Section 153C Mandatory for Third-Party Search Material: ITAT Delhi Upholds LTCG Exemption in Anoop Kumar Gupta Case

Background and Overview

The Income Tax Appellate Tribunal, Delhi Bench, delivered a significant ruling in Anoop Kumar Gupta Vs ACIT (ITA No. 454/Del/2020), concerning the Assessment Year 2015-16. The central dispute revolved around the denial of exemption under Section 10(38) of the Income Tax Act, 1961 on long-term capital gains (LTCG) of Rs. 20,56,31,211/- arising from the sale of equity shares of Mahavir Advanced Remedies Ltd (MARL), listed on the Bombay Stock Exchange. The Tribunal's order, dated 05/10/2023, partly allowed the assessee's appeal and laid down critical principles regarding the proper jurisdictional route to be adopted by Revenue when incriminating material surfaces during searches conducted at third-party premises.

Profile of the Assessee and Nature of the Transaction

The assessee, an individual, earned income from salary and interest, was a partner in Khushiram Beharilal (a firm), and served as Joint Managing Director of KRBL Ltd. He was a regular investor in shares of listed and unlisted companies, having investments in 77 companies as reflected in his balance sheets, with investment values at cost of Rs. 7.25 crores as on 31.03.2013 and Rs. 7.54 crores as on 31.03.2014.

During the relevant year, the assessee had acquired 6,00,000 equity shares of MARL under preferential allotment at Rs. 11 per share (face value Rs. 10 plus premium of Rs. 1) on 08.03.2013. Key features of the acquisition and subsequent sale were:

  • Payment of Rs. 66,00,000/- was made entirely through regular banking channels from the assessee's own bank account.
  • The shares were duly disclosed in the balance sheet as on 31.03.2013 and 31.03.2014.
  • The shares were dematerialised with the Depository Participant by depositing the original physical share certificate.
  • The shares were subsequently sold in various tranches through the open market on a recognised stock exchange via a registered broker (Rashi Equisearch Pvt Ltd), with Securities Transaction Tax (STT) duly paid.
  • Sale proceeds were received through regular banking channels from the stock exchange.

Since the shares were held for more than one year and sold after payment of STT, the resulting LTCG was claimed as exempt under Section 10(38) of the Act in the return of income filed on 29.11.2015 under Section 139(1).

The Search Operation and What Was Found

A search and seizure operation under Section 132 of the Act was conducted on the KRBL group on 30.03.2016. Search warrants were issued:

  • In the name of the assessee for his residential premises; and
  • In the name of KRBL Ltd for its office premises (the assessee's name was not included in this warrant).

Crucially, no incriminating material of any kind was found at the assessee's residential premises — no undisclosed money, bullion, jewellery, loose sheets, or any document suggesting concealed income or a bogus LTCG transaction. The search at the assessee's residence concluded on 31.03.2016 at 8:40 PM. No incriminating material was found at KRBL Ltd's premises either.

Separately, on the same date, the Chennai Investigation Wing conducted searches on Shri BVS Koteshwar Rao and others under independent search warrants issued in their respective names. A survey under Section 133A was also conducted at MARL's premises. During the search of Shri Koteshwar Rao, a statement was recorded under Section 132(4) in which he stated that he had resigned as director of MARL in 2012 and denied that the signature appearing on the share certificate dated 08.03.2013 was his, attributing the forgery to Shri Dhanroop Betala and Shri Shantilal Purohit. He further stated he was unaware of the persons to whom preferential allotment of MARL shares had been made.

The assessee was subsequently taken to KRBL Ltd's office premises after 8:40 PM on 31.03.2016, where a statement was recorded from him on 01.04.2016 in his capacity as Joint Managing Director of KRBL Ltd — not in his individual capacity. The assessee categorically denied knowing Shri Koteshwar Rao and denied all allegations put to him based on the Chennai statements.

The Assessing Officer's Action and CIT(A) Order

The Assessing Officer (AO), relying on statements recorded from alleged exit providers and the material gathered during searches of third parties, treated the MARL share sale proceeds as a bogus accommodation entry and assessed them as unexplained cash credit under Section 68 of the Act. The AO additionally estimated commission expenditure at 6% of the net gain and added Rs. 1,23,37,872/- on this account. Penalty proceedings under Section 271(1)(c) were also initiated.

The learned CIT(A) upheld the additions. The assessee appealed to the ITAT, raising both original grounds and additional legal grounds going to the jurisdictional root of the proceedings.

Additional Grounds Admitted by the Tribunal

The assessee raised additional grounds contending: