SC Dismisses Revenue SLP; Upholds Quashing of Delayed Section 153C Notice

SC Dismisses Revenue SLP; Upholds Quashing of Delayed Section 153C Notice

The case arose from a search conducted in October 2019 on a third party, during which certain WhatsApp chats and materials allegedly indicated “on-money” transactions linked to the assessee. Based on this, proceedings under Section 153C of the Income Tax Act were initiated against the assessee for AY 2017–18. However, the satisfaction note by the Assessing Officer of the searched person was recorded only in June 2023—nearly 22 months after completion of assessment of the searched person in August 2021.

The assessee challenged the notice before the Gujarat High Court, contending that such a significant delay violated the requirement laid down by the Supreme Court in Calcutta Knitwears and CBDT Circular No. 24/2015, which mandates that satisfaction must be recorded immediately after completion of assessment. The High Court accepted the assessee’s contention and quashed the notice, rejecting the department’s justification based on COVID-19 disruptions and faceless assessment transition.

Issue Raised: Whether a delay of nearly 22 months in recording satisfaction under Section 153C invalidates the notice as being contrary to the requirement of recording satisfaction “immediately” after completion of assessment of the searched person.

SC Held: The Supreme Court, after considering the submissions of the Revenue and examining the material on record, condoned the delay in filing the Special Leave Petition. However, on merits, the Court found no justification to interfere with the judgment rendered by the Gujarat High Court. The Bench observed that the High Court had thoroughly examined the sequence of events, particularly the substantial delay in recording the satisfaction note, and had rightly applied the legal principles laid down in Calcutta Knitwears and the CBDT Circular governing Section 153C proceedings.

The Court did not express any independent findings on the merits of the controversy but emphasized that no error warranting interference under Article 136 of the Constitution was made out. By dismissing the SLP, the Supreme Court effectively affirmed the High Court’s view that such prolonged delay defeats the statutory requirement of immediacy in recording satisfaction. Thus, the quashing of the impugned notice under Section 153C attained finality, and the proceedings initiated against the assessee stood invalidated.

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