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Judgment
PER ANUBHAV SHARMA, JM:
These are appeals preferred by the Assessee against the orders of the Ld. Commissioner of Income-tax (Appeals) (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeals filed before him against the orders of the ld. Assessing Officer (hereinafter referred to as the Ld. AO, for short) passed u/s 153A/153C of the Income-tax Act, 1961 (hereafter referred to as ‘the Act’). Further details of the orders of the lower authorities are as under:-
| ITA No. & AY | Ld. FAA who passed the appellate order | Appeal No. & Date of order of the Ld. FAA | AO who passed the assessment order & Date of order |
| 6262/D/25 2017-18 | CIT(A)-25, New Delhi | DIN:ITBA/APL/M/250/202 5-26/1080101855(1) Dated 28.08.2025 | DCIT, Central Circle-27 Dated 26.03.2024 |
| 6264/D/25 2018-19 | CIT(A)-25, New Delhi | DIN:ITBA/APL/M/250/202 5-26/1080102033(1) Dated 28.08.2025 | DCIT, Central Circle-27 Dated 26.03.2024 |
| 6265/D/25 2018-19 | CIT(A)-25, New Delhi | DIN: ITBA/APL/M/250/2025-26/1080102263(1) Dated 28.08.2025 | JCIT(OSD), Central Circle-27 Dated 26.03.2024 |
These cases were heard together as the assessee had raised common question of law and the background giving rise to the same question of law. A search and seizure operation was carried out in the Alankit Group of cases on 18.10.2019. Subsequently, the said group of cases were centralized for assessment and during the course of assessment proceedings of the Alankit Group material/documents allegedly relating to cases of present assessee were found.
The facts relevant to AY 2017-18 are material as allegedly in the case of assessee some incriminating documents are found from the premises in the form of hard data as well as digital data. Statements were also recorded and it was alleged that assessee had received Rs.10,60,707/- from Alankit Assignment Limited. during the Financial Year 2016-17 relevant to AY: 2017-18 the conclusion was that bogus LTCG claim was raised with respect to sale of shares of Alankit Assignments Ltd.
Now before us ld. Counsel has submitted that assumption of jurisdiction on the basis of the satisfaction note recorded u/s 153C is not valid as for the purpose of Section 153C there is no mention about the fact as to how the seized material had bearing on the income of the assessee for the each year under consideration.
Ld. DR has defended the same by submitting that in the satisfaction note there is specific mention of the seized evidences and the nature of transactions but what we notice is that satisfaction note records about a laptop of Shri Sunil Kumar Gupta being found and seized from his residencewith some transaction unearthed concerning assessee for Financial Year 2015-16 only. However, satisfaction note has been recorded cumulatively for AY: 2014-15 to 2020-21. As for completeness we consider it necessary to reproduce the satisfaction note:
“1.A search and seizure operation was carried out in the Alankit Group of cases on 18.10.2019 subsequently the said group was centralized to the jurisdiction of the undersigned.Accordingly, during the course of assessment proceedings u/s 153A of Alankit Group, material/ documents related to case of Saroj Gupta have been found.
2.The same is being corroborated from the ledger of HDFC Bank in the books of Diwakar obtained from laptop of Sh. Sunil Kumar Gupta found and seized from the residence of Sh. Sunil Kumar Gupta, at 3584/4, Narang Colony, Gali No. 4 Tri Nagar Delhi (Path: F:ISKGRA-32\SUNIL KUMAR GUPTA HP LAPTOPIEXTRACTED DATA Tally\[root].1\Local Disk\OFFICE TALLY\2014-2015 DCPL CASE AY1213.
3.The transactions entered into by various beneficiaries with various shell entities controlled by Alok K Agarwal, against unaccounted cash or otherwise to take accommodation entries, are as tabulated below:
Name of beneficiary F.Y. Transaction done with Amount debited to beneficiary Amount credited to beneficiary SAROJ GUPTA EFL 2015-16 AAL 15,00,000 EFL 2,08,050 4.The assessment proceedings are required to be taken u/s 153C of the Income Tax Act, 1961 as the warrant issued in the name of Sh. Alok Kumar Aggarwal, Sh. Ankit Aggarwal, M/s AlankitLtd. and M/s Alankit Assignment. A.Y. involved A.Y. 2014-15 to A.Y. 2020-21”
The ld. Counsel appearing for the assessee has primarily submitted that a consolidated satisfaction note has been recorded for initiation of proceedings u/s 153C of the Act in case the assessee and copy of satisfaction note recorded in the case of search person as well as in case of non-searched person have been provided as part the paper book and ld. Counsel has submitted that the law requires that when the provision of Section 153C are invoked it is necessary to record the satisfaction as to how material discovered and pertaining to a particular assessment year was likely to have determination of total income for ‘year which was sought to be abated or reopened’ in terms of impugned notices and if the satisfaction note does not record the same proceeding initiated u/s 153C cannot be sustained impugned assessments deserves to be quashed. Reliance in this regard has been placed on the decision in the case of Saksham Commodities Ltd. Vs. ITO (2024) 161 taxmann.com 485 (Delhi).
Ld. DR has also submitted that AO is not mandated to record entire findings in the satisfaction note to the subjective satisfaction of the assessee and in the written submission filed ld. DR relied decision of Hon’ble Delhi High Court in the Principle CIT, Central-1 Vs. Ojjus Medicare Pvt. Ltd. (2024) SCC OnLine del 349 to contend that at the stage of recording satisfaction computation and assessment of income i.e. likely to have escape has to be mentioned on a provisional basis. Further, written submission which have been filed are extensively in regard to the issue No. 2 wherein assessee has challenged the validity of approval granted u/s 153D.
We have gone through the satisfaction note recorded in case of the assessee before us and we find that the Assessing Officer of the non-searched person has recorded satisfaction note for multiple years involved. Now in case of Saksham Commodities Ltd. (supra) Hon’ble Delhi High Court was dealing with the case of assessee whose cases were also reopened for search assessment u/s 153C on the basis of alleged incriminating evidences found in the search and seizure operation carried out in the case of Alankit Group of companies. We find that Hon’ble High Court has reproduced in its judgment that satisfaction note recorded by the jurisdictional Assessing Officer and which is similar to that recorded in case of the assessee before us. Hon’ble High Court had dealt with following contentions;
“Dr. Rakesh Gupta, Mr. Ved Jain and Mr. Rohit Jain, learned counsels. The petitioners principally contended that the power to assess or to reassess conferred by virtue of Section 153C of the Act is premised on the AO of the non-searched entity being satisfied on a perusal of the material handed over to it that the same would "have a bearing on the determination of the total income" of the "other person" for six AYs' immediately preceding the AY relevant to the FY in which the search was undertaken or documents requisitioned, as well as for the "relevant assessment year" as defined in Section 153A of the Act. According to learned counsels, the existence of material which is likely to impact the total income, as determined or assessed for any AY, is a sine qua non for sustaining the initiation of action under Section 153C. It was submitted that the reopening of all AYs, which may form part of the block of six or ten AYs' would not be justified merely on the ground of incriminating material having been discovered pertaining to a particular AY.
Hon’ble High Court has thereafter has concluded in para 60 to 73 as follows:
“60.Before concluding, we also deem it imperative to briefly notice certain aspects which emerge from a reading of the Satisfaction Notes themselves. As is manifest from a reading of the Satisfaction Note drawn by the jurisdictional AO of the assessee in W.P. (C) 1459/2024, after noticing the material which was recovered during the search and related to FYs' 2009-10, 2010-11 and 2011-12 [corresponding AYs' thus being AYs 2010-11, 2011-12 and 2012-131, it has proceeded to observe that the assessments which were liable to abate or be reopened would be AYs' 2010-11 to 2020-21. A similar note appears in W.P. (C)1117/2024. Here again, after referring to the material pertaining to FY 2009-10 [and thus relating to AY 2010-11], the AO proceeded to seek approval for initiating action under Section 153C in respect of AYs' 2010-11 up to 2020-21.
61.A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs' appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the "relevant assessment year" as defined in Section 153A. In our considered opinion, the aforesaid understanding of Section 153C is clearly erroneous and unsustainable. As explained hereinabove, the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY is not intended to set off a chain reaction or have a waterfall effect on all AYs' which could form part of the "relevant assessment year". This, more so since none of the Satisfaction Notes record any reasons of how that material is likely to materially influence the computation of income for those AYs'.
62.Hypothetically speaking, it may be possible for the material recovered in the course of a search having the potential or the probability of constituting incriminating material for more than one assessment year. However, even if such a situation were assumed to arise, it would be incumbent upon the AO to duly record reasons in support of such a conclusion. The Satisfaction Notes would thus have to evidence a formation of opinion that the material is likely to be incriminating for more than a singular assessment year and thus warranting the drawl of Section 153C proceedings for years in addition to those to which the material may be directly relatable.
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 likelyto 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 153C would 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 Al 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.
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 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
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’ yearsimmediately 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.
There are two writ petitions forming part of this batch which however need to be examined and dealt with separately. W.P.(C) 3007/2023 assails a notice under Section 153C pertaining to AY 201314. The Satisfaction Note dated 20 October 2022 alludes to incriminating material having been recovered for FYs 2012-13 and 2013-14 and consequently the corresponding AYs' being AY 2013-14 and 2014-15. Ex facie, the impugned notice pertains to an assessment period in respect of which material had been specifically identified.
Similarly, in W.P. (C) 3019/2023, the challenge is to a notice relating to AY 2014-15. A reading of the Satisfaction Note placed at Annexure J would indicate that here too there is a clear reference to the material that was obtained and was correlatable to the said AY.
72.Consequently, the aforenoted two writ petitions would not be entitled to succeed on grounds which were urged on behalf of the writ petitioners. Accordingly, and while we would dismiss these two writ petitions, we leave all other contentions of parties open to be addressed in the proceedings presently ongoing.
73.Accordingly, and for all the aforesaid reasons, we allow the present writ petitions and quash the impugned notices insofar as they pertain to AYs' 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 201819, 2019-20 and 2020-21 as per the details set out in the chart extracted hereinabove. W.P.(C) Nos. 3007/2023 and 3019/2023, however, for reasons aforenoted shall stand dismissed subject to the observations made hereinabove.”
We find no force in the contention of ld. DR that Assessing Officer is not mandated to record entire findings in the satisfaction note to the subjective satisfaction of the assessee as it is not the subjective satisfaction of the assessee which is relevant but what the law requires is that the quasi judicial authorities should pass speaking and well reasoned orders so that when tested at appellate stage the orders can be examined to see if quasi judicial authorities has applied its mind to the facts of the case before assumption of jurisdiction to proceed with the enquiry or assessment as the case may be.
The recording of satisfaction note is one such instance of recording the reasons on the basis of facts and circumstances to assume jurisdiction of opening reassessment u/s 153C of the Act. It is for this reason in Saksham Commodities (supra), Hon’ble High Court in para 61 has clarified that only because of existing incriminating material being unearthed in respect of a particular would give assessing officer a jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the “relevant assessment year,” as defined in Section 153A. It is essential that when the assessing officer invokes the jurisdiction for reassessment the satisfaction as recorded reflect that satisfaction has been arrived on the basis of material which is likely to impact the computation of income for a particular assessment year.
The decision relied by the Ld. DR in Ojjus Medicare Pvt. Ltd. case (supra) is thus not applicable as it is not the discrepancy in quantum of escapement which forms basics of the argument of ld. AR but the contentions has been that the incriminating materials relied to record the satisfaction do not indicate in the satisfaction note as to how material discovered and pertaining to a particular assessment year was likely to have determination of total income for the year which was sought to be subject to proceedings u/s 153C and thus this cumulative satisfaction vitiates the assumption of jurisdiction.
More so, as we have observed that Hon’ble Delhi High Court in Saksham Commodities Ltd. (supra) has considered the same set of incriminating material and circumstances of same search and the narration of satisfaction note to hold that this satisfaction note is vitiated and thus the decision squarely applies to the case of the assessee before us.
In the light of the aforesaid circumstances we are inclined to sustain corresponding ground raised in the appeals in hand by the assessee. Consequently, the appeals of assessee are allowed and the impugned assessment orders are quashed.