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2015 (12) TMI 304 - DELHI HIGH COURT

2015 (12) TMI 304 - DELHI HIGH COURT - [2016] 386 ITR 680 - Validity for assessment u/s 153A - Notice u/s 153C - Held that:- The documents in question could not be said to belonging to the Assessee. In Pepsico India Holdings Pvt. Ltd. (2014 (8) TMI 898 - DELHI HIGH COURT), this Court has explained that the expression ‘belongs to’ must not be confused with the expression ‘relates to’. As an illustration, this Court has referred to a registered sale deed which, although, registered by the vendor w .....

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a certified copy of the Assessee’s resolution signed by its Directors, would also belong to the SVP Builders India Ltd. even though the minutes of the Board meeting form a part of the record of the Assessee. We find no infirmity with the view taken by the ITAT in this regard. Thus, notwithstanding the controversy whether the assessing officer of the searched persons had recorded his satisfaction that the specified seized documents belonged to the Assessee, the initiation of proceedings under sec .....

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JUDGMENT Vibhu Bakhru, J. 1. The Revenue has filed these appeals under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) impugning a common order dated 29th October, 2014 passed by the Income Tax Appellate Tribunal (hereafter the ITAT ) in a batch of two hundred and eighty-four appeals including ten appeals pertaining to the Assessee in respect of five Assessment Years ( AY ) being 2003-04, 2004-05, 2005-06, 2008-09 and 2009-10. The aforesaid ten appeals included five appeals prefer .....

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s and circumstances of the case, ITAT could have held that there was no valid search since the impugned additions have been made under section 153C/143(3) of the Act without reference to any material found as a result of search? (ii) Whether in the facts and circumstances of the case, ITAT could have held that additions made in non-abated assessments, are invalid? (iii) Whether on the facts and circumstances of the case, findings of the ITAT are perverse? 3. Since the issues involved and the que .....

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gaged in the business of construction of residential, commercial and business complexes as well as in sale and purchase of land. It was found that the aforesaid four companies had received share capital from 106 companies during the AYs 2003-04 to 2009-10. It is the case of the Revenue that the aforesaid four companies forming core of the SVP Group, had been charging on-money on sale of flats and shops which was not accounted for in the regular books of accounts. According to the Revenue, usuall .....

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wenty other companies. 6. The assessing officer categorized the 106 companies, which had invested in the share capital of the aforesaid four companies of the SVP Group during the AYs 2003-04 to 2009-10 into 3 groups tabulated in Table-I, II and III. Table-I shareholders consisted of 20 companies which had been subjected to search and seizure operations under Section 132 of the Act; Table-II shareholders comprised of 12 companies against whom proceedings were initiated under Section 153C of the A .....

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r, on 15th September, 2010, notices under Section 153A of the Act were issued by the ACIT, Meerut for the AYs 2003-04, 2004-05, 2005-06 and 2008-09. Further, on the said date, notice under Section 142(1) of the Act was also issued for AY 2009-10. On 23rd September, 2010, another notice under Section 153C of the Act was issued by the ACIT, Meerut. On 8th November, 2010, yet another notice under Section 153C of the Act alongwith a notice under Section 142(1) of the Act was issued by the Assistant .....

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y complied with. However, this is disputed by the Assessee and the paper book filed by the Assessee in these proceedings indicates that the notices were responded to. On 31st December, 2010, the AO passed assessment orders in respect of each of the AYs in question assessing the amounts credited in the books of the Assessee as income under Section 68 of the Act. The AO observed in the assessment orders that the details with regard to the sources of investment in unquoted shares alongwith the name .....

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served that the Assessee had not invested in any listed company for earning any income. According to the AO, the Assessee did not carry on any genuine business activity but was involved only in money laundering. 9. The Assessee, being aggrieved by the assessment orders, preferred appeals before the CIT(A), inter alia, challenging the assumption of jurisdiction under Section 153C of the Act. The Assessee alleged that the initial notice claimed to have been issued on 14th May, 2010 had not been is .....

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ct as it was contended that the assessing officer of the searched person had not recorded his satisfaction that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents, seized or requisitioned belonged to the Assessee. It was contended that in the absence of such satisfaction, the AO could not have assumed jurisdiction to commence proceedings under Section 153C of the Act. The Assessee further contended that the amounts received by it were duly recorded .....

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) of the Income Tax Act, 1961 on 14-10-08 and various documents, books of account, other valuable articles and other things were found and seized from various premises. On verification of various documents and books of accounts found and seized from some documents including following documents belong- to M/s SVP Builders India Ltd. 17, Kiran Enclave, G.T. Road, Ghaziabad, I am satisfied that some documents including following documents belongs to Ms Nikki Drugs & Chemicals P. Ltd., L-119, Sh .....

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Ltd. 3. Annexure A-15 (Pages 8-14 & 151-155) which are share certificates of M/s SVP Builders India Ltd. In the name of M/s Nikki Drugs & Chemicals P. Ltd. 4. Annexure A-35 (pages 1-10) which are share certificates of M/s SVP Builders India Ltd. In the name of M/s Nikki Drugs & Chemicals P. Ltd. 5. Annexure A-52 (pages 272-276) which are share certificates of M/s SVP Builders India Ltd. In the name of M/s Nikki Drugs & Chemicals P. Ltd. Therefore, in view of the provision of sect .....

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. It was submitted that although some of the documents emanated from the Assessee, the same were forwarded to SVP Builders India Ltd. in connection with the investment made by the Assessee in the share capital of that company. Therefore, the said documents no longer belonged to the Assessee. Insofar as the share certificates are concerned, it was contended that some of the documents alleged to be share certificates were not share certificates but counter foils of the share certificates issued by .....

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flect any physical assets and the Assessee was not engaged in any actual business activity. The shares sold and purchased by the Assessee were not saleable in the open market and were not tradable commodities. It is further observed that the profit or loss shown from the activity of sale and purchase of shares by private limited companies was a fake attempt to give semblance of genuineness of a functional company . The CIT(A) further held that the Assessee was carrying on business only on paper .....

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based on the aforesaid conclusion, directed deletion of the addition made by the AO alongwith a direction to add the same in the hands of the beneficiaries. In addition to the above, the CIT(A) gave further directions, inter alia, for proceeding under Section 269SS of the Act and to impose penalty under Section 271D of the Act on account of sums received by the Assessee in cash from various persons. 13. The Assessee as well as the Revenue preferred appeals against the orders passed by the CIT(A) .....

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Section 153C of the Act was unsustainable. The ITAT also held that a satisfaction note had not been recorded by the assessing officer of the searched person and, therefore, initiation of proceedings under Section 153C of the Act were invalid. Insofar as the addition under Section 68 of the Act is concerned, the ITAT held that the sources of money received by the Assessee were duly explained, and therefore, deleted the additions made under Section 68 of the Act. Accordingly, the ITAT allowed the .....

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on 153C of the Act; although the assessment orders reflect that the assessments were framed under Section 143(3)/153A(b) of the Act, the orders passed by the CIT(A) indicates the same to be a typographical error. Section 153C of the Act provides for assessment/reassessment in cases where assets/documents have been found during the search and seizure operations and the same do not belong to the searched person(s). Section 153C of the Act reads as under: 153C. (1) Notwithstanding anything containe .....

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or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the re .....

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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. ( .....

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on and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction ov .....

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153C of the Act. Once the assessing officer of the searched person is so satisfied, he is required to transfer the assets or documents, which he believes belongs to the assessee, to the assessing officer having jurisdiction over that assessee. The assessing officer of the assessee on receipt of such asset or document seized would have jurisdiction to commence proceedings under Section 153C of the Act. The assessing officer has, thereafter, to apply his mind as to whether the assets and documents .....

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r falling within the specified six AYs. It is further specified that the provisions of the Act shall, so far as may be, applied as if such returns were returns required to be furnished under Section 139 of the Act. Thus, the assessing officer has to, thereafter, proceed with the assessment/reassessment in accordance with the provisions of the Act; that is, accept the return with or without such adjustments as permissible under Section 143(1) of the Act or if the claims made by the assessee are c .....

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was not required to record such satisfaction as both the Assessee and the SVP Group were being assessed by the same officer. This contention was rejected by the ITAT by following the decision of this Court in Pepsi Foods Pvt. Ltd v. Asstt Commissioner of Income Tax : (2014) 367 ITR 112 (Del). The Allahabad High Court in the case of Commissioner of Income Tax v. Gopi Apartments: (2014) 365 ITR 411 (All.) has also held that even in cases where the assessing officer of the person searched and the .....

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g satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending noticee to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the .....

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lso cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impai .....

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ssessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him. 18. This Court has also expressed a sim .....

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is regard cannot be faulted. It was sought to be contended before us that the assessing officer of the searched persons had, in fact, recorded the necessary satisfaction note. However, the learned counsel for the Revenue could not confirm whether such note was prepared prior to the initiation of the proceedings under section 153C of the Act. The Assessee s contention that despite its request such note had not been disclosed during the assessment proceedings has also not been controverted. In the .....

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hat the said documents could be stated to be belonging to the Assessee. Insofar as the resolutions, affidavits, counter foils of the income tax returns, copies of the incorporation certificate, Memorandum of Association, resolutions, affidavits, and share application forms are concerned, the Assessee explained that these documents were handed over to the SVP Builders India Ltd. in connection with the investment made by the Assessee. Although these documents pertains to and emanate from the Asses .....

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Builders India Ltd. As far as the share certificates of the SVP Builders India Ltd. is concerned, it was submitted that the same pertains to the shares that had already been sold and the endorsement made on the rear of the share certificates clearly indicated that the Assessee was no longer the holder of the said shares and the same stood registered in the name of one Satpal on 26th March, 2004. 21. The ITAT considered the above contentions and following the decision of this Court in Pepsico Ind .....

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