AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 157
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....w:- "1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the additions made in the Block Assessment in respect of investments found as a result of the search accepting the unsubstantiated claim of the assessee that the Investments came out of withdrawals of deposits made in fictitious names in four finance firms? 2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in deleting 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 S....
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....om money-lending'. 10. It is claimed in the block returns that the amounts shown under the head "Deposits and Cash Certificates" in the Balance Sheets of these firms as 'Due' to third parties (liabilities) actually belong to the assessee and her husband, Dr.N.Rajkumar. It is pointed out that the deposits and cash certificates shown in the firms' books represent aggregate of the income of Dr.N.Rajkumar and Dr.K.Kannagi earned from profession and the accumulated interest received by the firms every 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 Rs. 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....
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....,75,070 1999-2000 12,67,325 2000-01 6,61,829 3,54,61,764 Say Rs. 3,54,61,800 These financing firms closed down their business on and from 31-3-2001 and are remaining for collection of loans due and conducting of legal cases. It is prayed that the above amount of Rs. 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 ....
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....vious year 94-95 till the date of search. The amounts stated to have been withdrawn from the firms include interest earned both before and during the block period. Though certain claims have now 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 re....
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....ect, it is to be noted that the assesses and her husband, Dr.N.Rajkumar 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 ....
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.... Dr.K.Kannagi out of our professional incomes earned 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 Rs. 3 c....
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....earch 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 Rs. 50 lakhs for carrying out the surgery and another Rs. 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 detected with fibroid substance in her uterus in the year 97-98 and was also suspected of a cancerous substances in the same. She was also under drasti....
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....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 Rs. 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. The claim regarding the loans advanced, proposed medical treatment, proposed purchase of scan machines, etc., does not explain the basic quest....
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....ad 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 Rs. 15,00,000 Evidence found 2. Purchase of Tata Safari Rs. 7,00,000 Evidence found 3. Hospital equipments Purchase Rs. 2,00,000 As in item No.II for the y.e.31.3.00 4. FD with LVB Rs. 55,00,000 Evidence found 5. House at TNHB Colony Rs. 7,00,000 Evidence found 6. Stamp duty paid for T.K.Muthu case Rs. 29,450 Relatable to S.M. No.PKS/B&D/ S-28 (5 to 17). Year ended 31-3-2002 1. FD with KVB Rs. 50,13,000 Evidence found 2. FD with LVB Rs. 35,00,000 Evidence found 3. FD with LVB Rs. 44,75,000 Evidence found 4. With Dr.Kannagi Rs. 7,50,000 Pl.see para 37 to 40 5. With Dr.Rajkumar Rs. 7,50,000 Pl.see para 37 to 40 6. ....
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....e form of cash flow statement and relies on the ITAT decision in the case Prasantchand Surana 76 ITD 423 (Hyd.) wherein it was held that, "admission, is clearly and unequivocally made is the best evidence against party until the same is effectively rebutted. It has been held that on the facts of 'agreed addition' no further enquiry is necessary. 1. CJ. Balakrishnan 223 ITR 5 (Mad.) followed in S.Sanakalan 241 ITR 825 (Mds.). 2. J.K.A. Rajappa Chettiar 153 ITR 215. 3. V.R.Desai 140 ITR 698 (Mds.). 4. T.P.K. Ramalingam 211 ITR 520 (Mds.) 5. Dr.A.Mohammed Abdul Khader (03) 260 ITR 650 (Mds.). 6. Lallu Bai Jogibhai Patel (03) 261 ITR 216 (Guj.). 7. C.J.Rathinsami 223 ITR 5 (Mds.) 8. Dhunji Bhoy Stud. & Agrl. Farm (02) 88 ITD 18 (Pune)-5 Member. Therefore, it is clear that the assessee by showing these amounts in the cash flow statement, which, due to unknown reasons he desires to disown does not take the factum of disclosed cash to the extent of Rs. 28.74 lakhs from being assessed as such." Findings of the Income Tax Appellate Tribunal in the impugned order dated 9.10.2009:- "10. Ground Nos....
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....6 Rs. 4,06,23,730 UDI worked out by the assessee (i) Total assets disclosed Rs. 4,27,25,786 Less:(a) Surplus cash available (b) Sale advance of land (c) Amounts available with finance firm Rs. 73,65,000 Rs. 20,00,000 Rs. 2,23,87,600 A+b+c Rs. 3,17,52,600 UDI = (i) minus (a+b+c) = Rs. 88,71,130 The Assessing Officer in his order arrived at the UDI as follows; (i) Rejected the claim of amounts available with the 4 finance firms 2,23,87,600 (ii) From the cash flow filed, added a number of investments disputing the source 1,56,58,450 (iii) Availability of Surplus cash accepted for Rs. 29,51,179 - balance added 44,13,821 (iv) Accrued interest added 21,97,449 (v) Addition for the last period 27,21,106 4,73,78,426 Less: (i) Disclosed income in earlier years 35,13,960 4,38,64,466 12. There are no two opinions about the fact that Dr.N.Rajkumar's HUF was in existence and so also the four finance firms in which HUF was a partner. The assessee has explained the relatable income to HUF also in their cash flow statement. The Assessing Officer....
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.... addition can be made in their hands in search cases, particularly. Given, the admitted facts that the office of HUF and the four Finance Firms was in the same premise, it would be too far fetched and unjustifiable to ignore this important fact to make addition in their two hands and that too after ignoring certain portions of the cash flow statement. There being no direct evidence found to connect the individuals, whereas the assessee has explained with reference to existing assessees like HUF and four Finance Firms, these additions are not justified. It is true that seized materials relating to immoveable properties are in the names of both assessees. It is also true that the assessee had stated that these investments are made from their income from the finance business. Dr.N.Rajkumar, HUF, as managing partner, and the books of accounts of the finance firms showed credits in various names, but the Assessing Officer did not make any enquiry in this regard. In our considered opinion, the credits in the books of the firms like the Medi Finance at a sum of Rs. 74.13 lakhs and pronotes of Rs. 21.78 lakhs appearing in the books of the firms have been wrongly treated as undiscl....
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.... accepting that four Finance Firms were in existence since 1990 and were separately assessed with separate PAN. The amounts were withdrawn due to changed Reserve Bank of India Rules and subsequently the firms diminished their work. So, the re-investment in similar fashion in fictitious names in FDRs in banks, as has been claimed by the assessees, seems to be more probable and consistent. Some of the such deposits were found during search and admittedly were renewals of the earlier deposits in bogus names. The seized record also include these fresh FDRs. In this background, the claim of the opening credit is within reasonable comprehension and is also sustainable considering that it is backed by seized materials and also the cash flow statement of the assessee. The factum of amounts available with the assessee even prior to the block period is evidenced by the seized materials. Hence, there is no reason why Rs. 2,23,87,600/- cannot be accepted as the amount available with the assessee prior to the block period. But to be on more fair and just, 10% out of this amount can be disallowed to meet any discrepancy. The 90% of Rs. 2.23,87,600/-is, therefore, accepted as the amount available....
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....ng for the Assessees sought to place reliance upon the following judgments of the Hon'ble Supreme Court in support of his contention that the Tribunal having believed the Assessees contentions, that was an end of the matter and against those finding of facts, no question of law arises in the present Appeals filed by the Revenue:- i) Gouri Prasad Bagaria & Others v. Commissioner of Income Tax ((1961) 42 ITR 112); ii) Homi Jehangir Gheesta v. Commissioner of Income Tax ((1961) 41 ITR 135); iii) Purushottam Khatri v. Commissioner of Income Tax, Bhopal, Madhyapradesh (2019 (7) TMI 1327 SC). 8. The relevant portions of the above decisions are also quoted below for ready reference:- Gouri Prasad Bagaria & Others v. CIT ((1961) 42 ITR 112) "5. In our opinion, this was a perfectly simple case, in which a question of law hardly arose. The Tribunal had believed the assessee's word in view of his conduct and past history, such as they had been able to see. Where the assessee's statement is believed, there is obviously material on which the finding is based; and to seek for other material is tantamount to saying that a statement made ....
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....ture had, in fact, been incurred, it cannot possibly be said that the Appellate Tribunal's judgment and findings therein are perverse, which is the only entry on facts for the High Court exercising its appellate jurisdiction under Section 260-A of the income Tax Act, 1961." 9. There is no quarrel on these principles as culled out above, but, the facts of the case before us in the present case and that of the cases before the Hon'ble Supreme Court are quite distinguishable and there cannot be any dispute that the perverse findings of the Tribunal gives rise to the question of law requiring interference of this court under Section 260A of the Act and as we have found that the order of the learned Tribunal in the present case falls in the realm of perversity, we are constrained to interfere with the same in the present case. 10. The findings of the Tribunal have not only gone against the admissions of the persons searched and their Statements recorded under Section 132(4) of the Act, but is also contrary to the Returns filed by the Assessees in pursuance of the notices issued under Section 158BC of the Act consequent to the search operations carried out at their business....
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....losed Income (UDI) based on incriminating materials and admissions of the Assesses which is, undoubtedly, a piece of evidence in Search cases, and the learned Tribunal chose to delete such additions of undisclosed income in the hands of the Assessee almost altogether except to the extent of 10% vide para 14 of the order impugned before us to the extent of Rs. 22,38,760/- as against the additions of Rs. 2,23,87,600/- made by the Assessing Authority treating the same as the amount available with the Assessees prior to the Block period for which there was no explanation or evidence adduced by the Assessees. Merely because the Assessee admitted deposits and refunds by these financial firms in fictitious names and retention of such money with them for considerable period, for their apprehended medical expenses or to purchase a MRI Machine, without any evidence, how could such amounts be treated by the Tribunal as explained source of Pre-Block Period investments. That is a moot and important failure on the part of the Tribunal while undertaking the said fact finding exercise. They could not merely rely upon the flimsy plausibility of the said explanation by the Assessee. 13. Merely be....