Mechanical Satisfaction Note Invalid: ITAT Quashes 153C Assessment in Alankit Group Case

Kiran Agarwal Vs DCIT (ITAT Delhi)

Mechanical Satisfaction Note Invalid: ITAT Quashes 153C Assessment in Alankit Group Case

The Delhi ITAT quashed the assessment framed under section 153C against Kiran Agarwal for AY 2019-20, holding that the satisfaction note recorded by the Assessing Officer was a mere formality and completely lacked any meaningful application of mind.

The proceedings arose from a search conducted on the Alankit Group on 18.10.2019. Based on certain ledgers allegedly found during the search, the Revenue initiated proceedings under section 153C against the assessee. The assessee challenged the very assumption of jurisdiction, contending that the satisfaction note failed to identify any incriminating material having a bearing on her income.

The Tribunal examined both the satisfaction note recorded by the Assessing Officer of the searched person and the satisfaction note recorded by the Assessing Officer of the assessee. It found that while the documents referred to certain ledger entries, the satisfaction note of the non-searched person merely reproduced generic language about the search and vaguely stated that some material had a bearing on the assessee’s income. There was no discussion of the nature of the documents, no analysis of the transactions, no explanation of how the material related to the assessee, and no indication as to how income had allegedly escaped assessment for any of the years covered by the notice.

The Tribunal observed that the satisfaction note was completely devoid of any sign of independent examination or application of mind. It relied on the Delhi High Court judgment in Saksham Commodities Ltd. (2024) 464 ITR 1, which held that a consolidated and mechanical satisfaction note, without demonstrating how the seized material has a bearing on the assessee’s income, is legally unsustainable.

Following the High Court’s ruling, the Tribunal held that the jurisdictional requirement of a valid satisfaction under section 153C had not been met. Since the very foundation of the proceedings was defective, the assessment could not survive.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is preferred by the assessee against the order dated 15.10.2024 of the Ld. Commissioner of Income Tax (Appeals)-25, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN No.: ITBA/APL/M/250/2025-26/1078901916(1) arising out of the assessment order dated 02.03.2024 u/s 153C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the DCIT, CC-25, New Delhi for AY: 2019-20.

2. On hearing both sides we find that on behalf of assesse ground No. 2 & 11 were argued by which the assumption of jurisdiction on the basis of satisfaction recorded for the purpose of Section 153C of the Act is challenged and it was contended on behalf of the assessee by ld. Counsel that the satisfaction note does not even refer to any material which form basis for making conclusion that any incriminating material was found during search of another person.

2.1 Ld. DR has countered the same by submitting that the satisfaction note recorded in the case of assesse should be read along with satisfaction note recorded in the case of searched person.

3. Giving thoughtful consideration to the material on record and the submission we find that asessee’s return was filed declaring income of Rs.7,88,940/- and consequent to search and seizure operation in the Alankit Group allegedly incriminating evidences were found of this group providing accommodation entries in various forms and accordingly the satisfaction note was recorded u/s 153C of the Act by the assessing officer of the searched person and the copy of same has been provided at page No. 119 of the paper book and for convenience of further discussion we reproduce the same:

4. We find that thereafter the satisfaction note has been recorded by the assessing officer of non-searched person, who is the present assessee and for convenience the satisfaction note of the assessee is also recorded:

“satisfaction note for Initiating proceedings u/s 153C of the Income Tax Act 1961 in  the case of Smt Kiran Agarwal (PAN- AALPA3768J) by AO of the other than the searched persons:

A search and seizure action was conducted on 18.10.2019 in Alankit Group at the premises of Sh. Alok Kumar Agarwal, Sh. Ankit Agarwal, M/s Alankit Limited and M/s Alankit Assignments Limited at 3584/4 Narang Colony, Gali No. 4, Tri Nagar, Delhi. Subsequently the said group was centralized to the jurisdiction of Central Circle 28, New Delhi. During course of assessment proceeding u/s 153A of Alankit Group materials/documents which has been determining the total income of Smt Kiran Agarwal (PAN-AALPA3768J) were found. The Assessing Officer of the said group of cases has recorded his/her satisfaction that the documents etc, also contain information that relates to Smt Kiran Agarwal i.e, the other person and bearing on determination his total income. The satisfaction recorded by the said Assessing Officer is placed on record.

The ITR details have been extracted from ITBA and perused. It has been found that total sales/turnover and income as per information/documents received are not declared.

On an examination of the same, it has found that it is a fit case to issue notice u/s 153C for AY. 2014-15 to 2020-21.”

5. Now, very apparently, in the satisfaction note recorded in the case of present assesse there is a mere mention of the search conducted in the Alankit Group and there is no reference to any material which was found or examined by the assessing officer of the non-searched person and if it all what was the nature of transaction involving the assessment year 2014-15 to 2020-21 and there is no assertion in the satisfaction note as to how the alleged incriminating evidence has bearing on the income of the assesse fo these years. We have no doubt that manner in which the assessing officer has recorded the satisfaction note is completely devoid of any sign of application of mind. Hon’ble Delhi High Court in the case of Saksham Commodities Limited (2024)464 ITR 1/338, has taken into consideration similar satisfaction note recorded in the case of search assessments of other entities arising out of search of Alankit Group and has held that consolidated satisfaction note recorded for the several assessment years, without indicating how material relied has bearing on income, is bad in law and fatal to the assessments.

6. In the light of aforesaid we are inclined to sustain the ground No. 2 & 11. The appeal is allowed and the impugned assessment order stand quashed.

Order pronounced in the open court on 03.06.2026