Recording of consolidated satisfaction note u/s. 153C for different assessment years is bad-in-law

Rajendra Rameshlal Gugale Vs PCIT (ITAT Pune)

ITAT Pune held that satisfaction note is required to be recorded u/s.153C for each assessment year, thus, recording of consolidated satisfaction note for different assessment years (AY) would vitiate the entire assessment proceedings. Accordingly, the order is liable to be quashed.

Facts- The assessee is an individual and engaged in the business of land development and real estate He filed his return of income on 28.07.2017 declaring total income of Rs.8,08,880/-. A search action u/s.132 of the Act was conducted in Yuvraj Dhamale Group of cases on 26.09.2017. During the search certain documents pertaining to Shri Rajendra Ramesh Gugale were found and seized.

The case was centralized u/sec.127 of the I.T. Act, 1961. Thereafter, by recording a satisfaction dated 01.03.2021 as per the provisions of Section 153C of the Act in the case of the present assessee, notice u/s.153C of the Act was issued for assessment years 2012-2013 to 2018-2019 on 27.05.2021. AO completed the assessment u/sec.143(3) r.w.s.153C of the Act on 26.12.2021 accepting the returned income.

Thereafter, PCIT observed that assessee has taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,56,00,000/- against which he had paid interest of Rs.18,64,800/- in cash. Therefore, by accepting cash loan of Rs.1,56,00,000/- the assessee had violated the provisions of section 269SS of the Act. Further, the source of interest paid in cash of Rs.18,64,800/- was also not examined by AO in view of the provisions of section 69C of the Act. Thus, PCIT invoked provisions of section 263 and set aside the order of AO and directed fresh assessment. Being aggrieved, the present appeal is filed.

Conclusion- Hon’ble Karnataka High Court in the case of DCIT Vs.  Sunil Kumar Sharma has held that satisfaction note is required to be recorded u/sec.153C for each assessment year and hence, a consolidated satisfaction note recorded for different assessment years would vitiate the entire assessment proceedings.

Held that since in the instant case a consolidated satisfaction note has been prepared for assessment years 2012-2013 to 2018-2019, therefore, the consolidation satisfaction note being not in accordance with law, therefore, the entire assessment proceedings is liable to be We hold accordingly and quash the assessment.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal filed by the assessee is directed against the order dated 19.02.2024 of the learned PCIT (Central), Pune passed u/sec.263 of the of the Income Tax Act, 1961 (in short “the Act”), for assessment year 2017-2018.

2. There is delay of 133 days in filing of this appeal by the assessee for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such After considering the contents of the condonation application filed along with the affidavit and after hearing the Learned DR, the delay in filing of the instant appeal is condoned and the appeal is admitted for adjudication.

3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of land development and real estate He filed his return of income on 28.07.2017 declaring total income of Rs.8,08,880/-. A search action u/s.132 of the Act was conducted in Yuvraj Dhamale Group of cases on 26.09.2017. During the search in the above mentioned group, residential premises of Shri Umakant S Kuwar [Accountant of Yuvraj Dhamale Group] at Flat No.201, Alka Uttam Enclave, Mundhawa, Pune as well as office premise of Dhamale Group at 158, Wellesley Road, Besides Lal Deval, Camp, Pune were covered from where certain documents pertaining to Shri Rajendra Ramesh Gugale were found and seized. Therefore, the Assessing Officer of the searched-party having possession of the seized material recorded the satisfaction that the information contained on Page No.57 of Bundle No.4 seized from residential premises of Shri Umakant Kuwar and Page No.5 of Bundle No.4 seized from the office premises of Dhamale Group at Camp, Pune relates to Shri Rajendra Ramesh Gugale. The case was centralized u/sec.127 of the I.T. Act, 1961. Thereafter, by recording a satisfaction dated 01.03.2021 as per the provisions of Section 153C of the Act in the case of the present assessee, notice u/s.153C of the Act was issued for assessment years 2012-2013 to 2018-2019 on 27.05.2021.

3.1. In response to the notice u/sec.153C, the assessee filed return of income for the assessment year 2017-2018 on 12.2021 disclosing total income of Rs.8,08,880/-. Thereafter, statutory notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which, the assessee filed requisite details from time to time. The Assessing Officer completed the assessment u/sec.143(3) r.w.s.153C of the Act on 26.12.2021 accepting the returned income.

3.2. Subsequently, the learned PCIT on perusal of the assessment record noted that assessee is engaged in the business of land development and real estate broking and the main source of income of the assessee is commission Further the assessee has shown closing balance of unsecured loan taken from others of Rs.62,17,000/- for the captioned year; whereas proceedings revealed that assessee has taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,56,00,000/- against which he had paid interest of Rs.18,64,800/- in cash during the F.Y. 2016-2017 relevant to A.Y. 2017- 018. Therefore, the assessee has not correctly declared all the particulars of his income. By accepting cash loan of Rs.1,56,00,000/- the assessee had violated the provisions of section 269SS of the Act. Further, the source of interest paid in cash of Rs.18,64,800/- was also not examined by the Assessing Officer in view of the provisions of section 69C of the Act. Since the Assessing Officer has not examined these issues by calling for relevant details and thereafter verified the same, the learned PCIT issued a show cause notice under section 263 of the Act dated 31.01.2024 to the assessee, the contents of which, are as under:

“02. In the above mentioned case, on verification of case records for A.Y. 2017-18 it has been observed that the assessee had filed original return of income for AY 2017-18 on 28.07.2017 declaring total income at Rs.8,08,880/-. A search action u/s.132 of the Income Tax Act, 1961 (hereinafter referred as the Act’) was conducted in Yuvraj Dhamale Group of cases on 26.09.2017 wherein incriminating documents pertaining to the assessee were found and seized. Thereafter proceedings u/s.153C of the Act were initiated and the scrutiny assessment was completed u/s.153C r.w.s 143(3) of the Act on 26.12.2021 by accepting the returned income.

03. On perusal of the assessment records and information available with this office, it is seen the assessee is engaged in the business of land development and real estate broking and the main source of the income of the assessee is commission receipt. Further, it is observed that the assessee had shown closing balance of unsecured loans taken from others of Rs.62,17,000/- for the captioned year whereas proceedings revealed that the assessee had taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,56,00,000/- against which he had paid interest of Rs.18,64,800/- in cash during the F.Y. 2016-17 relevant to A.Y. 2017-18. The AO failed to ascertain whether the assessee had has correctly disclosed all the particulars of his income for the year under consideration.

04. In view of the above, it is found that the no verification on the aforesaid issue has been done in the assessment proceedings by the AO. As per explanation (2) to section 263(1) of the Act an order without making inquiries or verification which should have been made is deemed to be erroneous in so far as it is prejudicial to the interest of revenue.

05. Considering the above facts of the case it is seen that the AO had not examined and verified the above issue and therefore income has been under Therefore, assessment order u/s.153C r.w.s 143(3) of the Act dated 26.12.2021 passed by the AO for A.Y. 2017-18 appears to be erroneous in so far as it is prejudicial to the interest of revenue.

06. In view of the facts and circumstances mentioned above, the assessment order passed u/s.153C r.w.s 143(3) of the Act in the case of Shri Rajendra Ramesh Gugale for A.Y. 2017-18 prima facie appears to be erroneous in so far as it is prejudicial to the interest of revenue in terms of the provisions of Explanation-(2) a) to Section 263(1) of the Income Tax Act. I, therefore, intend to set side/modify the assessment order within the meaning of section 263 of the I.T. Act, 1961. An opportunity of being heard is therefore, given to you. You are requested to attend in person or through your authorized representative оn 02.02.2024 at 03:30 PM in my office.

07. If you have authorized any representative to attend on your behalf, please ensure that the power of Attorney with proper court fee stamp is filed on or before the date of If you do not wish to attend in person or through your authorized representative, you may file written submission along with necessary evidence in support of your contention before the due date of hearing. Further, it may be noted that no adjournment will be provided and in case on non appearance/non submission of reply, order will be passed on merits.”

3.3. Theassessee, in response to the same, submitted that the relevant seized documents or statements recorded if any, which are relied upon while issuing the notice may please be provided to him so that detailed and point-wise submission can be The learned PCIT provided the details to the assessee. However, the assessee did not make any compliance to the statutory notice issued by him. Since the assessee had not filed any details/explanatory submission as asked for to explain his case, the learned PCIT rejecting the various explanations given by the assessee, set-aside the order of the Assessing Officer holding the same to be erroneous in so far as it is prejudicial to the interest of Revenue with a direction to frame the assessment afresh. The relevant observations of the learned PCIT read as under :

“5. I have carefully considered the issues raised in the show cause notice issued u/s.263 of the Act and on perusal of the records and facts of the case, it is clear that the assessee had taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,58,00,000/-against which he had paid interest of Rs.18.64,800/- in cash during the F.Y. 2016-17 relevant to A.Y. 2017-18. The Assessing Officer had failed to ascertain whether the assessee had correctly disclosed all the particulars of his income for the year under consideration. No verification on the aforesaid issue had been done in the assessment proceedings by the Assessing Officer and therefore income has been under assessed. Therefore, it is clear that the Assessing Officer had not examined and verified the above issue having tax implications during the course of assessment proceedings. Thus, issues discussed in the show-cause notice were not at all examined by the Assessing Officer in the course of assessment proceedings.

6. In view of the above facts, it is clear the issues as discussed in para 2 above have not been property examined, verified and enquired by the Assessing Officer in the course of assessment proceedings. It has been held by various Courts that lack of enquiry on the germane issue renders assessment order being erroneous and prejudicial to the interest of revenue. In this connection the following judicial pronouncements are very much relevant :

• • The Hon. Supreme Court in Rampyari Devi Saraogi v CIT 67 ITR 84 while taking note of the fact that the AO had concluded the assessment in “undue hurry” by passing a short, stereotyped assessment order, without making any inquiries, upheld the revision done by the CIT.
  • In the case of Deniel Merchants Pvt. Ltd. vs ITO dated 29.11.2017, the Hon’ble Supreme Court upheld the law as laid down by the High Courts in Subhlakshmi Vanijya Pvt. Ltd vs. CIT 155 ITD 171 (Kol), Rajmandir Estates 386 ITR 162 (Cal) etc. and held that the CIT  is entitled to revise the assessment order u/s 263 on the ground that the AO did not make any proper inquiry while accepting the explanation of the assessee insofar as receipt of share application money is concerned.
  • In the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/(2000) 159 CTR 1 (SC) Hon’ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263 was justified.
  • In the case of Vedanta Ltd. Vs CIT [2021/124 taxmann.com 435(Bombay)/[2021] 279 Taxman 358 (Bom) it has been held that where assessment was complete without proper inquiries, Commissioner was competent to invoke revisional jurisdiction and direct Assessing Officer for fresh assessment.
  • In the case of Nagal Garment Industries Pvt Ltd Vs CIT [2020] 113 taxmann.com 4 (Madhya Pradesh) [03-04-2017] it has been held that where Assessing Officer issued detailed questionnaire, in reply to which records were filed, but Assessing Officer did not apply his mind nor did he conduct an enquiry while accepting claim of assessee although he recorded in note-sheet that reply filed by appellant was not satisfactory and did not explain all facts, assessment order was to be revised.
  • The Hon’ble Delhi High Court in the case of CIT Vs Shri Braham Dev Gupta in ITA no 907/2017 and 1162/2017 has clearly decided that Pr. Commissioner of Income tax can invoke the provision of section 263 of Income Tax Act where AO has not made adequate enquiry and verification. In this matter, SLP of the assessee has also been dismissed by Hon’ble Apex Court.
  • The Hon’ble ITAT Delhi in the case of Ankush Garg v CIT, Rohtak in ITA No 2287 & 2288/Del/2015 dated 21.05.2019, upheld the Pr.CITs action u/s 263 by holding that the order of the AO was cryptic, and was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which led to a correct conclusion of the CIT that the order of the AO was not only erroneous but also prejudicial to the interest of Revenue.
  • In the case of Pooja Gupta in ITA No 4057/Del/ 2018 dated 31.01.2019, the ITAT Delhi has discussed the validity of action under section 263 in respect of penny stock matters. The Tribunal has referred to the detailed SOP issued by the CBDT, CBDT Instruction dt 16.03.2016 on penny stock/ LTCG, and other specified parameters in this order, and held that the order u/s 263 was justified since there was complete lack of inquiry with regard to the perspective for which the case was selected for scrutiny, and that the AO had merely relied on the assessee’s submissions.
  • The decision of the ITAT Delhi Bench in the case of Bhushan Steel Ltd., New Delhi vs ACIT dated 30 March, 2015 is relevant to note as it relates to the aspect of lack of inquiry at the end of the AO for valid initiation of proceedings under Section 263 of the Act.
  • Hon’ble High Court of Karnataka in the case of CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012 has held that section 263 is a section which enables the Commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the revenue. It is also held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return.
  • Hon’ble ITAT Delhi Bench in the case of Ramesh Kumar, ITA.No.1982/Del/2018 for A.Y. 2014-15 order dated 25.01.2019 has observed as under –
  • “On going through the facts, it can be observed that the Assessing Officer has not conducted any enquiry and this is a clear case of lack of enquiry not a case of inadequate enquiry. Further non application of mind by the Assessing Officer can be easily gauzed from the fact that the information available with the Assessing Officer has not been utilised during the assessment proceedings which makes the case fit for applying the provisions of explanation 2 (a) of section 263.”
  • Hon’ble Delhi High Court in the case of Gee Vee Enterprises vs Addl. CIT, 99 ITR 375 has clearly held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return.

7. In view of the above facts and the judicial precedents, it is seen that Assessing Officer has not properly examined and verified the issues discussed in para 2 above and there was lack of enquiry on the same. Provision of Explanation 2 of Section 263 (1), are reproduced here under:

• • Explanation 2. -For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, –

a. the order is passed without making inquiries or verification which should have been made;

b. the order is passed allowing any relief without inquiring into the claim;

c. the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

d. the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the furisdictional High Court or Supreme Court in the case of the assessee or any other person.

In view of the above facts and circumstances, I find that the Assessing Officer has failed to make necessary examination and verification of the issues stated above while completing the assessment. I, therefore hold that assessment order for A.Y. 2017-18 dated 26.12.2021 passed by the Assessing Officer u/s 153C r.w.s 143(3) of the Act to be erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the said assessment order dated 26.12.2021 is hereby set aside to the file of Assessing Officer for examining the above issues in detail while framing the fresh assessment order. The Assessing Officer shall make necessary examination, verification and enquiries in respect of the above referred issues after giving adequate and reasonable opportunity of being heard to the assessee.”

4. Aggrieved with such order of the PCIT, the assessee is in appeal before the Tribunal by raising the following grounds :

“The following grounds are taken without prejudice to each other –

On facts and in law,

1) The appellant requests for condonation of delay of 133 days in filing of the appeal since there was reasonable cause on his part in not filing the appeal within prescribed time limit.

2) The Pr. CIT erred holding that the assessment order passed u/s.153C r.w.s.143(3) was erroneous and prejudicial to the interest of the revenue and thereby erred in setting aside the assessment order for fresh verification to the file of the ld. A.O.

3) The learned CIT failed to appreciate that the assessment order under section 153C r.w.s.143(3) was passed by the learned Assessing Officer after taking approval of Additional Commissioner of Income Tax and hence, he had no power to revise the said assessment order under section 263 of the Income Tax Act.

4) The Pr.CIT erred in holding that the Id. A.O. had failed to verify the issue regarding unsecured loan taken in cash through Shri Sachin Nahar and the payment of interest thereon and hence, the assessment order passed was erroneous and prejudicial to the interest of the revenue.

5) The Pr.CIT failed to appreciate that the appellant had not taken any loan in cash through Shri Sachin Nahar and had not paid any interest thereon and hence, thus, there was no reason to hold that the assessment order passed u/s.153C was erroneous and prejudicial to the interests of the revenue.

6) The Pr.CIT erred in not appreciating that there was no evidence with the Assessing Officer while passing the assessment order that the assessee had taken any unsecured loan in cash through Shri Sachin Nahar and accordingly, there was no reason to hold that the assessment order was erroneous and prejudicial to the interest of the revenue.

7) The appellant craves leave to add, alter, amend or delete any of the above grounds of ”

5. Learned Counsel for the Assessee did not press grounds of appeal 3, for which, the Learned DR has no objection. We, therefore, dismiss ground no.3 as not pressed.

6. So far as the other grounds are concerned, the Learned Counsel for the Assessee strongly challenged the order of the PCIT in invoking provisions of 263 of the Act. He submitted that the Assessing Officer in the instant case on the basis of search in the premises of Yuvraj Dhamale Group of cases from where certain incriminating material pertaining to the assessee were found, issued notice u/sec.153C of the Act to the assessee and thereafter, completed the assessment u/sec.153C r.w.s.143(3) of the Act on 26.12.2021 accepting the returned income of Rs.8,08,880/-. He submitted that the learned PCIT in the order passed u/sec.263 has set-aside the order of the Assessing Officer on the ground that assessee had taken unsecured loan in cash through Shri Sachin Nahar of Rs. 1,56,00,000/- which was found from the premises of Shri Sachin Nahar during the course of search at his place on 04.08.2017. Learned Counsel for the Assessee submitted that this is a case of unabated assessment and addition, if any, can be made only on the basis of incriminating material found during the course of search. Referring to Pages-11 to 20 of the paper book, the Learned Counsel for the Assessee drew the attention of the Bench to the satisfaction recorded u/sec.153C of the Act in the case of the assessee on the basis of search conducted on Yuvraj Dhamale Group of cases on 26.09.2017. He submitted that no satisfaction u/sec.153C was recorded in the case of Shri Sachin Nahar on the basis of the other search that took place on 04.08.2017. He submitted that once there is no satisfaction recorded in the case of Shri Sachin Nahar and that there is no evidence or material belonging or pertaining to the assessee were found, the Assessing Officer could not have made any addition in the hands of the assessee. Further the addition, if any, could have been made either by issuing notice u/sec.153C(1) or resorting to the provisions of sec.148. Therefore, once there is no satisfaction recorded in the case of Shri Sachin Nahar that certain entries or documents belong to the assessee, the Assessing Officer could not have made any addition merely on the basis of an email dated 19.03.2021.

6.1. Referring to the decision of Bangalore Bench of the Tribunal in the case of Sree Lakshmi Venkateshwara Minerals DCIT, Central Circle-2(1), Bangalore reported in [2021] 123 taxmann.com 255 (Bangalore-Trib.);Learned Counsel for the Assessee submitted that the Tribunal in the said decision has held that where assessment proceedings had already been completed prior to date of search under section 132, scope of making assessment under section 153C would be limited only to undisclosed income of assessee detected during search of some other person.

6.2. Referring to the decision of Hon’ble Karnataka High Court in the case of DCIT Sunil Kumar Sharma reported in [2024] 159 taxmann.com 179 (Karnataka); he submitted that the Hon’ble Karnataka High Court in the said decision has held that satisfaction note is required to be recorded u/sec.153C for each assessment year and consolidated satisfaction note recorded for the different assessment years would vitiate the entire assessment proceedings. He submitted that the Revenue has filed SLP against the said decision of Hon’ble Karnataka High Court and the Hon’ble Supreme Court has dismissed the same on 20.08.2024 as reported in [2024] 165 taxmann.com 846 (SC) vide CIT(A) vs. Sunil Kumar Sharma.

6.3. Hasib mitted that the documents found from Shri Sachin Nahar group of cases belong to Shri Sachin Nahar and therefore, provisions of 153C is outside the purview in the case of the assessee. He also relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society reported in [2017] 397 ITR 344 (SC). He submitted that since there are two searches i.e., in the case of Yuvraj Dhamale Group of cases and another in the case of Shri Sachin Nahale and there is only one satisfaction note recorded on the basis of search at Dhamale Group of cases that too a combined satisfaction note for all the years which itself is invalid. Therefore, in absence of separate satisfaction note in the case of Shri Sachin Nahar, the Assessing Officer could not have made any addition in the case of the assessee without resorting to either a separate 153C notice or through sec.148. He accordingly submitted that the order of the learned PCIT is not in accordance with law and has to be set aside and the grounds raised by the assessee should be allowed.

7. The Learned DR on the other hand, strongly supported the order of the PCIT and submitted that when the Assessing Officer has received an email dated 03.2021 that assessee had taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,56,00,000/-, against which, he paid interest of Rs.18,64,800/-, the Assessing Officer should have made due verification and made addition of the same, which he has failed to do. Therefore, the order of the learned PCIT being in accordance with law, should be upheld. The Learned DR also relied on the following decisions in support of his contention :

1. Decision of Hon’ble Supreme Court in the case of Malabar Industrial Ltd., vs. CIT reported in [2000] 243 ITR 83 (SC);

2. Vedanta, vs. CIT [2021] 124 taxmann.com 435 (Bom.) (HC);

3. Ashok Leyland , vs. CIT [2003] 260 ITR 599 (Madras) (HC);

4. Nagal Garment Industries (P.) , vs. CIT [2020] 113 taxmann.com 4 (Madhya Pradesh) (HC);

5. CIT vs. Shri Braham Dev Gupta AIRONLINE 2018 DEL 1529 (HC);

6. Ankush Garg, Rohtak CIT, Rohtak – Order of ITAT, Delhi ‘B’ Bench, New Delhi ITA.No.2287 & 2288/Del./2015, Order dated 21.05.2019.

8. We have heard the rival submissions made by both the sides and perused the material available on We find the Assessing Officer in the instant case, on the basis of the information obtained that certain documents pertaining to the assessee were found from the premises of Yuvraj Dhamale Group of cases during the course of search on 26.09.2017, issued notice u/sec.153C on the basis of satisfaction note dated 01.03.2021. The assessee in response to the same filed his return of income disclosing total income of Rs.8,08,880/- which was accepted by the Assessing Officer in the order passed u/sec.143(3)/153C of the Act on 26.12.2021. We find the learned PCIT invoked the provisions of sec.263 of the Act on the ground that assessee had taken unsecured loan in cash through Shri Sachin Nahar of Rs.1,56,00,000/- against which he paid interest of Rs.18,64,800/- in cash during the assessment year 2017-2018 which was found during the course of search at the premises of Shri Sachin Nahar on 04.08.2017 and an email to this effect was sent to the Assessing Officer on 19.03.2021. However, the Assessing Officer has failed to consider the same and therefore, the order has become erroneous in so far as it is prejudicial to the interest of Revenue. He, therefore, set aside the order passed by the Assessing Officer with a direction to frame the assessment afresh, the reasons of which, have already been reproduced in the preceding paragraphs.

8.1. It is the submission of the Learned Counsel for the Assessee that on the basis of search at the premises of Yuvraj Dhamale Group of cases, a combined satisfaction note u/sec.153C of the Act has been prepared for assessment years 2012-2013 to 2018-2019 which itself is not in accordance with law in view of the decision of Hon’ble Karnataka High Court in the case of DCIT Sunil Kumar Sharma reported in [2024] 159 taxmann.com 179 (Karnataka), according to which, satisfaction note is required to be recorded u/sec.153C for each assessment year separately and a consolidated satisfaction note recorded for different assessment years would vitiate the entire assessment proceedings. It is also his submission that on the basis of search at the premises of Shri Sachin Nahar no satisfaction note has been recorded. According to him, the provisions of sec.153C have to be resorted to where any books of account or documents seized or requisitioned pertains or pertain to or any information contained therein relates to the assessee. Therefore, no addition could have been made merely on the basis of an email dated 19.03.2021 without resorting to the provisions of sec.153C or sec.148.

8.2. We find some force in the arguments of Learned Counsel for the On a pointed query by the Bench to find-out as to whether any penalty proceedings u/sec.271D has been initiated for the contravention of sec.269SS of the Act in respect of unsecured cash loan received by the assessee, the Learned DR filed the following report before the Bench, the details of which are as under :

No. PN/ACIT CC-2(3)/ITAT/Rajendra R. Gugale/2024-25&nbsp

Date 21.10.2024

To

The Commissioner of Income Tax(DR), ITAT-11, Pune. Pune.

Sir,

Sub:- Appeal in the case of Rajendra Ramesh Gugale (PAN: ABFPG6929E) for AY 2017-18 in ITA No. 1676/ PUN/2024-reg.

Ref:- Your office e-mail dated 18/10/2024 (03:23 PM)

***

Kindly refer to the above.

02. Vide the above referred e-mail dated 18/10/2024, it is directed to send the assessment record in the above mentioned case to clarify whether any penalty proceedings u/s 271D of the Act has been initiated for the contravention of section 269SS of the Act in respect of unsecured cash loan received by the assessee.

03. In this regard, the assessment records in the above mentioned case is enclosed herewith (2 Volumes, Vol-1 36 Pages & Vol-11-70 Pages).

04. The brief fact of the case is that the assessment proceedings u/s.153C of the Act for Yrs. 2012-13 to 2018-19 were initiated on the basis of information contained in the incriminating material seized during the search action u/s.132 of the Act conducted on 26/09/2017 in Yuvaraja Dhamale group of cases. The said proceedings u/s.153C of the Act for A.Y.2017-18 was completed on 26/12/2021 by accepting the returned income of the assessee. Further, information of cash loan of Rs.1,56,00,000/-received by the assessee along with interest payment of Rs. 18,64800/- made by the assessee, had been received through e- ail dated 19/03/2021 from the DCIT, Central Circle-1(1),

Pune on the basis of incriminating materials seized during another search action u/s.132 of the Act conducted on 04/08/2017 in the case of Sachin Nahar, However, the said information of cash loan of Rs.1,56,00,000/- and interest payment of Rs.18,64,800/- was not considered by the AO during the course of the assessment proceedings u/s.153C of the Act. Since the above information of cash loan of Rs.1,56,00,000/- and interest payment of Rs. 18,64,800/- was not looked into the assessment proceedings u/s.153C of the Act by the AO, the order dated 26/12/2021 was erroneous and prejudicial to the interest of the revenue. Thereafter, the Pr.CIT(Central), Pune vide order u/s.263 of the Act dated 19/02/2024 set-aside the order u/s.153C of the Act passed on 26/12/2021 as erroneous and prejudicial to the interest of the revenue and directed the AO to examine the issue of cash loan of Rs.1,56,00,000/- received by the assessee and interest payment of Rs.18,64,800/- made by the assessee based on the incriminating documents seized in the case of Sachin Nahar. The set-aside proceedings are in progress as on date.

05. Further, it is pertinent to mention here that on analysis of the incriminating materials seized during another search action u/s.132 of the Act conducted on 04/08/2017 in the case of Sachin Nahar, it is very clear that the assessee has received cash loan of Rs.1,56,00,000/- and made interest payment of Rs.18,64,800/- for the period under consideration as per the evidences seized during the search proceedings in the case of Sachin Nahar, forwarded to this office by the DCIT, Central Circle-1(1), Pune vide mail dated 19/03/2021. Hence, the necessary proposal for initiating penalty proceedings u/s.271D of the Act for contravention of provisions of section 269SS of the Act will be submitted by this office after completion of this set-aside proceedings currently in progress.

Encl: as above.

Yours faithfully.

(Sd/-Merwyn Paes)

Asst. Commissioner of Income Tax,

Central Circle-2(3), Pune.”

8.3. A perusal of the satisfaction note recorded in the case of Shri Rajendra Ramesh Gugale on the basis of search at the premises of Yuvraj Dhamale Group of cases shows that a combined satisfaction note u/sec.153C of the Act has been recorded vide satisfaction note dated 03.2021 by recording as under :

“PROFORMA FOR RECORDING SATISFACTION UNDER SECTION 153C OF THE INCOME TAX ACT, 1961.

(To be filled by the Assessing Officer of the person referred to in section 153A)

“Hence, in view of the provision of section 153C of the Income Tax Act, 1961 it is necessary to initiate proceedings u/s.153C r.w.s.153A of the Income Tax Act, 1961 for A.Yrs 2012-13 to A.Y. 2018-19.

Date : 01/03/2021
Place : Pune

Sd/-(Swapnil Sharadrao Patil)
Joint Commissioner of Income Tax (OSD),
Central Circle-2(3), Pune.”

8.4. Thus ,a common satisfaction note has been recorded for assessment years 2012-2013 to 2018-2019 on the basis of search at the premises of Dhamale Group of Admittedly, there is no satisfaction recorded on the basis of search at the premises of Shri Sachin Nahar.

8.5. We find the Hon’ble Karnataka High Court in the case of DCIT Sunil Kumar Sharma (supra) has held that satisfaction note is required to be recorded u/sec.153C for each assessment year and hence, a consolidated satisfaction note recorded for different assessment years would vitiate the entire assessment proceedings. The relevant observations of Hon’ble High Court reads as under :

“53. Further, satisfaction note is required to be recorded under section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant/ Revenue.”

8.6. We find when the Revenue challenged the above order of the Hon’ble Karnataka High Court in the case of DCIT Sunil Kumar Sharma (supra), the Hon’ble Supreme Court in SLP (Civil) Diary No.21526 of 2024 vide order dated 20th August, 2024 dismissed the SLP filed by the Revenue.

8.7. Since in the instant case a consolidated satisfaction note has been prepared for assessment years 2012-2013 to 2018-2019, therefore, the consolidation satisfaction note being not in accordance with law, therefore, the entire assessment proceedings is liable to be We hold accordingly and quash the assessment.

8.8. Further, there is also no dispute to the fact that two searches have taken place e., one in the case of Yuvraj Dhamale Group of cases on 26.09.2017 and another in the case of Shri Sachin Nahar on 04.08.2017. There is only one satisfaction note i.e., a combined satisfaction note in the case of Yuvraj Dhamale Group of cases has been recorded, on the basis of which, notice u/sec.153C was issued to the assessee. However, no separate satisfaction note was recorded in the case of Shri Sachin Nahar that any books of account or documents seized or requisitioned pertains or pertain to or any information contained therein relates to the assessee. Therefore, no addition could have been made in the hands of the assessee without resorting to the provisions of either sec.147/148 or sec.153C of the Act.

8.9. Once the assessment framed u/sec.153C w.s.143(3) dated 26.12.2021 is held to be void being not in accordance with law on account of a combined satisfaction note for assessment years 2012-2013 to 2018-2019 instead of separate satisfaction note, no addition could have been made in the hands of the assessee on the basis of the email dated 19.03.2021 without issuing a separate notice u/sec.153C or resorting to provisions of sec.148. Therefore, we do not find any error in the order of the Assessing Officer.

8.10. Itis the settled proposition of law that for invoking the provisions of 263 of the Act, the twin conditions i.e., the assessment order must be erroneous and the order is prejudicial to the interest of Revenue must be satisfied as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., vs. CIT (supra). In the instant case, the order is certainly not erroneous, even though it may be prejudice to the interest of the Revenue. Therefore, the twin conditions are not satisfied and the PCIT, in our opinion, cannot invoke the provisions of sec.263 of the Act. In this view of the matter, we set aside the order of the PCIT and the grounds raised by the assessee are allowed.

9. Inthe result, appeal of the assessee is allowed.

Order pronounced in the open Court on 30.12.2024.