TMI Blog2018 (12) TMI 1680X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate limited was acquired by another company Serta India private limited during financial year 2009 10. The AO noted that on the basis of search operation various incriminating documents were found and seized from the premises of Sheila foams private limited which established that for acquiring shares by Rahul Gautam group from the Pradyman Patel Group substantial consideration was paid in cash outside the books of accounts. Ld. AO noted that the total sale consideration of the shares of INR 88.90 crores was decided and out of which INR 52.7,8 crores was paid through cheques and the balance amount of INR 36.10 crores were paid in cash to the sellers of the shares. The learned AO referred to page number 41 85 of Annexure A-1, page number 20, 21 of annexure A 7, page number 12 of annexure A 5, page number 21 of annexure A 8 and noted that Shri Rahul Gautam , Managing director of Sheila Foams Private limited has paid huge amount of cash as indicated on the seized documents to Shri Patel group for purchase of shares. He noted that page number 41 of annexure A 1 is seized from the office premises of Sheila foam private limited is an excel sheet exhibiting detailed working i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly belongs to the assessee. He further held that the seized documents also bear the signature of the assessee. Therefore, on the basis of the above, The learned AO made an addition of INR 29230665/- as undisclosed capital gain on sale of shares received in cash to the total returned income of the assessee of ₹ 29457200/ and determining the total income of the assessee of INR 5 8687865/ . Such order was passed under section 153C of the act on 28/3/2014. Similar Order with varying amounts of additions were also passed in the hands of the other assesses. 4. The assessee aggrieved with the order of the learned assessing officer challenged the order before the learned Commissioner of Income Tax (Appeals) on the ground that as none of the documents found and seized in search on Sheila foams private limited 'belong to the assessee within the meaning of section 153C (1), hence the proceedings initiated under section 153C are illegal and without jurisdiction. The assessee also challenged the addition on the merits of the case. The assessee explained the seized documents found from the Sheila foams private limited and stated that they do not 'belong to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehemently supported the order of the learned assessing officer and assailed the order of the learned Commissioner of Income Tax Appeals stating that the learned Assessing Officer has correctly assumed jurisdiction under section 153C of the income tax act. She stated that satisfaction note of PepsiCo and satisfaction note in the case of the assessee are not the same. She further stated that the detailed reasons and statement given on the documents clearly shows that the documents belonging to the assessee. She further stated that the CIT A, has held that merely because the basis of reasons is not given by the learned assessing officer, initiation of the proceedings is bad in law, is not the proposition requirement of the law. She vehemently stated that in the documents the names are mentioned of the assessee and therefore if the documents are speaking louder than the reasons, the learned Commissioner of income tax appeals should have considered those documents. She further stated that Pepsi Co was merely a writ and no question of law was framed in that particular case, therefore, the findings given in that case do not apply to the facts before the coordinate bench. Even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assumption of jurisdiction under section 153C in respect of assessee. Where proceeding under section 153C was initiated against assessee on basis of seized documents which could not be said to be non-incriminating on bare perusal and despite of being given several opportunities no submission on merits of case was made by assessee, assessment order passed under said section to make additions was justified. 4. PCIT Vs Super Malls Pvt Ltd T20161 76 taxmann.com 267 (Delhi) / T20171 393 ITR 557 (Delhi)/f20171 291 CTR 142 (Delhi) where Hon ble Delhi High Court held that where Assessing Officer had issued satisfaction note under section 153C after satisfying himself with contents of documents seized, Tribunal could not declare it as invalid on hyper technical ground of incorrect terminologyTised in said note. Satisfaction note recorded u/s 153C in respective the assessee, being the third party, could not be said to be invalid on a hyper technical ground by interpreting the expression belonging to too literally. 5. PCIT Vs M/s Nau Nidh Overseas Pvt Ltd. (ITA No.58/2017) where Hon ble Delhi High Court held that satisfaction recorded by the Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 153A against assessee to find out source of income. B. Common submissions filed by the appellant during the course of 153C proceedings before AO - Annexure B page 1 to 2. C. Reply of AO dated 07.02.2014 to the appellant Smt. Urmila Patel, Rohan Patel, Krish Patel, Pradyuman Patel regarded satisfaction recorded - Annexure C page 1 to 5. D. Satisfaction note in the case of Sheela Foam Pvt. Ltd Annexure-D (Page 1-5) 7. The learned authorised representative submitted brief synopsis of his arguments as under:- ASSTT. U/S.153C CORRECTLY HELD BY CIT (A) AS WITHOUT JURISDICTION ONE - Satisfaction note of A.O. of searched person is silent on reasons and basis for that seized documents belongs to third party o Search u/s. 132 on Sheela Foam (P) Ltd. on 28.11.11 (A.Y.2012-13) o Proceedings U/S.153C in the assessees case on the basis of satisfaction note dtd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the kind required under Section 153C of the said Act. ' PR. CIT VS. N.S.SOFTWARE 403 ITR 259 (DEL.) Para - 24 - In the present case, therefore, the failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the notice issued under it, vitiates the assessments Pepsico India Holdings (P.) Ltd. Vs. ACIT 370 ITR 295 (DEL.) (9 - 16/RP 15) Para - 13. Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could he said to have arrived at a satisfaction that the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, 1961 - Search and seizure - Assessment of I any other person (Condition precedent - Position prior to 1-6-2015) - Assessment I years 2007-08, 2008-09 and 2010-11 - Whether essential jurisdictional requirement for assumption of jurisdiction under section 153C (prior to its amendment with effect from 1-6-2015) qua 'other person is that seized documents forming basis of satisfaction note must not merely 'pertain to other person but must belong to 'other person - Held, yes - Whether in order . to justify assumption of jurisdiction under section 153C, documents seized must be incriminating and must relate to each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating 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 ₹ 17,09,01,955/- by assessee with details of payments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated CASE LAWS CIT Vs. IBC Knowledge Park (P) Ltd. 385 ITR 346 (Kar.) We answer the substantial question of law no.2 by holding that the tribunal was not correct in holding that the assessment under section 153C was valid despite there being no satisfaction recorded to the effect that the document found during the search on 17 June 2008 were incriminating in nature and prima facie represented undisclosed income‖ (RP 378, Para-56) Lucky Fashion Pt Ltd. Vs. ITO (Delhi ITAT order dtd. 18.07.18, 1TA No. 807/Del/2017 Held that - In the absence of a finding in the satisfaction note for the documents found and seized are of incriminating nature, no legally valid proceedings U/s. 153C can be initiated. 8. The learned authorised representative also submitted a paper book containing 36 pages covering the satisfaction note recorded in case of a searched person and the letter dated 6/1/2014 of the learned assessing officer stating that the documents belonging 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s belonging to see but the Urmila Devi Chandulal Patel i. annexure A 1, P 41, photocopies of the papers relating to the settlement statement for the transfer of shares from the Pradyuman Patel group to Rahul Gotham group P 75 and 81 photocopies of papers relating to the settlement statement for the transfer of shares from UrmilaDevi Patel to the Rahul Gotham group P 69, contains details of sale of shares of 1052400 of M/s Sheela form private limited for a consideration of INR 170901955/ by Urmila baby with the details of payments ii. annexure A 2, page 21, contains receipt dated 20/12/2009 of INR 50064810/ issued to Sri Rahul Gautam by Mrs. UrmilaDevi Patel for sale of 1052400 shares of M/s Shela form private limited the learned AO further noted that in view of the above, he is satisfied that the documents seized belongs to a person other than person search under section 132 of the income tax act, 1961. Hence, the proceedings under section 153C of the income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of satisfaction . 13. Honourable Delhi high court in Pepsico India Holdings (P.) Ltd. v. Asstt. CIT [2014] 50 taxmann.com 299/[2015] 228 Taxman 116 (Mag.)/270 CTR 467 (Delhi) has also held that The expression 'belongs to' with the expressions 'relates to' or 'refers to'. A registered sale deed, for example, 'belongs to' the purchaser of the property, although it obviously 'relates to' or 'refers to' the vendor. In this example if the purchaser's premises are searched and the registered sale deed is seized, it cannot be said that it 'belongs to' the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy 'belongs to' the purchaser 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the paper book. It is noted that the satisfaction note recorded by the AO is almost similar to the satisfaction note recorded in the case of Pepsi Foods Pvt. Ltd. as reproduced in the order of Hon. High Court of Delhi in the case of Pepsi Foods Pvt. Ltd. vs. ACIT (W.P.) (C) 415/414 and CM823/2014 at page 12 to 14 of the said order. The AO has not given any basis/reason for his satisfaction that the seized documents belonged to the appellant. As recorded in the case of Pepsi Foods Pvt. Ltd.(supra), he has straightway mentioned that material seized from M/s Sheela Foam Pvt. Ltd. contained certain documents belonging to the appellants and that he was satisfied that the documents seized belonged to a person other than the person searched and hence proceedings u/s. 153C were being initiated the case of the appellants. Satisfaction note as recorded in the case of M/s Pepsi Foods Pvt. Ltd. as recorded in the said decision of Hon. High Court of Delhi and the satisfaction note as recorded by the AO in the case of the present appeals are reproduced below for ready reference:- M/s Pepsi Foods Pvt. AY 2006-07 to 11-12 02.08.2013 Satisfaction Note for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These pages contain a details of status of PFL claims. C-4/A-5/54 This page contains details of concentrate stock summary as on 31.12.2010. C-4/A-5/99 This page contains a summary of PFL claims as on 8/9/2011. Claims upto 31 / 8/2011. C-4/A-5/100 This page contains a detail of PF Support year 2011 Accordingly, section 153C of the I.T. Act, 19 is applicable to M/s Pepsi Foods Pvt. Ltd. which state that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong or belongs to a person other than the person referred to in section 153A, then the books of account, or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess income of such other pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry ownership of sale of shares. Page 30 contains receipt dated 31/10/2009 for ₹ 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 section 132 of the IT Act, 1961. Hence, the proceedings u/s 153C of the IT Act, 1961 is initiated in the case of Sh. Pradhuman Patel. 4.10.4 From the above satisfaction notes it is observed that as in the case of M/s Pepsi Foods Pvt. Ltd., in the case of present appeals also, AO has not given any reason or basis for arriving at the conclusion that the seized documents belonged to the appellants. The satisfaction notes in the case of all the 6 appellants are identical except for the page Nos. of the documents forming part of the list of documents held to be belonging to the appellants. 4.10.5 It is noted that the satisfaction noted by the A.O. describes the documents which do contain names of the appellants as transferors of the shares concerned. The AO has stated in the satisfaction note that during the course of search at the premises of M/s Sheela Foam Pvt. Ltd., the above said docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bad in law. In the satisfaction, he has merely stated that documents belong to the appellant were found and seized. He has not expressed any reasons in arriving at such a conclusion. He does not say as to how he has felt that the photocopies of the sale deed etc. did not belonging to the party who was searched and that the same belonged to the appellant. The Hon ble High Court of Delhi has held that the said satisfaction should be very much emanating from the note made before issuing notice u/s 153C. The satisfaction note itself must display the reasons or basis for conclusion that the seized documents belong to a person other than the searched person. The relevant para 11 12 of the order of Hon ble High Court of Delhi in the case of Pepsi Foods Pvt Ltd vs ACIT (Supra) is reproduced below for ready reference: 11. It is evident from the above satisfaction no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relevant documents. Page 41 is an excel sheet containing transactions with respect to shale of shares of sheela foams P Limited found from that company or from the managing director of that company, Mr. Rahul Gautam. That the document belongs to that person only. Similarly, is the case of page number 75 and page number 81. Seized document at page number 69 and 21 is a receipt given by 1 of the assesses to the other party for receipt of payment by cheque of the consideration received. Naturally receipt belongs to the person who holds it as a discharge of debts and not to the issuing person of the receipt. Therefore, those documents also do not belong to the assessee but to the person in whose favour the debt is discharged. 18. It is also true that in the satisfaction note of the learned assessing officer there is no basis or reasoning prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons: 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 from P group of companies. Based thereon, the satisfaction was recorded by the Assessing Officer and he issued notice in terms of Section 153C. Thereupon the proceedings were initiated under section 153A and the assessee was directed to file returns for the six assessment years commencing from 2003-04 onwards. The assesses filed returns for those years but disclosed Nil taxable income. These returns were accepted by the Assessing Officer, however, in respect of the assessment year 2007-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, 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 of this Court in SSP Aviation Ltd. v. Dy. CIT [2012] 346 ITR 177/207 Taxman 260/20 taxmann.com 214 (Delhi) and that of the Gujarat High Court in Kamleshbhai Dharamshibhai Patel v. CIT [2013] 214 Taxman 558/31 taxmann.com 50 which according to the Revenue held to the contrary. 28.2 The Supreme Court noted that the appeals relating to four of the AYs i.e. 2000-01 to 2003-04 were covered by the notice under Section 153C of the Act. In dealing with the question as to whether the ITAT was right in permitting the Assessee to raise this additional ground for the first time before it, the Supreme Court in paras 18 and 19 observed as under: 18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Supreme Court cannot, by any stretch of imagination, be termed as obiter as has been suggested by Mr. Manchanda. Even the obiter dicta of the Supreme Court is binding on this Court. 29. The search in the case before the Supreme Court was prior to 1st June 2015. Apart from the fact the Supreme Court approved the above decision of the Gujarat High Court holding that the seized documents should 'belong' to the other person, the legal position in this regard where the search has taken place prior to 1st June 2015 has been settled by the decision of this Court in Pepsico India Holdings (P.) Ltd. (supra). In Vinita Chaurasia (supra), this Court reiterated the above legal position after discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case as far as the deletions by the CIT (A) of the additions made by the AO under Section 153C of the Act are concerned. In any event, a detailed analysis has been undertaken by the CIT (A) of the materials produced by the Assessee which justified the deletion of such additions. Even on this score, no interference is warranted with the impugned order of the CIT (A). 23. The above decision of the honourable Delhi High Court has also considered the decision of the Gujarat High Court and honourable Delhi High Court relied upon by the learned CIT DR. The above decision has reiterated the same position that unless the document belongs to the assessee is shown by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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