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TMI Blog2017 (5) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of jurisdiction under Section 153C qua Ganpati. The view taken by the CIT in the impugned order does not call for interference. The remand to the AO for giving Ganpati a further opportunity regarding the nature of the documents and the validity of the additions made as a result thereof also calls for no interference. The writ petitions by Ganpati fail and are hereby dismissed. Orders in the cases of Shushre and Shrey - The Court notes that in the impugned orders dismissing the revision petitions of Shushre and Shrey, the CIT has noted that despite several opportunities being granted to the ARs of the Assessees, they did not appear and no submissions on merits of the case were made by the two Assessees during present proceedings. In the circumstances, no fault can be found with the CIT for declining to interfere on merits with the additions made by the AO. Even otherwise, in these writ proceedings, it is difficult for the Court to examine the documents seized and determine if in fact they could be said to be incriminating qua each of the said Assessees. There could be instances where the very nature of the document for e.g., a balance sheet or P L account of the Assessee, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized from the premises of Aseem Kumar Gupta, Raj Kumar Chawla and Anju Chawla. 4. The case of Ganpati was with the Assessing Officer (AO) of Ward 12(1). On 25th November 2010 jurisdiction was transferred to the AO of Central Circle (CC)-16 who first issued a notice to Ganpati under Section 153C of the Act on 9th December 2010. The notice was received by Ganpati on 27th December 2010. At this stage no satisfaction note had been prepared. 5. On 21st January 2011, Ganpati requested that the return originally filed for AYs 2004-05 to 2009-10 under Section 139(1) be treated as the return filed pursuant to the notice under Section 153C for the said AYs. The Satisfaction Note 6. On 23rd June 2011, the jurisdiction in respect of Ganpati was again transferred from CC-16 to CC-9 under the orders of the CIT (C)-II. Thereafter on 14th October 2011, the following satisfaction note in the case of Ganpati was recorded by the AO: "Satisfaction recorded u/s 153 C in the case of M/s. Ganpati Fincap Services Pvt. Ltd. A search & seizure operation u/s 132 of the Act was conducted on 26.03.2010 at various premises of Aseem Kumar Gupta, his associates & other beneficiaries. During the search & sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why the corporate veil should not be pierced. Ganpati was asked to show cause as to why the expenses debited (barring statutory and obligatory expenses) should not be disallowed since it had failed to provide justification to establish the business purposes of the expenses debited in the P&L Account and also did not give any evidence to establish these expenses. 9. With Ganpati not filing any reply, the AO proceeded to add the unexplained expenses to its income. The AO held that Ganpati was just a conduit used by Aseem Kumar Gupta for providing accommodation entries which does not require elaborate infrastructure and such amounts of expenditure to be incurred. Since Ganpati has failed to furnish the necessary evidence in support of its claim of expenditure, addition of the equivalent amount was directed to be made to its taxable income. Thereafter, in response to a request made by Ganpati on 16th January, 2012 for inspection of the assessment records, the AO provided Ganpati a copy of the satisfaction note. Revision petition under Section 264 10. Aggrieved by the above assessment orders, Ganpati preferred separate revision applications under Section 264 of the Act before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no mandatory requirement of recording of satisfaction by the AO while initiating proceedings under Section 153C of the Act and "specifically when the AO of the person searched and the person against whom proceedings under Section 153C were initiated are one and the same." (iii) Since in the present case the AO recorded his satisfaction regarding the documents seized before initiating the proceedings under Section 153C of the Act there was no infirmity. 12. As regards the other grounds, the CIT held that the AO had violated the principles of natural justice by finalising the assessment before the expiry of time limit for compliance given in the final SCN. Accordingly, the matter was restored to the AO by setting aside the assessment orders for AYs 200405 to 2009-10. The AO was asked to dispose of the matters in accordance with law after making inquiries, investigation and verification, as well as affording an opportunity to Ganpati which was also directed to comply with the notices issued by the AO and furnish all details/documents/information in support of the claims made. 13. This Court has heard the submissions of Mr. Sanjeev Sabharwal, learned Senior counsel appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the Revenue submitted that there was no requirement under Section 153C for there to be a satisfaction note for the searched person. The satisfaction note in respect of the searched person was at the stage of Section 132 of the Act. After that once the search concluded, notice to the searched person under Section 153A of the Act was issued as a matter of course. It is only for the 'other' person; that Section 153C mandates a satisfaction note. One by the AO of the searched person and the other by the AO of the 'other' person. Both would be to the effect that the documents in question that were seized during the search belong to the other person. Even where the AO for the searched person and the other person was the same the AO of the searched person had to perforce record the satisfaction note. 18. Mr. Chaudhary sought to distinguish the decisions of this Court in Principal Commissioner of Income Tax v. Nikki Drugs & Chemicals P. Ltd (supra) and the other decision cited by Mr. Sabharwal. He referred to the CBDT Circular No. 24 of 2015 dated 31st December, 2015 which clarified the legal position. There was therefore no room for ambiguity. He pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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." 20. It must be noted that Section 153C has undergone a change with effect from 1st June 2015. That change is prospective. But in the present cases, with the search having taken place on 26th March 2010 it is Section 153C as it stood prior to 1st June 2015 which would apply. 21. In order to understand how the provision works a simple illustration may be taken up. Imagine that the searched person is 'A'. The search authorisation is issued under Section 132(1) of the Act in A's name after the authorised officer records a satisfaction note in the file of A that he has reason to believe that A is in possession of money, bullion, jewellery or other valuable thing which he has not disclosed in the returns of income filed by him and which, without a search, is not likely to be disclosed or unearthed. 22. Thereafter a search takes place in not only the premises of 'A' but any premises where the undisclosed income is believed to have been kept and 10 documents are seized. It is found that of the 10 documents se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement. 27. What the settled legal position as explained in several cases, which will be discussed shortly, is that the recording by the AO of the searched person that some documents seized during the search 'belong to' the other person is mandatory in order to assume jurisdiction qua the other person under Section 153C of the Act. This is mandatory even where the AO of the searched person and the other person is the same. This is also what the CBDT Circular now clarifies. In a particular case, given the nature of the document, it may become necessary for the AO to indicate the basis of his satisfaction that the document belongs only to B and not to A. But then that is dictated by the nature of the document. What he has to be sure about, and the note should reflect this, is that it does belong to B. Once the note says that then the requirement of Section 153C is fulfilled. 28. Therefore, the Court does not agree with Mr Sabharwal that there have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person. In such event, the AO need make only one satisfaction note. That satisfaction note is qua the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the decision in Pepsico Holdings(supra) a Court had invalidated the proceedings under Section 153C only because the satisfaction note recorded by the AO to the effect that the documents seized belonged to the other person 'B' did not also state that the document does not belong to the searched person 'A'. The Court now proceeds to discuss the decisions cited by him. The decision in Nikki Drugs 33.1 The facts in Principal Commissioner of Income Tax v. Nikki Drugs & Chemicals P. Ltd (supra) were that search and seizure operation under Section 132 of the Act were commenced on 14th October, 2008 in respect of the SVP Group of Industries. In addition to the four companies forming the core of the SVP Group, warrants of search and seizure were also issued in respect of 20 other companies. It was found that the four companies forming core of the SVP Group had received share capital from 106 companies during the year 2003-04 to 2009-12. The case of the Revenue was that the aforementioned four companies have been charging 'on money' on sale of accounts. 33.2 The AO categorised the 106 companies which had invested in the share capital of the SVP Group during the AYs 2003-04 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been recorded by the assessing officer of the searched person." 18......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 circumstances, the categorical finding of the ITAT that it was an admitted fact that the assessing officer of the searched persons had not recorded a satisfaction note, cannot be interfered with." 33.6 Therefore, what weighed with this Court was that the AO of the searched person had not recorded a satisfaction note prior to the assumption of jurisdiction qua the other person. This therefore turned on facts. The CBDT Circular 34. The CBDT within a few days after the above decision in Principal Commissioner of Income Tax v. Nikki Drugs & Chemicals P. Ltd (supra) issued Circular No. 24 of 2015 on 31st December 2015, the relevant portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The resultant effect would be that, the requirements of recording of satisfaction note for exercise of power under Section 153C is a mandatory requirement and cannot be given a go-bye, either at the stage of initiation or during the course of assessment or at the conclusion of the assessment." 35.2 The matter was sent back to the ITAT for examining "whether there was compliance of the requirement of satisfaction recording before final conclusion was drawn and as to whether the assessment made under Section 153C is in accordance with the provisions of the Act or bad in law or liable to be quashed or not." 36. The Madhya Pradesh High Court in CIT v. Mechmen 11-C (supra) reiterated that the recording of satisfaction by the AO of the searched person that the documents belong to the other person is a sine qua non for commencing the proceedings against the other person under Section 153C of the Act. This is more or less what the CBDT Circular now acknowledges. There is no requirement in terms thereof for the AO of the searched person, while recording that the documents belong to the other person, to also record that they do not belong to the searched person. 37. In Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched person. (ii) Where proceedings are proposed to be initiated under Section 153C of the Act against the 'other person', it has to be preceded by a satisfaction note by the AO of the searched person. He will record in this satisfaction note that the seized document belongs to the other person. Depending on the nature and contents of the document he may be required to give some reasons for such conclusion. (iii) Where the AO of the searched person is different from the AO of the other person, the AO will simultaneous with transmitting the documents along with his satisfaction note to the AO of the other person, make a note in the file of the searched person that he has done so. But this is for administrative convenience. The failure by the AO of the searched person, after preparing and despatching the satisfaction note and documents to the AO of the other person, to make a noting to that effect in the file of the searched person will not vitiate the proceedings under Section 153C against the other person. (iv) Where the AO of the searched person and the other person is the same, such a satisfaction note qua the other person has to be recorded by the AO of the searched p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C-9 on 8th November 2011 as under: "Satisfaction recorded u/s 153C in the case of M/s. Shushre Securities Pvt. Ltd. A search & seizure operation u/s 132 of the Act was conducted on 26.03.2010 at various premises of Aseem Kumar Gupta, his associates & Other Beneficiaries. During the search & seizure operations various documents, books of account, hard disks etc. were seized. On perusal of the seized documents, it was noticed that some of these documents belong to the assessee which inter alia include the following: Page no 17 of Annexure A2 seized by party RG 9 is a letter from Parsvnath Developers Ltd. in respect of payments outstanding related to Unit No B1-1205 A in Parsvnath Palacia Greater NOIDA An un-numbered page, of Annexure A2 seized by party RG 9, annexed between page 16 and page 17 is the copy of account of ledger of the assessee in the books of Parsvnath Developers Ltd. Pages 48 and 49 of Annexure A-17 seized by party SG-6, are the financial statements of the assessee company as on 31-03-2005. In view of the above, and considering the fact that documents and books of accounts seized during the search belong to the assessee, I am satisfied that the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to contend that in the cases of both Shushre and Shrey the documents said to belong to each of them were not incriminating so as to warrant any additions during the reassessment. According to him, documents like financial statements can hardly be said to be incriminating. He took the Court through some of the documents. 48. The Court notes that in the impugned orders dismissing the revision petitions of Shushre and Shrey, the CIT has noted that despite several opportunities being granted to the ARs of the Assessees, they did not appear and "no submissions on merits of the case" were made by the two Assessees during present proceedings. In the circumstances, no fault can be found with the CIT for declining to interfere on merits with the additions made by the AO. 49. Even otherwise, in these writ proceedings, it is difficult for the Court to examine the documents seized and determine if in fact they could be said to be incriminating qua each of the said Assessees. There could be instances where the very nature of the document for e.g., a balance sheet or P&L account of the Assessee, which already stood disclosed during the original assessment proceedings, can be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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