AI Structured Summary
Not yet generated for this judgment
Judgment
PER MANISH AGARWAL, A.M.:
The captioned appeals are filed by assessee against the separate orders, both dated 25.06.2025 passed by Ld. Commissioner of Income Tax (A)-24, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-24/10329/2019-20 & in Appeal No. CIT(A), Delhi-24/10333/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of different assessment orders, both dated 31.12.2019 passed u/s 153C r.w.s. 143(3) of the Act pertaining to Assessment Years 2015-16 & 2016-17 respectively.
Before us, both the parties have stated that the facts involved in both captioned appeals are common, therefore, they are taken together and decided by a common order.
First we take up the assessee’s appeal for Assessment Year 2015-16 in ITA No.5069/Del/2025.
ITA No.5069/De/2025 [Assessment Year 2015-16]
Brief facts of the case are that the assessee is a Private Limited company, filed its return of income for the year under appeal on 30.09.2015, declaring total income at NIL. A search and seizure operation u/s 132 of the Act was carried out in the case of Kuber Group of cases on 09.10.2014 and assessee company was also covered being a related party. The proceedings were initiated u/s 153C of the Act and order u/s 153C r.w.s. 143(3) of the Act was completed on 31.12.2017 at a total income of NIL income. Thereafter, as a result of search carried out in the case of Ashish Begwani Group of cases on 22.10.2016, various loose papers and documents were found and seized during the course of search. As per the AO, certain other documents pertained to the assessee and therefore, the AO of the person searched, has recorded his satisfaction on 20.09.2018 and seized material was handed over to the AO of the assessee who in turn recorded his satisfaction on 20.09.2018 and initiated the proceedings u/s 153C of the Act for impugned AY. Thereafter, based on the material found/seized, the AO alleged that assessee has received accommodation entries in the shape of loans of INR 9,67,80,000/- from Two entities namely, Yamini Agencies & Lazara Commodities. The AO thus, based on the statements of Shri Ashish Begwani and others recorded during eh search in their cases, wherein they have accepted that these entities were managed and controlled for providing unsecured loans to various beneficiaries, held that the assessee is one of the beneficiaries and received accommodation entries and accordingly, the addition of INR 9,67,80,000/- was made u/s 68 r.w.s. 115BBE of the Act.
Aggrieved by the said order, the assessee preferred an appeal before the ld. CIT(A) who vide impugned order dated 25.06.2025, partly allowed the appeal of the assessee.
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking following Grounds of appeal mentioned in the appeal memo:-
1.“Ground No. 1: On the facts and circumstances of the case, the order passed by Ld. CIT(A) is bad both in eyes of law and on facts.
2.Ground No. 2: That the Ld. CIT(A) has erred in law as well as on facts by making additions of Rs. 9,60,00,000/- u/s 68 of the Act on account of unexplained credits, while accepting the full repayments made during the year as genuine.
3.Ground No. 3: That the Ld. CIT(A) has erred in law as well as on facts in upholding the addition on the ground that the Appellant failed to substantiate the source of source of funds received, whereas the onus to prove the source of the source has been envisaged w.e.f. 01.04.2023.
4.Ground No. 4: That the Ld. CIT(A) has erred in law as well as on facts by sustaining the penalty proceedings u/s 271(1)(c) of the Act.
5.Ground No. 5: That the Ld. CIT(A) has erred in law as well as on facts by not duly considering the applicability of section 234B of the Act.
6.Ground No. 6: That the appellant reserves the right to add, modify, alter, amend or delete any of the grounds.”
During the course of hearing, vide letter dated 15.04.2026, assessee has taken following additional Ground of appeal which reads as under:-
“That on the facts and in the circumstances of the case, the impugned proceedings under section 153C of the Act are void ab initio, as no separate satisfaction notes have been recorded for each of the assessment years 2011-12 to 2016-17, thereby vitiating the entire proceedings and rendering the same liable to be quashed.”
The assessee claimed that the additional Ground of appeal taken is neither willful and nor deliberately and purely legal issue raised which does not require any new / fresh investigation. Ld. AR submits that in the said Ground of appeal, the assessee has challenged the validity of initiation of proceedings u/s 153C of the Act on the basis of defective satisfaction note and copy of the satisfaction note recorded by the AO of the assessee is also appended. Therefore, it is submitted that no fresh investigation is required in the matter. He placed reliance on the judgment of Hon’ble Supreme Court in the case of NTPC vs CIT reported in 229 ITR 383 (SC) and also in the case of Jute Corporation of India vs CIT reported in 187 ITR 688 (SC) and requested that the additional ground of appeal be admitted as per Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963.
On the other hand, ld. CIT DR for the Revenue vehemently opposed the admission of the additional Ground of appeal taken at this stage and submits that the additional Ground of appeal taken now should not be admitted.
Heard the contentions of both the parties at length and perused the material available on record. From the perusal of the additional Ground of appeal, it is observed that in this Ground of appeal, assessee has challenged the validity of the proceedings initiated u/s 153C as no proper satisfaction was recorded for each individual year and further satisfaction was defective and not in accordance of law.
Since this issue is purely legal in nature and assessee has filed copy of satisfaction note recorded by the AO of the assessee before initiating the proceedings u/s 153C of the Act, and thus requires no further verification from the AO. Therefore, by respectfully following the judgments of Hon’ble Supreme Court in the case NTPC (supra) and in the case of Jute Corporation of India (supra), we hereby admit the additional Ground of appeal taken by the assessee.
Since additional Ground of appeal goes to the root of the matter therefore, the same is taken first for consideration.
During the course of hearing, the ld.AR for the assessee drew our attention to the satisfaction note recorded by the AO of the assessee after receiving the seized material on dated 20.09.2018. According to ld.AR, in the said satisfaction note, neither year-wise break-up of income is done nor any entry is specifically pointed out and merely some documents seized during the course of search such as confirmations unsecured loans, Audit Report, details of certain lenders are referred which are neither incriminating material nor indicate any transactions which could be held as incriminating material. As per ld. AR, without making year-wise break-up of the transactions which resulted into any undisclosed income, has initiated the proceedings u/s 153C of the Act for AYs 2011-12 to 2016-17.
Ld. AR submits that the satisfaction note has not stated that the documents found and seized from the possession of the persons namely Shri Ashish Bhegwani and others relates to the assessee as provided in section 153C(1)(b) of the Act. Ld. AR submits that without recording the satisfaction that documents ‘relates to” the assessee, proceedings u/s 153C of the Act cannot be initiated in its case. He therefore, submits that the proceedings so initiated, deserves to be held bad in law. He placed reliance on the judgement of Jurisdictional High Court in the case of Shaksham Commodities reported in [2024] 161 taxman.com 485 and judgement of Co-ordinate Bench of the Delhi Tribunal in the case of Seema Agarwal vs DCIT in ITA No.5979 to 5981/Del/2025 vide order dated 26.02.2026, SRS Panchratan Diamonds Pvt. Ltd. vs DCIT in ITA No.218 & 219/Del/2023 and MPS Structure Pvt. Ltd. in ITA No.3648/Del/2025 and prayed accordingly.
On the other hand, ld. CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that at the time of initiation of the proceedings u/s 153C of the Act, only requirement is to record the satisfaction that some incriminating material was found ‘related to’ the assessee. Ld. DR submits that merely because common satisfaction is recorded for various AYs, the same should not be made the basis for holding the entire proceedings as invalid proceedings. He therefore, requested that the order of the lower authorities be uphold.
Heard the contentions of both the parties at length and perused the material available on record. Before going further, the satisfaction note recorded by the AO of the assessee, as attached with the additional ground of appeal is reproduced herein below:
From the perusal of the above, it is observed that the AO has referred few pages of certain annexure found during the course of search at various places in the case of the persons searched. Further, the description is also mentioned which had not suggested that these documents contained any incriminating transactions carried out by the assessee. It is observed in the above satisfaction note that the AO has not bifurcated the documents /entries contained therein on year-to-year basis so as to allege that the particular entry of the documents relates to a particular year nor has identified any amount as undisclosed income in the satisfaction note. Merely certain Annexures have been referred and common satisfaction for Assessment Years from AYs 2011-12 to AY 2016-17 were recorded. It appears that the AO of the assessee has recorded the satisfaction without applying his mind on the material supplied by the AO of the persons searched before reaching to the satisfaction that the same contained some incriminating transactions carried out by the assessee for which initiation of proceedings u/s 153C are necessary.
The Co-ordinate Delhi Bench of Tribunal in the case of Super Bazar Stores Pvt. Ltd. in ITA No.9757/Del/2020, following the judgement of Hon’ble Jurisdictional High Court in the case of Saksham Commodities (supra) on the issue of common satisfaction for various years and without applying his mind, held the initiation of proceedings u/s 153C as invalid. The relevant observations are reproduced as under:-
10.Section 153C of the Act pertains to the assessment of income in the hands of person other than searched person, in cases where certain documents, assets or books of accounts etc. found to be pertained to or related to such third person (other than the person on whom search was conducted under s. 132 of the Act or requisitioned under s. 132A of the Act). This section allows the AO of other person to initiate proceedings against such other person/third person (not the searched person) if there are indications of undisclosed income. A key component of initiating search proceedings under s. 153C of the Act is the ‘satisfaction note’ to be recorded by the AO of the searched person as well as AO of the third person. The ‘satisfaction note’ is the first step and a foundational document to determine the validity of the assessment process against a third person whose documents or assets etc. are found in a search. ‘Satisfaction note’ is critical because it serves as a valuable safeguard against arbitrary proceedings and ensures that the powers under s. 153C of the Act are exercised judiciously. It is a formal statutory requirement without which the proceedings against ‘other person’ could be considered invalid. The ‘satisfaction note’ being so critical and powers under s. 153C of the Act being contingent upon such Note, the information contained therein need to be actionable. This being so, the ‘satisfaction note’ is expected to identify the relevant material found in search and that it pertains to or relates to such third person. Such material found should reliably indicate or suggest the bearing of such documents/assets etc. to the income in the hands of third person. The ‘satisfaction note’ should specify such material to provide accountability of the AO and to justify the initiation of proceedings against other person. In summary, such Note should set the narrative in an objective manner, as far as possible, to enable judicial scrutiny of such document, if so called for.
11.The assessee contends that 'satisfaction note' which is the first step for assumption of jurisdiction under s. 153C of the Act and provides foundation for conferment of jurisdiction is plagued with multiple legal infirmities. Viz:
[i] the 'satisfaction note' has been recorded by the AO of assessee collectively for the period AYs 2010-11 to AY 2015-16 without identifying the incriminating material in respect of any particular Assessment Year. Besides, the assessee company itself has come into existence by Certificate of incorporation dated 03.01.2013 and therefore, the company was not in existence in AY 2010-11 to AY 2012-13 covered in the 'satisfaction note,
[ii] the AO has thrown upon whole basket of six months without giving reference to any concrete incriminating material of a particular Assessment Year and without taking note of commencement of activities of assessee;
[iii] the act of the AO making sweeping averment in the 'satisfaction note that documents in the form of hard disks have bearing on determination of total income of Super Bazar Stores Pvt. Ltd. for AYs 2010-11 to 2015-16, is without legal foundation and without application of mind, as the AO has even failed to name the alleged documents and further failed to mention as to how it is related/pertained to a given AY covered in the 'satisfaction note';
[iv] the AO on receipt of material/documents from the AO of the searched person must necessarily apply his mind on the material received and ascertain precisely the specific year to which incriminating material relates. It is only when this determination/ascertainment is complete that the flood gates of an assessment would open qua those particular years. The issuance of notice cannot be an automated function unconnected to this exercise of analysis and ascertainment by the AO in the light of judgement rendered in the case of Agni Vishnu Feature Pvt. Ltd. vs DCIT (2023) 157 taxmann.com 242 (Madras). In the instant case, non-application of mind on material supplied to AO is obvious as the company itself was not in existence for sizable period covered in proceedings under s. 153C of the Act;
[v] the 'satisfaction note' is clearly very generic and devoid of any basic detail of the transaction in question.
12.We find ostensible potency in the plea of assessee towards allegation of legal infirmities in the 'satisfaction note'. The Hon'ble Delhi High Court in the case of Sakham Commodities Ltd. Vs ITO 161 taxmann.com 485 (Delhi) deftly expounded the imperatives of a 'satisfaction note', and observed that unearthing of incriminating material in respect of particular AY will not automatically confer jurisdiction to invoke section 153C of the Act in respect of all the AYs mentioned therein. The Hon'ble Delhi High Court further observed that discovery of material for a particular AY is not intended to trigger a chain reaction or have a water fall effect on all the AYs which can form part of the 'relevant AYs' under section 1530 Of the Act. The Hon'ble Delhi High Court underscored well settled distinction which the law recognizes between the existence of power and the exercise thereof and thus, held that unless the AO is satisfied that the material gathered can potentially impact the determination of total income, it will be abrupt exercise of powers in mechanically re-opening or assessing all over again of the AYs covered in the block that could possibly form part of block of relevant AYs. For holding so, the Hon'ble Delhi High Court relied upon the judgement delivered by the Hon'ble Supreme Court in the case of Sinhgad Technical Education Society wherein the Hon'ble Supreme Court held that the assessment under section 153C could be made only for the year to which material relates to and exercise of power under section 153C of the Act in respect of other AYs would not sustain. The Hon'ble Delhi High Court also noted that the AO is bound to ascertain and identify the AY to which the material recovered relates and relevant AYs which can then be subject to action under section 153C of the Act will have to be necessarily those in respect of which the assessment is likely to be influenced or impacted by the material discovered. The Hon'ble Delhi High Court went one step further to hold that where material discovered in the course of search has the potential of constituting incriminating material for more than one AYs, even in such a situation, it will be incumbent upon the AO to duly record reasons that material is likely to be incriminating for more than one AY and thus, warranting the action under section 153C of the Act for years in addition to those to which material may be directly relatable. Thus, a nuanced application of mind and recording of reasons for drawing satisfaction as contemplated under section 153C of the Act qua different AYs is paramount. The Hon'ble Delhi High Court noticeably held that issuance of a notice under section 153C of the Act is clearly not intended to be an inevitable consequence to the receipt of material by the Jurisdictional AO and that the initiation of action under section 153C of the Act will have to be founded on a formation of opinion by the Jurisdictional AO that the material handed over and received pursuant to a search is likely to influence the determination of total income and would be relevant for the purposes of assessment/re-assessment in terms of section 153C of the Act.
13.The observation of the Hon'ble Delhi High Court noted above, clearly provides vehement support to the plea taken by the assessee on aspects of jurisdiction flowing from 'satisfaction note'. The 'satisfaction note' under scrutiny defies most of the parameters expected of him while drawing satisfaction. While exercising the power under section 153C of the Act, neither has the AO related the material found in the course of search with a particular AY while making a consolidated 'satisfaction note' for several years nor provided any requisite details of transaction to enable an independent person to ascertain and form any independent opinion on facts stated in Note that invocation of section 153C of the Act is indeed warranted in the facts of the case. The AO has not even bothered to relate the so-called documents etc. with the AYs covered. The assessee company was non-existent in AY 2010-11; AY 2011-12; AY 2012-13, which were also covered under s. 153C in a non-chalant manner. Mere drawing of a perfunctory satisfaction without meeting basic ingredients of providing some tangible & descript information and application of mind thereon has no standing in law and would not confer drastic jurisdiction of assessment u/s 153C of the Act on a person other than searched person. The jurisdiction assumed based on such lackadaisical 'satisfaction note' beset with vital infirmities cannot be countenanced in law. The objections raised on behalf of the assessee towards lack of jurisdiction based on a cryptic and non-descript satisfaction thus deserves to be sustained. While recording a consolidated 'satisfaction note' is not a bar in law per se as rightly contended on behalf of the revenue, but however, in the same vain, the documents/assets searched need to be specified against each year covered in the satisfaction note to depict application of mind and initiation of action under section 153C of the Act qua such assessment years. The AO has apparently failed to do so in the present case. As a corollary, the notice issued under section 153C of the Act and consequent assessment order passed under section 153C of the Act is vitiated in law and requires to be quashed.
14.In this view of the matter, the jurisdiction assumed under s. 153C based on vague and non-descript 'satisfaction note' is vitiated at the threshold. The consequence assessment order passed under s 153C thus has no force of law. The first appellate order passed on non-est assessment order is thus set aside and the AO is directed to restore the position claimed by the assessee and delete the additions made.”
Further in the case of Seema Agarwal (supra) and in the case of SRS Panchratan Diamonds Pvt. Ltd. (supra), the Co-ordinate Bench of Delhi Tribunal has taken the same view.
It is also a matter of fact that the AO has not recorded the satisfaction in accordance with the provisions of section 153C(1)(b) of the Act wherein it is provided that the AO has to satisfy that books of accounts or other documents found from the possession of person search “relates to the assessee”. As could be observed from the satisfaction note, no such satisfaction was recorded by the AO of the assessee before initiating the proceedings u/s 153C of the Act in the case of assessee. This has also made the satisfaction note as defective.
In view of the above discussion, in our considered opinion, the jurisdiction assumed u/s 153C of the Act on the basis of such vague and non-descript satisfaction note is vitiated the entire proceedings initiated u/s 153C of the Act and the consequent assessment order passed u/s 153C is bad in law and thus, is quashed. Accordingly, additional Ground of appeal raised by the assessee is allowed.
Since we have allowed the additional legal ground of appeal taken by the assessee and quashed the order passed u/s 153C of the Act therefore, the other Grounds of appeal taken by the assessee on merits, are not adjudicated and become academic.
In the result, appeal of the assessee is allowed.
Now we take up the assessee’s appeal for Assessment Year 2016-17 in ITA No.5070/Del/2025.
ITA No.5070/Del/2025 [Assessment Year 2016-17]
In this year also, the assessee has raised additional Ground of appeal, challenging the validity of the assessment order passed u/s 153C based on cryptic and invalid satisfaction note. The facts are identical with the facts as existed in the case of the assessee for AY 2015-16 and the proceedings for the year under appeal are initiated on the basis of the same satisfaction note. Therefore, by respectfully following the observations made in AY 2015-16 in above-mentioned appeal which are Mutatis Mutandis applicable to the facts of this case also. In view of the above, we allow the additional Ground of appeal taken by the assessee and hold that the assessment order passed u/s 153C of the Act on such defective, cryptic and invalid satisfaction note is not sustainable in the eyes of law. Accordingly, the same is hereby, quashed.
In the result, appeal of the assessee is allowed.
In the final result, both captioned appeals of the assessee in ITA Nos. 5069 & 5070/Del/2025 for Assessment Years 2015-16 & 2016-17 respectively, are allowed.