The Income Tax Appellate Tribunal, Jaipur Bench, has set aside an assessment order framed under Section 153C of the Income Tax Act, 1961, holding that the Assessing Officer lacked application of mind while assuming jurisdiction. The Tribunal emphasized that the statutory requirement of recording satisfaction for issuance of notice under Section 153C is not a mere formality but a substantive condition precedent to valid assessment jurisdiction.
Background & Facts
The Genesis
The appellant, Smt. Sampat Jajoo, was subjected to a search operation under Section 132 of the Income Tax Act on 01.08.2019 in the case of Friends SPS Group, Kota. During the search, incriminating documents were seized indicating that purchasers of flats in the 'Royal Palm' project had made on-money payments in cash to the builder. The appellant's name appeared in the list of beneficiaries prepared by the Investigation Wing, indicating an alleged on-money payment of Rs. 20,00,000 for Flat No. B401.
Key Facts
- The appellant's name was listed at Serial No. 14 in the satisfaction note of the AO of the searched person, along with another person (Pramod Jajoo), with the sale consideration discrepancy noted as Rs. 20,00,000.
- The satisfaction note of the AO of the assessee recorded the same facts, including the appellant's name and the alleged on-money payment of Rs. 20,00,000.
- However, the assessment order framed by the AO of the assessee reflected a different list, where the appellant's name appeared alone at Serial No. 19, with the on-money payment noted as Rs. 13,18,000.
- The sale deed for the flat was executed on 13.08.2021, falling in Assessment Year 2022-23, not the year under consideration (2018-19).
- The appellant denied making any on-money payment and contended that no such agreement for Rs. 57,00,000 was ever executed.
Procedural History
- 01.08.2019: Search operation conducted under Section 132 in the case of Friends SPS Group, Kota.
- 17.01.2023: Information passed by the DCIT, Central Circle, Kota, to the AO of the assessee regarding issuance of notice under Section 153C for Assessment Years 2014-15 to 2020-21.
- 23.09.2025: Order passed by the Ld. CIT(A), Udaipur, upholding the assessment framed under Section 153C and confirming the addition of Rs. 13,18,000 under Section 69 of the Income Tax Act.
- 15.07.2026: Appeal heard by the ITAT, Jaipur Bench.
- 21.07.2026: Order pronounced by the ITAT, allowing the appeal.
Relief Sought
The appellant sought quashing of the assessment order dated 23.09.2025, challenging the validity of the notice issued under Section 153C and the consequent addition of Rs. 13,18,000 under Section 69 of the Income Tax Act.
The Legal Issue
The central question was whether the Assessing Officer had applied his mind while recording satisfaction for issuance of notice under Section 153C of the Income Tax Act, 1961, and whether the discrepancies in the satisfaction notes and assessment order vitiated the jurisdiction assumed under Section 153C.
Arguments Presented
For the Appellant
The appellant contended that the AO had failed to apply his mind while recording satisfaction under Section 153C. The satisfaction note of the AO of the searched person and the AO of the assessee recorded the appellant's name along with another person and an alleged on-money payment of Rs. 20,00,000, whereas the assessment order reflected a different list with the appellant's name alone and an alleged on-money payment of Rs. 13,18,000. The appellant argued that such discrepancies demonstrated a lack of application of mind and invalidated the jurisdiction assumed under Section 153C.
For the Respondent
The respondent, represented by the Ld. DR, did not controvert the factual contentions raised by the appellant regarding the discrepancies in the satisfaction notes and assessment order. However, the Ld. DR vehemently opposed the appellant's contentions on merits.
The Court's Analysis
The Tribunal examined the statutory framework governing Section 153C of the Income Tax Act, which mandates that the AO of the searched person must be satisfied that any money, bullion, jewellery, or other valuable article or thing seized belongs to a person other than the person searched. The satisfaction recorded by the AO of the searched person must then be communicated to the AO having jurisdiction over such other person, who must also record his satisfaction before issuing notice under Section 153C.
The Tribunal observed that the satisfaction recorded by the AO must be based on relevant material and must reflect application of mind. The Tribunal noted the following discrepancies:
- The satisfaction note of the AO of the searched person listed 50 persons, whereas the satisfaction note of the AO of the assessee listed 55 persons.
- The satisfaction note of the AO of the searched person and the AO of the assessee recorded the appellant's name along with another person and an alleged on-money payment of Rs. 20,00,000, whereas the assessment order reflected the appellant's name alone and an alleged on-money payment of Rs. 13,18,000.
The Tribunal held that such discrepancies demonstrated a lack of application of mind by the AO while recording satisfaction and assuming jurisdiction under Section 153C. The Tribunal emphasized that the statutory requirement of recording satisfaction is not a mere formality but a substantive condition precedent to valid assessment jurisdiction.
"The ld. Counsel for the assessee has fairly demonstrated before me, that the facts relating to the on money payment allegedly made by the assessee for the purchase of flat from the entities searched i.e. Friends SPS Group reproduced in his satisfaction note and also in the satisfaction note of the AO of the searched person varied from the facts considered by the AO, while framing assessment u/s 153C of the Act."
The Verdict
The appeal of the assessee was allowed. The Tribunal set aside the assessment order dated 23.09.2025, holding that the AO lacked application of mind while recording satisfaction under Section 153C of the Income Tax Act. The Tribunal quashed the assessment order and remitted the matter to the file of the AO for fresh consideration in accordance with law. The other legal grounds challenging the validity of the assessment framed under Section 153C were kept open for the assessee to take up if required at a later stage.
What This Means For Similar Cases
Strict Compliance with Section 153C is Non-Negotiable
- The satisfaction recorded under Section 153C must be based on relevant material and must reflect application of mind.
- Discrepancies in the satisfaction notes or assessment order may vitiate the jurisdiction assumed under Section 153C.
- The statutory requirement of recording satisfaction is a substantive condition precedent to valid assessment jurisdiction.
Documentary Evidence Must Align with Satisfaction Notes
- The satisfaction note of the AO of the searched person, the satisfaction note of the AO of the assessee, and the assessment order must align in facts and figures.
- Any discrepancy in the lists or amounts may demonstrate a lack of application of mind and invalidate the jurisdiction assumed under Section 153C.
Procedural Safeguards Protect Taxpayers
- Taxpayers must scrutinize the satisfaction notes and assessment orders for discrepancies.
- Any inconsistency in the facts or figures may be grounds for challenging the validity of the assessment framed under Section 153C.
- The burden is on the revenue to demonstrate strict compliance with the statutory requirements of Section 153C.
