The Income Tax Appellate Tribunal (ITAT), Delhi Bench has quashed an assessment framed under Section 153C of the Income Tax Act, 1961, holding that the provision could not be invoked where the satisfaction note and consequential notice were issued after April 1, 2021.
The bench of Mahavir Singh (Vice President) and Krinwant Sahay (Accountant Member) relied upon the Supreme Court’s ruling in CIT v. Jasjit Singh and the Madras High Court’s decision in Harigovind v. ACIT to conclude that the notice issued to the assessee was without jurisdiction.
The central issue before the Tribunal was whether the Revenue could initiate proceedings under Section 153C when the satisfaction note was recorded and the notice was issued after April 1, 2021.
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B.H. Trading had originally filed its return of income on December 23, 2020. Earlier, on January 30, 2020, a search operation under Section 132 had been conducted in the case of Sushil Goel and his group.
During the search, the authorities allegedly found material relating to foreign-currency transactions, hawala operations and telegraphic transfers involving various countries and jurisdictions. An image recovered from the mobile phone of Sanjay Goel contained certain amounts and the name “BH”. During post-search proceedings, Sanjay Goel stated on January 31, 2020, that “BH” referred to B.H. Trading and further stated that transactions involving the purchase of tobacco were undertaken from BH companies.
Based on the material found during the search, the Assessing Officer recorded a satisfaction note on February 4, 2022. A notice under Section 153C was thereafter issued on April 4, 2022, requiring the assessee to furnish a return for AY 2020-21. The assessee subsequently filed its return on February 20, 2023.
The assessee challenged the very assumption of jurisdiction under Section 153C, arguing that the statutory framework applicable after April 1, 2021 did not permit the Revenue to invoke Section 153C in the circumstances of the case.
The assessee also relied upon the Supreme Court’s decision in CIT v. Jasjit Singh, reported in 458 ITR 437 (SC), to contend that, for a person other than the searched person, the relevant date for determining the assessment period is linked to the point at which the seized material is handed over to the Assessing Officer having jurisdiction over such other person.
According to the assessee, the satisfaction note in the present case was recorded on February 4, 2022, falling in Financial Year 2021-22. Consequently, the six-year period contemplated under the applicable provisions would have to be reckoned accordingly. The assessee argued that the Revenue had instead proceeded by taking a seven-year block covering AYs 2014-15 to 2020-21.
The assessee further contended that, following the amendment to Section 153C with effect from April 1, 2021, proceedings in such circumstances could not be initiated under the old Section 153C mechanism and that the Revenue ought to have proceeded, if permissible, under Section 148 read with Section 143(3) of the Act.
After examining the rival submissions and the statutory position, the ITAT found that the search in the case of the Sushil Goel group had taken place on January 30, 2020, but the satisfaction note in the cases of both the searched person and the assessee was recorded only on February 4, 2022.
The Tribunal specifically noted that the satisfaction note was therefore recorded after April 1, 2021 and that the notice under Section 153C was issued on April 4, 2022.
Significantly, the Tribunal observed that the notice was issued under Section 153C read with Section 153A in respect of a statutory provision that was no longer applicable in the same manner after the April 1, 2021 amendment. The assessment for AY 2020-21 was ultimately framed under Section 153C on March 31, 2023.
The Tribunal held that the legal position was squarely covered by the Supreme Court’s judgment in Jasjit Singh.
The ITAT relied heavily on the Supreme Court’s interpretation of Section 153C. The Supreme Court had held that, in the case of a person other than the person searched, the relevant point for determining the initiation of search proceedings is connected with the handing over of the seized material to the Assessing Officer having jurisdiction over the other person.
The Supreme Court had also emphasised that the statutory proviso governing the six-year period was not confined merely to the question of abatement. It also affected the date from which the assessment period applicable to the third-party assessee was to be reckoned.
According to the Supreme Court reasoning reproduced by the ITAT, allowing the Revenue to relate the proceedings back indefinitely to the original search date could cause substantial prejudice to persons whose premises were never searched, including an unnecessarily prolonged obligation to preserve records.
The Tribunal also considered the Madras High Court’s decision in Harigovind v. ACIT, 485 ITR 509 (Madras), which dealt with the effect of the post-April 1, 2021 statutory framework.
The Madras High Court had considered the Supreme Court’s decision in Jasjit Singh and held that where the relevant search initiation, for the purpose of the other person, occurred on or after April 1, 2021, Section 153C could not be invoked.
The High Court concluded that the amended statutory scheme did not permit proceedings under Section 153C for searches initiated on or after April 1, 2021 and held that the impugned notices issued under the provision were unsustainable and without authority of law.
The Delhi ITAT held that the Section 153C notice dated April 4, 2022 was without jurisdiction.
The Tribunal therefore quashed the notice and, as a consequence, also quashed the assessment framed pursuant to that notice. Since the jurisdictional challenge succeeded, the Tribunal observed that the assessee’s other grounds became academic and did not require adjudication.
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