Delayed Satisfaction Notes Cannot Be Justified By Stretching Term ‘Immediate’ In Section 153C Income Tax Act: Gujarat High Court

The High Court was hearing writ petitions challenging notices issued under Section 153C of the Act for Assessment Year 2017–18, because the satisfaction notes were recorded long after the completion of the assessment of the searched person.

A Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi, while examining the delay of nearly 22 months in recording satisfaction after completion of the assessment of the searched person, referred to the Supreme Court’s decision in Calcutta Knitwears and held: “The expression ‘immediate’, though is impossible to quantify in period, however, the same cannot be extended to such an extent which defeats the purpose of cost effective, efficient and expeditious completion of search assessments”.

The Bench clarified that “the intention of using such term is to reduce and avoid long drawn proceedings and to bring certainty to the assessment”.

Senior Advocate Tushar Hemani appeared for the petitioners, while Advocate Varun K. Patel appeared for the respondents.

Background

A search action under Section 132 was conducted on 15 October 2019 in the case of a land broker and financier group, which also included the premises of a third party. Certain WhatsApp chat images and other material were seized. Statements of concerned individuals were recorded during the post-search inquiry, and subsequent assessment proceedings of related persons were completed.

The impugned notices, dated 09 February 2024, under Section 153C, were issued to the petitioners for the Assessment Year 2017–18 after two separate satisfaction notes were recorded: one by the Assessing Officer of the searched person on 06 June 2023, and another by the Assessing Officer of the petitioners on 14 July 2023.

The petitioners objected to the initiation of proceedings, contending that the satisfaction note was recorded nearly four years after the search and almost two years after completion of the assessment of the searched person.

Court’s Observation

The Gujarat High Court, upon hearing the matter, examined the Supreme Court’s judgment in Calcutta Knitwears, wherein it was held that a satisfaction note may be prepared at three stages: (a) at the time of initiating proceedings against the searched person, (b) during the assessment proceedings, or (c) immediately after assessment is completed. The Court also referred to CBDT Circular No.24/2015, which had clarified that these guidelines apply equally to Section 153C.

The Bench noted that although the Assessing Officer had the opportunity to record satisfaction at stages (a) and (b), no such recording was made. Even for stage (c), where satisfaction is to be recorded “immediately after” completion of assessment in August 2021, the note was prepared only on 06 June 2023, i.e., after 22 months. Relying on the decision in Jitendra H. Modi (HUF), the Court observed that a nine-month delay had been previously held not to satisfy the requirement of immediacy.

The reasons advanced by the Department for the delay, the COVID-19 pandemic and the impact of the Faceless Assessment Scheme, were rejected. The Court observed that the assessment of the searched person itself was completed during the pandemic, and the Faceless Scheme did not apply to proceedings under Sections 153A and 153C. The Court held that both reasons appeared to be “afterthoughts.”

Referring to the delay, the Bench stated that the expression “immediate”, though impossible to quantify in a period, cannot be extended so far as to defeat the purpose of “cost-effective, efficient and expeditious completion of search assessments,” and that the intention behind the expression is to avoid long-drawn proceedings and bring certainty to assessments.

The Court further held that reliance placed by the respondents on the decision in Bhupinder Singh Kapur would not apply, as the delay in the present case was 22 months and not justified by any restricting factor.

Conclusion

Holding that the satisfaction notes were not recorded within the framework mandated by the Supreme Court in Calcutta Knitwears and CBDT Circular, the Gujarat High Court quashed the notices issued under Section 153C of the Income Tax Act for the relevant assessment years.

Both writ petitions were allowed, and there was no order as to costs.

Cause Title: Parag Rameshbhai Gathani v. Income Tax Officer, Ward 2 International Taxation & Anr (Neutral Citation: 2025:GUJHC:65724-DB)

Appearances

Petitioners: Senior Advocate Tushar Hemani with Advocate Vaibhavi K. Parikh

Respondents: Advocates Varun K. Patel, Aditya Bhatt

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