Brief of the Case
Delhi High Court held In the case of Principle CIT vs. Nikki Drugs & Chemicals Pvt. Ltd. that the Allahabad High Court in the case of Commissioner of Income Tax v. Gopi Apartments: (2014) 365 ITR 411 (All.) has 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 other than the searched person. Thus, 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 mandatory pre condition for commencing any proceedings under Section 153C.
Facts of the Case
The above proceedings emanate from the search and seizure operations under Section 132, which commenced on 14th October, 2008 in respect of “SVP Group of companies”. The Assessee, in the present case, is one of the 12 companies that was not subjected to search but was assessed under Section 153C. The assessment order records that a notice under Section 153C was issued by the ACIT on 14th May, 2010, but this is disputed by the Assessee. Thereafter, on 15th September, 2010, notices under Section 153A were issued by the ACIT, Meerut for the AYs 2003-04, 2004-05, 2005-06 and 2008-09. Further, on the said date, notice under Section 142(1) was also issued for AY 2009-10. In response to the aforesaid notices, the Assessee filed its returns of income for the respective five AYs in question.
Thereafter, various notices were issued by the AO. According to the AO, the said notices were not fully complied with. On 31st December, 2010, the 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 AO observed in the assessment orders that the details with regard to the sources of investment in unquoted shares along with 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. According to the AO, the Assessee did not carry on any genuine business activity but was involved only in money laundering.
Held by CIT (A)
The CIT (A) observed that the balance sheet of the Assessee did not reflect any physical assets and the Assessee was not engaged in any actual business activity. The shares sold and purchased by the Assessee were not saleable in the open market and were not tradable commodities. It is further observed that the profit or loss shown from the activity of sale and purchase of shares by private limited companies was a “fake attempt to give semblance of genuineness of a functional company”.
The CIT (A) further held that the Assessee was carrying on business only on paper and its sole purpose was to benefit others. It was also noticed that the shares of SVP Group were purchased by the Assessee at a higher price and the same were subsequently sold to individuals/concerns of SVP Group at a throwaway price, which was a fraction of the purchase price. According to the CIT (A), the same evidenced that the transaction was done only for the purposes of benefiting SVP Group.
The CIT (A) concluded that the Assessee was only a conduit for transferring money to SVP Group and based on the aforesaid conclusion, directed deletion of the addition made by the AO alongwith a direction to add the same in the hands of the beneficiaries. In addition to the above, the CIT(A) gave further directions, inter alia, for proceeding under Section 269SS and to impose penalty under Section 271D on account of sums received by the Assessee in cash from various persons.
Held by ITAT
The 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 was unsustainable. The ITAT also held that a satisfaction note had not been recorded by the assessing officer of the searched person and, therefore, initiations of proceedings under Section 153C were invalid. Insofar as the addition under Section 68 is concerned, the ITAT held that the sources of money received by the Assessee were duly explained, and therefore, deleted the additions. Accordingly, the ITAT allowed the appeals preferred by the Assessee and rejected the appeals preferred by the Revenue.
Held by High Court
Admittedly, the Assessee was not one of the entities that were subjected to the search and seizure operation under Section 132. The assessments were also framed under Section 153C; although the assessment orders reflect that the assessments were framed under Section 143(3)/153A (b), the orders passed by the CIT (A) indicates the same to be a typographical error.
The first step for initiation of proceedings under Section 153C 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. 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. 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.
Section 153A requires that a notice be issued to the person sought to be assessed, calling upon the said assessee to file his return of income in respect of each year falling within the specified six AYs. It is further specified that the provisions of the Act shall, so far as may be, applied as if such returns were returns required to be furnished under Section 139. Thus, the assessing officer has to, thereafter, proceed with the assessment/reassessment in accordance with the provisions of the Act; that is, accept the return with or without such adjustments as permissible under Section 143(1) or if the claims made by the assessee are considered as inadmissible and/or it is considered necessary and expedient to subject the returns to further scrutiny, issue the requisite notice under Section 143(2) and frame the assessment in accordance with the Act.
In the present case, the ITAT specifically recorded that, admittedly, a satisfaction note had not been recorded by the assessing officer of the searched person. 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.
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. Thus, the decision of the ITAT in this regard cannot be faulted.
Accordingly appeal of the revenue dismissed.