2018 (12) TMI 1680 - AT - Income Tax

Appeals Dismissed: Lack of Justification Invalidates Jurisdiction

ACIT, Central Circle-06, New Delhi Versus Rohan Patel, Himanshu Patel, Praduman Patel, Krish Patel, Urmila Chandulal Patel

The Appellate Tribunal dismissed the revenue's appeals, upholding the decision of the CIT(A) that the Assessing Officer did not provide adequate reasons ... Assessment u/s 153A - whether no satisfaction recorded by the learned assessing officer that the impounded documents belong to the various assesses? - Whether AO has correctly assumed jurisdiction u/s 153 C of the act by holding that documents found during the course of search on Shela Foams private Limited on 28/11/2011 'belongs‘ to the assessee? - HELD THAT:- As decided in INDEX SECURITIES PRIVATE LIMITED, VIDYA SHANKAR INVESTMENT PRIVATE LIMITED [2017 (9) TMI 585 - DELHI HIGH COURT] unless the document belongs to the assessee is shown by the learned AO in the satisfaction note itself with a reason and the basis. Ganpati Fincap Private limited [2017 (5) TMI 1425 - DELHI HIGH COURT] has held that Where proceedings are proposed to be initiated under Section 153C of the Act against the 'other person', it has to be preceded by a satisfaction note by the AO of the searched person. He will record in this satisfaction note that the seized document belongs to the other person. Depending on the nature and contents of the document he may be required to give some reasons for such conclusion. Therefore, it is apparent that if the satisfaction note, does not have any reasons for such conclusion, it is not in accordance with the law. For invoking jurisdiction under section 153C of the income tax act. Such is the case before us, where there is no reason recorded by the learned assessing officer stating that why these documents belong to the assessee and not to the person from whom it is found. However before parting we would also like to state that it cannot be a rule in its absoluteness that one document cannot be held to be belonging to more than one person. The striking example of the same is a joint bank account pass book of several persons together may be belonging to all those persons. Therefore, respectfully following the above judicial precedents of the honourable Delhi High Court, we do not find any reason to interfere in the order of the learned CIT – A, wherein it has been held relying upon the decision of the honourable Delhi High Court in case of Pepsi foods private limited [2014 (8) TMI 425 - DELHI HIGH COURT] that there is no satisfaction recorded by the learned assessing officer that the impounded documents belong to the various assesses and therefore the jurisdiction assumed by the learned assessing officer u/s 153C of the income tax act is invalid. - Decided against revenue. Issues Involved:1. Validity of the assumption of jurisdiction under Section 153C of the Income Tax Act.2. Whether the documents found during the search belonged to the assessee.3. Whether the assessment proceedings were validly initiated under Section 153C.4. Whether the addition of undisclosed capital gains was justified.Detailed Analysis:1. Validity of the Assumption of Jurisdiction under Section 153C:The primary issue in these appeals was whether the Assessing Officer (AO) correctly assumed jurisdiction under Section 153C of the Income Tax Act by holding that documents found during the search on Sheela Foams Private Limited belonged to the assessee. The search and seizure operation under Section 132 was conducted at the premises of Sheela Foams Private Limited, and various documents were seized. The AO initiated proceedings under Section 153C based on these documents, asserting that they belonged to the assessee.2. Whether the Documents Found During the Search Belonged to the Assessee:The AO noted that the documents found during the search included settlement statements and receipts related to the transfer of shares from the Patel group to the Rahul Gautam group. The AO concluded that these documents belonged to the assessee and made additions to the income based on undisclosed capital gains. However, the assessee contended that the documents did not belong to them, as they were not in their handwriting, nor were they maintained on their instructions. The assessee argued that the documents were found at the premises of Sheela Foams Private Limited and belonged to the company or its managing director, Rahul Gautam.3. Whether the Assessment Proceedings Were Validly Initiated under Section 153C:The Commissioner of Income Tax (Appeals) [CIT(A)] held that the AO did not provide any basis or reason for his satisfaction that the seized documents belonged to the assessee. The CIT(A) relied on the decision of the Delhi High Court in the case of Pepsi Foods Pvt. Ltd., which emphasized that the satisfaction note must display the reasons or basis for the conclusion that the seized documents belonged to a person other than the searched person. The CIT(A) concluded that the assumption of jurisdiction under Section 153C was invalid as the AO did not provide any reasons for his conclusion that the documents belonged to the assessee.4. Whether the Addition of Undisclosed Capital Gains Was Justified:The AO made additions to the income of the assessee based on the seized documents, alleging undisclosed capital gains from the sale of shares. The assessee denied receiving any cash consideration and provided evidence of receiving the sale consideration through cheques. The CIT(A) did not decide on the merits of the case but allowed the appeal on the ground that the assumption of jurisdiction under Section 153C was invalid.Conclusion:The Appellate Tribunal upheld the decision of the CIT(A), holding that the AO did not provide any basis or reasons for his satisfaction that the seized documents belonged to the assessee. The Tribunal emphasized that the satisfaction note must display the reasons or basis for the conclusion that the seized documents belonged to a person other than the searched person. The Tribunal relied on various judicial precedents, including the decisions of the Delhi High Court in Pepsi Foods Pvt. Ltd. and Pepsico India Holdings Pvt. Ltd., which held that the assumption of jurisdiction under Section 153C requires a clear satisfaction that the documents belong to a person other than the searched person. The Tribunal concluded that the assumption of jurisdiction under Section 153C was invalid, and therefore, the appeals of the revenue were dismissed.