DCIT Vs Chrysalis Trading Pvt. Ltd. (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal has quashed an assessment against Chrysalis Trading Pvt. Ltd., holding that the Assessing Officer failed to record proper satisfaction under Section 153C of the Income-tax Act, 1961.
The dispute centred on the distinction between seized documents “belonging to” another person and documents “pertaining to”, or containing information “relating to”, that person under the provision amended with effect from 1 June 2015.
The Tribunal dismissed the Revenue’s appeal and allowed the assessee’s cross-objection. The order was pronounced on 11 November 2026 by Judicial Member Satbeer Singh Godara and Accountant Member Sanjay Awasthi in ITA No.6452/Del/2026 and CO No.337/Del/2026, concerning Assessment Year 2019-20.
Background of the Dispute
The proceedings originated from a search conducted on 23 March 2021 in the KK Spun Group cases.
Following the search, the Assessing Officer recorded satisfaction on 1 May 2023 concerning material proposed to be used for initiating proceedings against Chrysalis Trading Pvt. Ltd., a person other than the searched person.
The resulting assessment was framed under Section 153C read with Section 144.
The matter subsequently reached the Tribunal through the Revenue’s appeal and the assessee’s cross-objection against the CIT(A), Delhi-23’s order dated 27 July 2026.
At the outset, the assessee challenged the validity of the assessment itself, contending that the statutory satisfaction required for invoking Section 153C had not been properly recorded.
What the Satisfaction Note Recorded
The satisfaction note stated that the Assessing Officer had examined the seized material and statements recorded during the search.
It further stated that the documents belonged to a person other than the searched person, identifying that person as Chrysalis Trading Pvt. Ltd.
The note alleged that the sales and purchases reflected in the material were not genuine. It also recorded that the documents had a bearing on determining the company’s income for Assessment Years 2015-16 to 2021-22, and proposed issuance of notices accordingly.
The assessee’s objection concerned whether this formulation satisfied the particular statutory requirement applicable to seized documents after the 2015 amendment.
Distinction Introduced by the Amended Provision
The Tribunal examined the distinction drawn within Section 153C(1) following the amendment made by the Finance Act, 2015.
For specified seized assets, including money, bullion and jewellery, the statutory test refers to whether they belong to a person other than the searched person.
For books of account or documents, the relevant test concerns whether they pertain to another person or whether information contained in them relates to that person.
The assessee argued that the Assessing Officer had used the ownership-based expression for documents without properly recording the satisfaction required under the amended framework.
The Tribunal accepted the challenge by applying earlier coordinate Bench decisions addressing the same issue.
Earlier Decision From the Same Search Followed
The Bench relied on Bharatiya International Limited v. DCIT, ITA No.5413/Del/2025, decided on 22 April 2026.
That decision arose from the same search action and had resolved the satisfaction-note issue in favour of the taxpayer.
In turn, it followed Narender Nath v. DCIT, ITA No.4990/Del/2025, decided on 8 January 2026, where the Tribunal examined satisfaction describing seized documents as belonging to the third-party assessee.
The reasoning reproduced in the present order treated proper satisfaction that the documents pertained to, or contained information relating to, the third person as a condition precedent for proceeding against that person.
The cited decisions also referred to Prashant Premchand Bafana v. ACIT, decided on 8 April 2025.
General Allegations Did Not Cure the Jurisdictional Defect
The satisfaction note contained allegations concerning bogus sales and purchases and stated that the documents affected determination of income.
Nevertheless, the Tribunal followed the earlier rulings concerning the statutory distinction and the manner in which the jurisdictional satisfaction had been recorded.
It found that the developments arising from the coordinate Bench decisions remained unrebutted by the Revenue.
Accordingly, the Bench concluded that the searched person’s Assessing Officer had failed to record proper Section 153C satisfaction. This defect vitiated the assessment framed against Chrysalis Trading Pvt. Ltd.
The decision therefore turned on compliance with the jurisdictional requirement, rather than adjudication of the underlying transactions.
Assessment Quashed and Merits Left Undecided
The Tribunal quashed the assessment, dismissed the Revenue’s appeal and allowed the assessee’s cross-objection.
Once the assessment failed on the legal ground, the remaining pleadings on merits became academic. The Bench did not independently determine whether the disputed sales and purchases were genuine.
The order highlights the importance of recording satisfaction in accordance with the applicable version of Section 153C and the category of seized material involved. In this case, the Tribunal treated the defect as affecting the foundation of the assessment, while following consistent decisions arising from the same search.
Cases Discussed
- Narender Nath v. DCIT — ITA No. 4990/Del/2025 (ITAT Delhi), decided 8 January 2026; improper Section 153C satisfaction.
- Prashant Premchand Bafana v. ACIT — IT(SS)A Nos. 119 and 120/Pun/2022 (ITAT Pune), decided 8 April 2025; satisfaction concerning seized documents.
FULL TEXT OF THE ORDER OF ITAT DELHI
This Revenue’s appeal ITA No. 6452/Del/2026 with assessee’s cross objection C.O. No. 337/Del/2026; for assessment year A.Y. 2019-20, arise against the Commissioner of Income Tax(Appeals) (for short, “CIT(A)”), Delhi-23’s DIN & Order No. ITBA/APL/S/250/2025-26/1087372497(1) dated 27-Jul-2026, involving proceedings u/s 153C r.w.s. 144 of the Income Tax Act, 1961; hereinafter referred to as, “the Act”.
Heard both the parties. Case files perused.
2. Delay of 08 days in filing of the assessee’s instant appeal is condoned in larger interest of justice
3. It emerges at the outset during the course of hearing that there arises the first and foremost issue of validity of the impugned assessment itself for want of the learned Assessing Officer’s proper satisfaction recorded u/s 153C of the Act. There does not appear to be much a dispute between the parties that the learned departmental authorities had carried out the search in issue dated 23.03.2021 in M/s KK Spun group of cases. And that the learned Assessing Officer recorded his satisfaction on 1.5.2023 that there was some incriminating material found seized therein which belonged to the (pages 12 to 166 in the case record). This being the clinching factual position, the assessee’s case before us is that after the statutory amendment in section 153C(1) of the Finance Act, 2015 with effect from 1.6.2015 that such seized material couldn’t be held belonging to a third party; except that specified in clause (a) thereof. It further invites our attention to the learned Assessing Officer’s section 153C satisfaction note; as under:
“While drawing the satisfaction note, the AO of the searched person i.e., undersigned has gone through the seized material and the statement of various persons recorded during the course of search mentioned above in his satisfaction note and the satisfaction note is drawn based on the perusal of the seized material as mentioned above. Further, after examining these documents and on the basis of the entries/transactions/contents, it is noticed that documents as referred and discussed at para no, 10.1 and sub para 1 above do belong to person other than the searched person ie..s., M/s Chrysalis Trading Private Limited (PAN: AACCC7944C). The sales and purchases shown are not genuine and bogus. Accordingly, I am satisfied that the documents seized during the course of search mentioned above, have a bearing on the determination of income of M/s Chrysalis Trading Private Limited (PAN: AACCC7944C) for the A.Ys. 2015-16 to 2021-22. Accordingly, Notices are to be issued as per section 153C r.w.s. 153A of the Act for the A.Y. 2015-16 to 2021-22”
Faced with this situation, we hereby note that the instant issue of validity of the impugned section 153C assessment framed in the assessee’s case is no more res integra as the tribunal’s earlier coordinate bench in Bharatiya International Limited versus DCIT in ITA 5413/Delhi/2025 decided on. 22.04.2026 having settled the same in the assessee’s favour and against the department, arising out of the very search, as under:
“4. It is at this stage that the learned counsel vehemently submits that going by the statutory amendment in section 153C(1) of the Act vide Finance Act 2015 w.e.f. 01.06.2015, no such document could be held as “belonging” to a third party whereas the Revenue seeks to justify the same on the ground that it is not the grammatical expressions used in section 153C satisfaction but overall facts and circumstances which ought to be considered whilst deciding the instant legal issue.
5. We have given our thoughtful consideration to the assessee’s and the Revenue’s respective vehement submissions. We find no reason to sustain the impugned assessments in light of the tribunal’s earlier order in Narender Nath Vs. DCIT, ITA No. 4990/Del/2025 decided on 08.01.2026; reading as under:
“3. We advert to the assessee’s first and foremost substantive ground/legal arguments herein that both the learned lower authorities have erred in law and on facts in framing the impugned section 153C r.w.s. 143(3) assessment dated 30.03.2024; in furtherance to the searched party’s Assessing Officer’s satisfaction dated 25.03.2023 and his assessing authority on the very date, as the case may be, which has been wrongly upheld in the lower appellate discussion.
4. That being the case, learned CIT-DR vehemently argues that the impugned twin satisfactions herein had been properly recorded by the Assessing Officer(s); be it that of the searched assessee or appellant third party herein. Her case accordingly is that we ought to uphold the same in very terms.
5. We have given our thoughtful consideration to both the party’s foregoing rival pleadings. There is hardly any dispute that the learned departmental authorities had carried out the impugned search on 23.03.2021 in M/s KK Spun Group. And that the said searched party’s learned Assessing Officer recorded his section 153C satisfaction dated 25.02.2023 for proceeding against assessee/appellant before us. The said learned Assessing Officer appears to have recorded that the corresponding seized document during the course of search “belonged to” the assessee/appellant who happens to be the third party u/s 153C of the Act.
6. Faced with this situation, the Revenue could once again not dispute that section 153C(1)(a) stipulates the category of the seized material as “any money, bullion, jewellery .. …”which could be held as belonging to a third person and such documents etc. could only be treated as pertaining to or in formation therein as relating to such a person. Meaning thereby that the learned Assessing Officer has not properly recorded his satisfaction that the impugned seized documents either pertained to or related to the assessee which forms a conditioned precedent before proceedings him/third person. This tribunal’s recent decision in Prashant Premchand Bafana Vs. ACIT IT(SS)A No. 119 & 120/Pun/2022 decided on 08.04.2025 has already settled the very issue in the assessee’s favour and against the department. We thus conclude in this backdrop that the impugned assessment dated 30 .03.2024deserves to be quashed since based on an imp roper section 153C satisfaction. Ordered accordingly.”
6. We adopt judicial consistency to quash all these three impugned section 153C assessments in very terms for want of any exception pinpointed at the Revenue’s behest in law or on facts, as the case may be. Ordered accordingly.
7. All other remaining pleadings between the parties stand rendered academic. ”
3. All these clinching intervening developments have gone unrebutted from the Revenue side. We thus conclude in this factual backdrop the learned Assessing Officer in the searched assessee’s case had failed to record a proper section 153C satisfaction which vitiates the entire assessment itself framed in the assessee’s hands. We quash the same in very terms therefore.
All other remaining pleadings between the parties on merits stand rendered academic.
4. This Revenues appeal ITA No. 6452/Del/2026 is dismissed and the assessee’s cross objection CO No. 337/Del/2026 is allowed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 11.11.2026
