By TIOL News Service

NEW DELHI, APRIL 04, 2018: THE issue before the Division Bench is - Whether Department should bother to issue separate notices u/s 153C to the brothers residing at the same premises and necessarily engaged in joint business, in consequence to the search operation on both the persons. NO is the Verdict.

Facts of the case

The Assessee is an individual. During the relevant year, a search and seizure operation was conducted at his premises including the premises of his brother namely Suresh Kumar Gupta, who lived in the first and second floor of the same premises. Two panchnamas were drawn in the course of the searched premises listing out the material seized separately from both the premises. Thereafter, a notice u/s 153A was issued and accordingly the Assessee filed his return. Thereafter, the AO completed the assessment 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. That amount included Rs. 1,97,30,929/- on account of undisclosed interest income made in the case of S.K. Gupta, from where a portion of the income was added to the Assessee's income. An additional amount of Rs. 92,16,098/- on account of unaccounted expenditure on the marriage of the son and daughter of the Assessee was also made.

On Assessee's appeal, the CIT(A) 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 CIT(A) 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 Board. The CIT(A) also allowed credit for the opening capital. On further appeal, the Tribunal rejected the Assessee's contention with respect to the validity of the assessment made in the block period. However, the Assessee had contended that in the absence of any satisfaction recorded in terms of Section 153C(1), 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, the materials so seized became third party material for which notice was mandatorily required.

High Court held that,

++ the search and seizure was conducted on the same date; even through one authorization. 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 was signed by both the assessee and S.K. Gupta. The statements of both S.K. Gupta and Vinod Gupta were recorded on the same date. 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 u/s 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 u/s 153C and following the separate but elaborate procedure prescribed therein;

++ 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 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 AO. Therefore, the substance of the procedure prescribed u/s 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;

++ as far as the addition made and the proportion applied goes, the 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 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.

(See 2018-TIOL-580-HC-DEL-IT)