COMMISSIONER OF INCOME TAX vs. KEDAR NATH GUPTA

ITA Nos.713/2008, 948/2008, 892/2008, 707/2008 & 706/2008

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* IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on:18th July, 2012 %

Date of Decision:31st August, 2012

+ ITA 713/2008

COMMISSIONER OF INCOME TAX

.......Appellant Through: Mr. N. P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus

KEDAR NATH GUPTA

…..Respondent Through: Mr. Anoop Sharma and Mr. Manu K. Giri, Advocates. + ITA 948/2008

COMMISSIONER OF INCOME TAX

.......Appellant Through: Mr. N. P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus

ASHA KEDAR NATH GUPTA

…..Respondent Through: Mr. Anoop Sharma and Mr. Manu K. Giri, Advocates. + ITA 892/2008

COMMISSIONER OF INCOME TAX

.......Appellant Through: Mr. N. P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus

MANI KAKKAR

…..Respondent Through: Mr. Anoop Sharma and Mr. Manu K. Giri, Advocates. + ITA 707/2008

COMMISSIONER OF INCOME TAX

.......Appellant Through: Mr. N. P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus

ROHIT KEDAR NATH GUPTA

…..Respondent Through: Mr. Anoop Sharma and Mr. Manu K. Giri, Advocates.

2012:DHC:5366-DB

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+ ITA 706/2008

COMMISSIONER OF INCOME TAX

.......Appellant Through: Mr. N. P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus

NITIN KEDAR NATH GUPTA

…..Respondent Through: Mr. Anoop Sharma and Mr. Manu K. Giri, Advocates.

CORAM: MR. JUSTICE S. RAVINDRA BHAT

MR. JUSTICE R.V. EASWAR

R.V. EASWAR, J.:

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(3) Whether the Income Tax Appellate Tribunal was right in upholding deletion of addition of `2.30 lacs made by the Assessing Officer on account of unexplained commission paid to the broker in connection with the sale of KG Farms? (4) Whether the order passed by the Income Tax Appellate Tribunal is perverse?” Mani Kakkar

“(1) Whether the Income Tax Appellate Tribunal was correct in deleting addition of `2,27,80,000/- and `2,50,000/- made on account of undisclosed capital gains and undisclosed brokerage paid by the respondent assessee?

(2) Whether the order passed by the Income Tax Appellate Tribunal is perverse?”

In ITA No.948/2008, 707/2008 and 706/2008 (Asha Kedarnath Gupta, Rohit Kedarnath Gupta and Nitin Kedarnath Gupta respectively), no substantial questions of law have been framed because the assessment in these cases were made on protective basis. 3. The facts giving rise to the present appeals, shorn of irrelevant details, are these. A search was conducted in the premises of one Rajinder Gupta under Section 132 of the Act on 27.08.1998. Rajinder Gupta is the brother of Kedarnath Gupta. In the course of the search several documents were found including originals and photocopies in respect of purchase of farm houses in the name of the sons of Kedarnath Gupta, namely, Nitin Kedarnath Gupta and Rohit Kedarnath Gupta. The documents found also reveal that Kedarnath Gupta had incurred substantial expenditure on the construction/ renovation as well as the maintenance of the farm houses in Jaunpur (KG Farms) and Kishangarh (Jyoti Farms). In the course of the search, a statement was recorded from Rajinder Gupta on oath under Section 132 (4) of the Act. We may refer to the statement in some detail later but suffice here to note that he stated, inter alia, that he was the power of attorney holder of the family of 2012:DHC:5366-DB

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Kedarnath Gupta and that Kedarnath Gupta was incurring about `10,000/- to `11,000/- per month on the maintenance of the farm houses and salaries of watchman and gardeners for the last three years till the date of search. He also stated that Kedarnath Gupta had purchased these farm houses with his on-monies and they were registered in the names of his sons. 4. On the basis of the above, proceedings were initiated under Section 158BD of the Act against Kedarnath Gupta who is the respondent in ITA No.713/2008. He was required to file a return declaring his undisclosed income for the block period consisting of the period from 01.04.1988 to 27.08.1998. Kedarnath Gupta filed the block return declaring “nil” undisclosed income. Since he was stationed in Dubai, he would appear to have appointed one Anil Khatri as his power of attorney to sign the block return. The Assessing Officer appears to have issued a notice under Section 143(2) of the Act to Kedarnath Gupta at his Punjabi Bagh address in New Delhi requiring him to furnish the information regarding the sources of investment in KG Farm and Jyoti Farm, the sources of expenses incurred on the maintenance of the farm houses and also the details of all moveable and immoveable properties purchased and sold by him during the block period along with the capital gains or loss, if any. The bank accounts of Kedarnath Gupta were also called for. In addition, he was required to produce Rajinder Gupta on 15.03.2002 in connection with the sworn statement recorded from him on the date of search where he had referred to the purchase of farm houses by his brother Kedarnath Gupta. There was no response from the Kedarnath Gupta to this. 5. Thereafter, the Assessing Officer would appear to have invited objections from Rajinder Gupta as to why he should not be treated as the agent of Kedarnath Gupta, who is hereinafter referred to as the “assessee”, under Section 163 of the Act. The basis for this proposal was (a) that Rajinder Gupta was operating the NRO account of the assessee from Citi Bank, New Delhi, (b) he was also involved in the purchase of the farm houses for the assessee in the names of the assessee‟s sons. Rajinder Gupta 2012:DHC:5366-DB

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objected to the proposal to appoint him as the agent of the assessee, though he did not rebut the fact that he was power of attorney holder of the assessee and was also authorised to operate the assessee‟s bank account; nor did he deny the allegation that he was involved in the negotiations and payments for the transaction of purchase of the farm houses. These facts, coupled with the fact that Rajinder Gupta himself had admitted in the course of the sworn statement that he had withdrawn the cash found during the search from the assessee‟s bank account, enabled the Assessing Officer to treat Rajinder Gupta as the assessee‟s agent. 6. The Assessing Officer thereupon proceeded to examine the investment made by the assessee in the purchase of the KG Farms (at Jaunpur) and Jyoti Farm at Kishangarh (Vasant Kunj). He referred to the fact that simultaneously a search was conducted on 27.08.1998 in the business premises of M/s. Pandit Estates, a broker firm which was involved in the transaction as also in the residential premises of Suraj Bhan Sharma who was an operative of Pandit Estates. A statement was recorded from him under Section 132 (4) of the Act in response to which he stated that he is a teacher in a Govt. School and also operates as real estate dealer/ agent from the office of Pandit Estates, Chhattarpur Mandir Mor, Mehrauli along with two of his relatives, namely, Radhey Shyam Sharma and Dharampal Sharma who was also an associate of Pandit Estates. Suraj Bhan Sharma was questioned about the purchase of farm houses for the assessee, which was finalised through him. The relevant portions of the statement are extracted in the assessment order of Kedarnath Gupta but it is not necessary to reproduce the same and we need only refer to the gist thereof: - (a). Suraj Bhan Sharma confirmed that the purchase of the two Farm houses by the assessee was done through him. He confirmed that KG Farms was purchased in May/ June, 1995 for a total consideration of `2.49 crores, out of which `26,00,000/- was paid through cheque and the remaining amount of `2.23 crores was paid in cash. This property was sold to the assessee by one Ashok Kakkar and consisted of 2.5 acres and 3 biswas of farm land having a two 2012:DHC:5366-DB

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storied house therein with built up area of 5000 Sq. ft. The property was registered showing sale consideration of `26,00,000/- in the office of Sub- registrar Vikas, Sadan, New Delhi. At the time of registration, Dharampal Sharma partner of Pandit Estates who also signed as witness was present along with Ashok Kakkar and his wife. Suraj Bhan Sharma was also present. (b). Since the normal rate of commission or brokerage was 1% of the actual sale consideration, an amount of `2,50,000/- was received from Ashok Kakkar by Suraj Bhan Sharma. (c). KG Farms was sold by the assessee about 4 months earlier (to the date of search); but in this transaction he or his firm was not involved. The sale transaction was put through M/s. Ravinder Properties (Proprietor Ravinder Sharma) who had his office at Andheria Mor, New Delhi. According to the market information, the property was sold for `3.10 crores. When the assessee had earlier asked Pandit Estates to search for a buyer for the property the price expected was in the range of `3.25 crores. (d). Kedarnath Gupta and Rajinder Gupta purchased Jyoti Farm measuring 2.5 acres of land and built up area of 5000 Sq. ft. It was a double storied property purchased in August or September, 1995 for a total consideration of `2.60 crores, from one M. K. Subba. Out of the total consideration an amount of `26.10 lakhs was paid through cheque and the remaining amount of `2.39 crores was paid in cash. No commission was received by Suraj Bhan Sharma in the transaction, but he was assured by the assessee that he will be duly compensated in the next deal, if any. A commission of `2,60,000/- was, however, received from M. K. Subba. (e). Suraj Bhan Sharma confirmed in the statement that all the cash as well as cheque payment were made in his presence or in the presence of Dharam Pal Sharma, the other partner of Pandit Estates. He also confirmed that cash 2012:DHC:5366-DB

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payment of the token money of `5,00,000/- and another sum of `20,00,000/- were paid by Rajinder Gupta to M. K. Subba. The same modality for payment of cash was adopted by the parties in the case of KG Farm by paying a token money of `5,00,000/- in cash by Rajinder Gupta to Ashok Kakkar and the balance payment of cash were spread over a period of three months. Suraj Bhan Sharma confirmed that “all the cash payments were made by the buyer to the seller in presence of either me or Shri Dharam Pal Sharma”. (f). Suraj Bhan Sharma also brokered the purchase by Rajinder Gupta family of 4 acres of land near Bondsi Farm at Sohna. Though the total amount paid was `24 lakhs. He could not remember the cash/ cheque break up. In the course of the search at the residence of Suraj Bhan Sharma, the search authorities found a register marked Annexure A-1, pages 1 to 12 of which were found written as statement of income and expenditure. When he was asked to explain the entries in the register, Suraj Bhan Sharma replied that the details are regarding the sale of Jaunpur Farm to the assessee by Ashok Kakkar and the sale of Sohna land to Rajinder Gupta. 7. Dharam Pal Sharma, the partner of the Pandit Estate, also gave a sworn statement on 27.08.1998 under Section 132(4) of the Act in which he confirmed the statement of Suraj Bhan Sharma regarding the property transaction and also confirmed that the total price for KG Farms, paid by the assessee, was `2.49 crores and the total price for Jyoti Farms paid by the assessee was `2.6 crores. The statements of Suraj Bhan Sharma and Dharam Pal Sharma were shown to the Rajinder Gupta along with the register seized from the premises of Pandit Estate upon which he admitted that the total price paid for KG Farms and Jyoti Farms was `2.49 crores and `2.60 crores respectively and that the assessee purchased them in the names of his sons Rohit and Nitin. 2012:DHC:5366-DB

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Farm from M. K. Subba was in 5 registered deeds and each of the deeds showed the purchase price at `4,35,000/- aggregating to `21,75,000/-. In these documents the other partner of the Pandit Estates, Dharam Pal Sharma, had signed as witness. The Assessing Officer thought it quite strange that farm houses which consisted of double storied building could be registered in this manner in split documents each showing a uniform consideration. According to the Assessing Officer, some of the documents showed only agricultural land whereas some of them showed both agricultural lands and double storied building; nevertheless, every document showed a uniform price of `4,35,000/-. This, according to the Assessing Officer, showed that the documents were registered without much examination and in a routine or mechanical fashion apparently without any field inspection. He, therefore, refused to accord any credence to the averments made and the authenticity of the consideration shown in the documents. It was also noticed by the Assessing Officer that even the sale of KG Farms was done in a similar fashion through 10 split documents each showing a consideration of `4,10,000/- and they were registered on 09.10.1997. Ravinder Sharma, who brokered the deal, had signed the documents as one of the witnesses. 11. The Assessing Officer after marshalling all the aforesaid facts and bringing them on record called upon the assessee to explain them. In response thereto, written submissions were filed on 24.04.2002 in which it was stated that there was no understatement of the purchase price which was correctly recorded in the registered documents, that the registration fee and the stamp duty was duly paid on the declared consideration as shown in the registered documents and that Rajinder Gupta as well as the brokers have retracted from their statements given on the date of the search and in these circumstances there was no material or evidence to support the allegation that the assessee indulged in understatement of the investment in the farm houses and the sale price of KG Farm house. 12. The submissions of the assessee were rejected by the Assessing Officer in the following words: - 2012:DHC:5366-DB

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“The averments of the A.R. are considered carefully with reference to the material available on record. Abundant evidence in the form of the entries made in the register maintained by the brokers M/s Pandit Estates and the envelope carrying cash towards commission paid to another broker Sh. Ravinder Sharma was found from the respective premises on 27.8.1998. On the same day all the brokers have stated in detail the actual transactions that had taken place and corroborated then statements with the material found during search/ survey. The graphic descriptions given by the brokers in their sworn statements on the date of search lends lot of credence to the unadulterated statements given by the brokers on the date of search which were not influenced by any extraneous consideration. The detailed description in the statement of the brokers recorded on the date of search appears natural and logical in the nature of their business. The statements of the brokers were put to the comments of Sh. Rajinder Gupta who is the Power Attorney holder of the assessee and who was involved in these transactions on the same day of their recording. Having gone through the contents of these statements and the evidence supporting them. Sh. Rajinder Gupta admitted on oath the veracity of the transactions as described by them. The subsequent retractions were only self-serving statements because the brokers were influenced/induced by the assessee and his agents and also with a view to avoiding taxes them- selves on the commission income. It has already been discussed above that the registration of the documents were done without and (sic) inspection on field and in routine and clerical manner and without an elementary scrutiny of their contents. Thus no credence can be given for the consideration shown in these documents. Not even the token money which is given by the prospective buyer to the seller on the finalization of the deal is mentioned in these documents.”

“1. Unexplained investment in the purchase of KG Farm :

Actual consideration paid

`2,49,00,000/- Add: Commission paid to Broker `2,50,000/-

`2,51,50,000/-

Less: Amount paid from NRO A/c `18,70,000/- `2,32,80,000/-

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`2,60,00,000/- Add: Commission paid to Broker ` Nil . `2,60,00,000/-

Less: Amount paid from NRO A/c ` 21,75,000/- `2,38,25,000/-”

“Actual Sale Consideration received

`3,10,00,000/- Less: 1. Actual cost of acquisition ` 2,49,00,000/-

Add : Others expenses Like

Stamp paper, repair

& renovation

` 10,01,107/-

` 2,59,01,107/-

Commission paid to Ravinder Sharma

By Cheque ` 80,000/-

By Cash ` 2,30,000/- ` 3,12,000/- ` 6,62,13,107/-

Capital Gain `47,86,893/-”

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the entire capital gains arising out of the sale of the land would be taken as the assessee‟s income. Since the assessee was not able to give a bifurcation between the extent of the land purchased and extent of land sold, the Assessing Officer made an attempt to reconcile the figures from the seized material. He noticed that the material seized from the residence of Rajinder Gupta consisted of three sale deeds, all of them dated 12.10.1994, by which the assessee had purchased 39/314th share of land of 15 bighas 4 biswas, each for an apparent consideration of `1,87,000/- in the joint names of himself and his wife. This land was purchased from Azaad Coach Pvt. Ltd. and the total purchase price was `6,31,125/- including stamp duty of `70,125/-. From the bank account of the assessee with Citi Bank, New Delhi, the Assessing Officer noted that the assessee received four cheques of `4,25,000/- each and two cheques of `3,25,000/- each in December, 1996 from Azaad Coach Pvt. Ltd. This totals to `23,46,000/-. According to the assessee, he was to receive another three cheques of `4,25,000/- each which did not materialise since the deal for the sale of the remaining land did not materialise. From these facts the Assessing Officer concluded that the land which was purchased by the assessee in 1994 from Azaad Coach Pvt. Ltd. was sold back to Azaad Coach Pvt. Ltd., but a part of the land could not be sold and the corresponding amount could not be realised. Since the assessee could not give any bifurcation of the cost of acquisition of `6,31,125/-, the Assessing Officer bifurcated the cost of pro rata according to the consideration received. The assessee has received consideration of `23,46,000/-, but did not receive `12,72,000/- as the sale did not materialise in part. This gave a ratio of 65:35. The cost of the land, that is, `6,31,125/- was bifurcated in this ratio and the cost attributable to the land sold came to `4,10,231/-. The capital gains were accordingly computed at `19,36,769/-, which was the excess of the sale consideration of `23,46,000/- over the cost of `4,10,231/-. The capital gains were also taken as the undisclosed income of the assessee since there was no disclosure of the same prior to the date of the search. 2012:DHC:5366-DB

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On the basis of the above findings, the CIT (Appeals) deleted the addition of `4,71,05,000/-. 20. As regards the alleged undisclosed capital gains on sale of land at Jaipur Highway in the amount of `19,35,769/-, the findings of the CIT (Appeals) can be 2012:DHC:5366-DB

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summarised as follows: the capital gains can arise only if property is sold within the meaning of Section 2 (47) of the Act. The assessee is still holding a part of the land for which no consideration has been received. Therefore, there is no sale of the property which can be said to give rise to any capital gain. Even the original cheques form part of the seized documents which shows that the transfer did not take place. Therefore, there is no question of any undisclosed capital gains. In this view of the matter the addition of `19,35,769/- was deleted. 21. The addition of `2,30,000/- on account of unexplained commission paid to the broker in connection with the sale of KG Farm was also deleted by the CIT (Appeals) consequent to his decision that the sale of KG Farms was made only for `41,00,000/- and not for `3,10,00,000/- as assessed by the Assessing Officer. Since the commission was payable at the rate of 2% of the sale price, the CIT (Appeals) held that the actual commission paid was only `80,000/- which has been paid by cheque and there was no question of assessee paying any commission in cash. In this view he deleted the addition of `2,30,000/-. 22. The Revenue carried the matter in appeal to the Tribunal. The Tribunal examined the rival contentions and the facts and agreed with the decision of the CIT (Appeals) that there was no basis for addition of `4,71,05,000/-. The findings and conclusion of the Tribunal on this issue are as follows: - “2.1.5 We have perused the records and considered the matter carefully. The dispute raised in this ground of appeal relates to addition made by the A.O. on account of undisclosed investment in purchase of K G Farms and Jyoti Farms. The additions have been made on the basis of statement of Sh. Rajinder Gupta, the brother of the assessee and the two brokers who had subsequently retracted from their earlier statements. The brokers in their fresh statements supported by sworn affidavits have made it clear that the statements made earlier where under influence of threat and dire consequences by the official. No other material has been placed on record by the A.O. in support of the claim that the assessee had made undisclosed investments. Neither the vendors of the two properties have admitted 2012:DHC:5366-DB

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receiving any money over and above the stated consideration nor any extra ordinary cash was found during the course of search. On the contrary, the assessee has provided valuation report from registered valuer as well as some comparable cases of sale deeds in the adjoining area. These facts have not been controverted before us. Under the circumstances, we see no infirmity in the order of CIT (A) deleting the addition and the same is upheld.”

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(Appeals) that it was consequential to the deletion of the addition made for unexplained investment in KG Farms. Since the assessee was held to have invested only `41,00,000/- as against the investment of `3,10,000/- crores as estimated by the Assessing Officer, the corresponding commission of `2,30,000/- was also directed to be deleted by the CIT (Appeals) and this finding was upheld by the Tribunal. 25. Before we examine the rival contentions in the appeals, it is necessary to refer to the assessment of Mani Kakkar in ITA No.892/2008. She is the wife of Ashok Kakkar. It may be recalled that Kedarnath Gupta, the assessee in ITA No.713/2008, had purchased a farm house from Mani Kakkar, the name of which was “KG Farms” at village Jaunpur, Mehrauli. This property had been purchased by Kedarnath Gupta in the name of his son Rohit Kedarnath Gupta. The property was purchased on 03.05.1995. The corresponding sale price was dealt with in the assessment of Mani Kakkar, who is hereinafter referred to as the “assessee”. According to the Assessing Officer who completed the assessment of Mani Kakkar under Section 158BD of the Act consequent to the search in the case of Rajinder Gupta, the property was sold by Mani Kakkar to Kedarnath Gupta for `2.59 crores and not for `18,70,000/- as declared by the assessee herein. The Assessing Officer also found that the assessee had executed 10 registered sale deeds for `1,87,000/- each, aggregating to `18,70,000/- and had denied that the farm house was sold for `2.49 crores. On a perusal of the sale documents, the Assessing Officer found that there was no reference therein to the superstructure which existed on the land. According to him, since material facts were not disclosed to the registering authority and the documents did not mention the fact that there was a super structure on the land, no credence can be given to the consideration declared in the documents. The Assessing Officer also referred to the statement of Ravinder Sharma, broker and proprietor of Ravinder Properties, through him the deal was done. He has stated that the KG Farms was purchased in the name of Rohit Kedarnath Gupta for a consideration of `2.49 crores and he had been paid brokerage accordingly, though the consideration stated in the sale deeds was much 2012:DHC:5366-DB

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less. The statement of Suraj Bhan Sharma, who was associated with Pandit Estates, the brokerage firm, was put to the assessee for rebuttal. By written submissions dated 05.01.2005 the assessee stated that the land sold was agricultural land and reiterated that the total consideration was only `18,70,000/- and not `2.49 crores. The assessee again submitted in writing on 19.01.2005 that the reliance placed by the Assessing Officer on the statement of Suraj Bhan Sharma was unwarranted. These written submissions are reproduced at pages 6 and 7 of the assessment order dated 28.01.2005 passed by the Assessing Officer in the case of Mani Kakkar. The Assessing Officer, however, rejected the submissions of the assessee for the reasons given in the assessment order at pages 7 and 8 thereof and ultimately computed the capital gains on the basis that the actual sale consideration was `2.49 crores as against `18,70,000/- disclosed by the assessee. The ultimate addition came to `2,27,80,000/- as “undisclosed capital gains”. 26. The assessee had denied payment of any commission for putting through the transaction which was not accepted by the Assessing Officer on the ground that the broker himself has admitted to have received commission of `2,50,000/- in respect of the sale transaction. The amount was added in the block assessment as undisclosed brokerage. 27. These two additions were challenged in appeal by the assessee before the CIT (Appeals). A preliminary objection was raised by the assessee to the effect that no proper “satisfaction” was recorded by the Assessing Officer under Section 158BD of the Act and, therefore, the assessment was without jurisdiction. This aspect of the matter was considered by the CIT (Appeals) in detail by calling for a remand report from the Assessing Officer. After reproducing the “satisfaction note” recorded on 20.11.2002 and after examining the legal position, the CIT (Appeals) upheld the objection of the assessee in the following words: - “4.18 I have considered the reasoning given by the AO and the submissions made by the Ld Counsel. As far as the reasoning of the 2012:DHC:5366-DB

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Ld. Counsel that no satisfaction has been recorded by the AO of the person searched i.e Sh. Kedar Gupta is concerned, the same is not tenable. This is so because the first satisfaction which is for centralization of case of the appellant has been recorded by DCIT, CC-6, March 02. In the second satisfaction in November 2002, the AO has issued u/s 158BD on the basis of reasons recorded by his predecessor. The issue that needs examination is whether the initial satisfaction can be said to be satisfaction within the meaning of sec. 158BD or not. A plain reading of this satisfaction indicates that the same was recorded for the purpose of centralization of the case of appellant and to investigate whether any capital gain has been declared by the appellant. Notice u/s 158BD of the Act was to be issued to the appellant. In the second satisfaction, the succeeding officer relied on this reason and issued the notice. In other words neither the first officer nor the second one ever recorded the satisfaction that any undisclosed income of the appellant has been detected as a result of search u/s 132 in the case of Sh. Kedar Gupta. I am also in agreement with the submissions of Ld. Counsel that notice u/s 158 BD was issued on 6.1.2003 which is much beyond the date of assessment in the case of Sh. Kedar Nath Gupta and decision of Hon’ble Gujarat High Court in the case of Khandu Bhai Vasantji Desai (Supra) is thus applicable to the facts of appellant.”

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retracted from the statements given by them. Thus also no adverse view can be taken. The AO has also drawn adverse inference from the fact that the said sale deeds. I fail to understand as to how an adverse view can be drawn from not mentioning the built up portion on the land if no evidence of payment over and above the stated consideration is found. The Ld. CIT(A) has in appeal no 137/2002-03 vide his order dated 31.3.2003 has deleted the addition in the case of Sh. Kedar Nath Gupta, a person who purchased the said KG Farms. While deleting the addition, the Ld. CIT (A)–I held that there is no corroborative positive evidences in addition to the statements of the search parties to draw a conclusion that the appellant had undisclosed income which he has invested in the purchase of these agricultural farm lands. The Ld. CIT(A)-I further observed that addition has been made merely on the basis of statements of the two brokers which have not been confronted to the appellant. Based on facts of the case Ld. CIT(A)-I deleted the addition in the case of Sh. Kedar Nath Gupta. In view of detailed reasoning given by CIT(A)-I and the facts of the case, I find no reason to differ from the finding given by Ld. CIT(A)-I. I am thus of the view that the AO was not justified in making the addition of `2,27,80,000/- to the undisclosed income of the appellant as short term capital gains. The same is deleted. 5.24 Regarding the brokerage of 2,50,000/- which is calculated @ 1% of the sale consideration of `2.49 crores, the same is also not sustainable. Since the sale consideration of `2.49 crores is held to be incorrect. This addition is also therefore, deleted.”

On the above basis, the CIT (Appeals) deleted both the additions, namely the addition of `2,27,80,000/- made to the computation of the capital gains on sale of KG Farms and the addition of `2,50,000/- for undisclosed brokerage paid by the assessee. 29. The Revenue carried the matter in appeal before the Tribunal. By the time the Tribunal took up the appeal for hearing, the order of the Tribunal in the case of Kedarnath Gupta was available, having been pronounced in August, 2007. Since the case of Mani Kakkar and Kedarnath Gupta were connected as seller and buyer of the same property respectively, the Tribunal though it fit to follow the order passed by it in the case of Kedarnath Gupta. The Tribunal accordingly dismissed the appeal filed 2012:DHC:5366-DB

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by the Revenue. It may be noted that there is no independent reasoning in the order of the Tribunal in the case of Mani Kakkar. 30. In support of the appeal in the case of Kedarnath Gupta, Mr. N. P. Sahni, learned Senior Standing Counsel for the income tax department contended that the factual findings recorded by the Tribunal and the reasons given by it for deleting the three additions are without any merit and are arbitrary. It is pointed out that the Tribunal has predominantly relied upon the fact that the statements made by Rajinder Kumar Gupta, the brother of Kedarnath Gupta and the brokers were retracted. According to the learned Senior Standing Counsel, the retraction cannot be given any credence since it was done by the brokers in the year 2000, almost two years after the original statements were made at the time of the search. It is submitted that even in the case of Rajinder Kumar Gupta, though the statement was retracted within 15 to 20 days from the date on which it was recorded, it lacked conviction and the reasons given were flimsy. It is pointed out that stereotyped reasons were given by all of them for retracting their earlier statements, such as being under a confused state of mind because of the search proceedings or that they were unreasonably compelled or pressurised by the income tax authorities into giving the earlier statements. It is contended that the Tribunal ought to have taken note of the circumstantial evidence, surrounding circumstances and the preponderance of probabilities before confirming the decision of the CIT (Appeals) to delete the additions. Drawing our attention to the statements given by the Rajinder Kumar Gupta, Suraj Bhan Sharma, Dharam Pal Sharma and Ravinder Kumar Sharma, Mr. Sahni submitted that four different persons have given full details of the on-money transactions without reference to each other and, therefore, these statements were rightly relied upon by the Assessing Officer as natural or spontaneous statements made containing the truth. It is pointed out that though the deponents had alleged threat and coercion by the search party, nothing prevented them from making a complaint to the higher departmental authorities and in the absence of any such complaint by them, their retractions made solely on the 2012:DHC:5366-DB

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ground of threat or coercion at the time of making the earlier statements, cannot be accepted with any credibility. Our attention was drawn to the judgment of the Supreme Court in Vinod Solanki v. Union of India, (233) ELT 157 in which the Supreme Court has held that serious allegations of threat or coercion must be substantiated before the retractions are accepted. According to the learned Senior Standing Counsel, there was no reason for the unreasonable delay in making the retractions on the part of the Suraj Bhan Sharma, Dharam Pal Sharma and Ravinder Sharma. 31. With particular reference to the addition made in respect of the capital gains on sale of land at Jaipur Highway, Mr. Sahni submitted that the assessee was not prepared to reveal any details or bifurcation of the cost which prompted the Assessing Officer to recompute the capital gains by bifurcating the cost on the basis of the ratio between the amount received as consideration and the amount not received, though receivable, as consideration. It is pointed out that the recomputation of the capital gains was due to the reapportionment of the cost of the property, which has been overlooked by the Tribunal. 32. As regards the reference by the Tribunal to the effect that the assessee was not afforded any opportunity to cross examine the witnesses, Mr. Sahni submitted that no such cross-examination was required nor were the rules of natural justice breached, because the witnesses had retracted before the completion of the assessment and, therefore, it would be meaningless to ask the assessee to cross-examine those very witnesses who had retracted their earlier statements implicating the assessee. Mr. Sahni, on the basis of the above submissions, strongly contended that the order of the Tribunal was vitiated by perversity in as much as it failed to take into account the relevant material and evidence and the Tribunal has put on blinkers without probing the matter in the manner expected of a fact finding authority. The Tribunal, according to him, failed to take note of the normal course of human conduct and preponderance of probabilities and took a perverse view of the matter which should not be approved. 2012:DHC:5366-DB

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(b). The sale deeds which were found only showed the consideration for the sale of KG Farm house to Kedarnath Gupta and it was on this basis that Mani Kakkar has earned capital gains. (c). All the witnesses whose statements were recorded by the Assessing Officer in the course of the search proceedings were retracted for valid reasons and, therefore, no reliance can be placed on them. (d). The findings recorded by the Tribunal in para 2.15 of its order in the case of Kedarnath Gupta, particularly the finding that the vendors of the two farm house, of which Mani Kakkar was one, have not admitted to receiving any money over and above the stated consideration nor any extraordinary cash was found during the course of the search have not been controverted by the departments at any stage. (e). The statements made under Section 132(4) in the course of the search do not represent material or evidence seized during the search and cannot be acted upon as if it is evidence unearthed during the search. It has been so held by a Division Bench of this Court in ITA Nos.276/2009, 302/2009 and 396/2009 on 29.11.2010. (f). All the findings recorded by the Tribunal are findings of fact which any authority, properly instructed in law, would have come to and therefore, they cannot be said to be perverse or arbitrary. On the basis of the aforesaid submissions, Mr. Sharma contended that the Tribunal has come to the correct conclusion and its order cannot be termed as arbitrary or perverse. 35. We may first take up the order of the Tribunal in the case of Kedarnath Gupta for examination. We have already quoted the relevant portions of the order in so far as they relate to the three substantial questions of law framed by us. The first and third questions are interconnected. It seems to us that the criticism of the findings of the 2012:DHC:5366-DB

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Tribunal by the learned Senior Standing Counsel for the department, to the effect that they are arbitrary or perverse, must be upheld. The search was conducted in the premises of Rajinder Kumar Gupta who is the assessee‟s brother. The assessee resides in Dubai. His assessment was taken up under Section 158BD of the Act. We may clarify that in his case there was no challenge at any point of time to the validity of the assessment or to the satisfaction arrived at for the purpose of invoking the Section. The addition of `4,71,05,000/- was made on the basis of the statements of Suraj Bhan Sharma and Dharam Pal Sharma. Suraj Bhan Sharma was not a partner in Pandit Estates, the broker firm, which put through the transaction of purchase of the two Farm houses. He was, according to his statement made on the date of the search, merely connected or associated with Pandit Estates as he used to sit in the office of the firm and also helped the firm in getting property deals finalised. In answer to question No.3 he categorically stated as follows: - “Q-3: Please intimate about the deals in property finalized through you? Ans: One of the deal in property finalized through M/s Pandit Estate was purchased of property caused as K.G. farm (named by the buyer after purchase). This property was purchased by Shri Kedar Gupta R/o Dubai and his son (name not remembered) in may/June, 1995. The property was purchased for total consideration of `2 Crores 49 Lacs. `26 Lacs was paid through cheque and remaining amount of `2 Crores and 23 lacs was paid in cash. The property was sold by Shri Ashok Kakkar, E-499, G.K.II, New Delhi. The property consisted of 2.5 Crore and 3 Biswa of farm land having two storied house in it of build up area of about 5000 sq. feats. The deal was registered showing sale consideration as `26 Lacs in office of Sub-Registrar, INA, Vikas Sadan, New Delhi.”

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person who was closely connected to the deal and had an involved role in the transaction. The fact that he was not a partner of Pandit Estates is not relevant, since he knew the full details of the transaction. In answer to question No.4, he stated the names of the persons who were present in the office of the Sub-registrar at the time of registration. His answer to question No.4 is reproduced below: - “Q-4:- Who were perusal (sic.) at the time of registered of deed. Also intimate the names of sons who signed as witness in the registrar office? Ans:- The name of the persons who were present in the office of sub Registrar at the time of registration are (a) Dharam Pal Sharma, (b) W/o Shri Ashok Kakkar in whose name the property was existing (c) Shri Ahsok Kakkar (d) Myself. The signatures of witness were made by Shri Dharam Pal Sharma and advocate (name not remembered by me).”

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Ans: Shri M. K. Subba is residing at Mehrauli, Gurgaon Road near, opposite new Mangla puri, Mehrauli, New Delhi. Q-12: What is the amount of commission earned by M/s Pandit Estate on the aforesaid deal (i.e. Jyoti Farm house)? Ans: We did not receive any commission from guptas. They gave an assurance that we will be fully compensated in any next deal done from them. However, an amount of `2.6 lacs (` Two Lacs sixty thousand only) was taken from Shri M.K. Subba. Q-13: Is Jyoti Farm house deal was finalized? What was the token amount received by you and was the modality for balance payment? Ans: `5 lacs in cash was paid at the time of deed in my presence and remaining amount was agreed to be paid in 2-3 months time.”

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officers conducting the search, there was nothing which prevented Suraj Bhan Sharma from taking up the matter with the higher officials who monitored the search or even if that was not possible, he could have always filed a written complaint with the higher officers of the income tax department after the completion of the search. He did nothing of that sort and we are asked to believe that he waited for almost 18 months and for a search to take place in the premises of M. K. Subba to retract the statement. It is not possible to believe that all the facts and figures which he gave in his statement made on 27.08.1998, the date of search, were a figment of imagination. Nobody can possibly give such elaborate details of the property transaction unless he was closely involved in the deal and was privy to all the details relating to the deal including the cash and cheque payments. We see no reason to give any credence to the retraction of Suraj Bhan Sharma. 44. We may now examine the statement of Rajinder Gupta, the brother of Kedarnath Gupta. This was given on the date of search on the premises on 27.08.1998. Question No.13 and 14 and the answers thereto are as under: - “Q-13: Please let us know about the purchase of K.G. Farm & Jyoti Farm? Ans: K.G. Farm was purchased with begning (sic) of the years 1995 from Shri Ashok Kakkar for a sum of `2.49 Crores and the property shown of `2.6 Crores from Shri Subhash Sharma house at Mehrauli, Gurgaon Road. Shri Ahsok Kakkar resides at Greater Kailash-II, Jyoti Farm transaction was finalized in the month of Aug/Sep.95. Both the documents were registered at Vikas Sadan, INA. These details were brokered through the Pandit Estate Shri S.B. Sharma and Shri Dharam Pal Sharma. The K.G. Farm house is located at Village Jaun Pur, and Jyoti Farm is located at Vasant Kunj. Area of both these farm gouses (sic.) is approximately 2.5 Acres. Q-14: Please let us know what is the present ownership status of these two properties? Ans: The farm house called the K.G. Farm has sold around 6-7 months back through Shri Ravinder Sharma of Ravinder Properties for a consideration of `3.10 Crores to Mr. Kumar Sarv Priya vihar, alias 2012:DHC:5366-DB

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Mr. Darshan Kumar Khosla. The other property called Jyoti Farm is still with us.”

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“Q-12: Please let us know about the pruchses (sic) of K.G.Farm & Jyoti farm? Ans: These five transaction were brokered by us for Rajender Gupta with drafts ********** bearings. In the first case gupta’s purchased farm house from Shri Ashok Kakkar & in the other the farm house called Jyoti farm was purchased from Shri M.K. Subba. I have seen details statement of Shri S.B. Sharma recorded u/s 132(4), wherein he has mentioned in details about one said transactions. I have also personally discussed the same with Shri S.B.Sharma and I fully abide by whatever he had stated about these transactions in short an amount of `2.49 Crore for K.G.Farms and `2.6 Crores for Jyoti Farm was paid by Guptas for the purchase of the same.”

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unsupported. They did not choose to complain against any high handed behavior of the authorised officers. It is also not known as to what the Tribunal means when it says that neither the vendors of the properties have admitted to receiving any money over and above the stated consideration nor any extra ordinary cash was found in the course of the search. It is common knowledge that both the buyer and seller of the real estate are interested in secrecy about the on-monies that pass between them in these transactions and it would not accord with the normal course of the human conduct or probabilities to expect a seller of the property to admit before the authorities to having received on-monies. It was not in the interest of either M. K. Subba or Mani Kakkar to admit in their assessment proceedings that they received on- monies in respect of the sale of the farm houses to Kedarnath Gupta. It is, therefore, not a relevant consideration that there was no admission by the seller of the property that he received on-monies from the buyer. The non-seizure of any substantial amount of cash during the search is also not relevant in the case of the buyer of the property. He has actually parted with the cash and if at all, the unaccounted monies can only be found with the seller and that too only if swift and prompt action is taken. If there is a time-lag between the date of the transaction and the date of the search the chances of unaccounted cash being found in the possession of the seller will also dwindle drastically. In the present case the transaction took place in the year 1995 in respect of both KG Farms and Jyoti Farms; there was no search of Mani Kakkar‟s premises and her assessment was also made only under Section 158BD. The search in the case of M. K. Subba was in June, 1999 (23.06.1999). By that time almost 4 years had passed from the date of the transaction and almost 10 months had passed from the date of the search made in the premises of Rajinder Kumar Gupta. There was a long time gap and thus the chances of the cash being found in the premises of the seller had dwindled. In any case there is nothing on record to show whether any cash was seized from the M. K. Subba in the course of the search of his premises. Thus the statement of the Tribunal that the vendors did not admit to having received on-monies and that no substantial cash was seized in the course of the search of Rajinder Gupta or the others 2012:DHC:5366-DB

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cannot constitute a valid ground for holding that no unaccounted monies were involved in the transaction. The fact that the assessee submitted a valuation report from the registered valuer and also provided comparable cases of the sale in the adjoining area is entitled to some weight, but they cannot be clinching evidence in favour of the assessee. These are vital aspects which the Tribunal has omitted to take into consideration; on the contrary it took into consideration irrelevant material such as retractions, absence of any statements by the sellers of the properties that they received on-monies and the fact that there was no seizure of any “extra ordinary” cash during the search. The Tribunal overlooked that the statements made during the search were made spontaneously and contained complete details of the property deals. 49. The fact that the assessee was not afforded an opportunity to cross-examine the deponents is neither here nor there because as pointed out rightly on behalf of the Revenue, the witnesses of the Assessing Officer had turned hostile and had retracted their statements and also filed affidavits in support of the retractions. In other words, what a cross-examination would have brought out was achieved by the retractions and the affidavits and, therefore, it would be idle on the part of the assessee to complain of any violation of the rules of natural justice. It is a different matter that we have not accepted the retractions. 50. On the question of retractions, in Commissioner of Income-tax v. Lekh Raj Dhunna, (2012) 344 ITR 352 (P&H) it was held by the Punjab & Haryana High Court that where there is no explanation as to why the statement which was retracted in the course of the assessment proceedings was not withdrawn earlier, the Assessing Officer was justified in drawing the presumption against the assessee and in making the addition. It was observed as under: - “Thus, in view of sub-sections (4) and (4A) of section 132 of the Act, the Assessing Officer was justified in drawing presumption against the assessee and had made addition of ` 9 lakhs in his income under section 68 of the Act. The onus was upon the assessee to have produced cogent material to rebut the aforesaid presumption which he 2012:DHC:5366-DB

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had failed to displace. The assessee retracted from the said statement, vide letters dated November 24, 1998, and March 11, 1999, during the course of assessment proceedings. However, no value could be attached thereto in the present case. In case the statement which was made by the assessee at the time of search and seizure was under pressure or due to coercion, the assessee could have retracted from the same at the earliest. No plausible explanation has been furnished as to why the said statement could not be withdrawn earlier. In such a situation, the authenticity of the statement by virtue of which surrender had been made at the time of search cannot be held to be bad. The Tribunal, thus, erred in concluding otherwise. The Tribunal, therefore, was not justified in reversing the order of the Assessing Officer which was affirmed by the Commissioner of Income-tax (Appeals) also.”

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discussed the relevant facts and extracted the conclusion of the Tribunal. It has been found by the Tribunal on the basis of material found during the search that a part of the land in Jaipur Highway, which was purchased in the financial year 1994-95, was sold in the financial year 1996-97 on which the assessee declared capital gains of `1,57,098/-. The balance of the land was proposed to be sold in the financial year 1997-98 but the deal did not mature as the buyer Azaad Coaches Pvt. Ltd. did not make the payments as promised and the title to the land did not get transferred. The property continued to remain with the assessee. The unpaid cheques were found during the search which was indication enough that no payments were received by the assessee in respect of the land proposed to be sold. This evidence, as rightly found by the Tribunal, was not controverted by the Revenue on the basis of any other material or evidence. The Tribunal rightly observed that the Assessing Officer could have made inquiries from Azaad Coaches Pvt. Ltd. to find out whether any payment was made for the land and whether the title to the land had actually passed to that company. It cannot be controverted that there can be no liability to capital gains tax without the transfer of the property in the relevant previous year within the meaning of Section 2 (47) of the Act. The learned Senior Standing Counsel made a passing mention of Section 53A of the Transfer of Property Act as incorporated in Section 2 (47)(v) of the Act. However, there is no evidence of possession being handed over to the above company; in any case there is no passing of consideration as the unpaid cheques were found during the search. Thus some of the essential conditions of Section 53A of the Transfer of Property Act is missing. We are unable to find fault with the order of the Tribunal on this point. It is based on the seized material which has been rightly taken into consideration. The Tribunal has not ignored any relevant material or circumstance nor has it taken into account any irrelevant material in agreeing with the CIT (Appeals) that the addition was unjustified. In this view we answer the second substantial question of law in the affirmative, in favour of the assessee and against the Revenue. 2012:DHC:5366-DB

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statements of the brokers as well as that of Rajinder Gupta constituted relevant evidence for the purpose of drawing the conclusion that the assessee received `2.49 crores for the sale of KG Farms and not merely `18,70,000/- as shown in the sale documents. We have referred to those statements while dealing with the case of Kedarnath Gupta. We have also referred to the retractions and held that the retractions cannot be accepted as convincing. 58. Mr. Sharma‟s argument that the statements made under Section 132 (4) do not constitute material seized during the search does not take him further. Obviously, no material was seized from the assessee‟s premises for the simple reason that the assessee was not searched under Section 132. The search was carried out in the premises of Rajinder Kumar Gupta and the brokers. The assessment of the assessee, Mani Kakkar, was initiated as a consequence thereof, under Section 158BD of the Act. The sale documents were found during the search of the premises of Rajinder Gupta and they disclosed that the property was sold by the assessee. Accordingly, a satisfaction note was recorded and proceedings were initiated under Section 158BD against the assessee. There is no bar on the statements recorded under Section 132 (4) being used in the assessment of the assessee made under Section 158BD of the Act. Even if it is assumed, without deciding the question one way or the other, that a statement made during the search under Section 132 (4) of the Act does not amount to material seized during the search, we do not think that the income tax authorities are debarred from using those statements in the assessment proceedings made under Section 158BD. In the very nature of things, there cannot be any seized material in the case of the person who is assessed under Section 158BD. It can be argued that even an assessment under Section 158BD has to follow the procedure prescribed by Section 158BC as it is mandated in the former. Section 158BC prescribes the procedure for the block assessment. However, section 158BB(1) which governs Section 158BC requires that the undisclosed income of the block period shall be computed in accordance with the provisions of the Act “on the basis of evidence found 2012:DHC:5366-DB

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as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence……”. The crucial words are “relatable to such evidence”. Therefore, the other materials or information which are gathered by the Assessing Officer post search can form the basis of the computation of the undisclosed income, provided they relate to the evidence found during the search. This requirement has to be read into the case of an assessment which is governed by Section 158BD. 59. If we examine the case of Mani Kakkar in the light of the foregoing discussion the position that emerges is this. In the course of the search in the case of Rajinder Gupta, certain documents were found which related to the purchase of KG Farms from the present assessee. These documents showed that the assessee had sold KG Farms which consisted of land with superstructure for `18,70,000/-. In all there were 10 registered sale deeds dated 03.05.1995, each for `1,87,000/-. The authorised officer conducting the search also recorded the statement of Suraj Bhan Sharma who himself was searched under Section 132. In the statement he had admitted that the property was purchased by Kedarnath Gupta in the name of his son for a total consideration of `2.49 crores, out of which `26,00,000/- was paid in cheque and the remaining amount of `2.23 crores was paid in cash. This statement of Suraj Bhan Sharma was put to Mani Kakkar in the course of the block assessment proceedings for rebuttal. The statement of Suraj Bhan Sharma cannot be said to be unconnected to the material found during the search, namely, the registered sale deeds showing that the aggregate sale price of KG Farms was `18,70,000/-. The provisions of Section 158BB (1) are thus satisfied in the sense that the statement of Suraj Bhan is relatable to the evidence found during the search. 60. The contention of Mr. Anoop Sharma that in the case of Kedarnath Gupta, a valuation report from registered valuer and comparable cases of property transactions in the nearby areas were furnished which would indicate that the price received by the assessee reflected the market price has already been dealt with by us while deciding 2012:DHC:5366-DB

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the case of Kedarnath Gupta. These may be relevant pieces of evidence but are not clinching, more so in the light of the other evidence brought on record. 61. Mr. Sharma finally contended that the findings of Tribunal are findings of fact and the High Court which is seized of the appeal against the order of the Tribunal is bound by those findings as Section 260A of the Act permits of an examination of the order of the Tribunal only on substantial questions of law. This proposition is unexceptionable, but it is subject to the exception, namely, that the findings of fact recorded by the Tribunal are not binding on the High Court if they are such that no reasonable person properly instructed in law would have come to or they are not based on the evidence or material on record or the findings are rendered ignoring relevant material or taking into account irrelevant material. Such findings are liable to be characterized as perverse findings and the High Court is not bound by them. In the case of Mani Kakkar the Tribunal has merely followed its earlier order passed in the case of Kedarnath Gupta; there is no independent examination of the assessee‟s case. This is perhaps natural because Kedarnath Gupta and Mani Kakkar are two sides of the same coin in as much as the property KG Farms was sold by Mani Kakkar to Kedarnath Gupta. However, the findings of the Tribunal recorded in the case of Kedarnath Gupta, to which we have alluded earlier, are not findings which are binding on us, for the reasons already stated by us while dealing with the appeal in the case of Kedarnath Gupta. We, therefore, do not feel incommoded by those findings. 62. Having said all that, there is an important aspect of the case of Mani Kakkar which needs to be dealt with. Section 158BD requires the Assessing Officer, while dealing with the assessment proceedings of the person searched, to record a satisfaction note if any undisclosed income noticed by him in the course of the assessment proceedings of the searched person under Section 158BC does not belong to that person but belongs to somebody else. After recording the satisfaction to that effect all the seized documents and the relevant record has to be handed over to the Assessing Officer having jurisdiction over the person to whom such undisclosed 2012:DHC:5366-DB

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income belongs. In his case also the assessment proceedings would be governed by Section 158BC. In the present case the assessee has challenged the satisfaction note of the Assessing Officer on the ground that it does not meet the requirement of Section 158BD. Several objections to the satisfaction note were raised by the assessee before the CIT (Appeals) and these are all noted by him in paragraphs 4 to 4.17 of his order. It is important to remember that recording of the satisfaction by the Assessing Officer is a jurisdictional pre-condition for the assessment of the person under Section 158BD. Before the CIT (Appeals), it was contended by the assessee that there was no satisfaction note recorded by the Assessing Officer having jurisdiction over Kedarnath Gupta who was subjected to search. It was also pointed out that despite a specific request made to the Assessing Officer, the satisfaction note was not supplied to the assessee. It was pointed out that if there is no recorded satisfaction, the Assessing Officer did not have the jurisdiction to make an assessment under Section 158BD. Reliance was placed on the judgment of this Court in Amity Hotels Pvt. Ltd. v. CIT, (2005) 272 ITR 75 wherein it was held that the satisfaction has to be recorded by the Assessing Officer having jurisdiction over the person who was searched, before issuing any notice under Section 158BD of the Act. According to the assessee if no satisfaction was found recorded, the entire assessment proceedings made under Section 158BD would be without jurisdiction. These contentions were forwarded by the CIT (Appeals) to the Assessing Officer for a remand report. The Assessing Officer submitted in the remand report that the requisite satisfaction was recorded on 20.11.2002 and a copy of the satisfaction note was submitted to the CIT (Appeals). It was also submitted by the Assessing Officer that notice under Section 158BD was issued to the assessee on the basis of satisfaction note. The satisfaction note is reproduced in para 4.16 of the order of the CIT (Appeals) and the same is reproduced below: - “Smt. Mani Kakkar W/o Sh. Ashok Kakkar Add: 12 Convenient Centre S.E.S. Hauz Khas, New Delhi. 2012:DHC:5366-DB

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It was suggested in the appraisal report (in the Ball Bearing Group of cases) that Sh. Ashok Kakkar has sold a farm house known as K G Farm to Sh. Kedar Gupta for a consideration of 2.49 Crores therefore, assessment proceedings were initiated issuing notice u/s 158 BC of the I T Act, 1961. During the course of assessment, it was noticed that the K G Farm was not sold by Sh Kakkar but, it was actually sold by Smt. Mani Kakkar w/o Sh. Ashok Kakkar. To investigate whether any capital gain has been declared or not declared by Smt. Mani Kakkar notice u/s 158BD of the I T Act is to be issued in the case of Smt. Mani Kakkar. A separate proposal for centralization of these cases are being sent to the DGIT through the CIT Central 1, New Delhi as Smt. Mani Kakkar is not assessed with undersigned.

(Sd/) Avinish Kumar, Dy. Commissioner of Income Tax, C Cir. 6, New Delhi”

In response to the remand report, the assessee pointed out that the satisfaction note merely noted that the Assessing Officer wanted to investigate whether any capital gain has been declared or not by Mani Kakkar and it was only for this purpose that notice was being issued under Section 158BD. The contention was that the satisfaction note did not record that the Assessing Officer assessing Kedarnath Gupta was satisfied, even prima facie, that the undisclosed income thrown up during the search belonged to the assessee herein, namely Mani Kakkar. 63. The CIT (Appeals) found merit in the contentions raised by the assessee and held as follows: - “4.18 I have considered the reasoning given by the AO and the submissions made by the Ld Counsel. As far as the reasoning of the Ld. Counsel that no satisfaction has been recorded by the AO of the person searched i.e. Sh. Kedar Gupta is concerned, the same is not tenable. This is so because the first satisfaction which is for centralization of case of the appellant has been recorded by DCIT, CC-6, March 02. In the second satisfaction in November 2002, the AO has issued u/s 158BD on the basis of reasons recorded by his predecessor. The issue that needs examination is whether the initial 2012:DHC:5366-DB

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satisfaction can be said to be satisfaction within the meaning of sec. 158BD or not. A plain reading of this satisfaction indicates that the same was recorded for the purpose of centralization of the case of appellant and to investigate whether any capital gain has been declared by the appellant. Notice u/s 158BD of the Act was to be issued to the appellant. In the second satisfaction, the succeeding officer relied on this reason and issued the notice. In other words neither the first officer nor the second one ever recorded the satisfaction that any undisclosed income of the appellant has been detected as a result of search u/s 132 in the case of Sh. Kedar Gupta. I am also in agreement with the submissions of Ld. Counsel that notice u/s 158 BD was issued on 6.1.2003 which is much beyond the date of assessment in the case of Sh. Kedar Nath Gupta and decision of Hon’ble Gujarat High Court in the case of Khandu Bhai Vasantji Desai (Supra) is thus applicable to the facts of appellant.”

(A) has erred in deleting the addition of `2,27,80,000/- made on account of undisclosed capital gain ignoring the fact that the addition has been made on the basis of seized material. 2. On the facts and in circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of `2,50,000/- made on account of undisclosed brokerage ignoring the fact that the addition has been 2012:DHC:5366-DB

ITA Nos.713/2008, 948/2008, 892/2008, 707/2008 & 706/2008

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made on the basis of seized material and the statement of broker Shri Suraj Bhan Sharma.”

ITA Nos.713/2008, 948/2008, 892/2008, 707/2008 & 706/2008

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disputed that the recording of the satisfaction that the undisclosed income found in the course of the search belongs to another person is a pre-condition for validly assuming jurisdiction to make an assessment under Section 158BD. The CIT (Appeals) has held that since no satisfaction to this effect was recorded by the Assessing Officer making the assessment of Kedarnath Gupta, the Assessing Officer having jurisdiction over Mani Kakkar had not validly assumed jurisdiction to issue a notice under Section 158BD and to make an assessment on her. This decision of the CIT (Appeals) has become final, the Revenue not having taken up the issue before the Tribunal. Only the merits of the additions were taken up by the Revenue before the Tribunal since they were also decided in favour of the assessee. It, therefore, follows that the assessment under Section 158BD cannot be upheld. We must however acknowledge that in our order dated 08.02.2012, when this point was sought to be raised before us at the time of the admission of the appeal and framing the substantial questions of law, we did observe as follows: - “5. Learned counsel for the respondent assessee submits that the CIT (Appeals) had deleted the addition on various grounds, including the legal ground that there was failure to record satisfaction as mandated under Section 158BD. He submits that the Revenue had raised two grounds of appeal before the tribunal and did not specifically challenged the findings recorded by the CIT (Appeals) with regard to satisfaction and assumption of jurisdiction. He relies upon order dated 18th November, 2011 passed in ITA No.942/2009, Commissioner of Income Tax versus Orient Crafts Limited. 6. We are not inclined to accept the said submission in view of the grounds of appeal, which have been referred to in paragraph 1 of the order passed by the tribunal. The grounds of appeal raised by the Revenue were comprehensive and wide enough. However, it will be open to the respondent assessee to raise all legal contentions and issues as are permitted and allowed in terms of Order XLXI, Rule 22 of the Code of Civil Procedure, 1908. 7. List for hearing in the category of “After Notice Miscellaneous Matters” on 1st May, 2012.”

2012:DHC:5366-DB

ITA Nos.713/2008, 948/2008, 892/2008, 707/2008 & 706/2008

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ITA Nos.713/2008, 948/2008, 892/2008, 707/2008 & 706/2008

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(R.V. EASWAR) JUDGE

(S. RAVINDRA BHAT) JUDGE AUGUST 31, 2012 hs 2012:DHC:5366-DB