Dasna Agro Infratech Pvt. Ltd. Vs DCIT (ITAT Delhi Bench)
A Ledger May “Pertain” to the Assessee, but Must Also “Bear” on Its Income: Assessment u/s 153C Quashed
Summary:
Background
Dasna Agro Infratech Pvt. Ltd. was engaged in agricultural & allied activities. It filed its original return of income for AY 2017-18 on 28.10.2017.
A search u/s 132 was conducted on the Alankit Group & its key managerial persons on 18.10.2019. Proceedings u/s 153A were thereafter initiated against the searched persons.
During those proceedings, a ledger account relating to Dasna Agro Infratech was noticed. The ledger concerned a loan transaction between the assessee & M/s Diwakar Commercial Pvt. Ltd. Significantly, the loan transaction was not with the Alankit Group or the searched entity.
Treating the ledger as incriminating material pertaining to the assessee, the AO recorded a satisfaction note & transferred the material to the assessee’s jurisdictional AO. Proceedings u/s 153C were initiated against Dasna Agro Infratech.
The AO ultimately passed an assessment order dated 25.01.2024 making an addition of ₹50 lakh u/s 68 towards the loan, ₹1.50 lakh u/s 69C as alleged commission & ₹2,15,753 u/s 69C representing interest on the loan. The aggregate additions amounted to ₹53,65,753.
The CIT(A) dismissed the assessee’s appeal. The company therefore approached the Tribunal.
Assessee Challenges the Jurisdictional Foundation
The assessee contended that the satisfaction necessary for invoking s.153C had been recorded mechanically.
It argued that a document relating to the assessee cannot automatically trigger proceedings u/s 153C. The AO must specifically examine the seized material & record satisfaction that it has a bearing on the determination of the assessee’s total income for the relevant assessment year.
The satisfaction note did not contain this mandatory finding. It merely referred to the ledger as material pertaining to the assessee without explaining how it affected the computation of income for AY 2017-18.
The assessee also emphasised that the ledger had surfaced during the assessment proceedings of the searched entity & related to a transaction with an entirely different company. Thus, the statutory jurisdiction under s.153C could not be assumed merely because the assessee’s name appeared in the ledger.
The Revenue relied upon the orders of the AO & CIT(A).
What s.153C Requires
Section 153C enables the Revenue to assess a person other than the person searched where money, bullion, jewellery, books, documents or other material discovered through the search belongs to or pertains to that other person.
However, identification of a document with the other person is only the beginning of the jurisdictional enquiry. The AO must additionally be satisfied that the material has a bearing on the determination of the total income of that person for the relevant year.
This requirement ensures that s.153C is not invoked merely because a third party’s records contain the name of another taxpayer. Commercial dealings naturally produce ledgers, invoices, confirmations & correspondence referring to several persons. Unless the material is capable of affecting the other person’s taxable income, the extraordinary search-assessment machinery cannot be activated.
Satisfaction Note Fails the Statutory Test
The Tribunal examined paragraphs 2 to 4 of the satisfaction note recorded by the AO of the non-searched person.
It found that the AO had not recorded the essential satisfaction that the material found during the third-party search had a bearing upon determination of the assessee’s total income.
The absence of this conclusion was not a minor drafting defect. It represented failure to satisfy a statutory condition governing the very assumption of jurisdiction.
The AO was required to demonstrate an objective link between the identified document & possible income assessable in the hands of Dasna Agro Infratech. A bare reference to the ledger or a statement that it pertained to the assessee did not fulfil that requirement.
Reliance on Saksham Commodities
The ITAT relied upon the Delhi High Court’s judgment in Saksham Commodities Ltd. v. ITO, 464 ITR 1.
The High Court had explained that the mere availability of s.153C jurisdiction over a block of assessment years does not permit the AO to mechanically initiate assessment or reassessment for every year.
In the case of an “other person,” the consequences contemplated by s.153C arise only after the jurisdictional AO forms the requisite satisfaction that the material has a bearing on determination of that person’s total income.
Further, the material must be capable of affecting income for the particular AY sought to be covered. The existence of a document, without an assessment-year-specific connection to income, is insufficient.
Applying this principle, the Tribunal held that the defective satisfaction note vitiated the entire assumption of jurisdiction.
Final Verdict
Since the mandatory jurisdictional satisfaction had not been recorded, the notice issued u/s 153C was invalid.
The invalidity went to the root of the proceedings. Consequently, both the notice & the assessment order passed u/s 153C were quashed. Once the assessment itself was annulled, the Tribunal did not adjudicate the additions of ₹50 lakh, ₹1.50 lakh & ₹2,15,753 on merits.
The assessee’s appeal was accordingly allowed.
Author’s Comments
The ruling reinforces that three expressions commonly encountered in s.153C litigation are not interchangeable: “belongs to,” “pertains to” & “has a bearing on determination of total income.” Even where a document admittedly pertains to the other person, jurisdiction does not follow unless its income-bearing character is consciously examined & recorded.
A ledger entry may represent an entirely genuine transaction already recorded in the regular books. Therefore, the AO must explain why it is incriminating or how it could affect taxable income. Merely discovering a taxpayer’s name in another person’s records cannot turn a search on X into a search assessment of Y.
The order refers to the satisfaction note at one place as dated 20.06.2022 & elsewhere as dated 28.06.2022. This factual inconsistency does not alter the result because the Tribunal found the contents of the note—not its date—to be legally deficient.
The decision is valuable for pending s.153C cases: the satisfaction note must connect the material, the other person, the relevant AY & the potential impact on total income. If one link is missing, the jurisdictional chain breaks.
Cases Discussed
- Saksham Commodities Ltd. v. ITO, 464 ITR 1 (Delhi High Court)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH
The above-captioned appeal is preferred by the assessee against the order dated 28.01.2026, passed by the Learned Commissioner of Income Tax (Appeals), Delhi – 25 (hereinafter referred to as ‘ld. CIT(A)’) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), arising out of the assessment order dated 25.01.2024 passed by the Assessing Officer, DCIT, Central Circle – 28, Delhi for A.Y. 2017-18.
2. The grounds of appeal raised by the assessee are as under:
“1. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessment order passed by the Ld. Assessing Officer under section 153C of the Income-tax Act, 1961, which is illegal, without jurisdiction, arbitrary, and liable to be quashed.
2. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in sustaining the initiation of proceedings under Section 153C of the Act in the absence of any incriminating material belonging to or pertaining to the Appellant.
3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in upholding the assumption of jurisdiction and the initiation of the impugned proceedings based on the observation during the assessment proceedings u/s 153A of the Act of the searched entity, and not on documents found during the search u/s 132 of the Act, as mandated u/s 153C of the Act.
4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in sustaining the addition of Rs. 50,00,000/- under section 68 despite the loan being genuine, duly recorded, and repaid through banking channels.
5. That the Ld. CIT(A) has erred in not appreciating that the loan transaction in question was genuine and that the Appellant had duly furnished all documentary evidence to establish the identity, creditworthiness of the lender, and genuineness of the transaction.
6. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining the addition on account of the alleged commission of % amounting to Rs. 1,50,000/-, which has been arbitrarily calculated without any basis, evidence, or application of mind.
7. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining the disallowance of interest of Rs. 2,15,753/- on the alleged loan, ignoring the fact that the interest payment was genuine and duly supported by documentary evidence on record.
8. That on the facts and circumstances of the case, the Ld. CIT(A) erred and sustained the assessment order passed by the Ld. AO without application of mind and, in a mechanical manner, proceeded to sustain the assessment order on the basis of borrowed satisfaction, presumption, and conjecture.
9. That on the facts and circumstances of the case, the Ld. CIT(A) erred in sustaining the impugned addition wherein the Ld. AO failed to supply the alleged incriminating seized documents and the statements of the persons relied upon to the Appellant, thereby violating the principles of natural justice.
10. That on the facts and circumstances of the case, the Ld. CIT(A) erred in sustaining the assessment order passed by the Ld. AO wherein they miserably failed to consider the reply of the Appellant and violated the principle of natural justice.
11. That the Appellant craves leave to add/alter any / all grounds of appeal before or at the time of hearing of the appeal.”
3. Brief facts of the case are that the assessee is a private limited company engaged in agricultural and allied activities. The assessee originally filed its income tax return for AY 2017-18 on 28.10.2017. A search u/s 132 of the Act dated 18.10.2019 was conducted on Alankit Group and its key managerial persons thereafter, assessment proceedings u/s 153A of the Act were initiated against them. During the assessment proceedings u/s 153A of the Act of the searched entity, certain document i.e. ledger of the assessee was found. It is pertinent to mention here that said ledger was related to a loan transaction with M/s Diwakar Commercial Pvt. Ltd and not the searched entity. Consequently, the Ld. AO of the searched entity drew a satisfaction note dated 20.06.2022 and proceeded to handover the documents to the jurisdictional Assessing Officer of the assessee stating that the ledger found during the assessment proceedings u/s 153A of the Act, is incriminating material pertaining to the assessee. Ultimately, the AO passed the assessment order dated 25.01.2024 u/s 153C of the Act thereby making the following additions:
1. Amount of Rs. 50,00,000/- (Loan Amount) u/s 68 of the Act.
2. Amount of Rs. 1,50,000/- (as commission) u/s 69C of the Act.
3. Amount of Rs. 2,15,753/- (interest on loan) u/s 69C of the Act.
4. Being aggrieved by the order of the Ld. AO the assessee has preferred an appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee. Aggrieved, assessee is now in appeal before us.
5. Before us, learned Counsel for the assessee questioned the validity of satisfaction note u/s 153C being recorded mechanically and does not record that the seized material has a bearing on determination of total income. The Ld AR has raised the issue of invalid proceedings and absence of any valid satisfaction being recorded as per law.
6. On the other hand ld. DR relied on the order of the CIT(A).
7. We have heard the rival submissions and perused the material available on record. For adjudicating the issues at hand, it would be relevant to reproduce the Satisfaction note dated 20.06.2022 recorded by the AO of the assessee as under:
From the reading of paragraph 2 to 4 of the above satisfaction note dated 28.06.2022, as recorded by the AO of the assessee, the non-searched person, we find that the AO has not recorded that the seized material found during the course of search on third party, have a “bearing on determination of the total income of the assessee”, as statutorily mandated in the provisions of section 153C of the Act. Consequently, we apply the decision of Hon’ble Delhi High Court in the case of Saksham Commodities Ltd. v. ITO (2024) 464 ITR 1/ 338 CTR 418/161 taxmann.com 485 (Delhi), which held as under:
“48.**********However, the spectre of abatement insofar as the “other person” is concerned would arise only after the jurisdictional AO has formed the requisite satisfaction of the material having “a bearing on the determination of the total income of such other person” and having formed the opinion that proceedings under Section 153C are liable to be initiated.
50. What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs’ immediately preceding the AY pertaining to the search year or for the “relevant assessment year”.
In such facts and circumstances therefore, we hold that the satisfaction note is invalid which vitiates the assumption of jurisdiction u/s 153C of the Act. Consequently, the notice u/s 153C as well as order under section 153C is not sustainable in law. We, accordingly, quash the notice as well as the order under section 153C of the Act. The appeal is allowed in aforesaid terms.
8. In the result, the appeal filed by the assessee in ITA No.3058/Del/2026 is allowed.
Order pronounced in the open court on 01.09.2026.
