Deepak Purshottam Shah (HUF) Vs ACIT (ITAT Mumbai)
Summary: ITAT Mumbai allowed the appeals of Deepak Purshottam Shah (HUF) for AYs 2012-13 and 2013-14 and held the proceedings under Section 153C invalid for absence of a valid satisfaction note connecting the seized material with the relevant assessment years. The proceedings arose from a search on the Swastik Group on 31 July 2014. The Tribunal found that the Assessing Officer had recorded a combined satisfaction note for AYs 2009-10 to 2014-15, but the documents specifically identified therein—pages 206 and 208 of Bundle No. 13 concerning a land transaction with Tata Housing Development Co. Ltd.—pertained to FY 2010-11/AY 2011-12.
In contrast, the addition of ₹5,29,917 for AY 2012-13 relating to an unsecured loan was based on Bundle No. 20, while the ₹15,40,000 addition for AY 2013-14 relating to sale proceeds of a shop was based on pages 35-37 of Bundle No. 6; neither material nor issue appeared in the satisfaction note. The Tribunal held that Section 153C requires clear and specific satisfaction linking the seized material with the other person and the relevant assessment year, and additions cannot travel beyond the material forming part of that recorded satisfaction. Relying, inter alia, on the coordinate Bench ruling in Kishor D. Naik (HUF) Vs ACIT, Bombay High Court’s decision in Ashok Commercial Enterprises v. ACIT and Delhi High Court’s decision in Saksham Commodities Ltd. v. ITO, the Tribunal declared the proceedings invalid and directed deletion of both additions. Both assessee appeals were accordingly allowed.
Cases Discussed
| Case | Treatment / Principle |
|---|---|
| M/s Kishor D. Naik (HUF) Vs ACIT, Central Circle-2, Thane, ITA No. 5587/Mum/2024 | oordinate Bench had dealt with another assessee covered by the same Swastik Group search and held that no addition could be made in Section 153C proceedings for the year under consideration. |
| Ashok Commercial Enterprises v. ACIT, Writ Petition Nos. 2595, 2593, 2847, 2588, 2598, 2597, 2696, 2625 & 2594 of 2021 | Bombay High Court held that whether incriminating material exists for assuming jurisdiction must be tested only on the basis of the recorded satisfaction note; Revenue cannot augment, supplement or substitute the material recorded therein. |
| Ananta Landmark Pvt. Ltd. | Cited in Ashok Commercial Enterprises for the principle that jurisdiction must be examined on the basis of reasons recorded when jurisdiction was assumed and such reasons cannot subsequently be improved or supplemented. |
| Jainam Investments | Cited along with Ananta Landmark Pvt. Ltd. on the rule against subsequently supplementing the recorded jurisdictional reasons. |
| Saksham Commodities Ltd. Vs ITO, W.P.(C) No. 1459 of 2024 and Others | Delhi High Court held that Section 153C cannot be invoked for assessment years for which no incriminating material was found and where the satisfaction note fails to explain how the material has a bearing on determination of total income for the year sought to be reopened. |
FULL TEXT OF THE ITAT ORDER
The present appeals have been filed by the assessee challenging the impugned order dt. 14.06.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2012-13 & 2013-14
2. Since all the issues involved in these two appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed for the sake of convenience and brevity. We shall take ITA No. 5591/Mum/2024, A.Y 2012-13 as lead case and facts narrated therein.
ITA No. 5591/Mum/2024, A.Y 2012-13
3. Ground No. 1 to 3 raised by the assessee relates to challenging the order Ld. CIT(A) in confirming the assessment order passed u/s 143(3) r.w.s 254 r.w.s 153C of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.
4. We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that a search action u/s 132 of the Act was carried out on Swastik Group on 31.07.2014. The assessee is a partner in various firms of Swastik Group. On the basis of ‘incriminating documents’ found during the search proceedings u/s 153C of the Act were initiated in this case. While completing the assessment u/s 144 r.w.s 153C on 24.08.2016 various additions were made and the income of the assessee was assessed at Rs. 8,82,99,270/- as against the returned income of Rs. 3,57,88,370/-.
Although, appeal was preferred, but the same was dismissed by Ld. CIT(A)
5. Aggrieved by the said order of dismissal, the assessee has preferred the present appeal and challenged the additions made by the AO on the ground that the additions were made without jurisdiction, in the absence of recording satisfaction in the case of searched person. Therefore it is necessary to evaluate the provisions of Sec. 153C of the Act which is reproduced herein below:
153C. Assessment of income of any other person.
(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,
a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or
b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A:
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.”
6. From the above reading it is quite clear that Section 153C of the Act is a non-obstante provision to Sections 139, 147, 149, 151 and 153 of the Act and the jurisdictional cause of action to initiate proceeding under this section would be available where a search is initiated u/s 132 or books of accounts, other documents or any assets are requisitioned u/s 132 of the Act.
7. We noticed that Section 153C of the Act permits the issuance of a notice by an Assessing Officer of a person who has not been searched, on the basis of a ‘Satisfaction Note’ (SN) prepared by the Assessing Officer of a searched person indicating that during the search certain documents belonging to the other person (the person not searched) were found.
8. Accordingly the AO must record a ‘clear and specific satisfaction’ that the seized documents or assets from a search pertain to a person other than the searched person. And such documents must have a bearing on the total income of that other person, and in case if the satisfaction is vague, and does not identify specific material, or lacks a clear connection to the income of the assessee, the jurisdiction u/s 153C of the Act must fail. Therefore no addition can be lawfully made based on such general or inadequate satisfaction. Moreover, if the satisfaction relates to a specific assessment year, then in that eventuality the AO cannot make additions for other years without recording independent and specific satisfaction for those years.
9. Now revisiting to the facts of the present case and the additions made u/s 153C of the Act are concerned, we noticed that the satisfaction note was recorded on 02.02.2015, and was furnished to the assessee on 29.11.2019. Upon perusal of the satisfaction note recorded by the Assessing Officer, we notice certain discrepancies and the same are mentioned below:
(i) The Satisfaction Note has been recorded as a combined note covering AY’s 2009-10 to 2014-15, rather than recording separate Satisfaction Notes for each of the six assessment years in the case of the assessee.
(ii) The AO’s satisfaction note refers only to documents in Bundle No. 13, specifically pages 206 and 208, which relate to a land sale transaction with Tata Housing Development Co. Ltd.
(iii) The documents in question pertain to FY 2010-11, corresponding to AY 2011-12. Therefore, the proposed addition under the said Satisfaction Note relates to AY 2011-12 and not to the years under consideration, i.e., AY 2012-13 and AY 2013-14.
(iv) The addition made in AY 2012 – 13 pertains to an unsecured loan of Rs. 5,29,917/- based on a document in Bundle No. 20, which do not find mentioned in the satisfaction note, Even the issue of unsecured loan is not part of satisfaction note recorded by the Ld. AO of the search party.
(v) The additions made for AY 2013-14 pertains to the sale proceeds of a shop amounting to Rs. 15,40,000/-, based on a document found in Bundle No. 6, at pages 35-37, relating to Shop Nos. 6 to 8, which is also not referred to in the satisfaction note recorded by the Ld. AO.
In this way the addition made are beyond the satisfaction note recorded by the Ld.AO.
10. Therefore, after having gone through the facts of the present case and after evaluating the documents placed on record, we noticed that no satisfaction was recorded that connects the seized documents to AY 2012-13 and AY 2013- 14 and the specific material pertains to (Bundle No. 20) forming the basis for the addition was not referred to in the AO’s satisfaction
11. We further noticed that the Co-ordinate Bench of the ITAT, Mumbai, adjudicated a case involving one of the assessee covered under the search conducted on the Swastika Group and whose name is also mentioned in the satisfaction note pertaining to the assessee, in the matter of M/s Kishor D. Naik (HUF) vs. ACIT, Central Circle-2, Thane [ITA No. 5587/Mum/20241. In the said order, the Hon’ble Bench has held that:
“6.13 Respectfully, following the decisions of Hon’ble High Court(supra), we hold that no addition could have been made in the year under consideration in 153C proceedings. Accordingly, the ground No. 1 and 2 of the appeal of the assessee are allowed. Since we have already held that no addition could have been made in the reassessment proceedings u/s 153C of the Act, the grounds challenging on merit is not required to be adjudicated upon. The ground No. 3 and 4 challenging the order passed without Document dentification Number (DIN) are also rendered academic, therefore, the ground No. 3 and 4 of the appeal are not adjudicated at this stage.
7. In the result, the appeal of the assessee is accordingly allowed.”
12. Reliance is also been placed on the decision of Hon’ble Jurisdictional High Court in the case of Ashok Commercial Enterprises v. ACIT in write petition Nos. 2595, 2593, 2847, 2588, 2598, 2597, 2696, 2625 & 2594 of 2021 wherein the Hon’ble High Court has decided the identical question. The finding of the Hon’ble High Court(supra) is reproduced as under:
“19 (a)………….
(b)….
(c)….
(d) The question of whether any material found during the course of proceedings under Section 132 of the Act in the case of Hubtown Limited is incriminating or otherwise has to be tested based only on the satisfaction note recorded by the Assessing Officer/s. The contents of the said satisfaction note are the only item/material to be looked at in this regard and respondent cannot seek to augment, supplement or add to materials recorded to support the claim that incriminating material has been found. Further respondent cannot refer to any other documents or material to establish such a claim. We find support in (i) Ananta Landmark Pvt. Ltd. (Supra) and ii) Jainam Investments (Supra), where the Courts have held that the question of the Assessing Officer’s jurisdiction to undertake proceedings has to be tested/examined only on the basis of reasons recorded at the time of issuing a notice under Section 148 of the Act seeking to reopen an assessment. These reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submission;”
13. Further, the Hon’ble Delhi High Court in the case of Saksham Commodities Ltd. vs. ITO W.P.(C) NO. 1459 OF 2024 And Others, has held that:
“69. When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section 153C in respect of AYs’ for which no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to “have a bearing on the determination of the total income” for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs’ years immediately preceding the assessment correlatable to the search year or the “relevant assessment year” as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.”
14. Therefore taking into considering the entire facts and circumstances of the present case as discussed by us above, we are of the view that the proceedings in the present case are invalid because the absence of a valid satisfaction note. Consequently, the addition of Rs. 5,29,917/- towards unsecured loans for AY 2012-13, as well as the addition of Rs. 15,40,000/- representing sale proceeds of a shop for AY 2013-14, having been made without reference to any satisfaction note, are ordered to be deleted.
ITA No. 5593/Mum/2024, A.Y 2013-14
15. As the facts and circumstances in these appeals are identical to ITA No 5591/Mum/2025 for the A.Y 2012-13 (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for this appeal also. Accordingly, the grounds of appeal of the present appeal also stands allowed.
16. In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 01.09.2025
