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Facts
The assessee filed appeals against the orders of CIT(A) for Assessment Years 2012-13, 2013-14, and 2015-16. The appeals were filed with a delay. The primary issue revolved around the validity of proceedings initiated under section 153C of the Income Tax Act, alleging that the Assessing Officer failed to follow the prescribed procedure for recording satisfaction before issuing notices.
Held
The Tribunal held that the initiation of proceedings under section 153C requires a valid satisfaction note from the Assessing Officer of the searched person, which was not found to be on record in this case. The Tribunal referred to the Supreme Court's judgment in CIT vs. M/s Calcutta Knitwears and CBDT Circular No. 24/2015, emphasizing the mandatory nature of this pre-requisite. Consequently, the proceedings initiated under section 153C were deemed invalid.
Key Issues
Whether the proceedings initiated under Section 153C were validly initiated without proper recording of satisfaction by the AO of the searched person as a pre-requisite.
Sections Cited
153C, 143(3), 69A, 292C, 139(1), 158BD, 158BC
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Income Tax Appellate Tribunal, DEHRADUN BENCH: DEHRADUN
Before: SHRI YOGESH KUMAR U.S. & SHRI MANISH AGARWAL
Assessee by Shri S. Krisha, Adv. & Shri Harisht Chouhan, Adv. Department by Sh. S.K. Chatterjee, CIT-DR Date of Hearing 07/08/2025 Date of Pronouncement 12/09/2025 O R D E R PER MANISH AGARWAL, AM: These three appeals are filed by the Assessee for Assessment Years 2012-13, 2013-14 and 2015-16 passed by the Commissioner of Income Tax (Appeals)-3, Noida by separate orders. The details of the appeals are as under:
Sr. Appeal No. Asstt. Date of CIT(A)’s order. No. Years 1 38/DDN/2024 2012-13 29.11.2023 2 39/DDN/2024 2013-14 29.11.2023 3 40/DDN/2024 2015-16 29.11.2023
2. From the perusal of the record, it is seen that all the three appeals were filed delayed by 64 days for which delay condonation petition along with affidavit was filed before us. In the petition, it is stated that during the appellate proceedings, the Counsel for the assessee field submissions on 11.10.2023 and on 28.11.2023. As the assessee objected to the legality of assessment order passed on the issue of satisfaction note, therefore, on 28.11.2023, when the ld. AR appeared and filed submissions to Ld. CIT(A), he took the submissions and stated that the appeal would be listed again after going through the submissions filed. However, when the assessee visited ITBA portal on 16.03.2024, it was found that the order was passed by the Ld. CIT(A) and uploaded on the e-filing portal of the assessee. Due to this bonafide impression, the assessee was waiting for the notice of further hearing and was under impression that no order was passed. Due to this reason, the appeal was got delayed by 60 days in filing the same. No soon order was taken from ITBA portal, an appeal was filed before the Tribunal. The ld. AR thus, prayed for the condonation of delay and admit the appeal for adjudication on merits.
39 & 40 /Del/2024 Rakesh Sharma vs. ACIT 3. On the other hand, the Ld. CIT-DR submits that the reasons given by the assessee is not supported by any evidence, therefore, he requested for the dismissal of the petition for condonation of delay.
4. Heard both the parties. From the perusal of the delay condonation petition, we find that the reason given by the assessee is bonafide and there was no malafide intention as assessee had appeared on all the occasions before the Ld. CIT(A) and raised various issues including the legal issues. Under these circumstances, in the interest of justice, we condoned the delay in filing the appeals and taken them for adjudication.
5. Before us, the Ld. AR of the assessee requested that the Appeal No.39/DDN/2024 for Assessment Year 2013-14 be taken as a lead case as it contained entire argument put fourth by both the parties before the lower authorities, therefore, we first take up the appeal of the assessee in for Assessment Year 2013-14.
This appeal is preferred by the assessee against the order of CIT(A)-3, Noida in Appeal No. CIT(A), Kanpur-4/10931/2019-20 dated 29.11.2023 arising out of the order of the AO passed u/s 153C r.w.s 143(3) of the Act for Assessment Year 2013-14.
Brief facts of the case are that the assessee is an individual and was Addl. Chief Secretary to the Government of Uttarakhand during the period relevant to Assessment Years under appeal. The return of 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT income for the year under appeal was filed on 27.07.2023 at an income of Rs.18,44,220/-. Thereafter, based on the information and entries found noted in the loose papers seized during the course of search in case of one Shri Shiv Ashrey Sharma Group, the proceedings u/s 153C were invoked in the case of the assessee and notice was issued u/s 153C dated 19.08.2019 and 19.09.2019 to the assessee. In compliance to the notice, the assessee filed the return on 05.11.2019 declaring the same income as was declared in the return filed u/s 139(1) of the Act. During the course of assessment proceedings, the assessee asked for the copies of the satisfaction note recorded of the persons searched by the Assessing Officer and also of the satisfaction note recorded by the Assessing Officer of the assessee upon the receipt of the loose paper/documents. On the request of the assessee, satisfaction note of the AO of the assessee was provided, however, no satisfaction note of the AO of person searched was provided. The assessee requested for inspection and it was found that there was a single satisfaction note is available in assessment records which was recorded for various Assessment Years by the Assessing Officer of the assessee wherein the documents found and seized during the course of search on 18.04.2017 were stated. Besides this certain documents found and seized during the course of survey carried out on 08.09.2015 were also referred. The assessee objected the same, however, the AO after considering the submissions of the assessee on the legal as well as merits of the issues completed the assessment u/s 153 r.w.s 143(3) of the Act on 30.12.2019 wherein the addition of Rs.2,43,78,000/- were made based on the loose
Against the said order, the assessee preferred an appeal before the Ld. CIT(A) who vide impugned order dated 29.11.2023 has upheld the orders of Ld. AO, thus, aggrieved by the said order, the assessee preferred the appeal before the Tribunal wherein following grounds are taken by the assessee:
1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in holding the proceedings u/s.153-C of the Act to be validly initiated in the subject case.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in invoking provisions of Section 292C while upholding the assessment order.
3. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in disposing off the appeal without providing Assessee a proper and adequate opportunity of being heard and also without rebutting all the contentions.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming findings arrived at by AO without confronting documents and statements to the Assessee, and without providing opportunity of cross-examination, as specifically asked for.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming findings of AO without even positively identifying the Assessee in the chronology as assumed.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming findings reached by AO merely on the basis of presumptions and by further drawing certain hypothesis not forthcoming from material available on record
7. On the facts and in the circumstances of the case and in law, the Ld. CTT(A) erred in confirming the three additions of Rs. 32.50 Lakh, Rs. 20 lakh and Rs. 191.28 Lakh totaling Rs. 243.78 Lakhs u/s 69A relying on the statement of a co-accused denying his culpability and unbacked by any evidence.
39 & 40 /Del/2024 Rakesh Sharma vs. ACIT 8. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming addition in a sum of Rs. 243.78 Lakhs u/s.69-A of the Act merely on the basis of dumb documents. 9. The Assessee seeks leave to add to, alter, forego, or otherwise modify all or any of the grounds of appeal as above.”
9. Before us, Ld. AR of the assessee submits that a search and seizure action was carried out in the case of Sharma Group on 18.04.2017. During the course of search incriminating documents were found and seized belonging to the assesse and, therefore, in the case of the assessee proceedings u/s 153C was initiated in terms of the satisfaction note prepared by the AO of the assessee which is available at the PB pages 95 to 96. The Ld. AR submits that the case of the assessee was centralized in terms of notice u/s 127 of the Act dated 09.08.2019. Thereafter, the notice u/s 153C was issued on 19.09.2019. The Ld. AR referred the assessment order page 2-3 wherein the details of the seized document found and seized from the possession of Sharma Group based on which proceedings u/s 153C were initiated in the hands of the assessee. As per these papers, it is alleged by the Revenue that assessee had received various mounts in cash on various dates from Sh. Ashrey Sharma (General Manager in Uttar Pradesh Rajkiya Nirman Nigam) in whose case search operation was conducted on 18.04.2017. The Ld. AR drew our attention to pages 41 to 43 wherein the assessee’s in terms of letter dated 12.11.2019 and 16.11.2019 requested for supply of the copies of the satisfaction note recorded in the case of the assessee by the AO of the assessee and also of the Assessing Officer of the person searched wherein he had satisfied that the document seized from the 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT possession of the persons searched belonged to the assessee. He further submits that a request was made to supply the satisfaction note of the AO of person searched before initiating proceedings u/s 153C in the hands of assessee.
10. Ld. AR pointed out that in the copy of satisfaction note dated 19.08.2019 recorded by the Assessing Officer of the assessee i.e. the DCIT, Central Circle, Dehradun, certain papers were referred as found and seized from the possession of Sh. Shiv Ashrey Sharma related / pertaining to assessee. Ld. AR stated that these papers include one page no. 181 of Anx. LP which is part of the loose papers impounded during the course of survey carried out in case of one Shri Amit Shrama on 08.09.2015 and according to Ld. AR the same was not part of the loose papers seized during search carried out in the case of Shri Shiv Ashrey Sharma. Ld. AR drew our attention to para 5 of the assessment order wherein the AO has observed that page no.181 of loose paper was impounded during the course of survey conducted earlier on 08.09.2015 in the case of Amit Sharma.
He thus submits that even otherwise the satisfaction note recorded before initiating the proceedings u/s 153C in the hands of assessee, Assessing Officer of the assessee had not confined himself to the documents found as a result of search carried in the case of Shri Shiv Ashrey Shamra on 18.04.2017 but such satisfaction note also include the documents found much prior to search and extended the scope which is not permissbile. Based on these facts, Ld. AR of 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT the assessee submits that primary condition for initiation of proceedings u/s 153C of the Act is that the AO of the person searched must record his satisfaction that papers found during the course of search from the possession of person searched belonged to assessee and after recording such satisfaction and upon handing over the said loose papers and document to the AO of the other person, i.e. the assessee in the instant case, who in turn record his satisfaction and, thereafter, the proceedings u/s 153C could be initiated.
Ld. AR submits that despite of repeated requests made and Revenue has not been able to provide the satisfaction note of the AO of the person wherein it was observed that the loose papers belonged to the assessee. Further ld. AR stated that no such satisfaction note was available in the assessment folder of the assessee when the inspection was carried out. When such satisfaction note was not found placed in the file therefore, it could be said that no satisfaction was ever recorded by the AO of person searched before handing over the documents to the AO of the assessee which is the pre-requisite to initiate the proceedings u/s 153C in the case of assessee. He therefore, prayed that consequent proceedings u/s 153C carried out in the case of assessee deserves to be held bad in law.
On the other hand, the Ld. CIT-DR supports the orders of the lower authorities and submits that satisfaction note of the AO of the persons searched was prepared and must be available in the file of 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT that person searched, and therefore, the same could not be available in the file of the assessee. All the details with respect to which the satisfaction was recoded including the copies of the relevant material was provided to the assessee and, therefore, assessee’s contention that such action of AO is to be held as ingenuine is not correct. Further, Ld. CIT-DR submits that the documents found during the course of survey was pertaining to the year under appeal and, therefore, the same were considered for making additions and there is no error in the order of AO with respect to the entries found recorded in these papers and, therefore, the AO has rightly initiated the proceedings u/s 153C in the case of assessee. He prayed accordingly.
Heard both the parties and perused the material available on record. In the instant case, according to the Ld. AR, the due and prescribed procedure to initiate proceedings u/s 153C has not followed. The Hon’ble Supreme Court in the case of CIT vs. M/s Calcutta Knitwears [2014] 43 taxmann.com 446 (SC) has mandated that before initiating proceedings based on the incriminating material found during the course of search from the possession of person searched which belonged to 3rd party, recording of satisfaction of the Assessing Officer of person searched is necessary pre-requisite and such satisfaction note must be prepared by the AO before he transferred the records to the other AO who has the jurisdiction over the such other person i.e., assessee in the instant case. Following the order of the Hon’ble Supreme Court in the case of M/s Calcutta 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT Knitwears (supra), the CBDT had issued circular No.24/2015 wherein the directions are issued to the AO’s for following the procedure in all assessment taken up in search cases. The said circular is reproduced as under: “Subject: Recording of satisfaction note under section 158BD/153C of the Act-reg. 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(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 u/s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages. (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section 158BC 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 judgement. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.
From the perusal of the above CBDT circular, it is evident that the provisions of section 153C are substantially similar/pari-materia to the provisions of section 158BD and therefore, the guidelines of the Hon’ble Supreme Court should be applied to the proceedings u/s 153C of the Act for the purposes of assessing the income of person other than the person searched.
In the instant case, the sole basis for the initiating of proceedings in the name of the assessee u/s 153C was based on the documents found and seized from the possession of the 3rd party in whose case searched action was carried out, therefore, the satisfaction of the AO of such person is the pre-condition for initiating the proceedings in the hands of the assessee u/s 153C of the Act. Since, this process has not been followed in the case of the assessee as the assessee has demonstrated that Revenue has failed to bring on record the satisfaction note of the AO of the person searched despite of repeated requests, therefore, in our considered view, the proceedings initiated u/s 153C of the Act in the case of the assessee are invalid and, thus, consequent order passed is quashed. This view is supported by the above referred Circular of the CBDT wherein CBDT in para 5 has further observed that all the pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guideline laid down by the Apex Court. Even after this circular, the in the present case has not only violated the said procedure but 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT also include the papers which are not even found during the search on the third person and were impounded from the possession of another person during survey in the year 2015. Thus, by respectfully following the judgment of Hon’ble Supreme Court in the case of M/s Culcutta Knitwears (supra), in our considered opinion initiation of proceedings u/s 153C in the case of the assessee is invalid and accordingly the consequent order passed u/s 153C r.w.s. 143(3) of the Act is hereby quashed. Thus, ground of appeal
No.1 of the assessee is allowed.
17. As we have already decided the legal issue taken by the assessee in his favour and quashed the assessment order passed u/s 153C r.w.s. 143(3) of the Act, other grounds of appeal become academic, thus, not adjudicated.
In the result, appeal filed by the assessee in is allowed.
In Assessment Year 2012-13 and for Assessment Year 2015-16, the proceedings u/s 153C of the Act were initiated in the hands of the assessee by a common satisfaction note for all the three years i.e. Assessment Years 2012-13, 2013-14 and 2015-16. While deciding the appeal of the assessee for Assessment Year 2013-14 in we have already held that such proceedings initiated u/s 153C in the hands of the assessee are bad in law and, thus, are invalid. Admittedly, the facts in all the three assessment years are identical, 39 & 40 /Del/2024 Rakesh Sharma vs. ACIT thus, the observations made in ITA No. 39/DDN/2024 are Mutatis Mutandis applied in these two appeals also. Accordingly, by following the same grounds of appeal No.1 in both the appeals are allowed.
As we have already allowed the legal issue taken with respect to the validity of the initiation of proceedings u/s 153C of the Act, therefore, the other grounds of appeal
taken in both the appeals become academic and, thus, not adjudicated. Accordingly, both the appeals of the assessee are allowed.
21. In the final result, all the three appeals in