M/s. DS Spiceco P. Ltd. vs DCIT, Central Circle 6, Delhi

PER S. RIFAUR RAHMAN, AM :

This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)-24, New Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 29.05.2025 for the Assessment Year 2015-16.

In this case, the assessee has, inter alia, challenged the validity of assumption of jurisdiction u/s 153C of the Income-tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are, a search u/s 132 of the Act was conducted in the case of Alankit Group on 18.10.2019. Pursuant thereto, certain material was allegedly found and seized, on the basis of which proceedings u/s 153C were initiated in the case of the assessee. The Assessing Officer recorded satisfaction and issued notice u/s 153C on 23.01.2023. The ld. CIT(A) dismissed the challenge to the assumption of jurisdiction u/s 153C and upheld the assessment order. Against the order of CIT(A), the assessee is in appeal before is raising following concise grounds of appeal :-

Considered the rival submissions and material placed on record by both the parties. We observed that the issues raised by the assessee in additional grounds go to the root of the matter challenging the jurisdictional issue. In the light of Hon’ble Supreme Court in the case of NTPC, Limited vs. CIT (1998) 229 ITR 383 (SC), we are inclined to admit the additional grounds and take up the same for adjudication herein below.

At the time of hearing, the Ld. AR did not press Ground No. 6 regarding infirmity in the approval u/s 153D of the Act and same is accordingly dismissed.

The assessee has challenged the assumption of jurisdiction u/s 153C on multiple legal grounds mainly in respect of common satisfaction note and jurisdiction requirements of the provisions of section 153C of the Act. The principal contention being that the satisfaction note recorded by the AO is common, vague, mechanical and not based on any incriminating material relatable to the assessee for the relevant assessment year.

On the other hand, ld. DR of the Revenue heavily relied on the findings of the lower authorities.

Considered the rival submissions and material available on record. We observed that he issue which arises for our consideration is whether the jurisdiction assumed u/s 153C of the Act is valid in law where the satisfaction note recorded by the Assessing Officer is common and does not identify any specific incriminating material qua the relevant assessment year. We observed that the Assessing officer has recorded following satisfaction note for issuance of notice u/s 153C :-

We further observed that it is a settled position of law that recording of satisfaction by the Assessing Officer is a condition precedent for invoking jurisdiction u/s 153C of the Act. Further, such satisfaction must be specific, based on cogent material and must clearly indicate that the seized material belongs to or pertains to the assessee and has a bearing on the determination of total income for the relevant assessment year. The satisfaction note thus forms the very foundation of jurisdiction and must reflect due application of mind. It is incumbent upon the Assessing officer to identify the material qua each year before proceeding to assume jurisdiction u/s 153C of the Act.

On perusal of the satisfaction note in the present case, we find that the Assessing Officer has recorded a common satisfaction note for multiple assessment years without making any distinction or identifying any year specific incriminating material. There is no reference to any document or evidence demonstrating undisclosed income for the year under consideration. The satisfaction note does not contain any quantification or even a prima facie analysis of alleged undisclosed income and appears to have been recorded in a mechanical manner. We are of the view that such a generalized and omnibus satisfaction clearly reflects non-application of mind and fails to meet the statutory requirement of section 153C of the Act.

The Hon’ble Supreme Court in CIT vs. Sinhgad Technical Education Society (397 ITR 344) has categorically held that existence of incriminating material qua each assessment year is sine qua non for valid assumption of jurisdiction u/s 153C of the Act. Further, Hon’ble Delhi High Court in the case of Saksham Commodities Ltd. v. ITO [2024] 464 ITR 1 (Delhi) has distinctly held that the satisfaction recorded must be specific and must clearly indicate the incriminating material relatable to each assessment year, failing which the assumption of jurisdiction would be invalid. The Hon’ble High Court emphasized that a generalized or omnibus satisfaction, without reference to specific material and without establishing nexus with the income of the relevant year, cannot sustain proceedings u/s 153C.

We further observed that the assessee has further made reference to various decisions of Coordinate Bench which are found to be relevant and applicable to the present case :-

In the present case, the material relied upon by the Assessing Officer is stated to be a third-party ledger, which is neither corroborated by independent evidence nor supported by any meaningful enquiry. There is nothing on record to establish any nexus between such material and any undisclosed income of the assessee. In absence of corroboration and in the absence of opportunity of cross-examination, such material cannot be treated as incriminating in nature. Further, the transactions in question are duly recorded in the books of account of the assessee, thereby negating any inference of undisclosed income.

It is also not in dispute that the assessment for the year under consideration was unabated and as such in absence of recording of specific satisfaction note, the assumption of jurisdiction u/s 153C is vitiated at the threshold. In view of the foregoing discussion and respectfully following the ratio laid down by the Hon’ble Supreme Court in Sinhgad Technical Education Society (supra) and the Hon’ble Delhi High Court in Saksham Commodities Ltd. v. ITO (supra), we are of the considered opinion that the satisfaction recorded by the Assessing Officer is defective, being common, vague and mechanical, and does not satisfy the mandatory requirements of section 153C of the Act. Consequently, the assumption of jurisdiction u/s 153C is invalid and unsustainable in law and accordingly, the notice issued u/s 153C and the consequent assessment order is hereby quashed. The Ground No. 1(b) and 1(c) are allowed.

As the assessment order has been quashed on the legal ground of jurisdiction, the other legal grounds as well grounds on merits of the addition are not required to be adjudicated.

In the result, the appeal of the assessee is allowed.