PARAG RAMESHBHAI GATHANI V. INCOME TAX OFFICER, WARD 2 INTERNATIONAL TAXATION & ANR 2025:GUJHC:65724-DB:

DATE: 18/11/2025

COURT: High Court of Gujarat

BENCH: Justice A.S. Supehia and Justice Pranav Trivedi

FACTS:

A search under Section 132 of the Income Tax Act was conducted on 15.10.2019 on a group of land brokers and financiers, during which the residence of a third party, Suresh Ranchhodbhai Thakkar, was also covered. Incriminating material, particularly WhatsApp chat images was seized, reflecting financial transactions among Dharmesh Gathani, Parag Gathani, Rushisinh Thakor, and Randhirsinh Thakor. During post-search inquiry, the statement of Suresh Thakkar was recorded under Section 131 on 20.12.2019, wherein he confirmed negotiations relating to a land deal involving cash and cheque payments. In assessment proceedings of Rushisinh and Randhirsinh Thakor under Section 153C (concluded in March 2023), a sale deed dated 24.07.2020 surfaced showing that Survey No.135, Okaf, had been purchased in the name of Bharti Dharmesh Gathani for Rs.3.8 crore.

Relying on this material, the Assessing Officer of the searched person recorded a satisfaction note on 06.06.2023, and the Assessing Officer of the petitioner recorded another on 14.07.2023. Based on these, a notice dated 09.02.2024 was issued to the petitioner under Section 153C for AY 2017–18, alleging payment of “on-money” for the land purchase. The petitioner objected on 06.03.2025, challenging the initiation of Section 153C proceedings and the validity of the satisfaction notes.

ISSUES:

The primary issue in these writ petitions was whether the notices issued under Section 153C of the Income Tax Act, 1961, almost four years after the search and nearly two years after the assessment of the searched person were legally sustainable. Specifically, the question was whether the satisfaction notes required for initiating proceedings under Section 153C were recorded within the timeframe mandated by law, as interpreted by the Supreme Court in Calcutta Knitwears and further clarified in CBDT Circular No.24/2015.

JUDGEMENT WITH REASONING:

The Gujarat High Court quashed the impugned notices issued under Section 153C for the respective assessment years. The Court held that the proceedings were invalid due to an inordinate and unjustified delay in recording the requisite satisfaction notes, which violated the mandatory procedural requirements laid down by the Supreme Court and reiterated in the CBDT Circular. Accordingly, both writ petitions were allowed, and the notices were set aside.

The Court noted that although the Assessing Officer had three permissible stages to record a satisfaction note under Section 153C, (a) at initiation of proceedings under Section 153A/158BC; (b) during assessment proceedings; or (c) immediately after completion of those proceedings, the Department failed to comply with any of these. The assessment of the searched person was completed in August 2021, yet the satisfaction note was recorded only on 6 June 2023, with an additional satisfaction note by the petitioner’s Assessing Officer on 17 October 2023. This delay of 22 months, according to the Court, was clearly contrary to the Supreme Court’s ruling in Calcutta Knitwears that requires the satisfaction to be recorded “immediately” after assessment, as well as the CBDT Circular which mandates strict adherence to this timeline. The Court further relied on its earlier ruling in Jitendra H. Modi, where even a 9-month delay was held impermissible.

The Court rejected the Department’s justifications for the delay namely COVID-19 disruptions and workload under the Faceless Scheme. It observed that the assessment of the searched person itself had been completed during the pandemic, and the Omicron wave had subsided by February 2022, yet no action was taken for another 20 months. The argument regarding the Faceless Scheme was dismissed as untenable because assessments under Sections 153A and 153C fall outside the scope of the faceless assessment mechanism. The Court held that accepting such excuses would defeat the very objective of swift, cost-effective, and certain completion of search-related assessments. Therefore, the prolonged delay rendered the satisfaction note invalid, which in turn vitiated the entire proceedings under Section 153C.

ANALYSIS:

The central legal issue in this case revolves around the statutory requirement of recording a valid “satisfaction note” before initiating proceedings under Section 153C of the Income Tax Act. The Supreme Court in Calcutta Knitwears made it explicit that such satisfaction must be recorded at one of three specific stages, and crucially, it must be done “immediately” after the assessment of the searched person when falling under stage (c). The CBDT Circular No.24/2015 reaffirmed this mandate, making the timing of the satisfaction note a jurisdictional prerequisite. In the present case, although the search occurred in October 2019 and the assessment of the searched person concluded in August 2021, the satisfaction note was recorded in June 2023, after an unexplained delay of nearly two years. This gap is not merely procedural laxity; it undermines the legislative intent of promptness, efficiency, and certainty in search-related assessments. Previous judicial precedents such as Jitendra H. Modi, where even a nine-month delay was held invalid, further strengthened the petitioner’s position that a 22-month delay could not be legally justified.

The Department’s attempt to explain the delay on the basis of COVID-19 disruptions and the operational burden from the Faceless Assessment Scheme was rejected as unconvincing and factually inconsistent. The Court emphasized that the pandemic did not prevent the Department from completing the assessment of the searched person in 2021, and that the Omicron wave ended by February 2022, leaving an unjustified vacuum of more than a year thereafter. Moreover, the faceless scheme has no application to assessments under Sections 153A/153C, making that justification wholly irrelevant. Since the satisfaction note is foundational to invoking jurisdiction under Section 153C, any substantial delay, without lawful cause renders the proceedings void ab initio. By failing to act within the timeframe prescribed by judicial and administrative authorities, the Department violated mandatory procedural safeguards, leading the Court to invalidate the notices. The case thus reinforces the doctrine that procedural requirements governing jurisdiction cannot be diluted, and that any deviation nullifies the entire assessment process.