Shreyinfradevelopers Pvt. Ltd Petitionerthrough: Mr. Sanjeev Sabharwal, Senioradvocae With Mr v. Raja Kumar, Advocate

C 7 Signature Not Verified Signed By:RAM DATTSigning Date:05.10.2024 15:45Certify that the digital and physical file havebeen compared and the digital data is as perthe physical file and no page is missing. * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 2224/2015 SHREYINFRADEVELOPERS PVT. LTD PetitionerThrough: Mr. Sanjeev Sabharwal, SeniorAdvocae with Mr. V. Raja Kumar, Advocate. versus COMMISSIONER OF INCOME TAX RespondentThrough: Mr. Rahul Chaudhary, Senior standingcounsel. CORAM: JUSTICE S.MURALIDHARJUSTICE CHANDER SHEKHAR ORDER%25.05.2017 By a common judgment passed today in WP (C) 525 of 2015 the presentwrit petition has been dismissed. A copy of the said judgment be placed inthis file. S.MURALIDHAR, J V CHANDER SHEKHAR, J MAY 25, 2017Rm ^'°1N THE HIGH COURT OF DELHI AT NEW DELHIW.P.(C) 525/2015GANPATIFINCAP SERVICES PVT. LTD. Petitioner Vv^rsus COMMISSIONER OF INCOME TAX W.P.(C) 527/201547 Respondent + ganpati fincap services pvt. ltd. Versus COMMISSIONER OF INCOME TAX W.P.(C): 529/2015.. -r r.Tta- T T-T-t SI-IUSFIRE SECURITIES PV,I. LTD.V ersusCOMMISSIONER OF INCOME TAX W.P.(C) 2220/2015 ••••• Respondent + .... Petitioner Respondent SHUSFIRE SECURITIES PVT. LTD.:.Versus ,COMM] SSIONER OF INCOME TAX W.P.(C) 2221/2015TtA rn- T T-n SIIUSFIIUi SECURniES-PVT. LTD.VersusCOMMISSIONER OF INCOME TAX W.P.(C) 2224/2015SFIREY INFRADEVELOPERS PVT. LTD.VersusCOMMISSIONER OF INCOME TAX W.F.(C) No. 525 of 2015 & connected matters Respondent + PetitionerResponuent + RespondentPage 1 of 30 W.P.(C) 2225/2015 + SHREYINFRADEVELOPERS PVT. LTD... PetitionerVersusCOMMISSIONER OF INCOME TAXRespondentW.P.(C) 2226/2015SHREY INFRADEVELOPERS PVT. LTD..... PetitionerVersusCOMMISSIONER OF INCOME TAX. RespondentW.P.(C) 2227/2015GANPATI FINCAP SERVICES PVT. LTD.PetitionerVersusCOMMISSIONER OF INCOME TAX,. RespondentW.P.(C) .2228/2015GANPATI FINCAP SERVICES PVT. LTD.PetitionerVersusCOMMISSIONER OF.INCOME TAX ',. RespondentW.P.(G) 2229/2015GANPATI FINCAP SERVICES PVT. LTD.PetitionerVersusCOMMISSIONER OF INCOME TAX.. RespondentW.P.(C) 2245/2015SHUSHRE SECURITIES PVT. LTD.PetitionerVersusCOMMISSIONER OF INCOME TAX.. RespondentW.P.(C) 2246/2015GANPATI FINCAP SERVICES PVT. LTD.PetitionerNo. 525 of 2015 & connected matters525 of 2015 & connected mattersof 2015 & connected matters2015 & connected matters& connected mattersconnected mattersmattersPage 2 of 30 + + + + + W.P.(C) No. 525 of 2015 & connected matters525 of 2015 & connected mattersof 2015 & connected matters2015 & connected matters& connected mattersconnected mattersmatters + + Versus COMMISSIONER OF INCOME TAX W.P.(C) 2247/2015SHUSHRE SECURITIES PVT. LTD. VersusCOMMISSIONER OF INCOME TAX W.P.(C) 2248/2015SHUSHRE SECURITIES PVT. LTD. RespondentPetitionerRespondentPetitioner Versus COMMISSIONER OF INCOME TAX Respondent Through: Mr. Sanjeev Sabharwal, .Senior Advocate with Mr. V. RajaKumar, Advocate for the Petitioners.Mr. Rahul Chaudhaiy, Senior Standing Counsel for the Revenue. CORAM: JUSTICE S. MURALIDHARJUSTICE CHANDER SHEKHy\R ORDER25.05.2017 o/o , Dr. S. Muralidhar, J.: 1. These fifteen writ petitions arise out of a similar set of facts concerningthe notices issued to each of the Petitioners under; Section 153C of theIncome Tax Act, 1961 ('Act'). 2. Six of the writ petitions viz., ;W.P. (C) Nos. 2227, 2228, 525, 2229, 2246and 527 of 2015 by Ganpati Fincap Services Pvt. Ltd. (hereafter 'Ganpati')and six writ petitions viz., W.P.. (C) Nos. 2247, 2221, 2248, 529, 2245 and2220 of 2015 by .Shushre Securities Pvt., Ltd. (hereafter 'Shushre') concern fV. p. (C) No. 525 of 2015 ^6 connected matters ^"S<^ ^ Assessment Years (AYs) 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and2009-10 respectively. Three writ petitions viz., W.P. (C) Nos. 2224, 2225,2226 by Shrey Infradevelopers Pvt. Ltd. (hereafter 'Shrey') concern AYs2007-08, 2008-09 and 2009-10 respectively. Background fads in the Ganpati cases 2. Six of the writ petitions viz., ;W.P. (C) Nos. 2227, 2228, 525, 2229, 2246and 527 of 2015 by Ganpati Fincap Services Pvt. Ltd. (hereafter 'Ganpati')and six writ petitions viz., W.P.. (C) Nos. 2247, 2221, 2248, 529, 2245 and2220 of 2015 by .Shushre Securities Pvt., Ltd. (hereafter 'Shushre') concern fV. p. (C) No. 525 of 2015 ^6 connected matters ^"S<^ ^ Assessment Years (AYs) 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and2009-10 respectively. Three writ petitions viz., W.P. (C) Nos. 2224, 2225,2226 by Shrey Infradevelopers Pvt. Ltd. (hereafter 'Shrey') concern AYs2007-08, 2008-09 and 2009-10 respectively. Background fads in the Ganpati cases 3. The background facts in each set of petitions are more or less similar. On26"' March, 2010 a search and seizure operation under Section 132 of theAct along with a survey operation under Section 133A of the Act wereundertaken at various residential and business premises of Aseem KumarGupta and his associated Group including Raj Kumar Chawla and AnjuChawla. There were two search parties. Several documents and accountbooks were seized from the premises of Aseem Kumar Gupta, Raj KumarChawla 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 CentralCircle (CC)-16 who first issued a notice to Ganpati under Section 153C ofthe Act on 9th December 2010.-The notice was received by Ganpati on 27thDecember 2010. At this stage no satisfaction note had been prepared. 5. On 21st January 2011, Ganpati requested that the return originally filedfor AYs 2004-05 to 2009-10 under Section 139(1) be treated as the returnfiled 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 againtransferred from CC-16 to CC-9 under the orders of the CIT (C)-Il.Thereafter on 14th October 2011, the following satisfaction note in the caseof Ganpati was recorded by the AO: "Satisfaction recorded u/s 153 C in the case of M/s. GanpatiFincap Services Pvt. Ltd. A search & seizure operation u/s 132 of the Act was conductedon 26.03.2010 at various'premises of Aseem Kumar Gupta, hisassociates & other beneficiaries. During the search & seizureoperations various documents, books of account, hard disks etc.were seized. On perusal of the seized documents, it was noticedthat some of these documents belong to the assessee whichinter alia include the following: Page 13 and 14 of Annexure A-I seized by party ABR-2, areschedules attached to and forming ,part of the balance sheet andprofit & loss account of the assessee as on 31-03-2008 and ason 31-03-2007. Page 15 and 16, Annexure A-I seized by party ABR-2, are theprofit & loss account and balance sheet of the assesse as on 31-03-2008 and as on. 31-03-2007. Page 17 to 20, of Annexure A-I seized by party ABR-2, are thebalance sheet and profit & loss account (and schedules attachedthereto) ofthe assessee as on 31-03-2009 and as on 31-0.3-2008.Page 21 to 25, of Annexure A-I seized by party ABR-2, are theunsigned Indemnit}'' bond to be signed by outgoing director ofthe assessee company for transferring the shares ofthe assesseecompany. Page 26, of Annexure A-I seized by party ABR-2, is theunsigned memorandum of understanding between outgoing directors of the assessee company, Shri Aseem Kumar Guptaand Sri Raj Kumar Chawia for transferring the assesseeeompany. In view of the above, and considering the fact that documentsand books of accounts seized during the search belong to theassessee, I am satisfied that the assessee's case is a fit case forinitiating proceedings u/s 153 C of the Income Tax Act, 1961.Accordingly, action u/s 153 C of the Aet is initiated for theAssessment Year 2004-05 to 2010-11. Issue notice u/s 153 C of the Act for the Assessment Year2004-05 to 2010-11." Assessment orders Page 26, of Annexure A-I seized by party ABR-2, is theunsigned memorandum of understanding between outgoing directors of the assessee company, Shri Aseem Kumar Guptaand Sri Raj Kumar Chawia for transferring the assesseeeompany. In view of the above, and considering the fact that documentsand books of accounts seized during the search belong to theassessee, I am satisfied that the assessee's case is a fit case forinitiating proceedings u/s 153 C of the Income Tax Act, 1961.Accordingly, action u/s 153 C of the Aet is initiated for theAssessment Year 2004-05 to 2010-11. Issue notice u/s 153 C of the Act for the Assessment Year2004-05 to 2010-11." Assessment orders 7. Separate assessment orders ,were passed by the AO on 26'*' December,2011 for the AYs 2004-05 to 2009-10 creating demands by makingadditions to the returned income of Ganpati in the cases of each of thePetitioners. The return originally filled by Ganpati had been processed underSection 143(1) of the Act. Now it was under Section 143(3), read withSeetion 1530 of the Act. 8. The assessment orders noted that on 23"''December, 2011 a show causenotice ('SON') was issued to Ganpati stating that there was no real businessactivity and there was no supporting infrastructure such as fixed assets. Inthose circumstances, Ganpati was asked to explain why the company shouldnot be treated as a fictitious entity existing only on paper and as to why theeorporate veil should not be pierced. Ganpati was asked to show cause as towhy the expenses debited (barring statutory and obligatory expenses) shouldnot be disallowed since it had failed to provide justifieation to establish the W.P.(C) No. 525 of 2015 & connected matters business purposes of the expenses debited in the P&L Aecount and also didnot give any evidence to establish these expenses. 9. With Ganpati not filing any reply, the AO proceeded to add theunexplained expenses to its income. The AO held that Ganpati was just aconduit used by Aseem Kumar Gupta for providing accommodation entrieswhich does not require elaborate infrastructure and such amounts ofexpenditure to be incurred. Since Ganpati has failed to furnish the necessaryevidence in support of its claim of expenditure, addition of the equivalentamount was directed to be made to its taxable income. Thereafter, inresponse to a request made by Ganpati on 16"' January, 2012 for inspectionof the assessment records, the AO .provided Ganpati a copy of thesatisfaction note. Revision petition under Section 264 10. Aggrieved by the above assessment orders, Ganpati preferred separaterevision applications under Section 264 of the Act before the Commissionerof Income Tax (CIT) Gentral-2, one for each AY. Inter aha it was contendedby Ganpati that the assumption of jurisdiction by the AO under Section153C of the Act was illegal and therefore the entire proceedings were voidab initio. In their revision application the Petitioners inter alia pointed outthat "'on the inspection of assessment record of Aseem Kumar Gupta it isalso found that no satisfaction in ease of Aseem Kumar Gupta is recorded byassessing officer that those documents relates to the assessee companywhich is the precondition for requisition of the information in case ofassessee company for initiation of proceedings under Section 153C of the IT Act." Therefore, the proceedings initiated under Section 153C of the Act "isbad in law and order was passed in violation of the provisions of Section153C should be annulled." Ganpati relied on the decision in ManishMahesh wari v. ACIT [2007] 289ITR 341 (SC). Order of the CIT 11. By the impugned order dated 24"^ March, 2014 the CIT disposed of thepetitions of Ganpati holding as under: Act." Therefore, the proceedings initiated under Section 153C of the Act "isbad in law and order was passed in violation of the provisions of Section153C should be annulled." Ganpati relied on the decision in ManishMahesh wari v. ACIT [2007] 289ITR 341 (SC). Order of the CIT 11. By the impugned order dated 24"^ March, 2014 the CIT disposed of thepetitions of Ganpati holding as under: (i) Not only the Balance Sheet and the P&L Account, but the otherdocuments also reflected the transfer of shares. The corrected draft MOU fortransferring Ganpati between Aseem Kumar Gupta and Raj Kumar Chawlawas one such document. Further, Aseem " Kumar Gupta admitted in hisstatement that he had been providing accommodation entries through anumber of entities. Ganpati was one such entity which was used in abetmentof tax evasion by providing accommodation entries to beneficiaries.Accordingly, there was an intricate connection between Ganpati and AseemKumar Gupta. (ii) With reference to the satisfaction note, a reference was made to thedecision in CIT v. Panchajanyam Management Agencies & Services(2011) 333 ITR 281 (Ker.). It was held that "where the Assessing Officer ofthe person searched and the person against whom proceedings under Section153C are initiated are one and the same there is no need to recordsatisfaction." Reliance was also placed on the decision of the AllahabadHigh Court in TVS Securities & Finance Pvt. . Ltd v. CIT (C) (order dated W.P.(C) No. 525 of 2015 & connected matters I I 23'"^ August, 2013 in ITA No. 165 of 2008) to the effect that the satisfactionof the AO was not mandatory where the AO initiating the proceedings andthe AO who made the earlier assessment are the same person. Thus it wasconcluded that there was no mandatory requirement of recording ofsatisfaction by the AO while initiating proceedings under Section 153C ofthe Act and "specifically when the AO of the person searched and the personagainst whom proceedings under Section 153C were initiated are one andthe same." (iii) Since in the present case the AO recorded his satisfaction regarding thedocuments seized before initiating the proceedings under Section 153C ofthe Act there was no infirmity. , 12. As regards the other grounds, the CIT held that the AO had violated theprinciples of natural justice by finalising the assessment before the expiry oftime limit for compliance given in the final SON. Accordingly, the matterwas restored to the AO by setting aside the assessment orders for AYs 2004-05 to 2009-10. The AO was asked to dispose of the matters in accordancewith law after making inquiries, investigation and verification, as well asaffording an opportunity to Ganpati which was also directed to comply withthe notices issued by the AO and furnish all details/documents/informationin support of the claims made. 13. This Court has heard the submissions of Mr. Sanjeev Sabharwal, learnedSenior counsel appearing for the Petitioner and Mr. Rahul Chaudhary,learned Senior Standing Counsel appearing for the Revenue.Submissions on behalf of Ganpati W. p. (C) 1^0. 525 of 2015 & connected matters 14. The main plank of the submission of Mr. Sabharwai was a decision ofthis Court in Principal Commissioner of Income Tax v. Nikki Drugs &Chemicals P. Ltd. [2016] 386 ITR 680 (Del) and the decision of theKarnataka High Court in Arihant Aluminium Corporation v. AssistantCommissioner of Income-Tax [2016] 388 ITR 450. According to Mr.Sabharwai, the aforementioned decisions made it clear that there were atleast two satisfaction notes that were mandatory. One by the AO of theperson searched, other by the AO of the 'other person' in relation to whomthe incriminating documents belonging to such other person were foundduring the course of the search. W. p. (C) 1^0. 525 of 2015 & connected matters 14. The main plank of the submission of Mr. Sabharwai was a decision ofthis Court in Principal Commissioner of Income Tax v. Nikki Drugs &Chemicals P. Ltd. [2016] 386 ITR 680 (Del) and the decision of theKarnataka High Court in Arihant Aluminium Corporation v. AssistantCommissioner of Income-Tax [2016] 388 ITR 450. According to Mr.Sabharwai, the aforementioned decisions made it clear that there were atleast two satisfaction notes that were mandatory. One by the AO of theperson searched, other by the AO of the 'other person' in relation to whomthe incriminating documents belonging to such other person were foundduring the course of the search. 15. With specific reference to the observations of this Court in Pepsi Foods(P). Ltd. V. Assistant Commissioner of Income-tax [2015] 376 ITR 87(Del), Mr Sabharwai submitted that the first step for the AO of the personwho searched was to arrive at a clear satisfaction that the documents seizedfrom the searched person does not belong to the searched person but theother person. It is only thereafter that, even if the AO of the searched personand the other person is the same, that the same AO, in his capacity as theAO of the other person will prepare a separate satisfaction note in regard tothe other person. According to him, these were two separate processes and ifthe first step was overlooked or missed then the entire proceedings underSection 153C would be vitiated. 16. Mr Sabharwai referred to the decisions of this Court in Pepsico IndiaHoldings (P.) Ltd. v. Assistant Commissioner of Income-tax [2015] 370ITR 295 (Del), Commissioner of Income-tax-7 v. RRJ Securities Ltd. [2016] 380 ITR 612 (Del), Commissioner of Income-tax (Central) v. GopiApartment [2014] 365 ITR 411 (All) and Commissioner of Income-tax v.Mechmen 11-C [2016] 380 ITR 591 (MP). He also referred to the decisionsof this Court in Pr. Commissioner of Income Tax (Central-II) v. AakashArogya Mandir Pvt. Ltd. (order dated 28"^ July, 2015 in ITA No. 509/2015)and ARN Infrastructure India Ltd. v. Assistant Commissioner of Income-Tax, Central Circle-28, New Delhi (order dated 25"^ April, 2017 in W.P. (C)No. 2768/2016). Submissions on behalf of the Revenue 17. Mr. Rahul Chaudhary, learned Senior standing counsel for the Revenuesubmitted that there was no requirement under Section 153C for there to bea satisfaction note for the searched person. The satisfaction note in respect ofthe searched person was at the stage of Section 132 of the Act. After thatonce the search concluded, notice to the searched person under Section153A 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 ofthe searched person and the other by the AO of the 'other' person. Bothwould be to the effect that the documents in question that were seized duringthe search belong to the other person. Even where the AO for the searchedperson and the other person was the same the AO of the searched person hadto perforce record the satisfaction note. 18. Mr. Chaudhary sought to distinguish the decisions of this Court inPrincipal Commissioner of Income Tax v. Nikki Drugs & Chemicals P.Ltd {supra) and the other decision cited by Mr Sabhamal. He referred to the W.P.(C) No. 525 of 2015 & connected matters CBDT Circular No. 24 of 2015 dated 3N' December, 2015 which clarifiedthe legal position. There was therefore no room for ambiguity. He pointedout that in the facts of the present case, there was a satisfaction noterecorded by the AO of the searched person in respect of the documentsbelonging to Ganpati and the requirement of Section 153C was fulfilled. Hedrew attention to the presumption under sub-section (4A) of Section 132 andreferred to the notes about its introduction which explained that the saidprovision was meant to assist the Revenue. Analysis of Section 153C W.P.(C) No. 525 of 2015 & connected matters CBDT Circular No. 24 of 2015 dated 3N' December, 2015 which clarifiedthe legal position. There was therefore no room for ambiguity. He pointedout that in the facts of the present case, there was a satisfaction noterecorded by the AO of the searched person in respect of the documentsbelonging to Ganpati and the requirement of Section 153C was fulfilled. Hedrew attention to the presumption under sub-section (4A) of Section 132 andreferred to the notes about its introduction which explained that the saidprovision was meant to assist the Revenue. Analysis of Section 153C 19. In order to appreciate the above submissions it is necessary first toexamine in some detail the relevant provision i.e. Section 153C(1) of the Actwhich reads as under (this is as it stood prior to 1st June 2015): "153C Assessment of income of any other person.- (1) Notwithstanding anything contained in section 139, section147, section 148, section 149, section 151 and section 153,where the Assessing Officer is satisfied that any money,bullion, jewellery or other valuable article or thing or booksof account or documents seized or requisitioned, belongs orbelong to a person other than the person referred to inSection 153 A, then, the books of account or documents orassets seized or requisitioned shall be handed over to theAssessing Officer having jurisdiction over such otherperson and that Assessing Officer shall proceed against eachsuch other person and issue such other person notice and Iassess or reassess income of such other person inaccordance with the provisions of Section 153A, if, thatAssessing Officer is satisfied that the books ofdetermination of the total income of such other person forthe relevant assessment year or years referred to in subsection (1) of Section 153 A:147, section 148, section 149, section 151 and section 153,where the Assessing Officer is satisfied that any money,bullion, jewellery or other valuable article or thing or booksof account or documents seized or requisitioned, belongs orbelong to a person other than the person referred to inSection 153 A, then, the books of account or documents orassets seized or requisitioned shall be handed over to theAssessing Officer having jurisdiction over such otherperson and that Assessing Officer shall proceed against eachsuch other person and issue such other person notice and Iassess or reassess income of such other person inaccordance with the provisions of Section 153A, if, thatAssessing Officer is satisfied that the books ofdetermination of the total income of such other person forthe relevant assessment year or years referred to in subsection (1) of Section 153 A: Provided that in case of such other person, the reference to thedate of initiation of the search under section 132 or making ofrequisition under section 132A in the second proviso to subsection (1) of section 153A shall be construed as reference tothe date of receiving the books of account or documents orassets seized or requisitioned by the Assessing Officer havingjurisdiction over such other person: . Provided further that the Central Government may by rulesmade by it and published in the Official Gazette, specify theclass, or classes of cases in respect of such other person, inwhich the Assessing Officer shall not be required to issuenotice for assessing or reassessing the total income for sixassessment years immediately preceding the assessment yearrelevant to the previous year in which search is conducted orrequisition is made except in cases where any assessment orreassessment has abated." 20. It must be noted that Section 153C has undergone a change with effectfrom 1st June 2015. That change is prospective. But in the present cases,v/ith the search having taken place on 26th March 2010 it is Section 153C asit stood prior to 1st June 2015 which would apply. Provided further that the Central Government may by rulesmade by it and published in the Official Gazette, specify theclass, or classes of cases in respect of such other person, inwhich the Assessing Officer shall not be required to issuenotice for assessing or reassessing the total income for sixassessment years immediately preceding the assessment yearrelevant to the previous year in which search is conducted orrequisition is made except in cases where any assessment orreassessment has abated." 20. It must be noted that Section 153C has undergone a change with effectfrom 1st June 2015. That change is prospective. But in the present cases,v/ith the search having taken place on 26th March 2010 it is Section 153C asit stood prior to 1st June 2015 which would apply. 21. In order to understand how the provision works a simple illustration maybe taken up. Imagine that the searched person is 'A\ The searchauthorisation is issued under Section 132(1) of the Act in A's name after theauthorised officer records a satisfaction note in the file of A that he hasreason to believe that A is in possession of money, bullion, jewellery orother valuable thing which he has not disclosed in the returns of incomefiled by him and which, without a search, is not likely to be disclosed orunearthed. P. (C) No. 525 of 2015 connected matters Tl. Thereafter a search takes place in not only the premises of A' but anypremises where the undisclosed income is believed to have been kept and 10documents are seized. It is found that of the 10 documents seized, 2 belongto 'B', 'B' then becomes the 'other person' i.e. a person other than thesearched person. 23. It may so happen that 'A' and 'B' are group companies. The search maysimultaneously takes place in the premises of 'A' and 'B'. Even where Aand B are under the jurisdictions of different AOs at the time of search, afterthe search for administrative convenience the cases of A and B aretransferred to the same circle to be dealt with by the same AO. 24. In this illustration after having seized the above 10 documents, 2 ofwhich belong to B and 8 belong to A (the searched person) what should theAO do in order to comply with Section 1530 of the Act? The AO in hiscapacity as the AO of the searched person, that is, 'A' does not have to, inorder to continue the assessment proceedings against 'A' record anysatisfaction note as such. As far as 'A' is concerned, he is the searchedperson and notice to him under Section 153A automatically follows. In thoseassessment proceedings, the AO will have to examine if the eight seizeddocuments constitute incriminating material that would Justify revisiting ofan assessment which has abated or whether it would result in additions in apending assessment. For the purposes of the present case we need not furtherexamine the requirement of Section 153 A because what we are concerned iswith Section 153C that is the provision in relation to the 'other person'. 25. As regards 2 other documents which the AO is satisfied 'belong to' theother person 'B', he will prepare a satisfaction note to that effect. Thequestion that is posed is, whether the AO has to prepare two satisfactionnotes in relation to these 2 documents: one in which he states that these 2documents in the opinion of the AO do not belong to 'A' and the secondnote which states that he is satisfied that these 2 documents belong to 'B'? 26. The Court is of the view that a plain reading of Section 153C does notrequire the AO of the searched person (A) to prepare two satisfaction notes.Only as far as the 'other person' B is concerned' the AO is expected toprepare a satisfaction note stating that, the 2 documents belong to B. Thefailure by the AO to add in the said satisfaction note that the 2 documents donot belong to A will not vitiate the entire proceedings against B underSection 153C of the Act for the simple reason that there is no suchrequirement. 26. The Court is of the view that a plain reading of Section 153C does notrequire the AO of the searched person (A) to prepare two satisfaction notes.Only as far as the 'other person' B is concerned' the AO is expected toprepare a satisfaction note stating that, the 2 documents belong to B. Thefailure by the AO to add in the said satisfaction note that the 2 documents donot belong to A will not vitiate the entire proceedings against B underSection 153C of the Act for the simple reason that there is no suchrequirement. 27. What the settled legal position as explained in several cases, v/hich willbe discussed shortly, is that the recording by the AO of the searched personthat some documents seized during the search 'belong to' the other person ismandatory in order to assume jurisdiction qua the other person underSection 153C of the Act. This is mandatory even where the AO of thesearched person and the other person is the same. This is also what theCBDT Circular now clarifies. In a particular case, given the nature of thedocument, it may becqme necessary for the AO to indicate the basis of hissatisfaction that the document belongs only to B and not to A. But then thatis dictated by the nature of the document. What he has to be sure about, and W.P.fC) No. S25 of 2015 & connocted matters f the note should reflect this, is that it does belong to B. Once the note saysthat then the requirement of Section 153C is fulfilled. 28. Therefore, the Court does not agree with Mr Sabharwal that there haveto be two separate satisfaction notes prepared by the AO of the searchedperson even where he is also the AO of the other person. In such event, theAO need make only one satisfaction note. That satisfaction note is qua theother person. Further it is sufficient that such satisfaction note is placed inthe file of the other person by the, AO in .his capacity as the AO of such otherperson. 29. Where the AO of the searched person is. different from the AO of theother person the AO will, simultaneous with transmitting the documentsalong with his satisfaction note to the AO of the other person, make a note inthe file of the searched person that he has done so. But this is foradministrative convenience. The failure by the AO of the searched person,after preparing and despatching the satisfaction note and documents to theAO of the other to make a in the file of the searched person, noting personwill not vitiate the entire proceedings under Section 153C against the otherperson. Understanding the illustration in Pepsico India Holdings 30. The example given by this Court in Pepsico India Holdings (P.) Ltd. isexamined next. It so that a document like the ofmay happen particular copy a sale deed which has the names of both the vendor ('X') the vendee (Y) andperhaps some other person say 'Z' who may have signed as a witness or 'D'who be a broker is found search in the of X. Sincemay during premises say W.P. (C) No. 525 of 2015 & connected matters Paoe 16 of 30 all their names figure in that document it might become necessary for theAO of the searched person (X) to form an opinion about whom thatdocument could be said to 'belong to'. The satisfaction note in such a casewill require the AO to record his reasons for his conclusion that thedocument belongs to say Y. In that process, in his satisfaction note, he mayin the first portion explain why he thinks that the said document does notbelong to 'X', 'Z' or 'D' but belongs to 'Y'. all their names figure in that document it might become necessary for theAO of the searched person (X) to form an opinion about whom thatdocument could be said to 'belong to'. The satisfaction note in such a casewill require the AO to record his reasons for his conclusion that thedocument belongs to say Y. In that process, in his satisfaction note, he mayin the first portion explain why he thinks that the said document does notbelong to 'X', 'Z' or 'D' but belongs to 'Y'. 31. This does not mean that in each and every case, even when the documentis such as to leave no doubt as to whom it belongs to the AO has tonecessarily record that it does not .belong to the searched person. As long ashe records that in his opinion it belongs to the other person, that will satisfythe requirement of the law. Further Section 153C does not state that thefailure by the AO in such case to record in his satisfaction note that such adocument does not belong to the searched person would vitiate the entireproceedings under Section 1530 against the other person notwithstandingthe AO having recorded that it, does belong to the other person. 32. Mr. Sabharwal was unable to show whether after the decision m'PepsicoHoldings{s\xpm) a Court had invalidated the proceedings under Section153C only because the satisfaction note recorded by the AO to the effect thatthe documents seized belonged to the other person 'B' did not also state thatthe document does not belong to the searched person 'A'. The Court nowproceeds 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 &W.P.(C) No. 525 of 2015 connected matters Page 17 of 3017 of 30of 3030 Page 17 of 3017 of 30of 3030 Chemicals P. Ltd {supra) were that search and seizure operation underSection 132 of the Act were commenced on 14 thOctober, 2008 in respect ofthe SVP Group of Industries. In addition to the four companies forming thecore of the SVP Group, warrants of search and seizure were also issued inrespect of 20 other companies. It was found that the four companies formingcore of the SVP Group had received share capital from 106 companiesduring the year 2003-04 to 2009-12. The case of the Revenue was that theaforementioned four companies have been charging 'on money' on sale ofaccounts. 33.2 The AO categorised the 106.companies which had invested in the sharecapital of the SVP Group during the AYs 2003-04 to 2009-10 into threegroups. These were Tables I, II and III. Table II comprised of 12 companies,including 4he Respondent Nildci Drugs and Chemicals Pvt. Ltd. ('Nildci)against whom proceedings were initiated under Section I53C of the Act.There too Nilcki challenged the assumption of jurisdiction of the AO underSection I53C of the Act. If was contended that the AO of the searchedperson (SVP Group) had not recorded his satisfaction that any money or anyother valuable article belonged to the other person (Niklci). On merits it wassubmitted that the amount received by Nikki was duly recorded in its booksof accounts and did not warrant assessment under Section 68 of the Act. 33.3 The GIT (A) in the appeal filed by Nildci called for a remand report.The AO submitted the remand report enclosing the satisfaction noterecorded by the AO which inter alia mentioned that some of the documentsseized belonged to M/s. SVP Builders India Ltd. but recorded satisfaction IV.P.(C) No. 525 of 2015 & connected matters about certain other documents belonged to Nildci and the satisfaction thatproceedings under Section 153C read with Section 153 A of the Act wererequired to be initiated against Nikki. The CIT (A) did not agree that theassumption of jurisdiction under Section 153C was erroneous. However, onmerits, the GIT (A) deleted that additions made by the AO with thedirections to add the loss in the hands of the beneficiary. 33.3 The GIT (A) in the appeal filed by Nildci called for a remand report.The AO submitted the remand report enclosing the satisfaction noterecorded by the AO which inter alia mentioned that some of the documentsseized belonged to M/s. SVP Builders India Ltd. but recorded satisfaction IV.P.(C) No. 525 of 2015 & connected matters about certain other documents belonged to Nildci and the satisfaction thatproceedings under Section 153C read with Section 153 A of the Act wererequired to be initiated against Nikki. The CIT (A) did not agree that theassumption of jurisdiction under Section 153C was erroneous. However, onmerits, the GIT (A) deleted that additions made by the AO with thedirections to add the loss in the hands of the beneficiary. 33.4 Nikki and tho Revenue then went before the ITAT. Nikki wasaggrieved by the decision of the CIT (A) rejecting its contention that theproceedings under Section 1530 were without any jurisdiction. TheRevenue, on the other hand, challenged the deletions of the additions madeby the AO. The ITAT found that a satisfaction note had not been recordedby the AO of the searched person arid, therefore, initiation of proceedingsunder Section 153C was invalid. The ITAT found that the sources of moneyreceived by the Assessee were duly explained and thereby deleted theadditions under Section 68 of the Act. Nikki's appeals were allowed and theRevenue's appeal were dismissed. 33.5 Aggrieved by the order of the ITAT, the Revenue preferred the aboveappeal before this Court. The Court in Principal Commissioner of IncomeTax V. Nikki Drugs & Chemicals P. Ltd {supra) specifically noted that: "17. In the present case, the ITAT specifically recordedthat, admittedly, a satisfaction note had not been recordedby the assessing officer of the searched person." 18 It was sought to be contended before us that theassessing officer of the searched persons had, in fact, W.P.(C) No. 525 of 2015 & connected matters Page 19. of 30 recorded the necessary satisfaction note. However, thelearned counsel for the Revenue could not confirmwhether such note, was prepared prior to the initiation ofthe proceedings under section 153C of the Act. TheAssessee's contention that despite its request such notehad not been diselosed during the assessmentproceedings has also not been controverted. In thecircumstances, the categorical finding of the ITAT that itwas an admitted fact that the assessing officer of thesearched persons had not recorded a satisfaction note,cannot be interfered with." 33.6 Therefore, what weighed with this Court was that the AO of thesearched person had not recorded , a satisfaction note prior to theassumption of jurisdiction qua the other person. This therefore turnedon facts. The CBDT Circular 34. The CBDT within a few days .after the above decision in PrincipalCommissioner of Income Tax v. Nikki Drugs & Chemicals P. Ltd {supra)issued Circular No. 24 of2015 on 3D'December 2015, the relevant portionsof which read as under: "The issue of recording of satisfaction for the purposes ofseetion 158BD/153C has been subject matter of litigation. 2. The Hon'ble Supreme Court in the ease of M/s CalcuttaKnitivears in its detailed judgment in Civil Appeal No. 3958 of2014, dated March 12, 2014 has laid down that for the purposeof section 158BD of the Act, recording of a satisfaction note isa prerequisite and the satisfaetion note must be prepared by theAssessing Officer before he transmits the record to the otherAssessing Officer who has jurisdiction over sueh other personunder Section 158BD. The Hon'ble Court held that "the W.P.(C) No. 525 of 2015 & connected matters satisfaction note could be prepared at any of the followingstages: (a) at the time of or along with the initiation of proceedingsagainst the searched person under section 158BC of the Act; or(b) in the course of the assessment proceedings are completedunder section 15 SBC of the Act of the searched person. " W.P.(C) No. 525 of 2015 & connected matters satisfaction note could be prepared at any of the followingstages: (a) at the time of or along with the initiation of proceedingsagainst the searched person under section 158BC of the Act; or(b) in the course of the assessment proceedings are completedunder section 15 SBC of the Act of the searched person. " 3. Several High Courts have held that the provisions of Section153C of the Act are substantially similar//7fl77 materia to theprovisions of Section 158BD of the Act and therefore, theabove guidelines of the Hon'ble Supreme Court, apply toproceedings under Section 153C of the IT Act, for the purposesof assessment of income of other than the searched person. Thisview has been accepted by the CBDT.. 4. The guidelines of the Hon'ble Supreme Court as referred toin para 2 above, with regard to recording of satisfaction note,may be brought to the notice bf all for strict compliance. It isfurther clarified that even if the Assessing Officer of thesearched person and the 'other person' is one and the same,then also he is required to record his satisfaction as has beenheld by the courts. 5. In view of the above, filing , of appeals on the issue ofrecording of satisfaction, note should also be decided in thelight of the. above judgment. Accordingly, the Board herebydirects that pending litigation with • regard to recording ofsatisfaction note under Section 158 BD/153 C should bewithdrawn/not pressed if it does not meet the guidelines laiddown by the apex court." Other decisions 35.1 Subsequently in Arihant Aluminium Corporation v. AssistantCommissioner of Income-Tax (supra), a Division Bench of the KamatakaHigh Court dealt with same issue. After noticing the CBDT Circular, theW.P. (C) No. 525 of 2015 & connected matters Page 21 of 30 Kamataka High Court concluded as under; The resultant effect would be that, the requirements of recording ofsatisfaction note for exercise of power under Section 153C is amandatory requirement and cannot be given a go-bye, either at thestage of initiation or during the course of assessment or at theconclusion of the assessment." 35.2 The matter was sent back to the ITAT for examining "whether therewas compliance of the requirement of satisfaction recording before finalconclusion was drawn and as to whether the assessment made under Section153C is in accordance with the provisions of the Act or bad in law or liableto 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 thesearched person that the docunients belong to the other person is asine non for the the other qua commencing proceedings against personunder Section 153C of the Act. This is more or less what the CBDTCircular now aclmowledges. There is no requirement in terms thereoffor the AO of the searched while that the documentsperson, recording belong to the other person, to also record that they do not belong tothe searched person. 37. In Commissioner of Income-tax-? v. RRJ Securities if</.(supra), theCourt came to a conclusion on the facts of that case that the documentswhich were in the hard disc and contained for theworking papers preparation of the Assessee's balance sheet, income tax computation and ^■P-(C) No. 525 of 20IS & connected matters Page p 22 op of /■?/)30 details of income tax filing did not in fact constitute incriminating material.In fact the clear finding was that the hard disc did not belong to theAssessee. It is evident from para 30 which reads as under: "30. It is not disputed that the said hard disk also did notcontain any incriminating as the data on the hard disc onlysupported the return filed by the Assessee. This apart, as thehard disc did not belong to the Assessee, in our view,proceedings under Section 153C of the Act could not beinitiated on the basis of the said disk." ^■P-(C) No. 525 of 20IS & connected matters Page p 22 op of /■?/)30 details of income tax filing did not in fact constitute incriminating material.In fact the clear finding was that the hard disc did not belong to theAssessee. It is evident from para 30 which reads as under: "30. It is not disputed that the said hard disk also did notcontain any incriminating as the data on the hard disc onlysupported the return filed by the Assessee. This apart, as thehard disc did not belong to the Assessee, in our view,proceedings under Section 153C of the Act could not beinitiated on the basis of the said disk." 38. The said decision too therefore did not hold that the failure by the AO ofthe searched person to record that the documents belonging to the otherperson do not belong to the searched person would vitiate the proceedingsunder Section 153C against the other person, 39. The Madhya Pradesh High Court'm Commissioner of Income-tax v.Mechmenisupra) reiterated the settled position that it is mandatory for theAO of the searched person to record a satisfaction note in respect of theother person. That preposition is in fact too well settled. The CBDT Circularnow puts it beyond the pale of doubt. It categorically states that even wherethe AO of the searched person and the other person is same, such AO is notrelieved of its statutory obligation to record a satisfaction note in respect ofthe other person. 40. In Pr. Commissioner of Income Tax (Central-II) v. Aakash ArogyaMandir Pvt. L/r/. (supra), there were factual findings that the AO of thesearched person had not recorded the satisfaction note in respect of the otherperson. Likewise, in ARN Infrastructure India Ltd. v. Assistant '*W.P.(C) No. 525 of 2015 connected matters Page 23 of 30 Commissioner of Income-Tax{sM'^x2), the Court was satisfied that thedocuments seized were not incriminating. Legal position summarised 41. To summarise the legal position: (i) No search under Section 132(1) of the Act can be initiated without asatisfaction note being recorded by the AO of such searched person. This isfollowed by issuance of a notice to such searched person under Section153A of the Act. At that stage the AO does not have to record anothersatisfaction note qua the searched person. (ii) Where proceedings are proposed to be initiated under Section 153C ofthe Act against the other person', it has to be preceded by a satisfaction noteby the AO of the searched person. He will record in this satisfaction notethat the seized document to the other on thebelongs. person. Depending nature and contents of the document he may be required to give somereasons for such conclusion. (iii) Where the AO Of the searched .person is different from the AO of theother person, the AO will simultaneous with transmitting the documentsalong with his satisfaction note to the AO of the other person, make a note inthe file of the searched person that he has done so. But this is foradministrative convenience. The failure by the AO of the searched person,after preparing and despatching the satisfaction note and documents to theAO of the other person, to make a noting to that effect in the file of thesearched will not vitiate the under Section 153C person proceedings againstJV.P.(C) No. 525 of 2015 connected matters Pwe 24 of 30 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