Commissioner Of Income Taxcentral-Iii, Madras v. M.k.shanmugam75

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 TaxCentral-III, Madras..Appellant in both Tax Cases Vs. M.K.Shanmugam75-77, State Bank RoadOpp. to Railway Stationcoimbatore – 641 018..Respondent in both Tax Cases Prayer in T.C (A) No.69/2008: Appeal against the order dated23.11.2006 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 dated23.11.2006 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 againstthe order of the Commissioner of Income Tax (Appeals)-II, Coimbatoredated 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. /CC-III/CBE. For Appellant : Mr.T.RavikumarFor Respondent : Mr.Philip George COMMON JUDGMENT ELIPE DHARMA RAO, J. Tax Case Appeal No.69/2008 has been filed against the orderdated 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 IncomeTax Appellate Tribunal "C" Bench, Chennai, in C.O.No.155/Mds/2004 inI.T.(SS)A.No.79/Mds/2004. Since the issue involved in both these taxcase appeals are one and the same, they are disposed of by thiscommon judgment. 2. The brief facts of the case are as follows: The assessee is engaged in the business of jewellery and moneylending. 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. Heis 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 ChitFunds, Coimbatore and M/s.United Fabrics, Tiruppur. A search wasconducted in the business premises of the assessee on 31.01.2001under section 132 of the Income Tax Act, 1961, hereinafter referredto as "the Act", by Investigation Unit-II, Coimbatore. During thecourse of search, various incriminating documents were seized, whichindicated that the assessee did not disclose the correct incomeearned by him in the returns filed by him before conducting suchsearch. Before the date of search, the assessee filed returns ofincome only upto the assessment year 1998-99. Therefore a noticeunder section 158BC of the Act was issued to the assessee on28.02.2001. The search was concluded on 13.03.2001. On 18.09.2002,block return in Form 2B was filed by the assessee for the periodfrom 01.04.1990 to 13.03.2001 declaring a loss of Rs.16,47,844/-. Inresponse to the notices and the letters issued, the assessee madewritten as well as oral submissions in respect of his income andinvestments during the said block period. The documents seized fromhis business premises and the documents produced by him werescrutinized and after hearing the assessee, the Assessing Officercompleted the assessment. As against the Assessment Order, theassessee filed an appeal before the Commissioner of Income Tax (A) –II, Coimbatore, who, by order dated 25.03.2004, allowed the appealin part. Aggrieved by the said order of the Commissioner of IncomeTax (A), the Revenue filed an appeal before the Income TaxAppellate Tribunal and the assessee filed Cross Objection in respectof the disallowed portion. The Income Tax Appellate Tribunal, by itscommon order dated 23.11.2006, dismissed the appeal filed by theRevenue and partly allowed the Cross Objection filed by theassessee. Challenging the same, the Revenue has filed the presentTax Case Appeals. 3. At the time of admitting the tax case appeals, the followingsubstantial questions of law were framed by this court: "1.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in deletingthe additions of Rs.42,00,000/- as undisclosed income of the assessee even though the assesseehimself accepted in his statement as "on moneytransaction" in transferring the properties? 2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in deleting theaddition of Rs.60,72,900/-, even though beingthe bogus outstanding deposit in M/s.RajaJewellers Proprietary Concern of the assessee asundisclosed income of the assessee under section69C of the Income Tax Act, 1961? 3. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in deleting theaddition of Rs.13,83,000/- as undisclosed incomeof the assessee, even though the assessee hasnot proved the genuineness of the deposits byway of filing confirmation letters from theparties who are involved in the transactions? 4. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law in deletingthe addition made by the Assessing Officer tothe tune of Rs.26,63,130/-, even though theassessee has not produced the relevant books ofaccounts, book statements, computations, etc.? 4. We have heard the learned counsel appearing on either sideand perused the entire materials available on record. 5. Learned counsel appearing for the Revenue submitted thatwhen the assessee had not maintained regular books of accounts forthe period after 31.03.1998 and when he had received a sum ofRs.72,00,000/- from sale of properties, out of which, Rs,42,00,000/-was the "on money receipt", the Assessing Officer was right intreating the said amount of Rs.42,00,000/- as income from othersources. The sum of Rs.60,72,900/-, being the bogus outstandingdeposit in M/s.Raja Jewellers Proprietary Concern of the assessee,was the undisclosed income of the assessee under section 69C of theAct for the assessment year 1998-99. While conducting the search ofthe assessee's business premises, fixed deposit receipt books ofM/s.Sri Velmurugan Financiers were seized, from which, it came tolight that a sum of Rs.13,83,000/-, which was shown as outstanding ason 31.03.1998, was found to be bogus and since the assessee did notprove the genuineness of the deposits even by filing confirmationletters, the entire deposits were treated as bogus and taxed asunexplained expenditure. The reasoning given by the AssessingOfficer, in respect of undisclosed payments made to M/s.P.C. & Sons and M/s.C.R.B.F. Ltd to the tune of Rs.8,80,000/-; unaccountedpayments made to M/s.Chakkra Group of concerns to the tune ofRs.12,81,130/-; unaccounted payments made to M/s.Kamadhenu Nidhi andSubash Financiers to the tune of Rs.2,52,000/- and unexplainedinvestments in M/s.United Fabrics to the tune of Rs.2,50,000/-, wasthat, those payments were not supported by any relevant books ofaccounts, bank statements, computation, etc. On the basis of theabove submissions, learned counsel appearing for the Revenuesubmitted that the order passed by the Appellate Tribunal is unjust,arbitrary and erroneous and hence, it is liable to be set aside. Sons and M/s.C.R.B.F. Ltd to the tune of Rs.8,80,000/-; unaccountedpayments made to M/s.Chakkra Group of concerns to the tune ofRs.12,81,130/-; unaccounted payments made to M/s.Kamadhenu Nidhi andSubash Financiers to the tune of Rs.2,52,000/- and unexplainedinvestments in M/s.United Fabrics to the tune of Rs.2,50,000/-, wasthat, those payments were not supported by any relevant books ofaccounts, bank statements, computation, etc. On the basis of theabove submissions, learned counsel appearing for the Revenuesubmitted 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 assesseesubmitted that when the assessee and his wife Smt.Saroja were jointlyowning the property at Raja Street, the Assessing Officer was notjustified in treating the sum of Rs.42 lakhs received from the saleof the said property as undisclosed income of the assessee, withoutapplying the cost of index of the property sold, to arrive at thecorrect capital gain and therefore, the finding rendered in thisregard by the Commissioner of Income Tax and the Income TaxAppellate Tribunal cannot be found fault with. The outstandingloans as per the returns was Rs.60,72,000/- and the outstanding asper the respective ledgers was Rs.39,51,500/- leaving a difference ofRs.21,21,400/-; the above difference was because, returns were filedfor the year ending 31.03.1998 whereas, ledgers were not for theyear ending 31.03.1998 but for the subsequent period and therefore itis factually incorrect to state that the assessee had not furnishedthe name and address of the creditors. Though during the course ofsearch, fixed deposit receipt books of M/s.Velmurugan Financiers,which was the proprietary concern of the appellant, were seized andit revealed that an amount of Rs.13,83,000/- was outstanding as on31.03.1998 in favour of various depositors, yet, the AssessingOfficer was under the impression that the said deposits were paidback before 31.03.1998, which is factually incorrect. TheAssessing Officer ought not to have treated the payments made tovarious concerns to the tune of Rs.26,63,130/- as undisclosed incomeof the assessee and therefore the Tribunal rightly deleted theadditions made by the Assessing Officer. On the basis of the abovesubmissions, learned counsel appearing for the assessee contendedthat the order passed by the Tribunal cannot be interfered with inany manner. Learned counsel appearing for the assessee relied uponvarious decisions of this court as well as other High Courts insupport of the above submissions made. 7. It is seen from the materials available on record that theassessee filed his return of income upto the assessment year 1998-1999. A search was conducted in the business premises of theassessee on 31.01.2001 by Investigation Unit – II, Coimbatore and atthat time, various incriminating documents were seized, whichindicated that the assessee did not disclose the correct incomeearned by him in the returns filed before the conduct of such search. Therefore, a notice under section 158BC of the Act wasissued to the assessee, pursuant to which, block return in Form 2Bwas filed by the assessee on 18.09.2002 declaring a loss ofRs.16,47,844/-. On the basis of the materials available, theAssessing Officer passed the order of assessment under section 143(3) read with section 158BC(c) of the Act computing the totalundisclosed income of Rs.1,54,52,270/- and raising a tax demand ofRs.1,34,50,894/-, after making the following additions: (1) Rs.42,00,000/- undisclosed income, being "onmoney receipt" in respect of Raja Street property; search. Therefore, a notice under section 158BC of the Act wasissued to the assessee, pursuant to which, block return in Form 2Bwas filed by the assessee on 18.09.2002 declaring a loss ofRs.16,47,844/-. On the basis of the materials available, theAssessing Officer passed the order of assessment under section 143(3) read with section 158BC(c) of the Act computing the totalundisclosed income of Rs.1,54,52,270/- and raising a tax demand ofRs.1,34,50,894/-, after making the following additions: (1) Rs.42,00,000/- undisclosed income, being "onmoney receipt" in respect of Raja Street property; (2) Rs.60,72,900/- undisclosed income under section69C of the Act, being the amount of outstanding deposit inM/s.Raja Jewellery (Proprietary concern);(3) Rs.13,83,000/- undisclosed income, being fixeddeposit outstanding as on 31.03.1998 with Sri VelmuruganFinanciers; (4) Rs.26,63,130/-, being undisclosed income underthe following heads viz., 8. As far as the first question of law framed by this court isconcerned, according to the assessee, he and his wife jointlypurchased the property at Door No.270 - 271, Raja Street, Coimbatoreduring the period 1993-94, for a consideration of Rs.24,92,460/- andalso 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.Thiagarajanduring the financial years1998-99 and 2000-01 for Rs.30 lakhs and hereceived only 50% share in the sale proceeds, which was shown inthe returns filed for the assessment year 1994-95. Besides that,"on-money" was received to the tune of Rs.42 lakhs. However, saleconsideration of Rs.15 lakhs and "on-money" of Rs.20 lakhs werereceived during the assessment year 1999-2000 and the remaining saleconsideration of Rs.15 lakhs and "on-money" of Rs.22 lakhs werereceived during the assessment year 2001-2002. The above receiptsand the long-term capital gains arising therefrom were shown in the https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ block returns filed by him. The Assessing Officer found that theassessee had not produced supporting documents with regard to thebooks of accounts maintained by him, inspite of the specific requestmade in that regard; he had not maintained proper books of accountsin respect of his business transactions and also in respect of othergroup concerns from the financial year 1998-99 till the date ofsearch and that, he did not comply with the notices for producingthe books of accounts for the assessment years 1991-92 to 1998-99,for which returns were filed. On the basis of the materialsavailable on record, the Assessing Officer treated the said incomeof Rs.42 lakhs as "income from other sources", being "on moneyreceipt" due to the sale of the said property, during the assessmentyear 2001-02 and also made an addition of Rs.1,52,950/-, being thedifference in the sale price of Rs.15 lakhs and purchase price ofRs.13,47,050/-. However, the Commissioner of Income Tax (Appeals)had deleted the said addition made by the Assessing Officer on theground that the assessee had accounted for the indexed cost of theproperty on the basis of the payments and expenses reflected in therelevant purchase documents and payments and expenses shown in theaccounts prior to the date of search. The Commissioner had alsoheld that the computation made by the assessee was verified andfound to be correct. The Tribunal had held that the assessee hadfurnished the calculation of capital gains in respect of the saidproperty while submitting his block returns for the period 01.04.1991to 31.03.2001; therefore, the Assessing Officer was not justified inholding that the assessee had not disclosed the sale of the saidproperty to the Department and when the entire consideration,including the "on money" was admitted in the computation, there wasno justification on the part of the Assessing Officer to treat thesaid sum of Rs.42 lakhs as undisclosed income. On the basis of theabove findings, the Tribunal upheld the findings rendered by theCommissioner of Income Tax (Appeals) on the said issue. 9. It is no doubt true that the assessee had stated that theproperty situated at Raja Street was purchased by him jointly in hisname as well as in the name of his wife Tmt.Saroja during 1993-94 andthe said property was sold to the four sons of Thiru.S.Thiagarajanduring the financial years 1998-99 and 2000-01 for a sum of Rs.30lakhs. However, in the sworn statement of Thiru.Thiagarajan, he hadclearly stated that the said property was purchased by his sons fora consideration of Rs.72 lakhs and the purchase documents wereregistered only for Rs.30 lakhs. The assessee himself, in his swornstatement dated 31.01.2001, had stated that the above property wassold for a consideration of Rs.72 lakhs and that he utilised the saidsum received for making repayment to M/s.C.R.Benefit Funds Ltd., andM/s.P.C. & Sons.. By his sworn statement dated 14.02.2001, theassessee had also confirmed the receipt of Rs.72 lakhs from and outof the sale of the said property. By his sworn statement dated14.02.2001, the assessee had also offered the said sum of Rs.42lakhs, being "on money receipt", for taxation in his hands. When the assessee himself had admitted the above position, we are of theopinion that the Assessing Officer had not committed any error inmaking the addition of Rs.42 lakhs while completing the blockassessment. Though the assessee would contend that the AssessingOfficer himself had admitted that 50% of the property belongs to thewife of the assessee and therefore the same shall be considered inher block assessment under section 158BD of the Act, as per whichshe was assessed for the balance 50% share, yet, the AssessingOfficer had found, on an analysis of the assessee's returns, thatthe assessee is a regular defaulter in filing his returns of incomeand that the returns for the assessment years 1991-92, 1992-93 and1996-97 were filed beyond the time limit prescribed under section 139of the Act. On the basis of the above finding, the AssessingOfficer treated the returned income in the invalid returns filed forthe said assessment years as undisclosed income of the assessee.Therefore, we are not inclined to agree with the said contentionraised by the assessee. 10. As far as the second question of law is concerned, theassessee, 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 liabilityin respect of the jewellery chit business. However, from thedocuments seized viz., the ledgers, the outstanding liability wasRs.39,51,500/- leaving a difference of Rs.21,21,400/-. It is seenfrom the materials available on record that bogus credit to the tuneof Rs.21,21,400/- had been declared by the assessee vide his officeletter dated 19.07.2002 and though the assessee was asked to furnishthe name and address of the creditors, the assessee did not furnishthe same. According to the assessee, the above difference wasbecause, returns were filed for the year ending 31.03.1998 whereas,ledgers were not for the year ending 31.03.1998 but for thesubsequent period and therefore it is factually incorrect to statethat the assessee had not furnished the name and address of thecreditors. During post search investigation, random verification wasconducted in respect of fourteen creditors and all of them hadstated that they received back their deposits either as jewels or inthe form of cash prior to 31.03.1998. During the fag end of theblock assessment proceedings, though the assessee had produced photocopies of cash bills pertaining to jewellery on 18.04.1998 in respectof ten creditors, he had not produced any evidence to show that theremaining credits were actually outstanding as on 31.03.1998. Theassessee also had not furnished the name and address of thecreditors. Therefore, the entire credits of Rs.60,72,900/- weretreated as bogus credits since the same had been paid by the assesseebefore 31.03.1998. On the basis of the above materials, theAssessing Officer treated the said amount of Rs.60,72,900/-, beingbogus outstanding credits in M/s.Raja Jewellers, Proprietary concern,as the undisclosed income of the assessee under section 69C of theAct for the assessment year 1998-99. However, the Commissioner ofIncome Tax came to the conclusion that the outstanding liabilities to the tune of Rs.60,72,900/- was reflected in the books of accountsmaintained by the assessee; the return of income for the assessmentyear 1998-99 was filed by the assessee on 04.03.1999 i.e., much priorto the date of search; in the confirmation letters given by thefourteen creditors, they have not stated that they received thedeposits prior to 31.03.1998; the Assessing Officer has no power tomake roving enquiry or investigation in respect of completedassessments; no material was found during the course of search toeven suggest that those credits were not genuine and therefore, thesaid 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 thecase reported in CIT Vs. Vikram A. Doshi ((2002) 256 ITR 129) andthe order passed by the Jabalpur Bench of the Income Tax AppellateTribunal in the case reported in Sudhir Kumar Poddar Vs. DCIT ((2003)SOT 495), wherein it was held that if the credits are duly recordedin the books of account in the regular course of business; if theassessee had filed the return of income for the respective yearsprior to the conduct of search and if no material was found duringthe course of search so as to establish that such credits were notgenuine, then, the same cannot be treated as undisclosed income.The Tribunal had also confirmed the said order passed by theCommissioner of Income Tax in this regard. 11. It is seen from the materials available on record that thereturns filed by the assessee for the assessment years 1991-92,1992-93 and 1996-97 were not valid returns as per the Income Tax Lawand that they were filed beyond the time limit prescribed undersection 139 of the Act. During the course of assessmentproceedings, the assessee had submitted cash flow statements in orderto explain the investments. But however, no supporting documentswere produced by the assessee. It may be true that if theassessee had filed the return of income for the respective yearsprior to the conduct of search and if no material was found duringthe course of search so as to establish that such credits were notgenuine, then, the same cannot be treated as undisclosed income.However, in this case, admittedly the Assessing Officer had foundthat the assessee did not maintain proper books of accounts for hisbusiness transactions and also for other group concerns from thefinancial years 1998-99 till the date of search. Therefore, the saiddecisions cannot be applied to the facts of the present case.Though the Commissioner of Income Tax had held that the AssessingOfficer does not acquire any power under section 158BA to make rovingenquiry or investigation about the assessments already completed,yet, a perusal of the provisions contained in the said section makesit abundantly clear that "notwithstanding anything contained in anyother provisions of this Act, where after the 30[th] day of June, 1995 asearch is initiated under section 132 or books of account, otherdocuments or any assets are requisitioned under section 132A in thecase of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions ofthis Chapter." The Explanation to section 158BA reads as follows:"Explanation – For the removal of doubts, itis hereby declared that - (a) the assessment made under this Chaptershall be in addition to the regular assessment inrespect of each previous year included in theblock period;(b) the total undisclosed income relating tothe block period shall not include the incomeassessed in any regular assessment as income ofsuch block period;(c ) the income assessed in this Chaptershall not be included in the regular assessmentof any previous year included in the blockperiod.." assess the undisclosed income in accordance with the provisions ofthis Chapter." The Explanation to section 158BA reads as follows:"Explanation – For the removal of doubts, itis hereby declared that - (a) the assessment made under this Chaptershall be in addition to the regular assessment inrespect of each previous year included in theblock period;(b) the total undisclosed income relating tothe block period shall not include the incomeassessed in any regular assessment as income ofsuch block period;(c ) the income assessed in this Chaptershall not be included in the regular assessmentof any previous year included in the blockperiod.." It cannot be said that the Assessing Officer has no power under thesaid section to make roving enquiry or investigation about theassessments completed, since, admittedly, as per the provisionscontained in the said section, the assessment made shall be inaddition to the regular assessment in respect of each previous yearincluded in the block period. In this case admittedly, the assesseehad not produced any material to show that the remaining credits wereoutstanding as on 31.03.1998 and the assessee also did not furnishthe name and address of the creditors. The Assessing Officer hadfound that the assessee had not maintained proper books of accountsin respect of his business transactions and also in respect of othergroup concerns from the financial years 1998-99 till the date ofsearch. The Commissioner of Income tax (A) had observed that when theAssessing Officer himself had stated that the assessee had producedcopies of cash bill regarding the receipt of jewellery in the monthof April 1998, he ought not to have held that the documents producedby the assessee cannot be relied upon. When the assessee himselfhad admitted in his sworn statement dated 02.03.2011 that he had notmaintained proper books of accounts for his business transactions andalso for other group concerns from the financial years 1998-99 tillthe date of search, we are not inclined to give much weightage to theobservation made by the Commissioner of Income Tax that the AssessingOfficer ought not to have held that the documents produced by theassessee cannot be relied upon. Therefore, we are of the opinionthat the order passed by the Commissioner of Income Tax (A) and theTribunal in this regard cannot be legally sustained. 12. As far as the third question of law is concerned, theassessee is the Proprietor of M/s.Sri Velmurugan Financiers. Duringthe course of search, fixed deposit receipt books of the said companywere seized, which revealed that an amount of Rs.13,83,000/- wasoutstanding as on 31.03.1998 in favour of various depositors. Theassessee was asked to furnish the list of such deposits along with 12. As far as the third question of law is concerned, theassessee is the Proprietor of M/s.Sri Velmurugan Financiers. Duringthe course of search, fixed deposit receipt books of the said companywere seized, which revealed that an amount of Rs.13,83,000/- wasoutstanding as on 31.03.1998 in favour of various depositors. Theassessee was asked to furnish the list of such deposits along with confirmation letters. According to the assessee, the detailsregarding the deposits were available with the Assessing Officersince, during the course of search, fixed deposit receipt books ofM/s.Sri Velmurugan Financiers were seized by the Investigation Unit.It is also his case that the Investigating Officer obtained lettersfrom few of the fixed deposit receipt holders behind his back andthat no opportunity was given to him to cross examine any of theparties who were verified by them. During the random verificationdone by the Investigation Unit, seven depositors had stated thatthey never made any deposits. During the fag end of the blockassessment proceedings, the assessee had produced photo copies ofdeposit receipts pertaining to eight creditors regarding thereceipt of deposits during the financial years 1999-2000 and 2000-2001. The Assessing Officer, on the basis of the materials availableon record, found that it was an after thought and that the assesseehad not proved the genuineness of the deposits made, even by filingconfirmation letters and on that basis, treated the entire depositsas on 31.03.1998 as bogus and taxed the same as unexplainedexpenditure of the assessment year 1998-99. However, according tothe Commissioner of Income Tax, during the course of search, nodocument was seized to even suggest that the amounts involved underthe fixed deposits in question were in fact paid back prior to31.03.1998. The Tribunal also concurred with the said finding of theCommissioner of Income Tax (A). As already stated, during thecourse of search, fixed deposit receipt books of M/s.Sri VelmuruganFinanciers were seized, which indicated that a sum of Rs.13,83,000/-was outstanding as on 31.03.1998 and though the assessee was asked toprove the genuineness of the deposits by filing confirmation letters,the assessee did not file the same. Therefore, the said amount ofdeposit was treated as bogus and taxed as unexplained expenditure.A perusal of the order passed by the Appellate Tribunal shows thatthe Tribunal had not even given proper reasons for agreeing with thefinding rendered by the Commissioner of Income Tax with regard to theabove issue. This shows that the Appellate Tribunal had not dealtwith the matter in a proper perspective. Therefore, we find noground to take a different view than the one taken by the AssessingOfficer in arriving at the undisclosed income of the assessee asreferred to above. 13. As far as the last question of law raised by this court isconcerned, the finance companies viz., M/s.P.C. & Sons andM/s.C.R.Benefit Funds Limited are run by Shri.C.Ramasamy, the cousinbrother of the assessee. The assessee had taken a loan of Rs.65lakhs from the above concerns and Rs.10 lakhs from the followingcompanies viz., M/s.Chakra Group of concerns, Coimbatore;M/s.Kamadhenu Nidhi and M/s.Subash Financiers, Pandamangalam,Namakkal District, for purchasing a commercial property opposite toCoimbatore Railway Station. Enquiries were conducted to verify thegenuineness of the said loan. As far as the amount of loan of Rs.65lakhs availed by the assessee is concerned, it is seen from the ledger extracts produced by the assessee that M/s.P.C. & Sons andM/s.C.R.Benefit Funds Limited had given the loan amount on variousdates in the year 1996-97 by way of cheques. The assessee hadpaid interest in respect of the said loan amount before 31.03.1998and the same was reflected in his return of income. Apart from theabove interest, he had paid a total sum of Rs.87,90,000/- on variousdates subsequent to 31.03.1998 towards the principal and interest.The assessee had paid a sum of Rs.11,55,000/- before 31.03.1998 andRs.3,30,000/- during the months of April and May 1998, which had beenkept in the suspense account of M/s.C.R.Benefit Funds Limited.However, the said amount of Rs.11,55,000/- was not reflected in thebooks of accounts maintained by the assessee. From the loosesheets seized from the premises of the assessee, it had come tolight that the assessee had filed confirmation letters with regard toa sum of Rs.6,65,000/- only, out of the sum of Rs.11,55,000/- andthe same had been taken as the source of the assessee for thefinancial year 1997-98; Rs.3,30,000/- during the financial year1998-99 and Rs.60,000/- during the financial year 2000-01 i.e., upto31.01.2001. Thus, a total sum of Rs.8,80,000/- had been paid bythe assessee to M/s.P.C. & Sons & M/s.C.R.Benefit Fund Limitedduring the said period. As far as the payments made to M/s.ChakraGroup of companies is concerned, enquiries had been conducted withM/s.Nava Chakra Finance Group, in order to verify the genuineness ofthe said loans and it was found that the said loan was given bycheque and the repayment of the principal amount and part of theinterest amount were made by the assessee after 31.03.1998. Thetotal payments received from the assessee after 31.03.1998, as perthe ledgers of M/s.Easwari Business Promoters, M/s.Jai Chakra andM/s.Nava Chakra Finance, come to Rs.12,81,130/-. However, no properexplanation was offered by the assessee with the regard to the sourcefor payment of the said amounts. As far as the repayments made toM/s.Kamadhenu Nidhi & M/s.Subash Financiers are concerned, theassessee had made payments to the extent of Rs.10 lakhs throughCatholic Syrian Bank, Singanallur. The source for the said paymentis shown to be the cash deposits made in the bank on 27.08.1998.During the assessment proceedings, the assessee had given explanationwith regard to the repayment of the principal amount. But however,no explanation whatsoever was offered by the assessee with regard tothe payment of interest of Rs.2,52,000/- to M/s.Kamadhenu Nidhi andM/s.Subash Financiers during the financial year 1998-99. . Duringthe course of search, it was also found that the assessee, along withhis wife, daughter and son-in-law, floated a partnership concern byname M/s.United Fabrics at Tiruppur. On verification of thereturn of income filed by M/s, United Fabrics for the financial year1997-98, it had come to light that the assessee and his wife hadintroduced a sum of Rs.2,50,000/- each, as capital. The returnfiled by the assessee for the assessment year 1998-99 did notindicate that the assessee became a partner of the said firm. Eventhe receipts and payments account filed by the assessee did notindicate the contribution of Rs.2,50,000/- made by the assessee. During the assessment proceedings, the assessee did not also explainthe source for the said contribution made by him. During the assessment proceedings, the assessee did not also explainthe source for the said contribution made by him. 14. From the above materials available on record, it is clearthat the assessee had not offered proper explanation with regard tothe above payments made to the said companies as well as thecontribution made by him in M/s.United Fabrics viz., the partnershipfirm. No evidence whatsoever was produced by the assessee toprove the source for making those payments as well as thecontribution. At the risk of repetition and as seen from thematerials available on record, the assessee had not maintainedproper books of accounts for the period after 31.03.1998. Returnswere also not filed for the remaining period. Therefore, theAssessing Officer held that the assessee did not have the source formaking repayment of the said loans to M/s.P.C. & Sons,M/s.C.R.Benefit Funds Limited, M/s.Chakra Group, M/s.Kamadhenu Nidhi& M/s.Subash Financiers as well as making the contribution inM/s.United Fabrics and on that basis, the Assessing Officer treatedthe above amount of Rs.26,63,130/- as the undisclosed income of theassessee. 15. However, before the Commissioner of Income Tax (A), theassessee contended that the receipt of loans was reflected in theseized records and therefore, it was not for the assessee to provethe genuineness of the same. He also contended that the amountsworked out by the Assessing Officer regarding the payments made tothe said concerns was erroneous; in fact, payments made were muchmore than what was noted by the Assessing Officer; the completedetails for acquiring the property; the sources for the same; thecash flow statement covering the financial years 1996-97 to 2000-01were made available to the Assessing Officer in the course of blockassessment proceedings and that the the Assessing Officer hadignored the same on the ground that he had not produced supportingdocuments by way of books of accounts. On the basis of the abovecontentions, the Commissioner of Income Tax (A) held that theAssessing Officer had not established that the entries found in thecash flow statements were not genuine; the Assessing Officer has toprove that the repayments made by the assessee was without any sourceand that the mere rejection of the assessee's explanation would notamount to evidence of earning of undisclosed income by the assessee.The Tribunal, while upholding the said order passed by theCommissioner of Income Tax (A), held that, for the purpose ofbringing to tax the undisclosed income, there must be incomeunearthed out of the search conducted and in most of the cases, allmaterials were filed before the conduct of search, including thebalance sheet and in some cases, the entire sale consideration andcapital gains arising therefrom were already disclosed and taxed.On the basis of the above finding, the Tribunal held that such itemsof income cannot be brought to tax under the definition of"undisclosed income" as provided for under section 158B(b) of the Act. Act. 16. Having regard to the findings rendered by the Commissionerof Income Tax (A), which was confirmed by the Tribunal, we wentthrough the assessment order passed by the Assessing Officer to findout whether the Assessing Officer had committed any error in passingthe said order. The Assessing Officer had clearly found that duringthe course of assessment proceedings, the assessee submitted the cashflow statement in order to explain the investments made by him. Buthowever, no supporting documents, by way of books of accounts, wereproduced by the assessee, despite specific requisition in thatregard. The Assessing Officer had also found that the assessee hadnot maintained regular books of accounts for his businesstransactions and also for other group concerns from the financialyears 1998-99 till the date of conduct of search, which was confirmedby the assessee himself in his sworn statement dated 02.03.2001. Inaddition to the above, the Assessing Officer had also held that theassessee did not comply with the notices for producing the books ofaccounts for the period pertaining to the assessment years 1991-92 to1998-99, for which returns were filed; therefore the cash flowstatement submitted by the assessee could not be verified. Since theassessee had not adduced any concrete evidence to support the cashflow statement submitted by him, it was rejected and the assessmentwas finalised on investment basis method. Though the learnedcounsel appearing for the assessee produced before this court variousjudgments of this court as well as other High Courts, we are notinclined to apply those judgments to the facts of the present casesince, admittedly, in this case the assessee had not establishedbefore this court by producing concrete evidence that the undisclosedincome arrived at by the Assessing Officer is incorrect. Therefore,while holding that the Commissioner of Income Tax (A) as well as theTribunal, without appreciating the materials available on record in aproper perspective, had rejected the appeal filed by the Revenue, wehold that the Assessing Officer had given cogent reasons forarriving at the undisclosed income of the assessee. Even from thejudgments relied upon by the assessee, it is clear that if thecredits are duly recorded in the books of accounts in the regularcourse of business; if the assessee had filed the return of incomefor the respective years prior to the conduct of search and if nomaterial was found during the course of search so as to establishthat such credits were not genuine, then, the same cannot be treatedas undisclosed income. In this case, admittedly, the assessee wasnot regular in maintaining the books of accounts; the returns filedby the assessee for the assessment years 1991-92, 1992-93 and 1996-97were not valid returns as they were filed beyond the time limitprescribed under section 139 of the Act and in addition to the above,the assessee had not produced concrete evidence in support of hisclaim. Therefore, the Assessing Officer held that the returnedincome in the invalid returns filed for the above said assessmentyears were the undisclosed income of the assessee, which cannot be interfered with in any manner. Consequently, we hold that the orderpassed by the Appellate Tribunal is unjust and arbitrary and hence,it is liable to be set aside. 17. In the result, the questions of law framed by this courtin the above Tax Case Appeals are answered against the assessee andin favour of the Revenue. No costs. Sd/Assistant Registrar /True Copy/ vsl Sub Assistant Registrar To 1. The Commissioner of Income Tax(Appeal)-II Coimbatore. 2. The Assistant Commissioner of Income Tax Central Circle-III, Coimbatore. 3. The Assistant Registrar Income Tax Appellate Tribunal III Floor, Rajaji Bhavan, Besant Nagar, Chennai-90. +2 Ccs to MR.Philip George Advocate CCSR.No.59461 T.C.(A)NOS.69 & 70 OF 2008 VG(CO)PKS12/11/2011