MOHAN KUMAR GARG,NEW DELHI vs. DEPUTY COMMISSIONER OF INCOME TAX, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.6801/DEL/2026 (Assessment Year: 2014-15) ITA No.6802/DEL/2026 (Assessment Year: 2015-16) ITA No.6803/DEL/2026 (Assessment Year: 2016-17) ITA No.6804/DEL/2026 (Assessment Year: 2019-20) Mohan Kumar Garg, vs. DCIT, Central Circle 28, G-1, 34/1, Vikas Apartments, New Delhi. East Punjabi Bagh, New Delhi – 110 026. (PAN : AAHPG1040R) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Sumit Lalchandani, Advocate Shri Salil Kapoor, Advocate Ms. Aditri Taneja, Advocate Shri Shivam Yadav, Advocate REVENUE BY : Shri Zafarul Haque Tanweer, CIT DR Date of Hearing : 15.09.2026 Date of Pronouncement : 14.10.2026 O R D E R PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER :

2 ITA Nos.6801 to 6804/Del/2026

“1 That the notice issued and the assessment order passed under Section l53C of the Income Tax Act, 1961 (‘the Act’) by the Assessing Officer (‘AO’) are fundamentally flawed, being without jurisdiction, barred by limitation, and passed in violation of the statutory framework governing such proceedings, thereby rendering them legally unsustainable 2 The notice issued under Section 153C of the Act and the consequent assessment proceedings are illegal, void ab initio, and without jurisdiction, as the statutory preconditions for invoking Section 153C of the Act were not satisfied, rendering the proceedings bad in law and liable to be quashed 3 That on the facts and in the circumstances of the case, the AO has erred in failing to record the requisite satisfaction as mandated under law, thereby rendering the impugned proceedings invalid, bad in law, and without jurisdiction.

3 ITA Nos.6801 to 6804/Del/2026

4 On the facts and circumstances of the case and in law, the proceedings initiated under section 153C of the Act are bad in law as the seized material neither has any bearing on the determination of the total income of the assessee nor is there any valid and detailed satisfaction recorded by the Assessing Officer to this effect.

4 ITA Nos.6801 to 6804/Del/2026

point of time when no satisfaction of the searched persons' Assessing Officer existed. The notices were thus issued before jurisdiction itself came into being and were stillborn.

5 ITA Nos.6801 to 6804/Del/2026

against whom proceedings could be initiated, if at all, only in strict conformity with the machinery of section 153C of the Act. During the said search, a laptop of one Sh. Sunil Kumar Gupta was seized as Annexure A-32 from the premises at 3584/4, Narang Colony, Gali No. 4, Tri Nagar, Delhi, from the Tally backup data whereof the Revenue claims to have retrieved ledgers styled “Mohan Garg” and “Mohan Garg – A/c Donation”, forming the entire foundation of the impugned proceedings.

Date Event Reference 18.10.2019 Search under section 132 on the Alankit Group; laptop of Sh. Pgs. 11, 13 Sunil Kumar Gupta seized as Annexure A-32 to the Panchnama of even date. 18.04.2022 Satisfaction note recorded by the ITO, Ward-72(1), New Pgs. 1-2 Delhi, the jurisdictional Assessing Officer of the Assessee (“JAO”). Seven notices under section 153C for AYs 2014-15 to 2020- Pgs. 3-9 21 issued by the JAO on the very same date, all digitally signed between 12:45 PM and 12:46 PM. 02.06.2022 Return of income filed by the Assessee in response to the Pg. 86 (PB) notice under section 153C (AY 2014-15). 21.06.2022 Satisfaction note recorded by the DCIT, Central Circle-28, Pgs. 11-15 New Delhi, the Assessing Officer of the searched persons, recording that the seized documents are handed over to the AO of the “other person” on that date. Covering letter of even date issued by the DCIT, Central Pg. 10 Circle-28 to the ITO, Ward-72(1), forwarding the satisfaction note with annexures “for further necessary action and re-opening of case” of the Assessee under section 153C

6 ITA Nos.6801 to 6804/Del/2026

Date Event Reference for AYs 2010-11 to 2020-21. 05.09.2022 Order under section 127(2) passed by the Pr. CIT, Delhi-15, Pgs. 16-17 transferring the case of the Assessee from the ITO, Ward- 72(1), Delhi to the DCIT/ACIT, Central Circle-28, Delhi. 15.03.2023 Second satisfaction note recorded by the DCIT, Central Pgs. 18-20 Circle-28 (post-centralisation) for AYs 2010-11 to 2013-14, acknowledging in terms that the proceedings for AYs 2014- 15 to 2020-21 rest on the satisfaction note drawn on 18.04.2022, and recording, for the first time, a satisfaction of escapement of income above Rs. 50 lakhs represented in the form of assets. 16.03.2023 Notices under section 153C for AYs 2010-11 to 2013-14 Pgs. 21-24 issued, granting three days to furnish returns. 28.03.2023 Assessment orders under section 153C framed by the DCIT, Pgs. 44-84 Central Circle-28. (PB) 21.04.2026 Common order under section 250 passed by the Ld. CIT(A), Pgs. 8-35 Delhi-25, dismissing the jurisdictional grounds. (PB)

7 ITA Nos.6801 to 6804/Del/2026

has a bearing on the determination of the total income of such person, may issue notice and proceed under section 153C. The sequence flows from the presumption enacted in sections 132(4A)(i) and 292C(1)(i) of the Act, whereunder documents found in the course of search are presumed to belong to the person searched. Until the Assessing Officer of the searched person records his satisfaction displacing that presumption and hands over the material, the seized documents, in the eyes of law, belong to none but the searched person, and no occasion can arise for any other officer to proceed against a third party on their strength. The recording of that satisfaction, followed by the handing over, is thus the jurisdictional fact – the sine qua non – for the exercise of power under section 153C. 10. He submitted that the Hon'ble Supreme Court in CIT v. Calcutta Knitwears, Ludhiana, (2014) 362 ITR 673 (SC), construing the pari materia provisions of section 158BD, held that the recording of the satisfaction note by the Assessing Officer of the searched person is a prerequisite which must precede the transmission of the record to the Assessing Officer of the other person. The CBDT, by Circular No. 24/2015 dated 31.12.2015, has accepted the judgment, declared section 153C to be substantially similar and pari materia to section 158BD, made the law so laid down expressly applicable to section 153C, and directed

8 ITA Nos.6801 to 6804/Del/2026

that pending litigation be withdrawn where the satisfaction note does not conform to it. He submitted that the Circular binds the Revenue. 11. He further submitted that the notices dated 18.04.2022 precede the jurisdictional fact and are stillborn. He submitted that tested against this scheme, the illegality is self-evident. When the JAO recorded his purported satisfaction and issued seven notices under section 153C on 18.04.2022 (at pages 1-9 of the convenience compilation), the satisfaction note of the Assessing Officer of the searched persons was not in existence at all. It came to be recorded only on 21.06.2022, and it records the handing over of the seized documents to the Assessing Officer of the other person on that very date (at pages 11-15 of the convenience compilation). He further submitted that the notices thus preceded the jurisdictional fact by more than two months. A notice issued before the condition precedent for its issuance came into existence is stillborn; the subsequent recording of satisfaction cannot breathe life into it, for jurisdiction must exist at inception and can neither be conferred retrospectively nor supplied by subsequent events. The assessments framed in consequence are a nullity. 12. He further submitted that what places the matter beyond the pale of any controversy is the covering letter dated 21.06.2022 issued by the DCIT, Central Circle-28 to the ITO, Ward-72(1) (at page 10 of the convenience

9 ITA Nos.6801 to 6804/Del/2026

compilation). By the said letter, the Assessing Officer of the searched persons records that the “satisfaction note along with related annexure are being sent to you for further necessary action and re-opening of case of Sh. Mohan Kumar Garg (PAN-AAHPG1040R) u/s 153C for A.Y. 2010- 11 to 2020-21”. 13. He submitted that the letter proceeds to state that “if the jurisdiction does not pertain to your charge, please forward it to the concerned A.O.”, demonstrating that even the identity of the officer competent to act had not been determined as late as June 2022. He submitted that in the premises, it is respectfully submitted that: (i) the jurisdictional fact the satisfaction of the searched persons' Assessing Officer and the handing over of the seized material – came into existence, on the Revenue's own record, only on 21.06.2022; (ii) the notices dated 18.04.2022, having been issued anterior thereto, were issued in the teeth of the statutory scheme and are void ab initio, the covering letter dated 21.06.2022 placing this beyond controversy. 14. With regard to absence of any material having any bearing on the determination of the total income of the assessee, in addition to and without prejudice to the above, it is submitted that the satisfaction note of the jurisdictional Assessing Officer(at pages 1-2 of the convenience compilation) records no finding that the material has any bearing on the

10 ITA Nos.6801 to 6804/Del/2026

determination of the total income of the assessee, rendering the entire proceedings illegal, void ab initio, and liable to be quashed. 15. He further submitted that a close reading of section 153C reveals that Parliament obligates the Assessing Officer of the searched person to record a clear finding to the effect that the seized books, documents or material “belong to” or “pertain to” a person other than the searched person, and it is upon this determination that the material is required to be handed over to the Assessing Officer of such “other person”. Thereafter, and crucially, the statute casts a substantive and independent obligation upon the Assessing Officer of the other person (i.e., the JAO of the Assessee) to apply his mind to the seized material and to record his own satisfaction that such material “has a bearing on the determination of the total income” of the assessee for the relevant assessment years. It is only upon the recording of this second, independent jurisdictional satisfaction that valid proceedings under section 153C can be initiated. In the present case, however, the satisfaction note of the JAO demonstrably fails to meet the statutory condition. The JAO has wholly failed to record any finding, much less a reasoned one, that the material has any bearing on the total income of the Assessee. The essential jurisdictional finding required by section 153C(1) is therefore conspicuously absent, rendering the entire initiation process legally unsustainable.

11 ITA Nos.6801 to 6804/Del/2026

12 ITA Nos.6801 to 6804/Del/2026

paragraphs (63, 64, 67 and 69) are reproduced hereunder for ready reference:

“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 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 may be. 67. On an overall consideration of the aforesaid, we come to the firm conclusion that the "incriminating material" which is spoken

13 ITA Nos.6801 to 6804/Del/2026

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. 69. ………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.”

14 ITA Nos.6801 to 6804/Del/2026

the total income of the Assessee for any assessment year. The absence of this statutory finding is not a curable irregularity; it goes to the root of jurisdiction. The law does not permit the Assessing Officer to invoke section 153C on the basis of a borrowed, templated or mechanical satisfaction. This omission strikes at the heart of the jurisdiction assumed by the JAO and renders the entire proceedings illegal, void ab initio and liable to be quashed. It is submitted that the JAO having failed to record any such satisfaction, the notices, the consequential proceedings and the assessment orders are wholly vitiated. 20. In view of the above submissions, he accordingly prayed that the Bench may be pleased to hold the notices dated 18.04.2022 under section 153C of the Act and the assessment orders dated 28.03.2023 framed in consequence thereof for AYs 2014-15, 2015-16, 2016-17 and 2019-20 to be without jurisdiction and void ab initio, to quash the same, and to allow the appeals under consideration with all consequential reliefs. 21. On the other hand, ld. DR of the Revenue submitted that the AO’s of the party searched persons and other person are same and satisfaction recorded by the same AO. Therefore, he objected to the submissions of the assessee and relied on the detailed findings of lower authorities. 22. Considered the rival submissions and material placed on record. We observed that the search was conducted upon the Alankit Group on

15 ITA Nos.6801 to 6804/Del/2026

18.10.2019. Based on the information obtained in the above search, the proceedings were initiated in the case of the assessee, the AO of the assessee had recorded the satisfaction based on the documents transferred to him by the investigation wing. There is no communication available on record to establish that the AO of the searched person had recorded the satisfaction before forwarding the documents to the AO of the assessee. The AO of the assessee initiated the proceedings u/s 153C of the Act for the AYs 2014-15 to 2020-21 by recording the satisfaction only on 18.04.2022 even though the search was completed on 18.10.2019. In response, the assessee filed the return of income on 02.06.2022. Subsequently, the satisfaction note recorded by the searched persons were handed over to the AO of the assessee only on 21.06.2022. We further observed that the cases of Alankit Group were centralised, it was assigned to DCIT/ACIT, CC-28, Delhi from ITO, Ward 72(1). For some reason another satisfaction note was recorded by the AO at CC-28 and first time, escapement of income above 50 lakhs was established in the form of assets. It is not clear how the proceedings were initiated by the JAO in the first-place u/s 153C and the relevant satisfaction. In the second round of satisfaction only the escapement was established and the proceedings were initiated on the basis of first satisfaction note, it is clear that the proceedings were initiated without establishing his own satisfaction that

16 ITA Nos.6801 to 6804/Del/2026

the material has a bearing on the determination of total income of the assessee. Only in the second satisfaction note, it was improvised to establish the escapement of income in the form of assets and initiation of proceedings were not based on the second satisfaction note. Further, it is established procedure that the initiation of proceedings u/s 153C commences only when the satisfaction notes of the AO of the searched person and handing over of the same to the AO of the third person after establishing the bearing of escapement of income. On receipt of the same, the AO of the third person necessarily had to establish the bearing of such escapement of income in the total income declared by such person. It was held by the Hon’ble Supreme Court in the case of Calcutta Knitwears (supra) in the similar provision’s u/s 158BD of the Act. There was no satisfaction note recorded by the AO of the searched person at the time of handing over of the documents to the AO of the assessee, at least was not brought on record. In defence, Ld DR submitted that the AO of both the parties are same, hence, it is enough to record satisfaction at one end. After careful verification of record, it is established the there is no satisfaction note recorded by the AO of the searched person before handing over of the documents and also the proceedings were initiated on the basis of satisfaction note recorded without establishing it pertains to and bearing of material found during the search on the total income of the

17 ITA Nos.6801 to 6804/Del/2026

third person i.e., assessee in this case. Further, it establishes the fact from the recording of the second satisfaction note subsequently by the DCIT, CC-28, which was nothing but only to establish/improve the escapement of income above 50 lakhs represented in the form of assets, still failed to establish the income pertains to and having bearing of the total income of the assessee. It clearly establishes the fact that the initiation of proceedings without establishment of the income pertains to and having bearing on the determination of the total income of the assessee, rendering the entire proceedings void ab initio and liable to be quashed. The issue under consideration is squarely covered by the decision of Hon’ble Delhi High Court in the case of Saksham Commodities Ltd (supra), where it was held that the usage of the expression “have a bearing” would necessarily lead to the conclusion that the mere discovery of books, documents or assets would not justify the initiation of proceedings. Upon receipt of that material, the jurisdictional Assessing Officer must be satisfied that the same are pertains to and likely to have bearing on “the determination of the total income”. The Hon’ble Court thus concluded that the initiation of action under section 153C of the Act must be founded on a formation of opinion by the jurisdictional Assessing Officer that the material handed over and received pursuant to a search is likely to influence the “determination of the total income” and

18 ITA Nos.6801 to 6804/Del/2026

is relevant for the assessment or reassessment. Therefore, we are inclined to hold the whole proceedings-initiated u/s 153C as bad in law and accordingly quashed. 23. The assessee also raised several other issues; we have not adjudicated the same and kept them open at this stage. 24. Since we have quashed the assessment order on the jurisdictional issue, the other grounds raised by the assessee are not adjudicated at this stage and the same are kept open. 25. In the result, the appeal for AY 2014-15 filed by the assessee is allowed. 26. Since the facts in AYs 2015-16, 2016-17 and 2019-20 are exactly similar to Assessment Year 2014-15, our above findings in AY 2014-15 are applicable mutatis mutandis in Assessment Years AYs 2015-16, 2016-17 and 2019-20. Accordingly, the appeals filed by the assessee for AYs 2015-16, 2016-17 and 2019-20 are allowed. 27. To sum up : all the appeals filed by the assessee are allowed.

Order pronounced in the open court on this 14th day of October, 2026.

Sd/- sd/- (MAHAVIR SINGH) (S. RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 14.10.2026 TS

19 ITA Nos.6801 to 6804/Del/2026