Satisfaction Note by the AO for S.153C Assessment Need to Be Recorded for Each AY: ITAT Quashes ₹2.11 Crore Addition Citing Combined Satisfaction Note [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the satisfaction note under Section 153C of the Income Tax Act, 1961, must be recorded separately for each assessment year and quashed the Rs. 2.11 crore addition citing the invalidity of a consolidated satisfaction note.

Subhash Jivraj Jain (assessee) filed his return of income for Assessment Year (AY) 2017-18 declaring nil income. A search action under Section 132 was carried out in the Yuvraj Dhamale group on 26.09.2017, during which incriminating documents were found, including information relating to the assessee.

In response to the notice under Section 153C, the assessee filed his return declaring nil income. The Assessing Officer (AO) issued statutory notices, but due to non-compliance, completed the assessment based on available material.

The AO noted seized documents indicating investments and interest received in cash from the Dhamale group. The AO made a substantive addition of Rs. 1,05,50,000 and a protective addition of Rs. 1,05,50,000 as income from other sources, assessing total income at Rs. 2,11,38,624.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) deleted the addition, relying on a prior ITAT decision in Bharat M. Jain and others vs. ACIT.

Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT. The assessee filed a cross-objection challenging the validity of Section 153C proceedings due to a consolidated satisfaction note for AYs 2012-13 to 2018-19.

The assessee’s counsel argued that a consolidated satisfaction note violates Section 153C requirements, relying on the Karnataka High Court’s ruling in DCIT vs. Sunil Kumar Sharma. The counsel contended that satisfaction must be recorded separately for each AY.

The two-member bench, comprising R.K. Panda (Vice President) and Astha Chandra (Judicial Member), observed that the AO’s satisfaction note for Section 153C was consolidated for multiple AYs. It also observed that a consolidated note vitiates the proceedings.

The bench held that satisfaction under Section 153C must be recorded separately for each AY by relying on the Karnataka High Court’s decision in DCIT vs. Sunil Kumar Sharma which was also affirmed by the Supreme Court’s dismissal of SLP.

The bench quashed the assessment proceedings on this legal ground, rendering the Revenue’s grounds academic. The cross-objection of the assessee was allowed, and the appeal of the Revenue was dismissed.

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