TaxTMI 
TaxTMI 
2025 (1) TMI 693
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....e Tax (Appeals)-3, Gurgaon has erred both in law and on facts in upholding the assumption of jurisdiction u/s 153C of the Act and, framing of assessment u/s 153A/143(3) of the Act. 1.1. That both the notice issued u/s 153C of the Act and assessment framed u/s 153C of the Act were without satisfying the statutory preconditions contained in the Act and therefore without jurisdiction and therefore deserves to be quashed as such. 1.2. That while upholding the assumption of jurisdiction the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since neither money, bullion, jewellery or other valuable article or thing belonging to the appellant and nor any books of accounts or documents pertaining to the appellant or any information contained therein relating to the appellant were seized as a result of search the assumption of jurisdiction u/s 153C of the Act was illegal, invalid and unsustainable. 1.3. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the assumption of jurisdiction despite the fact that in absence of any valid satisfaction having been recorded both in the case of ....
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....plated under s. 153C of the Act. The Ld. Counsel for the assessee submitted that the relevant AY qua the satisfaction note is AY 2018-19 and therefore, six years preceding such AY to which documents for assets seized requisitioned ends in AY 2012-13. This being so, the AY 2011-12 in question falls outside the limitation period of six years and thus is barred by limitation at the threshold and hence cannot be subjected to preceding under s. 153C of the Act. The Ld. Counsel for the assessee further pointed out that in the identical set of facts in the same search, the Co-ordinate Bench of Tribunal has adjudicated the jurisdictional issue under s. 153C in favour of the assessee in the case of DCIT vs M/s. Manglam Multiplex Private Limited (ITA No.1093/Del/2024) order dated 30.09.2024. 3.2. The Ld. Counsel for the assessee thus, submitted that the AY 2011-12 in question is squarely covered in favour of the assessee by the decision of the DCIT vs M/s. Manglam Multiplex Private Limited (supra). The Ld. Counsel for the assessee next pointed out that the Co-ordinate Bench of the Tribunal also noted that the alleged undisclosed income must be found identifiable to the AY concerned while ....
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.... the identical 'satisfaction note' in the case of DCIT vs M/s. Manglam Multiplex Private Limited (supra). The Co-ordinate Bench of the Tribunal found the AY 2011-12 to be out of purview of the provisions of section 153C of the Act being barred by limitation. The Co-ordinate Bench further found that the consolidated 'satisfaction note' drawn in respect of AYs 2011-12 to 2017-18 suffers from incorrigible legal infirmities and consequently found that the AO acted without valid jurisdiction under s. 153C of the Act. The relevant operative paras of the decision in DCIT vs M/s. Manglam Multiplex Private Limited (supra) are extracted hereunder:- 8. "We have considered the rival submissions and perused the material available on record. 9. The satisfaction note being germane to the subject matter of the controversy is reproduced hereunder: "Reasons/Satisfaction note for taking up the case of M/s. Manglam Multiplex Pvt. Ltd., under section 153C of the Income Tax Act, 1961 Name and address of the Assessee M/s. Manglam Multiplux Pvt. Ltd. Asst. Year 2011-12 to 2017-18 PAN AAECM 0481 G Status Company By virtue of the authorization of t....
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....lea of the assessee for holding the assessment for A.Y. 2011- 12 in question under Section 153C of the Act to be barred by limitation. The assessment order passed under Section 153C of the Act being barred by limitation and thus a non-est order and nullity in the eyes of law. The assessment order giving rise to present proceedings thus, is required to be quashed being barred by limitation. 11. In the result, the cross objection filed by the assessee is allowed. 12. We however also advert to the grievance raised in the Revenue's appeal. 12.1 Defending the first appellate order, the learned Counsel for the assessee pointed out that despite invocation of jurisdiction under Section 153C of the Act, the additions/disallowances made are in the nature of routine disallowances based on assumptions and presumptions and emanating from regular books of accounts. No incriminating material seized and remitted by the AO of the assessee has been referred to base such additions/disallowances which is paramount under Section 153C of the Act as held in Singhad Technical Education Society (supra). 12.2 The assessee also contends that the 'satisfaction note' recorde....
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....s. 153C of substantive nature has been found in DCIT vs M/s. Manglam Multiplex Private Limited (supra) owing to lack of reference to any seized material pertaining to different AYs etc. and quantification of undisclosed income. The Ld. Counsel for the assessee thus submits that the position of law expounded in DCIT vs M/s. Manglam Multiplex Private Limited (supra) would squarely apply to all other AYs except on the point at bar of limitation. 11. The Ld. Counsel for the assessee further referred to the decision of the Co-ordinate Bench in the case of Renu Singh vs ACIT in ITA No.2806/Del/2024 order dated 25.11.2024 wherein also in similar facts, the Co-ordinate Bench held that the AO had proceeded under s. 153C based on unlawful satisfaction and the 'satisfaction note' recorded by the AO for the purposes of assessment was found to apparently suffer from the vice of being vague, non-descript and un-intelligible. The observations made in the decision rendered in the case of Renu Singh vs ACIT (supra) squarely applies to the facts of the present case. The Ld. Counsel for the assessee also pointed out that 'satisfaction note' recorded for different AYs in a consolidated manner would....
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.... to and relied upon and the case laws cited. 15. 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. 16. 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. 17. 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 vario....
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....h 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 tha....
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....hich 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. ....
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....y 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. 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....
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....ement 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 overriding 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 i....