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Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 13.01.2026 passed by Ld. Commissioner of Income Tax (A), Delhi-25 [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-30/11617/2015-16 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 31.03.2024 passed u/s 153C r.w.s. 144 of the Act pertaining to Assessment Year 2016-17.
Brief facts of the case are that the assessee is a company, derived income from business and profession and other sources, filed its return of income on 19.08.2016, declaring NIL income and carry forward loss of INR 13,223/-. A search and seizure action u/s 132 was carried out on the Alankit Group, Shri Alok K. Agarwal and his son, Shri Ankit Agarwal and other associates on 18.10.2019. During the course of search, some incriminating material in the form of hard data as well as digital data were found and seized which clearly established that Sh. Alok Agarwal has facilitated acquisition of shares of several shell entities for benefit of his own group as well as his known associates and clients. He has received and provided accommodation entries and also facilitated bogus short-term capital loss to set off long-term capital gains to various persons through several entities managed and controlled by him and his associates. During the course of search and seizure operation at 3584, Third Floor, Gali no. 4, Narang Colony, Trinagar, Delhi, some incriminating documents were found from the premises pertaining to assessee, hence, case of the assessee was centralized to Central Circle-28, New Delhi. The notice u/s 153C of the Act dated 30.07.2022 was issued to assessee asking to file the return of income for the relevant assessment year. In response to notice issued u/s 153C of the Act, the assessee did not file return of income. Thereafter, notices u/s 142(1) of the Act were issued to the assessee through ITBA from time to time. In compliance, the assessee filed submissions through e-filing portal on various dates. After considering the submissions made and material furnished by the assessee, the AO assessed the income of the assessee at INR 1,54,50,000/- vide assessment order dated 31.03.2024 passed u/s 153C r.w.s. 144 of the Act wherein an addition of Rs. 1.00 crores was made u/s 69C of the Act; an addition of INR 50.00 Lakhs u/s 69A of the Act and an addition of INR 4,50,000/- was made u/s 69C of the Act.
Against the said order, assessee filed an appeal before ld. CIT(A) who vide order dated 13.01.2026, dismissed the appeal of the assessee.
Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Before us, in respect of Ground of appeal No.4, ld. AR submits that in the satisfaction note recorded, it is not mentioned by the AO that these documents contained the phrase “have bearing on the total income of the assessee”. In the satisfaction note recorded, AO has observed that entries found noted in the diary pertained to the assessee however, has failed to record his satisfaction as provided u/s 153C of the Act that such material “have bearing on the determination of the total income of the assessee”. In this regard, reliance is placed on the judgement of Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd reported in (2024) 161 Taxmann.com 485 (Delhi). Ld. AR prayed accordingly.
On the other hand, ld. CIT DR submits that the assessment was carried out based on the entries found noted in the documents seized from the possession of the third person and accordingly, the AO has recorded his satisfaction and initiated the proceedings u/s 153C of the Act which are valid proceedings. Regarding invalid satisfaction ld. CIT DR submits that the AO has recorded the clear satisfaction based on the admission of the person who has written the diary and the assessee has failed to controvert the same thus she prayed for the confirmation of the initiation of proceedings u/s 153C of the Act in the present case.
Heard the parties and perused the material available on records. From the perusal of the satisfaction note recorded by the AO of the assessee before initiating the proceedings u/s 153C of the Act, placed at page 5 of the paper book, it is observed that the AO has not recorded the satisfaction that “the same have bearing on the determination of total income of the assessee” as provided in section 153C of the Act. Section 153C of the Act is reproduced as under for the sake of convenience:-
Assessment of income of any other person.
153C. (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 153A, 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 :
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income 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 as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.
(2)Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—
(a)no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or
(b)a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or
(c)assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.
(3)Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021.”
For the sake of clarity, the satisfaction note for initiating proceedings u/s 153C of the Act is reproduced as under:-
The Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd reported in [2024] 464 ITR 1 (Del) 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 be likely 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 aforesaid judgement 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” and that satisfaction has to be year specific i.e. the relevant assessment year.
As could be observed from the satisfaction note recorded by the AO of the assessee i.e. the other person, as reproduced herein above, the AO nowhere has recorded the satisfaction that entries contained in the hard data seized “pertained to the assessee” and further such entries “have the bearing on the determination of the income of the assessee” was common for various assessment years. Therefore, by respectfully following the judgement of Hon’ble Delhi High Court in the case of Saksham Commodities (supra), we hold that satisfaction note recorded before initiation of the proceeding’s u/s 153C of the Act is not a valid satisfaction. Accordingly, we allow Ground of appeal No.4 raised by the assessee and quashed the proceedings initiated u/s 153C of the Act based on such invalid satisfaction.
Since we have allowed the legal issues raised by the assessee through Ground of appeal No. 4, therefore, the remaining Grounds of appeal requires no adjudication.
In the result, appeal of the assessee is allowed.