ITAT Delhi Cancels Section 153C Assessment Where Satisfaction Note Missed Statutory Finding

Background of the Dispute

The Income Tax Appellate Tribunal, Delhi Bench, was called upon to decide cross appeals in the case of Deepak Builders and Engineers India Ltd. Vs DCIT for Assessment Year 2020-21. The appeals stemmed from an order dated 20 December 2024 passed by the Commissioner of Income Tax (Appeals)-30, Delhi, in proceedings initiated under Section 153C read with Section 143(3) of the Income Tax Act 1961.

The core controversy did not revolve around the quantum of additions but rather on the jurisdictional validity of the assessment itself. The assessee challenged the initiation of proceedings under Section 153C on the ground that the satisfaction note recorded by the Assessing Officer did not meet the statutory conditions prescribed in Section 153C(1). The Revenue, on the other hand, defended the satisfaction note as being sufficient and in accordance with law.

The Tribunal first took up this legal/jurisdictional objection as it went to the root of the assessment framed on 26 March 2023. Once this foundational issue was resolved, the fate of the remaining grounds in both appeals followed accordingly.

Search Operation and Basis of Section 153C Trigger

Search on Entry Operator

The proceedings had their origin in a search and seizure action under Section 132 on 28 October 2020 in the case of one Sanjay Jain, described as an “entry operator”. The search was conducted on Sanjay Jain, his facilitators and certain beneficiaries who were allegedly involved in providing and availing accommodation entries through bogus billing and cash transactions, primarily in commodities such as cement and similar items.

Pursuant to the search:

  • A proposal was moved for centralisation of the group cases before the central charge.
  • The group was centralised with DCIT, Central Circle-30, New Delhi under the jurisdiction of Pr. CIT (Central)-3, New Delhi through a specific administrative order.

Modus Operandi Captured in the Satisfaction Note

The satisfaction note recorded by the Assessing Officer (AO) of the assessee (being a person other than the searched person) described a detailed modus operandi of the alleged entry operation:

  • A widespread web of bank accounts was used to route funds from beneficiaries to cash withdrawals, with the entire trail allegedly visible from deposits to withdrawals.
  • Digital communications such as WhatsApp chats were used to coordinate and conceal transactions.
  • Tactics such as sharing images of currency notes and serial numbers were purportedly adopted to cloak the fraudulent nature of the dealings.
  • According to the note, staff and associates of entry operators were used as dummy directors/partners of shell entities; although formally in control, all bank accounts were allegedly managed by the entry operators.

The note also highlighted that:

  • Beneficiaries were stated to have made “huge” real estate investments using these arrangements.
  • Statements of alleged entry operators, their associates, cash handlers, and certain beneficiaries were recorded to substantiate the operational pattern.

Cash Seizure and RTGS–Cash Arrangement

The AO further recorded that:

  • Search and seizure operations resulted in seizure of approximately ₹62 crore in cash from premises of certain beneficiaries during actions dated 26 October 2020.
  • Apart from issuing bogus bills, Sanjay Jain was alleged to have provided a service of converting RTGS transfers into cash, involving:
    • No invoices,
    • No GST input tax credit to beneficiaries,
    • A lower commission rate than that charged on “with-bill” transactions,
    • Use of firms that were not subject to audit.

The AO noted that the facility was used by beneficiaries to:

  • Clear outstanding bogus purchases, loans or liabilities by issuing RTGS,
  • Receive cash back in lieu of such RTGS,
  • Route entries through adjustment of creditors and debtors across financial years.