DCIT vs. Ashok Kumar Gupta
In a significant ruling addressing ownership presumptions under Section 132(4A) of the Income Tax Act, the Delhi Bench of the ITAT held that unexplained cash and jewellery found in lockers operated by a vault company cannot be taxed in the hands of its director in the absence of evidence of ownership or control.
The Revenue had made a substantive addition of ₹4.66 crore in the hands of the director of Faqir Chand Lockers & Vaults Pvt. Ltd., citing that the company failed to maintain proper KYC for certain locker holders. However, the Tribunal agreed with the CIT(A) in concluding that the company—not the individual—should be assessed for such unclaimed assets.
Background: What Triggered the Addition?
- A search under Section 132 was conducted on Faqir Chand Lockers & Vaults Pvt. Ltd., a company providing locker rentals.
- Five lockers containing unclaimed cash and jewellery worth ₹4.66 crore were found.
- Due to lack of KYC, the AO assessed the amount in the hands of the director (Ashok Kumar Gupta) on a substantive basis and also made a protective addition in the company’s hands.
- The CIT(A) deleted the addition from the director’s hands, shifting it entirely to the company.
- Revenue appealed.
Key Findings of ITAT Delhi
- No Evidence Against the Director Individually
- The Tribunal noted that no evidence or document linked the director to the specific lockers or to the cash/jewellery found within them.
- All locker-related activities—rental agreements, receipts, operations—were in the company’s name.
- Presumption Under Section 132(4A) Not Attracted
- Although Section 132(4A) allows the department to presume ownership during search, such presumption must be rebutted or supported with corroborative evidence.
- In this case, the burden was not discharged by the Revenue to prove individual ownership.
- Rightful Assessment in Company’s Hands
- The Tribunal upheld the CIT(A)’s decision that since the lockers belonged to the company, and the unaccounted assets could not be traced to any specific individual, the deemed ownership lies with the company as custodian.
- The director cannot be treated as a proxy owner merely because he is part of management.
Final Verdict
- Addition in the hands of the director was rightly deleted.
- Revenue’s appeal was dismissed.
- ₹4.66 crore of unclaimed cash and jewellery will remain assessed in the hands of the company under Section 69A read with Section 132(4A).
Key Takeaways for Tax Professionals
- KYC failure by a company cannot automatically trigger additions in the personal capacity of its directors.
- Presumption under Section 132(4A) is not absolute; Revenue must demonstrate nexus between the person and the seized assets.
- A company, as custodian of lockers, may be liable for unexplained assets where owners are untraceable—not its individual officers.