ITAT Quashes 153C Assessments Across Three Years for Mechanical “Carbon Copy” Satisfaction Note

Shokeen Construction Co. filed returns for the respective years, and a later search on the Sanjay Jain & Mehta Group in October 2020 led to the seizure of Tally data and other materials concerning various entities. Based on this material, the AO of the searched person prepared a satisfaction note proposing initiation of proceedings under Section 153C against the assessee. Notices were issued, and assessments were framed under Section 153C read with 143(3), resulting in additions including disallowance of purchases.

The CIT(A) upheld the assessments.

Issue before Tribunal: Whether proceedings under Section 153C were valid when the AO of the assessee merely reproduced the searched person’s satisfaction note without forming an independent, year-specific satisfaction regarding seized material pertaining to the assessee.

Decision by ITAT: The Tribunal examined both satisfaction notes and found that the AO of the assessee had copied verbatim the contents of the searched person’s note without recording any independent reasoning on how the seized documents pertained to the assessee or had a bearing on its income. The Bench noted that this failure demonstrated a purely mechanical exercise, contrary to the statutory requirement that the AO must apply his own mind before assuming jurisdiction. Relying on the rulings in Canyon Financial Services, Ridgeview Construction, and Saksham Commodities, the Tribunal held that such “carbon copy” satisfaction notes are legally invalid and cannot support proceedings under Section 153C.

The Tribunal quashed the initiation of 153C proceedings and the later assessments for all three years.  The assessee’s appeals for AYs 2018-19, 2019-20, and 2020-21 were thus allowed.

To Read Full Judgment, Download PDF Given Below