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Canyon Financial Services Ltd Vs. Income Tax Officer
July, 26th 2017
$~
*     IN THE 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 the satisfaction notes dated 13th and
19th March, 2014 issued by the Deputy Commissioner of Income Tax
(`DCIT'), Central Circle-2 New Delhi [hereinafter referred to the Assessing
Officer (`AO') of the searched person'] and the Income Tax Officer, Ward
3(2), New Delhi [hereinafter `AO of the Assessee'] respectively initiating
proceedings against the Assessee under Section 153C of the Income Tax
Act, 1961 (`Act').

2. A search and seizure operation was carried out in the case of M/s. Dalmia
Group of cases on 20th, 27th and 28th January 2012 by the Investigation
Wing Unit-VI(1), New Delhi of the Income Tax Department ('Department').
In that process a 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 the consequent assessment proceedings involving Dalmia
Infrastructures Private Limited (`DIPL') [formerly known as Dalmia
Equities Private Limited (`DEPL')], the AO of DEPL prepared on 13th
March 2014 a satisfaction note in which set out in a tabular form an analysis
of some of the 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 a 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, the AO of the searched person recorded his satisfaction as
under:
         "I have examined the documents and I am satisfied that the 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 the case of M/s. Canyon Financial Services Ltd.
         Accordingly for AYs 2006-07 to 2011-12."

5. The search in the Dalmia Group of Companies took place on 20 th January,
2012 and the satisfaction note by the AO of the searched person was dated
13th March, 2014. Therefore, Section 153C as it stood prior to the
amendment with effect from 1st June, 2015 applied to the case on hand. In




WP (C) 3241/2015 & connected matters                                            Page 4 of 11
terms of the said provision i.e., 153C(1), the AO of the searched person had
to be satisfied that the documents seized `belongs or belong to a person other
than the person referred to in Section 153A' in order that the AO of the
searched person could to hand over such documents to the AO "having
jurisdiction over such other person". The change brought about by the
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 the Department to show that a particular seized document
'pertains to' the other person. However, in the present case, since the
proceedings under Section 153 C (1) of the Act against the Assessee
commenced prior to 1st June 2015, the Department is not relieved of the
burden of showing that the seized documents in fact belong to (and not
merely pertain to) the Assessee.

6. In the present case, after recording the satisfaction note as above on 13 th
March 2014, the AO of the searched person made over the aforementioned
documents to the AO of the Assessee. On 19th March 2014, the AO of the
Assessee recorded his satisfaction note. This AO reproduced the same
tabular columns as well as description of documents as set out in the
satisfaction note of the AO of the searched person. Thereafter, the AO of the
Assessee recorded verbatim the satisfaction as recorded by the AO of the
searched person word for word.

7. Following the above satisfaction notes, notices under Section 143(2) of
the Act dated 17th July, 2014 and Section 142(1) dated 5th September, 2014
was issued by the AO of the Assessee to the Assessee thereby initiating




WP (C) 3241/2015 & connected matters                                     Page 5 of 11
proceedings under Section 153C of the Act in respect of the Assessment
Years 2006-07 to 2011-12.

8. On 20th March, 2015, the Assessee submitted objections to the initiation
of proceedings under Section 153C of the Act. Inter alia it was pointed out
that it was not shown in either of the satisfaction notes as to how the
documents seized as referred to therein "belongs to" the Assessee in terms
of Section 153C. The presumption in terms of Section 132(4A) read with
Section 292C that the documents belonged to the searched person was also
not rebutted by the Revenue. A reference inter alia was made to the decision
in Pepsico India Holdings (P) Limited v. Assistant Commissioner of
Income Tax (2015) 370 ITR 295 (Del).

9. The above submissions were negatived by the AO of the Assessee. This
led to the filing of the present petitions. On 27th March, 2015, this Court
passed an interim order staying further proceedings pursuant to the
aforementioned satisfaction notes.

10. Mr. Kamal K. Jetley, learned counsel appearing for the Petitioner,
submitted that in terms of Section 153C (1) of the Act as it stood prior to the
amendment with effect from 1st June 2015, it was incumbent on the
Department to show the documents seized and referred to in the satisfaction
notes of both the AO of the searched person and of the AO of the Assessee
in fact `belong to' the Assessee. Apart from the decision in Pepsico India
Holdings (P) Ltd v. Assistant Commissioner of Income Tax (supra), Mr.
Jetley also referred to the 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 the
Department submitted that the presumption under Section 132(4A) read with
Section 292C of the Act was for the benefit of the Department relieving it of
the obligation of having to show that the documents seized from the
possession of the searched person belonged to the searched person.
According to Mr. Chaudhary, this presumption must be extended to relieve
the Department of having to show that the documents seized in fact did not
belong to the searched person but to some other person against whom the
proceedings under Section 153C of the Act were to be initiated.






12. The 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 the Act requires in the context of the present case
is for two satisfaction notes to be prepared since there are two different AOs,
viz., the AO of the searched person and the AO of the Assessee (the `other
person').

13. In the first place, the satisfaction note of the AO of the searched person
has to record that the document seized "belongs or belong to the person
other than the person referred to in Section 153A" of the 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 the nature of a particular
seized document, in the process of recording his satisfaction, the AO of the
searched person may have to note the reasons for his conclusion that the said



WP (C) 3241/2015 & connected matters                                     Page 7 of 11
document does not belong to the searched person but to the other person. It
is not necessary that this should be done in each and every case. If, as in the
present case, the AO of the 'other person' is not the AO also of the searched
person, then the AO of the other person has an obligation to also examine if
indeed any of the documents handed over to him by the AO of the searched
person in fact belong to the Assessee and further if they constitute
incriminating material justifying the reopening of the assessments of the
Assessee. This is then the second filter. However, as already mentioned, in
each case the extent of satisfaction of the above requirement will depend
upon on the nature of the documents.

14. Turning to the case at hand, the first document referred to in the
satisfaction note of the AO of the searched person is an application made by
the Assessee for subscription to the shares of DEPL. Being an application
for subscription of equity shares, it is a document filled up by the Assessee
and submitted to DEPL. The said application having being found in the
possession of the searched person should safely be presumed to belong to
the searched person by virtue of Section 132 (4A) read with Section 292 C
of the Act. DEPL, there is also presumption that it in fact belongs to DEPL.
This is a rebuttable presumption. But rebuttable at the instance of the
searched person.

15. The presumption operates in favour of the Department by relieving it of
the burden of having to demonstrate that the aforementioned document
belongs to the DEPL. But here the Department seeks to be relieved of the
burden of demonstrating that the said document in fact does not belong to




WP (C) 3241/2015 & connected matters                                     Page 8 of 11
DEPL but to the Assessee. That is not possible on a collective reading of
Section 132 (4A) and Section 292 C of the Act. These provisions do not
dilute the obligation on the Department and in particular the AO of the
searched person, under Section 153 C (1) of the Act as it stood prior to 1st
April 2015 of showing that the seized document belongs to the other person
(here, the Assessee) and not the searched person from whom it was seized.

16. The application submitted by the Assessee for subscription of shares of
DEPL can certainly be said to be `pertaining to' to the Assessee. However,
once it was submitted by the Assessee to DEPL, and was found in
possession of DEPL, it cannot be said to 'belong' to the Assessee. If it had
been recovered from the premises of the Assessee then the position may
have been different. Based on the presumption under Section 132 (4A) read
with Section 292 C of the Act it may have been possible to proceed against
the Assessee under Section 153 A of the Act subject of course to the
document constituting incriminating material. However, in the present case
that is not the position. The jurisdictional requirement under Section 153C
(1) of the Act of the Department having to show that the application made
by the Assessee for the equity shares of DEPL belongs to the Assessee is
not satisfied.

17. The second document is the certificate issued by the Assessee
confirming the issuance in its favour of the equity shares of DEPL. The said
document is titled `To whomsoever it may concern'. It is, clearly, not
addressed to a particular person but to anyone who may receive it. This
document after it has been despatched by the Assessee and found in




WP (C) 3241/2015 & connected matters                                  Page 9 of 11
possession of someone else cannot said to 'belong' to the Assessee. While it
may 'pertain' to the Assessee, it cannot be presumed to `belong to' it when it
is not recovered from the Assessee but from the searched person.

18. The other documents are copies of Form-32 of the Assessee, copies of
the return of income of the Assessee, copy of its director's report, copy of
certificate of incorporation and memorandum of association. These were
documents furnished by the Assessee to DEPL and found in the possession
of DEPL. Here, again, it cannot be presumed that such documents having
being found in the possession of the DEPL did not belong to DEPL but to
the Assessee. Here again, while the documents may `pertain to' the
Assessee, but in the context explained above, they cannot be presumed to be
documents that `belonged to' the searched person. Consequently, even with
regard to these documents, the jurisdictional requirement under Section 153
C (1) of the Act, of the AO of the searched person having to be satisfied that
the said documents do not belong to searched person but to the Assessee,
has not been fulfilled.

19. As a result, the Court holds that the satisfaction note prepared by the AO
of the searched person does not fulfil the legal requirement spelled out in
Section 153C (1) of the Act. The satisfaction note of the AO of the
Assessee, being a carbon copy of the satisfaction note of the AO of the
searched person also fails to fulfil the jurisdictional requirement.       No
reasons are recorded for the identical conclusion in either satisfaction note
that the seized documents mentioned therein belong not to the searched
person but to the Assessee.




WP (C) 3241/2015 & connected matters                                   Page 10 of 11
20. For all the aforementioned reasons, the two satisfaction notes dated 13th
and 19th March, 2014 issued by the AOs of the searched person and the
Assessee respectively, and all proceedings consequent thereto, are hereby
quashed.

21. The writ petitions are allowed in the above terms but, in the
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

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