High Court Of Madras
CIT vs. M. Chinnasamy
Section 132, 158BC
Asst. Year: Block Period 1987-88 to 1997-98
D. Murugesan & P. P. S. Janarthana Raja, JJ.
Tax Case (Appeal) Nos. 799 and 1202 of 2005
12th March, 2012
Counsel appeared
K. Suresh Kumar for the Appellant.: V. S. Jayakumar for the Respondent
P.P.S.Janarthana Raja, J.
1. The Revenue has filed the present appeals against the order of the Income-tax Appellate Tribunal under Section 260A of the Income-tax Act, 1961, raising the following questions of law:- T.C.(Appeal) No.799/2005:- “1.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that donations to the tune of Rs.75 lakhs made by the assessee to the All India Anna Dravida Munnetra Kazhagam could not be included in the undisclosed income of the block period ignoring relevant materials like absence of any list of donors at the time of search, the list furnished later on not showing the addresses and identity of the donors and the unreliable nature of the affidavits filed and relying on irrelevant material like the improbability of the assessee having earned such income in the absence of any specific source, without taking into consideration the provisions of section 68, 69 and 69A of the Income Tax Act ?
2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that a sum of Rs.2.25 lakhs given by Shri. J. A. Richards could not be assessed as undisclosed income for the block period even though the said person has admitted the payment to the assessee specifying the purpose of payment, in the statement made under oath, the payment was corroborated by the entries in the diary of the then Chairman of Tamil Nadu Mineral Corporation and the assessee also did not avail of the specific opportunity to examine the records and furnish evidence to rebut the inference ?” T.C(Appeal) No.1202 of 2005:- “1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the block assessment under Section 158BC could not be made unless the assessment is based only on materials, valuables etc. found during the course of such search ?
2. Whether in the facts and circumstances of the case, the Tribunal was right in holding the information not found during the course of search cannot be used to arrive at an undisclosed income under the Block Assessment as per the Section 158BB amended with retrospective effect from 01.07.1995?”
2.The brief facts arising out of the appeals are as under:- The assessee was a former Minister for Industries in the Tamil Nadu Government during the period 1993 to 1996.The Revenue conducted a raid under Section 132 of the Income Tax Act, 1961 (hereinafter called as the “Act”) on 21.11.1996. During the course of raid, some incriminating documents were seized. Therefore, the Assessing Officer issued a notice under Section 158 BC of the Act on 11.03.1997 directing the assessee to furnish return of income in Form -2B for the block period 1987-88 to 1997-98.The block assessment years are 1987-88 to 1997-98.The assessee/respondent has filed return of income on 13.11.1997 showing the undisclosed income as Nil. Subsequently, the Assessing Officer completed the block assessment for the block period determining the undisclosed income at Rs.99,94,761/-.Aggrieved by that order, the assessee/respondent filed appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal allowed the appeal in part and set aside the order of assessment directing the Assessing Officer to redo the matter after giving opportunity to the assessee. In consequence of the same, the Assessing Officer sent a notice to the respondent/assessee and completed the revised assessment as per the direction of the Tribunal and completed the assessment under Section 143(3) of the Act read with Section 158 BC of the Act and determined the undisclosed income at Rs.77,93,730/-.While completing the assessment, the Assessing Officer included a sum of Rs.75,00,000/-, which was advanced by the assessee as donation to the building fund of All India Anna Dravida Munnetra Kazhagam (herinafter called as “AIADMK”) as undisclosed income. Further the Assessing Officer also made another addition of Rs.2,25,000/- as unaccounted income and the same was assessed to tax as undisclosed income. Aggrieved by the same, the assessee filed appeal before the Income Tax Appellate Tribunal, who deleted the addition and held that the same was not undisclosed income and allowed the appeal. Aggrieved by the order of the Tribunal, the Revenue filed T.C.(Appeal)No.799/2005 against the order dated 14.10.2004.In respect of Tax case appeal viz., T.C(A).No.1202/2005, it is against the earlier order of the Income Tax Appellate Tribunal dated 01.04.1986 raising the above questions of law.
3. The Standing Counsel appearing for the Revenue vehemently contended that the order passed by the Tribunal is not in accordance with law and it is illegal, wrong and without justification. It is further contended that the Tribunal was wrong in deleting Rs.75 lakhs and 2.25 lakhs made in the block assessment being unexplained donation to the party and the amount received from J.A.Richards. It is further contended that the Tribunal ought to have appreciated the four receipts each of Rs.25 lakhs in the course of search in the residence of the former Personal Assistant of the assessee. Therefore, only the donations directly paid by the assessee to the extent of Rs.75 lakhs was treated as undisclosed income. He further contended that the Tribunal ought to have considered that the assessee had not furnished the list of donors and the donors were not identified. The Tribunal ought to have appreciated that these donations were collected in cash and address of the donees were not available. Further there was a contradicting statement given by the assessee that the amount raised by issue of donation tickets of Rs.1,000/-, whereas the persons stated that the donations were raised in the denomination of Rs.50/- and Rs.100/- by cash from various party workers. The affidavits given by the various party workers were all stereo-typed nature and the same would have been prepared by the assessee and signed by 37 different persons. He contended that the Tribunal was wrong in deleting the addition of Rs.75 lakhs. In respect of Rs.2.25 lakhs, the Appellate Tribunal was wrong in not considering the statement given by J. A. Richards before the Assistant Director of Income Tax (Inv.) that he paid a sum of Rs.2.25 lakhs to the assessee in consideration of getting the quarry license for his company. It is further contended that the Tribunal erred in stating that the entry was not made by J. A. Richards since the diary was maintained by Shri. Dyaneswaran. Therefore, the Tribunal was wrong in deleting the addition of Rs.2.25 lakhs. He thus contended that the order passed by the Tribunal is not in accordance with law and the same should be set aside.
4. Per contra, the learned counsel appearing for the assessee submitted that no document was seized in the residence of the assessee and in respect of undisclosed income of Rs.75 lakhs, proper receipts were given by the AIADMK Head Quarters Office and they acknowledged that they received the said amount from the assessee. The assessee was in possession of affidavits from various party workers for the purpose of Building Fund donation. Therefore, the Tribunal correctly held that in respect of Rs.2.25 lakhs, no opportunity was given to the assessee to cross examine J. A. Richards and there was nothing found in the house of the assessee and merely based on the statement, the Assessing Officer treated the same as undisclosed income. Therefore, the Tribunal correctly held that the same is not undisclosed income. Therefore, the order passed by the Tribunal is in accordance with law and the same should be confirmed.
5. Heard the learned counsel on either side and perused the materials available on record. In the course of raid, certain documents were seized. The said seized documents include three slips from the Head Office of AIADMK of receiving the donation for a sum of Rs.75 lakhs from the assessee towards Building Fund. The details of donation are as follows:-
Name of the Donor Receipt No. Date Donation amount 1.Mr.M.Chinnasamy 87
31.12.1993 25 lakhs -do- 187 01.03.1994 25 lakhs -do- 430 01.11.1994 25 lakhs In addition to the above sum of
Rs.75 lakhs, the assessee also paid another sum of Rs.25 lakhs to AIADMK on 13.07.1995 as is evidenced by the statement of his Bank Account. It is the case of the assessee that the entire sum was collected by party functionaries of Karur District from the party cadre and various sister concerns of the AIADMK. It is also pertinent to note that no amount was paid from his income. It is relevant to note that the Assessing Officer himself had issued a letter to the AIADMK Head Quarters and received a confirmation from the Head Quarters vide letter dated 24.11.2001 stating that the respondent/assessee is a District Secretary and from him they received Rs.25 lakhs each on following dates viz., 31.12.1993, 01.03.1994, 01.11.1994 and 13.07.1995 totalling Rs.1,00,00,000/ Further it is stated that the said sum was collected by the assessee from various party workers and the same was given to the Head Quarter through M. Chinnasamy. The said letter was written by the Treasurer of AIADMK party. It is further stated by the assessee that the donation was collected from the party workers and their names were furnished and the assessee has also given a list of persons from whom donation was collected and the list was given on 05.07.1997.Therefore, from this transaction, it is clear that the amounts were collected from various party cadre and was given to the party head quarters and the letter from the party headquarters confirms the same. Therefore, the Tribunal has taken the view that the assessee was able to establish the source of funds from where it was collected and the destination where it reached. Further, it is important to note that the assessee also produced affidavits from various persons. However, the Assessing Officer rejected the same stating that the contents of the affidavit are similar but the Assessing Officer was unable to prove that the assessee had not collected the amount or that the assessee had not submitted the collected amount to the party head quarters. The evidence given by the assessee was carefully considered by the Tribunal. Further, it is an undisputed fact that the assessee would have generated more than Rs.7,73,250/-for the 10 assessment years during the period 1987-88 to 1997-98.Hence the assessee would not have earned any amount from undisclosed source. After considering the above material, the Tribunal in paragraph 13 has given a categorical finding that the donation amount collected from the party workers cannot be termed as undisclosed income and in paragraph 13 and 14, it was held as follows:- “From the above, the Assessee was able to establish the source of funds from where it was collected and the destination where it reached. The Assessing Officer was not justified in brushing aside these evidences for the reason that these evidences were filed after search and completion of original assessment and they are not contemporaneous and merely in the nature of self-serving documents. Apparently, the sworn statement of the assessee, confirmation letter from AIADMK Party and the affidavits from party workers show that the assessee has received money as donation through the party workers. There is no material in the hands of Revenue to show that the assessee has collected these donations from sources other than the party workers and also there is no material to show that the assessee has earned this income from any undisclosed source. Therefore, it should be treated that that the donation was collected from the party workers only and the version of the assessee believed to be true and the benefit of doubt has to be given to the assessee only. The affidavits were produced by the assessee as well as confirmation letter collection from the party Hqrs., confirmed the receipt of money which is in writing, the Assessing Officer should have considered it. Moreover, as rightly pointed out by the Tribunal on the earlier occasion, if the assessee is not in a position to generate Rs.7 lakhs over a period of 10 years and his other sources of income are also not to that extent to have given him the credibility to the extent of Rs.75 lakhs, it is obvious that Rs.75 lakhs must have been collected from various party workers of the political party. This view of the Tribunal is also supported by the judgment of Hon’ble Supreme Court in the case of CIT Vs. Smt. P. K. Noorjahan (237 ITR 570) wherein it was held that in the very nature of things and by no stretch of imagination it can be held that assessee earned huge sums in a short span of time. In the light of the aforesaid observation of the Tribunal and the decision of the Supreme Court, and on the facts and in the circumstances of the case, the Assessing Officer shall accept the statement of the assessee recorded at the time of search under Section 132(4) that assessee collected donation as stated already and that he did not and could not have paid donation from out of his meager income already reported to the department, which was accepted. This view is also supported by the judgment of Hon’ble Supreme Court in the case of CIT Vs. Bharat Engineering Construction Co., (83 ITR 187).
14. In view of the above discussion, we are of the opinion that the receipts representing donation of Rs.75 lakhs to the AIADMK Party has been collected by the assessee from various party workers. Accordingly, we delete the addition on this issue.”
From the reading of the above, it is clear that the Tribunal had given a finding that the assessee had established the source of fund from where it was collected and the collected money was given to the AIADMK headquarters for Building Fund. It is further evidenced by the letter dated 24.11.2001 written by the Treasurer of the Party Head quarters confirming that they received the amount from the assessee by way of donation. The Revenue has failed
to prove that the assessee collected these donations from any other source other than the party workers. Therefore, the finding given by the Tribunal is based on valid material and evidence and correctly deleted the addition. The learned counsel appearing for the Revenue has not produced any other evidence to take a contrary view of the Tribunal. It is not a perverse order. We don’t find any error or illegality in the order that warrants interference of this Court. Thus, we answer the first question in favour of the assessee and against the Revenue.
6. In respect of the second question, nothing was found at the time of search in the house of the assessee, but the addition was consequence of account entry and the sworn statement given by one J. A. Richards, which was taken from Personal Assistant of the assessee. It is also seen that the respondent/assessee has not given any opportunity to cross examine the evidence. The assessee had also written a letter dated 19.03.2004 to the Assistant Commissioner of Income Tax, Circle II and the same reads as follows:- “I am in receipt of your letter of March 15 2004 enclosing draft assessment order, proposed to be passed in consequence to the orders passed by Hon’ble ITAT, Chennai proposing to assess my undisclosed income at Rs.77,93,730/- for the block assessment years 87-88 to 97-98.The proposed assessment is objected to on the following among other grounds. I have placed before you a letter from the party headquarters and affidavits from various party functionaries to demonstrate that my party collected donation for the building fund and as district secretary of the party I acted as an agent of the party. You have also independently ascertained from my party headquarters that the party collected donations through me during the relevant period of time to the tune of Rs. One crore. This facts was also not disputed in the original assessment completed. Therefore, the Hon’ble Tribunal observed that “if the assessee is not in a position to generate Rs.7,00,000/- over a period of ten years and his other sources of income are also not to that extent to have given him credibility to the extent of Rs.75,00,000/-, it is obvious that this would have been collected only from various workers of the political party and this appears to be the view that is possible in the circumstances.” I submit that no material is brought on record to disbelieve the fact of collection of donations by the party during the relevant period. On the other hand the materials on record establish the said fact. You may be pleased to evaluate the entire evidences on record in the light of the observation of the Hon’ble Tribunal. On 08.03.2004, as I was busy with electioneering, I sent my personal assistant, who is well acquainted with all the facts of my case, to file my reply in person and also to find out whether Mr. J. A. Richard had arrived for cross-examination. He reported in the evening that he was directed to file the reply in your office and that no person by name Mr. J. A. Richard came to your office till the end of the day. I have not received any communication from you giving me an opportunity to cross-examine the said person. The facts being so your allegation that I was given opportunity to peruse the record but I failed, is scraping the bottom of the barrel.
The fact remains that I asked for cross-examination of the person whose statement is relied on to make additions in my case but have not given me an opportunity to cross-examine the said Richards. His testimony remains untested. Therefore, his statement cannot be used in evidence against me.
The letter dated 05.01.2003 filed by my representative, the reply fixed by me on 08.03.2004 and evidences filed during the course of this proceeding may be read as part and parcel of this reply For the above reasons you may reconsider your proposals and pass orders with due consideration for the observations of the Hon’ble Tribunal.”
From the reading of the above, it is clear that merely on the above sworn statement of J. A. Richards, the Assessing Officer made addition of Rs.2.25 lakhs as undisclosed income and no opportunity was given to cross examine the said J. A. Richards. Unless, there is concrete evidence to show that J. A. Richards has paid such amount, the Assessing Officer cannot treat as undisclosed income. In paragraph 15, the Tribunal has held as follows:”15. Regarding the addition of Rs.2.25 lakhs, this addition was resulted on account of entry in the diary of Shri. Dyneswaran, Chairman, TAMIN and on the basis of sworn statement of Mr. J. A. Richards. The receipt was seized from the personal brief case of Dyneswaran. As per the sworn statement of Richards, the seized paper contains details regarding the company queries and he has handed it over to the Assessee and the denomination was not written by Richards. But as per observation in the assessment order in Page 10, the answer to Question No.7 does not contain any information that a sum of Rs.2.25 lakhs was paid by the assessee. Therefore, in our opinion, the Assessing Officer did not have concrete reason for drawing the conclusion that Richards has paid the sum of Rs.12.25 lakhs to the assessee, as Richards has never mentioned in his answer to Q.No.7 that he has paid money to the assessee and categorically mentioned that the denomination was not written by him. Under these circumstances, we delete the addition on this account.”
From the reading of the above, it is clear that the above conclusion was based on material evidence. It is question of fact. In these circumstances, we also answer the second question in favour of the assessee and against the Revenue.
In view of the above findings, T.C.No.799/2005 is devoid of merits and the same is dismissed. No costs. In respect of T.C.(Appeal)No.1202/2005, the learned counsel appearing for the Revenue fairly submitted that nothing survives to be adjudicated in the tax case since the remand impugned order merged with the subsequent order of the Tribunal was the subject matter of appeal inT.C.No.799/2005.
In these circumstances, T.C.(Appeal).No.1202 of 2005 filed against the remand order has become infructuous and hence the same is dismissed. No costs.
[Citation : 350 ITR 694]
