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Vinod Kumar Gupta Vs. Deputy Commissioner Of Income Tax Central Circle-17
March, 13th 2018
                                                Reserved on: 06.02.2018
                                              Pronounced on: 12.03.2018

+      ITA 1003/2017, C.M. APPL.41767-41768/2017 & 3505/2018
       VINOD KUMAR GUPTA                          .... Appellant
                  Through: Sh. Arvind Kumar with Sh. Harshvardhan
                  Sharma, Advocates.
       CIRCLE-17                                    .... Respondents
                 Through: Sh. Zoheb Hossain, Sr. Standing Counsel with
                 Sh. Deepak Anand, Advocate.
1.     The question of law framed in this appeal is as follows:

       "Was the addition ­ upheld by the impugned order, on the basis
       of statements made by Sh. Suresh Kumar Gupta and the
       materials seized from his premises justified in the facts and
       circumstances of the case given that the premises were
       separate, though a common warrant under Section 132 of the
       Income Tax Act, 1961 was issued in respect of both?"
2.     A search and seizure operation under Section 132 of the Income Tax
Act, 1961 [hereafter "the Act"] was conducted at the premises of the
appellant-assessee on 30.07.2009.      The search included the assessee's
brother ­ Mr. Suresh Kumar Gupta ("S.K. Gupta" hereafter) who lived in the
first and second floor of the same premises, namely, S-511, Greater Kailash
Part-II. The assessee and that brother lived separately, but in the same

ITA 1003/2017                                                     Page 1 of 10
building.       Two panchnamas were drawn in the course of the searched
premises listing out the material seized separately from both the premises.
On 21.04.2010, a notice under Section 153A of the Act was issued and the
assessee filed his return declaring a total income of `3,80,610/-.        The
Assessing Officer (AO) completed the assessment, at `1,94,62,172/- by
adding amounts that were based upon documents seized from the premises
of S.K. Gupta, from his residential and office premises at Daryaganj. The
AO was of the opinion that in the overall facts and circumstances of the case,
percentage of the income based on the statements made, were attributable to
the income of the assessee. This amount included `1,97,30,929/- on account
of undisclosed interest income made in the case of S.K. Gupta. A portion of
the income was added to the assessee's income. An additional amount of
`92,16,098/- on account of unaccounted expenditure on the marriage of the
son and daughter of the assessee was made.

3.     The assessee appealed to the Commissioner [hereafter "the Appellate
Commissioner"]. The Appellate Commissioner had earlier made a detailed
appellate order rejecting S.K. Gupta's appeal on 28.10.2013. That appellate
order was for the Assessment Year (A.Y.) 2006-07 and had found that the
undisclosed income derived from the notings in the seized documents
belonged to both the brothers. In the appeal preferred by the assessee, the
Appellate Commissioner apportioned the undisclosed interest income in the
ratio of 40%:60% respectively in the hands of the assessee and the brother -
S.K. Gupta. The Appellate Commissioner rested his reasoning, based upon a
settlement award made by the Company Law Board in the course of inter se
disputes and differences that were the subject matter of litigation before the

ITA 1003/2017                                                       Page 2 of 10
Board. The Appellate Commissioner also allowed credit for the opening
capital. The assessee appealed to the Tribunal.

4.     The Tribunal by the impugned order rejected the assessee's contention
with respect to the validity of the assessment made in the block period. The
assessee had contended that in the absence of any satisfaction recorded in
terms of Section 153C(1) of the Act, since the seizures relied upon in the
final assessment pertained to him but were made in the course of the
proceedings and search of his brother's premises (to which he was a t hird
party), the materials so seized became third party material for which notice
was mandatorily required. It was argued, in other words, that in the absence
of a notice under Section 153C, the assessment was illegal. This contention
was rejected by the Tribunal. The assessee had challenged the substantive
addition with respect to the apportioning of interest income in the hands of
the other brother. He had contended that the ratio of 40%:60%, i.e. 40%
attributable to him on account of the appellate order of the Commissioner
made in his brother's case which was followed in his case as well was not
legal. The Tribunal rejected this contention.

5.     The Tribunal, by its impugned order, rejected the assessee's
arguments, and held, inter alia, as follows:

       "On careful consideration of the above rival submissions and
       vigilant and careful perusal of the material available on record
       and on respectful consideration of the case laws cited at bar
       before us, we observe that the documents and consolidated
       balance sheet, as available in the assessee's paper book- I from
       pages 196 to 221, it is vivid that these consolidated balance
       sheets reflect the assets in the shape of bank balance,
       investment in properties in the names of various group

ITA 1003/2017                                                       Page 3 of 10
       members and companies relating to the present assessees i.e.
       Shri S.K. Gupta and Shri V.K. Gupta. We further observe that
       the debtors, stock, loans, advances and creditors of various
       group companies belonging to the present assessees and ' bank
       borrowings show that the loans have been taken in the names
       and Smt. Madhu Gupta wife of Shri S.K. Gupta and Smt. Veena
       Gupta wife of Shri V.K. Gupta. Therefore, the income arising
       on account of these assets cannot be exclusively attributed or
       held as belonging to late Shri Suraj Bhan Gupta only.
       The charging section 4 of the Income Tax Act provides that the
       tax is to be charged on the income of a person to the extent it
       belongs to him. In the present case, the income belongs to
       various individuals and group companies from the assets,
       investments, etc. which cannot be held as exclusively belonging
       to late Shri Suraj Bhan Gupta and the same belongs to various
       family members including the present assessees, their wives and
       children. We may also point out that as the seized documents
       are cash book, ledger account, consolidated balance sheets and
       other documents and these have been maintained just to briefly
       record the assets and liabilities of the family members and
       group companies, therefore, various complexity and
       uncertainties are there in the identification of exact income,
       which belongs to the individual members of the group
       companies and thus it is not possible to allocate the income
       there from person-wise and company-wise. Therefore, we ate
       inclined to agree with the findings of the Commissioner of
       Income Tax (Appeals) that the income should be allocated
       between Shri. S.K Gupta and Shri V.K. Gupta as they are the
       key players after the death of Late Shri Suraj Bhan Gupta and
       they also agreed before the Company Law Board vide order
       dated 13.1.2009 to divide the assets of the family and group
       companies in the ratio of 60:40 respectively among them.
       Hence, we decline to agree with the contention of the assessee
       that the entire income discernible from the consolidated
       balance sheets should be assessed in the hands of Late Shri
       Suraj Bhan Gupta.
       22. So far as the alternative prayer of the assessee is concerned

ITA 1003/2017                                                        Page 4 of 10
       that the income should be assessed in the hands of AOP is
       concerned, we do not find any force in this contention as there
       was no AOP in existence during the relevant assessment years
       and it is also not clear as to which AOP the income should be
       assessed. At this juncture, we again point out that vide
       Company Law Board order dated I 3.1.2009 both the assessees
       have agreed to divide the assets of the group which was headed
       by late Shri Suraj Bhan Gupta between them in the ratio of
       60:40 and being a beneficiary of the assets in such ratio, the
       authorities below were right in taxing the income therefrom in
       the same ratio in the hands of respective assessee-appellant.
       Consequently, ground no. 3 of the assessee is dismissed."

6.     Mr. Arvind Kumar, learned counsel argued that the documents seized
from the possession and control of S.K. Gupta from his residential office
premises cannot be presumed under the law, to belong to the assessee, in
terms of Sections 132(4A) and 292C of the Act. It was argued that there has
been no investigation, examination or statement taken under oath under the
Act, in case of the assessee by the Income Tax Department, from which
there could be a reasonable assumption that the incriminating documents
seized from the possession and control of S.K. Gupta belonged to the

7.     It is argued that in terms of Section 153C of the Act (as it existed upto
31.05.2015) the AO of S.K. Gupta had to record his "satisfaction" that the
documents seized under Section 132 of the Act, from the possession and
control of S.K. Gupta, belonged to the assessee, before they could have been
handed over to the AO having jurisdiction over him. In terms of Section
153C of the Act the AO of the assessee could not have proceeded against
him with respect to the said seized documents from the possession and

ITA 1003/2017                                                         Page 5 of 10
control of Sh. S.K. Gupta, without the mandatory recording of the
satisfaction and subsequent handing over the same by the AO of the searched
person, i.e. Sh. Suresh Kumar Gupta.

8.     It was also argued that the Tribunal's conclusion that when there is a
search and seizure operation against two persons simultaneously then the
material documents, etc. seized therefrom can be used validly against both
the searched persons without taking the aid of Section 153C of the Act is
contrary to law. Reliance is placed on the decision of the Supreme Court in
Commissioner of Income Tax -III v. Calcutta Knitwears (362 ITR 673) that
for the purpose of Section 158BD of the Act a satisfaction note is sine qua
non and must be prepared by the AO before he transmits the records to the
other AO who has jurisdiction over such other person, which provision is
parimateria to the provision of Section 153C of the Act. Reliance is also
placed on Pepsico India Holdings Pvt. Ltd. v. ACIT (370 ITR 295);
Commissioner of Income Tax v. RRJ Securities Ltd. (380 ITR 612) and
Principal CIT v. Nikki Drugs and Chemicals Pvt. Ltd. (386 ITR 680).

9.     Counsel argued that the Tribunal's decision that the assessee and his
brother Suresh Kumar Gupta have agreed before the Company Law Board to
divide the assets of the family and the group companies in ratio of 40:60,
respectively among them could be the basis of the finding that the
undisclosed interest income should also be apportioned in the same ratio
between them.

10.    Mr. Zoheb Hossain, learned counsel for the Revenue urged that in this
case there is no dispute that firstly the statement of the assessee was recorded
on 30.07.2009. In the course of the statement, the books seized from his

ITA 1003/2017                                                         Page 6 of 10
premises were confronted to him; he also admitted that a hard disk was
seized in the course of the search. The statement of S.K. Gupta too was
made available before the final assessment order was framed in the case of
the assessee. Based upon the statement as well as the settlement recorded by
the Company Law Board on 13.08.2008, it was concluded that the amounts
required to be added were to be in the names of the assessee and S.K. Gupta
since they were brothers and children of one late Suraj Bhan Gupta. These
amounts during the relevant period were attributable to the business that
their deceased father had with them.     On account of the search, which
occurred later, the income could not be assessed in the case of late Suraj
Bhan Gupta nor assessed in the status of an Association of Persons (AOP).
In this regard, it was pointed out that the assessee was afforded opportunity
to deal with the statement made by his brother and also deal with the
apportionment of the rights and liabilities of the parties in terms of the
compromise/settlement between S.K. Gupta and the assessee, before the
final assessment was made.      Mr. Zoheb Hossain stated that having regard
to all these facts, there was no necessity of issuing notice under Section
153C; the fact of the matter was that the search was a joint one, carried out
in one continuous proceeding, even though at site both the assessee and his
brother lived in separate apartments.

11.    It was argued that the findings of the lower appellate authority are
based upon an overall appreciation of the circumstances and cannot be called
as findings of law. Whilst the incriminating material that led to the adding
of assessee's income were found in the premises of S.K. Gupta, since the
documents were recovered in the course of one search proceeding, there was

ITA 1003/2017                                                       Page 7 of 10
no impediment to treat it as part of one composite search. That the assessee
was issued notice under Section 153A is not in dispute.                In the
circumstances, the attribution of amount of interest was done correctly. It
was stated that as far as the marriage expenditure of assessee's children is
concerned, the addition made i.e. `92,16,098/-, was derived from the books
of account seized from the assessee's premises. In fact, the assessee did not
even urge this aspect and rather gave it up.

Reasoning and Conclusions

12.     The assessee's principal submission with respect to the invalidity of
the search assessment is the absence of notice under Section 153C. What the
assessee argues is that being a third party, the materials relatable to him but
recovered from S.K. Gupta's premises could be used if at all by following
the procedure of prescribing the record to his Assessing Officer (AO). After
recording satisfaction, his AO proceeds to apply his mind to such documents
and if found credible, issue notice and take the matter further, under Section

13.     The assessee's arguments about the correct procedure are, in fact, a
matter of law. However, there are certain singular features to this case. The
search and seizure was conducted on the same date; even through one
authorization. The premises searched were S-511, Greater Kailash Part-II.
The warrant, in fact, was issued in the name of S.K. Gupta, Gaurav Gupta,
the assessee, Veena Gupta, Vikas Gupta and Ms. Madhu Gupta.                The
panchnama drawn on 01.08.2009 was signed by both the assessee and S.K.
Gupta. The statements of both S.K. Gupta and Vinod Gupta were recorded

ITA 1003/2017                                                        Page 8 of 10
on the same date, i.e. 31.07.2009. Furthermore, the documents, cash and
other books of accounts seized pointed to such circumstances that the
Revenue was justified in arguing that a separate notice under Section 153C
was unnecessary. These facts are that both the assessees are brothers. Both
were involved in the common business and the assessee used to be in-charge
of the accounts. Given these, there was no necessity of issuing notice under
Section 153C and following the separate but elaborate procedure prescribed

14.    The Court is also cognizant of the fact that so far as the materials
seized from S.K. Gupta's premises are concerned, arguendo the assessee's
submission that he had no control and had to be given a separate opportunity
with respect to the documents attributable to his (assessee's) accounts and
the affairs would have been justified had he been denied the relevant
materials. However, such is not the case. The statements made by S.K.
Gupta ­ like the assessee's own statement, the relevant documents in the
form of the compromise/settlement and other details were made available to
the assessee to enable him to make submissions before the Assessing Officer
(AO). Therefore, the substance of the procedure prescribed under Section
153C was followed. In other words, there was no failure of natural justice
nor opportunity denied to the assessee to explain reasonably about the
inferences that could be drawn from materials recovered and sought to be
attributed to his income.

15.    As far as the addition made and the proportion applied goes, this Court
notices that the CIT(A) and the Tribunal premised their findings upon the
admitted documents in the form of a compromise settlement in the course of

ITA 1003/2017                                                       Page 9 of 10
which the relevant share of the parties' rights and liabilities have been
settled.    In these circumstances, the business, which had yielded such
interest, had to be inevitably apportioned between the two brothers who had
parted ways later. The income generated was during the period when both of
them were together. Essentially, being factual, the findings are based upon a
rationale which is both convincing and reasonable.            In these given
circumstances, the Court is of the opinion that there is no error of law with
respect to the additions made.

16.    As far as the addition with respect to the unaccounted sum of
`92,16,098/- goes, the Court notices that besides contesting that the
assessee's son was nick named "Golu", there cannot be any denial that th e
documents seized clearly revealed the total expenditure that the assessee
incurred in respect of both his children. Those were not traceable to the
books of account or the returns that he had disclosed earlier. In these
circumstances, the addition made was justified.

17.    For the above reasons, it is held that the question of law framed has to
be and is answered in favour of the Revenue and against the assessee. The
appeal is consequently dismissed but without any order as to costs.

                                                      S. RAVINDRA BHAT

                                                             A.K. CHAWLA
MARCH 12, 2018

ITA 1003/2017                                                         Page 10 of 10
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