Consolidated Satisfaction Note Under Section 153C Is Fatal — Shikhar Kailash Infratech v. DCIT (ITAT Delhi, 2026)

Legal Issue: Is a Consolidated Satisfaction Note Under Section 153C Valid?

Section 153C lets the department assess a person other than the one searched, once the Assessing Officer is satisfied that seized material belongs or relates to that person and has a bearing on their total income. Because the provision reaches back over a block of years, the satisfaction note is the gateway to every assessment that follows. This appeal raised three questions about that gateway. Can one note cover several assessment years together? How long after the search, and after the searched person’s assessment, can the note be recorded? And does Section 153C apply at all where the search took place before 1 April 2021 but the note was recorded after that date?

Facts of the Case

A search under Section 132 was carried out on 6 January 2021 on Shri Praveen Jain, one of the searched persons of the Hans Group. Cloned data from his mobile phone included WhatsApp chats, images of “hisab parchis” and draft agreements which the department linked to the assessee, a Meerut-based LLP. The searched person’s assessment was completed on 31 March 2022, and the Assessing Officer of the searched person recorded satisfaction on 23 August 2022.

On 1 September 2023, the Assessing Officer of the assessee (DCIT, Central Circle, Meerut) recorded a single satisfaction note covering AY 2015-16 to 2021-22. The note recorded that the digital data belonged to the assessee, alleged unexplained cash investments of Rs.20 crore with interest at 6.65% and of Rs.15.25 crore with interest of Rs.84 lakh, and concluded that the material “has bearing upon the determination of total income” and that it was “a fit case for action u/s 153C” for all seven years together.

A Section 153C notice followed on 26 December 2023. For AY 2020-21, the assessee filed a return declaring Rs.41,41,190 — the same as its original return of 9 October 2020 — and denied making any investment in immovable property, asking for the documents relied on. The AO then issued a show-cause notice enclosing the hisab parchis and made the following additions in the Section 153C assessments:

Together these additions come to about Rs.39.28 crore across the three years. The CIT(A)-3, Noida upheld the assessments by order dated 15 September 2025, and the assessee appealed to the Tribunal.

Arguments of the Parties

Court/Tribunal’s Decision

The Tribunal decided the jurisdictional challenge first, as a pure question of law, and held:

(i) That satisfaction under Section 153C must be recorded separately for each assessment year, and since the Assessing Officer recorded a single consolidated note for assessment years 2015-16 to 2021-22, jurisdiction was invalidly assumed. [Para 9 of the order]

(ii) That the satisfaction note, recorded seventeen months after the searched person’s assessment was completed, was belated and contrary to Calcutta Knitwears and CBDT Circular No. 24/2015, and was therefore fatal to jurisdiction. [Para 11.5 of the order]

(iii) That, since the assessee’s deemed date of search fell after 1 April 2021, Section 153C stood excluded by Section 153C(3), and the proceedings under it were without authority. [Para 13 of the order]

(iv) That the assessments for assessment years 2019-20 to 2021-22 were accordingly void ab initio, and the merits of the additions, being academic, did not call for adjudication. [Paras 14 and 18 of the order]

The appeals were partly allowed.

Reasoning on All Three Grounds

Ground 1 — one note for seven years is fatal. It was undisputed that a single consolidated satisfaction note had been recorded for AY 2015-16 to 2021-22. The Tribunal relied on DCIT v. Sunil Kumar Sharma [2024] 159 taxmann.com 179 (Karnataka), which held that a satisfaction note must be recorded for each assessment year and that a consolidated note vitiates the entire assessment; the Revenue’s SLP against it was dismissed ([2024] 165 taxmann.com 846 (SC)). It also relied on the jurisdictional Delhi High Court in Saksham Commodities Ltd. v. ITO, which requires the AO to be satisfied that the material bears on the total income of each specific year, and noted that the Supreme Court dismissed the Revenue’s SLP in that case too (170 taxmann.com 87 (SC)). Since no individual note was recorded for each year, the assumption of jurisdiction was “totally flawed”.

Ground 2 — the note was recorded too late. Under CIT v. Calcutta Knitwears (362 ITR 673 (SC)) and CBDT Circular No. 24/2015, satisfaction about a third party may be recorded at the start of the searched person’s proceedings, during them, or immediately after they are completed. The Tribunal held that these principles, laid down for the old block-assessment provisions, apply equally to Section 153C. Here the note came 17 months after the searched person’s assessment (31 March 2022) and 32 months after the search — which cannot be called “immediately after”. Following the jurisdictional Delhi High Court in CIT v. Bharat Bhushan Jain (370 ITR 695 (Del)), which held that a delay of ten months to a year and a half is not contemporaneous, the Tribunal held the belated note fatal. It found the same view in Parag Rameshbhai Gathani v. ITO (Gujarat HC; 22-month delay, Covid and faceless-assessment explanations rejected, SLP dismissed), PCIT v. Jitendra H. Modi HUF (Gujarat HC; 9 months) and Clear Channel India P. Ltd. v. DCIT (Bombay HC; 15 months).

Ground 3 — Section 153C(3) bars the proceedings. Section 153C(3) provides that the section does not apply to a search initiated on or after 1 April 2021. Following the Madras High Court in Harigovind v. ACIT (485 ITR 509), which applied the Supreme Court’s reasoning in Jasjit Singh that the non-searched person’s date of search is the date the seized material is handed over to its Assessing Officer, the Tribunal accepted the assessee’s submission that its search fell in FY 2023-24 (AY 2024-25), the year in which its satisfaction note was recorded. The order does not record the exact handover date, but nothing turns on that: the material could only have been handed over after the searched person’s AO recorded satisfaction on 23 August 2022, which is itself well after 1 April 2021. Section 153C therefore could not be invoked, and the initiation of proceedings and the resulting assessments were quashed.

Practical Implications for Practitioners

• Check how many years the note covers: If one note lists a range of years (“AY 2015-16 to 2021-22”), the Sunil Kumar Sharma and Saksham line gives you a jurisdictional challenge for every year in that range.
• Build a date chart before anything else: Search date, completion of the searched person’s assessment, the searched person’s AO’s satisfaction, your AO’s satisfaction, and the Section 153C notice. The gaps between those dates decide the delay ground.
• Measure delay from completion of the searched person’s assessment: Delhi HC has treated ten months to a year and a half as too late; other High Courts have struck down delays of 9, 15 and 22 months. Covid-era and faceless-scheme explanations did not save a 22-month delay in Gathani.
• Raise legal grounds even at the Tribunal stage: Both the delay and the Section 153C(3) objections were raised here as additional grounds and admitted because they were purely legal and the facts were on record.
• Remember the merits stay open: The Rs.39 crore of additions was never tested on evidence. A win on jurisdiction does not stop the department from exploring other routes where the law allows.

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