Consolidated Satisfaction Note Covering Multiple Years Invalidates

Consolidated Satisfaction Note Covering Multiple Years Invalidates Section 153C Assessment Proceedings

Issue

Validity of Section 153C Assessment Proceedings Based on a Consolidated Satisfaction Note: Whether the initiation of proceedings and subsequent additions made under Section 69A (read with Section 153C) are legally valid when the Assessing Officer records a single, common satisfaction note covering multiple assessment years (AY 2015–16 to 2020–21) instead of recording a separate satisfaction note for each individual assessment year.

Facts

Search and Initiation: A search operation was conducted on a third party, following which proceedings under Section 153C were initiated against the assessee-HUF and assessee-individual for AY 2015–16 to 2020–21.
Additions Made: During the assessment, the Assessing Officer (AO) made additions under Section 69A on account of alleged unsecured loans, unexplained bank deposits, and unexplained business receipts.
Consolidated Satisfaction Note: Upon examining the procedural records, it was revealed that the AO had prepared a single, common/consolidated satisfaction note covering all six assessment years together, rather than evaluating and recording satisfaction individually for each assessment year.
Assessee’s Challenge: The assessees challenged the validity of the proceedings, arguing that the failure to record a year-specific satisfaction note goes to the root of jurisdiction, rendering the Section 153C assessments void.

Decision

Proceedings Vitiated (In favor of Assessee): Held YES. The entire assessment proceedings initiated under Section 153C were completely vitiated due to the AO’s failure to record a separate satisfaction note for each assessment year. [Para D]
Invalid Assumption of Jurisdiction (In favor of Assessee): Held YES. The assumption of jurisdiction and subsequent initiation of assessment proceedings under Section 153C were held to be illegal and invalid. [Para D]

Key Takeaways

Year-Wise Satisfaction Note is Mandatory: For validly assuming jurisdiction under Section 153C, the Assessing Officer must record a distinct, independent satisfaction note for each relevant assessment year separately.
Consolidated Satisfaction Notes Are Fatal Flaws: Preparing a single, omnibus, or bundled satisfaction note across multiple years is a jurisdictional defect that cannot be cured, invalidating all consequential assessment orders and additions.

IN THE ITAT LUCKNOW BENCH ‘A’

Shiv Kumar Gupta HUF

Deputy Commissioner of Income-tax/ACIT

Kul Bharat, Vice President
and Anadee Nath Misshra, Accountant Member

IT (SS) Appeal No. 985 (Lkw) of 2025 and others
[Assessment years 2015-16 to 2020-21]

JULY 20, 2026

Akshay Agarwal, Adv. for the Appellant. B. Shriniwas Kumar, CIT(DR) for the Respondent.

ORDER

Anadee Nath Misshra Accountant Member.-These appeals have been filed by two different assessees against the respective impugned appellate order of learned Commissioner of Income Tax (Appeals). The assessees have raised similar grounds in these appeals, except that there is variation in disputed amounts as stated in the grounds of appeals. For the sake of convenience, ITA No. 985/Lkw/2025 for AY 2017-18 is treated as lead case. The assessee has raised the following grounds of appeal:

“1 . That the learned CIT (A) has erred in confirming the addition of Rs.9,00,000/- as unsecured loan given during the year by the appellant towards the income of appellant on protective basis. The addition made on presumption is illegal & void. The assessment made on the protective and substantive basis without application of mind by the learned Assessing Officer. The addition made u/s 69A of the IT Act, 1961 on protective basis.

2. That the learned CIT (A) has erred in confirming the addition of Rs.4,77,600/- as unexplained bank deposits made during the year by the appellant u/s 69A ignoring the fact that such amount was deposited having the legitimate and disclosed source of income.

3. That the learned CIT (A) has erred in confirming the addition of Rs.12,51,297 /- as income from unexplained sources u/s 69A ignoring the fact that such amount was disclosed having the legitimate source of income.

4. The learned CIT (A) has erred on facts and law while confirming the addition of Rs.17,28,897/- (4,77,600+12,51,297) invoking section 69A of the Act, which is against the spirit of said section since said amount was already recorded in regular bank account disclosed to the Department through ITR before the search.

5. That the learned CIT(appeal) has erred in passing the order u/s 250 as he confirmed both protective and substantive assessment.

6. Because the Approval u/s 153D has been given without application of mind and the impugned order passed deserves to be dropped.

7. That any other relief which your goodself may deem fit.

(A.1) Both the assessees have also raised common additional grounds in all the respective appeals. For the sake of convenience, the additional grounds of appeal in ITA No. 985/Lkw/2025 for AY 2017-18 are as follows:

“(1) That the order passed u/s 153C is without jurisdiction as no incriminating material was found during the search proceedings. The addition has been made u/s 153C on presumption basis on protective basis without having any incriminating material on record.

(2) That the reasons recorded u/s 153C as satisfaction for reopening of the case is defective and bad in law. The common reasons are recorded for all the years without having any incriminating material against the assessee.”

(A.2) At the time of hearing before us, representatives of both sides, the learned counsel for the assessee and the learned Departmental Representative for Revenue agreed that the appeal vide IT(SS) A No. 985/Lkw/2025 for AY 2017-18 in the case of Shiv Kumar Gupta HUF v. DCIT/ACIT, Circle- 2, Lucknow may be taken as lead case. They were further in agreement that facts and circumstances in the remaining appeals are in para materia with the aforesaid appeal vide IT(SS)A No. 985/Lkw/2025 and that the decision in appeal vide IT(SS)A No. 985/Lkw/2025 will also apply, mutatis mutandis, in the other appeals.

(B) In the aforesaid appeal vide IT(SS)A No. 985/Lkw/2025, the assessment order dated 25.03.2023 was passed under section 153C of the Income Tax Act, 1961 (the Act) whereby the assessee’s total income was determined at Rs. 26,28,897/- (rounded off to Rs. 26,28,900). In the aforesaid assessment order, additions of Rs. 9,00,000/-, Rs. 4,67,600/- and Rs. 12,51,297/- were made on account of interest, deposits in the Bank Account, and unexplained business receipts respectively. The assessee’s appeal against the aforesaid additions was dismissed by the learned CIT(A) vide impugned appellate order dated 24.10.2025. The present appeal has been filed by the assessee against the aforesaid impugned appellate order of the learned CIT(A). The grounds of appeal have already been referred to in foregoing paragraphs (A) and (A.1) of this order. In support of admission of additional grounds, the following written submissions were made from the assessee’s side:

Accordingly, the aforesaid ground is purely a legal plea and deserves to be admitted by this Hon’ble Tribunal in view of the decision as stated below.

1-	National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (In the Supreme Court of India)	Held, that the Tribunal had jurisdiction to examine a question of law which arose from the facts and found by the Income Tax Authorities and having a bearing on the tax liability of the Assessee.
2-	Orissa Cement Ltd. v. CIT [2001] 250 ITR 856 (In the Delhi High Court)	Held, that the Tribunal had the discretion to allow or not to allow a new ground to be raised but where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, there was no reason as to why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the Tax Liability of an assessee. The Tribunal had jurisdiction to consider the new grounds raised by the Assessee on the merits. Tribunal to consider new grounds on the merits. National Thermal Power Co. Ltd. v. Commissioner of Income Tax(1998) 229 ITR 383 (SC) followed- C.I.T. (Additional) v. Gurjargravures Pvt. Limited (1978) 111 I.T.R. 1 (SC) and Jute Corporation of India Limited v. Commissioner of Income Tax (1991), 187 I.T.R. 688 (SC) referred to.
3-	Wilson Industries v. CIT [2003] 259 ITR 318 (In the Madras High Court)	Held (1) That it is open to the appellate Forum to consider a fresh ground if sought to be raised by the Parties, if no new facts are required to be ascertained. It was, therefore, open to the Tribunal to permit the Revenue to raise the Ground before the Tribunal. National Thermal Power Co. Ltd. v. Commissioner of Income Tax (1998) 229 I.T.R. 383 (S.C.).
4-	Vimal Kishore Kapoor v. ITO [IT Appeal Nos. 658 and 730 (All) of 1996] Kanpur in the Income Tax Appellate Tribunal Lucknow Bench Lucknow .	We have considered the rival submissions and perused the Appeal record carefully. The Ground involved is purely a legal ground and in view of the decision of the Apex Court in the case of N.T.P.C. v. Commissioner of Income Tax. The Ground which is purely a legal one in nature to be allowed to be raised. Accordingly, we allow the ground to be raised and argue. Fix 13.10.2003 for argument of the Appeal on Merit.
5-	V.K. Brahmankar v. Jt. CIT [2004] 90 TTJ 821 I.T.A.T. Indore Bench	Income Tax (Appellate Tribunal Rules 1963, r.11; in favour of: Assessee Appeal (Tribunal) Additional Grounds admissibility additional grounds bearing on the matter under consideration for which no fresh material outside the record is required or which are purely legal in nature, are allowable-Ahmedabad Electricity Co. Limited v. Commissioner of Income Tax (1992) 106 C.T.R. (Bom)(FB) 78; (1993) 199 I.T.R. 351 (Bom) (FB), N.T.P.C. Limited v. Commissioner of Income Tax (1999) 157 C.T.R. (SC) 249: (1998) 229 I.T.R. 383 (SC), C.I.T. v. Rayala Corporation (P) Limited (1995) 215 1.T.R. 883(Madras) and C.I.T. v. Bhopal Sugar Industries (1997), 143 C.T.R. (M.P.) 240; (1998) 233 I.T.R. 429 (M.P.) relied on.
6-

(B.1) No objection was expressed from the side of Revenue, to admission of additional grounds.

(B.2) In view of foregoing paragraphs (B) and (B.1) of this order, and after due consideration of written submissions made from the side of the assessee, the additional grounds are admitted.

(C) At the time of hearing, the learned Counsel for the assessee submitted that no incriminating materials against the assessee were found in the course of search under section 132 of the Act. Further, he submitted, the assessee’s case fell in the category of unabated assessment. He also contended that the issue is settled in favour of the assessee, by orders of Hon’ble Supreme Court in the cases of Pr. CIT v. Abhisar Buildwell (P.) Ltd 454 ITR 212 (SC) and Dy. CIT v. U. K. Paints (Overseas) Ltd 454 ITR 441 (SC) wherein it was held by Hon’ble Supreme Court, that no addition can be made, in the cases falling in the category of completed or unabated assessments, in the absence of any incriminating material found in the case of the assessee during search under section 132 of I.T. Act. He also submitted that Coordinate Bench of Income Tax Appellate Tribunal, Lucknow has, in similar facts and circumstances, following the aforesaid orders of Hon’ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd (supra) andU. K. Paints (Overseas) Ltd. (supra); has passed several orders in favour of the assessee and against the revenue including in the case of Smt. Shashi Agarwal v. Dy. CIT 209 ITD 360 (Lucknow–Trib). The learned Counsel for the assessee also drew our attention to order of Co-ordinate Bench of ITAT, Lucknow in the case of Adhyatm Jain v. Dy. CIT [2026] 216 ITD 173 (Lucknow–Trib) in support of his contention that no addition could be made in the absence of incriminating material, irrespective of whether addition was made on substantive basis, or protective basis. The learned Departmental Representative submitted that the additions have been made on the basis of Bank Account statement of the assessee, seized in the course of search under section 132 of the Act. Therefore, he submitted, it would be incorrect to say that no incriminating material was found in the course of search under section 132 of the Act. In his rejoinder the learned counsel for the assessee submitted that the Bank statements seized in the course of search under section 132 of the Act were pertaining to the bank accounts already taken into consideration for the computation of the assessee’s income shown in return of income. He also submitted that every document seized in the course of search under section 132 of the Act cannot be said to be incriminating material. When the assessee’s has Bank Account, transactions wherein have already been considered in income shown by the assessee in return of income, it is to be expected that Bank Account statement would be found in the course of search under section 132 of the Act. Unless it is established, however, that the Bank Account statement seized at the time of search under section 132 of the Act was pertaining to Bank Account that was not already taken into consideration for calculating the assessee’s income. In the present case, he submitted, the Bank Account statement seized at the time of search under section 132 of the Act was pertaining to a Bank Account which was already considered in computing the assessee’s income shown in return of income. He also submitted that there were no materials on record to show that the Bank Account statements seized under section 132 of the Act were not considered already for computation of the assessee’s income. He also submitted that there was no material on record to show that any transactions reflected in the Bank Account statements were not already considered for calculating the assessee’s income shown in the return of income. Therefore, he submitted, the Bank Accounts statement seized under section 132 of the Act cannot be considered as incriminating material. The learned Departmental Representative for Revenue reiterated that the additions were made on the basis of Bank Account statement seized in the course of search under section 132 of the Act, therefore, it cannot be said that no incriminating material was found in the course of search under section 132 of the Act. However, the learned Departmental Representative did not bring any materials for our consideration to show that the Bank Account statements seized under section 132 of the Act pertained to Bank Accounts which were not already considered for computation of the income of the assessee. He also failed to bring any materials for our consideration to show that any of the transactions reflected in the Bank Account statement were not already considered for computation of the assessee’s income. The learned Counsel for the assessee also drew our attention to the fact that a common satisfaction Note was prepared by the Assessing Officer for all the six Assessment Years (AY 2015-16 to 2020-21), for assuming jurisdiction and initiation of proceedings u/s 153C of I.T. Act, leading to assessment order u/s 153C of I.T. Act. He also drew our attention to order of Hon’ble Karnataka High Court, in the case of Dy. CIT v. Sunil Kumar Sharma 469 ITR 197 (Kar) for the proposition that separate satisfaction Note is required to be recorded u/s 153C of I.T. Act for each Assessment Year, and if a consolidated satisfaction Note is recorded for different Assessment Years, the entire assessment proceedings get vitiated. He also submitted that the order of Hon’ble Karnataka High Court was upheld by Hon’ble Supreme Court in decision Dy. CIT v. Sunil Kumar Sharma 469 ITR 271 (SC). The learned Departmental Representative for Revenue relied on the orders passed by the Assessing Officer and the learned CIT(A).

(D) It is not in dispute that common satisfaction Note was prepared by the Assessing Officer for six Assessment Years (2015-16 to 2020-21). Therefore, respectfully following the aforesaid orders of Hon’ble Karnataka High Court and Hon’ble Supreme Court, in Sunil Kumar Sharma (supra) it is held in the present appeals also, that the entire assessment proceedings were vitiated because of failure of the Assessing Officer to record separate satisfaction Note for each Assessment Year; and that assumption of jurisdiction and initiation of assessment proceedings u/s 153C of I.T. Act were invalid. Accordingly, the assessment order passed u/s 153C of I.T. Act is annulled, and the impugned appellate order of learned CIT(A) is set-aside. Since the assessment order has been annulled, other issues in dispute are merely academic in nature which need not be decided; hence not being decided.

(E) As referred to in foregoing paragraph (A.2) of this order Representatives of both sides were in agreement that the decision in the aforesaid appeal vide IT(SS) A No. 985/Lkw/2025 for AY 2017-18 would also apply mutatis mutandis to other appeals being considered in this order. Accordingly, we annul the respective assessment orders passed under section 153C of the Act in the case of M/s Shiv Kumar Gupta HUF and in the case of Paras Gupta for AYs 2015-16 to 2020-21. The impugned appellate orders of learned CIT(A) are set-aside.

(E.1) In result, grounds of appeals in all the appeals are allowed, in accordance with the aforesaid directions. For statistical purposes, all the appeals are allowed.