Mohan Kumar Garg vs DCIT, Central Circle 28, New Delhi

PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER :

These appeals are filed by the assesseeagainst the order passed by the ld. Commissioner of Income-tax (Appeals), Delhi-25[for short ‘ld. CIT (A)]dated 21.04.2026for the Assessment Years 2014-15, 2015-16, 2016-17 and 2019-20.

Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee’s appeal being ITA No.6801/Del/2026 for AY 2014-15 as lead case to adjudicate the issues under consideration.

At the outset, the ld. AR submitted that he is confining his submissions to the jurisdictional challenge raised in Grounds No.1 to 4 which read as under :-

He submitted that the very issuance of the notices dated 18.04.2022 under section 153C of the Income-tax Act, 1961 (for short ‘the Act’) suffers from a fatal jurisdictional flaw, rendering the said notices, the consequential proceedings and the assessment orders wholly illegal, bad in law, without jurisdiction and void ab initio. He submitted that two independent grounds are urged, each without prejudice to the other: first, that the notices were issued on 18.04.2022, before the Assessing Officer of the searched persons had recorded his satisfaction and handed over the seized material; and second, that the satisfaction note of the jurisdictional Assessing Officer records no finding that the material has any bearing on the determination of the total income of the Assessee. The satisfaction notes, the notices and the chronology being common, the submissions apply mutatis mutandis to each of the four appeals.

He submitted that the search of 18.10.2019 was conducted upon the Alankit Group and the assessee was never searched. On 18.04.2022, the ITO, Ward-72(1) recorded a satisfaction note and, on the very same day, issued seven notices under section 153C for AYs 2014-15 to 2020-21at a point of time when no satisfaction of the searched persons' Assessing Officer existed. The notices were thus issued before jurisdiction itself came into being and were stillborn.

He submitted that it is the case of assessee that what the statute required to happen first in fact happened two months later. On 21.06.2022, the DCIT, Central Circle-28, the Assessing Officer of the searched persons recorded his satisfaction and, by a covering letter of the same date, sent the note and the seized material to the ITO, Ward-72(1) “for further necessary action and re-opening of case” of the Assessee. Thereafter, on 15.03.2023, the Revenue recorded a second satisfaction note for AYs 2010-11 to 2013-14, which expressly rests the impugned years upon the note of 18.04.2022 and records, for the first time, a satisfaction that income above Rs.50 lakhs represented in the form of assets has escaped assessment.

He further submitted that a search and seizure action under section 132 of the Act was carried out on 18.10.2019 in the case of the Alankit Group, the warrants of authorisation having been issued in the names of Sh. Alok Kumar Agarwal, Sh. Ankit Agarwal, M/s Alankit Limited and M/s Alankit Assignments Limited (at page 11 of the convenience compilation). The assessee was neither named in any warrant nor searched and is therefore a person “other than the searched person”, against whom proceedings could be initiated, if at all, only in strict conformity with the machinery of section 153C of the Act. During the said search, a laptop of one Sh. Sunil Kumar Gupta was seized as Annexure A-32 from the premises at 3584/4, Narang Colony, Gali No. 4, Tri Nagar, Delhi, from the Tally backup data whereof the Revenue claims to have retrieved ledgers styled “Mohan Garg” and “Mohan Garg – A/c Donation”, forming the entire foundation of the impugned proceedings.

He further submitted the chronology of events, each date being borne out by a document forming part of the record, is set out below and is not in dispute:

He further brought to our notice the statutory scheme of section 153C.

He submitted that Section 153C contemplates three distinct and strictly sequential steps: first, the Assessing Officer of the searched person must be satisfied that the money, bullion, jewellery or other valuable article seized belongs to, or the books of account or documents seized pertain to, or the information contained therein relates to, a person other than the searched person; second, upon recording such satisfaction, he must hand over the seized material to the Assessing Officer having jurisdiction over such other person; and third, it is only thereafter that the Assessing Officer of the other person, upon his own satisfaction that the material has a bearing on the determination of the total income of such person, may issue notice and proceed under section 153C. The sequence flows from the presumption enacted in sections 132(4A)(i) and 292C(1)(i) of the Act, whereunder documents found in the course of search are presumed to belong to the person searched. Until the Assessing Officer of the searched person records his satisfaction displacing that presumption and hands over the material, the seized documents, in the eyes of law, belong to none but the searched person, and no occasion can arise for any other officer to proceed against a third party on their strength. The recording of that satisfaction, followed by the handing over, is thus the jurisdictional fact – the sine qua non – for the exercise of power under section 153C.

He submitted that the Hon'ble Supreme Court in CIT v. Calcutta Knitwears, Ludhiana, (2014) 362 ITR 673 (SC), construing the pari materia provisions of section 158BD, held that the recording of the satisfaction note by the Assessing Officer of the searched person is a prerequisite which must precede the transmission of the record to the Assessing Officer of the other person. The CBDT, by Circular No. 24/2015 dated 31.12.2015, has accepted the judgment, declared section 153C to be substantially similar and pari materia to section 158BD, made the law so laid down expressly applicable to section 153C, and directed that pending litigation be withdrawn where the satisfaction note does not conform to it. He submitted that the Circular binds the Revenue.

He further submitted that the notices dated 18.04.2022 precede the jurisdictional fact and are stillborn. He submitted that tested against this scheme, the illegality is self-evident. When the JAO recorded his purported satisfaction and issued seven notices under section 153C on 18.04.2022 (at pages 1-9 of the convenience compilation), the satisfaction note of the Assessing Officer of the searched persons was not in existence at all. It came to be recorded only on 21.06.2022, and it records the handing over of the seized documents to the Assessing Officer of the other person on that very date (at pages 11-15 of the convenience compilation). He further submitted that the notices thus preceded the jurisdictional fact by more than two months. A notice issued before the condition precedent for its issuance came into existence is stillborn; the subsequent recording of satisfaction cannot breathe life into it, for jurisdiction must exist at inception and can neither be conferred retrospectively nor supplied by subsequent events. The assessments framed in consequence are a nullity.

He further submitted that what places the matter beyond the pale of any controversy is the covering letter dated 21.06.2022 issued by the DCIT, Central Circle-28 to the ITO, Ward-72(1) (at page 10 of the convenience compilation). By the said letter, the Assessing Officer of the searched persons records that the “satisfaction note along with related annexure are being sent to you for further necessary action and re-opening of case of Sh. Mohan Kumar Garg (PAN-AAHPG1040R) u/s 153C for A.Y. 2010-11 to 2020-21”.

He submitted that the letter proceeds to state that “if the jurisdiction does not pertain to your charge, please forward it to the concerned A.O.”, demonstrating that even the identity of the officer competent to act had not been determined as late as June 2022. He submitted that in the premises, it is respectfully submitted that: (i) the jurisdictional fact the satisfaction of the searched persons' Assessing Officer and the handing over of the seized material – came into existence, on the Revenue's own record, only on 21.06.2022; (ii) the notices dated 18.04.2022, having been issued anterior thereto, were issued in the teeth of the statutory scheme and are void ab initio, the covering letter dated 21.06.2022 placing this beyond controversy.

With regard to absence of any material having any bearing on the determination of the total income of the assessee, in addition to and without prejudice to the above, it is submitted that the satisfaction note of the jurisdictional Assessing Officer(at pages 1-2 of the convenience compilation) records no finding that the material has any bearing on the determination of the total income of the assessee, rendering the entire proceedings illegal, void ab initio, and liable to be quashed.

He further submitted that a close reading of section 153C reveals that Parliament obligates the Assessing Officer of the searched person to record a clear finding to the effect that the seized books, documents or material “belong to” or “pertain to” a person other than the searched person, and it is upon this determination that the material is required to be handed over to the Assessing Officer of such “other person”. Thereafter, and crucially, the statute casts a substantive and independent obligation upon the Assessing Officer of the other person (i.e., the JAO of the Assessee) to apply his mind to the seized material and to record his own satisfaction that such material “has a bearing on the determination of the total income” of the assessee for the relevant assessment years. It is only upon the recording of this second, independent jurisdictional satisfaction that valid proceedings under section 153C can be initiated. In the present case, however, the satisfaction note of the JAO demonstrably fails to meet the statutory condition. The JAO has wholly failed to record any finding, much less a reasoned one, that the material has any bearing on the total income of the Assessee. The essential jurisdictional finding required by section 153C(1) is therefore conspicuously absent, rendering the entire initiation process legally unsustainable.

He submitted that the present issue stands covered by the judgment of the Hon'ble jurisdictional High Court in Saksham Commodities Ltd. v. Income Tax Officer, (2024) 161 taxmann.com 485 (Del.), whereby the Hon'ble Delhi High Court expounded upon the meaning of the expression “have a bearing on the determination of the total income” appearing in section 153C of the Act. The Hon'ble Court held that the usage of the expression “have a bearing” would necessarily lead to the conclusion that the mere discovery of books, documents or assets would not justify the initiation of proceedings. Upon receipt of that material, the jurisdictional Assessing Officer must be satisfied that the same are likely to have an impact on “the determination of the total income”. The Hon’ble Court thus concluded that the initiation of action under section 153C of the Act must be founded on a formation of opinion by the jurisdictional Assessing Officer that the material handed over and received pursuant to a search is likely to influence the “determination of the total income” and is relevant for the assessment or reassessment.

He further submitted that the Hon'ble Delhi High Court, in Saksham Commodities Ltd. (supra), in its concluding observations, has clearly held that section 153C can be invoked only for those specific assessment years to which the incriminating material relates, and not for the entire block mechanically. Since the Assessee relies on these conclusions, the relevant paragraphs (63, 64, 67 and 69) are reproduced hereunder for ready reference:

He submitted that the issue also stands directly covered by the following judgments of the Hon'ble ITAT, Delhi:

 Nile Realcon Pvt. Ltd. v. ACIT, ITA 2621/Del/2026 (ITAT Delhi)

 Sakshi Agarwal v. DCIT, ITA 4216 to 4223/Del/2025 (ITAT Delhi)

 Rajiv Agarwal v. ACIT, ITA 2948/Del/2023 (ITAT Delhi)

 Aman Agarwal v. DCIT, ITA 7207/Del/2025 (ITAT Delhi)

 Mukesh Chandra Agrawal v. DCIT, ITA 1786 to 1788/Del/2025 (ITAT Delhi)

 Yash Suneja v. ACIT, ITA 6579/Del/2025 (ITAT Delhi)

 DCIT v. NutshellVyapaar Pvt. Ltd., ITA 5471 to 5473/Del/2025 (ITAT Delhi)

He submitted that in the present case, the satisfaction notes of the JAO (at pages 1-2 of the convenience compilation) nowhere records any finding that the material allegedly found has any bearing on the determination of the total income of the Assessee for any assessment year. The absence of this statutory finding is not a curable irregularity; it goes to the root of jurisdiction. The law does not permit the Assessing Officer to invoke section 153C on the basis of a borrowed, templated or mechanical satisfaction. This omission strikes at the heart of the jurisdiction assumed by the JAO and renders the entire proceedings illegal, void ab initio and liable to be quashed. It is submitted that the JAO having failed to record any such satisfaction, the notices, the consequential proceedings and the assessment orders are wholly vitiated.

In view of the above submissions, he accordingly prayed that the Bench may be pleased to hold the notices dated 18.04.2022 under section 153C of the Act and the assessment orders dated 28.03.2023 framed in consequence thereof for AYs 2014-15, 2015-16, 2016-17 and 2019-20 to be without jurisdiction and void ab initio, to quash the same, and to allow the appeals under consideration with all consequential reliefs.

On the other hand, ld. DR of the Revenue submitted that the AO’s of the party searched persons and other person are same and satisfaction recorded by the same AO. Therefore, he objected to the submissions of the assessee and relied on the detailed findings of lower authorities.

Considered the rival submissions and material placed on record. We observed that the search was conducted upon the Alankit Group on 18.10.2019. Based on the information obtained in the above search, the proceedings were initiated in the case of the assessee, the AO of the assessee had recorded the satisfaction based on the documents transferred to him by the investigation wing. There is no communication available on record to establish that the AO of the searched person had recorded the satisfaction before forwarding the documents to the AO of the assessee. The AO of the assessee initiated the proceedings u/s 153C of the Act for the AYs 2014-15 to 2020-21 by recording the satisfaction only on 18.04.2022 even though the search was completed on 18.10.2019. In response, the assessee filed the return of income on 02.06.2022. Subsequently, the satisfaction note recorded by the searched persons were handed over to the AO of the assessee only on 21.06.2022. We further observed that the cases of Alankit Group were centralised, it was assigned to DCIT/ACIT, CC-28, Delhi from ITO, Ward 72(1). For some reason another satisfaction note was recorded by the AO at CC-28 and first time, escapement of income above 50 lakhs was established in the form of assets. It is not clear how the proceedings were initiated by the JAO in the first-place u/s 153C and the relevant satisfaction. In the second round of satisfaction only the escapement was established and the proceedings were initiated on the basis of first satisfaction note, it is clear that the proceedings were initiated without establishing his own satisfaction that the material has a bearing on the determination of total income of the assessee. Only in the second satisfaction note, it was improvised to establish the escapement of income in the form of assets and initiation of proceedings were not based on the second satisfaction note. Further, it is established procedure that the initiation of proceedings u/s 153C commences only when the satisfaction notes of the AO of the searched person and handing over of the same to the AO of the third person after establishing the bearing of escapement of income. On receipt of the same, the AO of the third person necessarily had to establish the bearing of such escapement of income in the total income declared by such person. It was held by the Hon’ble Supreme Court in the case of Calcutta Knitwears (supra) in the similar provision’s u/s 158BD of the Act. There was no satisfaction note recorded by the AO of the searched person at the time of handing over of the documents to the AO of the assessee, at least was not brought on record. In defence, Ld DR submitted that the AO of both the parties are same, hence, it is enough to record satisfaction at one end. After careful verification of record, it is established the there is no satisfaction note recorded by the AO of the searched person before handing over of the documents and also the proceedings were initiated on the basis of satisfaction note recorded without establishing it pertains to and bearing of material found during the search on the total income of the third person i.e., assessee in this case. Further, it establishes the fact from the recording of the second satisfaction note subsequently by the DCIT, CC-28, which was nothing but only to establish/improve the escapement of income above 50 lakhs represented in the form of assets, still failed to establish the income pertains to and having bearing of the total income of the assessee. It clearly establishes the fact that the initiation of proceedings without establishment of the income pertains to and having bearing on the determination of the total income of the assessee, rendering the entire proceedings void ab initio and liable to be quashed. The issue under consideration is squarely covered by the decision of Hon’ble Delhi High Court in the case of Saksham Commodities Ltd (supra), where it was held that the usage of the expression “have a bearing” would necessarily lead to the conclusion that the mere discovery of books, documents or assets would not justify the initiation of proceedings. Upon receipt of that material, the jurisdictional Assessing Officer must be satisfied that the same are pertains to and likely to have bearing on “the determination of the total income”. The Hon’ble Court thus concluded that the initiation of action under section 153C of the Act must be founded on a formation of opinion by the jurisdictional Assessing Officer that the material handed over and received pursuant to a search is likely to influence the “determination of the total income” and is relevant for the assessment or reassessment. Therefore, we are inclined to hold the whole proceedings-initiated u/s 153C as bad in law and accordingly quashed.

The assessee also raised several other issues; we have not adjudicated the same and kept them open at this stage.

Since we have quashed the assessment order on the jurisdictional issue, the other grounds raised by the assessee are not adjudicated at this stage and the same are kept open.

In the result, the appeal for AY 2014-15 filed by the assessee is allowed.

Since the facts in AYs 2015-16, 2016-17 and 2019-20 are exactly similar to Assessment Year 2014-15, our above findings in AY 2014-15 are applicable mutatis mutandis in Assessment Years AYs 2015-16, 2016-17 and 2019-20. Accordingly, the appeals filed by the assessee for AYs 2015-16, 2016-17 and 2019-20 are allowed.

To sum up : all the appeals filed by the assessee are allowed.