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Judgment
O R D E R
PER MANISH AGARWAL, AM:
These are three appeals filed by the Assessee against the common order(s) of Learned Commissioner of Income Tax (Appeals)-25, New Delhi (‘the CIT(A)’ in short) all dated 21.01.2026 arising out of the assessment orders passed by the AO u/s153C of the Income Tax Act, 1961 (‘the Act’ for short) for Assessment Years 2018-19 and 2019-20 respectively.
The captioned appeals filed by the Assessee are tabulated as under:
| S. No. | Appeal Nos. | Name of Assessee | Asstt. Year | CIT(A)’s Order dated | Assessment Order dated | Assessment Order passed u/s |
|---|---|---|---|---|---|---|
| 1 | 3132/Del/2026 | Nakul Rajgarhia & Sons | 2018-19 | 21.01.2026 | 31.03.2024 | 153C |
| 2. | 3133/Del/2026 | -Do- | 2019-20 | -Do- | -Do- | 153C |
| 3. | 3134/Del/2026 | Nakul Rajgarhia | 2019-20 | -Do- | -Do- | 153C r.w.s153A |
Since all the appeals have common issues which fact is fairly admitted by both the parties before us, therefore, all the appeals are taken together and decided by common order.
We take the appeal of the assessee for AY 2018-19 in ITA No. 3132/Del/2026 as the lead case.
ITA No. 3132/Del/2026 for AY 2018-19 in the case of Nakul Rajgarhia & Sons HUF
Brief facts of the case are that assessee is a HUF and filed its return of income on 21.06.2018 declaring total income of Rs. 31,94,910/- which inter-alia includes profit of Rs. 23,54,015/- earned from the Commodity transaction carried through M/s Alankit Imagination Limited. A search and seizure action u/s 132 of the Act was carried in the case of Alankit Group on 18.10.2019 and based on the documents filed and seized during the course of search of Alankit Group. The AO of the person searched i.e. Alankit Group has referred one ledger account taken from the Laptop of Shri Sunil Kumar Gupta, who is an employee of M/s Alankit Group out of certain ledger found having transactions of unaccounted cash or taking of accommodation entry and recorded the satisfaction and material was handed over to the AO of the assessee on 24.06.2022. Thereafter, the AO of the assessee has recorded his satisfaction on 16.08.2022 and initiated proceedings u/s 153C of the Act for AY 2014-15 to 2022-21 and notice u/s 153C of the Act for the year under appeal was issued on 22.08.2022. The assessment was completed u/s 153C of the Act on 31.03.2024 wherein addition of Rs.18,35,306/- was made on account of alleged undisclosed transactions as unexplained expenditure u/s 69C of the Act. The AO further made addition of Rs. 55,060/- alleged as commission @ 3% paid for obtaining accommodation entry in the form of alleged share capital.
Aggrieved by the said order, the assessee filed appeal before the Ld. CIT(A) who vide impugned order confirmed the addition made, therefore, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:
“1(i) That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the initiation of assessment proceeding u/s 153C of I.T. Act, in the absence of any incriminating material/assets etc. having bearing on the undisclosed income of the assessee.
1(ii) That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the initiation of assessment proceeding u/s 153C of I.T. Act, in the absence of any alleged incriminating material belonging and/or pertaining to the appellant and/or documents containing any information pertaining to the assessee. Hence, assessment proceeding initiated u/s 153C, is invalid, bad in law and liable to be quashed.
1(iii) That on the facts and circumstances of the case, the proceeding initiated under Section 153C of I.T. Act, is bad in law as both the aforesaid satisfaction note date 24/06/2022 & 17/08/2022 does not bear the DIN which is in violation of the CBDT Circular no. 19/2019 dated 14/08/2019.
2.That the notice issued under Section 153C of the Act and the consequent assessment proceedings are illegal, void ab initio, barred by time limitation and without jurisdiction, as the statutory preconditions for invoking Section 153C of the Act were not satisfied, rendering the proceedings bad in law and liable to be quashed.
3.That the impugned order dt. 31/03/2024 framed u/s 153C of the I.T. Act, 1961 is bad in law and liable to be quashed.
4.That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming addition of Rs. 18,35,306/- made by Ld. A.O., under the head income from other sources inspite of the fact that same income has already declared by the assessee under the head Income from Other Sources in his original ITR as well as in the ITR u/s 153C of the I.T. Act, 1961. Hence, the same income has been assessed twicely, hence addition confirmed by the CIT(A) may please be deleted.
5(i) That on the facts and circumstances of the case the ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 18,35,306/- made by the Ld. A.O., which is based merely on surmises, conjecture, arbitrary, unjustified, bad in law and uncalled for and without considering the explanations submitted by the appellant. In this regard all of her observations are against the material on record and contrary to the facts.
5(ii) That on the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition of Rs. 18,35,306/- made by the ld. A.O., without confronting any alleged incriminating material to the assessee. In this regard all of her observations are against the material on record and contrary to the facts.
6(i) That on the facts and circumstances of the case the ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 55,060/- made by the Ld. A.O., which is based merely on surmises, conjecture, arbitrary, unjustified, bad in law and uncalled for and without considering the explanations submitted by the appellant. In this regard all of her observations are against the material on record and contrary to the facts.
6(ii) That on the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition of Rs. 55,060/- made by the Ld. A.O., without confronting any alleged incriminating material to the assessee. In this regard all of her observations are against the material on record and contrary to the facts.
7.That on the facts and in law, the AO/CIT(A) failed to appreciate that, in the absence of incriminating material found during the search, the interference with a completed assessment and additions under Section 153C of the Act are unsustainable and without jurisdiction.
8.That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the additions made by the Ld. A.O. which are against the principal of natural justice.
9.That on the facts and circumstances of the case the ld. CIT(A) has erred both on facts and in law in confirming the addition made by the Ld. A.O., without providing the copy of statement of 'Sh. Sunil Kumar Gupta' and/or 'Sh. Alok Kumar Agarwal' recorded under any provision of I.T. Act and/or without providing opportunity of their cross examination
10.That on the facts and circumstances of the case the ld. CIT(A) has erred both on facts and in law in confirming the addition on the basis of alleged documents recovered from the laptop of Sh. Sunil Kumar Gupta without complying with the provision of section 65A and 65B of Indian Evidence Act, 1872.
11.That the approval granted under Section 153D of the Act for passing the assessment order under Section 153C is invalid, as it has been granted in a mechanical manner, without independent application of mind, rendering the assessment order bad in law.
12.That on the facts and circumstances of the case the ld. CIT(A) has erred, both on facts and in law in confirming the computation of income of the appellant at Rs. 50,85,060/-as against the income of Rs. 31,94,690/ - declared by the appellant.
13.That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the Ld. A.O in raising demand of Rs. 6,39,546/-.
14.That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in invoking the provisions of Section 150(1) of the Act by directing the AO to protect the interest of revenue by exploring the possibility or feasibility of taking remedial action to tax alleged escaped income arising from accommodation entry transactions, contingent upon the non-survival of assessments in the relevant years, which is arbitrary, beyond jurisdiction, and bad in law.
15.That on the facts and circumstances of the case and in law, the AO has erred in wrongly invoking the provisions of Section 115BBE of the Act.
16.That the documents and the material available on record have not been properly considered and judicially interpreted and have been wrongly ignored.
17.On the facts and circumstances of the case and in law, the AO has erred in charging the interest under Section 234A/234B/234C/234D of the Act.
18.That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. in initiating penalty proceeding u/s 271AAC of I.T. Act, 1961.
19.The above grounds of appeal are without prejudice to one another.
20.The appellant craves the right to add, amend, alter, withdraw or forgo any ground or grounds of appeal before or at the time of hearing.”
In Ground of appeal No.1.1 and 1.2, the assessee has challenged the validity of the initiation of proceedings u/s 153C based on the incorrect appreciation of the facts and defective satisfaction note. Ld. AR drew our attention to the PB page 6 containing the satisfaction note recorded by the AO of the assessee and submits that the said satisfaction note does contain the satisfaction with respect to the documents “pertain to” the assessee and “have a bearing on the determination of the total income of the assessee”. Ld. AR submits that the Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd. vs. ITO reported in [2024] 161 taxmann.com 485 (Delhi) held that recording the satisfaction that the documents “pertain to assessee” and “have bearing on the determination of the total income of the assessee” are the mandatory pre-condition for initiation of proceedings u/s 153C of the Act, and in absence of such satisfaction the proceedings initiated u/s 153C are bad in law and the consequent order passed deserves to be quashed. Reliance is also placed on the 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. He 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 both the parties and perused the materials available on record. First, we referred the satisfaction recorded by the AO of the assessee, i.e. the AO of the person other than the person searched while initiating the proceedings u/s 153C of the Act which is reproduced as under:
Further, in the satisfaction note, AO has not recorded the satisfaction that the seized material relates to the assessee and have bearing on the determination of the total income of the assessee as has been provided in section 153C(1)(b) of the Act. In the satisfaction note, the AO has recorded the satisfaction that the documents found during the course of search in the case of Alankit Group, belonged to the assessee. The Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd reported in (2024) 161 Taxmann.com 485 (Delhi) wherein the Hon’ble Court by following the judgement of RRJ Securities Ltd. (supra) has held as under:
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 153Cwould 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 maybe.
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.
67.On an overall consideration of the aforesaid, we come to the firm conclusion that the "incriminating material" which is spoken of would have to be identified with respect to the AY to which it relates or may belikely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs' immediately preceding the AY corresponding to the year of search or the "relevant assessment year" would not justify a sweeping or indiscriminate invocation of Section 153C.
68.The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs' and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.
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.
The Hon’ble Jurisdictional Delhi High Court in the case of Saksham Commodities (supra) in clear terms held that for initiation of proceedings u/s 153C of the Act, the AO should satisfy that books of accounts or documents or assets seized or requisition must be ‘pertained to’ the assessee and the entries contained therein must “have bearing on the determination of the total income of such other person”. Considering the above, we are of the opinion that the AO of the assessee has recorded the incorrect and mechanical satisfaction that the documents found during the course of search at the other person relate to the assessee and therefore, such satisfaction is defective satisfaction based on which the proceedings cannot be initiated u/s 153C in the case of assessee. Accordingly, we hold the proceedings initiated u/s 153C of the Act as invalid and consequent order passed is hereby, quashed. The Grounds of appeal Nos. 1(i) & 1(ii) raised by the assessee are thus allowed.
Since we have allowed the legal grounds of appeal taken by the assessee, the other grounds of appeal become academic and not adjudicated.
In the result, appeal of the assessee is allowed.
ITA No. 3133/Del/2026 for AY 2019-20 in the case of Nakul Rajgarhia & Sons HUF
Admittedly the facts are identical and as could be observed from the satisfaction note reproduced herein above, proceedings u/s 153C of the Act were initiated for various assessment years by a common satisfaction note which includes this assessment year also. While deciding the appeal of the assessee for AY 2018-19 in ITA No. 3132/Del/2026, we have quashed the initiation of proceedings us/ s153C of the Act based on defective and common satisfaction note for various assessment years which are applied mutatis mutandis this year also. Accordingly, the proceedings initiated u/s 153C of the Act for the year under appeal are also held as bad in law and consequent order passed is hereby quashed. The legal grounds of appeal taken are thus allowed.
In the result, appeal of the assessee is allowed.
ITA No. 3134/Del/2026 for AY 2019-20 in the case of Nakul Rajgarhia
Admittedly the facts are identical, and the satisfaction note recorded by the AO of the assessee is identical as recorded in the case of Nakul Rajgarhia & Sones HUF and the satisfaction note recorded by the AO of the Assessee is defective and thus the proceedings u/s 153C of the Act initiated based on the said defective satisfaction note are invalid. While deciding the appeal of Nakul Rajgarhia & Sons HUF for AY 2018-19 in ITA No. 3132/Del/2026, we have quashed the initiation of proceedings us/ s153C of the Act based on defective and common satisfaction note for various assessment years which are applied mutatis mutandis in the present appeal also. Accordingly, the proceedings initiated u/s 153C of the Act for the year present assessee appeal are held as bad in law and consequent order passed is hereby quashed. The legal grounds of appeal taken are thus allowed.
In the result, appeal of the assessee is allowed.
In the final result all the three appeals in ITA Nos. 3132 to 31354/Del/2026 are allowed.