THE issue before the Bench is - Whether when the Revenue finds FDR receipts in the names of employees of the assessee company, showing the sum as advance during a search, and the assessee admits on confrontation, no fault can be found with additions made u/s 69. And the answer goes against the assessee.
The Tribunal partly allowed the appeal filed by the assessee holding that only Rs.7,50,000/- can be construed as undisclosed income of the assessee and deleted Rs.21,60,000/- from out of Rs.29,10,000/- held to be the undisclosed income by the assessment officer in regard to the F.D.Rs found in the search of the premises of the assessee, the associate company and the Managing Director on 28-11-1996.
Challenging the same, both the assessee and the Revenue filed the cross appeals before the High Court.
Facts of the case
The Income Tax Department carried out search operations u/s 132 of the Act on 28-11-1996 in the business premises of the assessee company as well as the residential premises of the Managing Director, Sri G.V.K.Rao. The office of the assessee company and the residence of the Managing Director were in the same building. The office of the associate company HHL was also
situated at the same office premises of the assessee company. In the course of the search operations, the Income Tax Department obtained books of account of the assessee company as well as a number of other documents and materials evidencing transactions and activities of the assessee company, its associate company HHL, its Managing Director and other firms in which the Managing Director or the Directors of the appellant company were substantially interested. Apart from the books of account, documents, materials etc., the officers also found fixed deposit receipts issued by the associate company HHL in favour of various persons numbering about hundred (100) in all. These fixed deposit receipts were found discharged in advance by the respective depositors whose names appeared in the fixed deposit receipts (F.D.Rs.). Sri G.V.K.Rao, when confronted with all the material seized by the department, conceded before the officers of the Revenue in his sworn statement that the deposits found in the names of over hundred persons represented by the certificates found at the time of search actually belonged to the assessee company and offered Rs.30.00 lakhs as undisclosed income apart from offering it to tax for the block period. In the background of the above facts and circumstances, the AO initiated block assessment proceedings u/s.158 BC of the Act against the assessee, its associate company HHL and Managing Director Sri G.V.K. Rao for the period 01-04-1986 to 28-11-1996. The Managing Director, while filing the block return on behalf of the assessee, retracted the earlier admission and statements made before the officers and returned an undisclosed income of Rs.2.00 lakhs only, that too pertaining to the cash seized at the time of search operations. After examining the entire search material, the AO issued summons to the various persons stated to have made fixed deposits with HHL and took the statements on oath of those persons who responded. After considering the same, he came to the conclusion in the assessment order dated 27-11-1997 that the F.D.Rs. in the names of the employees of the assessee company and the friends and relatives of the Managing Director and other Directors of the assessee are bogus, that all those fixed deposits represent the investments made by the assessee in the name of those persons, that all those persons are only name lenders and the F.D.Rs. found in the possession of the assessee actually relate to the assessee and therefore constituted an undisclosed income of Rs.29,10,000/- in the hands of the assessee. He passed separate assessment orders in respect of the assessee, its associate company HHL and G.V.K. Rao, the Managing Director.The Income Tax Department carried out search operations u/s 132 of the Act on 28-11-1996 in the business premises of the assessee company as well as the residential premises of the Managing Director, Sri G.V.K.Rao. The office of the assessee company and the residence of the Managing Director were in the same building. The office of the associate company HHL was also
The Tribunal partly allowed the appeal filed by the assessee holding that only Rs.7,50,000/- can be construed as undisclosed income of the assessee and deleted Rs.21,60,000/- from out of Rs.29,10,000/- held to be the undisclosed income by the assessment officer in regard to the F.D.Rs found in the search of the premises of the assessee, the associate company and the Managing Director on 28-11-1996.
Challenging the same, both the assessee and the Revenue filed the cross appeals before the High Court.
Having heard the matter, the Court held that,
++ a reading of the assessment order passed by the AO, in the case of the assessee reveals that he had elaborately considered each of the statements of the 43 employees and 35 friends and relatives of the Managing Director of the assessee before him in respect of the F.D.Rs. standing in their names issued by the associate company HHL and which were seized at the time of search operations and gave cogent reasons why in his opinion their statements about availability of such amounts with them, their standard of living, means of livelihood, their interest in making deposit, their saving pattern, nature of income, banking and saving habits etc. cannot be believed and also gave reasons for his conclusion that the assessee is the owner of these F.D.Rs. He held that the said depositors had lent their names to the assessee only to help the Managing Director. He therefore concluded that the aggregate amount of Rs.29,10,000/- covered by the F.D.Rs. standing both in the name of the workers/employees of the assessee as well as in the names of the assessee's relatives and friends has to be treated as undisclosed income in the hands of the assessee;
++ in the impugned order passed by the I.T.A.T., it is noticed that the appellate Tribunal agreed with the AO in disbelieving the creditworthiness of the employees to make the deposits attributed to them and the genuineness of those deposits amounting to Rs.6,10,000/- and five friends and relatives of the Managing Director in respect of a sum of Rs.1,40,000/- deposited by them in HHL and held that Rs.6,10,000/- + Rs.1,40,000/- = Rs.7,50,000/- was the undisclosed income of the assessee;
++ But in respect of the deposits made by the relatives and friends of the Managing Director in HHL amounting to Rs.21,60,000/, which was spoken to by 35 persons before the AO, it is noticed that the ITAT had not considered their statements in the manner an appellate Court, which is a final Court of fact, is expected to consider and appreciate , before reversing the findings of the AO and coming to a contrary conclusion. It had reversed the findings of the AO in respect of the sum of Rs.21,60,000/- standing in the names of the friends and relatives of the Managing Director without specifically stating why the statements of the 35 persons in this category should be accepted as true and why the reasoning of the AO in that regard should be considered as erroneous. It made sweeping statements such as "all these persons are by and large agriculturists..... the identity of these persons has been established.........as they are all outsiders and not employees of the appellant company, we cannot take the view that all these persons were under the influence of the appellant company to render the statements before the AO to suit the convenience of the appellant company in explaining away the fixed deposits made in their names.......unless the deposits made by them are genuine, they would not have appeared and admitted having made those deposits of huge sums, that too before the AO in the income tax proceedings..... Merely because some are not income tax assesses, deposits made by them cannot be disbelieved doubting their creditworthiness, because as admitted by the AO, all these depositors are agriculturists, whose income from agriculture is exempt from tax.....When the depositors have appeared before the AO and admitted having made deposits of substantial amounts, the genuineness of the deposits cannot be doubted." We are unable to approve the manner in which the I.T.A.T. has considered the evidence of these 35 persons and its appreciation thereof while coming to a conclusion that the deposits made by them to the tune of Rs.21,60,000/- are genuine;
++ the I.T.A.T. in its order having observed that one is not justified in making a general presumption on the basis of a general legal ground and every item has to be considered individually on its own merit and generalization ought not to be done, proceeded to do exactly the same while reversing the findings of the AO in regard to the FDRs amounting to Rs.21,60,000. The ITAT ought to have taken up the statement of each of the 35 persons who had spoken about the deposits made by them in the associate company HHL , should have considered the same and then give a finding why the conclusion of the assessment officer in regard to them cannot be accepted. No valid reasons have been given by the I.T.A.T. in coming to the conclusion that the creditworthiness of the depositors is established and the genuineness of the deposits cannot be doubted. The I.T.A.T. has not acted in the manner laid down in the judgments of the Supreme Court;
++ after looking at the order passed by the I.T.A.T. impugned in these appeals, we are constrained to observe that its order does not disclose the facts considered on the basis of which it arrived at the conclusion in respect of the fixed deposits made by the friends and relatives of the Managing Director to the tune of Rs.21,60,000/-. Admittedly reasons are the links between the materials on which certain conclusions are based and the actual conclusions. In the absence of reasons based on consideration of facts by the I.T.A.T. in the impugned order to support its conclusion as regards the F.D.Rs. of Rs.21,60,000/- mentioned above, its order to that extent cannot be sustained. The conclusion of the ITTA is not based on evidence and it has to be held to be perverse. (D.R.Rathna Murthy v. Ramappa (2011) 1 SCC 158 para 9) Therefore the substantial question of law in ITTA 24/2000 filed by the Revenue has to be answered in favour of the Revenue;
++ however as regards the F.D.Rs. to the tune of Rs.7,50,000/- comprising Rs.6,10,000/- in the names of the employees of the assessee and Rs.1,40,000/- in the names of five relatives and friends of the Managing Director are concerned, we are of the opinion that the I.T.A.T. had given reasons for concurring with the more elaborate reasons given by the AO. It is settled law that an appellate authority, if it affirms an order of an original authority which contains reasons, need not give separate reasons if it agrees with the reasons contained in the order of the original authority. Therefore it's decision in regard to the FDRs of Rs.7,50,000/- does not warrant any interference and the substantial questions of law raised in ITTA 22/2000 filed by the assessee have to be answered against the assessee;
++ In the facts and circumstances of this case, in the interests of justice, and for the reasons set out above, it was deemed appropriate to set aside the order of the I.T.A.T. to the extent of it's finding regarding the F.D.Rs. of Rs.21,60,000/- in the name of friends and relatives of the Managing Director and remand the matter to the I.T.A.T. with a direction to consider afresh the evidence on record and come to a conclusion as to the computation of the above item vis-a-vis the income of the assessee. The I.T.A.T. shall consider the matter afresh in regard to the above item only uninfluenced by any observations in this order or in the order of the I.T.T.A under appeal.
++ a reading of the assessment order passed by the AO, in the case of the assessee reveals that he had elaborately considered each of the statements of the 43 employees and 35 friends and relatives of the Managing Director of the assessee before him in respect of the F.D.Rs. standing in their names issued by the associate company HHL and which were seized at the time of search operations and gave cogent reasons why in his opinion their statements about availability of such amounts with them, their standard of living, means of livelihood, their interest in making deposit, their saving pattern, nature of income, banking and saving habits etc. cannot be believed and also gave reasons for his conclusion that the assessee is the owner of these F.D.Rs. He held that the said depositors had lent their names to the assessee only to help the Managing Director. He therefore concluded that the aggregate amount of Rs.29,10,000/- covered by the F.D.Rs. standing both in the name of the workers/employees of the assessee as well as in the names of the assessee's relatives and friends has to be treated as undisclosed income in the hands of the assessee;
++ in the impugned order passed by the I.T.A.T., it is noticed that the appellate Tribunal agreed with the AO in disbelieving the creditworthiness of the employees to make the deposits attributed to them and the genuineness of those deposits amounting to Rs.6,10,000/- and five friends and relatives of the Managing Director in respect of a sum of Rs.1,40,000/- deposited by them in HHL and held that Rs.6,10,000/- + Rs.1,40,000/- = Rs.7,50,000/- was the undisclosed income of the assessee;
++ But in respect of the deposits made by the relatives and friends of the Managing Director in HHL amounting to Rs.21,60,000/, which was spoken to by 35 persons before the AO, it is noticed that the ITAT had not considered their statements in the manner an appellate Court, which is a final Court of fact, is expected to consider and appreciate , before reversing the findings of the AO and coming to a contrary conclusion. It had reversed the findings of the AO in respect of the sum of Rs.21,60,000/- standing in the names of the friends and relatives of the Managing Director without specifically stating why the statements of the 35 persons in this category should be accepted as true and why the reasoning of the AO in that regard should be considered as erroneous. It made sweeping statements such as "all these persons are by and large agriculturists..... the identity of these persons has been established.........as they are all outsiders and not employees of the appellant company, we cannot take the view that all these persons were under the influence of the appellant company to render the statements before the AO to suit the convenience of the appellant company in explaining away the fixed deposits made in their names.......unless the deposits made by them are genuine, they would not have appeared and admitted having made those deposits of huge sums, that too before the AO in the income tax proceedings..... Merely because some are not income tax assesses, deposits made by them cannot be disbelieved doubting their creditworthiness, because as admitted by the AO, all these depositors are agriculturists, whose income from agriculture is exempt from tax.....When the depositors have appeared before the AO and admitted having made deposits of substantial amounts, the genuineness of the deposits cannot be doubted." We are unable to approve the manner in which the I.T.A.T. has considered the evidence of these 35 persons and its appreciation thereof while coming to a conclusion that the deposits made by them to the tune of Rs.21,60,000/- are genuine;
++ the I.T.A.T. in its order having observed that one is not justified in making a general presumption on the basis of a general legal ground and every item has to be considered individually on its own merit and generalization ought not to be done, proceeded to do exactly the same while reversing the findings of the AO in regard to the FDRs amounting to Rs.21,60,000. The ITAT ought to have taken up the statement of each of the 35 persons who had spoken about the deposits made by them in the associate company HHL , should have considered the same and then give a finding why the conclusion of the assessment officer in regard to them cannot be accepted. No valid reasons have been given by the I.T.A.T. in coming to the conclusion that the creditworthiness of the depositors is established and the genuineness of the deposits cannot be doubted. The I.T.A.T. has not acted in the manner laid down in the judgments of the Supreme Court;
++ after looking at the order passed by the I.T.A.T. impugned in these appeals, we are constrained to observe that its order does not disclose the facts considered on the basis of which it arrived at the conclusion in respect of the fixed deposits made by the friends and relatives of the Managing Director to the tune of Rs.21,60,000/-. Admittedly reasons are the links between the materials on which certain conclusions are based and the actual conclusions. In the absence of reasons based on consideration of facts by the I.T.A.T. in the impugned order to support its conclusion as regards the F.D.Rs. of Rs.21,60,000/- mentioned above, its order to that extent cannot be sustained. The conclusion of the ITTA is not based on evidence and it has to be held to be perverse. (D.R.Rathna Murthy v. Ramappa (2011) 1 SCC 158 para 9) Therefore the substantial question of law in ITTA 24/2000 filed by the Revenue has to be answered in favour of the Revenue;
++ however as regards the F.D.Rs. to the tune of Rs.7,50,000/- comprising Rs.6,10,000/- in the names of the employees of the assessee and Rs.1,40,000/- in the names of five relatives and friends of the Managing Director are concerned, we are of the opinion that the I.T.A.T. had given reasons for concurring with the more elaborate reasons given by the AO. It is settled law that an appellate authority, if it affirms an order of an original authority which contains reasons, need not give separate reasons if it agrees with the reasons contained in the order of the original authority. Therefore it's decision in regard to the FDRs of Rs.7,50,000/- does not warrant any interference and the substantial questions of law raised in ITTA 22/2000 filed by the assessee have to be answered against the assessee;
++ In the facts and circumstances of this case, in the interests of justice, and for the reasons set out above, it was deemed appropriate to set aside the order of the I.T.A.T. to the extent of it's finding regarding the F.D.Rs. of Rs.21,60,000/- in the name of friends and relatives of the Managing Director and remand the matter to the I.T.A.T. with a direction to consider afresh the evidence on record and come to a conclusion as to the computation of the above item vis-a-vis the income of the assessee. The I.T.A.T. shall consider the matter afresh in regard to the above item only uninfluenced by any observations in this order or in the order of the I.T.T.A under appeal.
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