Undisclosed income of any other person.

295.

Where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person, other than the person with respect to whom search was initiated or requisition was made, then––

• (a) any money, bullion, jewellery, virtual digital asset or other valuable article or thing, or assets, or books of account, other documents, or any information contained therein, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person; and
• (b) such other person referred to in clause (a) shall be assessed under section 294 and the provisions of this Chapter shall apply accordingly

Explanation

Section Summary:

This section deals with situations where undisclosed income is found to belong to or relate to a person other than the one who was originally searched or whose assets were requisitioned. It ensures that the undisclosed income, assets, or related documents are transferred to the Assessing Officer (AO) who has jurisdiction over the correct person, and that the correct person is assessed for tax purposes under the relevant provisions.

Key Changes:

• Expanded Scope of Undisclosed Income: The section now explicitly includes virtual digital assets (e.g., cryptocurrencies) as part of the undisclosed income or assets that can be seized or requisitioned. This is a new addition reflecting the growing relevance of digital assets in financial transactions.
• Clarification on Jurisdiction: The section clarifies that if undisclosed income pertains to someone other than the person searched, the AO handling the case must transfer the relevant materials to the AO with jurisdiction over the correct person.

Practical Implications:

• For Taxpayers: If undisclosed income or assets are found to belong to someone else during a search or requisition, that person will now be directly assessed for tax purposes. This could lead to additional scrutiny or reassessment for individuals or businesses linked to the undisclosed income.
• For Businesses: Businesses must ensure proper documentation and transparency in financial transactions to avoid being implicated in cases of undisclosed income belonging to others.
• For Assessing Officers: AOs must carefully determine the correct jurisdiction and transfer seized materials to the appropriate AO for further assessment.

Critical Concepts:

• Undisclosed Income: Income that has not been reported or disclosed in tax filings, often discovered during searches or investigations.
• Virtual Digital Assets: This term includes cryptocurrencies, NFTs, and other digital assets that hold monetary value.
• Jurisdiction: The authority of an AO to assess and tax individuals or entities based on their geographical or administrative area.

Compliance Steps:

1. Maintain Accurate Records: Ensure all financial transactions, including those involving virtual digital assets, are properly documented and reported.
2. Verify Ownership: If assets or income are discovered during a search, verify their ownership and ensure they are correctly attributed to the rightful person.
3. Cooperate with Authorities: Provide necessary information and documentation to the AO to avoid delays or complications in the assessment process.

Examples:

• Scenario 1: During a search at Company A, the AO discovers undisclosed income in the form of cash and cryptocurrency. Further investigation reveals that the income actually belongs to an individual, Mr. B, who is not associated with Company A. The AO transfers the case to the AO with jurisdiction over Mr. B, who is then assessed for the undisclosed income.
• Scenario 2: A search at a residential property uncovers jewelry and bullion. The owner claims the assets belong to a relative. The AO transfers the case to the AO with jurisdiction over the relative, who is then assessed for the undisclosed assets.

This section ensures that undisclosed income is correctly attributed and assessed, preventing evasion and ensuring fair taxation.