Chandra Shekhar Jha vs Dheeraj, DCIT

“It is humbly submitted that during the course of hearing, the assessee pressed the technical ground that satisfaction recorded u/s 153C is defective because of being consolidated satisfaction note. In this regard, my humble submission for kind consideration are as under:

Section 153C starts with non-obstante clause relating to normal assessment procedure. Bare reading of Section 153C makes it clear that it has 02 limbs:

AO has to make a satisfaction to the effect that the seized material either pertains to or contain information of the other person (not covered under the search)- the assessee in the instant case.

The seized material has a bearing with the escaped income. In other words, there should be a direct relationship between the escaped income and the tell-tale seized material/documents.

For better appreciation, the relevant portion of the provision of Section 153C is reproduced as under:

153C. Assessment of income of any other person.

(1)

Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that, (a)any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or(b)any books of account or documents. seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 1534, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A

3.

The issue of consolidated satisfaction note, was examined by the Hon'ble jurisdictional Delhi High Court in case of Indian National Congress v DCIT W.P.(C) 4264/2024 & CM Nos. 17433/2024 & 17435/2024 Dt 22.03.2024). In this case, the Hon'ble Delhi Court had considered the similar plea of the assessee that assessment is invalid due to the lack of separate satisfaction notes for each assessment year. The Delhi High Court has dismissed the petition, stating that this argument is not supported by the provisions in the statute and that the material gathered during the search could have enabled the Assessing Officer (AO) to initiate assessments for multiple years. The court's decision emphasizes the importance of procedural compliance and the flexibility in interpreting the timing of satisfaction notes. Relevant portion of the judgement is reproduced as under:

24.

The provision only requires the AO to be satisfied that the material collated and handed over is likely to have an impact on the total income for the relevant AY or AYs'. While an assessment would necessarily have to be made in respect of each of the relevant AY or AYs', we find ourselves unable to read Section 153A or 153C as mandating separate Satisfaction Notes being drawn for each assessment year. Our conclusion in this respect stands fortified from the language of Section 1534(1)(a) which contemplates a notice being issued calling upon the person to furnish a return of income for each of the six AYs' 10 (2024) 2 SCC 433 or the relevant AY or AYs'. This too appears to suggest that while the notice could be composite and based on a common satisfaction note which encapsulates the incriminating material pertaining to the AYs' in question, it is only returns which must and mandatorily be filed separately. 25. Regard must be had to the indubitable fact that the Satisfaction Note merely forms the foundation for initiation of action and which would enable us to evaluate whether an opinion has been validly formed. As long as it rests on incriminating material which pertains to the AYs' in question, the same would qualify the requirement of Section 153C. We deem it apposite to observe that while it would be imperative for the Satisfaction Note to refer to the material pertaining to the AYs' which are sought to be reopened, a consolidated Satisfaction Note clearly does not appear to be an anathema provided it rests on material which pertains to the AYs' which are sought to be reopened.

6.

In view of the legal interpretation above, it is relevant to examine the satisfaction note recorded by the AO in the case of Sh. CS Jha. The satisfaction note runs in 06 pages. In the satisfaction note, the AO has duly recorded his satisfaction after mentioning that "during the course of the search and seizure action various incriminating evidences regarding giving unsecured cash loans and unaccounted/undisclosed cash amounting to Rs.2,40,00,000/- has been found and seized from the premises of Sh. CS Jha. No satisfactory explanation could be provided by Sh CS Jha with regard to the undisclosed cash found from his premises." AO also noted that Sh. CS Jha himself had admitted in his statement that the cash was found from his residence and that no ledger or any account with regard to the seized cash was maintained by him. The relevant portion (Question No. 14, 15 and 16) of the statement was also quoted in the satisfaction note (para3). Then the AO also mentioned that the entire cash of Rs.2,40,00,000/- pertains to a single AY i.e. AY 2020-21. Further, reference to other seized material from Annexure A1 to A6 and loose papers at Annexure A-3 (Page 14 to 22 and 22 & 24) was also given and the same was confronted to the assessee during the search action. The satisfaction note contains details of date wise loan transactions (para 4.1 and 5.1 and 5.2). (Copy of the satisfaction note is enclosed as Annexure-1).

7.

The legislative intent has underscored the importance of the AO's satisfaction that the material seized is relevant to the determination of the total income. The Hon'ble Delhi High Court in case of Shiv Parkash Bansal vs Deputy Commissioner of Income Tax (2025) also opined the same:

"... 15. The trigger for Section 153C is thus the discovery of documents or articles in the course of a search which pertain or belong to a third party, and which may have a bearing on the determination of the total income of such other person for the six AY period or the relevant assessment years.... 25. We are thus of the firm opinion that an action under Section 153C is premised solely on the discovery of incriminating material and which is likely to have an "impact or bearing" on the assessed income of a non-searched entity. The statute neither requires nor obliges the AO of the other person to find or uncover a relationship or an association between the searched and the non-searched person. The provision is merely concerned with the evaluation of the material unearthed in the course of a search and an assessment of whether it is likely to have a bearing on the income of a non-searched entity. If the submission of Mr. Sinha were to be accepted, we would be compelled to read Section 153C as being liable to be invoked only if there be some relationship between persons who were subjected to the actual search and those to whom the material may relate. Interpreting Section 153C as suggested would lead one to a situation where even though the material unearthed may be incriminating, absent a relationship between persons, the AO would be left powerless to even consider the likely impact of that material. That clearly does not appear to be the object or the purpose of that provision. We are thus of the considered opinion that the challenge is clearly misconceived."

8.

In view of the above, the case of the AO rests on incriminating material which pertains to the AYs' in question, the same would qualify the requirement of Section 153C. While it would be imperative for the Satisfaction Note to refer to the material pertaining to the AYs' which are sought to be reopened, a consolidated Satisfaction Note clearly does not appear to be an anathema provided it rests on material which pertains to the AYs' which are sought to be reopened. As mentioned in para 6 above, the requirements of the statute are duly met in the satisfaction note of the AO.

9.

In view of the above, it is humbly prayed that the assessee's plea may kindly be rejected being devoid of merit.

(Jitender Singh) CIT DR, A Bench ITAT, Delhi

“6.

From the above, it could be seen that the Learned AO of the assessee herein had recorded Consolidated satisfaction note for assessment years 2011-12 to 2017- in one go instead of recording independent and individual satisfaction note for each assessment year which is the requirement of the law. The moot question that arises for our consideration is as to whether recording of consolidated satisfaction note for various assessment years and assuming jurisdiction under section 153C of the Act would be fatal to the very assumption of jurisdiction under section 153C of the Act or not ? This issue is no longer res integra in view of the decision of the Hon’ble Karnataka High Court in the case of DCIT vs Sunil Kumar Sharma reported in 159 taxmann.com 179 (Kar). The relevant operative portion of the said order is reproduced below:-

“53.

Further, satisfaction note is required to be recorded under section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant/Revenue.”

7.

It is pertinent to note that the Special Leave Petition (SLP) preferred by the revenue against this order had been dismissed by the Hon’ble Supreme Court which is reported in 165 taxmann.com 846 (SC) by observing as under:-

“ORDER

1.

Delay condoned.

2.

Heard the learned Senior Counsel appearing for the appellants.

3.

We are not inclined to interfere with the impugned judgment and order passed by the High Court of Karnataka at Bengaluru in Writ Appeal No. 831/2022 (T-IT) dated 22-01-2024/ Deputy Commissioner of Income-tax v. Sunil Kumar Sharma [2024] 159 taxmann.com 179 (Karnataka) .

4.

The Special Leave Petition is dismissed.

5.

Pending application(s), if any, shall stand disposed of.

24.

The provision only requires the AO to be satisfied that the material collated and handed over is likely to have an impact on the total income for the relevant AY or AYs'. While an assessment would necessarily have to be made in respect of each of the relevant AY or AYs', we find ourselves unable to read Section 153A or 153C as mandating separate Satisfaction Notes being drawn for each assessment year. Our conclusion in this respect stands fortified from the language of Section 153A(1)(a) which contemplates a notice being issued calling upon the person to furnish a return of income for each of the six AYs' or the relevant AY or AYs'. This too appears to suggest that while the notice could be composite and based on a common satisfaction note which encapsulates the incriminating material pertaining to the AYs' in question, it is only returns which must and mandatorily be filed separately.

25.

Regard must be had to the indubitable fact that the Satisfaction Note merely forms the foundation for initiation of action and which would enable us to evaluate whether an opinion has been validly formed. As long as it rests on incriminating material which pertains to the AYs' in question, the same would qualify the requirement of Section 153C. We deem it apposite to observe that while it would be imperative for the Satisfaction Note to refer to the material pertaining to the AYs' which are sought to be reopened, a consolidated Satisfaction Note clearly does not appear to be an anathema provided it rests on material which pertains to the AYs' which are sought to be reopened.

26.

We in this respect also bear in mind the lucid explanation of the procedure liable to be adopted under Sections 153A and 153C as came to be enunciated by the Court in CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi)/2015 SCC OnLine Del 11555.

"37.

On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

(i)

Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place.

(ii)

Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise.

(iii)

The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years "in which both the disclosed and the undisclosed income would be brought to tax".

(iv)

Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material."

(v)

In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to the completed assessment proceedings.

(vi)

In so far as the pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer.

(vii)

Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

“50.

What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs' immediately preceding the AY pertaining to the search year or for the "relevant assessment year".

51.

Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment which may be undergoing or which may have been completed. The words "have a bearing on the determination of the total income of such other person" as appearing in Section 153C would necessarily have to be conferred pre-eminence. Therefore, and unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all over again all the ten AYs' that could possibly form part of the block of ten years.

53.

Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs' 2000-01 to 2003-04 would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.

55.

Take for instance a case where the material gathered in the search is contemplated to have an adverse impact on the declarations and disclosures made by an assessee pertaining only to AYs' 2016-17 and 2017-18. What we seek to emphasise is that pending assessments for those two years could validly form subject matter of action under Section 153C and pending assessments in that respect would surely abate. However, that by itself would not be sufficient to either reopen or issue notices in respect of AYs' prior to or those falling after those two AYs' and which may otherwise fall within the maximum block period of ten years merely because the statute empowers the AO to do so. Unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical or an enblanc exercise of power, or to put it differently, one which is uninformed by a consideration of the factors indicated above.

56.

We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to "necessarily" be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY.

57.

It becomes pertinent to note that both Sections 153A and 153C require the assessee upon being placed on notice to furnish ROIs' for the six AYs' or the "relevant assessment year". All that the two provisions mandate is that notwithstanding the submission of those ROIs', the AO would frame one assessment order in respect of each of the years which were made subject matter of the notice and which would deal with both disclosed and undisclosed income. This too reinforces our view that Section 153C would apply only to such AYs' where the jurisdictional AO is satisfied and has incriminating material for those AYs' and which may be concerned with disclosed and undisclosed income.

60.

Before concluding, we also deem it imperative to briefly notice certain aspects which emerge from a reading of the Satisfaction Notes themselves. As is manifest from a reading of the Satisfaction Note drawn by the jurisdictional AO of the assessee in W.P. (C) 1459/2024, after noticing the material which was recovered during the search and related to FYs' 2009-10, 2010-11 and 2011-12 [corresponding AYs' thus being AYs' 2010-11, 2011-12 and 2012-13], it has proceeded to observe that the assessments which were liable to abate or be reopened would be AYs' 2010-11 to 2020-21. A similar note appears in W.P. (C)1117/2024. Here again, after referring to the material pertaining to FY 2009-10 [and thus relating to AY 2010-11], the AO proceeded to seek approval for initiating action under Section 153C in respect of AYs' 2010-11 up to 2020-21.

61.

A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs' appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the "relevant assessment year" as defined in Section 153A. In our considered opinion, the aforesaid understanding of Section 153C is clearly erroneous and unsustainable. As explained hereinabove, the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY is not intended to set off a chain reaction or have a waterfall effect on all AYs' which could form part of the "relevant assessment year". This, more so since none of the Satisfaction Notes record any reasons of how that material is likely to materially influence the computation of income for those AYs'.

62.

Hypothetically speaking, it may be possible for the material recovered in the course of a search having the potential or the probability of constituting incriminating material for more than one assessment year. However, even if such a situation were assumed to arise, it would be incumbent upon the AO to duly record reasons in support of such a conclusion. The Satisfaction Notes would thus have to evidence a formation of opinion that the material is likely to be incriminating for more than a singular assessment year and thus warranting the drawl of Section 153C proceedings for years in addition to those to which the material may be directly relatable.

G. CONCLUSIONS

63.

On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to "have a bearing on the determination of the total income" and would have to be examined bearing in mind the AYs' which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the "relevant assessment year".

64.

In our considered view, abatement of the six AYs' or the "relevant assessment year" under Section 153C would follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs' that may form part of the block of ten AYs'. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to "have a bearing on the determination of the total income". It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case may be.

65.

We would thus recognize the flow of events contemplated under Section 153C being firstly the receipt of books, accounts, documents or assets by the jurisdictional AO, an evaluation and examination of their contents and an assessment of the potential impact that they may have on the total income for the six AYs' immediately preceding the AY pertaining to the year of search and the "relevant assessment year". It is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to "have a bearing on the determination of the total income" that a notice under Section 153C would be issued. Abatement would thus be a necessary corollary of that notice. However, both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity.

66.

Therefore, and in our opinion, abatement of the six AYs' or the "relevant assessment year" would follow the formation of that opinion and satisfaction in that respect being reached.

H. OPERATIVE DIRECTIONS

69.

When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section 153C in respect of AYs' for which no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to "have a bearing on the determination of the total income" for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs' years immediately preceding the assessment correlatable to the search year or the "relevant assessment year" as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.”