2017 (7) TMI 539 - HC - Income Tax

Assessment u/s 153C - existence of satisfaction note - Held that - While the documents may pertain to the Assessee, but in the context explained above, they cannot be presumed to be documents that belonged to the searched person. Consequently, even with regard to these documents, the jurisdictional requirement under Section 153 C (1) of the Act, of the AO of the searched person having to be satisfied that the said documents do not belong to searched person but to the Assessee, has not been fulfilled. The satisfaction note prepared by the AO of the searched person does not fulfill the legal requirement spelled out in Section 153C (1) 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 fulfill 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. For all the aforementioned reasons, the two satisfaction notes dated 13th and 19th March, 2014 issued by the AOs of the searched person and the Assessee respectively, and all proceedings consequent thereto, are hereby quashed. - Decided in favour of assessee.

Summary

Issues:
Challenging satisfaction notes under Section 153C of the Income Tax Act, 1961.

Analysis:
The case involved five writ petitions filed by Canyon Financial Services Limited challenging satisfaction notes issued by the Deputy Commissioner of Income Tax and the Income Tax Officer, initiating proceedings under Section 153C of the Income Tax Act. The search and seizure operation in the case of M/s. Dalmia Group of cases led to the seizure of documents, including some related to Canyon Financial Services Ltd. The satisfaction notes recorded by the Assessing Officers were crucial in determining the initiation of proceedings against the Assessee.

The main issue revolved around the interpretation of Section 153C of the Act, specifically focusing on the requirement that the seized documents must 'belong to' the person other than the one referred to in Section 153A. The retrospective application of the provision before the amendment in June 2015 was highlighted, emphasizing the burden on the Department to establish ownership of the seized documents.

The Court analyzed the satisfaction notes recorded by the Assessing Officers, noting that they failed to fulfill the jurisdictional requirement under Section 153C(1) of the Act. The documents seized, such as application for shares, certificates, and other records, were found to pertain to the Assessee but did not conclusively belong to them based on the presumption under the Act. The Court emphasized the distinction between documents pertaining to the Assessee and those conclusively belonging to them, highlighting the need for clear justification in the satisfaction notes.

The arguments presented by both parties regarding the presumption under Section 132(4A) and Section 292C of the Act were considered, with the Court emphasizing that such presumptions did not relieve the Department of proving ownership of the seized documents in cases under Section 153C. The judgment focused on the legal requirements for initiating proceedings under Section 153C and concluded that the satisfaction notes lacked the necessary justification for proceeding against the Assessee.

Ultimately, the Court quashed the satisfaction notes issued by the Assessing Officers and all subsequent proceedings, ruling in favor of the Assessee in the writ petitions. The detailed analysis of the documents seized and the legal obligations under Section 153C formed the basis for the decision, emphasizing the importance of meeting jurisdictional requirements in such cases.