Facts of the Case

A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 28.06.2016 in the case of the Paras Mal Lodha Group, alleged to be involved in hawala transactions.

The assessee, Rajiv Agarwal, was a salaried individual earning income from salary and bank interest. He had filed his return of income declaring income of ₹1,80,51,110 for AY 2017-18.

During the search proceedings in the Paras Mal Lodha group, certain documents and loose sheets were allegedly found which were claimed to relate to the assessee. Subsequently:

  • A satisfaction note was recorded by the Assessing Officer (AO) of the searched person.
  • The documents were transferred to the jurisdictional AO of the assessee.
  • Notice under Section 153C read with Section 153A was issued.

The AO passed an assessment order making additions totaling ₹1,19,70,896 under Section 69A treating the amounts as unexplained money based on loose sheets allegedly recovered during the search.

The CIT(A) partly deleted additions but upheld certain additions, leading to cross appeals before the ITAT.

Issues Involved


  1. Whether proceedings under Section 153C were valid when the satisfaction note was recorded mechanically without proper analysis of seized material.
  2. Whether loose sheets and documents seized during the search could be used to make additions under Section 69A without establishing a clear nexus with the assessee and relevant assessment years.
  3. Whether the AO had properly demonstrated that the seized documents had a bearing on determination of the assessee’s total income.

 Petitioner’s Arguments (Assessee)


  • The satisfaction note did not specify the nature of seized data or transactions.
  • It failed to identify which assessment years the documents related to.
  • There was no explanation as to how the documents belonged to or related to the assessee.
  • The AO did not demonstrate how the seized material had any bearing on the determination of total income.
  • The note did not contain details of dates, parties, or amounts involved in alleged undisclosed transactions.
  • No corroborative material was produced to support the alleged additions.

 Respondent’s Arguments (Revenue)

  • Documents recovered during the search indicated unexplained transactions.
  • The AO had correctly invoked Section 153C after recording satisfaction.
  • Additions were justified as the seized documents allegedly reflected unexplained money routed through the hawala operator.

 Court Order / Findings


  • Recording of satisfaction under Section 153C is a mandatory jurisdictional requirement.
  • The AO must clearly identify how the seized material belongs to or relates to the assessee.
  • The satisfaction must also demonstrate how the seized documents affect the determination of total income for specific assessment years.
  • The satisfaction note in the present case did not specify the incriminating material assessment year-wise.
  • It failed to establish a clear nexus between the seized documents and undisclosed income of the assessee.
  • The satisfaction recorded by the AO was mechanical and lacked proper application of mind.

Important Clarification by ITAT


  • Recording of satisfaction is not a mere procedural formality.
  • The AO must clearly demonstrate:
    • the seized material,
    • the relevance of that material to the assessee,
    • and its impact on the determination of income.

Without these elements, proceedings under Section 153C cannot be sustained.

The Tribunal relied on established legal principles that incriminating material must pertain to the relevant assessment year and must have a direct bearing on the computation of income.

 Section Involved


  • Section 132 – Search and Seizure
  • Section 153A – Assessment in case of search
  • Section 153C – Assessment of income of any other person
  • Section 69A – Unexplained money
  • Section 143(2) – Scrutiny notice
  • Section 142(1) – Inquiry before assessment

Link to download the order - https://itat.gov.in/public/files/upload/1735647878-GRCESV-1-TO.pdf

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