Section 295 — Other Person Spillover | ITA 2025

Section 295 — - UNDISCLOSED INCOME OF OTHER PERSON

Section 295 is the substantive equivalent of 1961 s. 158BD -- the SPILLOVER BLOCK ASSESSMENT framework. Where during search of one assessee (Person A), the AO discovers UNDISCLOSED INCOME / ASSETS belonging to OTHER PERSON (Person B), the AO can transfer the relevant material to AO having jurisdiction over Person B; that AO then conducts block assessment of Person B per s. 294 framework. Effectively brings Person B into block-assessment regime even without direct search of Person B. Procedural safeguards: AO must record satisfaction; comprehensive transfer; Person B gets full opportunity.

Statutory text — Income-tax Act, 2025

Marginal note -- Undisclosed income of other person

(1) Where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person (herein referred to as the other person), other than the person (herein referred to as the specified person) with respect to whom search was initiated under section 247 or requisition was made under section 248, then—

(a) any money, bullion, jewellery, virtual digital asset or other valuable article or thing or any books of account or other documents seized or requi- sitioned or any other material or information relating to the aforesaid undisclosed income shall be handed over to the Assessing Officer having jurisdiction over such other person; and

(b) Assessing Officer of the other person shall proceed under section 294 against such other person and the provisions of this part shall apply accordingly.

(2) For the purposes of this section,—

(a) where there is one specified person relevant to such other person, the block period for such other person shall be the same as that for the specified person;

(b) where there is more than one specified persons relevant to such other person, the block period for such other person shall be the same as that for the specified person in whose case the block period ends on a later date; 62 [(c) where the undisclosed income of the other person pertains only to the period—

(i) commencing from the tax year (herein referred to as the specified year) immediately preceding the year of initiation of search or requisition; and

(ii) ending on the date of initiation of search or making of requisition, then irrespective of the provisions of section 301(a), the block period in respect of such other person shall comprise of the specified year and the period starting from the 1st April of the tax year in which search was ini- tiated or requisition was made and ending on the date of the execution of the last of the authorisations for such search or such requisition;

(d) where the undisclosed income of the other person pertains to a single tax year out of the five tax years preceding the specified year, then irrespective of the provisions of section 301(a), the block period in respect of such other person shall comprise of only that single tax year.]

(3) In case of such other person as referred to in sub-section (1), for the purposes or abatement under section 292(2) and (3), the reference to the date of initiation of the search under section 247 or making of requisition under section 248 shall be

62. Clauses (c) and (d) inserted by the Finance Act, 2026, w.e.f. 1-4-2026. construed as reference to the date on which such money, bullion, jewellery, virtual digital asset or other valuable article or thing or any books of account or other documents seized or requisitioned or any other material or information relating to the aforesaid undisclosed income were received by the Assessing Officer having jurisdiction over such other person. Time-limit for completion of block assessment.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 295	INCOME-TAX ACT, 1961 -- s. 158BD
Other-person undisclosed income discovery	1961 s. 158BD
AO satisfaction recording requirement	1961 s. 158BD
Material transfer to other-AO	1961 s. 158BD
Block assessment of other-person per s. 294	1961 s. 158BD

PROCEDURAL FRAMEWORK: (I) PRIMARY SEARCH: search of Person A under s. 247 yields seized material. (II) AO's SATISFACTION (sub-s. 1): AO of Person A records SATISFACTION that seized material includes undisclosed income / assets of OTHER PERSON (Person B). (III) MATERIAL TRANSFER: relevant seized material / books / documents transferred to AO having jurisdiction over Person B. (IV) NOTICE TO PERSON B: receiving AO issues notice under s. 294 / equivalent calling for block-period return. (V) BLOCK ASSESSMENT: full block-assessment procedure for Person B. (VI) Tax @ 60% per s. 192. PROCEDURAL SAFEGUARDS: (a) AO of Person A must RECORD SATISFACTION (Manish Maheshwari SC ratio); (b) Transfer must be specific (which material relates to Person B); (c) Person B gets full opportunity; (d) Time-limit per s. 296 -- 1 year from FY-end of notice issuance. CASE LAW: (i) Manish Maheshwari v. CIT (SC, 2007, 289 ITR 341) -- AO satisfaction must be RECORDED in WRITING; absence renders subsequent block assessment void. (ii) PCIT v. Anil Kumar Bhatia (Del HC) -- specific material identification required. PRACTITIONER: third-party assessees often face s. 295 spillover assessments; demand reasoned satisfaction recording; challenge if vague.

CROSS-REFERENCES

Section 192 -- 60% block-period tax.
Section 247 -- Search.
Section 292 -- Block assessment charge.
Section 293 -- Block computation.
Section 294 -- Block procedure (imported).
Section 296 -- Time-limit.

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