Section 153C Cannot Be Invoked Mechanically: ITAT Jaipur Quashes Proceedings for Lack of Independent Satisfaction
AO Cannot Simply Copy the Satisfaction Note of the Searched Person-Independent Application of Mind Is Mandatory
Search assessments under Sections 153A and 153C of the Income-tax Act confer extraordinary powers upon the Income Tax Department. However, these powers are accompanied by equally stringent jurisdictional safeguards.
One such safeguard is the requirement of recording a valid “satisfaction note” before invoking Section 153C against a person who was not searched.
In an important decision, the Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Assessing Officer (AO) having jurisdiction over the “other person” cannot mechanically reproduce the communication received from the AO of the searched person. He must independently examine the seized material, apply his own mind and record his own satisfaction before assuming jurisdiction under Section 153C.
The Tribunal also delivered an equally significant ruling on the sunset clause introduced after the Finance Act, 2021 by holding that where the deemed date of search under the first proviso to Section 153C falls after 1 April 2021, proceedings under Section 153C cannot survive.
The judgment in Manish Dhariwal & Others v. DCIT, Central Circle, Kota (ITA Nos. 1772, 1773 & 1774/JPR/2025, order dated 16.06.2026) is likely to have far-reaching implications for numerous pending search-related assessments.
Background of the Case
A search under Section 132 was conducted on the Friends SPS Group, Kota on 1 August 2019.
During the search, the Department alleged that certain purchasers of flats in the Royal Palm Project had paid part of the sale consideration in cash as “on-money.”
Subsequently, on 17 January 2023, the Assessing Officer of the searched person forwarded certain seized material and information to the Assessing Officer having jurisdiction over the purchasers.
Based on this communication, proceedings under Section 153C were initiated against the assessees.
During assessment, additions under Section 69 were made alleging unexplained investment towards cash payments.
The assessees challenged the very validity of the proceedings.
The Core Legal Issue
The dispute before the Tribunal involved two important jurisdictional questions:
First Issue
Whether proceedings under Section 153C are valid where the jurisdictional Assessing Officer merely reproduces the satisfaction note forwarded by the Assessing Officer of the searched person without independently examining the seized material.
Second Issue
Whether Section 153C could at all be invoked where the deemed date of search under the first proviso to Section 153C(1) falls after 1 April 2021, in view of the sunset clause contained in Section 153C(3).
Both issues were decided in favour of the taxpayers.
Two Satisfaction Notes Are Mandatory
The Tribunal carefully analysed the statutory scheme of Section 153C.
It observed that the provision contemplates two separate stages of satisfaction.
Satisfaction by the AO of the Searched Person
The first Assessing Officer must identify the seized documents or assets belonging to or relating to another person and forward the material to the jurisdictional Assessing Officer.
Satisfaction by the AO of the Other Person
The second Assessing Officer cannot mechanically accept the forwarding communication.
He must independently:
• Examine the seized material;
• Apply his own mind;
• Determine whether the material has a bearing on the determination of the total income of the other person; and
• Record an independent satisfaction note.
This second satisfaction is not an empty formality.
It is a jurisdictional requirement.
Mere Reproduction of the Forwarding Letter Is Not Enough
The Tribunal examined the satisfaction note recorded by the jurisdictional Assessing Officer.
It found that the Assessing Officer had merely reproduced the communication received from the Assessing Officer of the searched person.
The satisfaction note:
• Did not identify specific seized documents;
• Did not discuss their contents;
• Did not analyse their evidentiary value;
• Did not demonstrate independent application of mind.
The Tribunal held that such a mechanical exercise cannot satisfy the statutory requirement contemplated by Section 153C.
Accordingly, the very assumption of jurisdiction was held to be invalid.
Independent Application of Mind Is the Heart of Section 153C
The judgment reiterates an important principle.
Jurisdiction under Section 153C cannot arise merely because one Assessing Officer believes that another person may have undisclosed income.
The jurisdictional Assessing Officer must independently satisfy himself on the basis of the seized material.
Without such independent satisfaction, proceedings become void.
The Tribunal emphasized that statutory safeguards cannot be diluted by administrative convenience.
The Sunset Clause Under Section 153C(3)
The Tribunal also examined another significant issue arising after the Finance Act, 2021.
The first proviso to Section 153C(1) creates a legal fiction.
For a person other than the searched person, the deemed date of search is the date on which the seized material is received by the jurisdictional Assessing Officer.
In the present case:
• Original search took place on 1 August 2019.
• However, the seized material reached the jurisdictional Assessing Officer only on 17 January 2023.
Consequently, the deemed date of search became 17 January 2023.
This date assumes considerable importance.
Why the Proceedings Failed
Section 153C(3) contains a sunset provision.
After 1 April 2021, the statutory framework governing reassessment underwent a fundamental change.
The Tribunal held that since the deemed date of search in the present case fell on 17 January 2023, the proceedings were hit by the statutory bar contained in Section 153C(3).
The Revenue argued that the original search had taken place in 2019.
The Tribunal rejected this contention.
It held that once Parliament has created a legal fiction through the first proviso, the fiction must be carried to its logical conclusion.
The Department cannot selectively rely upon one date while ignoring the statutory deemed date prescribed by law.
Accordingly, the proceedings were held to be void ab initio.
Importance of the Legal Fiction
One of the most significant aspects of the judgment is the Tribunal’s treatment of the statutory fiction.
The law specifically provides that, for the other person, the relevant date is the date of receipt of seized material.
Once such legal fiction exists, it must be given full effect.
The Revenue cannot substitute the original search date merely because it is administratively convenient.
The judgment reinforces the settled principle that statutory fictions must be applied completely and consistently.
Practical Implications
The decision has major implications for search-related litigation.
1. Independent Satisfaction Is Mandatory
The jurisdictional Assessing Officer cannot simply copy the satisfaction recorded by another officer.
2. Satisfaction Notes Will Face Greater Judicial Scrutiny
Mechanical or stereotyped satisfaction notes are likely to be challenged successfully.
3. Date of Receipt Becomes Crucial
For proceedings under Section 153C, the date on which seized material reaches the jurisdictional Assessing Officer may become decisive.
4. Sunset Clause May Invalidate Proceedings
Where the deemed date falls after 1 April 2021, taxpayers should carefully examine whether proceedings under Section 153C remain legally sustainable.
Key Takeaways
The Jaipur ITAT has laid down several important principles:
• Section 153C requires two independent satisfaction notes.
• The jurisdictional Assessing Officer must independently examine the seized material.
• Mere reproduction of the forwarding communication does not satisfy statutory requirements.
• Independent application of mind is a jurisdictional condition.
• The deemed date of search under the first proviso must be given full legal effect.
• Proceedings initiated after the sunset period prescribed under Section 153C(3) cannot survive.
• Jurisdiction assumed contrary to these principles is void ab initio.
The TAX Talk
Search assessments undoubtedly confer extensive powers upon the tax authorities. However, Parliament has simultaneously built robust jurisdictional safeguards into the statutory framework.
The Jaipur ITAT has reminded the Department that jurisdiction cannot be assumed by copying another officer’s satisfaction note or by overlooking statutory legal fictions created by Parliament.
Section 153C demands more than administrative convenience. It requires independent application of mind, careful examination of seized material and strict compliance with jurisdictional conditions.
The ruling reinforces a fundamental principle of tax jurisprudence: where the law prescribes the manner in which jurisdiction is to be assumed, that manner alone must be followed. Any shortcut in the assumption of jurisdiction renders the entire proceeding void, irrespective of the merits of the additions proposed.
The copy of the order is as under:
