TaxTMI 
TaxTMI 
2018 (12) TMI 1680
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.... the decision of jurisdictional High Court of Delhi in the case of Pepsi Foods Pvt. Ltd. 3. On the facts and circumstances of the case the ld CIT(A) has erred in law in not deciding the issues on merits of the case." 2. The Only issues involved in these appeals is whether the ld 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. 3. As the facts involved in all these appeals are similar, we 1st take up ITA number 1455/del/2015 in case of Shri Rohan Patel and state facts relating to his case for assessment year 2010 - 11. Search and seizure operation under section 132 of the income tax act was conducted at business premises of Sheila form private limited on 28/11/2011. During the course of search annexure A - 1, 2, A - 13 were found and seized. Notice under section 142 (1) of the act was issued on 3/10/2013 in response to which return was filed on 9/12/2013. During the course of search, it was observed that the shares held by Shri Pradyman Patel group and other Patel group in Sheela Foams private limited was acquired by another....
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....nd from the office of Sheila foam private limited and none of these documents belongs to the assessee. None of these documents had been maintained by the assessee and none of these documents are in the handwriting of assessee or his representative. It was further stated that assessee is not aware as to who has and on whose instructions these documents were maintained. The assessee submitted that he is not a party to any of these documents, except for the receipt signed by the assessee acknowledging the receipt of cheques against the sale consideration of shares received. The learned assessing officer considered the explanation of the assessee and stated that though all these papers have been seized from the office of the company, but they do not belong to the assessee is not acceptable. The seized documents contain details of shares held by Patel group, rate of sale of those shares, payment received through cheque, payment received in cash, balance payable in cash and cheques , payment received in cash, balance payable in cash and cheques , receipts of payment for transfer of shares by the assessee and the copy of cheques where payment received clearly belongs to the assessee. He f....
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.... reasons expressed in that satisfaction note in arriving at such a conclusion. He therefore held that satisfaction as required under the law pronounced in Pepsi foods private limited is not coming out of the satisfaction note recorded by the learned assessing officer before issuing notice under section 153C and therefore the action of the learned assessing officer is bad in law as per the above decision of the honourable High Court. Therefore respectfully following the ratio of the honourable High Court in case of Pepsi foods private limited, He held that the assumption of jurisdiction under section 153C by the learned assessing officer was bad in law in as much as he has not stated the 'basis and reasons' for holding that the documents mentioned in the satisfaction note 'belong' to the appellant. However he did not decide the issue on the merit but has allowed the appeal of the assessee on this ground. Similar orders were also passed by Ld CIT (A) in case of other assesses. Therefore, now the assessing officer aggrieved with the order of the learned CIT - A, has preferred an appeal before us. 5. The learned CIT DR vehemently supported the order of the learned assessing ....
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....tted that the following decisions may kindly be considered u/s 153C of I.T.Act: 1. PCIT Vs Sheetal International Pvt Ltd (2017- TIQL-1355-HC-DEL-IT) where Hon'ble Delhi High Court held that proceedings u/s 153C cannot be invalidated, merely because the AO of the searched who was also that of the Assessee, did no| record a separate satisfaction note. 2. PCIT Vs Instronics Ltd [20171 82 taxmann.com 357 (Delhi) where Hon'ble Delhi High Court held that where satisfaction note was recorded by Assessing Officer of searched person who also happened to be Assessing Officer of assessee (other person) to affect that seized documents belonged to assessee, issuance of notice under section 153C against assessee on basis of said note was justified. 3. Ganpati Fincap Services (P.) Ltd. Vs CIT 20171 82 taxmann.com 408 (Delhi) where Hon'ble Delhi High Court held that where Assessing Officer of searched person recorded that documents seized during search belonged to assessee, merely because he had not categorically stated that documents mentioned therein did not belong to searched person would not invalidate assumption of jurisdiction under section 153C in respect of asses....
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....atisfaction that is required to be reached by Assessing Officer having jurisdiction over searched person is that valuable article or books of account or documents seized during search belong to a person other than searched person and, it is not necessary that documents so seized must reflect any undisclosed income 9. CIT Vs Classic Enterprises (35 taxmann.com 244, 219 Taxman 237, 358 ITR 465. 268 CTR 364) where Hon'ble Allahabad High Court held that where after search at business premises of assessee-firm and its partner, books of account were handed over to concerned Assessing Officer, who after recording satisfaction issued notice under section 153C and completed assessment under section 153C/143(3), assessment was in accordance with law 10. Savegh Kumar Aqarwal Vs Union of India (35 taxmann.com 85. 216 Taxman 109. 353 ITR 26) where Hon'ble Allahabad High Court held that even if assessing authority receiving satisfaction note had not found any thing adverse against assessee on examination of account books, and further seized goods had already been released, notice under section 153C could still be issued to assessee to file return of income. Wh....
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....searched person (1) o Also there is a total failure of the A.O. of the searched person to record a specific satisfaction as to how the recovered material belonged to the assessee (1) o In the absence of above stated mandatory conditions, the impugned satisfaction note cannot provide a legally valid jurisdiction U/S. 153C for initiating the proceedings and for framing the asstt. on assessee U/S. 153C CASE LAWS Pepsi Foods (P.) Ltd. Vs. ACIT 231 TAXMAN 58. (DEL.) (1 - 7/RP 6-7) (SLP DISMISSED BY SC IN 252 TAXMAN 372 SC) ( 8 ) "Para - 11- It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word "satisfaction" or the words "1 am satisfied" in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisf....
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....far as these documents are concerned., Canyon Financial Services Ltd. Vs. ITO 399 ITR 202 (DEL.) (SLP DISMISSED BY SC IN 253 TAXMAN 341 SC) "Para - 19. As a result, the Court holds that the satisfaction note prepared by the AO of the searched person does not fulfil the legal requirement spelled out in Section 153C (I) of the Act. The satisfaction note of the AO of the Assessee, being a carbon copy of the satisfaction note of the AO of the searched person also fails to fulfil the jurisdictional requirement. No reasons are recorded for the identical conclusion in either satisfaction note that the seized documents mentioned therein belong not to the searched person but to the Assessee. " Pr. CIT Vs. Vinita Chaurasia 394 ITR 758 (Dei.) (63-73) (SLP of Deptt. dismissed - 407 ITR 26 (St.) (74) TWO - The word 'pertain to' substituted in Sec.l53C(l) w.e.f.|oi.06.15 j Prior to 01.06.15, the documents found were required to be belonging to a 3rd person as per Sec. 153C(1) However the scope of Sec.l53C(l) stood enlarged w.e.f. 01.06.15 by substituting Sec.l53C(l) wherein, the word 'belongs to' stood substi....
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.... the Petitioner is not relevant since the amendment to Section 153 C of the Act in that regard was prospective with effect from 1st June 2015 i.e. subsequent to the date of preparation of the 'Satisfaction Note' in the present case." CIT Vs. RENU CONSTRUCTIONS (P) LTD. (ITA NO. 499/2011, Delhi high court order dtd. 06.09.17) (28 - 33/RP-32) Held that - ―Pertained to‖ is added w.e.f 01.06.15, which is prospective in nature. THREE - None of the documents belong to assessee o Total 05 documents have been stated to be belonging to assessee in the satisfaction note (1) o The nature of these documents is as under:- Ann. Pg - No Nature as mentioned by AO in letter dtd. 06.01.2014 Explanation of assessee as to why it do not belong to assessee PB PG. NO A-1 41 Photocopies of paper relating to the settlement statement for the transfer of shares from the Patel Goup to Rahul Gautam group (Sheela Foam) and also to some other persons. * It is a document prepared by Gautam group for their self use only. * It is owned by Gautam Group and not by Patel Group. * It is not in the hand writing of Patel Group. * ....
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....ee. It, of course, had certain references to the estimations and expenditure, etc. of the properties belonging to the assessee. Nevertheless, we cannot hold that such document belonged to the assessee." ARN Infrastructure India Ltd. Vs. ACIT 394 ITR 569 (Delhi) "Para - 13. As regards the seized documents, what is mentioned in the Satisfaction Note are two documents: the ledger account maintained by the Petitioner running into 3 pages showing the commission payments made by the Petitioner to RGEPL and the letter dated 27th January, 2010 written by the Petitioner to RGEPL. As far as the latter document is concerned, it is a letter written by the Petitioner to RGEPL and, therefore, should be treated as a document belonging to RGEPL and not to the Petitioner. Whether it may or may not be related to the Petitioner is not relevant since the amendment to Section 153 C of the Act in that regard was prospective with effect from 1st June 2015 i.e. subsequent to the date of preparation of the 'Satisfaction Note' in the present case." V.K. FISCAL SERVICES (P) LTD. Vs. DCIT (DELHI ITAT ORDER DTD. 27.11.2013 (34 - 62/RP - 42) In this case following documents were found....
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....ard disk contains books of accounts of M/s V.K.Fiscal Services P.Ltd. is prima facie wrong. Thus, in our view no money, bullion, jewellery or other valuable articles or books of accounts or documents seized belong to the assessee, warranting issue of notice u/s 153 'C Thus none of the documents is owned by assessee, neither in his hand writing, nor got prepared on his instructions/knowledge but only for the internal use / information of Rahul Gautam Group, therefore cannot be taken as belonging to assessee FOUR - One document cannot belonged to (owned) more than one persons The following seized documents have been mentioned by the A.O. in the satisfaction notes of following persons as belonging to those persons:- Ann. Pg- No. Held By The A.O. As Belongs To Following Persons & Also To Assessee PB PG. NO Urmila Renu Krish Rohan Praduman Himanshu Serta A- 1 41 Yes Yes Yes Yes Yes - - 5,- ,16,17,15 75 Yes - - - Yes Yes - 5,15,18 81 Yes - - - Yes Yes - 5,15,18 A - 2 21 Yes - - - - Yes Yes 5,18,19 o Th....
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....nging to the assessee. The paper book also contains the copies of the seized documents relied upon by the learned assessing officer. It also contains the application made by the assessee on 8/8/2014 under the right to information act and reply thereto dated 17/9/2014. The assessee is also included the satisfaction note recorded by the learned assessing officer in case of all the 5 assessee in these appeals and in case of the buyer of the share. The assessee also relied upon the decision of the honourable the early High Court in case of Pepsi foods private limited vs ACIT 231 taxman 58 and Pepsi Co India Holdings private limited vs ACIT 370 ITR 295. It also relied upon the decision of the honourable Delhi High Court in case of principal Commissioner of income tax vs Vinita Chaurasia 394 ITR 758 along with many other judicial precedents. 9. The learned Commissioner of income tax Department representative in rejoinder reiterated the same arguments and stated that there is a clear-cut satisfaction recorded by the learned assessing officer that the documents does not belong to the person searched and the heavy reliance placed by the assessee on the decision of honourable Delhi High C....
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....ome tax act, 1961 is initiated in the case of Mrs. Urmiladevi Chimanlal Patel. 12. The identical satisfaction note was also recorded in case of all other assesses. As held by the honourable Delhi High Court in 367 ITR 112 in Pepsi foods private limited vs ACIT that The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. The above decision has also considered the decision of the honourable Delhi High Court in case of SSP aviation Ltd vs Deputy Commissioner of income tax 346 ITR 177, on which ld CIT DR has placed heavy reliance. The Honourable High court further held that on a plain reading of section 153C, it is evident that the Assessing Officer of the searched person must be "satisfied" that, inter alia, any document seized or requisitioned "belongs to" a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after ....
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....aser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement can be said to 'belong to' the assessee. 14. The ld CIT DR has heavily relied up on the decision of Honorable Delhi High court in SSP Aviations Limited V DCIT 346 ITR 177 . The above decision of Honorable Delhi high court in pepsi Foods Limited (Supra) has also considered the decision of the honourable Delhi High Court in case of SSP aviation Ltd vs Deputy Commissioner of income tax and held as under :- "8. In so far as the decision in the SSP Aviation Ltd. (supra) is concerned we do not find anything therein which militates against the view that we are taking. In fact the very distinction between section 153C and section 158BD (although section 158BD is not mentioned) is indicated by the following observations of the Division Bench in SSP Aviation Ltd. (supra) (page 188 of 346 ITR) : "It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer havi....
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....ready reference:- M/s Pepsi Foods Pvt. AY 2006-07 to 11-12 02.08.2013 Satisfaction Note for issue of Notice u/s 153C of Income Tax Act, 1961 in the case of M/s Pepsi Foods Pvt. Ltd, for the Assessment Years 2006-07 to 2011-12. Satisfaction Note A search and seizure operation u/s 132(1) of the I.T. Act was carried out at the various premises of M/s Jaipuria Group on 27.03.2012. The group is also into various other business viz. Raymond Retail franchisee, real estate construction, fast foods, mining, education, ayurvedic products, information technology and medical sendees. One of the major allegations against the Jaipuria Group is that the assessee group in order to reduce its taxable profit indulged in enhancing the cost of raw material purchased. On examination of the accounts of various concerns, it is noticed that raw material are procured from fixed vendors. Since bulk purchases are made, rates should have been lower. However raw material are being procured on a high rates resulting in lower taxable income. The bottler shall buy all units of concentrate required for the manufacture f the beverage from PFL (Pepsi Foods Ltd.), or a manufactu....
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....return of income for the A.Y. 2006-07 to 2011-12. (Pukini Lokho) Asstt. Commissioner of Income Tax, Central Circle-12, New Delhi" M/s SHEELA FOAM PRIVATE LIMITED During the course of search and seizure operation conducted on 28.11.2011 at Premises No. 37/2, Site-IV, Sahibabad Industrial Area, Ghaziabad, U.P., of Sheela Foam Private Limited, documents marked as Annexure A-l to A-13 were found and seized. It is seen that the above seized material contains following documents belonging to Sh. Praduman Patel:- 1. Annexure A-l, P-41, photocopies of paper relating to the settlement statement for the transfer of shares from the Pradhuman Patel group to Rahul Gautam Group. * P-75 & 81 contains photocopies of paper relating to the settlement statement for the transfer of shares from the Pradhuman Patel group to Rahul Gautam Group. 2. Annexure A-2, Page 15 to 19 contains receipt dated 20/12/2009 of Rs. 52476363/- issued to Rahul Gautam by Pradhuman Patel for sale 1052400 shares of M/s Sheela Foam Pvt. Ltd. * Page-19 receipt dated 20/12/2009 of Rs. 55156365/- issued to Rahul Gautm by Pradhuman Patel for ....
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.... In the case of Pepsi Foods (P) Ltd. (Supra), the Hon'ble High Court of Delhi has held that mere use or mention of the word "satisfaction" or the word "I am satisfied" in the satisfaction note would not meet the requirement of the concept of satisfaction as used in section 153C of the Act. It has been held that the satisfaction note itself must display the reasons or the basis for the conclusion that the A.O. of the searched person was satisfied that the seized documents belonged to a person other than the searched person. It has been held in the same case that the A.O. of the searched person must first arrive at a clear satisfaction that a particular documents seized did not belong to the person from whom it has been seized. Thereafter, he should form a satisfaction that the seized document belongs to such and such other person. U/s 132(4A)(i), there is a presumption that the documents seized from a person belonged to such person. There is also presumption u/s 292C(l)(i) that a document which is found from a person who was searched, would be belonging to that person. The Hon'ble High Court has held that the A.O. must at the first instance rebut such a presumption provided in the A....
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.... Mere use or mention of the word "satisfaction" or the words "I am satisfied" in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any "satisfaction " of kind required under Section 153C of the said Act. 12. This being the position the very first step prior to the issuance of a notice under Section 153C of the said Act has not been fulfilled. Inasmuch as this condition precedent has not been met, the noticed under Section 153C are liable to be quashed. It is ordered accordingly. The writ petitions are allowed as above. There shall be no order as to costs. " 4.10.9 Since, such satisfaction as required under the law pronounced in Pepsi Foods Pvt. Ltd. (supra), is not coming out of the note recorded by the A.O. before issuing notice u/s 153C, the action of the A.O. is bad in law ....
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....igh Court in- Pepsi Foods (P.) Ltd. v. Asstt. CIT [2014] 52 taxmann.com 220 (Delhi). 19. In Commissioner of Income-tax-III, Pune v. Sinhgad Technical Education Societyjavascript:void(0); [2017] 84 taxmann.com 290 (SC)/[2017] 250 Taxman 225 (SC)/[2017] 397 ITR 344 (SC)/[2017] 297 CTR 441 (SC) honourable Supreme Court has dealt with the 2 decisions relied upon heavily by the learned departmental representative. In para number 20 of the decision of the honourable Supreme Court dealt with the decision of the honourable Gujarat High Court in case of Kamleshbhai Dharamshibhai Patel v. CIT [2013] 31 taxmann.com 50/214 Taxman 558 (Guj.) And in para number 21 has dealt with the decision of the honourable Delhi High Court in SSP Aviation Ltd. v. Dy. CIT [2012] 20 taxmann.com 214/207 Taxman 260/346 ITR 177 (Delhi) as under :- "20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should b....
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....on and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further." We, thus, do not find any merit in these appeals." 20. The honourable Supreme Court held that the decision of the honourable Gujarat High Court has laid down the correct proposition that provisions of section 153C can be invoked only if the documents belong to the 3rd party and on the facts In that particular case, it was held that the documents belong to the 3rd parties. In that particular case the agreement between the tenants and the assessee were found which were not at all related to the any other part but to th....
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....four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the satisfaction note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also give its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the Respondent, argued that notice in respect of assessment years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tri....
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....merely 'pertain' to the other person but must belong to the 'other person'. 30. In the present case, the documents seized were the trial balance and balance sheets of the two Assessees for the period 1st April to 13th September 2010 (for ISRPL) and 1st April to 4th September 2010 (for VSIPL). Both sets of documents were seized not from the respective Assessees but from the searched person i.e. Jagat Agro Commodities (P) Ltd. In other words, although the said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential jurisdictional requirement to justify the assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees. 31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in RRJ Securities and ARN Infrastructure India Ltd. v. Asstt. CIT [2017] 394 ITR 569/81 taxmann.co....