Unexplained Delay in Recording Satisfaction Note Invalidates Section 153C Reassessment Proceedings Against Other Person
Issue
Whether a notice issued under Section 153C is legally valid when the Assessing Officer of the searched person delays recording the mandatory satisfaction note by 22 months after completing the search assessment, failing the “immediately after” test established by judicial precedent and CBDT Circular No. 24/2015.
Facts
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A search operation under Section 132 was conducted on a third party (the searched person) on October 15, 2019.
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The assessment of the searched person was completed in August 2021.
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The Assessing Officer (AO) of the searched person recorded a satisfaction note under Section 153C on June 6, 2023—a delay of 22 months following the completion of the searched person’s assessment.
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The satisfaction note was forwarded to the AO of the assessee (“other person”), who recorded a secondary satisfaction note on October 17, 2023, and issued a notice under Section 153C for Assessment Year 2017-18.
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The assessee challenged the Section 153C notice before the High Court, contending that the satisfaction note was not recorded at any permissible stage and was not done “immediately after” the completion of the searched person’s assessment.
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The Revenue attributed the 22-month delay to administrative disruptions caused by COVID-19 and the implementation of the Faceless Assessment Scheme.
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The High Court quashed the Section 153C notice, holding that the AO missed the two permissible stages specified in CBDT Circular No. 24/2015 and violated the “immediately after” mandate laid down in CIT v. Calcutta Knitwears.
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The Revenue filed a Special Leave Petition (SLP) before the Supreme Court challenging the High Court judgment.
Decision
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The Supreme Court held that there was no good ground to interfere with the impugned order of the High Court.
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The Supreme Court affirmed that a satisfaction note under Section 153C must strictly adhere to the timelines and permissible stages mandated by law and CBDT Circular No. 24/2015.
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The Supreme Court held that an unexplained delay of 22 months fails the requirement of recording satisfaction “immediately after” the completion of the searched person’s assessment, rendering subsequent Section 153C proceedings void.
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Consequently, the SLP filed by the Revenue was dismissed in favor of the assessee.
Key Takeaways
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Mandatory “Immediately After” Requirement: Recording of a satisfaction note under Section 153C by the searched person’s AO must occur simultaneously with or immediately following the conclusion of the searched person’s assessment.
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Strict Adherence to CBDT Circular No. 24/2015: The AO can record satisfaction only at specified permissible stages (during search assessment proceedings or immediately thereafter); failure to act within these windows invalidates jurisdiction over the “other person.”
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Administrative Delays Unjustified: Blanket excuses such as system transitions under the Faceless Assessment Scheme or general administrative slowdowns cannot validate a 22-month delay that violates binding statutory precedents (Calcutta Knitwears).