IN HIGH COURT OF DELHI AT NEW DELHI 10-15 W.P.(C) 3241/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. With + W.P.(C) 3242/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. With + W.P.(C) 3243/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus WP (C) 3241/2015 & connected matters Page 1 of 11 INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. With W.P.(C) 3245/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. With W.P.(C) 3246/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. And + W.P.(C) 3248/2015 CANYON FINANCIAL SERVICES LTD ..... Petitioner WP (C) 3241/2015 & connected matters Page 2 of 11 Through: Mr. Kamal K. Jetley with Mr. Rishabh Jetley and Mr. Varun Kaushik, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: Mr. Rahul Chaudhary, Senior standing counsel with Ms. Lakshmi Gurung, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER % 10.07.2017 Dr. S. Muralidhar, J. 1. These are five writ petitions filed by Canyon Financial Services Limited (hereafter 'the Assessee'), questioning satisfaction notes dated 13th and 19th March, 2014 issued by Deputy Commissioner of Income Tax ( DCIT ), Central Circle-2 New Delhi [hereinafter referred to Assessing Officer ( AO') of searched person ] and Income Tax Officer, Ward 3(2), New Delhi [hereinafter AO of Assessee ] respectively initiating proceedings against Assessee under Section 153C of Income Tax Act, 1961 ( Act ). 2. search and seizure operation was carried out in case of M/s. Dalmia Group of cases on 20th, 27th and 28th January 2012 by Investigation Wing Unit-VI(1), New Delhi of Income Tax Department ('Department'). In that process search was undertaken of Mr. Parag Dalmia at Bhikaji Cama Place, New Delhi and documents comprising 249 pages were seized. WP (C) 3241/2015 & connected matters Page 3 of 11 3. During consequent assessment proceedings involving Dalmia Infrastructures Private Limited ( DIPL ) [formerly known as Dalmia Equities Private Limited ( DEPL )], AO of DEPL prepared on 13th March 2014 satisfaction note in which set out in tabular form analysis of some of documents seized as under: Annexure No.1 Page Description of documents Party No. Nos. A-3/DB-8 1-48 These pages contain letter from M/s Canyon Financial Services Ltd. (AAACC3744J) written to Board of Directors, Dalmia Equities Pvt. Ltd. Regarding application for equity shares of Rs. 10/- each at premium of Rs. 110/- per share. Certificate of Canyon Financial Services Ltd., confirming issue of equity shares of Dalmia Equities Pvt. Ltd. Copy of Form 32, copy of return of income of Canyon Financial Services Ltd. Director's report, certificate of incorporation, memorandum of association. 4. Thereafter, AO of searched person recorded his satisfaction as under: I have examined documents and I am satisfied that above seized material belongs to M/s Canyon Financial Services Ltd., which is assessed to tax with Ward 3(2), New Delhi. Hence, notice u/s 153C may be issued in case of M/s. Canyon Financial Services Ltd. Accordingly for AYs 2006-07 to 2011-12. 5. search in Dalmia Group of Companies took place on 20 th January, 2012 and satisfaction note by AO of searched person was dated 13th March, 2014. Therefore, Section 153C as it stood prior to amendment with effect from 1st June, 2015 applied to case on hand. In WP (C) 3241/2015 & connected matters Page 4 of 11 terms of said provision i.e., 153C(1), AO of searched person had to be satisfied that documents seized belongs or belong to person other than person referred to in Section 153A' in order that AO of searched person could to hand over such documents to AO having jurisdiction over such other person . change brought about by prospective amendment, with effect from 1st June 2015, is that for initiating proceedings under Section 153 C arising from searches after that date it is enough for Department to show that particular seized document 'pertains to' other person. However, in present case, since proceedings under Section 153 C (1) of Act against Assessee commenced prior to 1st June 2015, Department is not relieved of burden of showing that seized documents in fact belong to (and not merely pertain to) Assessee. 6. In present case, after recording satisfaction note as above on 13 th March 2014, AO of searched person made over aforementioned documents to AO of Assessee. On 19th March 2014, AO of Assessee recorded his satisfaction note. This AO reproduced same tabular columns as well as description of documents as set out in satisfaction note of AO of searched person. Thereafter, AO of Assessee recorded verbatim satisfaction as recorded by AO of searched person word for word. 7. Following above satisfaction notes, notices under Section 143(2) of Act dated 17th July, 2014 and Section 142(1) dated 5th September, 2014 was issued by AO of Assessee to Assessee thereby initiating WP (C) 3241/2015 & connected matters Page 5 of 11 proceedings under Section 153C of Act in respect of Assessment Years 2006-07 to 2011-12. 8. On 20th March, 2015, Assessee submitted objections to initiation of proceedings under Section 153C of Act. Inter alia it was pointed out that it was not shown in either of satisfaction notes as to how documents seized as referred to therein belongs to Assessee in terms of Section 153C. presumption in terms of Section 132(4A) read with Section 292C that documents belonged to searched person was also not rebutted by Revenue. reference inter alia was made to decision in Pepsico India Holdings (P) Limited v. Assistant Commissioner of Income Tax (2015) 370 ITR 295 (Del). 9. above submissions were negatived by AO of Assessee. This led to filing of present petitions. On 27th March, 2015, this Court passed interim order staying further proceedings pursuant to aforementioned satisfaction notes. 10. Mr. Kamal K. Jetley, learned counsel appearing for Petitioner, submitted that in terms of Section 153C (1) of Act as it stood prior to amendment with effect from 1st June 2015, it was incumbent on Department to show documents seized and referred to in satisfaction notes of both AO of searched person and of AO of Assessee in fact belong to Assessee. Apart from decision in Pepsico India Holdings (P) Ltd v. Assistant Commissioner of Income Tax (supra), Mr. Jetley also referred to decision in Pepsi Foods (P) Ltd. v. Assistant Commissioner of Income Tax (2015) 376 ITR 87 (Del). WP (C) 3241/2015 & connected matters Page 6 of 11 11. Mr. Rahul Chaudhary, learned Senior standing counsel appearing for Department submitted that presumption under Section 132(4A) read with Section 292C of Act was for benefit of Department relieving it of obligation of having to show that documents seized from possession of searched person belonged to searched person. According to Mr. Chaudhary, this presumption must be extended to relieve Department of having to show that documents seized in fact did not belong to searched person but to some other person against whom proceedings under Section 153C of Act were to be initiated. 12. two decisions that are relevant in this context are Pepsico India Holdings (P) Ltd v. Assistant Commissioner of Income Tax (supra) and Pepsi Foods (P) Ltd. v. Assistant Commissioner of Income Tax (supra). What Section 153C (1) of Act requires in context of present case is for two satisfaction notes to be prepared since there are two different AOs, viz., AO of searched person and AO of Assessee (the other person ). 13. In first place, satisfaction note of AO of searched person has to record that document seized belongs or belong to person other than person referred to in Section 153A" of Act. It was explained in Pepsico India Holdings (P) Ltd v. Assistant Commissioner of Income Tax (supra) and reiterated in Pepsi Foods (P) Ltd. v. Assistant Commissioner of Income Tax (supra) that, given nature of particular seized document, in process of recording his satisfaction, AO of searched person may have to note reasons for his conclusion that said WP (C) 3241/2015 & connected matters Page 7 of 11 document does not belong to searched person but to other person. It is not necessary that this should be done in each and every case. If, as in present case, AO of 'other person' is not AO also of searched person, then AO of other person has obligation to also examine if indeed any of documents handed over to him by AO of searched person in fact belong to Assessee and further if they constitute incriminating material justifying reopening of assessments of Assessee. This is then second filter. However, as already mentioned, in each case extent of satisfaction of above requirement will depend upon on nature of documents. 14. Turning to case at hand, first document referred to in satisfaction note of AO of searched person is application made by Assessee for subscription to shares of DEPL. Being application for subscription of equity shares, it is document filled up by Assessee and submitted to DEPL. said application having being found in possession of searched person should safely be presumed to belong to searched person by virtue of Section 132 (4A) read with Section 292 C of Act. DEPL, there is also presumption that it in fact belongs to DEPL. This is rebuttable presumption. But rebuttable at instance of searched person. 15. presumption operates in favour of Department by relieving it of burden of having to demonstrate that aforementioned document belongs to DEPL. But here Department seeks to be relieved of burden of demonstrating that said document in fact does not belong to WP (C) 3241/2015 & connected matters Page 8 of 11 DEPL but to Assessee. That is not possible on collective reading of Section 132 (4A) and Section 292 C of Act. These provisions do not dilute obligation on Department and in particular AO of searched person, under Section 153 C (1) of Act as it stood prior to 1st April 2015 of showing that seized document belongs to other person (here, Assessee) and not searched person from whom it was seized. 16. application submitted by Assessee for subscription of shares of DEPL can certainly be said to be pertaining to to Assessee. However, once it was submitted by Assessee to DEPL, and was found in possession of DEPL, it cannot be said to 'belong' to Assessee. If it had been recovered from premises of Assessee then position may have been different. Based on presumption under Section 132 (4A) read with Section 292 C of Act it may have been possible to proceed against Assessee under Section 153 of Act subject of course to document constituting incriminating material. However, in present case that is not position. jurisdictional requirement under Section 153C (1) of Act of Department having to show that application made by Assessee for equity shares of DEPL belongs to Assessee is not satisfied. 17. second document is certificate issued by Assessee confirming issuance in its favour of equity shares of DEPL. said document is titled To whomsoever it may concern . It is, clearly, not addressed to particular person but to anyone who may receive it. This document after it has been despatched by Assessee and found in WP (C) 3241/2015 & connected matters Page 9 of 11 possession of someone else cannot said to 'belong' to Assessee. While it may 'pertain' to Assessee, it cannot be presumed to belong to it when it is not recovered from Assessee but from searched person. 18. other documents are copies of Form-32 of Assessee, copies of return of income of Assessee, copy of its director s report, copy of certificate of incorporation and memorandum of association. These were documents furnished by Assessee to DEPL and found in possession of DEPL. Here, again, it cannot be presumed that such documents having being found in possession of DEPL did not belong to DEPL but to Assessee. Here again, while documents may pertain to Assessee, but in context explained above, they cannot be presumed to be documents that belonged to searched person. Consequently, even with regard to these documents, jurisdictional requirement under Section 153 C (1) of Act, of AO of searched person having to be satisfied that said documents do not belong to searched person but to Assessee, has not been fulfilled. 19. As result, Court holds that satisfaction note prepared by AO of searched person does not fulfil legal requirement spelled out in Section 153C (1) of Act. satisfaction note of AO of Assessee, being carbon copy of satisfaction note of AO of searched person also fails to fulfil jurisdictional requirement. No reasons are recorded for identical conclusion in either satisfaction note that seized documents mentioned therein belong not to searched person but to Assessee. WP (C) 3241/2015 & connected matters Page 10 of 11 20. For all aforementioned reasons, two satisfaction notes dated 13th and 19th March, 2014 issued by AOs of searched person and Assessee respectively, and all proceedings consequent thereto, are hereby quashed. 21. writ petitions are allowed in above terms but, in circumstances, with no order as to costs. S.MURALIDHAR, J PRATHIBA M. SINGH, J JULY 10, 2017 Rm WP (C) 3241/2015 & connected matters Page 11 of 11 Canyon Financial Services Ltd. v. Income-tax Officer