Commissioner Of Income Tax Salem v. Dr.k.kannagi

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:5.3.2020 THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Commissioner of Income TaxSalem.... Appellant in both AppealsVs. Dr.K.Kannagi... Respondent in TCA.752/2010Dr.N.Rajkumar... Respondent in TCA.753/2010 Tax Case (Appeals) filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, 'A' Bench, Chennai, dated 9.10.2009 made in ITA Nos.32& 33/Mds/2005.TCA.No.752 of 2010:- Appeal presented to the High Court Against the Order of theIncome Tax Appellate Tribunal, Chennai 'A' Bench, dated09.10.2009. I.T(SS)A.No.32/mds/2005 Block. Period 01.04.1996 to04.06.2002 Against the Commissioner of Income Tax (Appeals)ITA.No.147/2004-2005,dated15.02.2005againstDeputyCommissioner of Income Tax Circle, Salem PAN.No/GIR.No.CCPK 009,Block Assessment Year Period 01.04.1996 to 04.06.2002. TCA.No.753 of 2010:- Appeal presented to the High Court against the Order of theIncome Tax Appellate Tribunal, Chennai 'A' Bench, dated09.10.2009. I.T(SS)A.No.33/mds/2005 Block Assessment year01.04.1996 to 04.06.2002 against the Commissioner of Income Tax(Appeals). ITA.No.148/2004-2005, dated 16.02.2005 against DeputyCommissioner of Income Tax Circle, Salem PAN/GIR.No.CCPR 013,Block Assessment Year period 01.04.1996 to 04.06.2002. For Appellant : Mr.M.Swaminathan Senior Standing Counsel assisted by Ms.V.Pushpa, Junior Standing Counsel For Respondents: Mr.R.V.Easwar, Senior Counsel and Mr.Rubal Bangal for Mr.T.Vasudevan COMMON JUDGMENT (Delivered by DR.VINEET KOTHARI,J) These Appeals have been filed by the Revenue raising thepurported substantial questions of law under section 260-A ofthe Act arising from the order of the Income Tax appellateTribunal, Chennai dated 9th October 2009 for the BlockAssessment Period from 1.4.1996 to 4.6.2002 in the case ofDr.K.Kannagi (Wife) and Dr.N.Rajkumar (Husband), a couple ofprofessional Doctors, having their establishment known asKumaran Polyclinic at Namakkal. 2. These Appeals filed by Revenue were admitted by a co-ordinate Bench of this Court on on 9.8.2010 on the followingsubstantial questions of law:- "1. Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in deleting the additions made in the BlockAssessment in respect of investments found as aresult of the search accepting the unsubstantiatedclaim of the assessee that the Investments came outof withdrawals of deposits made in fictitious namesin four finance firms? 2. Whether on the facts and in thecircumstances of the case, the Income-tax AppellateTribunal was right in deleting the additions madeon the basis of materials found during the searchand the statement recorded u/s.132(4) of theIncome-tax Act, accepting affidavits filed by somepersons not connected with the search as true,without putting them to strict proof? 3. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the verificationof return of Income of the firms by Dr.Rajkumar asManaging Partner would not convey much meaning,negating the statutory sanctity of verification ofreturn 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 CounselMr.M.Swaminathan appearing for the Revenue and Mr R.V.Easwar thelearned Senior Counsel appearing for the Respondents/Assessees. https://hcservices.ecourts.gov.in/hcservices/ 3. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the verificationof return of Income of the firms by Dr.Rajkumar asManaging Partner would not convey much meaning,negating the statutory sanctity of verification ofreturn 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 CounselMr.M.Swaminathan appearing for the Revenue and Mr R.V.Easwar thelearned Senior Counsel appearing for the Respondents/Assessees. https://hcservices.ecourts.gov.in/hcservices/ 4. The case on hand has a chequered history and thoughthere are substantial questions of law on the basis of which theAppeals were admitted, the question, essentially, before us is,whether the order of the learned Income Tax Appellate Tribunalfalls in the category of a perverse order based on no evidence,particularly, when there are findings of the two Authoritiesbelow viz., the Assessing Authority and the first AppellateAuthority, CIT(A) in the Block Assessment in the case of asearch conducted at the residential and business place of thesaid Doctor couple who seem to have their professional incomefrom running a Hospital in the name and style of KumaranPolyclinic at Namakkal and also having agricultural income andrunning 4 Financial Firms having the business of money lending. 5. Since the cases essentially revolve around a complexedcobweb of facts, we have to essentially re-produce the findingof facts returned by the three Authorities below and then dealwith the question as to whether the order of the final factfinding Authority viz., the Income Tax Appellate Tribunal fallsin the realm of perversity or not. Therefore, we quote belowthe relevant findings of the three Authorities below seriatim:-Findings of the Assessing Authority in the Assessment Orderdated 29.7.2004 for the Block Period from 1.4.1996 to 4.6.2002:-"9. The assessee's husband, Dr.N.Rajkumar and theassessee floated along with some of their closerelatives, four finance firms, the details whereofare furnished below:1. Medi Finance - Partnership firm - Assessed from1991-92 2. Medi Finance Corpn.- Partnership firm - Assessedfrom 1991-92 3. Mahalakshmi Investments - Partnership firm -Assessed from 1993-94 4. K.S.M.Investment - Partnership firm - Assessedfrom 1994-95. Dr.Rajkumar is a partner in all these financeconcerns in his HUF capacity and is the ManagingPartner of all the above said firms. According tothe regular returns filed by these concerns, thefirms used to accept deposits from relatives,friends and members of public, issue depositreceipts and cash certificates, and lend money forinterest. The main source of income of these firmswas ‘interest from money-lending'. 10. It is claimed in the block returns that theamounts shown under the head “Deposits and CashCertificates” in the Balance Sheets of these firmsas ‘Due' to third parties (liabilities) actuallybelong to the assessee and her husband,Dr.N.Rajkumar. It is pointed out that the deposits and cash certificates shown in the firms' booksrepresent aggregate of the income of Dr.N.Rajkumarand Dr.K.Kannagi earned from profession and theaccumulated interest received by the firms everyyear. According to the assessee, the persons inwhose names the Deposit receipts and CashCertificates were issued are either non existing orthose with fictitious address. 10. It is claimed in the block returns that theamounts shown under the head “Deposits and CashCertificates” in the Balance Sheets of these firmsas ‘Due' to third parties (liabilities) actuallybelong to the assessee and her husband,Dr.N.Rajkumar. It is pointed out that the deposits and cash certificates shown in the firms' booksrepresent aggregate of the income of Dr.N.Rajkumarand Dr.K.Kannagi earned from profession and theaccumulated interest received by the firms everyyear. According to the assessee, the persons inwhose names the Deposit receipts and CashCertificates were issued are either non existing orthose with fictitious address. 11. In the statements filed along with theblock returns, a major part of the investmentsfound during search (to the extent of Rs.2.23crores) are claimed to have been made out of thewithdrawals from the amounts available with thefirms as 'Deposits and Cash Certificates' as on31.3.95 (before the block period) but recorded inthe firms' books as ‘repayment to depositors'. Inother words, the investments to this extent weremade, according to the assessee, from out of theincome earned by her and her husband, Dr.N.Rajkumarbefore the block period, but invested in the firmsin the form of 'Deposits and Cash Certificates' fromthird parties. It is, therefore, claimed that theseinvestments should be taken out of the purview ofundisclosed income, , as relating to the periodbefore the block period. No working in respect ofthis claim was filed with the block return. 12. During the course of assessmentproceedings, the assessee and her husband,Dr.Rajkumar have furnished explanation vide latterfiled on 7-6-2004 to support this claim, which isreproduced below: "We are associated as partners with our closerelatives in the following firms: a. Medi Finance, b. Medi Finance Corporation, 3. Mahalakshmi Investments and 4. K.S.M.Investments The said finances were carrying out thebusiness of advancing loans on hire purchase basisand also on promote basis. Dr.N.Rajkumar was themanaging partner for all the concerns. Theseconcerns are assessed to Income Tax from the yearof commencement and the balance sheets of theseconcerns disclose the amounts of fixed deposits,cash certificates and pronote loans in fictitiousnames and those depositors are either non-existing https://hcservices.ecourts.gov.in/hcservices/ or are not verifiable with correct identity. Thesedeposits were made out of our professionalundisclosed income between the years 1980 to 1993.We commenced our professional practice way back inthe year 1978-79 at Namakkal. The above fact wasfurther affirmed by Dr.N.Rajkumar in his statementu/s. 132(4) recorded on 5.8.2002. We are alsofiling the affidavits of the partners of the firmsaffirming this fact. It is further submitted thatthe undisclosed income stated to have been earned,could not have been made well in a span of 6years, which on an average works out to Rs.75 to80 Lakhs per annum and since the earnings weremade prior to the, block period and they were onlyinvested at different intervals during the blockperiod. It is also submitted that the totalwithdrawal from the finance firms amounts toRs.3,54,61,800/, as against the claim ofRs.2,23,87,600/- made in the block return filedand the details of the same are summarized below: These financing firms closed down theirbusiness on and from 31-3-2001 and are remainingfor collection of loans due and conducting oflegal cases. It is prayed that the above amount ofRs.3,54,61,800/- may please be adopted." Affidavits to the effect that the amounts shown as‘Deposits and Cash Certificates' actually belong toDr.N.Rajkumar and Dr.K.Kannagi, have been obtainedfrom, the other partners of the firms and filed. 13. I have considered the explanation verycarefully. The assessee makes the claim apparentlyon the ground. These financing firms closed down theirbusiness on and from 31-3-2001 and are remainingfor collection of loans due and conducting oflegal cases. It is prayed that the above amount ofRs.3,54,61,800/- may please be adopted." Affidavits to the effect that the amounts shown as‘Deposits and Cash Certificates' actually belong toDr.N.Rajkumar and Dr.K.Kannagi, have been obtainedfrom, the other partners of the firms and filed. 13. I have considered the explanation verycarefully. The assessee makes the claim apparentlyon the ground. a. that Dr.N.Rajkumar gave a statement to thiseffect before the Assistant Director of Income Tax(Investigation) on 5-8-2002 during the course ofsearch, https://hcservices.ecourts.gov.in/hcservices/ b. that the assessee and her husband,Dr.N.Rajkumar could not have earned such huge incomein a span of about 6 years, and, possibly, theinvestments made during the block period includethose made out of the income earned before blockperiod also, c. and that, as Dr.Rajkumar and the assesseewere practicing medicine since 1978 and have beenassessed to tax since 1981, the deposits etc. in thefinance concerns were made out of their incomeearned during the period 1980 to 1993. 14. In support of the claim that amountsaggregating to Rs.3,54,61,800/- were withdrawn fromthe firms, Medi Finance, Medi Finance Corporation,K.S.M.Investments and Mahalakshmi Investments duringthe previous years 1994-95 to 2000-01) (but recordedin the books of the firms as repayments todepositors), consolidated cash flow statements ofthe firms have been filed for each year. Theaggregate amount of alleged withdrawals for eachyear has been arrived at in the manner indicatedbelow: Opening balance (aggregate of the FixedDeposits, Cash certificates etc) + Interest paymentsclaimed during the year (since the interest isstated to have been received by the assessees andtreated as their income) MINUS Fresh investments, if any, in the firms duringthe year + Closing balance of Fixed Deposits, Cashcertificates, Pronote loans etc., 15. Apart from the consolidated cash flowstatements in respect of the firms, consolidatedcash flow statements prepared for Dr.N.Rajkumar(Individual), Dr.K.Kannagi and HUF of Dr.N.Rajkumarhave also been furnished for the block period (forand from the previous year 1996-97). The allegedwithdrawals amounting to Rs.3.54 crores from thefirms have been taken to the consolidated cash flowstatements or Dr.N.Rajkumar, Dr.K.Kannagi and HUFof Dr.N.Rajkumar and considered there in therespective years, for explaining various investmentsmade during the block period, and outgoings. Apartfrom the alleged withdrawals, the income of thosepersons admitted for the earlier years, the drawingsfor personal, household, educational expenses etc.,have also been reflected in these cash flow statements in the respective years. statements in the respective years. 16. It could be seen that, as against the claimof around Rs.2.23 crores in the block returnstowards 'relief' in respect of the income earnedbefore the block period, it is now claimed thatwithdrawal to the extent of Rs.3.54 Crores (shown inthe firms' book as repayments to the depositors)have been utilized for investments/outgoings duringthe block period. No working has been furnished tosupport the claim of Rs.2.23 Crores made in theblock return. The withdrawals now claimed relate tothe period from the previous year 94-95 till thedate of search. The amounts stated to have beenwithdrawn from the firms include interest earnedboth before and during the block period. Thoughcertain claims have now been made regardingwithdrawals, it is to be noted, the assessee and herhusband have not given any idea regarding theundisclosed income to be assessed. It is claimedthat all the investments/outgoings have been takencare of in the consolidated cash flow statementfiled and there is no deficit in any year. It is,therefore, inferred that, according to the assesseeand her husband, the aggregate of the interestincome earned by the four firms during the blockperiod is to be treated as their undisclosed income. 17. I have considered the claim very carefully.I have also gone through the relevant records andthe details, statements etc., filed. A closeanalysis of the relevant records of the assessee,her husband, Dr.N.Rajkumar and various financeconcerns would show that the claim is bereft offorce and far fetched. 18. The finance concerns are partnership firmswherein Dr.Rajkumar is the Managing Partner. Allthe firms have been constituted by Deeds ofPartnership and regular returns were being filed bythe firms for a quite a number of years beforesearch. The ‘verification' part in all these returnsis found to have been signed by the assessee'shusband, Dr.N.Rajkumar in his capacity as ManagingPartner. According to the statements filed alongwith the returns, hundreds of persons are found tohave invested in each firm in deposits / cashcertificates. In all the cases, the names of thedepositors and the cash certificate holders havebeen furnished with complete address and the details of amounts deposited by them. Some of theassessments in the case of the firms were taken upfor scrutiny as detailed hereunder: Name of the firm Assessment years Medi Finance 91-92 and 93-94 Medi Finance Corporation 93-94 A substantial part of the interest income earned bythe firms was spent, according to the regularreturns filed by the firms, towards “interestpayments" to depositors and cash certificate holdersand the firms were admitting very small income fortaxation. of amounts deposited by them. Some of theassessments in the case of the firms were taken upfor scrutiny as detailed hereunder: Name of the firm Assessment years Medi Finance 91-92 and 93-94 Medi Finance Corporation 93-94 A substantial part of the interest income earned bythe firms was spent, according to the regularreturns filed by the firms, towards “interestpayments" to depositors and cash certificate holdersand the firms were admitting very small income fortaxation. 19. No piece of evidence was found duringsearch to support the claim that the funds of thefirms belonged to the assessee and her husband,Dr.N.Rajkumar. Nor could the assessee or her husbandfurnish any evidence during assessment proceedingsto prove the claim. While signing the ‘verification'part of the regular returns filed by the firms, theassessee’s husband, Dr.N.Rajkumar in his capacity asManaging Partner has given declaration to the effectthat “to the best of my knowledge and belief theinformation given in the return and annexures andstatements accompanying it are correct, complete andtruly stated". It is, therefore, clear that theassessee, by requiring the Department believe thatwhatever statements furnished before search werefalse, and that what she now furnishes reflect thecorrect state of affairs, is now attempting in vainto make false claims to suit her interests, with aview to reducing the tax liability substantially.Admittedly, the assessee is not in possession of anyevidence to take cognizance of the claim. Thisapart, the Revenue is not supposed to takecognizance of the claim that the statementsfurnished earlier were false and whatever she nowsays is true, particularly when there is nocorroborative evidence. Even assuming but notaccepting that the present stand of the assessee iscorrect, it is to be noted that the assesses and herhusband, Dr.N.Rajkumar would have caused substantialloss to the revenue in the earlier years before theblock period, which is irretrievable, byintentionally furnishing false statements before theDepartment. Apparently, the affidavits of the other partners filed in this connection are self serving,as all the partners are closely related to theassessee. 20. The assessee wants to derive support fromthe statement given on 5-8-2002 by her husbandbefore the ADIT(Inv). It is to be noted that thisstatement was given after about two weeks from thedate of his first statement recorded on 19-7-2002,wherein he had not made any mention about this andhe agreed to offer the entire investments asundisclosed income. The statement given on 5-8-2002which should have been thought of, after prolongedplanning, is also self serving. 21. With a view to giving an opportunity tosubstantiate her claim, the assessee was required bythis office letter dated 17-6-2004 to furnishclarification as to how the alleged withdrawalscould be correlated to the investments found duringsearch, furnish the details regarding the date ofthe alleged withdrawals, the data when the withdrawnamounts were utilized for making investments etc,and to clarify whether the moneys withdrawn had beendeposited in bank or elsewhere before they wereutilized for investments. 22. In response, she furnished a reply on24.6.2004, the relevant part whereof is extractedbelow: 21. With a view to giving an opportunity tosubstantiate her claim, the assessee was required bythis office letter dated 17-6-2004 to furnishclarification as to how the alleged withdrawalscould be correlated to the investments found duringsearch, furnish the details regarding the date ofthe alleged withdrawals, the data when the withdrawnamounts were utilized for making investments etc,and to clarify whether the moneys withdrawn had beendeposited in bank or elsewhere before they wereutilized for investments. 22. In response, she furnished a reply on24.6.2004, the relevant part whereof is extractedbelow: “ I . Withdrawal from Financing Firms:In the reply filed by me in the course ofblock proceedings, I have filed details ofwithdrawals from the financing firms amountingin all to Rs.3,54,61,000/-. In the cashflowfiled for the withdrawals from financing firms,drawings have started been made from thefinancial year 1994-95 onwards. I was mainlyengaged in medical profession and looking afterfinancing business also by employing oneM.Murugesan as my manager and cashier and hewas incharge of advancing loans, obtainingdocuments far loans as security. I alsoemployed one person by name Sengodan asaccountant. The two employees colluded witheach other and started cheating me by obtainingcommission from borrowers, advancing loans onthe basis of falsified and forgery documentsand also cheated me by collecting interest from the borrowers. In view of this problem and alsodue to the fact so many litigations started inthe recovery of loan, I started recovering theadvances and kept as cash on my hand and withmy in-laws. The above fact is evidenced by thecopy of the petition made by me to DIG ofPolice, Chennai and seized by your departmentas per S.No.26 to 28 of S.M.No.PKS/B&D/S-1 of19-7-2002. With the monies I have drawn fromthe financing firms, I planned to buy MRI Scanand CT Scan equipments for my hospital. Sincethe said proposals was not viable at that pointof time as it involved heavy capital outlay ofRs.4 crores, I dropped the said proposal. Inthe meanwhile, the Reserve Bank of India hasbrought it an amending Act with effect from 1-4-97, where by the proprietary and partnershipfirm were debarred from carrying out financingbusiness by accepting deposits and a severeimprisonment has also been prescribed undersection 58B(5A) of the Reserve Bank of IndiaAct, 1934. In view of the same also I kept onwithdrawing money from the financing firms till31-3-1999. The amount drawn from the financingfirms against fixed deposits, cash certificatesand pronote loans introduced by me jointly withmy wife Dr.K.Kannagi out of our professionalincomes earned during earlier years prior toblock period were kept in my custody and withmy in-laws. Since it involved an enormousamount, I was fear of investing the same eitherwith bank or with private business people andonly from financial year 1999-2000 onwards, Istarted investing the same as fixed depositswith banks and private companies like SakthiFinance, Bhagavathy Textiles in fictitious andnon-existing persons names. These facts arewell explained in the cash flow statementsfiled by me jointly with my wife. In view of the above submissions, it ispleaded that the above details may please beconsidered favourably while framing the blockassessment”. 23. I have considered the reply very carefully.The claims have no force for the reasons mentionedbelow: a. The reply is vague insofar as it does notexplain with evidence, the nexus between the allegedwithdrawals from the firms (recorded in the books ofthe firms as repayments to depositors) and theinvestments made by her and her husband during theblock period. In view of the above submissions, it ispleaded that the above details may please beconsidered favourably while framing the blockassessment”. 23. I have considered the reply very carefully.The claims have no force for the reasons mentionedbelow: a. The reply is vague insofar as it does notexplain with evidence, the nexus between the allegedwithdrawals from the firms (recorded in the books ofthe firms as repayments to depositors) and theinvestments made by her and her husband during theblock period. b. Though the alleged withdrawals amounted tomore than Rs.3 crores up to 31-3-99, the assessee'sreply to the query as to where these amounts werekept and in what form, is not convincing and is notsupported by any material evidence. The claim thatsuch huge amounts were in their personal custody andin the custody of her in-laws is far-fetched. c. The claim that the assessee and her husbandwere planning to purchase scan machines is notsupported by any material evidence. d. The seized material No.PKS/B&D/S-1 (SheetsNo.26 to 28) referred to by the assessee is the copyof the complaint lodged by Dr.Rajkumar (in hiscapacity as Managing Partner of the firms) with theI.G. of Police thro' the Supt. of Police, Namakkalagainst the employees of the firms and this hasnothing to do with the claim that the deposits etc.,in the finance concerns belong to the assessee andher husband. 24. In continuation of the above reply, theassesses filed another reply on 20-7-2004, which isreproduced below; “In furtherance to the block assessmentproceedings, we beg to submit the following foryour information. The reasons for holding the above cash onhand are given below: 1. We advanced a loan of Rs.90 lakhs toM/s.Muthayammal Education Trust, Rasipuram inthe financial year 97-98 and got back theprincipal alone during the year 2000-01 andthis has got been reflected in the cash flowstatement filed. We obtained pronotes from thetrustees and a notarized sale agreement wasalso executed by the trustees of the said trustand in evidence of the same Xerox copies of thepronotes seized by the Investigating Officialvide SM.No.28 and 30 are enclosed. The saidtrust has not so far paid the interest on loansborrowed and repaid end this fact is affirmedby them in the post search enquiries conductedand in the statement recorded by theInvestigating officials.2. Dr.N.Rajkumar was detected with asuspectedcanceroustumour,called“liposarcoma” in the year 1997) and beconsulted with various specialized hospitalslike Tata Memorial Hospital, Bombay, AdayarCancer Institute and Appollo Hospital, Chennaiand in the course of the same, he was advisedto undergo a surgery with “MD Anderson CancerCentre, Houston, TX“. The Surgery in USA wouldinvolve a cost of Rs.50 lakhs for carrying outthe surgery and another Rs.50 lakhs forstaying, post operative treatment and medicinesetc. Therefore, Dr.N.Rajkumar, apprehended witha fear of life and also to make suitableprovision far meeting out the cost, has keptthe balances on hand with himself and with hisin-laws for safety reasons and also to meet theobligation in time. In evidence of the same theXerox copies of the opinion received from USand treatment undergone with Appollo Hospitalare enclosed herewith. 3. Dr.K.Kannagi was detected with fibroidsubstance in her uterus in the year 97-98 andwas also suspected of a cancerous substances inthe same. She was also under drastic fear ofthe disease and was also proposing to undergotreatment in US along with Dr.N.Rajkumar, whichwould also involve an enormous expenditure iftreated in USA. Later she consulted Dr.A.KurianJoseph of Joseph’s Nursing Home, Chennai and 3. Dr.K.Kannagi was detected with fibroidsubstance in her uterus in the year 97-98 andwas also suspected of a cancerous substances inthe same. She was also under drastic fear ofthe disease and was also proposing to undergotreatment in US along with Dr.N.Rajkumar, whichwould also involve an enormous expenditure iftreated in USA. Later she consulted Dr.A.KurianJoseph of Joseph’s Nursing Home, Chennai and after thorough clinical investigation, sheunderwent major surgery in the above saidhospital. In view of the numerous diseaseoccurred to Dr.K.Kannagi and Dr.N.Rajkumar,they were under a severe mental duress andfear of their lives and in order to come out ofthis available in any leading hospital anywherein the world. In evidence of the treatmentundergone by Dr.K.Kannagi, Xerox copy of themedical summary from Joseph's Nursing Home,Chennai is enclosed for your records. Obtainedsituation, they were under forced situation toretain heavy cash on hand not only to meet theoperational expenditures but also to obtain apermanent health solution for their healthcondition by way of advance medicare. 4. While we are flooded with above chronichealth problems, the employees of the financingfirms have indulged in malpractices ofembezzling the cash, interest receipts etc.,and the loans advanced earlier also facedirregularity in repayment of principal andinterests, which resulted in prolongedlitigation in courts and therefore, we came toa decision to stop the financing activitiesslowly and proposed to carry out the running ofthe financing firms till the advances are fullyrecovered. The health problems coupled withemployees malpractices and the requirement ofhuge money for treatment in foreign country,have forced us literally to collect the maximumamount possible and keep it in the form ofliquid cash on hand as we are unsure of ourfuture fate and our daughters are also notcapable of recovering the same. The above reasons have forced us to keepheavier cash balances on hand and only afterclinical confirmation that the detection madeearlier have turned out to be not MalignantNature, these amount utilized for investment byway of fixed deposits with Banks and otherpublic companies. Therefore, it is prayed thatthe amount arrived at as withdrawal made fromthe financing firms may please be consideredfor equating the investment made by us". 25. This explanation also does not come to therescue of the assessee for the reasons stated below: a. The reply is contradictory to that filedearlier and none of these reasons were stated inthe reply filed on 24.6.2004. b. Even as on 31-3-96, the alleged withdrawalsamounted to around Rs.96 lakhs, but, admittedly, theloans amounting to 90 lakhs were advanced toMuthayammal Educational Trust only in 1998, afterabout two years. Here also, the explanation for thenexus between the alleged withdrawals and the loansis far fetched. c. Other factors also, like proposed medicaltreatment of the assessee and her husband, are notsufficient to prove the nexus. 25. This explanation also does not come to therescue of the assessee for the reasons stated below: a. The reply is contradictory to that filedearlier and none of these reasons were stated inthe reply filed on 24.6.2004. b. Even as on 31-3-96, the alleged withdrawalsamounted to around Rs.96 lakhs, but, admittedly, theloans amounting to 90 lakhs were advanced toMuthayammal Educational Trust only in 1998, afterabout two years. Here also, the explanation for thenexus between the alleged withdrawals and the loansis far fetched. c. Other factors also, like proposed medicaltreatment of the assessee and her husband, are notsufficient to prove the nexus. 26. Be that as it may, the question is whetherthe stand of the assessee and her husband that theamounts shown in the books of the firms as‘deposits and cash certificates' represent theirincome, and that the ‘repayments' recorded thereinas having been made to outsiders representwithdrawals by the assessee and her husband of theirown money, can be accepted. The answer is a clear‘No', as the claim has not been substantiated withevidence and is the result of after thought. Theclaim regarding the loans advanced, proposed medicaltreatment, proposed purchase of scan machines, etc.,does not explain the basic question whether theamounts shown as ‘deposits and cash certificates'appearing in the books of the firms in thirdparties' names could be treated as the income of theassessees. As, admittedly, this has not been provedwith sufficient material evidence, the claim of theassessee is rejected." Findings of the Commissioner of Income Tax (Appeals) in theorder dated 16.2.2005:- "47. The next issue is affirmation by the appellantthat, he has not made any specific admission ofundisclosed income to the tune of Rs.4,24,18,230/-.This is emphatically countered by the AO by makingreference to Q/A 6 of statement dated 19-7-02., Q/A14 of statement dated 2-8-02 and Q/A 7 of statementdated 17-6-02 of Dr.Kannagi. The statements havebeen called for and examined. 48. Q/A 5 & 6 of the statement containsspecific references to movable and immovable properties which have been accounted as well asunaccounted by the appellants. 49. The statement of Dr.Kannagi dt. 17-6-02 inQ/A reveals that admission of Rs.25 lakhs inrespect of investment at house. Therefore, I do notfind any merit in the contention that specificadmission has not been made. 50. Regarding the collection of substantialamounts of undisclosed income from the time ofinitiating of practice, functioning of the KumaranPoly Clinic to creation of finance firms isrebutted in a logical' and able manner by thehonourable AO and attempts of the appellant to showthat most of the undisclosed income is beyondpurview of the block period has not beensubstantiated by facts. Whereas the seized materialcoupled with statement clearly shows the periodbelong to block period and only the block period.For example, deposits Rs.74.34 lakhs emanating fromPKS/B&D/S-19 & S-17 specifically lie in the period1.4.02 to 4-6-02. This is from the material found,undisclosed and admitted as such by the assessee.Therefore, there cannot be greater evidence thanadmission of fact which as per notice 114 of theEvidence Act need not be proved once again to thedetriment of the assessee. In this case reliancehas been placed on AIR 1986 SC 1099, AIR 1996 SC1599. 51. Much has been made out about, cash flowstatement prepared by the appellant himself bysaying that, the AO took greater assistance fromthe cash flow statements furnished by the assessee-appellant and had not made out any UDI bydiscovering investment from the seized material ormaking any enquiry etc. Therefore, it is contentedthat provisions of section 158BB have not beenapplied in coming to the conclusion thatundisclosed income does exist. The AO in the formof Annexure has given yearwise description foritems found and seized and admitted in the blockreturn as under: Year ended 31-3-2001 1. Deposit with Bagavathi Textiles Rs.15,00,000 Evidence found Bagavathi Textiles Rs.15,00,000 Evidence found 2. Purchase of Tata Safari Rs.7,00,000 Evidence found3. 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 found5. House at TNHB Colony Rs.7,00,000 Evidence found6. 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 found2. 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 406. Deposit in finance Rs.68,39,000 S.M.No.PKS/ B&D/S-19 Period from1-4-02 to 4-6-021. Deposit in Rs. 5,95,000 S.M.No.PKS/ B&D/517 2. Amount with S.NalliappanRs.13,70,000 Pl.see para 37 to 40.This is a commendable effort in culling outthe undisclosed income in the form of purchase,investments, advances, donations etc. from seizedmaterial. Therefore, I find no substance in thecontention of the assessee that the cash flowstatement was prepared out of his own labour fromnowhere without any attributes or references.Infact, the basis for the UDI is the seized material lying with the department and theappellant was afforded opportunity of making photocopies of seized material so as to explain theundisclosed income in various forms admitted by himas mentioned at supra (during the course of searchproceedings as well as assessment proceedings. material lying with the department and theappellant was afforded opportunity of making photocopies of seized material so as to explain theundisclosed income in various forms admitted by himas mentioned at supra (during the course of searchproceedings as well as assessment proceedings. 52. The appellant contends that, the depositsin finance firms of Rs.74.34 lakhs belong to self,wife, HUF of Dr.Rajkumar. A weak attempt was madeto show that these deposits belong to the periodbetween 1992 -- 1995 i.e., prior to the blockperiod. However, as mentioned elsewhere in theappellate order, the dates referred to the periodwhich were taken cognizance of both by the AO aswell as by the appellant show it in various yearsunder the block assessment in the status of theindividual. Therefore, it appears amazing that hewants to be assessed it in somebody else’s hands.The investment for TNHB Housing Colony was found tothe tune of Rs.3 lakhs has been contested on theground of failure of the principle of naturaljustice by way giving copy of statement etc.However, the AO in his reply states that it is notfound necessary to follow these procedures as theassessee himself in his cash flow statementvoluntarily filed with the return of income shownvalue of Rs.3 lakhs. Therefore, the assessee cannotgo back and allege motives which are contrary andcontradictory to his conduct of filing cash flowstatement by him.53. On the Issue of cash with Rajkumar,Kannagi and Nelliappan, the appellant says that,there is no evidence except, cash flow statementand he discounts it’s adjustment in his own cashflow. The AO in his reply relies on the cash flowstatement and says that, it is the admission of theappellant in the form of cash flow statement andrelies on the ITAT decision in the casePrasantchand Surana 76 ITD 423 (Hyd.) wherein itwas held that, “admission, is clearly andunequivocally made is the best evidence againstparty until the same is effectively rebutted. Ithas been held that on the facts of ‘agreedaddition' no further enquiry is necessary. 1. CJ. Balakrishnan 223 ITR 5 (Mad.) followed inS.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 byshowing these amounts in the cash flow statement,which, due to unknown reasons he desires to disowndoes not take the factum of disclosed cash to theextent of Rs.28.74 lakhs from being assessed assuch." Findings of the Income Tax Appellate Tribunal in the impugnedorder dated 9.10.2009:- "10. Ground Nos.6 to 34 relate to certain evidenceswhich according to the assessees do not relate tothem but relate to HUF, which is a partner in thefour firms. All these are being decidedsimultaneously. It was argued that although theblock assessments are mainly based on cash flowstatement but in the cash flow statement assetsshown as belonging to HUF have been ignored and havebeen held to be belong to two individuals alone, andthat the reliance on the statement of the assesseehas been choosy. Per contra, it was argued thatboth of them had filed their returns of the Block intheir 'individual' status and there is no referenceto HUF therein and that there is no evidence toindicate any of the seized assets belonged toanybody else other than the appellants. It wasargued that till date no other entity has taken anylegal action in any court of law or before theTribunal challenging the action of the Department inseizing the assets belonging to them. 11. We have circumspected the entire recordsavailable before us vis-a-vis the oral and writtensubmissions of the parties. When facts are churnedin the light of available evidences only oneinference can be drawn that the ‘individuals’ weresearched and they have tried to explain the incomeearned by them so also the undisclosed incomeoffered in the block return. Block returns werefiled by the assessees Dr.N.Rajkumar and his wifeDr.K.Kannagi on 28.10.2002. Both returned totalundisclosed income of Rs.88,71,130/- i.e., 50% ineach hands coming at Rs.44,35,565/- each. But blockassessments were framed u/s 158BC read with Section143(3) on 29.07.04, computing undisclosed income, in each hands, at Rs.2,10,45,340/-. The perusal of thereturn of income filed and the accompanyingstatements give a broad picture of the income earnedand offered in the block returns. The assessee hasexplained the total deposits in banks, financecompanies, private limited companies, hire purchaseand pronotes as under:Principal +Rs.3,50,38,000(Principal)accruedRs.21,02,056(Accrued int.)interest infour firms,finance cos. Rs.3,71,40,056 Add:Cash foundRs.5,08,730Gold & JewelleryRs.11,00,000Tata Safari CarRs.7,00,000ImmovablesRs.21,77,000Rs.4,27,25,786Less:Sum of accrued int.but not realizedRs.21,02,056Rs.4,06,23,730UDI worked out bythe assessee(i) Total assetsRs.4,27,25,786disclosedLess:(a) SurplusRs.73,65,000cash available(b) Sale advance ofRs.20,00,000land(c) Amountsavailable withRs.2,23,87,600finance firmA+b+cRs.3,17,52,600UDI = (i) minus(a+b+c) =Rs.88,71,130 The Assessing Officer in his order arrived atthe UDI as follows; https://hcservices.ecourts.gov.in/hcservices/ (i) Rejected the claim of 2,23,87,600amounts available withthe 4 finance firms(ii) From the cash flow 1,56,58,450filed, added a number ofinvestments disputing thesource(iii) Availability of 44,13,821Surplus cash accepted forRs.29,51,179 - balanceadded(iv) Accrued interest 21,97,449added(v) Addition for the last 27,21,106period 4,73,78,426Less:(i) Disclosed income in 35,13,960earlier years 4,38,64,46612. There are no two opinions about the factthat Dr.N.Rajkumar's HUF was in existence and soalso the four finance firms in which HUF was apartner. The assessee has explained the relatableincome to HUF also in their cash flow statement. TheAssessing Officer has totally ignored the existenceand claim regarding HUF, even after accepting in hisorder the existence of HUF and four Finance Firms.It is not justifiable to make certain additionsrelying only on one portion of the cash flowstatement and by totally ignoring other part thereofwhich support the claim of the assessees. Thesettled position in this respect is that a documenthas to be accepted in its entirety. The cash flowstatement clearly indicates the HUF, andundisputedly HUF operated from the same premises.The existence of the HUF and the fact that it wasderiving considerable income during the block andthe pre-block period is admitted by the AssessingOfficer himself as is evident from paras 9, 29, 39,43, 45, 46 and 47 of the assessment order. TheAssessing Officer has made substantial additions onthe basis of the cash flow statement besides makingsome of the additions on the basis of seizedmaterials. In other words, the assessment is largely based on cash flow statement. These additions are asfollows: (i) Addition of Rs.74.34 lakhs in Medi Finance (ii) Addition of Rs.28.7 lakhs stated to be cash inthe hands of the two assessee and Shri.S.Nalliappan.(iii) As per pronote loan of Rs.21.75 lakhs.(iv) Additions of estimated interest on deposits. based on cash flow statement. These additions are asfollows: (i) Addition of Rs.74.34 lakhs in Medi Finance (ii) Addition of Rs.28.7 lakhs stated to be cash inthe hands of the two assessee and Shri.S.Nalliappan.(iii) As per pronote loan of Rs.21.75 lakhs.(iv) Additions of estimated interest on deposits. 13. In respect of pronotes the seized materialclearly show that the transactions relate to MediFinance and not to assessees. Most of the depositswere seized from the premises of Lakshmi Vilas Bank(LVB) and two companies. These deposits are not inthe names of either of the assessees, but areadmittedly in the names of others. The Bank Managerhas stated in his statement that Dr.N.Rajkumar