Punjab & Haryana High Court on Section 153C: Satisfaction Note Timing and Limitation Issues

The Punjab and Haryana High Court in Bhupinder Singh Kapur Vs ITO examined multiple writ petitions challenging notices issued under Section 153C and consequential notices under Section 142(1) of the Income Tax Act 1961. The assessee argued that these notices were without jurisdiction, primarily due to alleged delay in recording the satisfaction note and also on the ground of limitation for certain assessment years. The Court, however, declined to interfere and upheld the validity of the Section 153C proceedings at this stage.

Background of the Dispute

Search and Subsequent Proceedings

  • A search under Section 132 of the Income Tax Act 1961 was conducted on 28.01.2021 on a third party (the “searched person”).
  • Assessments of the searched person were completed under Section 158BC (now corresponding to Section 153A) in September 2022.
  • Based on the seized material, proceedings were later initiated against the present assessee under Section 153C by issuing notices dated 30.03.2024.
  • Thereafter, notices under Section 142(1) were issued on 23.08.2024 for further compliance.

The assessee approached the High Court through writ petitions, alleging that the notices under Section 153C and Section 142(1) were invalid and without jurisdiction.

Core Objections Raised by the Assessee

1. Alleged Delay in Recording Satisfaction Note

The assessee’s counsel relied heavily on:

  • CBDT Circular No. 24/2015 dated 31.12.2015, and
  • The decision of the Supreme Court in Commissioner of Income-tax III vs. Calcutta Knitwears (2014) 362 ITR 673 (SC)

to argue that the satisfaction note under Section 153C must be recorded strictly within a narrow timeframe linked to the assessment of the searched person.

According to the assessee:

  1. The search under Section 132 took place on 28.01.2021.
  2. Assessment of the searched person under Section 158BC/Section 153A was completed in September 2022.
  3. The satisfaction note relating to the assessee was prepared only on 31.10.2023.
  4. This time gap of over a year from completion of assessment of the searched person was claimed to be contrary to the mandate of the Supreme Court in Calcutta Knitwears and CBDT Circular No. 24/2015.

The assessee read the circular and the Supreme Court ruling to say that satisfaction for initiating Section 153C proceedings against a person other than the searched person must be recorded:

  • at the time of or along with initiation of proceedings under Section 158BC/Section 153A of the searched person, or
  • during the course of such assessment proceedings, or
  • immediately after completion of such assessment.

On this basis, the assessee maintained that a satisfaction note prepared long after the assessment of the searched person is completed is belated and invalid.

2. Objection on Limitation: Six-Year Period

The second key objection related to the limitation period under the first proviso to Section 153C. The assessee pointed out that proceedings were initiated for:

  • Assessment Year 2015-16 in CWP-25316-2024
  • Assessment Year 2016-17 in CWP-26261-2024
  • Assessment Year 2017-18 in CWP-25294-2024

It was argued that these years fell beyond the six-year period contemplated in the statute, and hence proceedings could not lawfully be carried forward.