than 8 kilometres outside the municipal limits of Gurgaon. That placed it outside the definition of a “capital asset” in Section 2(14)(iii). The profit on its sale could not be taxed either as business income or as capital gains. A single transaction, he added, does not turn a landowner into a trader.

Counsel for the Deputy Commissioner of Income Tax, Central Circle, Faridabad, submitted that the AO had recorded a satisfaction note and had applied his mind before invoking Section 153C. No substantial question of law arose, and the orders of the AO, CIT (Appeals) and ITAT did not warrant interference.

Acting Chief Justice Sharma, writing for the bench, first examined the satisfaction note itself. It referred only to a Partnership Deed, a Dissolution Deed and miscellaneous papers. Nowhere did it say these related to assessment year 2007-08. Nowhere did it identify any income that could prima facie be said to be concealed.

The Court gave the word “incriminating” a plain meaning. It “must necessarily be understood to mean of such a nature which creates a prima facie doubt of involvement of the assessee conduct in concealment of income.” A partnership document that simply confirms a business relationship does not clear that bar.

Turning to the Supreme Court’s ruling in Abhisar Buildwell, the bench reiterated the settled position. In a completed or unabated assessment, the AO cannot make any addition without incriminating material unearthed during the search. If something was missed in the original assessment, the Revenue’s remedy lies under Sections 147 and 148 — the normal reassessment provisions — not under Section 153C.

Applied to Superb Infotech, this meant the AO had essentially reopened a settled assessment on the strength of an agricultural land sale that the Department already knew about. That was not permissible. “The satisfaction itself being vitiated,” the Court held, “the entire proceedings initiated are also vitiated in law.”

On the second question, the bench agreed with the company on the character of the land. A single sale of farmland outside the notified municipal distance is not an “adventure in the nature of trade.” There was no pattern of frequent buying and selling. The land fell within the rural exemption in Section 2(14)(iii) and was not a capital asset at all.

The bench also relied on Kikabhai Premchand vs CIT, where the Supreme Court held that the State “has no power to tax a potential future advantage.” Only income, profits and gains actually earned in the relevant year can be taxed.

The division bench answered both questions of law in favour of the appellant. It quashed all three orders under challenge — the AO’s assessment of 21 July 2010, the CIT (Appeals) order of 27 February 2013, and the ITAT’s order of 6 December 2018. The Section 153C reassessment stands set aside, and the Rs 18.63-crore addition has been wiped out.

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