TaxTMI 
TaxTMI 
2017 (5) TMI 1425
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....viz., W.P. (C) Nos. 2247, 2221, 2248, 529, 2245 and 2220 of 2015 by Shushre Securities Pvt. Ltd. (hereafter 'Shushre') concern Assessment Years (AYs) 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 respectively. Three writ petitions viz., W.P. (C) Nos. 2224, 2225, 2226 by Shrey Infradevelopers Pvt. Ltd. (hereafter 'Shrey') concern AYs 2007-08, 2008-09 and 2009-10 respectively. Background facts in the Ganpati cases 3. The background facts in each set of petitions are more or less similar. On 26th March, 2010 a search and seizure operation under Section 132 of the Act along with a survey operation under Section 133A of the Act were undertaken at various residential and business premises of Aseem Kumar Gupta and his associated Group including Raj Kumar Chawla and Anju Chawla. There were two search parties. Several documents and account books were seized from the premises of Aseem Kumar Gupta, Raj Kumar Chawla and Anju Chawla. 4. The case of Ganpati was with the Assessing Officer (AO) of Ward 12(1). On 25th November 2010 jurisdiction was transferred to the AO of Central Circle (CC)-16 who first issued a notice to Ganpati under Section 153C of the Act on....
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....of the Act is initiated for the Assessment Year 2004-05 to 2010-11. Issue notice u/s 153 C of the Act for the Assessment Year 2004-05 to 2010-11." Assessment orders 7. Separate assessment orders were passed by the AO on 26th December, 2011 for the AYs 2004-05 to 2009-10 creating demands by making additions to the returned income of Ganpati in the cases of each of the Petitioners. The return originally filled by Ganpati had been processed under Section 143(1) of the Act. Now it was under Section 143(3) read with Section 153C of the Act. 8. The assessment orders noted that on 23rd December, 2011 a show cause notice ('SCN') was issued to Ganpati stating that there was no real business activity and there was no supporting infrastructure such as fixed assets. In those circumstances, Ganpati was asked to explain why the company should not be treated as a fictitious entity existing only on paper and as to why the corporate veil should not be pierced. Ganpati was asked to show cause as to why the expenses debited (barring statutory and obligatory expenses) should not be disallowed since it had failed to provide justification to establish the business purposes of the expenses de....
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....y which was used in abetment of tax evasion by providing accommodation entries to beneficiaries. Accordingly, there was an intricate connection between Ganpati and Aseem Kumar Gupta. (ii) With reference to the satisfaction note, a reference was made to the decision in CIT v. Panchajanyam Management Agencies & Services (2011) 333 ITR 281 (Ker.). It was held that "where the Assessing Officer of the person searched and the person against whom proceedings under Section 153C are initiated are one and the same there is no need to record satisfaction." Reliance was also placed on the decision of the Allahabad High Court in TVS Securities & Finance Pvt. Ltd v. CIT (C) (order dated 23rd August, 2013 in ITA No. 165 of 2008) to the effect that the satisfaction of the AO was not mandatory where the AO initiating the proceedings and the AO who made the earlier assessment are the same person. Thus it was concluded that there was no mandatory requirement of recording of satisfaction by the AO while initiating proceedings under Section 153C of the Act and "specifically when the AO of the person searched and the person against whom proceedings under Section 153C were initiated are one and the sa....
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....ocesses and if the first step was overlooked or missed then the entire proceedings under Section 153C would be vitiated. 16. Mr. Sabharwal referred to the decisions of this Court in Pepsico India Holdings (P.) Ltd. v. Assistant Commissioner of Income-tax [2015] 370 ITR 295 (Del), Commissioner of Income-tax-7 v. RRJ Securities Ltd. [2016] 380 ITR 612 (Del), Commissioner of Income-tax (Central) v. Gopi Apartment [2014] 365 ITR 411 (All) and Commissioner of Income-tax v. Mechmen 11-C [2016] 380 ITR 591 (MP). He also referred to the decisions of this Court in Pr. Commissioner of Income Tax (Central-II) v. Aakash Arogya Mandir Pvt. Ltd. (order dated 28th July, 2015 in ITA No. 509/2015) and ARN Infrastructure India Ltd. v. Assistant Commissioner of Income-Tax, Central Circle-28, New Delhi (order dated 25th April, 2017 in W.P. (C) No. 2768/2016). Submissions on behalf of the Revenue 17. Mr. Rahul Chaudhary, learned Senior standing counsel for the Revenue submitted that there was no requirement under Section 153C for there to be a satisfaction note for the searched person. The satisfaction note in respect of the searched person was at the stage of Section 132 of the Act. After tha....
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....153A, if, that Assessing Officer is satisfied that the books of determination of the total income of such other person for the relevant assessment year or years referred to in subsection (1) of Section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to subsection (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person: Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated." 20. It must be noted that Section 153C has undergone a change wi....
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....s regards 2 other documents which the AO is satisfied 'belong to' the other person 'B', he will prepare a satisfaction note to that effect. The question that is posed is, whether the AO has to prepare two satisfaction notes in relation to these 2 documents: one in which he states that these 2 documents in the opinion of the AO do not belong to 'A' and the second note which states that he is satisfied that these 2 documents belong to 'B'? 26. The Court is of the view that a plain reading of Section 153C does not require the AO of the searched person (A) to prepare two satisfaction notes. Only as far as the 'other person' B is concerned' the AO is expected to prepare a satisfaction note stating that the 2 documents belong to B. The failure by the AO to add in the said satisfaction note that the 2 documents do not belong to A will not vitiate the entire proceedings against B under Section 153C of the Act for the simple reason that there is no such requirement. 27. What the settled legal position as explained in several cases, which will be discussed shortly, is that the recording by the AO of the searched person that some documents seized during the search 'belong to'....
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....e will require the AO to record his reasons for his conclusion that the document belongs to say Y. In that process, in his satisfaction note, he may in the first portion explain why he thinks that the said document does not belong to 'X', 'Z' or 'D' but belongs to 'Y'. 31. This does not mean that in each and every case, even when the document is such as to leave no doubt as to whom it belongs to the AO has to necessarily record that it does not belong to the searched person. As long as he records that in his opinion it belongs to the other person, that will satisfy the requirement of the law. Further Section 153C does not state that the failure by the AO in such case to record in his satisfaction note that such a document does not belong to the searched person would vitiate the entire proceedings under Section 153C against the other person notwithstanding the AO having recorded that it does belong to the other person. 32. Mr. Sabharwal was unable to show whether after the decision in Pepsico Holdings(supra) a Court had invalidated the proceedings under Section 153C only because the satisfaction note recorded by the AO to the effect that the documents seized belonged to the ot....
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....and the Revenue then went before the ITAT. Nikki was aggrieved by the decision of the CIT (A) rejecting its contention that the proceedings under Section 153C were without any jurisdiction. The Revenue, on the other hand, challenged the deletions of the additions made by the AO. The ITAT found that a satisfaction note had not been recorded by the AO of the searched person and, therefore, initiation of proceedings under Section 153C was invalid. The ITAT found that the sources of money received by the Assessee were duly explained and thereby deleted the additions under Section 68 of the Act. Nikki's appeals were allowed and the Revenue's appeal were dismissed. 33.5 Aggrieved by the order of the ITAT, the Revenue preferred the above appeal before this Court. The Court in Principal Commissioner of Income Tax v. Nikki Drugs & Chemicals P. Ltd (supra) specifically noted that: "17. In the present case, the ITAT specifically recorded that, admittedly, a satisfaction note had not been recorded by the assessing officer of the searched person." 18......It was sought to be contended before us that the assessing officer of the searched persons had, in fact, recorded the necessary ....
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....eme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the Assessing Officer of the searched person and the 'other person' is one and the same, then also he is required to record his satisfaction as has been held by the courts. 5. In view of the above, filing of appeals on the issue of recording of satisfaction, note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under Section 158 BD/153 C should be withdrawn/not pressed if it does not meet the guidelines laid down by the apex court." Other decisions 35.1 Subsequently in Arihant Aluminium Corporation v. Assistant Commissioner of Income-Tax (supra), a Division Bench of the Karnataka High Court dealt with same issue. After noticing the CBDT Circular, the Karnataka High Court concluded as under: "The resultant effect would be that, the requirements of recording of satisfaction note for exercise of power under Section 153C is a mandatory requirement and cannot be given a go-bye,....
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....puts it beyond the pale of doubt. It categorically states that even where the AO of the searched person and the other person is same, such AO is not relieved of its statutory obligation to record a satisfaction note in respect of the other person. 40. In Pr. Commissioner of Income Tax (Central-II) v. Aakash Arogya Mandir Pvt. Ltd.(supra), there were factual findings that the AO of the searched person had not recorded the satisfaction note in respect of the other person. Likewise, in ARN Infrastructure India Ltd. v. Assistant Commissioner of Income-Tax(supra), the Court was satisfied that the documents seized were not incriminating. Legal position summarised 41. To summarise the legal position: (i) No search under Section 132(1) of the Act can be initiated without a satisfaction note being recorded by the AO of such searched person. This is followed by issuance of a notice to such searched person under Section 153A of the Act. At that stage the AO does not have to record another satisfaction note qua the searched person. (ii) Where proceedings are proposed to be initiated under Section 153C of the Act against the 'other person', it has to be preceded by a sati....
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....pati cases 42. In the Ganpati cases, the satisfaction note clearly records the view that the documents listed therein belong to the other person. The satisfaction note is of the AO of the searched person who also happens to be the AO of the other person i.e. Ganpati. Merely because the note also does not categorically state that the documents mentioned therein do not belong to the searched person (Aseem Kumar Gupta Group) will not invalidate the assumption of jurisdiction under Section 153C qua Ganpati. 43. The view taken by the CIT in the impugned order does not call for interference. The remand to the AO for giving Ganpati a further opportunity regarding the nature of the documents and the validity of the additions made as a result thereof also calls for no interference. The writ petitions by Ganpati fail and are hereby dismissed. Facts in Shushre and Shrey 44. As far as Shushre is concerned, arising from the same search and seizure and survey operation undertaken on 26th March 2010, a satisfaction note was recorded by the AO CC-9 on 8th November 2011 as under: "Satisfaction recorded u/s 153C in the case of M/s. Shushre Securities Pvt. Ltd. A search & seizure op....
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....ed by party SG6 are bills raised by the assessee company to various parties. In view of the above, and considering the fact that documents and books of accounts seized during the search belong to the assessee, I am satisfied that the assessee's case is a fit case for initiating proceedings u/s 153C of the Income Tax Act, 1961. Accordingly, action u/s 153C of the Act is initiated for the Assessment Year 2004 05 to 2010-11. Issue notice u/s 153C of the Act for the Assessment Year 2004- 05 to 2010-11." 46. The AO passed assessment orders in the cases of Shushre and Shrey on 22nd and 23rd December 2011 respectively, making additions to the taxable income. These were challenged by Shushre and Shrey by filing applications under Section 264 of the Act on 16th April and 13th April 2012 respectively. The CIT by orders dated 21st March and 20th April 2014 respectively rejected both applications. Unlike the case of Ganpati, the CIT declined to remand the cases to the AO for determining if the additions made could be sustained. 47. Mr. Sabharwal sought to contend that in the cases of both Shushre and Shrey the documents said to belong to each of them were not incriminating so a....