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In a recent judgment, Delhi High Court has upheld that that even the assessing officer of the person searched and the assessee who is sought to be assessed is the same, recording of satisfaction is sine qua non for commencing any proceedings under Section 153C of the Act. The Court again reiterated that the expression ‘belongs to’ must not be confused with the expression ‘relates to’.

Case Details:
ITA-422, 524, 381, 389, 410, 419, 653, 720 735, 793 of 2015 ; AY : 2003-04, 2004-05, 2005-06, 2008-09 and 2009-10.
Pr. Commissioner of Income Tax  (Appellant) vs, Nikki Drugs & Chemicals Pvt. Ltd (Respondent)
Date of Order : 03-12-2015
Coram: Justice S. Muralidhar and Justice Vibhu Bakhru

Facts of the Case(s):
A search and seizure u/s 132 was conducted on 14 th October, 2008 in respect of “SVP Group of companies. It was alleged that SVP group had received share capital from 106 companies during the AYs 2003-04 to 2009-10. According to the Revenue, usually this on-money was taken in cash and was routed back into the Group companies in the form of share application/unsecured loans, share capital, etc. These funds were further invested by the SVP Group of companies to purchase lands for new projects as well as for booking bogus expenses. The assessee in question is one of the 106 companies that were not subjected to search but was assessed under Section 153C of the Act. 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 Assessing Officer observed that the appellant claimed to have engaged in sale and purchase of unquoted shares but details with regard to the sources of investment in shares alongwith the names and addresses of the investors were called for but the same were not complied with. The AO further recorded that even in instances where details were filed, the same were incomplete and without the addresses of the investors. The AO also adverted to certain facts relating to other companies and held that the Assessee Company was only involved in receipts of share application money and other funds and transmitting the same to other un-quoted companies as investment in their share capital. He observed 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.

Thought CIT(A) rejected but ITAT upheld the Assessee’s contention that the documents found during the search and seizure operation conducted with respect to the SVP Group did not belong to the Assessee and, therefore, the assumption of jurisdiction under 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.

Excerpts from the Judgment:

..... the first step for initiation of proceedings under Section 153C of the Act is for the assessing officer of the searched person to be satisfied that the assets or documents seized do not belong to the searched person but to the assessee sought to be assessed under Section 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 received have a bearing on the determination of the total income of the Assessee and if he is so satisfied that the same have a bearing on the determination of the income of the assessee, he has to issue notice and assess or reassess the income of the assessee in accordance with the provisions of Section 153A.

It was contended by the Revenue before the ITAT that the assessing officer of the searched i.e. SVP Group 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 assessee who is sought to be assessed under Section 153C is the same, the assessing officer is required to record his satisfaction that the assets/ documents seized belong to a person (the assessee) other than the searched person. In CIT v. Mechmen 11-C: (2015) 60 taxmann.com 484 (M.P.) a Division Bench of the Madhya Pradesh High Court had expressed the above view.....

This Court has also expressed a similar view in Commissioner of Income Tax-7 v. RRJ Securities Ltd.: (2015) 62 taxmann.com 391 (Delhi). Thus, the controversy whether it is necessary for the assessing officer of the searched person to record his satisfaction that the assets/documents seized belong to the assessee other than the searched person is no longer res integra. It is settled that recording of such satisfaction is sine qua non for commencing any proceedings under Section 153C of the Act. Thus, the decision of the ITAT in this regard cannot be faulted.

The next controversy relates to the question whether the documents seized during the search conducted under section 132 of the Act on SVP Group of companies belonged to the Assessee ..

The Assessee disputed that 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 Assessee, these documents could not be stated to belong to the Assessee as they had been handed over to SVP Builders India Ltd. and now formed a part of their records and not that of the Assessee’s.

The ITAT considered the above contentions and following the decision of this Court in Pepsico India Holdings Pvt. Ltd. v. Assistant Commissioner of Income Tax: (2015) 370 ITR 295 (Delhi) held that the documents in question could not be said to belonging to the Assessee. In Pepsico India Holdings Pvt. Ltd. (supra), 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 would belong to the purchaser of the property and could not be considered to be belonging to the vendor only because the vendor’s name was mentioned in the documents.

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 section 153C of the Act, in respect of the Assessee would be without jurisdiction.

Download Full Judgment Click Here >>

Related Update:
Common addresses of Share Applicants no reason for addition Click Here >>

Satisfaction Recording u/s 153C must even if AO of Person Searched and assessee are same. Term ‘Belongs to’ is different from the expression ‘relates to’ Delhi HC | 06-12-2015 |

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