IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.09.2011 CORAM THE HON'BLE MR.JUSTICE ELIPE DHARMA RAO & THE HON'BLE MR.JUSTICE M.VENUGOPAL TAX CASE (APPEAL) NOS.69 & 70 OF 2008 Commissioner of Income Tax Central-III, Madras ..Appellant in both Tax Cases Vs. M.K.Shanmugam 75-77, State Bank Road Opp. to Railway Station coimbatore – 641 018 ..Respondent in both Tax Cases Prayer in T.C (A) No.69/2008: Appeal against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal "C" Bench, Chennai, in I.T.(SS)A.No.79/Mds/2004. Prayer in T.C (A) No.70/2008: Appeal against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal "C" Bench, Chennai, in C.O.No.155/Mds/2004 in I.T.(SS)A.No.79/Mds/2004 against the order of the Commissioner of Income Tax (Appeals)-II, Coimbatore dated 25.03.2004 in IT Appeal No.24-C/03-04. Against the Order of the Assistant Commissioner of Income Tax, Central Circle-III, Coimbatore dated 31.03.2003 in PAN/GIR- No.AONPS6198A/CC-III/CBE. For Appellant : Mr.T.Ravikumar For Respondent : Mr.Philip George COMMON JUDGMENT ELIPE DHARMA RAO, J. Tax Case Appeal No.69/2008 has been filed against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal "C" Bench, Chennai, in I.T.(SS)A.No.79/Mds/2004.and Tax Case Appeal https://hcservices.ecourts.gov.in/hcservices/ No.70/2008 against the order dated 23.11.2006 passed by the Income Tax Appellate Tribunal "C" Bench, Chennai, in C.O.No.155/Mds/2004 in I.T.(SS)A.No.79/Mds/2004. Since the issue involved in both these tax case appeals are one and the same, they are disposed of by this common judgment. 2. The brief facts of the case are as follows: The assessee is engaged in the business of jewellery and money lending. He is the proprietor of M/s.Sri Velmurugan Financiers, M/s.Sri Raja Jewellery, M/s.Sri Raja Silks and M/s.M.K.S.Finance. He is also the Managing Director of M/s.Shanmugaraja Chit Funds Pvt. Ltd and Partner in M/s.Sri Raja Chit Funds, M/s.Sri Velmurugan Chit Funds, Coimbatore and M/s.United Fabrics, Tiruppur. A search was conducted in the business premises of the assessee on 31.01.2001 under section 132 of the Income Tax Act, 1961, hereinafter referred to as "the Act", by Investigation Unit-II, Coimbatore. During the course of search, various incriminating documents were seized, which indicated that the assessee did not disclose the correct income earned by him in the returns filed by him before conducting such search. Before the date of search, the assessee filed returns of income only upto the assessment year 1998-99. Therefore a notice under section 158BC of the Act was issued to the assessee on 28.02.2001. The search was concluded on 13.03.2001. On 18.09.2002, block return in Form 2B was filed by the assessee for the period from 01.04.1990 to 13.03.2001 declaring a loss of Rs.16,47,844/-. In response to the notices and the letters issued, the assessee made written as well as oral submissions in respect of his income and investments during the said block period. The documents seized from his business premises and the documents produced by him were scrutinized and after hearing the assessee, the Assessing Officer completed the assessment. As against the Assessment Order, the assessee filed an appeal before the Commissioner of Income Tax (A) – II, Coimbatore, who, by order dated 25.03.2004, allowed the appeal in part. Aggrieved by the said order of the Commissioner of Income Tax (A), the Revenue filed an appeal before the Income Tax Appellate Tribunal and the assessee filed Cross Objection in respect of the disallowed portion. The Income Tax Appellate Tribunal, by its common order dated 23.11.2006, dismissed the appeal filed by the Revenue and partly allowed the Cross Objection filed by the assessee. Challenging the same, the Revenue has filed the present Tax Case Appeals. 3. At the time of admitting the tax case appeals, the following substantial questions of law were framed by this court: "1.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in deleting the additions of Rs.42,00,000/- as undisclosed https://hcservices.ecourts.gov.in/hcservices/ income of the assessee even though the assessee himself accepted in his statement as "on money transaction" in transferring the properties? 2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the addition of Rs.60,72,900/-, even though being the bogus outstanding deposit in M/s.Raja Jewellers Proprietary Concern of the assessee as undisclosed income of the assessee under section 69C of the Income Tax Act, 1961? 3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the addition of Rs.13,83,000/- as undisclosed income of the assessee, even though the assessee has not proved the genuineness of the deposits by way of filing confirmation letters from the parties who are involved in the transactions? 4. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the addition made by the Assessing Officer to the tune of Rs.26,63,130/-, even though the assessee has not produced the relevant books of accounts, book statements, computations, etc.? 4. We have heard the learned counsel appearing on either side and perused the entire materials available on record. 5. Learned counsel appearing for the Revenue submitted that when the assessee had not maintained regular books of accounts for the period after 31.03.1998 and when he had received a sum of Rs.72,00,000/- from sale of properties, out of which, Rs,42,00,000/- was the "on money receipt", the Assessing Officer was right in treating the said amount of Rs.42,00,000/- as income from other sources. The sum of Rs.60,72,900/-, being the bogus outstanding deposit in M/s.Raja Jewellers Proprietary Concern of the assessee, was the undisclosed income of the assessee under section 69C of the Act for the assessment year 1998-99. While conducting the search of the assessee's business premises, fixed deposit receipt books of M/s.Sri Velmurugan Financiers were seized, from which, it came to light that a sum of Rs.13,83,000/-, which was shown as outstanding as on 31.03.1998, was found to be bogus and since the assessee did not prove the genuineness of the deposits even by filing confirmation letters, the entire deposits were treated as bogus and taxed as unexplained expenditure. The reasoning given by the Assessing Officer, in respect of undisclosed payments made to M/s.P.C. & https://hcservices.ecourts.gov.in/hcservices/ Sons and M/s.C.R.B.F. Ltd to the tune of Rs.8,80,000/-; unaccounted payments made to M/s.Chakkra Group of concerns to the tune of Rs.12,81,130/-; unaccounted payments made to M/s.Kamadhenu Nidhi and Subash Financiers to the tune of Rs.2,52,000/- and unexplained investments in M/s.United Fabrics to the tune of Rs.2,50,000/-, was that, those payments were not supported by any relevant books of accounts, bank statements, computation, etc. On the basis of the above submissions, learned counsel appearing for the Revenue submitted that the order passed by the Appellate Tribunal is unjust, arbitrary and erroneous and hence, it is liable to be set aside. 6. On the other hand, learned counsel appearing for the assessee submitted that when the assessee and his wife Smt.Saroja were jointly owning the property at Raja Street, the Assessing Officer was not justified in treating the sum of Rs.42 lakhs received from the sale of the said property as undisclosed income of the assessee, without applying the cost of index of the property sold, to arrive at the correct capital gain and therefore, the finding rendered in this regard by the Commissioner of Income Tax and the Income Tax Appellate Tribunal cannot be found fault with. The outstanding loans as per the returns was Rs.60,72,000/- and the outstanding as per the respective ledgers was Rs.39,51,500/- leaving a difference of Rs.21,21,400/-; the above difference was because, returns were filed for the year ending 31.03.1998 whereas, ledgers were not for the year ending 31.03.1998 but for the subsequent period and therefore it is factually incorrect to state that the assessee had not furnished the name and address of the creditors. Though during the course of search, fixed deposit receipt books of M/s.Velmurugan Financiers, which was the proprietary concern of the appellant, were seized and it revealed that an amount of Rs.13,83,000/- was outstanding as on 31.03.1998 in favour of various depositors, yet, the Assessing Officer was under the impression that the said deposits were paid back before 31.03.1998, which is factually incorrect. The Assessing Officer ought not to have treated the payments made to various concerns to the tune of Rs.26,63,130/- as undisclosed income of the assessee and therefore the Tribunal rightly deleted the additions made by the Assessing Officer. On the basis of the above submissions, learned counsel appearing for the assessee contended that the order passed by the Tribunal cannot be interfered with in any manner. Learned counsel appearing for the assessee relied upon various decisions of this court as well as other High Courts in support of the above submissions made. 7. It is seen from the materials available on record that the assessee filed his return of income upto the assessment year 1998- 1999. A search was conducted in the business premises of the assessee on 31.01.2001 by Investigation Unit – II, Coimbatore and at that time, various incriminating documents were seized, which indicated that the assessee did not disclose the correct income earned by him in the returns filed before the conduct of such https://hcservices.ecourts.gov.in/hcservices/ search. Therefore, a notice under section 158BC of the Act was issued to the assessee, pursuant to which, block return in Form 2B was filed by the assessee on 18.09.2002 declaring a loss of Rs.16,47,844/-. On the basis of the materials available, the Assessing Officer passed the order of assessment under section 143 (3) read with section 158BC(c) of the Act computing the total undisclosed income of Rs.1,54,52,270/- and raising a tax demand of Rs.1,34,50,894/-, after making the following additions: (1) Rs.42,00,000/- undisclosed income, being "on money receipt" in respect of Raja Street property; (2) Rs.60,72,900/- undisclosed income under section 69C of the Act, being the amount of outstanding deposit in M/s.Raja Jewellery (Proprietary concern); (3) Rs.13,83,000/- undisclosed income, being fixed deposit outstanding as on 31.03.1998 with Sri Velmurugan Financiers; (4) Rs.26,63,130/-, being undisclosed income under the following heads viz., (a) payments made to P.C.&Sons & CRBF Ltd .- Rs. 8,80,000/- (b) Payments made to Chakkra Group - Rs. 12,81,130/- (c )Payments to K.N. & S.F. - Rs. 2,52,000/- (d) Investment in United Fabrics - Rs. 2,50,000/- ---------------------- Rs.26,63,130/- ============ (5) and Rs.2,00,000/-, being the sale proceeds of A.P.Lodge. 8. As far as the first question of law framed by this court is concerned, according to the assessee, he and his wife jointly purchased the property at Door No.270 - 271, Raja Street, Coimbatore during the period 1993-94, for a consideration of Rs.24,92,460/- and also paid goodwill for the said property to the tune of Rs.3 lakhs. The said property was sold to the four sons of Thiru.S.Thiagarajan during the financial years1998-99 and 2000-01 for Rs.30 lakhs and he received only 50% share in the sale proceeds, which was shown in the returns filed for the assessment year 1994-95. Besides that, "on-money" was received to the tune of Rs.42 lakhs. However, sale consideration of Rs.15 lakhs and "on-money" of Rs.20 lakhs were received during the assessment year 1999-2000 and the remaining sale consideration of Rs.15 lakhs and "on-money" of Rs.22 lakhs were received during the assessment year 2001-2002. The above receipts and the long-term capital gains arising therefrom were shown in the https://hcservices.ecourts.gov.in/hcservices/ block returns filed by him. The Assessing Officer found that the assessee had not produced supporting documents with regard to the books of accounts maintained by him, inspite of the specific request made in that regard; he had not maintained proper books of accounts in respect of his business transactions and also in respect of other group concerns from the financial year 1998-99 till the date of search and that, he did not comply with the notices for producing the books of accounts for the assessment years 1991-92 to 1998-99, for which returns were filed. On the basis of the materials available on record, the Assessing Officer treated the said income of Rs.42 lakhs as "income from other sources", being "on money receipt" due to the sale of the said property, during the assessment year 2001-02 and also made an addition of Rs.1,52,950/-, being the difference in the sale price of Rs.15 lakhs and purchase price of Rs.13,47,050/-. However, the Commissioner of Income Tax (Appeals) had deleted the said addition made by the Assessing Officer on the ground that the assessee had accounted for the indexed cost of the property on the basis of the payments and expenses reflected in the relevant purchase documents and payments and expenses shown in the accounts prior to the date of search. The Commissioner had also held that the computation made by the assessee was verified and found to be correct. The Tribunal had held that the assessee had furnished the calculation of capital gains in respect of the said property while submitting his block returns for the period 01.04.1991 to 31.03.2001; therefore, the Assessing Officer was not justified in holding that the assessee had not disclosed the sale of the said property to the Department and when the entire consideration, including the "on money" was admitted in the computation, there was no justification on the part of the Assessing Officer to treat the said sum of Rs.42 lakhs as undisclosed income. On the basis of the above findings, the Tribunal upheld the findings rendered by the Commissioner of Income Tax (Appeals) on the said issue. 9. It is no doubt true that the assessee had stated that the property situated at Raja Street was purchased by him jointly in his name as well as in the name of his wife Tmt.Saroja during 1993-94 and the said property was sold to the four sons of Thiru.S.Thiagarajan during the financial years 1998-99 and 2000-01 for a sum of Rs.30 lakhs. However, in the sworn statement of Thiru.Thiagarajan, he had clearly stated that the said property was purchased by his sons for a consideration of Rs.72 lakhs and the purchase documents were registered only for Rs.30 lakhs. The assessee himself, in his sworn statement dated 31.01.2001, had stated that the above property was sold for a consideration of Rs.72 lakhs and that he utilised the said sum received for making repayment to M/s.C.R.Benefit Funds Ltd., and M/s.P.C. & Sons.. By his sworn statement dated 14.02.2001, the assessee had also confirmed the receipt of Rs.72 lakhs from and out of the sale of the said property. By his sworn statement dated 14.02.2001, the assessee had also offered the said sum of Rs.42 lakhs, being "on money receipt", for taxation in his hands. When https://hcservices.ecourts.gov.in/hcservices/ the assessee himself had admitted the above position, we are of the opinion that the Assessing Officer had not committed any error in making the addition of Rs.42 lakhs while completing the block assessment. Though the assessee would contend that the Assessing Officer himself had admitted that 50% of the property belongs to the wife of the assessee and therefore the same shall be considered in her block assessment under section 158BD of the Act, as per which she was assessed for the balance 50% share, yet, the Assessing Officer had found, on an analysis of the assessee's returns, that the assessee is a regular defaulter in filing his returns of income and that the returns for the assessment years 1991-92, 1992-93 and 1996-97 were filed beyond the time limit prescribed under section 139 of the Act. On the basis of the above finding, the Assessing Officer treated the returned income in the invalid returns filed for the said assessment years as undisclosed income of the assessee. Therefore, we are not inclined to agree with the said contention raised by the assessee. 10. As far as the second question of law is concerned, the assessee, in the returns filed by him for the year ended 31.03.1998, had shown a sum of Rs.60,72,900/- as the total outstanding liability in respect of the jewellery chit business. However, from the documents seized viz., the ledgers, the outstanding liability was Rs.39,51,500/- leaving a difference of Rs.21,21,400/-. It is seen from the materials available on record that bogus credit to the tune of Rs.21,21,400/- had been declared by the assessee vide his office letter dated 19.07.2002 and though the assessee was asked to furnish the name and address of the creditors, the assessee did not furnish the same. According to the assessee, the above difference was because, returns were filed for the year ending 31.03.1998 whereas, ledgers were not for the year ending 31.03.1998 but for the subsequent period and therefore it is factually incorrect to state that the assessee had not furnished the name and address of the creditors. During post search investigation, random verification was conducted in respect of fourteen creditors and all of them had stated that they received back their deposits either as jewels or in the form of cash prior to 31.03.1998. During the fag end of the block assessment proceedings, though the assessee had produced photo copies of cash bills pertaining to jewellery on 18.04.1998 in respect of ten creditors, he had not produced any evidence to show that the remaining credits were actually outstanding as on 31.03.1998. The assessee also had not furnished the name and address of the creditors. Therefore, the entire credits of Rs.60,72,900/- were treated as bogus credits since the same had been paid by the assessee before 31.03.1998. On the basis of the above materials, the Assessing Officer treated the said amount of Rs.60,72,900/-, being bogus outstanding credits in M/s.Raja Jewellers, Proprietary concern, as the undisclosed income of the assessee under section 69C of the Act for the assessment year 1998-99. However, the Commissioner of Income Tax came to the conclusion that the outstanding liabilities https://hcservices.ecourts.gov.in/hcservices/ to the tune of Rs.60,72,900/- was reflected in the books of accounts maintained by the assessee; the return of income for the assessment year 1998-99 was filed by the assessee on 04.03.1999 i.e., much prior to the date of search; in the confirmation letters given by the fourteen creditors, they have not stated that they received the deposits prior to 31.03.1998; the Assessing Officer has no power to make roving enquiry or investigation in respect of completed assessments; no material was found during the course of search to even suggest that those credits were not genuine and therefore, the said amount cannot be treated as undisclosed income of the assessee. To arrive at such a conclusion, the Commissioner of Income Tax (A) had placed reliance on the decisions of the Bombay High Court in the case reported in CIT Vs. Vikram A. Doshi ((2002) 256 ITR 129) and the order passed by the Jabalpur Bench of the Income Tax Appellate Tribunal in the case reported in Sudhir Kumar Poddar Vs. DCIT ((2003) SOT 495), wherein it was held that if the credits are duly recorded in the books of account in the regular course of business; if the assessee had filed the return of income for the respective years prior to the conduct of search and if no material was found during the course of search so as to establish that such credits were not genuine, then, the same cannot be treated as undisclosed income. The Tribunal had also confirmed the said order passed by the Commissioner of Income Tax in this regard. 11. It is seen from the materials available on record that the returns filed by the assessee for the assessment years 1991-92, 1992-93 and 1996-97 were not valid returns as per the Income Tax Law and that they were filed beyond the time limit prescribed under section 139 of the Act. During the course of assessment proceedings, the assessee had submitted cash flow statements in order to explain the investments. But however, no supporting documents were produced by the assessee. It may be true that if the assessee had filed the return of income for the respective years prior to the conduct of search and if no material was found during the course of search so as to establish that such credits were not genuine, then, the same cannot be treated as undisclosed income. However, in this case, admittedly the Assessing Officer had found that the assessee did not maintain proper books of accounts for his business transactions and also for other group concerns from the financial years 1998-99 till the date of search. Therefore, the said decisions cannot be applied to the facts of the present case. Though the Commissioner of Income Tax had held that the Assessing Officer does not acquire any power under section 158BA to make roving enquiry or investigation about the assessments already completed, yet, a perusal of the provisions contained in the said section makes it abundantly clear that "notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to https://hcservices.ecourts.gov.in/hcservices/ assess the undisclosed income in accordance with the provisions of this Chapter." The Explanation to section 158BA reads as follows: "Explanation – For the removal of doubts, it is hereby declared that - (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c ) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.." It cannot be said that the Assessing Officer has no power under the said section to make roving enquiry or investigation about the assessments completed, since, admittedly, as per the provisions contained in the said section, the assessment made shall be in addition to the regular assessment in respect of each previous year included in the block period. In this case admittedly, the assessee had not produced any material to show that the remaining credits were outstanding as on 31.03.1998 and the assessee also did not furnish the name and address of the creditors. The Assessing Officer had found that the assessee had not maintained proper books of accounts in respect of his business transactions and also in respect of other group concerns from the financial years 1998-99 till the date of search. The Commissioner of Income tax (A) had observed that when the Assessing Officer himself had stated that the assessee had produced copies of cash bill regarding the receipt of jewellery in the month of April 1998, he ought not to have held that the documents produced by the assessee cannot be relied upon. When the assessee himself had admitted in his sworn statement dated 02.03.2011 that he had not maintained proper books of accounts for his business transactions and also for other group concerns from the financial years 1998-99 till the date of search, we are not inclined to give much weightage to the observation made by the Commissioner of Income Tax that the Assessing Officer ought not to have held that the documents produced by the assessee cannot be relied upon. Therefore, we are of the opinion that the order passed by the Commissioner of Income Tax (A) and the Tribunal in this regard cannot be legally sustained. 12. As far as the third question of law is concerned, the assessee is the Proprietor of M/s.Sri Velmurugan Financiers. During the course of search, fixed deposit receipt books of the said company were seized, which revealed that an amount of Rs.13,83,000/- was outstanding as on 31.03.1998 in favour of various depositors. The assessee was asked to furnish the list of such deposits along with https://hcservices.ecourts.gov.in/hcservices/ confirmation letters. According to the assessee, the details regarding the deposits were available with the Assessing Officer since, during the course of search, fixed deposit receipt books of M/s.Sri Velmurugan Financiers were seized by