Royal Multiplex (P) Ltd. Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) Delhi Bench delivered its order in the case of Royal Multiplex (P) Ltd. vs. ACIT, concerning six appeals filed by the assessee against the consolidated order of the CIT(A), Gurgaon, dated 29 September 2023 for Assessment Years (AYs) 2011–12 to 2013–14 and 2015–16 to 2017–18. Since the issues were common, all appeals were heard together and disposed of through a common order.
The primary ground of dispute pertained to the assumption of jurisdiction under Section 153C of the Income Tax Act, 1961. The assessee contended that the initiation of proceedings and framing of assessment under Section 153C read with Section 143(3) were invalid as the statutory preconditions for invoking Section 153C had not been met. Specifically, it was argued that no money, bullion, jewellery, or documents belonging to or pertaining to the assessee were seized during the search conducted on the M3M group. Further, no valid satisfaction was recorded by the Assessing Officer (AO) of either the searched person or the assessee, rendering the action beyond jurisdiction. The assessee also challenged the additions made by applying a 1% commission rate on total bank transactions and alleged that such additions were arbitrary, conjectural, and without evidentiary basis.
Search and Proceedings
A search under Section 132 was conducted on 21 July 2016 at the premises of the M3M group. During the search, certain documents allegedly containing information relating to the assessee were seized. The AO recorded satisfaction that these documents had a bearing on the assessee’s income and consequently issued a notice under Section 153C on 26 September 2018. The assessee filed returns declaring nil income.
The AO’s satisfaction note was recorded on 25 September 2018. The assessee argued that, as per law and CBDT Circular No. 2/2018 dated 15 February 2018, the relevant search year for “other person” under Section 153C would be the year in which the AO records the satisfaction note—in this case, AY 2019–20. Therefore, AYs 2011–12 and 2012–13 were outside the permissible period covered under Section 153A read with Section 153C. The Departmental Representative (DR) conceded this legal position.
The Tribunal held that since the satisfaction note was recorded in September 2018, the relevant search assessment year was AY 2019–20. Consequently, AYs 2011–12 and 2012–13 fell outside the scope of jurisdiction under Section 153C. The assessment orders for these two years were therefore quashed. The appeals for these years were partly allowed.
Appeals for AYs 2013–14 and 2015–16 to 2017–18
For the remaining assessment years, the assessee challenged the legality of the consolidated satisfaction note recorded for the entire block period of AYs 2011–12 to 2017–18. It was argued that such a satisfaction note was illegal and void ab initio, being barred by limitation and lacking specific details linking seized material to any particular assessment year. The assessee relied on the ITAT Delhi decision in Renu Singh vs. ACIT (ITA Nos. 2806 & 2810/Del/2024, dated 25 November 2024) and Marconi Infratech vs. ACIT (ITA Nos. 3126–3132/Del/2023).
The DR, however, contended that the satisfaction note was validly recorded in accordance with law, emphasizing that the AO had mentioned the seized documents (Annexure A-3) from the M3M group premises and that the satisfaction did not require quantification at that stage.
Tribunal’s Findings
The ITAT examined the record and noted that the AO had indeed recorded a single satisfaction note for the block period 2011–12 to 2017–18. The Tribunal observed that, in Renu Singh vs. ACIT, a similar consolidated satisfaction note had been held invalid for failure to specify incriminating material pertaining to each assessment year. The Delhi High Court in Sakham Commodities Ltd. vs. ITO and the Supreme Court in Sinhgad Technical Education Society had emphasized that the satisfaction note must clearly identify the material seized, the person to whom it pertains, and the specific assessment years it affects. The satisfaction note must reflect application of mind and demonstrate how the documents have a bearing on the total income for each relevant year.
In Renu Singh, the ITAT held that a generalized satisfaction note covering multiple years without identifying year-wise material was legally deficient. The Tribunal reiterated that jurisdiction under Section 153C can be assumed only if the seized documents are shown to relate to a specific year and the AO records satisfaction accordingly. A vague and generic satisfaction note, lacking reference to document details or their connection with particular years, cannot justify initiation of proceedings under Section 153C.
The ITAT also referred to Marconi Infratech vs. ACIT, where a similar satisfaction note (based on Annexure A-3 seized from the M3M group) was held invalid. It was noted that the note merely stated that the documents “contained information relating to the assessee” without specifying what that information was or which year it pertained to. The Tribunal, relying on the Sinhgad Technical Education Society judgment, held that such satisfaction fails to meet statutory requirements and does not establish the necessary correlation between seized material and the relevant assessment years.
Applying these precedents, the ITAT Delhi held that in the present case too, the satisfaction note recorded by the AO was vague, consolidated for multiple years, and failed to establish the required nexus between the seized documents and the assessee’s income for particular years. As a result, the assumption of jurisdiction under Section 153C was invalid. Accordingly, the assessments for AYs 2013–14 and 2015–16 to 2017–18 were also quashed.
Final Outcome
All six appeals filed by Royal Multiplex (P) Ltd. for AYs 2011–12 to 2013–14 and 2015–16 to 2017–18 were partly allowed. The ITAT concluded that the assessments made under Section 153C were invalid for lack of jurisdiction due to improper and generalized satisfaction notes not meeting the statutory conditions.
FULL TEXT OF THE ORDER OF ITAT DELHI
