Section 153C not applicable in absence of satisfaction recorded in the case of person searched that document belongs to the Assessee

Brief of the Case:

In the case of Ms. Meena Rani Vs. ACIT, It was held by ITAT Delhi that If no satisfaction note has been recorded in the records of the searched persons but in the records of the assessee, assessment cannot be done U/s 153C even if documents belonging to the assessee has been found from the searched premises.

Brief Facts of the Case:

The assessee filed an appeal against the order passed U/s 153C read with section 153A of the Income Tax Act, 1961 for the Assessment Year 2007-08.

Satisfaction note for initiating proceedings U/s 153C in the case of Assessee mentions the following documents seized from the searched premises:

1. Form No.32 containing the particulars of assessee’s appointment as Additional director pursuant to Sec. 303(2) of the Companies Act, 1956.
2. Copy of Capital account of the assessee with one of the Group concern of the searched company.

Question of Law:

Whether Notice U/s 153C read with section 153A can be issued when no satisfaction note has been recorded in the records of the searched persons but was recorded in records of assessee?

Contention of the Revenue:

The revenue contended that documents seized from the searched premises belong to Mrs Meena Rani and therefore, action U/s 153C of the Income Tax Act is attracted in this case.

In addition to above, the authorities made an addition on account of gift remaining unconfirmed.

Contention of the Assessee:

The Assessee contended that no satisfaction was recorded in the case of searched persons but was recorded in the case of Assessee and the entire proceedings were illegal in view of the judgment of the Hon’ble delhi High Court in the Case of Pepsi Foods (P.) Ltd. Vs. ACIT 367 ITR 112. The Tribunal has cancelled the assessee’s own case for the AY 2006-07 in ITA No. 256/Del/2013 vide order dated 29.04.2015 on the same reasoning.

Extract of relevant part from the Delhi High Court Judgment in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax, WP (C) No.415/2014 –

“6. On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be “satisfied” that inter alia any document seized or requisitioned “belongs to” a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or re­assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is – after such satisfaction is arrived at – that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There must be some cogent material available with 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”.

Further, it was contended that the receipt of gift is not evident from any seized material found during the search on a third Party and the addition for the same is not justifiable.

Held by ITAT:

It has been contended that the satisfaction note has been recorded in the records of the assessee and not in the records of the searched persons because notice U/s 153A read with section 153C was issued after examining the documents mentioned in the satisfaction note. Therefore, this satisfaction note does not meet the requirements of the law and in view of the Judgment of Hon’ble delhi High Court in the case of Pepsi Foods (P) Ltd and the order of the Tribunal in assessee’s own case for the Assessment Year 2006-07, cited supra, we allow the additional ground and the impugned assessment order is quashed. In result, the assessee’s appeal is allowed.