ITO Ward 2 International Taxation & Anr. Vs Parag Rameshbhai Gathani (Supreme Court)
Summary: The Supreme Court dismissed the Special Leave Petition filed by the Income Tax Department against the Gujarat High Court’s judgment concerning proceedings initiated under Section 153C of the Income-tax Act, 1961. The Supreme Court condoned the delay in filing the petition, heard the petitioner’s counsel and examined the available record. Finding no sufficient ground to interfere with the High Court’s order, it dismissed the Special Leave Petition and disposed of pending applications. The Supreme Court did not independently elaborate on the interpretation of Section 153C or the permissible period for recording a satisfaction note.
Background of the Gujarat High Court Proceedings
The underlying proceedings concerned notices issued under Section 153C for Assessment Year 2017-18. The Gujarat High Court heard two writ petitions involving identical legal issues and disposed of them by a common judgment. In the facts narrated in Special Civil Application No. 3736 of 2025, the assessee challenged a notice dated 9 February 2024 requiring the filing of an income-tax return. The jurisdictional action was founded upon satisfaction notes recorded by the Assessing Officer of the searched person and the Assessing Officer of the assessee. The central controversy concerned the substantial delay in recording the satisfaction note after completion of the searched person’s assessment.
A search under Section 132 had been conducted on 15 October 2019 in a group of cases involving land brokers and financiers, including the premises of Suresh Ranchhodbhai Thakkar. The Department recovered material including WhatsApp chat images allegedly reflecting transactions involving Dharmesh Gathani, Parag Gathani, Rushisinh Thakor and Randhirsinh Thakor. During post-search inquiry, Suresh R. Thakkar’s statement was recorded on 20 December 2019 under Section 131. The Revenue alleged that the communications concerned a land transaction involving consideration paid through cash and cheque. It also referred to a registered sale deed dated 24 July 2020 recording consideration of Rs. 3.80 crore in the name of Bharti Dharmesh Gathani.
Assessee’s Objections to Section 153C Proceedings
The assessee submitted that the search had taken place in October 2019, whereas the satisfaction note of the Assessing Officer of the searched person was recorded only on 6 June 2023. The assessment proceedings of the searched person had already concluded in August 2021. Thus, there was a gap of approximately 22 months between completion of the searched person’s assessment and recording of the relevant satisfaction note. The assessee argued that such delayed satisfaction could not satisfy the jurisdictional requirements governing proceedings under Section 153C. Reliance was placed on Commissioner of Income Tax-III v. Calcutta Knitwears, [2014] 43 taxmann.com 446 (SC), CBDT Circular No. 24/2015 dated 31 December 2015, and PCIT v. Jitendra H. Modi (HUF), [2018] 92 taxmann.com 510 (Gujarat).
Revenue’s Submissions
The Revenue maintained that the seized WhatsApp communications, the statement of the searched person and the registered sale deed established the necessary relationship between the recovered material and the assessee. It submitted that the post-2015 wording of Section 153C permitted action where seized documents pertained to or related to a person other than the searched person. Reliance was also placed on CIT v. Jasjit Singh, (2023) 458 ITR 437 (SC), concerning the assessment period. The Department attributed the delay in recording satisfaction to the COVID-19 pandemic, reduced staffing and administrative difficulties arising from implementation of the Faceless Assessment Scheme. It further cited Bhupinder Singh Kapur v. ITO, [2025] 175 taxmann.com 689 (Punjab & Haryana), in support of its position.
Gujarat High Court’s Findings on Satisfaction Notes
The Gujarat High Court examined the ruling in Calcutta Knitwears, which recognised three permissible stages for recording satisfaction: at the initiation of proceedings against the searched person, during those assessment proceedings, or immediately after their completion. The Court also referred to CBDT Circular No. 24/2015, which accepted the application of those principles to proceedings under Section 153C. Since the searched person’s assessment had been completed in August 2021, the Court considered the recording of satisfaction on 6 June 2023, approximately 22 months later, inconsistent with the requirement of immediate action after completion of assessment. The Court also relied upon the Gujarat High Court’s earlier decision in Jitendra H. Modi (HUF), where a delay of nine months had been found inconsistent with that requirement.
The High Court rejected the Department’s explanation based on the pandemic and implementation of the Faceless Assessment Scheme. It observed that the searched person’s assessment itself had been completed during the pandemic and that the subsequent administrative circumstances did not satisfactorily explain the prolonged delay. The Court further noted that proceedings under Sections 153A and 153C were outside the relevant faceless assessment arrangement. It distinguished the decision in Bhupinder Singh Kapur and held that the expression “immediately” could not be extended to such an extent that it defeated the objective of efficient and expeditious search assessments. Accordingly, both writ petitions were allowed and the impugned notices under Section 153C were quashed, without an order as to costs.
Supreme Court’s Decision
When the Revenue challenged the Gujarat High Court’s decision, the Supreme Court condoned the filing delay but found no sufficient ground to interfere with the impugned judgment. The Special Leave Petition was dismissed and pending applications were disposed of. The operative Supreme Court order contains no separate discussion of the seized WhatsApp communications, the land transaction, the Department’s explanation for delay or the interpretation of CBDT Circular No. 24/2015. Those matters were examined in the Gujarat High Court judgment. The Supreme Court’s dismissal therefore left the High Court’s decision undisturbed without adding independent detailed reasoning.
Related Gujarat High Court Judgment: The underlying Gujarat High Court judgment examined the substantial delay in recording the satisfaction note and the validity of proceedings initiated under Section 153C of the Income-tax Act, 1961. Read: Inordinate Delay in Satisfaction Note Invalidates Section 153C Notice: Gujarat HC.
Cases Discussed
- Commissioner of Income Tax-III v. Calcutta Knitwears, [2014] 43 taxmann.com 446 (SC) — Recording of satisfaction is a prerequisite, and the permissible stages for recording it were identified.
- PCIT v. Jitendra H. Modi (HUF), [2018] 92 taxmann.com 510 (Gujarat) — Relied upon concerning the requirement of timely recording of satisfaction.
- CIT v. Jasjit Singh, (2023) 458 ITR 437 (SC) — Cited by the Revenue concerning the relevant assessment period under Sections 153A and 153C.
- Bhupinder Singh Kapur v. ITO, [2025] 175 taxmann.com 689 (Punjab & Haryana) — Cited by the Revenue and distinguished by the Gujarat High Court in the circumstances of the case.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Having heard the learned counsel appearing for the petitioner and having gone through the materials available on record, we do not find any good ground to interfere with the impugned order passed by the High Court.
3. The Special Leave Petition is, accordingly, dismissed.
4. Pending application(s), if any, shall stand disposed of.
