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Facts
The assessee filed appeals against the orders of the CIT(A) for AY 2016-17 & 2017-18. The appeals relate to additions made under Section 153C based on cash deposits and withdrawals found in bank accounts during a search operation.
Held
The Tribunal held that the initiation of proceedings under Section 153C was not proper and bad in law as the additions were not based on the satisfaction note and incriminating material. The Tribunal also noted that the approval granted under Section 153D was mechanical.
Key Issues
Whether proceedings under Section 153C are valid if additions are not linked to the satisfaction note and incriminating material? Whether the approval under Section 153D was mechanical?
Sections Cited
153C, 153D, 69A, 271(1)(c), 65B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR
Alok & Co. LLP Vs. Deputy Commissioner of 234, DDA Office Complex, Income Tax, Jhandewalan, Central Delhi, Central Circle-28, Paharganj S.O., New Delhi Delhi-110055 PAN: ABCFA4622K (Appellant) (Respondent) Assessee by Shri Sumit Lal Chandani, Shri Shivam Yadav, Ms. Ananya Kapoor, Ms. Sejal Arora, Advocates Revenue by Ms. Monika Singh, CIT-DR Date of Hearing 28/01/2026 Date of Pronouncement 11/03/2026 ORDER
PER S. PRIFAUR RAHMAN, AM
The assessee has filed appeals against the order of the Learned Commissioner of Income-Tax(Appeals)-25, New Delhi [“Ld. CIT(A)”, for short] dated 28.02.2025 for the Assessment Year 2016-17 & 2017-18.
The assessee has raised following grounds of appeal:
“1. That the notice issued and the assessment order passed under Section 153C 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.
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.
That the approval granted under Section 153D of the Act for passing the assessment order under Section 153C is invalid, as it has been granted in a mechanical manner, without independent application of mind, rendering the assessment order bad in law.
5. That on the facts and in law, the approval under section 153D stands vitiated due to non-application of mind, as both the proposal and the approval are mere carbon copies across years and group entities, issued in the fag end, in breach of the statutory mandate.
6. That the approval under Section 153D of the Act is bad in law as both the proposal and the approval under Section 153D were invalid being issued without a Document Identification Number (DIN) in violation of CBDT Circular No. 19/2019 dated 14.08.2019.
7. On the facts and in law, the AO/CIT(A) failed to appreciate that, in the absence of incriminating material found during the search, the interference with a completed assessment and additions under Section 153C of the Act are unsustainable and without jurisdiction.
8. On the facts and in law, excel sheets and tally data retrieved from electronic devices are inadmissible as evidence due to non-compliance with Section 65B of the Indian Evidence Act, 1872 and the CBDT Manual, rendering the additions made by the AO liable to be deleted.
9. On the facts and circumstances of the case and in law, the AO has erred in relying upon the retracted statements and material seized from the residential premises of Mr. Sunil Kumar Gupta without providing an opportunity to cross-examine despite specific request.
10. On the facts and circumstances of the case and in law, the AO erred in passing the assessment order under Section 153C of the Act without generating, allotting, quoting. and communicating a valid DIN, in contravention of Circular No. 19 of 2019 dated 14.08.2019, rendering the entire proceedings and assessment order invalid.
11. That the CIT(A) erred in upholding the validity of the notice and assessment under Section 153C and in sustaining the additions, without independent application of mind and without properly considering the detailed submissions filed, rendering the order arbitrary and legally unsustainable.
On the facts and circumstances of the case, the CIT(A) failed to appreciate the fact that the additions/disallowances made by the AO are beyond the scope of the satisfaction note.
On the facts and circumstances of the case and in law, the AO erred in making illegal additions and completing the assessment at income of 3,87,810/-, as against the returned income of Rs. 2.77.550/- declared by the Appellant.
On the facts and circumstances of the case, AO has wrongly made addition of Rs. 1,10,260/-under Section 69A of the Act and CIT(A) has erred in upholding the same.
On the facts and circumstances of the case and in law, the AO erred in charging interest and initiating penalty proceedings under Section 271(1)(c) of the Act.” 4. At the time of hearing, Ld AR of the Assessee brought to our notice page 84 of the paper book, which is the satisfaction recorded the AO of the assessee u/s 153C of the Income Tax Act (in short ‘Act’). For the sake of brevity, it is reproduced below:
From the above, it is brought to our notice that the satisfaction was recorded based on the information received from the search person, wherein it was found that cash deposits and withdrawals have been made. In order to examine and verification of the source and utilisation of these cash deposits and withdrawals. It is fact on record that the assessee had already filed its original return of income. It is submitted that there is no bearing on the total income of the assessee.
Further, it was brought to our notice the approval granted u/s 153D, which is placed at page 93 of the paper book. It was submitted that the AO had forwarded draft assessment order to Addl CIT on 26.03.2023 and the approval was granted on 27.03.2023. Therefore, the approval granted is mechanical.
Further, it was submitted that reasons recorded is different to the additions made by the AO. In this regard, it is brought to our notice the additions made by the AO relates to the commission on both debtors and creditors based on allegation that the assessee had provided accommodation entries to the beneficiaries. Whereas the reasons/satisfaction recorded to verify the cash withdrawals made by the assessee and to verify its sources. In this regard, Ld AR relied on the decision of the Hon’ble Delhi High Court in the case of Pr CIT vs Nahid Finlease Pvt Ltd (ITA 1483/2018) dated 13.05.2019. The High Court had upheld the decision of the ITAT, which had deleted the addition on the reason that the addition was not based on the satisfaction note prepared for the purposes of initiation of proceedings against the assessee u/s 153C of the Act. The so-called incriminating material had to have some nexus with the addition ultimately made. That not having been established.
On the other hand, Ld DR objected to the same and submitted that AO was convinced that there is undisclosed income. Therefore, there is proper satisfaction. With regard to approval granted u/s 153D, she submitted that the approval was granted after a day and only on application of mind. For the other issues, she relied on the findings of lower authorities.
Considered the rival submissions and material placed on record. We observed that the satisfaction recorded to initiate the proceedings u/s 153C was on the basis of incriminating material found during the search that the assessee had withdrawn cash and in order verify the source of the same, the proceeding was initiated. Accordingly, the information was collected from the banks for the block period. From the above information, it was noticed that the assessee had credits and debits in its bank account. Since the assessee is part of Alankit Group, they used for providing accommodation entries. The AO came to the conclusion that the assessee must have charged 1.5% commission on the various entries provided by it on both the credit and debits. Accordingly, the assessment were completed. From the above facts on record, we observed that the satisfaction note was recorded on the basis of material supplied by the AO of the searched person, as per which the assessee had withdrawn cash. On careful verification of the satisfaction note, we observed that there is no bearing to the total income of the assessee. The AO had not established how the cash withdrawal will have bearing on the total income of the assessee. Therefore, in our considered view, the satisfaction recorded had any bearing to the total income of the assessee.
Coming to the next issue raised by the assessee on mechanical approval granted u/s 153D of the Act, after careful consideration of the fact on record, we observed that the draft assessment order was forward to the Addl. CIT on 26.03.2023 and the approval was granted on 27.03.2023. Since the issue involved in the present case is not complicated and we do not see any reason to reject the same. Therefore, we are inclined to reject the above submissions.
The next issue is relating to additions made in the assessment order which was not based on the satisfaction note prepared for the purpose of initiation of proceedings against the assessee u/s 153C of the Act. In this case, we observed that the addition made by the AO on the basis of accommodation entries, which he has presumed that the assessee is one of the company in the Alankit group, as the Alankit group was engaged in providing the accommodation entry providers to the beneficiaries. Based on the bank entries, he made the addition on the presumption whereas the satisfaction was recorded to verify the bank withdrawals. There is no clarity how the bank withdrawal lead to accommodation entries. This year there was no deposits except cash withdrawals. Since there is no establishment based on the cogent material, mere presumption cannot be termed as having connection with the incriminating material found during the search. As held in the case of Nahid Finlease Pvt Ltd (supra), there is connection with the satisfaction note and the addition made by the AO. Therefore, we are inclined to allow the issue raised by the assessee that the initiation of proceedings u/s 153C of the Act is not proper and bad in law. Accordingly, the ground nos, 1,2,3,7 raised by the assessee are allowed and ground nos 4 to 6 are dismissed and other grounds raised
by the assessee are not adjudicated.
12. In the result, appeal filed by the assessee are partly allowed.
13. Since the grounds raised by the assessee in the AY 2016-17 are exactly similar to the grounds raised in the AY 2017-18, the findings in the AY 2017- 18 are applicable mutandis mutatis. Therefore, the grounds raised in the AY 2017-18 are also partly allowed.
14. In the result, both the appeals filed by the assessee are partly allowed. Order pronounced in the open court on this 11th March, 2026.