TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1680
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....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 company Serta India private limited during financial year 2009....
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....hese 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 further held that the seized documents also bear the signature o....
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.... 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 officer and assailed the order of the learned Commissioner of Inc....
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.....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 assessee. Where proceeding under section 153C was initiated against assessee on basis of sei....
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....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. Where bullion seized was released to assessee for having been validly entered in stock books, Assessing Officer on receiving satisfaction note could still proceed under section....
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.... 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 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 "satisfacti....
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.... 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 substituted by 'pertain to' in respect of documents found and seized Thus, prior to 01.06.15, a finding of belonging alongwith the reasons and basis of such finding has to be there in the satisfaction note of the searched person for providing valid jurisdiction U/S.153C CASE LAWS Pr. CIT Vs. Index Securities (P.) Ltd. 86 taxmann.com 84 (Delhi) (17 - 27/RP-26) Section 153C of the Income-tax Act....
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....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. * It is not authored by Patel Group. * It is not prepared on instructions / knowledge of Patel Group. * It is some table found and seized from SFPL, not owned by assessee and for the reasons mentioned above does not belong to assessee. <5 75 -do- -do- 6 81 -do- -do- 7 69 Details of sale of shares 1052400 of M/s. Sheela foam (P) Ltd. for a consideration of Rs. 17,09,01,955/- by assessee with details of payments. * It is a document prepared by Gautam group for their self use only. ....
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.... 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 from the hard disk of computer of the searched person:- (i) Confirmation of A/c. (ii) Copy of bank A/c of ABN Amro of assessee. (iii) Trial Balance of Assessee. (iv) Copy of Profit & loss A/c and Balance Sheet of Assessee. (v) Copy of Part Cash book for 6 months of assessee during which transaction were done by assessee with searched person. (vi) Copy of IOB Bank Ledger A/c. of the assessee. These documents were held by A.O. as belonging to assessee for the purposes of section 153C. Hon'ble ITAT in Para - 11.1 has held that these are not the documents belonging to the asse....
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....sfaction 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 Thus document Pg.41 has been mentioned to 05 persons, Pg.75 to 03 persons, Pg.81 to 03 persons and Pg.21 to 03 persons o One page will generally belong (owned), to only one person o Also, seized Pg.21 is a receipt issued by Urmila Patel (assessee), and there is no connection of this page with Himanshu and Serta, although in their satisfaction notes also, this page has been mentioned as belonging to them which is apparently wrong recording of satisfaction (1, 18, 19) o It shows that the satisfactions have been recorded in a very casual and mechanical manner and without application of mind and such satisfactions cannot provide valid jurisdiction U/S.153C. FIVE - No mentioning in satisfaction note that seized material is of incriminating nature and/or shows any undisclo....
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....mmissioner 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 Court are distinguishable clearly on the facts of the case. She further relied upon the decision of the honourable Delhi High Court in case of as SSP aviations Ltd vs Deputy Commissioner of income tax 20 taxmann.com 214 stating that it is not necessary that the documents seized must reflect any undisclosed income of the assessee. Therefore, she supported the order of the learned assessing officer. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. It is important to keep in mind here that the search took place owned 28/11/2011. Therefore, the necessary condition that is required to be satisfied for invoking the provisions of section 153C of the act is that the seized documents from M/s Sheela forms private limited must belong to the assesses. They must not merely pertain to the assessee. 11. Apparentl....
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....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 such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of section 153A. Therefore, before a notice under section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is- after such satisfaction is arrived at-that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when, inter alia, any document is found in the possession or control of any person in the course of a search it may be presumed tha....
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....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 having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. There is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income." 9. It is only in this context that the Division Bench was of the view that the issuance of the section 153C notice was only first step in the process of enquiry." 15. On careful reading of the satisfaction note in case of Sheela foams the private limited in case of various assessee is individually the learned assessing officer has merely mentioned the documents and then stated that he is satisfied that the document seized belongs to a person other than the person ....
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....n 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 manufacturer approved in writing by PFL (Pepsi Foods Ltd.) at a price and in accordance with the terms and conditions established by the seller. Being the sole supplier of concentrate to Jaipuria Group, Pepsi Foods Pvt. Ltd. is closely associated to Jaipuria Gr. During the post search investigation, summonses were issued to M/s Pepsi Foods Pvt. Ltd. to furnish certain details. The complete details were not furnished. The following documents were also found and seized during the course of search and seizure action u/s 132(1) of I.T. Act, 1961 belonging to (PFL) M/s Pepsi Foods Pvt. (PAN:AAACP1557E) over which the jurisdiction lies with the undersigned: rty/Ann./Page No. Description of Annexure C-4/A-2/77 This page contains summary of PFL Claims as on 29-11 -20 (Claims up to 31 /10/2011) C-4/A-4/18-20 These pages contain a detail of D YAT impact (April 10- June 10) Vs PFL Support report and MRP Plan. C-4/A-4/21-23 Th....
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....d. * Page-19 receipt dated 20/12/2009 of Rs. 55156365/- issued to Rahul Gautm by Pradhuman Patel for sale 678680 shares of M/s. Sheela Foam Pvt. Ltd. * Page-22 & 25 contains photocopies of cheque issued by M/s Sheela Foam Private Limited, M/s Serta India P Ltd., Rahul Gautam to Pradhuman Pates. * Page-27, receipt dated 21/10/2009 of Rs. 41334060/- issued to Rahul Gautam by Pradhuman Patel for sale shares of M/s Sheela Foam Pvt. Ltd. * Page 29, receipt dated 20/12/2009 of Rs. 35000/- issued to Rahul Gautm by Pradhuman Patel for sale shares of M/s Polyflex Marketing P Ltd. * Page 28, receipt dated 21/10/2009 of Rs. 34000/- issued to Rahul Gautm by Pradhuman Patel for sale shares of M/s Starlite India Pvt. Ltd. * Page 36, contain confirmation regarding no claim against M/s Sheela Foam Private Limited. * Page 35 contains confirmation regarding current or contingent liabilities against the legal & beneficiary ownership of sale of shares. * Page 30 contains receipt dated 31/10/2009 for Rs. 35000/- issue to Sh. Rahul Gautam against sale 350 equity shares. In view of the above, I am satisfied that documents seized belongs to a person other than the person under s....
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....t such a presumption provided in the Act itself and only thereafter he should come to the conclusion or satisfaction that the seized document belonged to someone else. There must be some cogent material available with the A.O. before he arrives at a satisfaction that the seized document did not belong to the searched person but to somebody else and that surmises and conjectures can not take the place of satisfaction. 4.10.7 The Hon'ble jurisdictional of High Court of Delhi has further held that finding photocopies in the possession of a searched person would not necessarily mean that they belonged to a person who holds the originals. The possession of documents and possession of photocopies of documents were two separate things. Further it has also been observed that one should not confuse the expression "belt " to" or "refers to". A registered sale deed for example "belongs to", the purchaser of the property but obviously "relates to" or "refers to" a vendor. 4.10.8 On considering the ratio of the two cases namely M/s Pepsi Food (P) Ltd.(supra), and M/s Pepsico India Holding Pvt. Ltd. (supra), it is seen that the assumption of jurisdiction by the A.O. u/s. 153C of the Act is....
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.... in law as per the above decisions of the High Court. Therefore, respectfully following the said ratio of the Hon'ble High Court Delhi in the case of M/'s Pepsi Foods (P) Ltd. (supra), I hereby hold that the assumption of jurisdiction u/s 153C by the A.O. was bad in law in as such as he has not stated the basis and reasons for holding that the documents mentioned in the satisfaction note belonged to the appellant." 17. Further on careful analysis of various documents stated by the learned assessing officer belonging to the assessee, it is apparent that no doubt in those documents the name of the assesses appear and certain transactions are also referred with the assessee. But, we are not concerned here with the issue that whether those documents pertained to the assessee or not, but with the issue that whether those documents belong to the assessee or not. Naturally there is no denying that these documents also pertained to, relate to the assessee but the requirement at that particular time to invoke the provisions of section 153C of the act was to see whether those documents belong to the assessee or not. The seized annexure A - 1 page number 41, 75, 81 and 69 are the releva....
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....long to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under Section 153C of the Act had been satisfied. 21. Likewise, the Delhi High Court also decided the case on altogether different facts which will have no bearing once the matter is examined in the aforesaid hue on the facts of this case. The Bombay High Court has rightly distinguished the said judgment as not applicable giving the following reasons: "8. Reliance on the judgment of the Division Bench of the High Court of Delhi reported in case of SSP Aviation Ltd. v. Deputy Commissioner of Income Tax [2012] 346 ITR 177 is misplaced. There, search was carried out in the case of "P" group of companies. It was found that the assessee before the Hon'ble Delhi High Court had acquired certain development rights f....
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....such kinds of documents were found in the present case. 21. Further, in the case of the honourable Delhi High Court which is also been considered by the honourable Supreme Court in the peculiar facts of that particular case. It was not shown to us that the facts of the present case are also similar to that decision. In any way the satisfaction note, does not give any basis of reasons for holding that the documents belong to the assesses. 22. Honorable Delhi High court in PCIT V Index Securities Limited [2017] 86 taxmann.com 84 (Delhi) has held as under :- "Analysis and reasons 27. The recent decision of the Supreme Court in Sinhgad Technical Education Society (supra) is a complete answer to both points urged by the Revenue. The said decision, therefore, requires to be discussed in some detail. 28.1 The Supreme Court noted that the Assessee had raised a challenge to the validity of the assumption of jurisdiction by the AO under Section 153C of the Act for the first time before the ITAT. It was urged on behalf of the Revenue that the ITAT erred in allowing the said challenge by the Assessee by way of additional grounds. A reference was made by the Revenue to the decision....
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.... argued by the Respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy." 28.3 From a reading of the above two paragraphs, it is plain that the Supreme Court (i) agreed with the ITAT that the documents seized had to relate to the AYs whose assessments were reopened and that this was an essential jurisdictional fact and (ii) upheld the decision of the ITAT to permit the additional ground to be raised before it for the first time. 28.4 The Supreme Court also agreed with the decision of the Gujarat High Court in Kamleshbhai Dharamshibhai Patel (supra) to the extent it 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 belong to a person other than the person referred to in Section 153A of the Act." The Supreme Court observed: "This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well." 28.5 The above categorical pronouncement o....
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....53 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment. 32. In the present case, the two seized documents referred to in the Satisfaction Note in the case of each Assessee are the trial balance and balance sheet for a period of five months in 2010. In the first place, they do not relate to the AYs for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the AY to which they related, i.e. AY 2011-12, the AO finalised the assessment at the returned income qua each Assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees 33. This Court does not consider it necessary to examine the merits of the cas....