2016 (11) TMI 791 - HC - Income Tax

Undisclosed income - fixed deposit in the names of the assessee and his son - Held that - The agreement was for the sale of a property, which was worth only ₹ 1.5 lakhs whereas the total sale consideration was ₹ 20 lakhs. Secondly, Mr. Kannappan, the alleged purchaser, did not have sufficient source of income or surplus income for purchase of the property. Further, admittedly, the said Kannappan did not affix his signature in the agreement. Therefore, the finding of the Tribunal that the assessee has discharged his burden of proving the source, nature and character of the credit is erroneous. The materials available would only make it very clear that the transaction in question was not genuine and the finding of the Assessing Officer that the amount of undisclosed income is sustainable. Therefore, the first substantial question of law is answered in favour of the Revenue and against the assessee and the finding of the Assessing Officer that ₹ 13.35 lakhs is undisclosed income is restored. Seizure of cash from raid - accumulation of agricultural income - Held that - No books of account were maintained by the trust and the trust was also found to be an unregistered one and no sale bills were produced by the assessee to show that the agricultural income from the said lands amounted to ₹ 12 lakhs. The burden was on the assessee to prove that ₹ 12 lakhs got accumulated out of the agricultural income from the trust lands, by producing supportive documents, especially, when the lands were leased out to third parties. Therefore, the Tribunal erred in holding that the Revenue failed to produce material on record that the sum of ₹ 12 lakhs was out of the accumulation of agricultural income from the trust lands of the assessee. When the brothers and relatives of the assessee have categorically stated that they have not advanced any money to the assessee nor they have the capacity to do so, the Tribunal erroneously, contrary to the facts, stated that the brothers have accepted the advance amounts paid by them and that they have also established their source. The said finding is perverse. Therefore, the conclusion of the Tribunal that the assessee did not possess any undisclosed income is liable to be set aside. Further, the Tribunal was of the opinion that the assessee produced necessary materials in support of his claim and that it would be sufficient for discharge of his initial burden. But, the said finding is erroneous and contrary to law. The assessee did not produce any document and even the documents produced were not genuine, as rightly found by the Assessing Officer. No corroborative evidence was produced by the assessee to account for the income. Therefore, the second substantial question of law is also answered in favour of the Department and against the assessee and the order of the Assessing Officer is restored.

Summary

Issues Involved:
1. Whether the fixed deposit of ?13.35 lakhs in the names of the assessee and his son is undisclosed income.
2. Whether the amount of cash of ?20.66 lakhs found at the time of search did not amount to undisclosed income.

Issue-wise Detailed Analysis:

1. Fixed Deposit of ?13.35 Lakhs:
The primary issue was whether the fixed deposit receipts totaling ?13.35 lakhs found in the names of the assessee and his son during a search constituted undisclosed income. The assessee claimed that this amount originated from a sale advance of ?14 lakhs received from an individual named K. Kannappan towards the sale of a shop in Cumbum Town, jointly owned by the assessee and his brother, as per a sale agreement dated November 20, 1994.

The Assessing Officer (AO) doubted the genuineness of the sale agreement, noting discrepancies in Kannappan's signatures and his admission that he did not sign the agreement. The AO also found the property to be in a dilapidated condition, with a market value not exceeding ?2.5 lakhs, and concluded that Kannappan did not have the financial capacity to pay ?14 lakhs as advance. Thus, the AO treated ?13.35 lakhs as unexplained investment and undisclosed income.

The Tribunal, however, accepted the assessee's explanation and held that the fixed deposit receipts did not amount to undisclosed income, relying on the sale agreement as proof of the source of funds. The High Court found the Tribunal's findings to be perverse and contrary to the facts, reinstating the AO's conclusion that ?13.35 lakhs was indeed undisclosed income, as the sale agreement was not genuine and the alleged purchaser lacked the means to pay the advance.

2. Cash of ?20.66 Lakhs:
The second issue concerned the cash amounting to ?20.66 lakhs seized during the search. The assessee claimed this amount was derived from various sources, including agricultural income, loans from brothers and relatives, and sale proceeds of jewelry. The AO found these explanations unconvincing, noting that the assessee's brother denied advancing any money and other relatives lacked the capacity to lend such amounts. The AO also doubted the agricultural income claims, as the lands were leased out and the trust managing the lands was unregistered and did not maintain books of accounts.

The Tribunal held that the assessee had produced necessary materials to support his claim and that the Revenue failed to provide contradictory evidence. The High Court disagreed, concluding that the assessee did not meet his burden of proof, as the explanations provided were unsupported by credible evidence. The High Court restored the AO's finding that the cash amount of ?20.66 lakhs was undisclosed income, noting the inconsistencies and lack of corroborative evidence in the assessee's claims.

Conclusion:
The High Court allowed the appeals, setting aside the Tribunal's order and restoring the AO's findings that both the fixed deposit of ?13.35 lakhs and the cash of ?20.66 lakhs were undisclosed income. The judgment emphasized the importance of credible evidence and genuine documentation in substantiating claims of income sources during tax assessments.