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Facts
The assessee, engaged in real estate development, filed NIL income for AY 2008-09. A search was conducted on a related entity, leading to proceedings under Section 153C against the assessee. Additions were made based on alleged 'on-money' receipts from flat sales, which were confirmed by the CIT(A).
Held
The Tribunal held that the recording of a satisfaction note by the Assessing Officer is a mandatory jurisdictional requirement for initiating proceedings under Section 153C. Since no such satisfaction note was produced, the assessment proceedings were vitiated and void ab initio.
Key Issues
Whether the assessment proceedings initiated under Section 153C are valid without a properly recorded satisfaction note by the Assessing Officer, and whether the failure to produce such a note vitiates the assessment.
Sections Cited
143(1), 143(3), 153C, 69A, 132, 158BD, 158BC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Justice (Retd.) C V Bhadang, Hon’ble & Ms. Padmavathy S, Hon’ble
O R D E R Per Justice (Retd.) C V Bhadang, President: These appeals by the assessee involve common and connected questions of law and fact. As such, they are being disposed of by this common order. The appeals relate to assessment years 2008-09 to 2010-11. The details are tabulated as under:- Sr.No. AY Dt. Of Dt. Of CIT(A) Impugned addition Addition Assessment order made u/s. (Rs.) Order 1 2008-09 30.03.2016 25.01.2024 69A 3,70,12,490/- 30.03.2016 2 2009-10 25.01.2024 69A 3,24,21,440/- 30.03.2016 3 2010-11 25.01.2024 69A 1,56,52,100/-
2. The appellant-assessee, M/s. Good Living Shelters Pvt. Ltd., is engaged in the business as builders and developers. The appellant filed its Return of Income (RoI) for assessment year 2008-09 declaring NIL income, which was processed under Section 143(1) of the Income Tax Act, 1961 (‘Act’ for short).
, 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd.
3. The appellant had entered into an agreement with M/s. Chogle Builders and Developers Pvt. Ltd. (CBDPL) of which Mr. Ratnakar V Chogle and Shri Mandar R Chogle are the Directors. The agreement was entered into for construction of project ‘Trishala Towers’. In terms of the said agreement, the development/construction site of the land belonging to CBDPL was given to the assessee for development.
4. It appears that there was a search and seizure action carried out at the residence and business premises of Mr. Chogle and CBDPL on 05.11.2012 in which certain incriminating documents/material pertaining to the assessee were allegedly found and seized. Accordingly, the ACIT, Central Circle (1) Surat, (Assessing Officer of the entity searched) recorded satisfaction note as required by Section 153C of the Act and it was forwarded to the ITO Ward 9(1)(4), Mumbai (AO of the assessee) vide letter dated 15.09.2014. The Assessing Officer issued notice under Section 153C of the Act to the assessee dated 10.01.2015 in response to which the assessee stated that the return already filed for the three assessment years be treated as response to the notice. Subsequently, the Assessing Officer completed the assessment under Section 143(3) r.w.s. 153C of the Act and vide order dated 30.03.2016 assessed the total income of the appellant and made the addition as set out above.
5. In appeal, it was contended on behalf of the assessee that the Assessing Officer was not justified in making the impugned addition under Section 69A of the Act based on assumptions and surmises, which were not justified. The record discloses that the assessee had not responded to the various notices issued by CIT(A) as set out in para 3.1 of the order. In that view of the matter, the learned CIT(A) proceeded to dispose of the appeal on the basis of the documents available on record. The learned CIT(A) has noticed the decision of , 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. Supreme Court in CIT vs B.N. Bhattarcharjee and Another (10 CTR 354) holding that the appeal is required to be effectively prosecuted by the appellant. The CIT(A) has further found that when some of the entries in the seized material (diary) tally with the entries found in the books of account, the entries in the diary can be taken as primary evidence and can be acted upon. The learned CIT(A) found that the assessee had accepted the receipts by cheque while disputing the cash entries of the on-money received for sale of the flats in the concerned project ‘Trishala Towers’. The learned CIT(A) has also found that alternatively the assessee had offered 5% of the amount as income, which offer has rightly been rejected by the Assessing Officer. In that view of the matter, the appeal came to be dismissed, against which assessee is in appeal.
In the appeal for AY 2008-09 the assessee has raised the following grounds: 1) In the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the addition of Rs.3,70,12,490/- u/s 69A of the IT Act, 1961 on account of Assessee's share of "on money alleged to have been received in cash towards the consideration for sale of flats on the basis of "loose papers" found during the course of search conducted u/s 132 of the Act on M/s Chogule Builders and Developers Pvt. Ltd ("CBDPL") with whom the Assessee had entered into Joint Development Agreement for the construction and development of the Project known as "TRISHLA".
2) In the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the addition of Rs.3,70,12,490/- u/s 69A of the IT Act, 1961 being the 50% share in alleged on money 7,40,24,980/- for Assessment Year 2008-09 whereas the actual dates of receiving the said on money as tabulated on page 13,14 and 15 of the CIT(A) order are falling in the financial year 2009-10 relevant to Assessment Year 2010-11.
3) In the facts and circumstances of the case and in law the Ld. CIT (A) ought to have appreciated that the entire construction and development expenses as per JDA were agreed to be borne by the Assessee only and therefore that entire undisclosed ON MONEY or the , 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd.
Gross Receipts cannot be brought to tax and utmost the real profit embedded in the undisclosed receipts could be brought to tax
4) In the facts and circumstances of the case and in law the Ld. CIT (A) erred in upholding the action of the Ld. AO not accepting the proposal by the Assessee to offer estimated profit element of 5% calculated at Rs. 18,50,625/- on their share of alleged On Money of Rs.3,70,12,490/-.
5) The Appellant craves leave to add, alter or amend all or any of the grounds of appeal which are without prejudice to one another on or before the final hearing.”
The assessee has raised additional grounds of appeal on 29.01.2025. It is contended that the assessment order does not show any satisfaction note being recorded by the Assessing Officer of the assessee which is the legal requirement. Reliance in this regard is placed on the decision of the Supreme court, in Jute Corporation of India Ltd. Vs. CIT 187 ITR 688 (SC) and NTPC vs. CIT (229 ITR 383) in order to submit that a legal ground which goes to the root of the matter and in respect of which the material is already available on record can be allowed to be raised in the appeal. The additional grounds raised by the assessee are as under :- Ground no.1: Assessment u/s 143(3) r. w. sec. 153C of the ACT.
"The Hon. CIT (A) erred in not appreciating that proceedings initiated against the appellant by issue of notice u/s 153C of the 1. T. Act, 1961 on 30.03.2016, was not in accordance with the provisions of law and as the notice issued u/s 153C was bad-in-law, the assessment framed in pursuance thereof u/s 143(3) r.w.s. 153C of the 1. T. Act, 1961 was also bad-in-law, being void-ab-initio and therefore the said assessment was required to be quashed on the above count."
Ground no.2: Cross Examination -Natural Justice.
"The Hon. CIT (A) erred in upholding the addition on the basis of information from third party, without affording the appellant with adequate opportunity to cross examine the source of such adverse information, thereby breaching the salient principles of equity, fair play and natural justice. The order framed in breach of the principles of natural justice is bad-in-law and void ab-initio.
, 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd.
Ground no.3: General Ground.
The appellant craves leave to add, alter, amend, delete and/or vary any of the above grounds of appeal at any time before the decision of the appeal."
We have heard parties. Perused record.
The learned AR submitted that the Assessing Officer of the party searched i.e. CBDPL and the Assessing Officer of the assessee are two different authorities. He therefore submitted that it was incumbent upon the Assessing Officer of the assessee to have separately examined the matter and independently recorded a satisfaction note of which there is no mention in the assessment order. Reliance is placed on the decision of the Supreme Court in M/s Calcutta Knitwears, Ludhiana (362 ITR 673) and the CBDT circular no. 24/2015 dated 31.12.2015. It is submitted that inspite of grant of sufficient time Revenue has been unable to produce any such satisfaction note.
Without prejudice to the above legal contentions, the learned AR made an alternative submission that the appeal may be remitted back to the learned CIT(A) considering that the learned CITA) has passed an ex-parte order.
The learned DR submitted that the matter is old and inspite of best efforts the record could not be traced. He sought further time for production of satisfaction note. He has placed a factual report on record dated 10.09.2025.
We have considered the submissions made. First, with reference to the additional ground, undisputedly the ground/s raised are legal ground/s which go to the root of the matter. It is well settled that when the Assessing Officer of the party/entity searched is different than the Assessing Officer of the assessee, the Assessing Officer of the party searched has to record a , 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. satisfaction note which is required to be forwarded to the Assessing Officer of the assessee who, in turn, records his own satisfaction note in respect of the incriminating material/documents recovered during the search. This is a legal requirement for assessing the income of the assessee. In that view of the matter, and having regard to the decision of Supreme Court in NPTC (supra), we admit the additional ground/s of appeal for consideration.
The record discloses that on 01.04.2025 the learned DR was directed to call for the report from the Assessing Officer along with the copy of satisfaction note. Time was granted on 19.05.2025 and thereafter on 17.07.2025, when again time was sought. The following order was passed on 25.08.2025 : “With reference to legal grounds raised by the assessee it transpires that on 01.04.25 the bench had directed the ld DR to call for a report of Assessing Officer alongwith copy of satisfaction note for initiating proceedings u/s. 153 (C) of the Act. On a query by the Bench ld DR requested for some more time to comply with the direction of the Bench. Final opportunity is granted to ld DR to comply with Bench's last direction dt. 01.04.25. It is made clear, in case the department fails to comply with order dated 01.04.25, it will be open to the Bench to proceed with the appeals based on materials available on record. Adjourned to 16.09.25”
On 10.09.2025 the factual report was produced that the record is not traceable. In such circumstances, we find that it would be futile to grant any further time for production of the satisfaction note. The extract of the relevant report as submitted by the learned DR is reproduced below:- 2. Vide above referred letter, this office has been asked to provide copy of satisfaction note regarding initiation of proceedings u/s 153C and factual report.
3. In this regard, it is submitted that the physical records in the case of M/s. Good Living Shelter Pvt Ltd for the Assessment Years 2008-09 to 2010- 11 are not readily available in this office. In the absence of these physical records, we are unable to provide required document and report as called for. Efforts are being made to locate the records of the assessee. As soon as the records are traced, the reply will be submitted immediately.
, 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd.
4. In view of the above, it is kindly requested that some additional time may be granted to enable us to locate the records and furnish the required report.
From the perusal of records, we further notice that the assessee has filed an application under the Right to Information (RTI) Act and the reply dated 13.11.2024 states that the records are not traceable for the impugned assessment years. The copy of the reply is extracted below:
, 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. A similar reply is given for the application made on 16.04.2025 vide letter dated 28.04.25. We also notice that the assessee has written various letters to the AO dated 4.2.2025, 24.03.3035, 12.04.2025, 30.04.2025 and 02.05.2025 and it was submitted that no reply was received.
In Calcutta Knitwears, a search operation was carried on u/s 132 of the Act on two premises of Bhatia group, viz. M/s. Swastik Trading Company and M/s. Kavita International Company in which certain incriminating documents pertaining to the assessee and M/s. Calcutta Knitwears were alleged recovered. Before the Supreme Court the issue which fell for consideration was at what stage of the proceedings under Chapter XIV-B does the AO require to record the satisfaction for an issuing notice u/s 158BD of the Act. The Supreme Court held that such satisfaction note is sine qua non and must be prepared by the , 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. Assessing Officer (of the person/entity searched) before he transmits the records to the other Assessing Officer who has jurisdiction over such other person, i.e. the assessee. Such satisfaction note could be prepared (i) at the time of or along with the initiation of proceedings against the searched person under section 158BC; (ii) along with the assessment proceedings under section 158BC; and (iii) immediately after the assessment proceedings are completed under Section 158BC of the searched person. In that case, the factual aspect as to the submissions on behalf of the assessee that there was no such satisfaction note has not been examined by the Supreme Court as these issues of facts were remitted to the High Court for consideration of individual cases. Be that as it may, as noticed earlier, the Supreme Court has held that recording of such satisfaction note is sine qua non for the subsequent issuance of notices and the consequent assessment.
We further notice that the CBDT in Circular No. 24/2015 took note of the decision of the Supreme Court M/s Calcutta Knitwear [362 ITR 373] and has issued a circular which reads as under:- "Taking note of the above, on 31.12.2015, a Circular No. 24 of 2015 was issued by the Central Board of Direct Taxes (CBDT) which reads as under:
"1. The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.
The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014 dated 12- 3-2014 [2014] 43 taxmann.com 446 (SC) (available in NJRS at 2014-LL-0312-51) has laid down that for the purpose of section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person w/s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages:
, 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. (a) at the time of or along with the initiation of proceedings against the searched person under section 1588C of the Act: or (b) in the course of the assessment proceedings under section 1588C of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."
Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari- materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.
The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.
In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 1588D/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court." (Emphasis Supplied)
It can thus be seen that the CBDT has accepted the position that the guidelines laid down by the Supreme Court in the case of Calcutta Knitwear (supra) while dealing with the provisions of Section 158BD of the Act, shall also apply to proceedings under Section 153C of the Act. Para 5 of the Circular has makes it clear that, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the Judgment referred in the Circular, i.e., M/s. Calcutta Knitwears (cited supra). Para 4 of the Circular, makes it clear that, the Supreme Court's guidelines with regard to the recording of satisfaction , 1610 & 1611/Mum/2024 Good Living Shelters Pvt. Ltd. note may be brought to the notice of all for strict compliance and the Circular has further made it clear that, it is clarified that even if the Assessing Officer of the searched person and the other person is one and the same, then also he is required to record his satisfaction as has been held by the Courts.
We, thus find that the recording of such satisfaction is a mandatory jurisdictional requirement, and any omission in this regard vitiates the assumption of jurisdiction and renders the consequent proceedings null and void in the eyes of law. We, thus find that the appeal deserves to be allowed. No purpose would be served by remitting the matter back to the CIT(A) as it would be a futile exercise as no new facts needs to be examined or enquired into. The appeal is accordingly allowed.
In the result all three appeals filed by the assessee are allowed.