9911796707
TMI Blog2020 (6) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting the additions made on the basis of materials found during the search and the statement recorded u/s.132(4) of the Income-tax Act, accepting affidavits filed by some persons not connected with the search as true, without putting them to strict proof? 3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the verification of return of Income of the firms by Dr.Rajkumar as Managing Partner would not convey much meaning, negating the statutory sanctity of verification of return of Income u/s.139(1) of the Income-tax Act, read with Rule 12 of the Income-tax Rules? 3. We have heard the learned Senior Standing Counsel Mr.M.Swaminathan appearing for the Revenue and Mr R.V.Easwar the learned Senior Counsel appearing for the Respondents/Assessees. 4. The case on hand has a chequered history and though there are substantial questions of law on the basis of which the Appeals were admitted, the question, essentially, before us is, whether the order of the learned Income Tax Appellate Tribunal falls in the category of a perverse order based on no evidence, particularly, when there are findings of the two Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery year. According to the assessee, the persons in whose names the Deposit receipts and Cash Certificates were issued are either non existing or those with fictitious address . 11. In the statements filed along with the block returns, a major part of the investments found during search (to the extent of ₹ 2.23 crores) are claimed to have been made out of the withdrawals from the amounts available with the firms as 'Deposits and Cash Certificates' as on 31.3.95 (before the block period) but recorded in the firms' books as repayment to depositors'. In other words, the investments to this extent were made, according to the assessee, from out of the income earned by her and her husband, Dr.N.Rajkumar before the block period, but invested in the firms in the form of 'Deposits and Cash Certificates' from third parties. It is, therefore, claimed that these investments should be taken out of the purview of undisclosed income, , as relating to the period before the block period. No working in respect of this claim was filed with the block return. 12. During the course of assessment proceedings, the assessee and her husband, Dr.Rajkumar have furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd are remaining for collection of loans due and conducting of legal cases. It is prayed that the above amount of ₹ 3,54,61,800/- may please be adopted. Affidavits to the effect that the amounts shown as Deposits and Cash Certificates' actually belong to Dr.N.Rajkumar and Dr.K.Kannagi, have been obtained from, the other partners of the firms and filed. 13. I have considered the explanation very carefully . The assessee makes the claim apparently on the ground. a. that Dr.N.Rajkumar gave a statement to this effect before the Assistant Director of Income Tax (Investigation) on 5-8-2002 during the course of search, b. that the assessee and her husband, Dr.N.Rajkumar could not have earned such huge income in a span of about 6 years, and, possibly, the investments made during the block period include those made out of the income earned before block period also, c. and that, as Dr.Rajkumar and the assessee were practicing medicine since 1978 and have been assessed to tax since 1981, the deposits etc. in the finance concerns were made out of their income earned during the period 1980 to 1993. 14. In support of the claim that amounts aggregating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made regarding withdrawals, it is to be noted, the assessee and her husband have not given any idea regarding the undisclosed income to be assessed. It is claimed that all the investments/outgoings have been taken care of in the consolidated cash flow statement filed and there is no deficit in any year. It is, therefore, inferred that, according to the assessee and her husband, the aggregate of the interest income earned by the four firms during the block period is to be treated as their undisclosed income. 17. I have considered the claim very carefully . I have also gone through the relevant records and the details, statements etc., filed. A close analysis of the relevant records of the assessee, her husband, Dr.N.Rajkumar and various finance concerns would show that the claim is bereft of force and far fetched . 18. The finance concerns are partnership firms wherein Dr.Rajkumar is the Managing Partner. All the firms have been constituted by Deeds of Partnership and regular returns were being filed by the firms for a quite a number of years before search. The verification' part in all these returns is found to have been signed by the assessee's husband, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jkumar would have caused substantial loss to the revenue in the earlier years before the block period, which is irretrievable, by intentionally furnishing false statements before the Department. Apparently, the affidavits of the other partners filed in this connection are self serving, as all the partners are closely related to the assessee. 20. The assessee wants to derive support from the statement given on 5-8-2002 by her husband before the ADIT(Inv). It is to be noted that this statement was given after about two weeks from the date of his first statement recorded on 19-7-2002, wherein he had not made any mention about this and he agreed to offer the entire investments as undisclosed income . The statement given on 5-8-2002 which should have been thought of, after prolonged planning, is also self serving. 21. With a view to giving an opportunity to substantiate her claim, the assessee was required by this office letter dated 17-6-2004 to furnish clarification as to how the alleged withdrawals could be correlated to the investments found during search , furnish the details regarding the date of the alleged withdrawals, the data when the withdrawn amounts were utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during earlier years prior to block period were kept in my custody and with my in-laws. Since it involved an enormous amount, I was fear of investing the same either with bank or with private business people and only from financial year 1999-2000 onwards, I started investing the same as fixed deposits with banks and private companies like Sakthi Finance, Bhagavathy Textiles in fictitious and non-existing persons names . These facts are well explained in the cash flow statements filed by me jointly with my wife. In view of the above submissions, it is pleaded that the above details may please be considered favourably while framing the block assessment . 23. I have considered the reply very carefully. The claims have no force for the reasons mentioned below : a. The reply is vague insofar as it does not explain with evidence, the nexus between the alleged withdrawals from the firms (recorded in the books of the firms as repayments to depositors) and the investments made by her and her husband during the block period. b. Though the alleged withdrawals amounted to more than ₹ 3 crores up to 31-3-99, the assessee's reply to the query as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 are enclosed. The said trust has not so far paid the interest on loans borrowed and repaid end this fact is affirmed by them in the post search enquiries conducted and in the statement recorded by the Investigating officials. 2. Dr.N.Rajkumar was detected with a suspected cancerous tumour, called liposarcoma in the year 1997) and be consulted with various specialized hospitals like Tata Memorial Hospital, Bombay, Adayar Cancer Institute and Appollo Hospital, Chennai and in the course of the same, he was advised to undergo a surgery with MD Anderson Cancer Centre, Houston, TX . The Surgery in USA would involve a cost of ₹ 50 lakhs for carrying out the surgery and another ₹ 50 lakhs for staying, post operative treatment and medicines etc. Therefore, Dr.N.Rajkumar, apprehended with a fear of life and also to make suitable provision far meeting out the cost, has kept the balances on hand with himself and with his in-laws for safety reasons and also to meet the obligation in time. In evidence of the same the Xerox copies of the opinion received from US and treatment undergone with Appollo Hospital are enclosed herewith. 3. Dr.K.Kannagi was dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. This explanation also does not come to the rescue of the assessee for the reasons stated below: a. The reply is contradictory to that filed earlier and none of these reasons were stated in the reply filed on 24.6.2004. b. Even as on 31-3-96, the alleged withdrawals amounted to around ₹ 96 lakhs , but, admittedly, the loans amounting to 90 lakhs were advanced to Muthayammal Educational Trust only in 1998, after about two years . Here also, the explanation for the nexus between the alleged withdrawals and the loans is far fetched. c. Other factors also, like proposed medical treatment of the assessee and her husband, are not sufficient to prove the nexus . 26. Be that as it may, the question is whether the stand of the assessee and her husband that the amounts shown in the books of the firms as deposits and cash certificates' represent their income, and that the repayments' recorded therein as having been made to outsiders represent withdrawals by the assessee and her husband of their own money, can be accepted. The answer is a clear No', as the claim has not been substantiated with evidence and is the result of after thought . Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant himself by saying that, the AO took greater assistance from the cash flow statements furnished by the assessee-appellant and had not made out any UDI by discovering investment from the seized material or making any enquiry etc. Therefore, it is contented that provisions of section 158BB have not been applied in coming to the conclusion that undisclosed income does exist. The AO in the form of Annexure has given yearwise description for items found and seized and admitted in the block return as under: Year ended 31-3-2001 1. Deposit with Bagavathi Textiles ₹ 15,00,000 Evidence found 2. Purchase of Tata Safari ₹ 7,00,000 Evidence found 3. Hospital equipments Purchase ₹ 2,00,000 As in item No.II for the y.e.31.3.00 4. FD with LVB ₹ 55,00,000 Evidence found 5. House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod between 1992 -- 1995 i.e., prior to the block period. However, as mentioned elsewhere in the appellate order, the dates referred to the period which were taken cognizance of both by the AO as well as by the appellant show it in various years under the block assessment in the status of the individual. Therefore, it appears amazing that he wants to be assessed it in somebody else s hands . The investment for TNHB Housing Colony was found to the tune of ₹ 3 lakhs has been contested on the ground of failure of the principle of natural justice by way giving copy of statement etc. However, the AO in his reply states that it is not found necessary to follow these procedures as the assessee himself in his cash flow statement voluntarily filed with the return of income shown value of ₹ 3 lakhs. Therefore, the assessee cannot go back and allege motives which are contrary and contradictory to his conduct of filing cash flow statement by him. 53. On the Issue of cash with Rajkumar, Kannagi and Nelliappan, the appellant says that, there is no evidence except, cash flow statement and he discounts it s adjustment in his own cash flow . The AO in his reply relies on the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble evidences only one inference can be drawn that the individuals were searched and they have tried to explain the income earned by them so also the undisclosed income offered in the block return. Block returns were filed by the assessees Dr.N.Rajkumar and his wife Dr.K.Kannagi on 28.10.2002. Both returned total undisclosed income of ₹ 88,71,130/- i.e., 50% in each hands coming at ₹ 44,35,565/- each. But block assessments were framed u/s 158BC read with Section 143(3) on 29.07.04, computing undisclosed income, in each hands, at ₹ 2,10,45,340/-. The perusal of the return of income filed and the accompanying statements give a broad picture of the income earned and offered in the block returns. The assessee has explained the total deposits in banks, finance companies, private limited companies, hire purchase and pronotes as under: Principal + accrued interest in four firms, finance cos. ₹ 3,50,38,000(Principal) ₹ 21,02,056(Accrued int.) ₹ 3,71,40,056 Add: Cash found Gold Jewellery Tata Safari Car Immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led position in this respect is that a document has to be accepted in its entirety. The cash flow statement clearly indicates the HUF, and undisputedly HUF operated from the same premises. The existence of the HUF and the fact that it was deriving considerable income during the block and the pre-block period is admitted by the Assessing Officer himself as is evident from paras 9, 29, 39, 43, 45, 46 and 47 of the assessment order. The Assessing Officer has made substantial additions on the basis of the cash flow statement besides making some of the additions on the basis of seized materials. In other words, the assessment is largely based on cash flow statement . These additions are as follows: (i) Addition of ₹ 74.34 lakhs in Medi Finance (ii) Addition of ₹ 28.7 lakhs stated to be cash in the hands of the two assessee and Shri.S.Nalliappan. (iii) As per pronote loan of ₹ 21.75 lakhs. (iv) Additions of estimated interest on deposits. 13. In respect of pronotes the seized material clearly show that the transactions relate to Medi Finance and not to assessees. Most of the deposits were seized from the premises of Lakshmi Vilas Bank (LVB) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a partner in the firm but his HUF was a managing partner of the finance firm (refer para 9 at page 4 of Assessing Officer's order). All these additions are not at all warranted in the hands of the assessees and have to be deleted from their hands . 14. In so far as the existence of income of ₹ 3.54 crores in the pre-block period is concerned , the Assessing Officer himself has admitted in page 5 para 12 of his order that the withdrawals substantially tally with the investments . In this regard, a very vital piece of evidence is that the deposits of income earned by the firms in pre-block period was invested in bogus names and was withdrawn and re-invested in the banks and other companies prior to the date of search. The Assessing Officer has failed to make any enquiry either with Finance Firms or the HUF . To substantiate the same, affidavits were filed by the assessee without disproving or controverting their averments, the Assessing Officer has just ignored them which is not legally permissible. We find force in the submissions of the ld. AR that even after invoking Benami Transaction Act, the conduct of the parties as evidenced by the seized materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the finance firms and hence the source is the same amount that was considered by the Assessing Officer for addition. 16. Having held as above, the factum of amounts available by way of withdrawals is also accepted. The addition of separate amount on account of source of investments made seems to be not correct. All these additions are based on cash flow statement as has been discussed in earlier part of this order. So, the cash flow statement filed by the assessees is to be applied in its entirety and not in part. One part of it regarding cash availability can not be taken to be incorrect and the other part of it regarding investments cannot be taken as not supported by source. Same treatment has to be meted out to both. Thus, this addition of ₹ 1.5 crores is baseless and hence, ordered to be deleted from the hands of these assessees. 17. In so far as surplus cash available to the extent of ₹ 73,65,000/- prior to the block period is concerned, it was simply estimated by the Assessing Officer de hors any incriminating evidence found during search. These types of additions are not permitted in the block assessments. Hence, this entire amount is ordere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of law really arose. However, treating the question as one of law, the answer is irresistible that there was material, viz., the statement of the assessee believed by the Tribunal, on which the finding could be given. Homi Jehangir Gheesta v. CIT ((1961) 41 ITR 135) We must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee, has been considered fairly and with due care; whether the evidence pro and con has been considered in reaching the final conclusion; and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice. Learned counsel for the appellant has taken us through the entire order of the Tribunal as also the relevant materials on which it is based. Having examined the order of the Tribunal and those materials, we are unable to agree with learned counsel for the appellant that the order of the Tribunal is vitiated by any of the defects adverted to in Dhirajlal Girdharilal vs. CIT (supra) or Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SC) : TC54R.372. We must make it clear that we do not think that those decisions require that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a flimsy defence without any basis of evidence was raised before the Tribunal for the first time and it came to be believed in toto that the deposits were made in the said four Financial Arms, described to be Financial Firms of the said Assesses, were admittedly made in the fictitious names and return of such deposits were also made in the fictitious names or benami persons were the source of unaccounted cash, which was withheld by the Assessees and was largely found out during the course of Search Operations and instead of taxing it as Undisclosed Income (UDI) in their individual hands, which they themselves claim in the Returns filed in pursuance of Notices issued under Section 158BC of the Act and in terms of their own admissions made in the Statements recorded during the course of Search under Section 132(4) of the Act. The learned 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. 11. We are little surprised and dismayed at such reversal finding of the learned Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. 14. The admission of the Assessees, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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