Summary : The ITAT Jaipur in Manish Dhariwal & Others v. DCIT quashed assessments initiated under Section 153C of the Income Tax Act, holding that the assumption of jurisdiction was legally invalid on two independent grounds. The Tribunal found that the Assessing Officer (AO) of the assessees had merely reproduced information received from the AO of the searched person without independently examining the seized material or recording satisfaction that such material had a bearing on the assessees’ total income. Since Section 153C requires an independent application of mind by the AO having jurisdiction over the other person, the satisfaction note was held to be defective and incapable of conferring jurisdiction. The Tribunal also held that the proceedings were barred by the sunset clause under Section 153C(3). As the seized material was forwarded on 17.01.2023, the deemed date of search fell after 01.04.2021, when Section 153C ceased to apply. Consequently, the assessments were declared void ab initio, while the additions on merits were left undecided.
The Jaipur Tribunal delivered an important ruling on the validity of proceedings under section 153C, holding that jurisdiction cannot be assumed merely on the basis of information forwarded by the Assessing Officer of the searched person. The Tribunal quashed the assessments on two independent legal grounds: absence of a valid satisfaction note and the applicability of the statutory sunset clause introduced by section 153C(3).
The assessees were subjected to proceedings under section 153C following a search conducted on the Friends SPS Group, Kota on 01.08.2019. During the search, the Department alleged that certain purchasers of flats in the “Royal Palm” project had paid part of the consideration in cash. Based on information forwarded by the Assessing Officer of the searched group on 17.01.2023, proceedings under section 153C were initiated against the assessees, alleging payment of unaccounted cash for purchase of flats. Additions under section 69 were subsequently made on account of alleged on-money payments.
The assessees challenged the very assumption of jurisdiction under section 153C. It was argued that the Assessing Officer having jurisdiction over the assessees merely reproduced the communication received from the Assessing Officer of the searched person and did not independently examine the seized material or record satisfaction that such material had a bearing on determination of the assessees’ total income.
The Tribunal accepted the contention. It observed that section 153C requires two distinct satisfactions. First, the Assessing Officer of the searched person must identify the seized material and forward it to the Assessing Officer having jurisdiction over the other person. Secondly, and more importantly, the Assessing Officer of the other person must independently examine the seized books, documents or information and record satisfaction that such material has a bearing on determination of that person’s total income.
On examination of the satisfaction note, the Tribunal found that the Assessing Officer had merely extracted a summary table received from the Assessing Officer of the searched person. No specific seized document relating to the assessees was identified. There was no discussion of the seized material, nor any indication that the Assessing Officer had independently examined the documents enclosed with the forwarding letter. The satisfaction note was merely a verbatim reproduction of the information received and lacked any independent application of mind. Such mechanical reproduction of information could not satisfy the jurisdictional requirement mandated by section 153C. Consequently, the satisfaction note was held to be legally invalid and the assessments were quashed.
The Tribunal further considered an independent challenge based on the sunset clause contained in section 153C(3). Under the first proviso to section 153C(1), in the case of a person other than the searched person, the relevant date of search is deemed to be the date on which the seized books, documents or assets are received by the Assessing Officer having jurisdiction over that person. In the present case, the seized material was forwarded on 17.01.2023 and therefore the deemed date of search for the assessees fell after 01.04.2021.
The Tribunal noted that section 153C(3) specifically provides that the provisions of section 153C shall not apply to searches initiated on or after 01.04.2021. Relying on the Supreme Court decision in CIT v. Jasjit Singh, the Madras High Court decision in Harigovind G. Ravindran (HUF) v. ACIT, the Delhi High Court decision in ATS Township Pvt. Ltd. v. ACIT and its own earlier decision in Anand Jhalani v. DCIT, the Tribunal held that the statutory fiction created by the first proviso must be given full effect. Since the deemed date of search was after 01.04.2021, the jurisdiction under section 153C stood extinguished by operation of the sunset clause and could not be revived by referring back to the original search date in the case of the searched person.
The Tribunal therefore held that the proceedings were void ab initio on this independent ground as well. Having quashed the assessments on jurisdictional grounds, it declined to examine the merits of the additions relating to alleged cash payments for purchase of flats and left those issues open.
The ruling is significant because it reiterates that the satisfaction contemplated under section 153C is not a mere procedural formality but a jurisdictional requirement requiring independent application of mind by the Assessing Officer of the other person. It also affirms that, after 01.04.2021, section 153C cannot be invoked where the deemed date of search in the case of the other person falls beyond the statutory sunset date.
Held: Assessments under section 153C were quashed because (i) the Assessing Officer failed to record an independent satisfaction based on examination of seized material, and (ii) the proceedings were barred by the sunset clause contained in section 153C(3), as the deemed date of search fell after 01.04.2021. The additions on merits were not adjudicated.
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