PepsiCo India Holdings Pvt. Ltd. vs Assistant Commissioner of Income Tax & Anr. | Delhi High Court on Section 153C Proceedings, “Belongs To” Test & Invalid Satisfaction Note under Income Tax Act

 Facts of the Case

• A search and seizure operation under Section 132(1) of the Income Tax Act was conducted on the Jaipuria Group on 27.03.2012.
• During the search, certain documents were allegedly found which, according to the Revenue, belonged to PepsiCo India Holdings Pvt. Ltd.
• The Assessing Officer recorded a Satisfaction Note dated 29.07.2013 and issued notices under Section 153C on 02.08.2013 for Assessment Years 2006-07 to 2011-12.
• The documents relied upon by the Revenue included:
• Photocopies of preference share certificates,
• Unsigned cheque leaves found in cheque books of Jaipuria Group companies,
• Copy of a supply and loan agreement between Pearl Drinks Ltd. and PepsiCo India Holdings Pvt. Ltd.
• The petitioner objected to the initiation of proceedings under Section 153C on the ground that the seized documents did not “belong to” it.
• The objections were rejected by the Assessing Officer, leading to the filing of writ petitions before the Delhi High Court.

Issues Involved

1. Whether the seized documents could be said to “belong to” the petitioner for invoking Section 153C of the Income Tax Act?
2. Whether photocopies and unsigned cheque leaves found during search proceedings satisfy the jurisdictional requirement under Section 153C?
3. Whether a valid Satisfaction Note was recorded by the Assessing Officer before issuing notices under Section 153C?
4. Whether documents merely “relating to” or “referring to” a person are sufficient for initiation of proceedings under Section 153C?

Petitioner’s Arguments

• The petitioner argued that the photocopies of preference share certificates belonged to the Jaipuria Group and not to PepsiCo India Holdings Pvt. Ltd. The originals alone could be said to belong to the petitioner.
• It was contended that unsigned cheque leaves found in cheque books of Jaipuria Group companies could not, by any stretch of imagination, belong to the petitioner.
• The petitioner further argued that the copy of the supply and loan agreement found during the search belonged to the searched party, whereas the original agreement remained with the petitioner.
• The petitioner submitted that Section 153C could not be invoked unless the Assessing Officer first arrived at a clear satisfaction that the seized documents did not belong to the searched person.
• It was argued that the expression “belongs to” cannot be equated with “relates to” or “refers to.”

Respondent’s Arguments

• The Revenue contended that the seized documents contained references to PepsiCo India Holdings Pvt. Ltd. and therefore proceedings under Section 153C were validly initiated.
• Reliance was placed upon judicial precedents including:
• Kamleshbhai Dharamshibhai Patel v. CIT
• CIT v. Classic Enterprises
• SSP Aviation Ltd. v. DCIT
• Sarvesh Kumar Agarwal v. Union of India
• The Revenue maintained that the Satisfaction Note complied with the statutory requirement under Section 153C.

Court Findings / Court Order

The Delhi High Court allowed the writ petitions and quashed the notices issued under Section 153C of the Income Tax Act.

Key Findings of the Court

1. Mandatory Satisfaction under Section 153C

The Court held that before invoking Section 153C, the Assessing Officer must be satisfied that:

• the seized documents do not belong to the searched person, and
• they belong to some other person.

2. Mere Mention is Not Sufficient

The Court clarified that merely using the expression “I am satisfied” in the Satisfaction Note does not fulfil the legal requirement under Section 153C. The Satisfaction Note must disclose cogent reasons showing how the statutory presumption was rebutted.

3. Distinction between “Belongs To” and “Relates To”

The Court specifically observed that:

• “belongs to” is different from “relates to” or “refers to.”
• A document may refer to another person, but that does not mean the document legally belongs to such person.

4. Photocopies and Unsigned Cheques

The Court held that:

• photocopies found in possession of the searched party cannot automatically be treated as belonging to the holder of originals;
• unsigned cheque leaves found in cheque books of the searched group belonged to the searched group itself.

5. Proceedings Quashed

The Court concluded that the ingredients of Section 153C were not satisfied and therefore:

• all notices dated 02.08.2013 issued under Section 153C were quashed,
• all consequential proceedings stood quashed.

Important Clarification by the Court

The Court made a significant clarification regarding interpretation of Section 153C:

The expression “belongs to” cannot be confused with the expressions “relates to” or “refers to.” Mere reference to a person in a document does not establish ownership of the document by that person.

The Court further clarified that unless the searched person disclaims ownership of seized material, Section 153C cannot ordinarily be invoked against another person.

Relevant Sections Involved

• Section 153C – Assessment of income of any other person
• Section 153A – Assessment in case of search or requisition
• Section 132(1) – Search and seizure
• Section 132(4A)(i) – Presumption regarding ownership of documents
• Section 292C(1)(i) – Presumption as to assets, books of account and documents
• Section 143(3) – Scrutiny assessment