Facts of the Case

A search and seizure operation under Section 132(1) was conducted on the Jaipuria Group on 27.03.2012. During the search, certain documents were seized which, according to the Revenue, belonged to PepsiCo India Holdings Pvt. Ltd.

A satisfaction note dated 29.07.2013 was prepared by the Assessing Officer stating that the seized documents belonged to the petitioner company. Thereafter, notices under Section 153C were issued for Assessment Years 2006-07 to 2011-12.

The seized documents mainly consisted of:

  1. Photocopies of cumulative redeemable preference share certificates;
  2. Unsigned cheque leaves found in cheque books of Jaipuria Group companies;
  3. Photocopy of a supply and loan agreement between Pearl Drinks Ltd. and PepsiCo India Holdings Pvt. Ltd.

The petitioner objected to the initiation of proceedings on the ground that the seized documents did not belong to it. The objections were rejected by the Assessing Officer, leading to filing of the writ petitions before the Delhi High Court

Issues Involved

  1. Whether proceedings under Section 153C can be initiated merely because seized documents relate to or refer to another person.
  2. Whether photocopies, unsigned cheque leaves, and copies of agreements found during search can be said to “belong to” the petitioner company.
  3. Whether the Assessing Officer recorded proper satisfaction as mandated under Section 153C of the Income Tax Act.
  4. Whether the expression “belongs to” under Section 153C can be equated with “relates to” or “refers to”.

Petitioner’s Arguments

The petitioner argued that:

  • The photocopies of preference share certificates found during the search belonged to the Jaipuria Group and not to the petitioner.
  • Original share certificates were with the petitioner, but photocopies found in possession of another party cannot be treated as belonging to the petitioner.
  • Unsigned cheque leaves found in the cheque books of Jaipuria Group companies remained the property of those companies and never belonged to the petitioner.
  • The photocopy of the supply and loan agreement found during the search belonged to the searched person, whereas the original agreement was with the petitioner.
  • Section 153C requires clear satisfaction that the seized material belongs to a person other than the searched person, which was absent in the present case.
  • The expression “belongs to” cannot be interpreted as “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 rightly initiated.
  • The Assessing Officer had recorded a satisfaction note and complied with statutory requirements.
  • 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 argued that these decisions supported the validity of proceedings under Section 153C.

Court Findings / Court Order

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

The Court held that:

  • Before invoking Section 153C, the Assessing Officer must first establish that the seized documents do not belong to the searched person.
  • Mere mention of another person’s name in documents is insufficient to invoke Section 153C.
  • The expression “belongs to” has a narrower meaning than “relates to” or “refers to”.
  • Photocopies found in possession of the searched person cannot automatically be treated as belonging to the holder of the original documents.
  • Unsigned cheque leaves found in cheque books of Jaipuria Group companies belonged to those companies and not to the petitioner.
  • The satisfaction note did not disclose any material showing that the seized documents did not belong to the Jaipuria Group.

Accordingly, the Court held that the mandatory jurisdictional requirements under Section 153C were not satisfied.

Important Clarification by the Court

The Court made an important distinction between the expressions:

  • “Belongs to”
  • “Relates to”
  • “Refers to”

The Court clarified that these expressions cannot be treated as interchangeable. A document may relate to or refer to a person without belonging to that person.

The Court illustrated this principle through the example of a registered sale deed:

  • A sale deed belongs to the purchaser even though it refers to the vendor.
  • Similarly, a photocopy of a document found during search does not necessarily belong to the holder of the original document.

This judgment became a landmark authority on interpretation of Section 153C and jurisdictional satisfaction requirements in search assessment proceedings.

Sections Involved

  • Section 153C of the Income Tax Act, 1961
  • Section 153A of the Income Tax Act, 1961
  • Section 132(1) of the Income Tax Act, 1961
  • Section 132(4A)(i) of the Income Tax Act, 1961
  • Section 292C(1)(i) of the Income Tax Act, 1961
  • Section 143(3) of the Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:3927-DB/BDA14082014CW5662014.pd 

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