ITAT Invalidates Section 153C Assessment Proceedings Over Failure to Record Proper Satisfaction

The ITAT Delhi invalidated the entire assessment proceedings initiated under Section 153C of the Income Tax Act, holding that the satisfaction note recorded by the tax authorities did not meet the mandatory legal requirements prescribed under the law. The case pertained to the Assessment Years 2014-15 and 2015-16.

On October 18, 2019, the tax authorities carried out a search operation on Alankit Group, Sh. Alok K. Agarwal, and Sh. Ankit Agarwal under Section 132 of the Income Tax Act. In conclusion of the search, the AO had recorded a satisfaction note of ‘searched person’ for AY 2010-11 to AY 2020-21 and other persons/assessees dated March 16, 2022, and April 5, 2022, respectively.

Based on the records allegedly found during the search, the tax authorities initiated proceedings against the assessee under Section 153C of the Income Tax Act. Subsequently, certain additions concerning the alleged unexplained investments, accommodation entries, and commission payments were made to the assessee’s income.

The assessee claimed that “the satisfaction note of the AO of the non-searched person, i.e., the assessee, the assessing officer has not recorded that seized material found in the course of search on Alankit Group, has any bearing on the determination of the total income of the assessee and relied upon the decision of the Hon’ble Delhi High Court in the case of Saksham Commodities Ltd. 2024 (4) TMI 461 and Naveen Kumar Gupta 2024 (11) TMI 1071.”

The dissatisfied assessee filed an appeal before the ITAT Delhi. After examining the satisfaction note, the tribunal noted that although the tax authorities referred to certain ledgers and transactions, he failed to record a clear finding that the seized material had a bearing on the determination of the assessee’s total income. The Tribunal noted that this requirement is specifically mandated under Section 153C.

The tribunal relied on earlier decisions of the Delhi High Court in Saksham Commodities Limited and Naveen Kumar Gupta and held that the satisfaction note was legally defective and invalid. Consequently, the notice issued under Section 153C and the assessment orders passed pursuant to it were quashed.

Since the appeals were allowed on this legal issue itself, the Tribunal did not examine the other grounds raised by the assessee regarding the additions made on merits. Accordingly, both appeals of the assessee were allowed.