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Facts
The assessee preferred an appeal against the order passed by the Ld. Commissioner of Income Tax(A)-IV, Kanpur, which arose out of an assessment order passed by the DCIT under Section 143(3)/153C of the Income Tax Act, 1961 for Assessment Year 2011-12. The assessee raised an additional ground alleging that the assessment order was without jurisdiction as the proceedings under Section 153C were initiated without satisfying the statutory pre-conditions, specifically without recording a satisfaction note.
Held
The Tribunal held that the invocation of Section 153C requires the Assessing Officer (AO) to be satisfied that the recovered material has a bearing on the determination of total income for a specific Assessment Year. The Tribunal found that the satisfaction notes in this case failed to record reasons as to how the discovered material pertained to the relevant AY and impacted its total income. Therefore, the Tribunal quashed the reassessment order.
Key Issues
Whether the proceedings initiated under Section 153C of the Income Tax Act are valid without a proper satisfaction note from the Assessing Officer regarding the bearing of recovered material on the total income of the relevant Assessment Year.
Sections Cited
143(3), 153C, 69, 153A
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Income Tax Appellate Tribunal, “C” BENCH, DELHI
Before: SHRI ANUBHAV SHARMA & SHRI NAVEEN CHANDRA
This appeal is preferred by the assessee against the order dated 28.02.2019 of the Ld. Commissioner of Income Tax(A)-IV, Kanpur (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No : CIT(A)-IV/11778/DCIT-CC/Noida/2016-17/918 arising out of the order dated 18.03.2016 u/s 143(3)/153C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the DCIT,CC, Noida for AY:
2011-12.
On hearing both the sides we find that assessee has raised additional grounds by application dated 27.11.2025 and of the two assessee presses only additional ground no. 1, for convenience we reproduced the same:
“Additional Ground No. 1 That the assessment order passed by learned assessing officer is without jurisdiction and void - ab - initio and is liable to be quashed, as proceedings initiated under section 153C of the Act are without satisfying the statutory pre - conditions envisaged under the Act, more specifically as no satisfaction note has been recorded prior to issuance of notice under section 153C of the Act and the impugned assessment proceeding is thus, without jurisdiction.”
P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12) 2.1 As the additional ground no. 1 raised is completely legal in nature and which can be conveniently adjudicated on the basis of admitted facts as coming up from the material before us, we admit this additional ground no. 1.
A search and seizure operation conducted on the premises of the assessee and related concern of Eminent Group of cases, wherein allegedly certain incriminating documents were found and seized relating to the assessee and thereafter notice u/s 153C was issued to which assessee had filed return showing of nil income and assessment was completed by making additions of Rs.95,60,000/- on account of unexplained investment u/s 69 of the Act on the basis of seized material which has been sustained by the ld. First Appellate Authority for which assessee is in appeal.
Ld. Counsel has primarily hit the satisfaction note alleging that the same is not in accordance with law as the same does not show as to how the allegedly recovered and seized incriminating material had a bearing on the income of the assessee for the year under consideration AY: 2011-12.
4.1 The ld. DR has defended the same by submitting that documents itself speaks and the satisfaction note cannot be a summary assessment so as to P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12) bring in a satisfaction note itself as to what addition actually is to be made and otherwise the satisfaction note gives that complete background of the search and seizure operation and details of the disputed investment which were reflected in the incriminating material.
After taking into consideration the matter on record we find that allegations against the assessee are that the incriminating documents reflected information of on money paid for purchase of land. Now one thing which is coming up on bare perusal of the satisfaction note available at page 4 of the paper book that the AO records of need for ‘deep scrutiny’ and that the initiation of proceedings u/s 153C of the Act is ‘for provide deep investigation and to plug the leaked revenue’.
Nowhere in a satisfaction note there is specific mention with regard to assessment involved AY: 2011-12, as to what extent land purchase and the payment made for that land relate to this AY and how the income of this AY is impacted. To be more precise as to how the incriminating documents indicated payment of on-money during the FY: 2010-11 for which search assessment for AY: 2011-12 is to be initiated.
P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12)
The copy of alleged document found is made available by the assessee at page No. 005 of the paper book and the same shows that by way of 4 alleged registries 13.3049 bigha of land were purchased for a total cost of Rs.114.90 lakhs of which payment has been made in by way of cheques for Rs.26.30 lakhs only. As to what material is that a part of incriminating documents seized of which available at page 006 of the paper book shows that date of sale deed in regard to Gata No. 436/1 is dated 03.10.2011 and same is not of this AY. This shows that the satisfaction as recorded to invoke jurisdiction u/s 153C does not show as to how the material allegedly discovered pertains to present AY: 2011-12 and was likely to have a bearing on determination of total income for this AY 2011-12 alone. As for this legal proposition we rely the decision of Hon’ble Delhi High Court in Saksham Commodities Ltd. Vs. ITO (2024) 161 taxmann.com 485 (Delhi) where Hon’ble High Court in relevant para has concluded as follows;
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 P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12)
reasons of how that material is likely to materially influence the computation of income for those AYs'. … G. CONCLUSIONS
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".
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.
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.
P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12)
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
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’ 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.
P a g e | Krish Packaging Pvt. Ltd. (AY: 2011-12) 8. In the light of aforesaid discussion we are inclined to sustain this additional ground no. 1 and allow the appeal of assessee. The impugned re- assessment order is quashed.
Order pronounced in the open court on 13.03.2026