High Court Of Madras
CIT, Central-III, Madras vs. M.K. Shanmugam
Assessment Year : 2001-02
Section : 158BA
Elipe Dharma Rao And M. Venugopal, JJ.
Tax Case Appeal Nos. 69 And 70 Of 2008
September 23, 2011
JUDGMENT
Elipe Dharma Rao, J – Tax Case Appeal No.69/2008 has been filed against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal “C” Bench, Chennai, in I.T.(SS)A.No.79/Mds/2004 and Tax Case Appeal No.70/2008 against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal “C” Bench, Chennai, in C.O.No.155/Mds/2004 in I.T.(SS)A.No.79/Mds/2004. Since the issue involved in both these tax case appeals are one and the same, they are disposed of by this common judgment.
2. The brief facts of the case are as follows:
The assessee is engaged in the business of jewellery and money lending. He is the proprietor of M/s. Sri Velmurugan Financiers, M/s. Sri Raja Jewellery, M/s. Sri Raja Silks and M/s. M.K.S. Finance. He is also the Managing Director of M/s. Shanmugaraja Chit Funds Pvt. Ltd and Partner in M/s. Sri Raja Chit Funds, M/s. Sri Velmurugan Chit Funds, Coimbatore and M/s. United Fabrics, Tiruppur. A search was conducted in the business premises of the assessee on 31.01.2001 under section 132 of the Income Tax Act, 1961, hereinafter referred to as “the Act”, by Investigation Unit-II, Coimbatore. During the course of search, various incriminating documents were seized, which indicated that the assessee did not disclose the correct income earned by him in the returns filed by him before conducting such search. Before the date of search, the assessee filed returns of income only upto the assessment year 1998-99. Therefore a notice under section 158BC of the Act was issued to the assessee on 28.02.2001. The search was concluded on 13.03.2001. On 18.09.2002, block return in Form 2B was filed by the assessee for the period from 01.04.1990 to 13.03.2001 declaring a loss of Rs. 16,47,844/-. In response to the notices and the letters issued, the assessee made written as well as oral submissions in respect of his income and investments during the said block period. The documents seized from his business premises and the documents produced by him were scrutinized and after hearing the assessee, the Assessing Officer completed the assessment. As against the Assessment Order, the assessee filed an appeal before the Commissioner of Income Tax (A) – II, Coimbatore, who, by order dated 25.03.2004, allowed the appeal in part. Aggrieved by the said order of the Commissioner of Income Tax (A), the Revenue filed an appeal before the Income Tax Appellate Tribunal and the assessee filed Cross Objection in respect of the disallowed portion. The Income Tax Appellate Tribunal, by its common order dated 23.11.2006, dismissed the appeal filed by the Revenue and partly allowed the Cross Objection filed by the assessee. Challenging the same, the Revenue has filed the present Tax Case Appeals.
3. At the time of admitting the tax case appeals, the following substantial questions of law were framed by this court:
“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in deleting the additions of Rs. 42,00,000/- as undisclosed income of the assessee even though the assessee himself accepted in his statement as “on money transaction” in transferring the properties?
2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the addition of Rs. 60,72,900/-, even though being the bogus outstanding deposit in M/s. Raja Jewellers Proprietary Concern of the assessee as undisclosed income of the assessee under section 69C of the Income Tax Act, 1961?
3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the addition of Rs. 13,83,000/- as undisclosed income of the assessee, even though the assessee has not proved the genuineness of the deposits by way of filing confirmation letters from the parties who are involved in the transactions?
4. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the addition made by the Assessing Officer to the tune of Rs. 26,63,130/-, even though the assessee has not produced the relevant books of accounts, book statements, computations, etc.?”
4. We have heard the learned counsel appearing on either side and perused the entire materials available on record.
5. Learned counsel appearing for the Revenue submitted that when the assessee had not maintained regular books of accounts for the period after 31.03.1998 and when he had received a sum of Rs. 72,00,000/- from sale of properties, out of which, Rs. 42,00,000/- was the “on money receipt”, the Assessing Officer was right in treating the said amount of Rs. 42,00,000/- as income from other sources. The sum of Rs. 60,72,900/-, being the bogus outstanding deposit in M/s. Raja Jewellers Proprietary Concern of the assessee, was the undisclosed income of the assessee under section 69C of the Act for the assessment year 1998-99. While conducting the search of the assessee’s business premises, fixed deposit receipt books of M/s. Sri Velmurugan Financiers were seized, from which, it came to light that a sum of Rs. 13,83,000/-, which was shown as outstanding as on 31.03.1998, was found to be bogus and since the assessee did not prove the genuineness of the deposits even by filing confirmation letters, the entire deposits were treated as bogus and taxed as unexplained expenditure. The reasoning given by the Assessing Officer, in respect of undisclosed payments made to M/s. P.C. & Sons and M/s. C.R.B.F. Ltd to the tune of Rs. 8,80,000/-; unaccounted payments made to M/s. Chakkra Group of concerns to the tune of Rs. 12,81,130/-; unaccounted payments made to M/s. Kamadhenu Nidhi and Subash Financiers to the tune of Rs. 2,52,000/- and unexplained investments in M/s. United Fabrics to the tune of Rs. 2,50,000/-, was that, those payments were not supported by any relevant books of accounts, bank statements, computation, etc. On the basis of the above submissions, learned counsel appearing for the Revenue submitted that the order passed by the Appellate Tribunal is unjust, arbitrary and erroneous and hence, it is liable to be set aside.
6. On the other hand, learned counsel appearing for the assessee submitted that when the assessee and his wife Smt. Saroja were jointly owning the property at Raja Street, the Assessing Officer was not justified in treating the sum of Rs. 42 lakhs received from the sale of the said property as undisclosed income of the assessee, without applying the cost of index of the property sold, to arrive at the correct capital gain and therefore, the finding rendered in this regard by the Commissioner of Income Tax and the Income Tax Appellate Tribunal cannot be found fault with. The outstanding loans as per the returns was Rs. 60,72,000/- and the outstanding as per the respective ledgers was Rs. 39,51,500/- leaving a difference of Rs. 21,21,400/-; the above difference was because, returns were filed for the year ending 31.03.1998 whereas, ledgers were not for the year ending 31.03.1998 but for the subsequent period and therefore it is factually incorrect to state that the assessee had not furnished the name and address of the creditors. Though during the course of search, fixed deposit receipt books of M/s. Velmurugan Financiers, which was the proprietary concern of the appellant, were seized and it revealed that an amount of Rs. 13,83,000/- was outstanding as on 31.03.1998 in favour of various depositors, yet, the Assessing Officer was under the impression that the said deposits were paid back before 31.03.1998, which is factually incorrect. The Assessing Officer ought not to have treated the payments made to various concerns to the tune of Rs. 26,63,130/- as undisclosed income of the assessee and therefore the Tribunal rightly deleted the additions made by the Assessing Officer. On the basis of the above submissions, learned counsel appearing for the assessee contended that the order passed by the Tribunal cannot be interfered with in any manner. Learned counsel appearing for the assessee relied upon various decisions of this court as well as other High Courts in support of the above submissions made.
7. It is seen from the materials available on record that the assessee filed his return of income upto the assessment year 1998-1999. A search was conducted in the business premises of the assessee on 31.01.2001 by Investigation Unit – II, Coimbatore and at that time, various incriminating documents were seized, which indicated that the assessee did not disclose the correct income earned by him in the returns filed before the conduct of such search. Therefore, a notice under section 158BC of the Act was issued to the assessee, pursuant to which, block return in Form 2B was filed by the assessee on 18.09.2002 declaring a loss of Rs. 16,47,844/-. On the basis of the materials available, the Assessing Officer passed the order of assessment under section 143(3) read with section 158BC(c) of the Act computing the total undisclosed income of Rs. 1,54,52,270/- and raising a tax demand of Rs. 1,34,50,894/-, after making the following additions:
(1) Rs. 42,00,000/- undisclosed income, being “on money receipt” in respect of Raja Street property;
(2) Rs. 60,72,900/- undisclosed income under section 69C of the Act, being the amount of outstanding deposit in M/s. Raja Jewellery (Proprietary concern);
(3) Rs. 13,83,000/- undisclosed income, being fixed deposit outstanding as on 31.03.1998 with Sri Velmurugan Financiers;
(4) Rs. 26,63,130/-, being undisclosed income under the following heads viz.,
(a) payments made to P.C.&Sons & CRBF Ltd. Rs. 8,80,000/-
(b) Payments made to Chakkra Group Rs. 12,81,130/-
(c) Payments to K.N. & S.F. Rs. 2,52,000/-
(d) Investment in United Fabrics Rs. 2,50,000/-
Rs. 26,63,130/-
(5) and Rs.2,00,000/-, being the sale proceeds of A.P. Lodge.
8. As far as the first question of law framed by this court is concerned, according to the assessee, he and his wife jointly purchased the property at Door No.270 – 271, Raja Street, Coimbatore during the period 1993-94, for a consideration of Rs. 24,92,460/- and also paid goodwill for the said property to the tune of Rs. 3 lakhs. The said property was sold to the four sons of Thiru. S. Thiagarajan during the financial years 1998-99 and 2000-01 for Rs. 30 lakhs and he received only 50% share in the sale proceeds, which was shown in the returns filed for the assessment year 1994-95. Besides that, “on-money” was received to the tune of Rs. 42 lakhs. However, sale consideration of Rs. 15 lakhs and “on-money” of Rs. 20 lakhs were received during the assessment year 1999-2000 and the remaining sale consideration of Rs. 15 lakhs and “on-money” of Rs. 22 lakhs were received during the assessment year 2001-2002. The above receipts and the long-term capital gains arising therefrom were shown in the block returns filed by him. The Assessing Officer found that the assessee had not produced supporting documents with regard to the books of accounts maintained by him, inspite of the specific request made in that regard; he had not maintained proper books of accounts in respect of his business transactions and also in respect of other group concerns from the financial year 1998-99 till the date of search and that, he did not comply with the notices for producing the books of accounts for the assessment years 1991-92 to 1998-99, for which returns were filed. On the basis of the materials available on record, the Assessing Officer treated the said income of Rs. 42 lakhs as “income from other sources”, being “on money receipt” due to the sale of the said property, during the assessment year 2001-02 and also made an addition of Rs. 1,52,950/-, being the difference in the sale price of Rs. 15 lakhs and purchase price of Rs. 13,47,050/-. However, the Commissioner of Income Tax (Appeals) had deleted the said addition made by the Assessing Officer on the ground that the assessee had accounted for the indexed cost of the property on the basis of the payments and expenses reflected in the relevant purchase documents and payments and expenses shown in the accounts prior to the date of search. The Commissioner had also held that the computation made by the assessee was verified and found to be correct. The Tribunal had held that the assessee had furnished the calculation of capital gains in respect of the said property while submitting his block returns for the period 01.04.1991 to 31.03.2001; therefore, the Assessing Officer was not justified in holding that the assessee had not disclosed the sale of the said property to the Department and when the entire consideration, including the “on money” was admitted in the computation, there was no justification on the part of the Assessing Officer to treat the said sum of Rs.42 lakhs as undisclosed income. On the basis of the above findings, the Tribunal upheld the findings rendered by the Commissioner of Income Tax (Appeals) on the said issue.
9. It is no doubt true that the assessee had stated that the property situated at Raja Street was purchased by him jointly in his name as well as in the name of his wife Smt. Saroja during 1993-94 and the said property was sold to the four sons of Thiru. S. Thiagarajan during the financial years 1998-99 and 2000-01 for a sum of Rs.30 lakhs. However, in the sworn statement of Thiru. Thiagarajan, he had clearly stated that the said property was purchased by his sons for a consideration of Rs. 72 lakhs and the purchase documents were registered only for Rs. 30 lakhs. The assessee himself, in his sworn statement dated 31.01.2001, had stated that the above property was sold for a consideration of Rs. 72 lakhs and that he utilised the said sum received for making repayment to M/s. C.R. Benefit Funds Ltd., and M/s. P.C. & Sons.. By his sworn statement dated 14.02.2001, the assessee had also confirmed the receipt of Rs. 72 lakhs from and out of the sale of the said property. By his sworn statement dated 14.02.2001, the assessee had also offered the said sum of Rs. 42 lakhs, being “on money receipt”, for taxation in his hands. When the assessee himself had admitted the above position, we are of the opinion that the Assessing Officer had not committed any error in making the addition of Rs. 42 lakhs while completing the block assessment. Though the assessee would contend that the Assessing Officer himself had admitted that 50% of the property belongs to the wife of the assessee and therefore the same shall be considered in her block assessment under section 158BD of the Act, as per which she was assessed for the balance 50% share, yet, the Assessing Officer had found, on an analysis of the assessee’s returns, that the assessee is a regular defaulter in filing his returns of income and that the returns for the assessment years 1991-92, 1992-93 and 1996-97 were filed beyond the time limit prescribed under section 139 of the Act. On the basis of the above finding, the Assessing Officer treated the returned income in the invalid returns filed for the said assessment years as undisclosed income of the assessee. Therefore, we are not inclined to agree with the said contention raised by the assessee.
10. As far as the second question of law is concerned, the assessee, in the returns filed by him for the year ended 31.03.1998, had shown a sum of Rs. 60,72,900/- as the total outstanding liability in respect of the jewellery chit business. However, from the documents seized viz., the ledgers, the outstanding liability was Rs. 39,51,500/- leaving a difference of Rs. 21,21,400/-. It is seen from the materials available on record that bogus credit to the tune of Rs. 21,21,400/- had been declared by the assessee vide his office letter dated 19.07.2002 and though the assessee was asked to furnish the name and address of the creditors, the assessee did not furnish the same. According to the assessee, the above difference was because, returns were filed for the year ending 31.03.1998 whereas, ledgers were not for the year ending 31.03.1998 but for the subsequent period and therefore it is factually incorrect to state that the assessee had not furnished the name and address of the creditors. During post search investigation, random verification was conducted in respect of fourteen creditors and all of them had stated that they received back their deposits either as jewels or in the form of cash prior to 31.03.1998. During the fag end of the block assessment proceedings, though the assessee had produced photo copies of cash bills pertaining to jewellery on 18.04.1998 in respect of ten creditors, he had not produced any evidence to show that the remaining credits were actually outstanding as on 31.03.1998. The assessee also had not furnished the name and address of the creditors. Therefore, the entire credits of Rs. 60,72,900/- were treated as bogus credits since the same had been paid by the assessee before 31.03.1998. On the basis of the above materials, the Assessing Officer treated the said amount of Rs. 60,72,900/-, being bogus outstanding credits in M/s. Raja Jewellers, Proprietary concern, as the undisclosed income of the assessee under section 69C of the Act for the assessment year 1998-99. However, the Commissioner of Income Tax came to the conclusion that the outstanding liabilities to the tune of Rs. 60,72,900/- was reflected in the books of accounts maintained by the assessee; the return of income for the assessment year 1998-99 was filed by the assessee on 04.03.1999 i.e., much prior to the date of search; in the confirmation letters given by the fourteen creditors, they have not stated that they received the deposits prior to 31.03.1998; the Assessing Officer has no power to make roving enquiry or investigation in respect of completed assessments; no material was found during the course of search to even suggest that those credits were not genuine and therefore, the said amount cannot be treated as undisclosed income of the assessee. To arrive at such a conclusion, the Commissioner of Income Tax (A) had placed reliance on the decisions of the Bombay High Court in the case of CIT v. Vikram A. Doshi [2002] 256 ITR 129 /[2003] 127 Taxman 513 and the order passed by the Jabalpur Bench of the Income Tax Appellate Tribunal in the case reported in Sudhir Kumar Poddar v. Dy.CIT [2003] SOT 495, wherein it was held that if the credits are duly recorded in the books of account in the regular course of business; if the assessee had filed the return of income for the respective years prior to the conduct of search and if no material was found during the course of search so as to establish that such credits were not genuine, then, the same cannot be treated as undisclosed income. The Tribunal had also confirmed the said order passed by the Commissioner of Income Tax in this regard.
11. It is seen from the materials available on record that the returns filed by the assessee for the assessment years 1991-92, 1992-93 and 1996-97 were not valid returns as per the Income Tax Law and that they were filed beyond the time limit prescribed under section 139 of the Act. During the course of assessment proceedings, the assessee had submitted cash flow statements in order to explain the investments. But however, no supporting documents were produced by the assessee. It may be true that if the assessee had filed the return of income for the respective years prior to the conduct of search and if no material was found during the course of search so as to establish that such credits were not genuine, then, the same cannot be treated as undisclosed income. However, in this case, admittedly the Assessing Officer had found that the assessee did not maintain proper books of accounts for his business transactions and also for other group concerns from the financial years 1998-99 till the date of search. Therefore, the said decisions cannot be applied to the facts of the present case. Though the Commissioner of Income Tax had held that the Assessing Officer does not acquire any power under section 158BA to make roving enquiry or investigation about the assessments already completed, yet, a perusal of the provisions contained in the said section makes it abundantly clear that “notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.” The Explanation to section 158BA reads as follows:
“Explanation – For the removal of doubts, it is hereby declared that –
(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;
(b)the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;
(c)the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.”
It cannot be said that the Assessing Officer has no power under the said section to make roving enquiry or investigation about the assessments completed, since, admittedly, as per the provisions contained in the said section, the assessment made shall be in addition to the regular assessment in respect of each previous year included in the block period. In this case admittedly, the assessee had not produced any material to show that the remaining credits were outstanding as on 31.03.1998 and the assessee also did not furnish the name and address of the creditors. The Assessing Officer had found that the assessee had not maintained proper books of accounts in respect of his business transactions and also in respect of other group concerns from the financial years 1998-99 till the date of search. The Commissioner of Income tax (A) had observed that when the Assessing Officer himself had stated that the assessee had produced copies of cash bill regarding the receipt of jewellery in the month of April 1998, he ought not to have held that the documents produced by the assessee cannot be relied upon. When the assessee himself had admitted in his sworn statement dated 02.03.2011 that he had not maintained proper books of accounts for his business transactions and also for other group concerns from the financial years 1998-99 till the date of search, we are not inclined to give much weightage to the observation made by the Commissioner of Income Tax that the Assessing Officer ought not to have held that the documents produced by the assessee cannot be relied upon. Therefore, we are of the opinion that the order passed by the Commissioner of Income Tax (A) and the Tribunal in this regard cannot be legally sustained.
12. As far as the third question of law is concerned, the assessee is the Proprietor of M/s. Sri Velmurugan Financiers. During the course of search, fixed deposit receipt books of the said company were seized, which revealed that an amount of Rs. 13,83,000/- was outstanding as on 31.03.1998 in favour of various depositors. The assessee was asked to furnish the list of such deposits along with confirmation letters. According to the assessee, the details regarding the deposits were available with the Assessing Officer since, during the course of search, fixed deposit receipt books of M/s. Sri Velmurugan Financiers were seized by the Investigation Unit. It is also his case that the Investigating Officer obtained letters from few of the fixed deposit receipt holders behind his back and that no opportunity was given to him to cross examine any of the parties who were verified by them. During the random verification done by the Investigation Unit, seven depositors had stated that they never made any deposits. During the fag end of the block assessment proceedings, the assessee had produced photo copies of deposit receipts pertaining to eight creditors regarding the receipt of deposits during the financial years 1999-2000 and 2000-2001. The Assessing Officer, on the basis of the materials available on record, found that it was an after thought and that the assessee had not proved the genuineness of the deposits made, even by filing confirmation letters and on that basis, treated the entire deposits as on 31.03.1998 as bogus and taxed the same as unexplained expenditure of the assessment year 1998-99. However, according to the Commissioner of Income Tax, during the course of search, no document was seized to even suggest that the amounts involved under the fixed deposits in question were in fact paid back prior to 31.03.1998. The Tribunal also concurred with the said finding of the Commissioner of Income Tax (A). As already stated, during the course of search, fixed deposit receipt books of M/s. Sri Velmurugan Financiers were seized, which indicated that a sum of Rs. 13,83,000/- was outstanding as on 31.03.1998 and though the assessee was asked to prove the genuineness of the deposits by filing confirmation letters, the assessee did not file the same. Therefore, the said amount of deposit was treated as bogus and taxed as unexplained expenditure. A perusal of the order passed by the Appellate Tribunal shows that the Tribunal had not even given proper reasons for agreeing with the finding rendered by the Commissioner of Income Tax with regard to the above issue. This shows that the Appellate Tribunal had not dealt with the matter in a proper perspective. Therefore, we find no ground to take a different view than the one taken by the Assessing Officer in arriving at the undisclosed income of the assessee as referred to above.
13. As far as the last question of law raised by this court is concerned, the finance companies viz., M/s. P.C. & Sons and M/s. C.R. Benefit Funds Limited are run by Shri. C. Ramasamy, the cousin brother of the assessee. The assessee had taken a loan of Rs.65 lakhs from the above concerns and Rs. 10 lakhs from the following companies viz., M/s. Chakra Group of concerns, Coimbatore; M/s. Kamadhenu Nidhi and M/s. Subash Financiers, Pandamangalam, Namakkal District, for purchasing a commercial property opposite to Coimbatore Railway Station. Enquiries were conducted to verify the genuineness of the said loan. As far as the amount of loan of Rs. 65 lakhs availed by the assessee is concerned, it is seen from the ledger extracts produced by the assessee that M/s. P.C. & Sons and M/s. C.R. Benefit Funds Limited had given the loan amount on various dates in the year 1996-97 by way of cheques. The assessee had paid interest in respect of the said loan amount before 31.03.1998 and the same was reflected in his return of income. Apart from the above interest, he had paid a total sum of Rs. 87,90,000/- on various dates subsequent to 31.03.1998 towards the principal and interest. The assessee had paid a sum of Rs. 11,55,000/- before 31.03.1998 and Rs. 3,30,000/- during the months of April and May 1998, which had been kept in the suspense account of M/s. C.R. Benefit Funds Limited. However, the said amount of Rs. 11,55,000/- was not reflected in the books of accounts maintained by the assessee. From the loose sheets seized from the premises of the assessee, it had come to light that the assessee had filed confirmation letters with regard to a sum of Rs. 6,65,000/- only, out of the sum of Rs. 11,55,000/- and the same had been taken as the source of the assessee for the financial year 1997-98; Rs. 3,30,000/- during the financial year 1998-99 and Rs. 60,000/- during the financial year 2000-01 i.e., upto 31.01.2001. Thus, a total sum of Rs. 8,80,000/- had been paid by the assessee to M/s. P.C. & Sons & M/s. C.R. Benefit Fund Limited during the said period. As far as the payments made to M/s. Chakra Group of companies is concerned, enquiries had been conducted with M/s. Nava Chakra Finance Group, in order to verify the genuineness of the said loans and it was found that the said loan was given by cheque and the repayment of the principal amount and part of the interest amount were made by the assessee after 31.03.1998. The total payments received from the assessee after 31.03.1998, as per the ledgers of M/s. Easwari Business Promoters, M/s. Jai Chakra and M/s. Nava Chakra Finance, come to Rs. 12,81,130/-. However, no proper explanation was offered by the assessee with the regard to the source for payment of the said amounts. As far as the repayments made to M/s. Kamadhenu Nidhi & M/s. Subash Financiers are concerned, the assessee had made payments to the extent of Rs. 10 lakhs through Catholic Syrian Bank, Singanallur. The source for the said payment is shown to be the cash deposits made in the bank on 27.08.1998. During the assessment proceedings, the assessee had given explanation with regard to the repayment of the principal amount. But however, no explanation whatsoever was offered by the assessee with regard to the payment of interest of Rs. 2,52,000/- to M/s. Kamadhenu Nidhi and M/s. Subash Financiers during the financial year 1998-99. During the course of search, it was also found that the assessee, along with his wife, daughter and son-in-law, floated a partnership concern by name M/s. United Fabrics at Tiruppur. On verification of the return of income filed by M/s. United Fabrics for the financial year 1997-98, it had come to light that the assessee and his wife had introduced a sum of Rs. 2,50,000/- each, as capital. The return filed by the assessee for the assessment year 1998-99 did not indicate that the assessee became a partner of the said firm. Even the receipts and payments account filed by the assessee did not indicate the contribution of Rs. 2,50,000/- made by the assessee. During the assessment proceedings, the assessee did not also explain the source for the said contribution made by him.
14. From the above materials available on record, it is clear that the assessee had not offered proper explanation with regard to the above payments made to the said companies as well as the contribution made by him in M/s. United Fabrics viz., the partnership firm. No evidence whatsoever was produced by the assessee to prove the source for making those payments as well as the contribution. At the risk of repetition and as seen from the materials available on record, the assessee had not maintained proper books of accounts for the period after 31.03.1998. Returns were also not filed for the remaining period. Therefore, the Assessing Officer held that the assessee did not have the source for making repayment of the said loans to M/s. P.C. & Sons, M/s. C.R. Benefit Funds Limited, M/s. Chakra Group, M/s. Kamadhenu Nidhi & M/s. Subash Financiers as well as making the contribution in M/s. United Fabrics and on that basis, the Assessing Officer treated the above amount of Rs. 26,63,130/- as the undisclosed income of the assessee.
15. However, before the Commissioner of Income Tax (A), the assessee contended that the receipt of loans was reflected in the seized records and therefore, it was not for the assessee to prove the genuineness of the same. He also contended that the amounts worked out by the Assessing Officer regarding the payments made to the said concerns was erroneous; in fact, payments made were much more than what was noted by the Assessing Officer; the complete details for acquiring the property; the sources for the same; the cash flow statement covering the financial years 1996-97 to 2000-01 were made available to the Assessing Officer in the course of block assessment proceedings and that the Assessing Officer had ignored the same on the ground that he had not produced supporting documents by way of books of accounts. On the basis of the above contentions, the Commissioner of Income Tax (A) held that the Assessing Officer had not established that the entries found in the cash flow statements were not genuine; the Assessing Officer has to prove that the repayments made by the assessee was without any source and that the mere rejection of the assessee’s explanation would not amount to evidence of earning of undisclosed income by the assessee. The Tribunal, while upholding the said order passed by the Commissioner of Income Tax (A), held that, for the purpose of bringing to tax the undisclosed income, there must be income unearthed out of the search conducted and in most of the cases, all materials were filed before the conduct of search, including the balance sheet and in some cases, the entire sale consideration and capital gains arising therefrom were already disclosed and taxed. On the basis of the above finding, the Tribunal held that such items of income cannot be brought to tax under the definition of “undisclosed income” as provided for under section 158B(b) of the Act.
16. Having regard to the findings rendered by the Commissioner of Income Tax (A), which was confirmed by the Tribunal, we went through the assessment order passed by the Assessing Officer to find out whether the Assessing Officer had committed any error in passing the said order. The Assessing Officer had clearly found that during the course of assessment proceedings, the assessee submitted the cash flow statement in order to explain the investments made by him. But however, no supporting documents, by way of books of accounts, were produced by the assessee, despite specific requisition in that regard. The Assessing Officer had also found that the assessee had not maintained regular books of accounts for his business transactions and also for other group concerns from the financial years 1998-99 till the date of conduct of search, which was confirmed by the assessee himself in his sworn statement dated 02.03.2001. In addition to the above, the Assessing Officer had also held that the assessee did not comply with the notices for producing the books of accounts for the period pertaining to the assessment years 1991-92 to 1998-99, for which returns were filed; therefore the cash flow statement submitted by the assessee could not be verified. Since the assessee had not adduced any concrete evidence to support the cash flow statement submitted by him, it was rejected and the assessment was finalised on investment basis method. Though the learned counsel appearing for the assessee produced before this court various judgments of this court as well as other High Courts, we are not inclined to apply those judgments to the facts of the present case since, admittedly, in this case the assessee had not established before this court by producing concrete evidence that the undisclosed income arrived at by the Assessing Officer is incorrect. Therefore, while holding that the Commissioner of Income Tax (A) as well as the Tribunal, without appreciating the materials available on record in a proper perspective, had rejected the appeal filed by the Revenue, we hold that the Assessing Officer had given cogent reasons for arriving at the undisclosed income of the assessee. Even from the judgments relied upon by the assessee, it is clear that if the credits are duly recorded in the books of accounts in the regular course of business; if the assessee had filed the return of income for the respective years prior to the conduct of search and if no material was found during the course of search so as to establish that such credits were not genuine, then, the same cannot be treated as undisclosed income. In this case, admittedly, the assessee was not regular in maintaining the books of accounts; the returns filed by the assessee for the assessment years 1991-92, 1992-93 and 1996-97 were not valid returns as they were filed beyond the time limit prescribed under section 139 of the Act and in addition to the above, the assessee had not produced concrete evidence in support of his claim. Therefore, the Assessing Officer held that the returned income in the invalid returns filed for the above said assessment years were the undisclosed income of the assessee, which cannot be interfered with in any manner. Consequently, we hold that the order passed by the Appellate Tribunal is unjust and arbitrary and hence, it is liable to be set aside.
17. In the result, the questions of law framed by this court in the above Tax Case Appeals are answered against the assessee and in favour of the Revenue. No costs.
[Citation : 349 ITR 369]
