The client, an individual farmer turned investor, sold land to a builder group in FY 2016-17 for a documented consideration of Rs 2,10,00,000 received entirely by cheque. The builder group was searched under s.132 on 14 November 2019. In August 2023 the client received notices under s.153C for AY 2014-15 to AY 2020-21. On request, the Department supplied a single-paragraph satisfaction note dated 3 July 2023 recording that an Excel sheet found at the searched premises shows cash receipts. The sheet has one line with a name matching the client, a figure of Rs 1,90,00,000, and no date, no year and no narration. The client's returns for all seven years were processed under s.143(1) with no scrutiny, except AY 2017-18, which was completed under s.143(3) in December 2019. There is no statement of any person naming the client, and nothing was found at the client's own premises because he was never searched.
Fix the regime by the date the search was initiated before drafting anything, because the search assessment machinery has changed twice and each version has its own limitation, rate and return. Assessments under s.153A and s.153C govern searches up to 31 March 2021; searches from 1 September 2024 fall into the revived block assessment chapter with a single return for the block period; and searches between those dates were dealt with under the ordinary reassessment machinery. A November 2019 search sits squarely in the s.153C regime, and a reply drafted for the wrong regime is wasted.
The regime is decided by when the search was initiated, and the choice determines the block of years, the rate and the form of return. Within the s.153C regime there is a further question, because the Supreme Court has held that the 2015 amendment applies to searches conducted before 1 June 2015 where the seized material reached the jurisdictional officer after the amendment, so the operative version is fixed by the handover date rather than by the search date alone. The handover date does more than fix the version. The library now holds an entry on the first proviso, under which the block of years for the other person is counted forward from the date the material reached his own Assessing Officer rather than back from the date of the search, so on these facts the seven years have to be recomputed before any of them is answered on the merits. The entry flags that the decision behind it was read in digest form on a single source and is not yet written up separately.
A satisfaction note is a condition without which the third-party machinery cannot be invoked; it must be prepared by the Assessing Officer of the searched person before the records are transmitted, and it may be recorded only at one of three stages, at or along with initiation of proceedings against the searched person, during those proceedings, or immediately after they are completed. The conditions precedent are cumulative: satisfaction recorded that the undisclosed income belongs to another person, handover of the seized material to that person's officer, and only then the notice. Where the same officer holds both charges, a single note recording that the documents belong to the other person and not to the searched person suffices.
The Supreme Court has held that the seized incriminating material must pertain to the assessment years in question and must establish a correlation document-wise with those years, and that this requirement is a jurisdictional fact rather than a matter of appreciation of evidence. A single undated line cannot correlate with seven years. The right way to run this is a year-by-year table showing, for each year, what document is said to relate to it, which usually leaves most of the years empty.
On a search the officer assumes jurisdiction and pending assessments abate, but additions to completed or unabated assessments can be made only on incriminating material found in the search; absent such material no addition is permissible, though the Revenue's ordinary reopening power is preserved. Where the search on the assessee turned up nothing connected to undisclosed income, additions for a completed year have been held unjustified. For this client only one year was ever completed under scrutiny, so the analysis differs year by year.
Entries in loose papers and sheets have been held irrelevant and inadmissible because loose sheets are not books of account regularly kept in the course of business, and even entries in properly kept books are not by themselves sufficient to charge a person with liability. The statutory presumption attaching to seized material is in any event rebuttable and, on the older authority, runs only against the person from whom the material was seized, which here is the builder group and not the client. The client's cheque trail and registered sale deed are the rebuttal.
A statement recorded during a search has evidentiary value but cannot, standing alone and without reference to other material discovered in the search, empower the officer to frame the assessment, particularly where it is a third party's statement. A copy of the statement together with an opportunity to cross-examine the deponent must be given, and if cross-examination is refused or the statement is retracted the statement cannot sustain the addition. Denial of cross-examination of a witness whose statement is the basis of the order is a violation of natural justice that renders the order a nullity.
No order in a case falling under the search machinery may be passed by an officer below the rank of Joint Commissioner without prior approval, and the approval must show an application of mind rather than be a ritual. Approval sought two days before limitation, and a single composite approval covering several years and many other cases granted on the day the drafts were received, have both been held to vitiate the assessments. The consequence is annulment rather than remand, because an approval showing no application of mind is treated as no approval. This point is won on a single document, so it has to be asked for in time.
Most of the seven years fall away on the correlation point long before merits, either at the Tribunal or occasionally in a writ against the assumption of jurisdiction, because the Department rarely has year-wise documents. The year or two the sheet can plausibly be tied to are then fought on whether an undated third-party spreadsheet is incriminating material at all, and that is genuinely uncertain. The approval ground often decides the whole batch if the approval letter turns out to be composite, but the letter has to be obtained and many practitioners never ask for it.
