Assessment under section 153C annulled for relying on photocopy agreement and invalid consolidated satisfaction note across multiple assessment years

ITAT Delhi quashed assessment proceedings initiated u/s 153C against the assessee. It held that reliance on a photocopy of an agreement to sell, without production of the original, lacked evidentiary value, following binding precedent of the Delhi HC. Further, the AO had recorded a consolidated satisfaction note for multiple assessment years, instead of separate satisfaction notes for each year as mandated by law and affirmed by SC. Due to these legal defects, both the initiation of proceedings u/s 153C and the resultant assessments were held bad in law and annulled.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether initiation of proceedings under section 153C of the Income-tax Act, 1961 on the basis of a single consolidated satisfaction note for multiple assessment years is legally valid.

1.2 Whether a photocopy of an agreement to sell, found from a third party and without production of the original, constitutes a valid document for recording satisfaction under section 153C and for sustaining assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of proceedings under section 153C based on consolidated satisfaction note

Legal framework: The judgment considers section 153C of the Income-tax Act, 1961 and relies on the interpretation approved by the Supreme Court in the decision reported as [2024] 165 taxmann.com 846 (SC), holding that a satisfaction note is required to be recorded under section 153C for each assessment year and that a consolidated satisfaction note for different assessment years vitiates the assessment proceedings.

Interpretation and reasoning: The Tribunal notes that the Assessing Officer recorded a single consolidated satisfaction note covering all six assessment years from 2013-14 to 2018-19. Applying the law laid down in the aforesaid Supreme Court decision, the Tribunal holds that the statute requires a separate satisfaction note for each assessment year for valid initiation of proceedings under section 153C. A consolidated satisfaction note is contrary to this requirement and renders the proceedings invalid.

Conclusions: The Tribunal holds that the Assessing Officer did not record proper satisfaction in accordance with section 153C; the use of a consolidated satisfaction note for multiple years vitiates the initiation of proceedings. Consequently, the proceedings under section 153C and the consequential assessment are held to be bad in law and are quashed.

Issue 2: Evidentiary value of photocopy of agreement to sell as basis for section 153C satisfaction and assessment

Legal framework: The Tribunal refers to the decision of the High Court reported as [2024] 160 taxmann.com 723 (Delhi), which, relying inter alia on Supreme Court authority, holds that photostat copies have very little evidentiary value and that, in the absence of the original and corroborative evidence, a photocopy of an agreement to sell cannot be a sustainable basis for making additions.

Interpretation and reasoning: The Tribunal records that the only document found during search was a photocopy of an alleged agreement to sell, seized from the premises of a third party. The original agreement was never produced in the course of assessment proceedings. The Tribunal observes that in analogous circumstances the High Court has held that sustaining an addition solely on the basis of a photocopy of an alleged agreement to sell, without production of the original or supporting evidence, is unwarranted and unjustifiable. Applying this reasoning, the Tribunal finds that the photocopy cannot be treated as a valid document for forming satisfaction under section 153C or for sustaining an assessment.

Conclusions: The Tribunal holds that the Assessing Officer "heavily relied" on an invalid document, namely, a photocopy of an agreement to sell, which, in the absence of the original, has inadequate evidentiary value for the purposes of section 153C. This further supports the conclusion that the initiation of proceedings and the consequential assessment are invalid. On quashing the proceedings under section 153C, the Tribunal refrains from adjudicating the remaining grounds on merits and keeps them open.

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