Sharad Kumar Bhandari vs DCIT: ITAT Jaipur Quashes Section 153C Jurisdiction

A 2025 ITAT Jaipur ruling in a post-search assessment case examines whether proceedings under Section 153C of the Income Tax Act, 1961 can be sustained when the jurisdictional satisfaction note is allegedly not recorded or provided to the assessee, and whether the assessment order is barred by limitation. The Tribunal's decision in favour of the appellant has direct relevance for any taxpayer drawn into a third-party search assessment under Section 153C.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Sharad Kumar Bhandari, Jaipur, Jaipur vs DCIT Circle (Intl Tax), Jaipur, Jaipur
• Bench: Income Tax Appellate Tribunal - Jaipur
• Date: 13 August 2025
• Court level: Tribunal (ITAT)
• Sections engaged: 153C, 144C
• Outcome: Taxpayer succeeded — appeal was allowed

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Facts of the case

The appellant, Sharad Kumar Bhandari, filed his return of income for Assessment Year 2015-16 on 31 August 2015. On 13 July 2020, a search and seizure action under Section 132 of the Income Tax Act was conducted at the premises of the OM Kothari group. During the search, incriminating documents, mobile phones, and other digital devices were found and seized. Computer experts examined the seized devices, and statements were recorded from individuals present. One significant statement was that of Shri Vimal Jain, son of Late Shri Padam Chand Jain, the Accountant of the OM Kothari group — described in the order as a key employee of the group. The materials and data seized indicated that the group, along with its associates engaged in the real estate business, had undertaken unaccounted transactions, and that unaccounted receipts had been received on the sale of flats in a project named "PALLACIA."

On the basis of material gathered during this third-party search, proceedings were initiated against the appellant under Section 153C of the Act. The Assessing Officer — the ACIT/DCIT, Circle (International Tax), Jaipur — passed an assessment order dated 24 January 2025 for AY 2015-16, after the Dispute Resolution Panel (DRP) issued directions under Section 144C(5) on 19 December 2024. The DRP directed additions to the appellant's income under Section 69 on account of alleged on-money payments made for the purchase of a residential flat in the PALLACIA project, covering amounts of Rs. 1,31,79,660, Rs. 11,69,050, and an enhancement of Rs. 1,20,10,610. A companion appeal (ITA No. 234/JPR/2025) was filed by Juhi Bhandari for the same AY on essentially the same issues; both appeals were heard together and disposed of by a common order.

An additional and revised set of grounds was filed by the appellant on 5 May 2025, relying on the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. (229 ITR 383 SC), to raise a fresh jurisdictional challenge contending that the Section 153C proceedings were barred by limitation, void ab initio, and non-est in law — in addition to the original challenge that proper satisfaction had not been recorded by the AO of the searched person.

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Issues raised

• Whether the AO had assumed jurisdiction under Section 153C without recording proper satisfaction, and without providing the satisfaction note and underlying documents to the appellant, rendering the proceedings illegal and void ab initio.
• Whether the assessment order dated 24 January 2025 passed under Section 153C read with Section 144C(13) was barred by limitation under Section 153B of the Act.
• Whether the DRP erred in directing additions under Section 69 on account of alleged on-money payments of Rs. 1,31,79,660 and Rs. 11,69,050 for the purchase of a residential flat, when the payments were made through banking channels and accepted as such by the AO.
• Whether the DRP exceeded its powers under Section 144C(8) by enhancing the appellant's income by Rs. 1,20,10,610 under Section 69 towards consideration for the purchase of the flat, when the source of payment was fully explained and supported by bank statements and remained undisputed by the AO.

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What the court held

The ITAT Jaipur allowed the appeal. The operative outcome, as recorded in the source order, is that the appeal was allowed in favour of the assessee.

The Tribunal took up the appeal of Sharad Kumar Bhandari in ITA No. 232/JPR/2025 as the lead matter. The jurisdictional ground under Section 153C — contending that proceedings were initiated without proper satisfaction being recorded by the AO of the searched person (OM Kothari group) and without the satisfaction note and underlying documents being made available to the appellant — was raised as the primary ground. An additional ground was also raised before the Tribunal, contending that the Section 153C assessment was barred by limitation under Section 153B and was void ab initio and non-est in law. The revised and additional grounds were admitted in reliance on the Supreme Court's decision in National Thermal Power Co. Ltd. (229 ITR 383 SC). Both appeals — ITA No. 232/JPR/2025 (Sharad Kumar Bhandari) and ITA No. 234/JPR/2025 (Juhi Bhandari) — were disposed of together by the common order, with the issues being similar and related.

The Tribunal's decision resulted in the appeal being allowed. The merits-level additions directed by the DRP under Section 69 — including the amounts of Rs. 1,31,79,660, Rs. 11,69,050, and the enhanced addition of Rs. 1,20,10,610 — were the subject of the relief sought. The assessment order passed under Section 153C read with Section 144C(13) was the target of the challenge, and the Tribunal's allowance of the appeal sets aside the additions.

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Strategy observations

1. A jurisdictional challenge under Section 153C was raised as the lead ground before the Tribunal, contending absence of proper satisfaction note and non-supply of underlying documents to the appellant — a well-recognised basis for assailing third-party search assessments.

2. An additional ground raising limitation under Section 153B was introduced by way of a formal application filed on 5 May 2025, relying on the Supreme Court's decision in National Thermal Power Co. Ltd. (229 ITR 383 SC) as authority for the admission of additional grounds. This procedural route — invoking that precedent to support late admission of a fresh legal ground — is documented in the source order.

3. The companion appeal of Juhi Bhandari (ITA No. 234/JPR/2025) involved substantially similar issues for the same AY and was heard and decided by the same common order, demonstrating the Tribunal's practice of consolidating related search-linked appeals arising from the same underlying search action.

4. The DRP stage had already been traversed before the ITAT appeal: the AO's draft order was subjected to DRP directions under Section 144C(5), and the final assessment order was passed under Section 144C(13). The challenge before the ITAT therefore operated against a final order that had already incorporated DRP directions, including an income enhancement that the AO himself had not made — the enhancement of Rs. 1,20,10,610 directed by the DRP under Section 144C(8) was separately contested as exceeding DRP's powers.

5. The merits challenge on the Section 69 additions rested on documentary evidence — bank statements and banking-channel payment records — which the appellant contended remained undisputed by the AO, and which the DRP had overridden in directing enhancements. This factual posture — undisputed banking-channel payments being treated as on-money — formed the evidential foundation of the merits grounds.

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Why this case matters

This ruling contributes to the body of ITAT decisions examining the jurisdictional prerequisites for Section 153C proceedings, particularly the requirement of a valid satisfaction note recorded by the AO of the searched person and its communication to the non-searched assessee. Where such prerequisites are not met, the resulting assessment has been held to be void ab initio — a principle that the appellant's revised grounds expressly invoked. The Tribunal's allowance of the appeal on these grounds reinforces the significance of satisfying the jurisdictional preconditions before initiating proceedings against a person other than the searched person.

The case also highlights the interaction between Section 153C proceedings and the DRP mechanism under Section 144C — specifically the scenario where the DRP enhances income beyond the draft order, raising questions about the scope of Section 144C(8) powers. For in-house tax teams and advisers dealing with post-search assessment matters under Section 153C involving third-party searches, this order is relevant both on the jurisdictional limitation dimension and on the DRP enhancement dimension. The search in question (OM Kothari group, 13 July 2020) gave rise to multiple connected assessments, making this a judgment with potential applicability across other similarly situated assessees from that search.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/149529084/