Defective Satisfaction Note Vitiates Income Tax Assessment u/s 153C: ITAT Quashes ₹4.89 Crore Additions [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, quashed an addition of ₹4.89 crore as unexplained credits and expenditure, holding that the Assessing Officer (AO) assumed jurisdiction under Section 153C of the Income Tax Act, 1961, based on an invalid and defective satisfaction note.

The assessee, Vinay Homes Pvt Ltd, filed the appeal against the order dated 26.03.2025 passed by the Commissioner of Income Tax (Appeals). That appellate order had arisen out of an assessment order dated 28.12.2021, which was framed under Section 153C read with Section 143(3) of the Act for Assessment Year 2016-17.

The appellant argued that the assessing officer wrongly assumed jurisdiction under section 153C because the satisfaction note was defective, and said that the AO and CIT(A) wrongly ignored the originally declared loss of ₹39,981 and instead computed the assessed income at ₹4.89 crore.

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It also contained the addition of ₹14.25 lakh (3% estimated commission for accommodation entries), which was based purely on assumptions and presumptions, without evidence and the addition was made without granting a fair and effective opportunity of being heard.

The tribunal observed that the satisfaction note did not specify which seized entries pertained to the assessee and noted that a consolidated note covering AYs 2011–12 to 2017–18 was invalid, as held by the Karnataka High Court in DCIT v. Sunil Kumar Sharma (2024), affirmed by the Supreme Court.

The bench of Anubhav Sharma ( Judicial member ), Manish Agrawal ( Account member ) ruled that the AO has assumed the jurisdiction in the case of the assessee based on an invalid and defective satisfaction note, and, therefore, the proceedings initiated based on such defective satisfaction note and consequent order passed are invalid and thus quashed.

Accordingly, the appeal was allowed

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