Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 126211 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-04-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
G
Assessment Year
2013-2014
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “G” BENCH: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & ITA Nos.3514 to 3519/Del/2023 [Assessment Years : 2011-12 to 2015-16 & 2017-18] Shaan Realcon (P) Ltd. 2599/4, Beodan Pura Karol Bagh, New Delhi-110005 PAN-AALCS3794F vs ACIT Central Circle-II Faridabad APPELLANT RESPONDENT Appellant by Shri S.S.Nagar, CA Respondent by Ms. Jaya Chaudhary, CIT DR Date of Hearing 27.03.2025 Date of Pronouncement 23.04.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeals have been filed at the instance of the assessee against the common and consolidated order, all dated 29.09.2023 passed by passed by Commissioner of Income Tax (A)-3, Gurgaon [“CIT(A)”] concerning Assessment Years 2011-12 to 2015-16 & 2017-18 respectively arising from the respective assessment orders passed by the AO tabulated hereunder:- Sr. Nos. ITA Nos. CIT(A) Order dated Assessment Order dated Assessment Order passed under section 1. 3514/Del/2023 [AY 2011-12] CIT(A)-3, Gurgaon order dated 29.09.2023 18.12.2018 153A(1)(b) of the Income Tax Act, 1961 2. 3515/Del/2023 [AY 2012-13] -Do- -Do- -Do- 3. 3516/Del/2023 [AY 2013-14] -Do- -Do- -Do- 4. 3517/Del/2023 [AY 2014-15] -Do- -Do- -Do- 5. 3518/Del/2023 [AY 2015-16] -Do- -Do- -Do- 6. 3519/Del/2023 [AY 2017-18] -Do- -Do- 153B(1)(b) r.w.s. 143(3) of the Income Tax Act, 1961 ITA Nos.3514 to 3519/Del/2023 Page | 2 2. Briefly stated, the assessee filed return of income for captioned assessment years 2011-12 to 2015-16 & 2017-18 under s. 139(1) of the Act. A search and seizure operation under s. 132 of the Act was carried out on M3M Group of cases on 21.07.2016. Consequently, a ‘satisfaction note’ was prepared by the AO of the searched person under s.153C of the Act. Based on the receipt of documents etc. from the AO of the searched person, the AO of the third person i.e. the assessee herein also proceeded to draw ‘satisfaction note’ dated 25.09.2018 alleging undisclosed income. 3. Pursuant to the ‘satisfaction note’ prepared under s. 153C of the Act, the proceedings under s. 153C were set in motion by issuance of notice dated 26.09.2018 under s. 153C. In consequence of s. 153C proceedings, certain additions were made by the AO on estimated basis by applying the rate of 10% representing alleged income from commission on total credits and debits reflected in the bank statement of the assessee company. 4. Aggrieved by the additions made, the assessee preferred appeal before the CIT(A). The CIT(A) restricted the additions to 1% of total amount of debit and credit entries appearing in the books instead of 10% estimated by AO. 5. Further aggrieved, the assessee filed appeal before the Tribunal. 6. When the matter was called for hearing, the Ld. Counsel for the assessee adverted to grounds of appeal and made wide ranging submissions on lack of jurisdiction assumed under s. 153C; assessment framed under s. 153C for AY 2011-12 & 2012-13 barred by limitation as well as arguments canvassed towards untenability of additions on merits. 7. Since the assessee has raised challenge to the very jurisdiction assumed under s. 153C of the Act by the AO, such preliminary issue requires to be dealt with at the threshold. The arguments raised on behalf of the assessee and the counter-arguments of the Revenue have been considered on the alleged lack of jurisdiction assumed under s. 153C of the Act. 8. The Ld. Counsel inter-alia pointed out that the ‘Satisfaction Note’ was drawn on 25.09.2018 and therefore, the year in which the satisfaction note was drawn stand substituted for the date of search for the purpose of limitation ITA Nos.3514 to 3519/Del/2023 Page | 3 period contemplated under section 153C of the Act. The learned Counsel submitted that the relevant assessment year qua the satisfaction note is A.Y. 2018-19 and therefore, six years preceding such Assessment Year to which documents or assets seized requisitioned ends in A.Y. 2012-13. This being so, the A.Y. 2011-12 & 2012-13 in question falls outside the limitation period of 6 years and thus is barred by limitation and hence cannot be subjected to proceedings under section 153C of the Act. On being enquired by the Bench, the learned Counsel submitted that the amendment carried out in Section 153C are to the main provision of Section 153C effective from 01.04.2017 i.e. A.Y. 2018-19 and therefore, the amendment shall not apply in view of the fact that search date, in the instant case, is 21.07.2016 and on that day the amendment under section 153C relating to limitation period was not in force. The learned Counsel referred to several decisions rendered by the Co-ordinate Bench touching upon the aspects of limitation available to the Revenue in the similar facts situation. The decisions of the Co-ordinate Bench in the cases of M/s. Marconi Infratech (P.) Ltd. vs. ACIT in ITA Nos. 3126 to 3132/Del/2023 order dated 21.06.2024 and DCIT vs Manglam Multiplex Pvt.Ltd. in ITA No.1093/Del/2024 & CO.No.75/Del./2024 order dated 30.09.2024 were referred to support the case of assessee towards exclusion on A.Y. 2011-12 & AY 2012-13 from the ambit of limitation. 9. Identical issue of bar of limitation arose in the same set of facts out of same search in the DCIT vs Manglam Multiplex Pvt.Ltd. (supra) from where it can be deduced that the assessment framed under s. 153C of the Act for AY 2011-12 & AY 2012-13 are barred by limitation. The relevant para dealing with the issue is extracted hereunder for ready-reference:- 10. “We shall first address the Cross Objection raised by the assessee seeking to challenge the propriety and legality of assessment for the A.Y. 2011-12 in question having regard to the embargo of limitation placed under Section 153C of the Act. It is the case of the assessee that the limitation period of 6 years has to be counted with reference to the date of requisition of books and other documents etc. seized from the custody of searched person. The date of search is not relevant for the purposes of limitation in Section 153C. What is relevant is the date of receipt of seized assets, documents by the AO of the non-searched person i.e. assessee in the instant case. When the limitation is counted from the date of requisition of books, ITA Nos.3514 to 3519/Del/2023 Page | 4 documents by the AO falling in A.Y. 2018-19, the assessment, the A.Y. 2011-12 in question is clearly found to be outside the period of limitation assigned for invocation of section 153C of the Act. Similar view has been taken by the Co-ordinate Bench in Marconi Infratech (supra) in identical set of facts. We thus find potency in the plea of the assessee for holding the assessment for A.Y. 2011-12 in question under Section 153C of the Act to be barred by limitation. The assessment order passed under Section 153C of the Act being barred by limitation and thus a non-est order and nullity in the eyes of law. The assessment order giving rise to present proceedings thus, is required to be quashed being barred by limitation. 11. In the result, the cross objection filed by the assessee is allowed.” 10. Thus in consonance with the view expressed by the Co-ordinate Bench in DCIT vs Manglam Multiplex Pvt.Ltd. (supra), the legal objection for the assessment being barred by limitation and thus illegal, void, ab-initio is endorsed insofar as AY 2011-12 & AY 2012-13 are concerned. The captioned appeals in ITA Nos.3514 & 3515/Del/2023 are thus allowed. 11. We now advert to the other challenge to the assumption of jurisdiction under s. 153C of the Act hinges around legal infirmities in recording the ‘satisfaction note’ by the AO which is claimed to be foundation for assumption of jurisdiction under s. 153C of the Act. 12. The ‘satisfaction note’ recorded by the AO of the assessee being germane to the determination of challenge to the assumption of jurisdiction, is reproduced hereunder:- “Reasons/Satisfaction note for taking up the case of M/s Shaan Realcon Pvt. Ltd., under section 153C of the Income Tax Act, 1961 Name and address of the Assessee M/s. Shann Realcon Pvt.Ltd. Asst. year 2011-12 to 2017-18 PAN AALCS3794F Status Company By virtue of the authorization of the Director of Income Tax (Investigation), Chandigarh, a Search & Seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter called 'the Act’) was carried out on 21.07.2016 at the residential/business premises of the persons associated with the M/s M3M Group. 2. During search & seizure operation u/s 132 of the Income Tax Act carried out at Chamber No. Paras Twin Towers, Tower-B, 6th Floor, Golf ITA Nos.3514 to 3519/Del/2023 Page | 5 Course Road, Sector-54, Gurgaon-122002 belonging to MBM Group seized material i.e. Annexure A-3 was seized from the aforementioned premises. 3. In view of the above and as per the provisions of sub section (1) of the section 153C of the Act, I am satisfied that the document seized as mentioned above contains information relating to the assessee M/s Shaan Realcon Pvt. Ltd. and will have bearing on the determination of total income for the A.Y. 2011-12 to 2017-18 of M/s Shaan Realcon Pvt. Ltd. Accordingly, after consideration, it is decided to issue such other person (M/s Shaan Realcon Pvt. Ltd.) notice as per provisions of section 153C read with section 153A of the Act. Date 25.09.2018 Sd/- Asst. Commissioner of Income Tax, Central Circle-II, Faridabad 26.09.2018 Notice u/s 153C read with section 153A of the Act issued. Sd/- ACIT 13. Section 153C of the Act pertains to the assessment of income in the hands of person other than searched person, in cases where certain documents, assets or books of accounts etc. found to be pertained to or related to such third person (other than the person on whom search was conducted under s. 132 of the Act or requisitioned under s. 132A of the Act). This section allows the AO of other person to initiate proceedings against such other person/third person (not the searched person) if there are indications of undisclosed income. A key component of initiating search proceedings under s. 153C of the Act is the ‘satisfaction note’ to be recorded by the AO of the searched person as well as AO of the third person. The ‘satisfaction note’ is the first step and a foundational document to determine the validity of the assessment process against a third person whose documents or assets etc. are found in a search. ‘Satisfaction note’ is critical because it serves as a valuable safeguard against arbitrary proceedings and ensures that the powers under s. 153C of the Act are exercised judiciously. It is a formal statutory requirement without which the proceedings against ‘other person’ could be considered invalid. The ‘satisfaction note’ being so critical and powers under s. 153C of the Act being contingent upon such Note, the information contained therein need to be actionable. This being so, the ‘satisfaction note’ is expected to ITA Nos.3514 to 3519/Del/2023 Page | 6 identify the relevant material found in search and that it pertains to or relates to such third person. Such material found should reliably indicate or suggest the bearing of such documents/assets etc. to the income in the hands of third person. The ‘satisfaction note’ should specify such material to provide accountability of the AO and to justify the initiation of proceedings against other person. In summary, such Note should set the narrative in an objective manner, as far as possible, to enable judicial scrutiny of such document, if so called for. 14. The assessee contends that ‘satisfaction note’ which is the first step for assumption of jurisdiction under s. 153C of the Act and provides foundation for conferment of jurisdiction is plagued with multiple legal infirmities. Viz: [i] the ‘satisfaction note’ has been recorded by the AO of assessee collectively for the period AY 2011-12 to AY 2017-18 without identifying the incriminating material in respect of any particular Assessment Year; [ii] the AO has thrown upon whole basket of six years without giving reference to any concrete incriminating material of a particular Assessment Year and without taking note of commencement of activities of assessee; [iii] the act of the AO making sweeping averment in the ‘satisfaction note’ that documents in the form of Annexure-A-3 have bearing on determination of total income of Shaan Realcom (P.) Ltd. for AYs 2011-12 to 2017-18, is without legal foundation and without application of mind, as the AO has even failed to name the alleged documents and further failed to mention as to how it is related/pertained to a given AY covered in the ‘satisfaction note’; [iv] the AO on receipt of material/documents from the AO of the searched person must necessarily apply his mind on the material received and ascertain precisely the specific year to which incriminating material relates. It is only when this determination/ascertainment is complete that the flood gates of an assessment would open qua those particular years. The issuance of notice cannot be an automated function unconnected to this exercise of analysis and ascertainment by the AO in the light of judgement rendered in the case of Agni Vishnu Feature Pvt.Ltd. vs DCIT [2023] 157 taxmann.com 242 (Madras); and ITA Nos.3514 to 3519/Del/2023 Page | 7 [v] the ‘satisfaction note’ is clearly very generic and devoid of any basic details of the transactions in question. 15. We find ostensible potency in the plea of assessee towards allegation of legal infirmities in the ‘satisfaction note’. The Hon’ble Delhi High Court in the case of Sakham Commodities Ltd. Vs ITO 161 taxmann.com 485 (Delhi) deftly expounded the imperatives of a ‘satisfaction note’, and observed that unearthing of incriminating material in respect of particular AY will not automatically confer jurisdiction to invoke section 153C of the Act in respect of all the AYs mentioned therein. The Hon’ble Delhi High Court further observed that discovery of material for a particular AY is not intended to trigger a chain reaction or have a water fall effect on all the AYs which can form part of the ‘relevant AYs’ under section 153C Of the Act. The Hon’ble Delhi High Court underscored well settled distinction which the law recognizes between the existence of power and the exercise thereof and thus, held that unless the AO is satisfied that the material gathered can potentially impact the determination of total income, it will be abrupt exercise of powers in mechanically re-opening or assessing all over again of the AYs covered in the block that could possibly form part of block of relevant AYs. For holding so, the Hon’ble Delhi High Court relied upon the judgement delivered by the Hon’ble Supreme Court in the case of Sinhgad Technical Education Society wherein the Hon’ble Supreme Court held that ‘the assessment under section 153C could be made only for the year to which material relates to and exercise of power under section 153C of the Act in respect of other AYs would not sustain’. The Hon’ble Delhi High Court also noted that the AO is bound to ascertain and identify the AY to which the material recovered relates and relevant AYs which can then be subject to action under section 153C of the Act will have to be necessarily those in respect of which the assessment is likely to be influenced or impacted by the material discovered. The Hon’ble Delhi High Court went one step further to hold that where material discovered in the course of search has the potential of constituting incriminating material for more than one AYs, even in such a situation, it will be incumbent upon the AO to duly record reasons that material is likely to be incriminating for more than one AY and thus, warranting the action under section 153C of the Act for years in addition to ITA Nos.3514 to 3519/Del/2023 Page | 8 those to which material may be directly relatable. Thus, a nuanced application of mind and recording of reasons for drawing satisfaction as contemplated under section 153C of the Act qua different AYs is paramount. The Hon’ble Delhi High Court noticeably held that issuance of a notice under section 153C of the Act is clearly not intended to be an inevitable consequence to the receipt of material by the Jurisdictional AO and that the initiation of action under section 153C of the Act will have to be founded on a formation of opinion by the Jurisdictional AO that the material handed over and received pursuant to a search is likely to influence the determination of total income and would be relevant for the purposes of assessment/re-assessment in terms of section 153C of the Act. 16. The observation of the Hon’ble Delhi High Court noted above, clearly provides vehement support to the plea taken by the assessee on aspects of jurisdiction flowing from ‘satisfaction note’. The ‘satisfaction note’ under scrutiny defies most of the parameters expected of him while drawing satisfaction. While exercising the power under section 153C of the Act, neither has the AO related the material found in the course of search with a particular AY while making a consolidated ‘satisfaction note’ for several years nor provided any requisite details of transaction to enable an independent person to ascertain and form any independent opinion on facts stated in Note that invocation of section 153C of the Act is indeed warranted in the facts of the case. The AO has not even bothered to relate the so-called documents etc. with the AYs covered for the purposes of s. 153C of the Act. Mere drawing of a perfunctory satisfaction without meeting basic ingredients of providing some tangible & descript information and application of mind thereon has no standing in law and would not confer drastic jurisdiction of assessment u/s 153C of the Act on a person other than searched person. The jurisdiction assumed based on such lackadaisical ‘satisfaction note’ beset with vital infirmities cannot be countenanced in law. The objections raised on behalf of the assessee towards lack of jurisdiction based on a cryptic and non-descript satisfaction thus deserves to be sustained. While recording a consolidated ‘satisfaction note’ is not a bar in law per se as rightly contended on behalf of the revenue, but however, in the same vain, the documents/assets searched ITA Nos.3514 to 3519/Del/2023 Page | 9 need to be specified against each year covered in the satisfaction note to depict application of mind and initiation of action under section 153C of the Act qua such assessment years. The AO has apparently failed to do so in the present case. As a corollary, the notice issued under section 153C of the Act and consequent assessment order passed under section 153C of the Act is vitiated in law and requires to be quashed. 17. In this view of the matter, the jurisdiction assumed under s. 153C based on vague and non-descript ‘satisfaction note’ is vitiated at the threshold. The consequent assessment orders passed under s 153C for AY 2011-12 to 2015- 16 & AY 2017-18 thus have no force of law. The combined first appellate order passed on nonest assessment orders is thus set aside and the AO is directed to restore the position claimed by the assessee for each captioned assessment year and delete the additions made. 18. In the light of delineations made, we do not consider it necessary to address ourselves with other legal and factual contentions. 19. In the combined result, all captioned appeals of the assessee are allowed. Order pronounced in the open Court on 23rd April, 2025. Sd/- Sd/- (VIKAS AWASTHY) JUDICIAL MEMBER (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER *Amit Kumar, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "
AI Insights
The case involves Shaan Realcon (P) Ltd., which appealed against the consolidated order of the Commissioner of Income Tax (Appeals) concerning several assessment years. The assessments were initiated under section 153C of the Income Tax Act following a search and seizure operation on the M3M Group. The Assessing Officer (AO) made additions to the income of Shaan Realcon based on estimated income from commissions on bank transactions. The CIT(A) reduced the additions, but the assessee contested the jurisdiction and the validity of the additions. The Tribunal examined the legal infirmities in the 'satisfaction note' and the applicability of the limitation period for the assessments.
