Analysis of the Judgment Delivered In The Case Of Super Malls Private Limited Vs PCIT (Supreme Court) related to explaining Law Of Recording Of Satisfaction When AO Of Searched Person And Other Person Is Same In Connection With Validity Of Notice under Section 153C Of The Income Tax Act, 1961.
A. Facts of the Case:
1. During the course of search in the case of Mr A, incriminating material claim to be belonging to Company B (herein after referred to as “Assessee”) was found. The AO of Mr A and Assessee was the same. The AO, after recording single satisfaction note, issued notices u/s 153C in the name of Assessee. In other words two separate satisfaction notes were not recorded by AO i.e one in the capacity of AO of searched person and one in the capacity of AO of Assessee.
B. Arguments of Assessee before AO :
2.1 Assessee argued that as per provision of section 153C of the Act, inspite of the same AO, two separate satisfaction notes must have been recorded i.e one in its case and one in the case of searched person.
2.2 It was further submitted that as per the provisions of Section 132(4A)(i), the presumption is that the documents belong to such person from whose possession, the documents were seized. Therefore, the AO of the searched person was also required to record satisfaction that documents did not belong to the searched person and belonged to other person. However, in the present case, no such separate satisfaction had been recorded by the AO of the searched person rebutting the presumption u/s. 132(4A)(i) of the Act. Assessee relied on the decision of the Hon’ble Delhi High Court in the case of Pepsi Foods India (P.) Ltd. v. Asstt. CIT [2014] 52 taxmann.com 220/[2015] 231 Taxman 58/367 ITR 112.
2.3 Being aggrieved by the action of AO, assessee had preferred an appeal before the Ld. CIT(A).
C. View of CIT(A):
3. Ld CIT(A), stated that as per satisfaction note, certain documents seized from the residence of Mr A belonged to the Assessee. The satisfaction note did not need further elucidation as it was self-speaking. Being aggrieved by the order of CIT(A), assessee had preferred an appeal before the Hon’ble ITAT.
D. View of ITAT:
4. ITAT observed that AO of the Assessee had recorded the satisfaction and not the AO of searched person. Further it is observed that though both the AO were same, two separate satisfaction notes, should have been recorded by the same AO in his distinct capacity i.e one as AO of searched person and other as AO of Assessee. In the instant case, the AO, in order sheet entry, had mentioned that notice under section 153C was issued after recording reasons but the AO of the searched person was not empowered to issue the notice to the person other than the searched person. Even if the AO of the assessee and the searched person was the same, satisfaction must be recorded by the AO of searched person. Therefore, notice under section 153C was not valid and, consequently, the assessment framed was bad in law. Being aggrieved by the said order, revenue had preferred an appeal before Hon’ble High Court.
E. View of Hon’ble High Court [2016] 76 taxmann.com 267 (Delhi)]:
5.1 Hon’ble High Court, held that in these circumstances, having regard to all these conspectus of facts, the AO expressed, under section 153C that the documents so seized ‘belonged’ to the assessee. The assessee’s submissions that the expression ‘belonged’, in the context in which it was used, had to be understood as imputing ‘relating to’, or any other term, cannot be accepted.
5.2 The AO was satisfied that the documents belonged to the assessee in view of what was contained or brought out on a fair reading of their contents. It must not to be overlooked that while construing a document, expressions should not be interpreted too literally as if they are, words, carved in stone or in a statute – as the Tribunal did in this case. For these reasons, the Tribunal should not have allowed the appeal only on hyper technical ground raised by assessee with regard to the satisfaction note.
5.3 In view of the above discussion, the Tribunal’s decision with respect to the satisfaction recorded by the AO under section 153C is set aside. A further direction is issued to the Tribunal to hear the appeals afresh on merits. Being aggrieved upon the order, assesse preferred an appeal before Hon’ble Supreme Court.
F. View of the Hon’ble Supreme Court
6.1 Before issuing notice under section 153C of the Act, the AO of the searched person must be “satisfied” that, inter alia, any document seized or requisitioned “belongs to” a person other than the searched person. Thereafter, after recording such satisfaction by the AO of the searched person, he may transmit the records/documents/things/papers etc. to the AO having jurisdiction over such other person. After receipt of the satisfaction and upon examination of such other documents relating to such other person, the jurisdictional AO may proceed to issue a notice for the purpose of completion of the assessment under section 158BD of the Act and the other provisions of Chapter XIV-B shall apply.
6.2 It is further observed that there can be two situations:
(a) AO of the searched person and of the other person referred u/s 153C are different
(b) both the AO referred in option (a) supra are same.
In scenario mentioned at (a) above, the course of action should be :
(i) recording of satisfaction by AO of searched person
(ii) handing over of documents by AO of searched person to AO of other person
(iii) recording of satisfaction by AO of the other person and such AO is also required to make a note in the file of a searched person that he has done so.
In aforesaid situation, by referring to the decision of Hon’ble Delhi High Court in the case of Ganpati Fincap, 2017 (395) ITR 692 (Delhi); Hon’ble apex court observed that aforesaid course of action is for the administrative convenience and the failure by the AO of the searched person, after preparing and dispatching the satisfaction note and the documents to the AO of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under section 153C of the Act against the other person. At the same time, the satisfaction note by the AO of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the AO of the other person is mandatory.
6.3 Now, regarding scenario mentioned at (b) above, it is observed by Hon’ble court that it is sufficient on the part of AO to prepare satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of Section 153C of the Act is fulfilled. In case, where the AO of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the AO of the searched person and also the AO of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such this situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the AO of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.
6.4 In the present case, it emerges that the AO was satisfied that the documents containing the details of the cash receipts on sale of shop/offices at M/s Super Mall, Karnal belonged to the other person i.e assessee company . AO was also satisfied that the documents/pen drive were seized from the searched person Mr A. AO was also satisfied that the documents so seized from the residence of the searched person belonged to the assessee-the other person. Therefore, the AO was satisfied and it is specifically mentioned that the documents so seized belonged to the assessee-the other person. Therefore, it cannot be said that the mandatory requirements of Section 153C of the Act, in the facts and circumstances of the case, have not been complied with. The satisfaction note by the AO clearly states that the documents so seized belonged to the other person – the assessee and not the searched person. Thus, the High Court is justified in observing that the requirement of Section 153C has been fulfilled. On facts, Apex court was in complete agreement with the view taken by the High Court on the requirement of Section 153C of the Act being fulfilled by the AO before initiating the proceedings under section 153C of the Act and thus, matter was rightly remanded back to Tribunal for disposal afresh on merits.
Our Observations:
7.1 The aforesaid decision is dealing with the situation prior to amendment in section 153C by Finance Act, 2015 (w.e.f 01/06/2015). Thereafter, scope of section 153C is widen by substituting words “belongs to” with the words “pertains or pertain to, or any information contained therein, relates to other person” with respect to documents seized from the possession of searched person.
7.2 Subject to above it is observed that when a person other than the person referred to in section 153A, the Hon’ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.2014 ([2014] 6 SCC 444) has laid down that for the purpose of Section 158BD of the Act (analogues to provision of section 153C), recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon’ble Court held that “the satisfaction note could be prepared at any of the following stages:
(I) at the time of or along with the initiation of proceedings against the searched person under section 158BC (analogues to provision of section 153A) of the Act;
OR
(ii) in the course of the assessment proceedings under section 158BC of the Act;
OR
(iii) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.”
7.3 Taking the cognizance of above judgement, CBDT issued circular Dt 31/12/2015 vide circular no. 24/2015 F.No.279/Misc./140 /2015/ITJ where in it is stated that the guidelines of the Hon’ble Supreme Court in M/s Calcutta Knitwears case supra, with regard to recording of satisfaction note, even if the AO of the searched person and the “other person”is one and the same, then also AO is required to record his satisfaction. Further it is stated in the circular that filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgement. Accordingly, the Board thereby directed that pending litigation with regard to recording of satisfaction note under section 158BD /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.
7.4 The Hon’ble Supreme Court, in present case, has also referred to decision of Hon’ble Delhi High court in the case of Ganpati Fincap Services (P.) Ltd.(supra). In said decision, after considering above circular, the court at para 27 and 28, has held as under:
“………………….
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 pers In such event, the AO need make only one satisfaction note. That satisfaction note is qua the other person. Further it is sufficient that such satisfaction note is placed in the file of the other person by the AO in his capacity as the AO of such other person.”
In the present case, even assessee has not referred to above referred CBDT Circular either before Hon’ble Delhi High court or Hon’ble Supreme court.
7.5 Now, as discussed hereinabove, in the present case, the apex court has laid down clear law that single satisfaction note is sufficient in case of same AO of searched person and other person for the purpose of issuing valid notice u/s 153C. However, it is pertinent to note that such single satisfaction note must contain the satisfaction regarding seizure of documents from searched person and “pertaining or relating “of said document to other person. The Court has emphatically referred to decision of Hon’ble Delhi High court decision of Ganpati Fincap Services (P.) Ltd.(supra) wherein it was held that 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 (now after amendment documents “pertains to” or information “relates” to other person will also be covered). Depending upon the nature and contents of the document, AO is required to give some cogent reasons for such conclusion. Therefore, it is apparent that if the satisfaction note, does not have any such reasoning for such conclusion, it is not in accordance with the law laid down by this judgment of Hon’ble Supreme Court.
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