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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
Date of hearing 03.06.2025 Date of pronouncement 03.06.2025 ORDER
PER SATBEER SINGH GODARA, JM
This assessee’s appeal for assessment year 2020-21, arises against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Delhi’s-25 DIN and order no. ITBA/APL/S/250/2024- 25/1070873223(1), dated 04.12.2024 involving proceedings under section 153C r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.
We notice at the outset during the course of hearing that the assessee herein is aggrieved against both the learned lower authorities’ action invoking section 153C of the Act against him in furtherance to a search and seizure operation dated 17.08.2020 carried out in case of Sh. Pranjil Batra Group of cases. His first and foremost argument is that the learned lower authorities have not even taken recourse to recording of a proper section 153C satisfaction; and, therefore, we ought to quash the same. Our attention is further drawn to the fact that the tribunal has already decided the instant issue in the assessee’s favour and against the department on above legal issue.
The Revenue has drawn strong support from both the learned lower authorities’ action inter alia initiating section 153C proceedings followed by unexplained investments addition made in the assessee’s hands.
We have given our thoughtful consideration to the assessee’s and Revenue’s above vehement submissions. A perusal of the case records indicates that all what made the learned lower authorities to record section 153C satisfaction against the assessee was that they had come across some alleged incriminating materials
2 | P a g e indicating him to have paid/received cash payments in immovable property transactions. That being the case, this tribunal in other connected group cases (Renu Singh Vs. ACIT) & 2810/Del/2024 (Pradeep Singh Vs. ACIT) decided on 25th November, 2024 has concluded that such a satisfaction is not sustainable in law, as under: “8. When the matter was called for hearing, the Ld. Counsel for the assessee adverted to the grounds of appeal and made wide ranging submissions on lack of jurisdiction under section 153C of the Act as well as placed arguments towards untenability of additions on merits. 8.1. On aspects of lack of jurisdiction, Ld. Counsel for the assessee referred to ‘satisfaction note’ drawn by the AO for assumption of jurisdiction under section 153C of the Act and submitted that the ‘satisfaction note’ prepared apparently suffers from the vice of being vague, non-descript and unintelligible. 8.2. Besides, it was contended that the AO has derived unlawful satisfaction alleging under reporting of sale consideration without identifying the documents found attributable to the assessee. The AO has vaguely referred to perusal of documents/information involved without identifying the documents. The AO further alleged casually without showing whether the so-called information/document “belongs to or pertains to the assessee”. Significantly, the ‘satisfaction note’ has been drawn under section 153C of the Act in a combined manner for several years starting from 2015-16 to 2021-22 without identifying as to whether so called documents/information attributable to any of the Assessment Year. The Ld. Counsel for the assessee adverted to various judicial decisions to contend that it is paramount for the AO to spell out the nature of documents in a precise manner which has a bearing on the determination of total income for a particular Assessment Year falling within the period which can be assessed under section 153C of the Act. The AO has sweepingly covered seven AYs starting from Assessment Year 2016-17 to 2021-22 within the ambit of assessment under section 153C of the Act without showing the documents which is found to relate to a given Assessment Year. As judicially viewed by the different rulings, the AO is entitled to assess the income under section 153C of the Act in the hands of non-searched person only for Assessment Year to which such seized documents relate to and has bearing on the determination of total income. 3 | P a g e The material unearthed must be found to be germane for the purposes of assessment of a given assessment year. This is the marked distinction between the provision of section 153A and 153C of the Act. Since conditions have not been fulfilled; the ‘satisfaction note’ clearly suffers from the vice of non-application of mind as well as non-speaking ‘satisfaction note’. Such ‘satisfaction note’ drawn sweepingly to cover all AYs and without making mention of specific document does not give rise to the jurisdiction available under section 153C of the Act. The Ld. Counsel for the assessee thus, submitted that in the absence of fulfillment of pre- requisites of section 153C of the Act, the jurisdiction to assess the returned income under section 153C of the Act is void, ab-initio and a nullity in law.
The Ld. Counsel for the assessee next submitted that at the time of drawing satisfaction for the purposes of assumption of jurisdiction under section 153C of the Act, the assessment for Assessment Year 2019-20 stood concluded/completed under the normal provisions of Act. Consequently, as per the judgement referred by Hon’ble High Court of Delhi in the case of Pr.CIT vs Ankush Saluja [2020] 115 taxmann.com 370 (Delhi), no addition could be made in the absence of any incriminating documents found in the course of search. The Ld. Counsel for the assessee pointed out that the assessee raised objection to the impugned ‘satisfaction note’, prepared by the AO vide letter dated 06.12.2022. The AO, in turn, disposed off the objection vide interim order dated 08.12.2022 by a cryptic order.
On merits, the Ld. Counsel for the assessee pointed out the additions made, are not justified for multiple reasons:- [i] the Agreement to Sale dated 06.08.2018 found in the course of search in the case of Pranjil Batra cannot be regarded as sacrosanct for the reason such as the Agreement to Sale was not signed by the Shri Pranjil Batra. Secondly the Agreement to Sale found in reason was only a zerox copy; [ii] the valuation report obtained by the AO from the Department Valuation Officer [“DVO”] itself indicate the fair market value of the property at INR 1,68,59,788/- as against the transaction price of INR 1,49,15,000/-. Thus, there is a very meager difference between FMV of the property and actual consideration received by the assessee. Hence, in the light of the report of the DVO, the contents of the Agreement to Sale towards sale consideration shown to be agreed at INR 4,49,50,000/- cannot be relied upon and the sale consideration decaled is rather vindicated..
The Ld. Counsel for the assessee pointed out that such Agreements are, at times, prepared to negotiate better price by the sellers from third parties. Nothing turns on such unsigned MoU. The Ld. Counsel for the assessee
4 | P a g e thus, submitted that even on merits, the additions are not sustainable in view of FMV vouched by DVO.
The Ld.CIT DR for the Revenue on the other hand, strongly supported the additions made by the AO and endorsed by the Ld.CIT(A). The Ld.CIT DR also adverted to the ‘satisfaction note’ and submitted that the AO has broadly reiterated the nature of transaction under consideration which may have bearing on the determination of total income of the assessee. Therefore, the AO has rightly assumed the jurisdiction based on such satisfaction note providing prima-facie reasons. The Ld.CIT DR also referred to the decision rendered by the Hon’ble Delhi High Court in the case of Indian National Congress vs DCIT [2024] 160 taxmann.com 606 (Delhi) to contend that the ‘satisfaction note’ covering multiple years carries no infirmity in law. The AO is entitled to prepare a common satisfaction note covering the various Assessment Years falling within the limitation period available for assessment under section 153C of the Act. 12.1. The Ld.CIT DR also defended the action of the AO in placing reliance over the Agreement to Sale found at the premises of Shri Pranjil Batra and submitted that on reading of Agreement to Sale, it will be evident that the understanding between the assessee, sellers and the corresponding buyer, Shri Pranjil Batra was to acquire the property at a higher consideration of INR 4,49,50,000/- and while registering the Sale Agreement, the assessee in collusion with the purchaser have drastically reduced the sale consideration depriving the Revenue of its lawful taxes. 12.2. The Ld.CIT DR thus pointed out that the lack of jurisdiction as pleaded on behalf of the assessee, is totally unjustified in the facts of the present case. The satisfaction note broadly provides the nature of undisclosed income emanating from the incriminating material found in the course of search. The Ld.CIT DR for the Revenue also submitted that report of DVO showing lesser fair market value as not bearing in the instant case where the assessee and the purchaser have mutually agreed for a higher consideration.
In re-joinder, the Ld. Counsel for the assessee reiterated the factual aspects and submitted that apart from the DVO report, affidavit of Shri Pranjil Batra dated 18.12.2022 placed in the Paper Book also supports the sale consideration received by the assessee. As per the affidavit of the purchaser Shri Pranjil Batra, the total sale consideration involved in the property transaction stands at INR 1,49,15,000/- only and no more. Some photocopy of Agreement to Sale remaining unsigned by the purchaser is thus, of no consequence, more so, when the purchaser as well as the DVO report supports the veracity of actual sale consideration.
We have carefully considered the rival submissions and perused the assessment order, first appellate order, documents and material referred to and relied upon and the case laws cited. 5 | P a g e
The controversy involved in the present case are two fold:-[a] lack of jurisdiction usurped under section 153C as alleged on behalf of the assessee; and [b] additions unjustified on merits as claimed by the assessee.
The assessee has made wide ranging submissions towards lack of jurisdiction assumed under section 153C of the Act to re-assess the returned income in a concluded assessment. The assessee has contested the assumption of jurisdiction on the strength of alleged infirmities in the ‘satisfaction note’ prepared by the AO of the searched person as well as that of AO of the assessee to usurp jurisdiction under section 153C of the Act.
The ‘satisfaction note’ recorded by the AO of assessee (also AO of searched person) being germane to the determination of challenge to assumption of jurisdiction. It would be apt to reproduce the ‘satisfaction note’ recorded hereunder:- “A search was conducted in the case of Shri Pranjil Batra on 17/08/2020. During the proceedings of Search and Seizure action at premises of Shri Pranjil Batra, incriminating documents were found and seized. There are various documents/ information which suggests that Sh. Pranjil Batra has acquired huge wealth and has invested in various properties, deposited in bank accounts in the names of various persons and entities. Most of these persons are related to Sh. Pranjil Batra or his employees. Most of the entities are paper entities and are controlled and managed by Sh. Pranjil Batra. However, in sake of name Sh. Pranjil Batra has appointed his relatives/employees as directors/share holders in these entities. On perusal of such documents/information it has been observed that many of such information/ documents belongs to or pertains to the assessee as per brief description given under:- S.No. Premise/Party/Annexure Description of document seized /Page No. 1. Premise of Shri Pranjil Baua. Sh. Pranjil Batra has entered into a transaction F 193 Laxmi Nagar, New of sale/purchase of property with the Delhi assessee. As per incriminating documents and of sale deed agreement. has been evident that there is a huge difference in the consideration price as per agreement and sale deed. Further, cash exchange is also involved in this transaction. As per incriminating documents there is a difference of Rs. 300 Lacs and cash exchange of Rs. 90 Lacs. Panchnama was signed on 18/08/2020. The above documents have been examined and I am, being the assessing officer of the searched person. satisfied that the information contained in documents seized during the course of search u/s 132 of the 1.T. Act, 1961 at the premises of Shri Pranjil Batra, pertains to the assessee, who 6 | P a g e is a case of a person other than the person referred to in Section 153A ie. Shri Pranjil Batra. Hence, the information is being sent to the assessing officer of the such other person. Further, I am satisfied within the meaning of Section 153C r.w.s. 153A of the Act, that the documents have bearing on the determination of the total income of Renu Singh for the A.Y. 2015- 16 to 2021-22.”
The AO being common to the searched person as well as the assessee. The ‘satisfaction note’ prepared in the capacity of the AO of the searched person is identical and therefore, not reproduced.
Section 153C of the Act pertains to the assessment if income in cases where certain documents, assess or books of accounts etc. pertains to or relates to person other than the person on whom search was conducted under section 132 of the Act or requisitioned under section 132A of the Act. This section allow the AO to initiate proceedings against any other person (not the searched person) if there are indications of undisclosed income. A key component of initiating search proceedings under section 153C of the Act is the ‘’satisfaction note’ to be recorded by the AO of the searched person as well as AO of the third person. The ‘satiation note’ is the first step and a foundational document to determine the validity of the assessment process against a third parties whose documents or assets etc. are found in a search. Satisfaction note is critical because it serves as a safeguard against arbitrary proceedings and ensures that the powers of section 153C of the Act is exercise judiciously. It is a formal statutory requirement without which the proceedings against other person could be considered invalid. The ‘satisfaction note’ being so critical and powers under section 153C of the Act being contingent upon such Note, the information contained therein need to be actionable. This being so, the ‘satisfaction note’ is expected to identify the relevant material found in search and that it pertains to or relates to third person. Such material found should reliably indicate or suggest the bearing of such documents/assets etc. to the income in the hands of third person. The ‘satisfaction note’ should record such material to provide accountability of the AO and to justify the initiation of proceedings against other person. In summary, such Note should set the narrative in an objective manner, as far as possible, to enable judicial scrutiny of such document, if so called for.
The assessee contends that ‘satisfaction note’ which is the first step for assumption of jurisdiction under section 153C of the Act and provides foundation for conferment of jurisdiction is plagued with multiple legal infirmities. Viz: [i] the ‘satisfaction note’ has been recorded by the AO of searched person and that of assessee collectively for the period AY 2015-16 to AY 2021-22 without identifying the incriminating material in respect of any particular Assessment Year; 7 | P a g e [ii] the AO has thrown open the whole basket of six years without giving reference to any concrete incriminating material of a particular assessment Year; [iii] the act of the AO making sweeping averment in the satisfaction note that documents have bearing on determination of total income of Smt.Renu Singh for AY 2015-16 to 2020-21, is without legal foundation as the AO has even failed to name the alleged documents and further failed to mention as to how it is related /pertained to which Assessment Year; [iv] the AO on receipt of material/documents from the AO of the searched person must necessarily apply his mind on the material received and ascertain precisely the specific year to which incriminating material relates. It is only when this determination/ascertainment is complete that the flood gates of an assessment would open qua those particular years. The issuance of notice cannot be an automated function unconnected to this exercise of analysis and ascertainment by the AO in the light of judgement rendered in the case of Agni Vishnu Feature Pvt.Ltd. vs DCIT [2023] 157 taxmann.com 242 (Madras); [v] the ‘satisfaction note’ do not provide any particulars of documents seized from the premises of Shri Pranjil Batra. Nothing is mentioned with regard to Annexure No., page no. of the panchnama through which the documents were seized and the basis which prompted the AO to record satisfaction that the same pertains to the assessee herein. The basic facts such as nature of documents, type of documents, name of parties, amount of transaction, assessment year to which such document relate to etc. is not discernible from the satisfaction note. In the absence of such information, no reasonable person instructed in law can derive his independent satisfaction which impacts the foundational jurisdiction to assess third persons. The ‘satisfaction note’ also fails to unequivocally ascertain whether it is a sale transaction or a purchase transaction of the property. The AO has used both the expressions i.e. purchase and sale for the impugned transaction in the satisfaction note; [vi] the ‘satisfaction note’ do not even mention the details of co-seller or address of the property to which alleged documents belong to; [vii] the ‘satisfaction note’ has made an allegation of cash exchange of INR 90,00,000/- but the assessment order refers to an altogether different figure of INR 3,00,35,000/-; and [viii] the ‘satisfaction note’ is clearly very generic and devoid of any basic detail of the transaction in question.
We find potency in, the plea of assessee towards allegation of infirmities in the ‘satisfaction note’. The Hon’ble Delhi High Court in the case of Sakham Commodities Ltd. Vs ITO 161 taxmann.com 485 (Delhi) deftly expounded the imperatives of a ‘satisfaction note’, and observed that unearthing of incriminating material in respect of particular AY will not 8 | P a g e automatically confer jurisdiction to invoke section 153C of the Act in respect of all the AYs mentioned therein. The Hon’ble Delhi High Court further observed that discovery of material for a particular AY is not intended to trigger a chain reaction or have a water fall effect on all the AYs which can form part of the ‘relevant AYs’ under section 153C Of the Act. The Hon’ble Delhi High Court underscored well settled distinction which the law recognizes between the existence of power and the exercise thereof and thus, held that unless the AO is satisfied that the material gathered can potentially impact the determination of total income, it will be abrupt exercise of powers in mechanically re-opening or assessing all over again of the AYs covered in the block that could possibly form part of block of relevant AYs. For holding so, the Hon’ble Delhi High Court relied upon the judgement delivered by the Hon’ble Supreme Court in the case of Sinhgad Technical Education Society wherein the Hon’ble Supreme Court held that ‘the assessment under section 153C could be made only for the year to which material relates to and exercise of power under section 153C of the Act in respect of other AYs would not sustain’. The Hon’ble Delhi High Court also noted that the AO is bound to ascertain and identify the AY to which the material recovered relates and AYs which can then be subject to action under section 153C of the Act will have to be necessarily those in respect of which the assessment is likely to be influenced or impacted by the material discovered. The Hon’ble Delhi High Court went one step further to hold that where material discovered in the course of search has the potential of constituting incriminating material for more than one AYs, even in such a situation, it will be incumbent upon the AO to duly record reasons that material is likely to be incriminating for more than one AY and thus, warranting the action under section 153C of the Act for years in addition to those to which material may be directly relatable. Thus, a nuanced application of mind and recording of reasons for drawing satisfaction as contemplated under section 153C of the Act qua different AYs is paramount. The Hon’ble Delhi High Court noticeably held that issuance of a notice under section 153C of the Act is clearly not intended to be an inevitable consequence to the receipt of material by the Jurisdictional AO and that the initiation of action under section 153C of the Act will have to be founded on a formation of opinion by the Jurisdictional AO that the material handed over and received pursuant to a search is likely to influence the determination of total income and would be relevant for the purposes of assessment/re-assessment in terms of section 153C of the Act.
The observation of the Hon’ble Delhi High Court noted above, clearly provides vehement support to the plea taken by the assessee on aspects of jurisdiction flowing from ‘satisfaction note’. The ‘satisfaction note’ under scrutiny defies most of the parameters expected of him while drawing satisfaction. While exercising the power under section 153C of the Act, neither has the AO related the material found in the course of search with a particular AY while making a consolidated ‘satisfaction note’ nor 9 | P a g e provided any requisite details of transaction to enable an independent person to ascertain and form any independent opinion on facts stated in Note that invocation of section 153C of the Act is indeed warranted in the facts of the case. Mere drawing of a perfunctory satisfaction without meeting basic ingredients of providing some tangible & descript information and application of mind thereon has no standing in law and would not confer drastic jurisdiction of assessment u/s 153C of the Act on a person other than searched person. The jurisdiction assumed based on such lackadaisical ‘satisfaction note’ beset with vital infirmities cannot be countenanced in law. The objection raised on behalf of the assessee towards lack of jurisdiction based on cryptic and non-descript satisfaction thus deserves to be sustained. While recording a consolidated ‘satisfaction note’ is not a bar in law per se as rightly contended on behalf of the revenue, but however, in the same vain, the documents/assets searched need to be specified against each year covered in the satisfaction note to depict application of mind and initiation of action under section 153C of the Act qua such assessment years. The AO has failed to do so. As a corollary, the notice issued under section 153C of the Act and consequent assessment order passed under section 153C of the Act is vitiated in law and requires to be quashed.
We however, also advert to the objections raised on merits of the additions made in the assessment order. On facts, the AO has relied on some photographs of the Agreement to Sale dated 06.08.2018 and alleged that the total sale consideration of the property situated at Laxmi Nagar, Delhi stands at INR 4,49,50,000/- instead of amount of INR 1,49,15,000/- and that the assessee holds 25% share in such property. The assessee on the other hand, claims that as per the Sale Agreement, the property sold as per ‘Sale Deed’ stands at actual sale consideration at INR 1,49,15,000/- in which she holds 25% shares and accordingly, declared the capital gains based on actual such sale consideration. The AO on the other hand, alleged that the difference between the sale consideration mentioned in Agreement to Sale and Sale Deed is undisclosed part of the transaction. The basis of making additions is the photocopy of the Agreement to Sale alone as stated to be found from the premises of searched person. No other documents of independent nature or any inquiry with the purchase by the AO is brought on record. Noticeably, the Department referred said property to the DVO for determination of FMV under section 142A of the Act. The DVO issued a Valuation Report as per which the total value of the property is INR 1,68,59,788/- approximately wherein the cost of land was valued at INR 94,71,341/- and the cost of building was valued at INR 73,88,447/- . The assessee contends that the valuation report derived by the DVO after inquiry is quite close to the sale consideration declared by the assessee. The staggering difference as per the Agreement to Sale and Sale Deed is thus unconceivable and totally contrary to the estimated market value of the property. The Report of the DVO thus assumes significance for the cause of the assessee and cannot be brushed aside while weighing the 10 | P a g e factual position and giving over-riding importance to a photocopy of unsigned Agreement to Sale found from the premises of searched person. Besides, the assessee has also placed an affidavit from the purchase, Shri Pranjil Batra wherein it is affirmed that the sale consideration noted in the Sale Deed is sacrosanct. In the light of the Sale Deed, the DVO report and in the absence of any inquiry by the Revenue on facts to support the amount mentioned in the photocopy of the Agreement to sale, the sale consideration declared by the assessee cannot be discredited out rightly and substituted by whopping amount unconnected to the grounds realities. We thus, find force in the plea raised on merits also.”
We adopt the above extracted detailed discussion mutatis mutandis to conclude that the learned Assessing Officer’s identical section 153C satisfaction herein is non-est in the eyes of law, which shifts his assessment as well. Quashed accordingly. All other grounds on merit stand rendered academic.