2020 (6) TMI 157 - HC - Income Tax

Additions made in the Block Assessment in respect of investments found as a result of the search - claim of the assessee that the Investments came out of withdrawals of deposits made in fictitious names in four finance firms - Tribunal held that since the existence of HUF of Dr.Rajkumar was admitted by the Assessing Authority himself during the course of course of Assessment, the additions of the undisclosed income should not be made in the individual hands of both the Assessees - HELD THAT - Merely because the Assessees' names are included in the Financial Firms alleged to have been run by the HUF and the name of the Assessee, Dr.N.Rajkumar was included as a Managing Parter of the Firms run by the Family, (one does not know what about the professional misconduct by him of being a Professional Doctor and doing the Business) it does not mean that the entire undisclosed income could be attributed to such Financial Firms and even their Deposits and Withdrawals in the fictitious names could be believed as Gospel Truth forming basis of the explained cash available at the beginning of the Block Period in the hands of HUF of Assessee Dr.Rajkumar. If such explanations were to be treated as pieces of evidence and believable facts in Search cases, such false and flimsy defences can be created in almost all Search cases rendering all the Assessments of undisclosed income nugatory exercise altogether. The admission of the Assessee, which was the best evidence against him, that the Deposits in the Financial Firms and withdrawals thereof were in the fictitious names itself was sufficient to treat the same as Undisclosed Income (UDI) in the hands of the Assessees and that is what the Assessing Authority has done. But, surprisingly for the Grounds raised before the learned Tribunal that the undisclosed income did not belong to the Assessees in their Individual capacity but it could be attributed to the HUF of Dr.N.Rajkumar, one of the Assessees, the learned Tribunal, in our opinion, fell in the error in upholding such a contention made on behalf of the Assessees merely because HUF of Assessee might have existed. We do not think that such finding of facts, if at all they can be called as one, can be sustained in the Appeals filed by the Revenue aggrieved by such orders of the Income Tax Appellate Tribunal. We are not able to, with great respects, subscribe to such findings returned by the learned Tribunal especially reversing the findings of the two Authorities below. While, a fact finding Body is expected to give its own reasons even in affirming the findings of the Authorities below, the burden is heavier for the higher Appellate Authority when it decides to reverse the findings of the Authorities below. We are not able to reconcile the such alleged reasons, which prompted the learned Tribunal to reverse the findings of the two Authorities below in the present cases and therefore, we are unable to sustain the said order of the learned Tribunal. With the above observations, we have no other option but to allow the present Appeals filed by the Revenue. Accordingly, the Appeals filed by the Revenue are allowed.

Summary

Issues Involved:
1. Deletion of additions in Block Assessment based on unsubstantiated claims.
2. Acceptance of affidavits without strict proof.
3. Verification of returns and statutory sanctity.

Issue-wise Detailed Analysis:

1. Deletion of Additions in Block Assessment Based on Unsubstantiated Claims:
The Revenue challenged the ITAT's decision to delete additions made during the Block Assessment for the period 1.4.1996 to 4.6.2002, arguing that the investments found during the search were claimed by the assessee to be from withdrawals of deposits made in fictitious names in four finance firms. The Assessing Authority and the Commissioner of Income Tax (Appeals) rejected these claims, noting the lack of evidence and the fictitious nature of the deposits and withdrawals. The Tribunal, however, accepted the assessee's contention that the funds belonged to the HUF and the finance firms, not the individuals, despite the lack of direct evidence connecting the investments to the HUF. The High Court found the Tribunal's decision to be based on conjecture rather than evidence, emphasizing that the findings of the Tribunal contradicted the admissions made by the assessees during the search and the returns filed under Section 158BC.

2. Acceptance of Affidavits Without Strict Proof:
The Tribunal accepted affidavits from partners of the finance firms, which claimed that the deposits and cash certificates were actually the income of the assessees. The Assessing Authority and the Commissioner of Income Tax (Appeals) dismissed these affidavits as self-serving and lacking corroborative evidence. The High Court criticized the Tribunal for relying on these affidavits without strict proof, highlighting that the affidavits were not sufficient to substantiate the claims of the assessees. The Tribunal's acceptance of these affidavits was seen as a failure to adhere to the principles of evidence required in such cases.

3. Verification of Returns and Statutory Sanctity:
The Tribunal held that the verification of the returns of income by the assessee as the Managing Partner of the firms did not carry much meaning, negating the statutory sanctity of verification under Section 139(1) of the Income-tax Act, read with Rule 12 of the Income-tax Rules. The High Court disagreed, stating that the verification of returns is a crucial statutory requirement, and the Tribunal's dismissal of its significance was erroneous. The High Court emphasized that the returns filed and verified by the assessees should be given due weight, especially when the assessees themselves admitted to the fictitious nature of the deposits and withdrawals during the search.

Conclusion:
The High Court found the Tribunal's order to be perverse and based on strained guesswork rather than weighing the relevant evidence. The Tribunal's findings contradicted the admissions made by the assessees and the returns filed under Section 158BC. The High Court allowed the Revenue's appeals, upholding the findings of the Assessing Authority and the Commissioner of Income Tax (Appeals), and set aside the Tribunal's order. The questions of law were answered in favor of the Revenue, and the assessees' claims were rejected due to lack of evidence and reliance on unsubstantiated affidavits.