Case Law Details
Sharpi Agarwal Vs DCIT (ITAT Delhi)
ITAT Quashes Section 153C Assessment Due to Defective Satisfaction Note; ITAT Holds Proper Satisfaction Mandatory for Section 153C Action, Quashes Assessments; Section 153C Proceedings Invalid as Satisfaction Note Lacked Mandatory Findings; ITAT Rejects Revenue Stand on Technical Defect, Quashes 153C Assessments for Improper Satisfaction.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, decided a batch of appeals relating to Assessment Years 2017-18, 2018-19, and 2019-20 involving challenges to assessments initiated under Section 153C of the Income Tax Act. The assessees contested the validity of notices issued under Section 153C and argued that the statutory conditions for initiating proceedings had not been satisfied.
The principal issue before the Tribunal was whether the satisfaction note recorded by the Assessing Officer adequately established that the seized material had a bearing on the determination of the total income of the assessee, who was a person other than the searched party. The assessees argued that the satisfaction note did not explicitly state this requirement and relied on the Delhi High Court judgment in Saksham Commodities Ltd. vs. ITO (2024) 464 ITR 1 (Delhi) as well as a co-ordinate bench ruling in Mukesh Chandra Agarwal vs. DCIT.
The Revenue contended that the satisfaction note had been properly recorded based on incriminating material seized during a search conducted on 18.10.2019 and that the additions were made on merits for recovery of actual tax dues. It was argued that the proceedings should not be invalidated on technical grounds.
After examining the satisfaction note, the Tribunal observed that it nowhere explicitly clarified whether the seized material had a “bearing on the determination of total income” of the assessee, as required under Section 153C(1). The Tribunal reproduced and relied upon the earlier co-ordinate bench decision in Mukesh Chandra Agarwal, which had followed the Delhi High Court ruling in Saksham Commodities Ltd. and held that recording satisfaction under Section 153C is not a mechanical exercise.
The Tribunal held that the Assessing Officer had erred in recording an improper satisfaction note before initiating proceedings under Section 153C. Consequently, the assessment orders were quashed. Since the legal ground succeeded, the Tribunal held that adjudication of the remaining grounds was unnecessary. All the appeals of the assessees were allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeals are filed by the above-mentioned Assessees/Appellants, wherein Assessees have challenged the orders of Ld. Commissioner of Income Tax (Appeals)-25, New Delhi (‘Ld. CIT(A)’ for short), dated 29/07/2025 in ITA No. 5972/Del/2025, 5973/Del/2025 and 5974/Del/2025 and orders dated 31/07/2025 in ITA Nos. 5975/Del/2025, 5976/Del/2025and 5977/Del/2025 respectively pertaining to the Assessment Years 2017-18, 2018-19 and 2019-20.
2. As the identical issues are involved in the captioned Appeals, the Appeals are heard together and decided in this common order. For the sake of convenience ITA No. 5975/Del/2025 has taken as lead matter.
3. The Assessee raised Identical grounds of appeal in all the Appeals and the Ld. Counsel for the Assessee has argued on the Ground No. 2 of the Appeals which reads as under: –
“2. The notice issued under Section 153C of the Act and the consequent assessment proceedings are illegal, void ab initio, and without jurisdiction, as the statutory preconditions for invoking Section 153C of the Act were not satisfied, rendering the proceedings bad in law and liable to be quashed.”
4. The Ld. Assessee’s Representative contended that in the satisfaction recorded by the A.O., nowhere it is mentioned and explicitly made clear as to whether relevant seized material had a ‘bearing on the determination of the total income of such other person’. The ld. Counsel further relied on the land mark Judgment of the Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd. vs. ITO (2024) 464 ITR 1 (Delhi) (HC) and also the order of the Co-ordinate Bench of the Tribunal in the case of Sh. Mukesh Chandra Agarwal Vs. DCIT in ITA No.1786/Del/2025, order dated 08/12/2025 and sought for allowing Ground No. 2 in all the Appeals.
5. Per contra, the Ld. Departmental Representative vehemently submitted that the satisfaction note has been properly recorded in the light of incriminating material found and seized during the search conducted on 18.10.2019, which led the A.O. of the searched party to satisfy himself that the same belonged or pertaining or related to the Assessee as the case may be and the satisfaction Note finally culminating in the impugned assessment. Further contended that the additions have been made on merits with an intention to recover the actual tax dues from the Assessees, therefore, the technical grounds cannot be entertained by the Tribunal, thus, sought for dismissal of Ground No. 2 in all the Appeals.
6. We have heard both the parties and perused the material available on record. In order to decide the issue in hand, it is relevant to examine the satisfaction recorded by the A.O. As the identical satisfactions have been recorded the satisfaction recorded in the case of Sharpi Agarwal produced at page No. 93 of the paper book in ITA No. 5975/Del/2025 is reproduced as under:-
7. As could be seen from the above satisfaction note, nowhere it is explicitly clear as to whether the reserved seized material a ‘bearing on the determination of total income of such other person.’ The Co-ordinate Bench of the Tribunal in the case of Sh. Mukesh Chander Agarwal (supra) on relying on the Hon’ble Supreme Court of India Judgment in the case of Saksham Commodity (supra), in an identical situation quashed the assessment order in following manners: –
“2. It emerges during the course of hearing that there arises the first and foremost legal issue of validity of the impugned section 153C proceedings/assessments framed on 31st March, 2023 itself between the parties; for want of a valid satisfaction recorded by the learned lower authorities. There is hardly any dispute that the learned Assessing Officer of the assessee (who happens to be a person other than the searched party) had set into the motion section 153C proceedings herein reading as under:
“Reasons for satisfaction for issuing notice u/s 153C of the Income Tax Act, 1961 in the case of Sh. Mukesh Chandra Agrawal (PAN: ABWPA8709M)
A search and seizure operation was carried out in the Alankit Group of cases on 18.10.2019 subsequently the said group was centralized to the jurisdiction of the undersigned. Accordingly, during the course of assessment proceedings u/s 153A of Alankit Group, material/ documents related to your case have been found.
1. Annexure A-1, MCAR, page 1 to 17:- found and seized at 173, Sita Ram Apartments, IP Extension, Delhi wherein copy of Sale deed dated 26.08.2015 in favour of Shri Mukesh Chandra Agrawal found Residential Plot Sale deed made in Agra, Uttar Pradesh, Plot no. 21, Area 166.47 Sq. Mtr. Located in Swapn Lok Kaloni Kakua, Agra by Vishal Infra Pvt Ltd for Sale to Shri Mukesh Chandra Agrawal, Total Value of Property Rs.6,00,000/-.
2. Annexure A-1, MCAR, page 30 to 46:- found and seized at 173, Sita Ram Apartments ,IP Extension, Delhi wherein copy of Sale deed dated 30.05.2019 of Residential flat in favour of Shri Mukesh Chand Agrawal found copy of Sale Deed in case of Residential Plot Area 138.28 Sq. Mtr Flat no.173, Sitaram Apartment, I P Extention Delhi-92 in favour of Shri Mukesh Chand Agarwal and Smt Neeta Agarwal, by Shri Ajay Tiwari, F14/118, Krishna Nagar, Delhi51.Total Value of Property Rs.1,80,00,000/-.
3. Annexure A-1, MCAR, page 51 to 65:- found and seized at 173, Sita Ram Apartments, IP Extension, Delhi wherein copy of Sale deed dated 21.04.2014 of Residential Plot in favour of Shri Mukesh Chand Agrawal found copy of Residential Plot Sale deed made in Mathura, Uttar Pradesh, Plot Area 166.44 Sq. Mtr. Located in Mauja Bakal pur, Mathura by Agrawal Developers for Sale of Plot 44, Agrawal developers, MaujaBakalpur, Mathura Total Value of Property Rs. 16,00,000/-.
The assessment proceedings are required to be taken u/s 153C of the Income Tax Act, 1961 as the warrant issued in the names of Sh. Alok Agarwal, Sh. Ankit Agarwal, M/s Alankit Ltd. And M/s Alankit Assignment.”
3. That being the case, learned CIT(DR) strongly supports the above satisfaction note inter alia that the same had been properly recorded in light of the relevant incriminating material found/seized during the course of search dated 18.10.2019 which led the Assessing Officer of the said searched party to satisfy himself that the same belonged or pertained or related to the assessee; as the case may be, leading to the Assessing Officer’s satisfaction note finally culminating in the impugned assessment framed in its hands.
4. Faced with this situation, the tribunal invited the Revenue’s attention to the clinching fact that the learned Assessing Officer’s above extracted satisfaction note has nowhere made it explicitly clear as to whether the relevant seized material had a “bearing on the determination of the total income of such other person”. Learned CIT(DR) seeks to buttress the point herein that such a satisfaction note has to be read in totality than after adopting a hyper technical approach.
5. We find no reason to accept the Revenue’s stand. We make it clear that there is no quarrel between the parties about the learned Assessing Officer of the assessee/third person not having clarified as to whether the relevant seized material had any “bearing……………………. ” as stipulated in section 153C(1) of the Act. Hon’ble jurisdictional high court’s recent landmark decision in Saksham Commodities Ltd. Vs. ITO (2024) 464 ITR 1 (Delhi)(HC) has settled the law in the assessee’s favour and against the department that such recording of section 153C satisfaction is not a mere mechanical exercise. We thus draw strong support therefrom to conclude that the learned assessing authority in the assessee’s cases had erred in law and on facts in recording an improper satisfaction before initiating section 153C proceedings which vitiates the assessment itself in above terms. Ordered accordingly.
All other remaining pleadings between the parties stand rendered academic. “
8. In view of the above, we find merits in the Ground No. 2 of the Assessees’ Appeals, accordingly the respective Assessment Orders are hereby quashed. Since, we have allowed the Ground No. 2 of captioned Appeals and quashed the Assessment Orders, other grounds of Appeal require no adjudication.
9. In the result, Appeals of the Assessee in ITA No. 5972/Del/2025, 5973/Del/2025 and 5974/Del/2025, ITA Nos. 5975/Del/2025, 5976/Del/2025 and 5977/Del/2025 are allowed.
Order pronounced in the open court on 24th April, 2026
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