IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 03.09.2007 CORAM : THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.150 of 2004 Commissioner of Income-tax Cent.II, Chennai. .. Appellant Vs. A.N.Dyaneswaran .. Respondent Chennai Appeal under Section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal, Madras 'A' Bench, Chennai in I.T.(S&S) A.No.54/Mds/1997 dated 29.10.2003, for the block assessment years 1986-87 to 1996-97 against the order of the Assistant Commissioner of Income Tax, Central Circle II (4) Chennai 34 dated 31.1.1997 in GIR.No.24701-D. For Appellant : Mrs.Pushya Sitaraman, Sr.Standing Counsel for Income-tax Department For Respondent : Mr.V.Ramachandran, Senior Counsel for Mrs.Anitha Sumanth JUDGMENT P.P.S.JANARTHANA RAJA, J. This appeal is filed under Section 260A of the Income Tax Act, 1961 by the Revenue, against the order of the Income-tax Appellate Tribunal, Madras 'A' Bench, Chennai dated 29.10.2003. On 22.03.2004, this Court admitted the appeal and formulated the following substantial questions of law:- "1. Whether in the facts and circumstances of the case, the Tribunal had enough material to hold, and was right in deleting the additions made on account of money received by the https://hcservices.ecourts.gov.in/hcservices/ assessee from persons seeking granite mining licenses from TAMIN? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the cash found in the assessee's office and residential premises was amounts given to the Tamil Nadu Basket Ball Association? 3. Whether in the facts and circumstances of the case, the Tribunal was right in treating the huge investments made in the names of the assessee's mother and son as not that of the assessee on the ground that since the mother had filed a declaration under KVSS and since the son is a bank officer who has an independent source of income? 4. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amounts in deposits in the name of Dr.Dharmambal Namasivayam Trust cannot be included in the hands of the assessee under Chapter XIV-B in the absence of clear evidence found as a result of search? 5. Whether in the facts and circumstances of the case, the Tribunal had enough material to hold, and was right in accepting the assessee's explanation that the costly sarees worth Rs.10.20 lakhs found during the search were received as gifts at the time of marriage? 6. Whether in the facts and circumstances of the case, the Tribunal was right in deleting the addition on account of estimated marriage expenses of the assessee's son? 7. Whether in the facts and circumstances of the case, the Tribunal had enough material to hold and was right in holding that the advance given to the Tamil Nadu Basket Ball Association by the assessee came out of collections made for the association? 8. Whether in the facts and circumstances of the case, the Tribunal was right in deleting the addition on account of secret commission received by the assessee from foreign companies for sale of granite, on the ground https://hcservices.ecourts.gov.in/hcservices/ that the revenue had not placed on record how the amount was received by the assessee? 9. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the foreign currency found in the assessee's house belonged to Seethalakshmi on the basis of a mere statement? 10. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the addition in respect of fixed deposits in the name of Narayanan should be deleted from the hands of the assessee as the said Narayanan had filed KVSS declarations? 11. Whether in the facts and circumstances of the case, the Tribunal was hyper technical in insisting only on direct evidence to prove each addition, and in not accepting circumstantial evidence?" 2. The facts leading to the above substantial questions of law are as under:- i) The assessee is an officer of the Indian Administrative Service. At the time of search and seizure, the assessee was the Chairman Cum Managing Director of Tamil Nadu Minerals Limited ("TAMIN" in short), a Tamil Nadu Government Undertaking, which is engaged in mining and export of granites. Earlier to his posting in TAMIN, he had been Additional Collector of Salem District, District Collector of Periyar District, Managing Director of SIPCOT and Additional Secretary to Government of Tamil Nadu. It is stated that the assessee had been a basket-ball player of considerable repute and he represented the Indian Team. Also he is the Chief Patron Chairman of Tamil Nadu Basket Ball Association. ii) The assessee's mother, late Dr.Dharmambal Namasivayam was the first woman graduate in Medicine and Surgery in Trichy. She served in many capacities at various stations of Tamil Nadu and retired as a Civil Surgeon. The assessee's father, late Namasivayam, passed away in the year 1991 and subsequently his mother also passed away in July 1996. The assessee has two sons, A.D.Senthureswaran and A.D.Sugavaneswaran. Sri.Senthureswaran is a bank officer and married. Sri.Sugavaneswaran, at the relevant point of time, was a student. The assessee is the karta of his HUF with his two sons as co-parceners and claims to possess agricultural lands received on family partition. The assessee's father, late Namasivayam, had two wives, and the other wife, namely, Mrs.Ariapoo Ammal had six children. https://hcservices.ecourts.gov.in/hcservices/ iii) There was a search under Section 132 of the Income-tax Act ("Act" in short) in the case of the assessee, on 19th and 20th January 1996. As a result of search, substantial quantity of cash, jewellery and various other documents evidencing investment in movable and immovable properties and bank deposits in the name of the assessee, his mother, his children and some of his associates and also documents indicating his earnings from certain undisclosed sources, were found and seized. The search was spread over to different places where the assessee had interest, but the main places were:- a) M-26, 10th Street, Anna Nagar, Madras and b) Assessee's Official Chamber in TAMIN at No.31, Kamarajar Salai, Chepauk, Madras-5. Subsequently, notice under Section 158BC of the Act was issued to the assessee on 26.06.1996. Since the assessee was in the Central Prison, notice under Section 158BC was served on him on 29.06.1996 through the Superintendent of Central Prison, Madras. As per this notice, the assessee ought to have filed in the prescribed Form No.2-B his Return of undisclosed income duly verified, within 16 days of the service of the notice. While receiving the notice, the assessee stated that his remand has been extended upto 11.07.1996 and while in remand, it is not possible for him to prepare and submit the Return. Therefore, he requested for 15 days time for filing the Return after his coming out of the prison on bail. He came out of the prison on 13.08.1996 and he finally filed his Return only on 29.11.1996 admitting "NIL" undisclosed income. A notice under Section 143(2) of the Act was issued to the assessee on 13.12.1996. The Assessing Officer completed the assessment under Section 143(3) r/w Section 158BC of the Act on 31.01.1997 for the block period from 1986-87 to 1996-97 up to 20.01.1996, determining the undisclosed income at Rs.41,98,79,090/- and details regarding the same are as under:- "The total undisclosed income of the assessee for the block period is computed as under:- Asst. Investments Income assessable Total year under sec.69 under other sources (after set off) ------------------------------------------------------------------------------------- Rs. Rs. Rs. 1986-87 -- Nil 1987-88 44,370 -- 44,370 1989-90 64,304 -- 64,304 1991-92 20,179 -- 20,179 1992-93 48,02,858 15,25,673 63,28,531 1993-94 32,28,198 1,48,98,436 1,81,26,634 1994-95 -- 4,46,34,244 4,46,34,244 1995-96 -- 6,66,67,346 6,66,67,346 https://hcservices.ecourts.gov.in/hcservices/ 1996-97 -- 28,39,93,480 28,39,93,480 --------------------- ----------------------- -------------------- 81,59,909 41,17,19,179 41,98,79,088 --------------------- ----------------------- -------------------- Total undisclosed income Rs.41,98,79,088 Rounded off to Rs.41,98,79,090 ================ Income-tax thereon at 60% Rs.25,19,27,454 ================ " While determining the undisclosed income, the Assessing Officer made a number of additions. Aggrieved by the order, the assessee filed an appeal to the Income-tax Appellate Tribunal ("Tribunal" in short). The Tribunal deleted most of the additions made by the Assessing Officer and allowed the appeal partly. The dispute involved in the present appeal is related to the following additions. They are as under:- Addition No.1 relating to Question No.1: Addition of Rs.38,95,74,550/- made in respect of collections from applicants for granting mining licence. Addition No.2 relating to Question Nos.2 and 7: Addition of the amount of Rs.1,64,24,550/- being cash found in the residence and office of the assessee accepting the assessee's contention that out of this money, Rs.152 lakhs belonged to Tamil Nadu Basket Ball Association and Rs.12 lakhs belonged to the assessee's son. Addition No.3 relating to Question No.3:- Addition made in respect of investments made by the assessee's mother and sons amounting to Rs.2,60,45,591/- on the ground that the assessee's mother had filed a declaration under KVSS and the son is a bank officer who has an independent source of income. Addition No.4 relating to Question No.4:- Addition of Rs.1,69,19,621/- being donations received by Dr.Dharmambal Namasivayam Trust and interest on donation of Rs.2,91,958/- on the ground that the Trust is an independent entity. Addition No.5 relating to Question Nos.5 and 6:- Addition made in respect of investment in costly sarees amounting to Rs.10.12 lakhs and also deletion of addition of Rs.7,50,000/- made towards estimated marriage expenses of the assessee's son. Addition No.6 relating to Question No.8:- Addition of Rs.1,34,46,588/- being secret commission received from foreign companies for sale of granite. https://hcservices.ecourts.gov.in/hcservices/ Addition No.7 relating to Question No.9:- Addition of foreign currency amounting to Rs.1,93,040 found at the residence of the assessee at the time of search. Addition No.8 relating to Question No.10:- Addition of Rs.20,000/- in respect of fixed deposit in the name of Mr.Narayanan. Aggrieved by the order of the Tribunal, the Revenue has preferred the present tax case. 3. Learned Senior Standing Counsel appearing for the Revenue submitted as follows:- i) In respect of addition of Rs.38,95,74,550/-, this was worked out from the seized documents found at the assessee's residence. The seized documents are annexed to the assessment order. The details in the seized documents include names and addresses of the persons / concerns who had sought mining lease, the site of the quarry, survey number of the land and denomination of currency. The assessee cannot say that the documents do not pertain to him. The assessee has not offered any explanation in respect of the seized documents. The Assessing Officer examined 23 mining licencees and obtained the statements from them for payment to the assessee. Hence, the Assessing Officer correlated the amount mentioned in the seized documents with that of the statements obtained from the 23 mining licencees and made this addition. The details regarding the same is also given in Annexure B of the Assessment Order. The assessee also did not deny anywhere that he has not received the said amount. Further the assessee did not ask for cross-examining the persons seeking mining lease and hence the additions made by the Assessing Officer is justified. ii) In respect of the second addition, the counsel for the Revenue submitted that the Department seized Rs.15.59 lakhs from the assessee's bedroom and further a sum of Rs.1.49 Crores from the office of the assessee. The Assessing Officer rightly rejected the explanation that the money belonged to the Tamil Nadu Basket Ball Association. Actually the monies found in the assessee's residence as well as in the office room belongs to the assessee only. Hence, the Assessing Officer after making elaborate enquiry, rightly came to the conclusion that the entire cash amounting to Rs.1,64,24,550/- found at the assessee's residence as well as his office room represented the assessee's undisclosed income and is assessable under Section 69A of the Act for the assessment year 1996-97. iii) In respect of third addition, it is submitted that the assessee's mother was a pensioner and no accumulated funds available in her bank account. It is also submitted that there is no evidence that it was used for purchase of property. Hence the https://hcservices.ecourts.gov.in/hcservices/ Tribunal is wrong in deleting the addition. Further it is stated that the declaration filed by the mother of the assessee under KVSS was accepted by the Revenue and the same has become final. Hence the benefit of KVSS will not be extended to the assessee. Coming to the other part, the assessee's son did not state how the properties were purchased, but subsequently he stated that the properties were purchased out of the agricultural income and that the money was received from his grandmother and that there is no evidence for the same. Hence the Tribunal is wrong in deleting the addition. iv) In respect of fourth addition, the counsel for the Revenue submitted that the Tribunal failed to see that Sri Sampath Kumar who has arranged the donations for Dharmambal Trust has categorically stated before the Enforcement Directorate that he has arranged the donations by availing loans from banks on the security of the Fixed Deposits in the name of the NRI Sri.Nadadur Varadhan and he has received equal amounts of money plus commission from the assessee. The documents seized from Sri Sampath Kumar also clearly indicate the receipt of money after the donations are made. Also, it was found that the various contentions made by the Trust are bogus and the said amount belonged to the assessee only. Hence the Tribunal is wrong in deleting the addition. v) In respect of fifth addition, there were costly sarees found and listed at the time of search. The estimated cost of the saree is at Rs.10,12,000/-. The assessee has not offered any explanation in respect of source of acquisition in respect of the sarees. In respect of wedding, the assessee's son got married on 30.08.1995 and a reception in connection with the marriage was held in Madras on 08.09.1995 in Rani Meyyammai Hall. In connection with the marriage reception, a music concert by Gangai Amaran & Party was organised. It is stated that more than 3000 people attended the marriage reception. The marriage expenses incurred has not been explained properly by the assessee. Hence, the Tribunal is wrong in deleting the addition. vi) In respect of the sixth addition, the Assessing Officer clearly given a finding that on the basis of the seized documents, which reasonably indicate that the payments were made by the foreign companies to the Chairman of TAMIN in his personal capacity. Also, the Revenue found from the assessee's brief case, 10 documents giving details of payments made by two foreign companies. Further the Department also verified with TAMIN and it was confirmed by them by letter dated 27.11.1996 that large number of these transactions could straight away be connected to sale invoices to those concerns. Hence the Tribunal is wrong in deleting this addition without any valid material. https://hcservices.ecourts.gov.in/hcservices/ vii) In respect of the seventh addition, it is submitted by the counsel appearing for the Revenue that the Tribunal is wrong in deleting the addition on the ground that the said foreign currencies belonged to Smt.Seethalakshmi and it is seen from the records that the said Smt.Seethalakshmi did not respond to the summons issued. It is also submitted that the Tribunal is wrong in merely relying on the statement of the assessee that the amount pertains to one Seethalakshmi, and the mere preliminary statement will not absolve the assessee of his onus. viii) In respect of the eighth addition regarding the addition in the hands of the assessee, in respect of fixed deposits amounting to Rs.20,000/- in the name of Narayanan, the learned counsel for the Revenue submitted that the said Narayanan did not produce any material evidence to show that he has enough resources available to him to make the fixed deposits. The fixed deposit certificates relating to the fixed deposits were kept in the personal custody of the assessee and no proper reasons were given by the said Narayanan as to how these fixed deposit certificates were kept in the personal custody of the assessee. Hence the said fixed deposits belong to the assessee only. Therefore, the Tribunal is wrong in disregarding the relevant materials and came to the conclusion that it pertains to the said Narayanan, without basis and justification. In view of the above, it is strenously contended by the learned Senior Standing Counsel appearing for the Revenue that all the deletions of the additions made by the Tribunal are without basis and justification and hence the same should be set aside. 4. i) Learned Senior Counsel appearing for the assessee submitted that, with regard to the first addition, the Revenue has not established that the assessee has received an amount of Rs.38,95,74,550/- and that the Assessing Officer merely relied on the documents seized which do not lead to any evidence regarding the fact of collection of any money by the assessee by granting mining licenses from various parties. Further it is submitted that in the seized material there were no indication to show that the decimals or coded figures found in these papers stand for lakhs and thousands. Further he submitted that no assets in the name of the assessee or cash to the extent claimed has been found and as such there is no material evidence in this respect. The Assessing Officer only made these additions on presumptions and there is no corroborative evidence. He further submitted that the additions were made only by circumstantial evidence. It is also a fact that the assessee was officially concerned with the grant of mining licences as a Member of High Level Committee only from 10.03.1995 after the issue of Government Order. A new Rule 39 was introduced by G.O. No.97 dated 09.03.1993 empowering the State Government to grant quarry leases on terms and conditions. This https://hcservices.ecourts.gov.in/hcservices/ was struck down in Madras High Court, but was upheld by Supreme Court. After the order of the Supreme Court, a High Level Committee was appointed vide G.O.No.52 dated 10.03.1995. The three members of High Level Committee appointed by Government by the G.O. were Additional Secretary / Joint Secretary, Commissioner / Director of Geology and Mining and the Chairman and Managing Director of TAMIN. The Committee is only a recommendatory body and the ultimate power to grant or reject the licences is only with the Government. So, whatever additions made in the financial years 1992-93, 1993-94 and 1994-95 have to be deleted and additions concerned with financial year 1995-96 alone should be considered. Further it is emphasised by the counsel that the addition made for the assessment year 1996-97, there are no dates available in the seized material When the dates are not available in the seized material, the Assessing Officer was of the view that the amount will have to be assessed in the year of search, i.e., financial year 1995-96, relevant to the assessment year 1996-97. It is further submitted that in the Tabular Statement against each addition in the last column, it is given as amount D/L/P, but it was not indicated among which category this particular addition comes. It is also further submitted that there is no corroborative evidence except the slips of paper seized by the Department. Hence, the addition of Rs.38,95,74,550/- has been made without any basis and justification. ii) In respect of the second addition, the learned Senior Counsel submitted that the assessee had already given explanation that the money seized from him belonged only to Tamil Nadu Basketball Association ("TNBA" in short). The money found at the home also pertains to the rest of the family. It is the fact that the Government of Tamil Nadu hosted the SAF Games, 1995 an International Event at Chennai and the assessee was nominated as one of the three Joint Secretaries in charge of fund raising for infrastructure facilities for stadium. The Government agreed to fund through TAMIN to air-condition the Indoor Stadium of TNBA where the basketball event was to be held and issued two G.Os., namely G.O.Ms.No.276, Industries MME-2 Dept, dated 13.12.1995 and G.O.Ms.(LD)No.3 dated 06.01.1996. Anticipating delay in release of funds, General Council of TNBA by a resolution, authorised the assessee to collect funds up to Rs.2 Crores. The said TNBA collected Rs.170 lakhs from 9 persons. After spending Rs.18 lakhs for works connected with face lifting and temporary air- conditioning, the balance amount earmarked for air-conditioning amounting to Rs.152 lakhs kept in the chamber of assessee's office and in the brief case of the assessee at Anna Nagar residence, since the basketball event was advanced preventing permanent air- conditioning work to be taken up though work was entrusted to M/s.Blue Star Co. It is pertinent that this amount of Rs.152 lakhs tallies with the amount sanctioned in the G.Os., i.e., Rs.152 lakhs. The assessee discharged the primary onus by https://hcservices.ecourts.gov.in/hcservices/ establishing the identity of the party, capacity of the party and genuineness of the transaction. The Revenue is wrong in rejecting the explanation of the assessee. The assessee has proved the sources of the amount and it is wrong on the part of the Revenue to expect to prove the source of sources. The said TNBA has filed its Return for the year 1996-97 subsequently including the amount of Rs.1,48,65,650/- seized from TAMIN office and Rs.3.35 lakhs seized from residence and the same has been accepted by the Department. The assessment was also completed under Section 143 (3) of the Act in the case of TNBA. So, it is wrong in making addition in the hands of the assessee. iii) In respect of third addition, it is submitted by the learned Senior Counsel that the assessee's mother was a Doctor in the Government Hospital for a long time. Not only the assessee's mother availed declaration under KVSS but also the assessee's son who is a bank officer, also availed the declaration under KVSS for the assessment year 1992-93 to 1996-97. Hence there cannot be any levy of tax on the very same income. Tax has already been accepted from the mother under the Samadhan Scheme. Hence it is wrong on the part of the Revenue in making addition of the same amount as undisclosed income in the hands of the assessee which amounts to double taxation. In respect of the amount assessed in the hands of the assessee's son on protective basis, it is wrong on the part of the Revenue to make the addition in the hands of the assessee. Further the assessee's son had sent a statement at the time of search that he received a cash gift of about Rs.9 to 10 lakhs. Hence the assessee as well as his son have explained the source and therefore the income already assessed in the hands of the assessee's son should not be assessed in the hands of the assessee. iv) In respect of the fourth addition, there is no proof seized from the residence of the assessee or from office at the time of search, linking the assessee directly with any of the allegations made in the assessment order. There is no proof that it is the assessee's money which was given to the Trust. One Mr.Sampathkumar has filed a sworn affidavit on 12.05.1996 in Enforcement Department clearly explaining his role. Most of the donors who were enquired have confirmed about their donation to the Trust. There is no direct payment by the assessee. His involvement was not at all proved by the Revenue. It is also seen that the entire donations have gone to the Trust and have been accounted for in its books. The said amount cannot be treated as assessee's undisclosed income and also the Trust is a separate juristic person and cannot be held as benami for somebody. Separate assessments have been made for the years 1994-95, 1995-96 and 1996-97 for the entire amount of Rs.1.69 Crores as that of the Trust. For the assessment years 1994-95 and 1995-96 the appeal was allowed by the appellate authority, but for the assessment year 1996-97, the appeal is pending before the Tribunal. Hence, https://hcservices.ecourts.gov.in/hcservices/ when already similar amount was