SC Upholds Quashing of Section 153C Notices Due to Defective Satisfaction Note

ACIT Vs Kishore Kumar Sharma (Supreme Court of India)

The dispute concerned the validity of notices issued under Section 153C of the Income Tax Act, 1961 for Assessment Years 2014-15 to 2020-21. The challenge before the Delhi High Court was directed against the notices dated 30 June 2022 and all consequential proceedings.

The Delhi High Court noted that the Satisfaction Note dated 30 June 2022 recorded by the jurisdictional Assessing Officer (AO) did not refer to any incriminating material for any of the assessment years covered by the notices. The Court observed that while the AO of the searched person, in a separate Satisfaction Note dated 21 June 2022, had referred to incriminating material relating only to Assessment Year 2016-17, the jurisdictional AO neither recorded that material in the satisfaction note nor explained how it could “have a bearing on the determination of the total income” of the assessee for the years in question.

The High Court held that the issue was fully covered by its earlier decision in Saksham Commodities Limited vs. Income Tax Officer. Referring to that judgment, the Court reiterated that proceedings under Section 153C can be initiated only after the jurisdictional AO receives the relevant material, examines it, and forms a satisfaction that such material is likely to have a bearing on the determination of the total income for the relevant assessment year or years. The Court emphasized that incriminating material must be identified with the specific assessment year to which it relates or is likely to affect. The mere existence of power to assess or reassess multiple years does not justify a mechanical or indiscriminate invocation of Section 153C.

The High Court further observed that the issuance of a notice under Section 153C and the consequent abatement of proceedings must necessarily be preceded by a properly recorded satisfaction of the jurisdictional AO. In the absence of material affecting a particular assessment year, the AO is not justified in invoking Section 153C for that year.

Applying these principles, the Delhi High Court concluded that the jurisdictional AO had failed to record the required satisfaction based on incriminating material for the relevant assessment years. Accordingly, it allowed the writ petitions, quashed the notices dated 30 June 2022 issued under Section 153C, and set aside all consequential proceedings.

The Revenue challenged the Delhi High Court’s judgment before the Supreme Court by filing Special Leave Petitions. During the hearing, the Revenue fairly submitted that similar Special Leave Petitions had already been dismissed by the Supreme Court. Taking note of this submission, the Supreme Court condoned the delay in filing the Special Leave Petitions and dismissed them. The Court also disposed of all pending applications.

Read Also Order Delhi HC: Delhi HC Quashes Section 153C Notices Due to Defective Satisfaction Note

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

The learned counsel appearing for the petitioners – Revenue fairly submits that the similar Special Leave Petitions have already been dismissed by this Court.

2. In view of the above, the Special Leave Petitions are dismissed condoning the delay in filing the SLPs.

3. Pending applications, if any, also stand disposed of.