2026 (2) TMI 1244 - HC - Income Tax

Immediate recording requirement for satisfaction notes is mandatory; delay or missing DIN invalidates subsequent search-triggered proceedings.

A satisfaction note initiating search-triggered assessment proceedings must be recorded immediately after completion of the searched person's assessment; ... Assessment u/s 153C - satisfaction note as recorded within the time frame contemplated by law or not? - HELD THAT:- The Hon'ble Supreme Court in Calcutta Knitwears [2014 (4) TMI 33 - SUPREME COURT] has laid down the law regarding the stage at which satisfaction must be recorded. The term “immediately” implies a sense of urgency and proximity in time and is often understood to be as soon as possible or without delay. Therefore, the Respondents are not correct when they say that the satisfaction has to be recorded within a “reasonable time”. The Supreme Court has consciously used the term “immediately” and due meaning should be given to the said term. CBDT Circular No. 24/2015 dated 31st December 2015 explicitly states that the guidelines in Calcutta Knitwears (supra) apply to proceedings u/s 153C of the IT Act. Therefore, the AO of the searched person was required to record satisfaction, at the latest, immediately after the completion of the assessment of the searched person. We find support in the decision of Bharat Bhushan Jain [2015 (1) TMI 705 - DELHI HIGH COURT] where a delay of 10 months was held to be fatal. Similarly, the Gujarat High Court in Jitendra H. Modi HUF [2018 (2) TMI 673 - GUJARAT HIGH COURT] held that a period of 9 months could not be termed as “immediate”. In the present case, the search was conducted in February 2021 - there is a delay of approximately 15 months from the last date for assessment of the searched person. Furthermore, the satisfaction note of the AO of the Petitioner is undated, which further casts doubt on the timeline of events. Regarding this objection raised in the Petition, the Reply Affidavit merely states that not writing of a date on the satisfaction note by Respondent No. 1 is a procedural irregularity. Notice u/s 153C is issued after a gap of about 2 years. We are of the considered view that a delay of 15 months cannot be construed as “immediately” after the assessment proceedings. The argument of the Respondents that the volume of data seized was massive, requiring time for analysis, and therefore, the delay should be condoned cannot be accepted. AO has been granted sufficient time by the Hon'ble Supreme Court that he can record satisfaction either at the time of, or along with the initiation of proceedings against the searched person, or along with the assessment proceedings, or immediately after the assessment proceedings are completed of the searched person. Further, this is also clarified by the Circular No.24/2015 issued by the Board itself. Accordingly, we hold that the proceedings are barred by limitation. Absence of DIN on the satisfaction note - Satisfaction note, being without a DIN, is treated as invalid and deemed to have never been issued as per CBDT Circular No. 19/2019. In view of the above findings on limitation, as well as the absence of a DIN, the impugned notice and the consequential proceedings cannot be sustained. Issues: (i) Whether the proceedings under Section 153C of the Income-tax Act, 1961 are barred by limitation because the satisfaction note was recorded after delay; (ii) Whether the satisfaction note is invalid for want of a Document Identification Number (DIN).Issue (i): Whether the satisfaction note was recorded within the time frame required by law or whether the delay renders proceedings under Section 153C barred by limitation.Analysis: The Supreme Court in Calcutta Knitwears requires the satisfaction note to be prepared at specified stages and, if recorded after completion of assessment of the searched person, it must be recorded 'immediately' thereafter. CBDT Circular No. 24/2015 applies that principle to Section 153C proceedings. Decisions of various High Courts have held delays of 9-15 months or more to be fatal where the statutory requirement of 'immediately' is not met. In the present case the assessment of the searched person was completed before 31.03.2023 but the satisfaction note was recorded on 27.06.2024, a delay of approximately 15 months; the satisfaction note of the Assessing Officer of the petitioner was also undated, casting further doubt on timing. The Department's contention of voluminous data and a 'reasonable time' was found inconsistent with the Supreme Court's use of the term 'immediately' and the CBDT Circular.Conclusion: The satisfaction note was recorded after an inordinate delay and the proceedings under Section 153C are barred by limitation; this conclusion is against the Revenue and in favour of the assessee.Issue (ii): Whether the satisfaction note is invalid for lacking a Document Identification Number (DIN).Analysis: CBDT Circular No. 19/2019 requires specified communications to bear a DIN. This Court's precedent treats satisfaction notes as communications falling within the scope of the Circular. Decisions purporting to treat satisfaction notes as merely internal communications not requiring DIN have been distinguished and not followed. In the present case the satisfaction note did not bear a DIN and relevant precedents and the CBDT Circular were applied to treat such communications as invalid.Conclusion: The satisfaction note without a DIN is invalid and deemed never to have been issued; this conclusion is against the Revenue and in favour of the assessee.Final Conclusion: The impugned notice dated 30.03.2025 issued under Section 153C of the Income-tax Act, 1961 and consequential proceedings are quashed and set aside on the grounds of limitation and absence of a DIN; the writ petition is allowed.Ratio Decidendi: A satisfaction note relied upon to initiate Section 153C proceedings must be recorded 'immediately' after the searched person's assessment as required by Calcutta Knitwears and CBDT Circular No. 24/2015, and any such communication must comply with CBDT Circular No. 19/2019 by bearing a DIN; failure on either ground renders the notice and proceedings invalid.