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Facts
The assessee filed an appeal against the order of the CIT(A) which upheld an addition made by the AO. The addition was based on a search conducted in the case of Shri Pranjil Batra, where certain documents pertaining to the assessee were allegedly found, leading to the issuance of notice under Section 153C of the Income Tax Act. The assessee contested the validity of the satisfaction note and the incriminating material.
Held
The Tribunal held that the satisfaction note recorded by the AO was vague, generic, and failed to establish a nexus between the seized material and the assessment year in question. It did not identify specific documents or demonstrate how they related to the assessee, thus vitiating the assumption of jurisdiction under Section 153C. The Tribunal further noted that no addition can be made in the absence of incriminating material.
Key Issues
Whether the satisfaction note recorded by the AO for initiating proceedings under Section 153C was valid and whether additions can be made in the absence of specific incriminating material.
Sections Cited
250, 1961, 153C, 153A, 132, 127, 53C, 142(1), 143(2), 274, 272A(1)(d), 69A, 234B, 234C, 142A
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 09.01.2025 of Learned Commissioner of Income Tax (Appeals), Delhi-25, Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of Order dated 25.03.2023 of the Learned Assistant Commissioner of Income Tax, Central Circle-3, Delhi (hereinafter referred as "the Ld. AO") under Sections 153C Act for assessment year 2019-20.
Brief facts of the case are that the original return of income for assessment year 2019-20 was filed on 30.08.2019 declaring the total income of Rs. 16,44,280/-. A search & seizure operation action under Section 132 of the Act was carried out in the cases of Shri Pranjil Batra Group on 17.08.2020. During the course of the assessment proceeding and on the perusal of seized data/documents in the case of Shri Pranjil Batra, certain incriminating documents were found which pertain to the assessee. After going through the contents of those incriminating documents satisfaction was recorded. The jurisdiction of this case was transferred to this office/charge by centralization order under Section 127 of the Act dated 29.10.2021 from Principal CIT(Central)-3, Delhi. Thereafter notice under Sections 153C r.w.s 153A of the Act was issued to the assessee on 27.12.2021 and was duly served through the ITBA. In response to the notice under Section 53C of the Act, the assessee has filed the return of income on 14.12.2022 declaring the total income of Rs.16,44,280/-. Further, notices under Section 142(1) of the Act dated 07.10.2022 and 25.01.2023 were issued to the assessee seeking the requisite details. Also, a notice under Section 143(2) of the Act dated 02.01.2023 was issued to the assessee and duly served upon the assessee. In response to the above notices also, the assessee has not submitted any reply. Thereafter, notice under Section 274 read with section 272A(1)(d) of the Act dated 12.11.2022 was issued to the assessee and penalty proceedings were initiated for not complying with the statutory notice of the Act. The assessee did not file any reply/submission in response to the notice. Hence, penalty order under Section 272A(1)(d) of the Act was passed on 03.12.2022. The copy of the satisfaction note was provided to the assessee on 13.01.2023. As per the submissions made by the assessee, during the year under consideration the assessee has derived income from salary and other sources. On perusal of the bank accounts of the assessee and M/s Revelation Unique Retail and Marketing Pvt. Ltd., it has been observed that the assessee and Rushil Garg has provided loans to the company. On perusal of Board resolution dated 01.03.2019, it is found that the company has taken loan of Rs.50,00,000/- From Anshul Bansal & Rushil Garg and the said loan were to be repaid before 31st march 2019. However, it is found that the company issued shares after converting the loan of Rs.38,00,000/- taken from Anshul Bansal and Rushil Garg. On completion of proceedings, Ld. AO vide order dated 25.03.2023 made addition of Rs.50,00,000/-.
Against order dated 25.03.2023 of Ld. AO, appellant/assessee filed appeal before Ld. CIT(A) which was dismissed vide order dated 09.01.2025.
Being aggrieved, the appellant/assessee preferred present appeal with following grounds:
1. That on the facts and circumstances of the case, assessment order passed under Section 153C of the Act as sustained by the Ld. CIT(A) is bad in law, illegal and void ab initio; 2. That without prejudice, considering the facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in not rendering the notice issued under section 153C and consequent assessment bad in law as the satisfaction note recorded by the Ld. AO is invalid, bad in law and void ab initio 3. That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in sustaining the order of the Ld. AO whereby impugned addition amounting to Rs.50,00,000/- under Section 69A of the Act was made on protective basis; 3.1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in sustaining substantive addition in another case and dismissing the impugned appeal thereby sustaining the protective addition at the same time; 4. That on the facts and circumstances of the case no addition can be made in the absence of any incriminating material found on record; 5. That in the facts and circumstances of the case and in law, the order passed by the Ld. CIT(A) and by the Ld. AO is against the principles of natural justice, equity, judicial discipline and fair play; 6. That in the facts and circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in upholding the order of Ld. AO in charging interest under Section 2348 and Section 234C of the Act.
5. Learned Authorized Representative for appellant/assessee submitted that Ld. CIT(A) grossly erred in not rendering notice under Section 153C and consequent assessment bad in law as the satisfaction note recorded is bad in law, and void-ab-initio on following counts: i. The said satisfaction note does not provide the details of the documents seized from the premises of Sh. Pranjil Batra. Nothing is mentioned with regard to the Annexure Number, Page Number of the Panchnama through Ld. AO have recorded the satisfaction that the same pertains to the assessee. ii. Nothing is mentioned with regard to the nature of the documents, type of documents, name of the parties, amount of the transaction, etc. The satisfaction note appears to be a general statement. Nothing is mentioned which documents are being handed over to the AO of the assessee.
iii. The satisfaction note is a combined satisfaction note, and despite that, it does not state any document which has the effect of impacting the income of any assessment year in any manner whatsoever iv. From the perusal of the satisfaction note, it seems the satisfaction note is recorded for the sake of recording to fulfil the criteria laid down under the Act, without going through the documents in hand and any application of mind to that. v. Nothing is discernible from the Satisfaction Note as to how the Ld. AO have come to a conclusion that the documents found from the premises of Pranjil Batra pertains to assessee and not to Pranjil Batra. Nothing is mentioned in the satisfaction note as to how the Ld. AO have come to such a conclusion/ satisfaction. The satisfaction note is completely vague. vi. Furthermore, the assessee also learnt that, in other cases wherein notice under Section 153C of the Act has been issued, which are totally unrelated to the assessee, verbatim satisfaction note has been recorded, which suggest that the Ld. AO recording the satisfaction note has simply copied and pasted without any independent application of mind. vii. (Specifically for ITA 466/DEL/2025) Furthermore, in the 'satisfaction note' the Ld. AO has stated that the said documents have bearing on the total income of the assessee for the AY 2015-16 to AY 2021-22, however, has failed to note and provide as to how such alleged documents pertain to the said years for which satisfaction has been recorded. It is also imperative to note that the company only came into existence on June 9, 2018, how could Ld. AO record satisfaction for AY prior to existence of the company. The validity of verbatim satisfaction notes relating to the search of Pranjil Batra came before the Hon'ble Tribunal and the Hon'ble tribunal vide its order dated November 25, 2024, in the case of Renu Singh and Pradeep Singh deleted the Section 153C of the Act. The Tribunal held that the so-called 'satisfaction note' was vague, generic, and failed to establish any nexus between the seized material and the assessment year in question. It did not identify the specific documents, the assessment year to which they pertained, or demonstrate how they related to the assessee. The Tribunal held that mere mechanical reproduction of allegations without application of mind cannot confer valid jurisdiction under Section 153C. Relying on binding precedents, including those of the Hon'ble Delhi High Court, the Tribunal concluded that the satisfaction note was non-descript, cryptic, and legally untenable, thereby vitiating the very foundation of the assessment proceedings. Another matter from the said search titled Harish Kumar Agarwal vs DCT, came before this tribunal and the Hon'ble Tribunal in the said case also held the satisfaction note to be erroneous and against the tenure of law. Furthermore, the jurisdictional principle as carved out in the case of Renu Singh(Supra) has been followed by this tribunal in the case of Royal Multiplex (P) Ltd. vs ACIT, to 3460/Del/2023.
5.1 No addition can be made in the absence of any incriminating material found on record; The very foundation of the assessment proceedings in the present case is untenable in law, as neither the satisfaction note nor the impugned assessment order discloses or identifies any incriminating material that can be said to pertain to, or belong to, the appellant. The assumption of jurisdiction under Section 153C of the Act is predicated on the existence of such material, and its absence renders the proceedings wholly without authority. It is now a settled principle of law that the existence of incriminating material is a sine qua non for sustaining action under Section 153C. The Hon'ble Delhi High Court in Saksham Commodities v. ACIT [2024] 161 taxmann.com 485 (Del.) held that additions cannot be made under Section 153C in the absence of incriminating material, irrespective of whether the assessments were abated or unabated. The Court emphasized that Section 153C mandates a nexus between the seized material and the determination of total income for a particular assessment year. Unless the AO is satisfied that the material found has a bearing on income computation, initiation of proceedings would be unjustified and mechanical. The principle has further been affirmed by the Hon'ble Supreme Court in DCIT v. U.K. Paints (Overseas) Ltd. [2023] 454 ITR 441 (SC), where it was categorically held that in the absence of incriminating material, additions under Section 153C are impermissible. The Apex Court dismissed the Revenue's appeals, reiterating that proceedings under Section 153C cannot be sustained without discovery of incriminating material in the course of search. The Hon'ble Delhi High Court in CIT v. Kabul Chawla [2016] 380 ITR 573, though in the context of Section 153A, clearly laid down that completed assessments cannot be interfered with unless supported by incriminating evidence unearthed during search. The Court held that assessments cannot be reopened arbitrarily and must be strictly based on material seized. Similar views have been reiterated in CIT v. RRJ Securities Ltd. (2015 SCC Online Del 13085), wherein the Court held that mere seizure of a document belonging to the assessee, if irrelevant to the assessment years in question, would not justify reassessment under Section 153C. The Hon'ble Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. [2023] 149 taxmann.com 399 (SC) conclusively settled the issue, holding that no addition can be made in respect of completed assessments in the absence of incriminating material. The Court explained that the very purpose of search assessments under Sections 153A/153C is to tax undisclosed income detected during search. Without such discovery, completed assessments remain undisturbed and only pending assessments abate.
Learned Authorized Representative for the Department of Revenue relied on order of Ld. AO.
From examination of record, it is crystal clear that satisfaction note under Section 153C of the Act dated 23.12.2023 refers to search in case of Shri Pranjil Batra on 17.08.2020.
7.1 The documents were found from premises of brother pertained to assessee the validity of verbatim satisfaction note relating to Pranjil Batra were dealt by the Tribunal in order dated 25.11.2024 in titled as "Renu Singh Vs. ACIT" in para nos. 22 & 23 as under: "22. 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 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 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 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."
7.2. In light of above material facts, respectfully following judicial precedents, we hold that 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, therefore, set aside the orders of the lower authorities. Ground of appeal nos. 2 & 4 are allowed. The other grounds of appeal are being consequential in nature require no adjudication.