A satisfaction note recorded years after search assessment violates Section 153C requirements and vitiates reassessment.

A search under Section 132 of the Income-tax Act, 1961 was conducted at the premises of Suresh R. Thakkar, a third party, on 15 October 2019.

The petitioner was a co-owner of land forming part of the transactions examined pursuant to the search.

The assessment of the searched person was completed in August 2021.

Thereafter, the Assessing Officer of the searched person recorded satisfaction under Section 153C only on 27 January 2025, and the petitioner’s Assessing Officer recorded satisfaction on 26 March 2025.

A notice under Section 153C for Assessment Year 2017–18 was issued to the petitioner on 31 March 2025.

The assessment order under Section 153C and demand notice were subsequently issued on 26 March 2026.

The petitioner relied on the Gujarat High Court’s decision in Parag Rameshbhai Gathani v. Income Tax Officer, International Taxation, decided on 18 November 2025, concerning a co-owner of the same land and the same search proceedings.

In that case, a 22-month delay in recording satisfaction after completion of the searched person’s assessment was held inconsistent with the requirement that satisfaction be recorded “immediately” after completion of assessment.

The Supreme Court dismissed the Department’s challenge to that decision on 2 April 2026.

1. Whether the satisfaction required for initiating proceedings under Section 153C of the Income-tax Act could validly be recorded more than four years after completion of the assessment of the searched person.

2. Whether the notice under Section 153C, the consequential assessment order, and the demand notice were liable to be quashed on account of the delayed recording of satisfaction.

Section 153C of the Income-tax Act, read with Section 158BD, requires the Assessing Officer to record a valid satisfaction that seized material belongs to or relates to a person other than the searched person before initiating proceedings against that other person.

Relying on Calcutta Knitwears, the Court held that satisfaction may be recorded at one of three stages: at initiation of proceedings against the searched person, during those assessment proceedings, or immediately after their completion.

CBDT Circular No. 24/2015 extended these principles to Section 153C proceedings and directed strict compliance.

The Court also relied on Jitendra H. Modi, which held that a substantial delay in recording satisfaction was not “immediate”.

The Court also followed Parag Rameshbhai Gathani, where a 22-month delay was held impermissible.

The dismissal of the Department’s SLP against that decision reinforced its application.

The Court found that the petitioner’s case was materially identical to Parag Rameshbhai Gathani because it arose from the same search of Suresh R. Thakkar and concerned co-ownership of the same land.

Although the searched person’s assessment had concluded in August 2021, satisfaction was recorded only on 27 January 2025—more than four years later—and the petitioner’s Assessing Officer recorded satisfaction on 26 March 2025.

This delay could not qualify as recording satisfaction “immediately after” completion of the searched person’s assessment under Calcutta Knitwears and CBDT Circular No. 24/2015.

Since the same defect had invalidated the proceedings in the co-owner’s case, the Court adopted that reasoning and rejected the Department’s objection that the reassessment was based on incriminating search material.

It held that the satisfaction recorded after an interval exceeding four years was invalid for the purposes of Section 153C.

Accordingly, the notice dated 31 March 2025, the assessment order dated 26 March 2026 passed under Section 153C, and the consequential demand notice dated 26 March 2026 were quashed and set aside.

The writ petition was allowed, and the connected civil application for interim relief was rendered infructuous.