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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आयकर अपीलीय अिधकरण, ‘डी’ �यायपीठ, चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI �ी एन.आर.एस. गणेशन, �याियक सद�य एवं �ी िड.एस. सु�दर �सह, लेखा सद�य केसम� BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos. 584 & 585/Mds/2009 िनधा�रण वष� / Assessment Years : 2004-05 & 2005-06 Shri M. Govindarajan, The Asstt. Commissioner of L/R of Late Shri P. Madhurajan, v. Income Tax, No.3/20, Soundamman Koil Street, Central Circle, Elampillai - 637502 Salem. PAN: AIRPM6868M (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri G. Baskar, Advocate ��यथ� क� ओर से/Respondent by : Shri R. Duraipandian, Sr. AR सुनवाई क� तारीख/Date of Hearing : 28.12.2016 घोषणा क� तारीख/Date of Pronouncement : 22.02.2017 आदेश आदेश /O R D E R आदेश आदेश PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER:
These appeals of the assessee are directed against the orders of Commissioner of Income Tax (Appeals), Salem, dated 27.02.2009 and pertains to the assessment years 2004-05(ITA No.268/06-07) and 2005 – 06(ITA No.269/06-07).
2 A search under Section 132 of the Income Tax Act, 1961 (in short ‘the Act’) was carried out in the residence and business premises of Late:Shri P. Madhurajan on 10.08.2004. The search resulted in seizure of unaccounted cash Rs.1.3 crores plus Rs.16.94 lakhs stock was found. During the search proceedings it was revealed that the assessee was running a school by name Brindavan Matriculation School and a charitable trust known as Madhurajan Leelavathi Charitable Trust. The school was originally founded by Shri R. Vadivelu and Smt.Shyamala and others. The assessee joined the said trust known as Rajarajeshwari Trust and the trust was subsequently succeeded by M/s. Madhurajan Leelavathy Charitable Trust. The Income Tax department has examined Shri R. Vadivelu on 13.08.2004 by Asst. Director of Income Tax, Salem under Section 131 of the Act and Shri R.
Vadivelu has given the statement stating that the school was functioning in 30 cents of land taken on lease for five years in November 2000. Out of the six trustees, four Trustees namely 1.
Palanisamy, Komarapalayam 2. Sargunavathi,Bhavani
3. Muniappan, Poolampatti, 4. Raja, Poolampatti withdrew from the trust receiving Rs.50,000/- each originally contributed by them.
Thus Shri R. Vadivelu and Smt. Shyamala remained as trustees.
The trust witnessed financial difficulties while constructing the school building and hence Shri Vadivelu approached Shri Madhurajan and a new trust by name Rajarajeswari Trust was formed in 2003 and the assessee became the President and his son Shri M. Govindarajan as Vice President and Shri R. Vadivelu functioned as a Secretary and Smt. Shyamala as trustee. Two more buildings admeasuring 5500 sq.ft were also built. Shri R.
Vadivelu claimed that the building cost came around 20 lakhs and the amount was contributed by Shri P. Madhurajan. This contribution has taken place in 2003-04. Shri R. Vadivelu further stated that he has availed a loan from M/s. Bala Murugan Finance to purchase the old bus and two Mahindra vans for the purpose of Amman Education Trust activities and the assessee Shri P. Madhurajan has paid a sum of Rs.4 lakhs towards the loan taken by Amman Education Trust. In addition Shri Vadivelu has taken loans of Rs.14 lakhs for running the educational society which was also settled by the assessee. According to Shri R. Vadivelu during the year 2003, the assessee has incurred a sum of Rs.38 lakhs i.e Rs.20 lakhs towards cost of construction of building and Rs.18 lakhs towards settlement of loans repaid by the assessee.
Further, the Assessing Officer found that the assessee has made payment of Rs.2,20,000/- in cash and Rs.2,80,000 in cheque to Shri R. Vadivelu and Rs.1,60,000/- in cash and Rs.50,000/- in cheque to Smt. Shyamala, aggregating to Rs.5 lakhs in the case of Shri R. Vadivelu and Rs.2,10,000/- in the case of Smt. Shyamala during the year 2004. According to the Assessing Officer total sum of Rs.45,10,000/- was invested by Shri P. Madhurajan in the Rajarajeswari Trust for running the Brindavan Matriculation School as per the details given below:
2003:
Amman Education Society loan Rs. 4.00 lakhs Shri R. Vadivelu Rs. 14.00 lakhs Construction of Building Rs. 20.00 lakhs Total Rs. 38.00 lakhs 2004:
Payment to Shri R. Vadivelu Rs. 5.00 lakhs Shyamala Rs. 2.00 lakhs Total Rs. 7.10 lakhs Out of the above investment of Rs.45,10,000/-, the Assessing Officer made addition of Rs.32,21,362/- in the assessment year 2004-05 and the balance amount of Rs.12,88,538 in the assessment year 2005-06 which the assessee agitated in this appeal.
During the search proceedings, the assessee admitted additional income of Rs.25 lakhs towards the investment in Brindavan Matriculation School. Subsequently, the assessee explained that the investment in Rajarajeswari Trust vans were financed by ICICI and also HDFC bank loans. The total value of investment amounting to Rs.45 lakhs including buildings and the investment made by Shri P. Madhurajan in the above trust school of Rs.25,06,000/-has been accounted in the books. Since Rs.45 lakhs was accounted for in the books of accounts prepared after the date of search and as on the date of search there were no books of accounts the Assessing Officer was of the view that the sum Rs.45,10,000/- was an independent transaction for which source needs to be explained. Since no explanation was furnished by the assessee the Assessing Officer has assessed Rs.45,10,000/- as separate investment made from unexplained sources for the assessment years 2004-05 and 2005-06, placing reliance on the statement recorded from Shri R. Vadivelu. Aggrieved by the order of the Assessing Officer, the assessee went on appeal before the CIT (Appeals). The Ld. CIT (Appeals) confirmed the addition made by the Assessing Officer as per the finding given in para No.8 as under:
“Para 8: After going through the submissions of the appellant and contentions of the AO, the issue before us is to ascertain whether the appellant has made unaccounted investments to the tune of Rs.32,21,362/- in M/s. Rajarajeswari Trust was running Brindavan School. I find that the turst ie. M/s. Rajarajeshwari Trust came into operation on 6-2-2003 and it existed much before the date of search. The addition was made by the AO mainly based on the evidence of sworn statement recorded from Sri R. Vadivelu, who was one of the members running the school prior to the taken over by the appellant. There is no doubt that Sri R. Vadivelu is part of the negotiations towards the finalization of the terms and conditions of transfer of School from Amman Education Trust to M/s. Rajarajeswari Trust. Even the new trust viz. Rajarajeswari Trust was formed with Sri. R. Vadivelu as one of the trustees and also the Secretary of the management committee. Therefore, the credibility of the statement made by Sri R. Vadivelu cannot be disputed. The AO also provided the opportunity of cross-examination to Sri P. Madhurajan and the cross-examination also confirmed the investments made by the appellant. The appellant also in his sworn statement confirmed the fact that he is taking over the affairs of the school since Sri R. Vadivelu and Smt. Vasantha Shyamala were finding it difficult to manage the school. The appellant also confirmed specifically that he came forward to settle the loans and took over the administration of the above school. The above evidences clearly point out that the appellant has made investments in the schools and also agreed to settle the loans taken by the school. The point to be noted is whether the loan amount has to be considered independent of the investment made in the construction or whether the loan amount has been ploughed back into the school as construction expenditure. As per the statement of Sri. R. Vadivelu, the construction expenditure amounted to Rs.20 lacs and the borrowals were independent of the investment made in the construction. The appellant could not produce any evidence to show that the constructions in fact have been made of the borrowals. In fact both seems to have existed at different points of time as there is no cash flow statement produced to establish that the borrowals indeed have been deployed in the construction. Further, the appellant has provided certain verifiable borrowals which seems to be an afterthought and the same have not been mentioned prior to the assessment or during the course of the assessment.
The fact remains that the borrowals has been made by the trust and the same is either settled by Sri P. Madhurajan directly or through the trust. In the absence of any evidence to establish that the loans have not been settled by Sri P. Madhurajan, I am of the view that the Assessing Officer is correct in assessing the investment in Brindavan Matriculation School at Rs.32,21,362/-. Further, the plea of the appellant that the unexplained investment is met out of unexplained sources and therefore there is no justification for adding Rs.20 lacs towards construction of the building has no basis since there is no one-to-one relationship between the two. The appellant also sought adjustment of other unexplained income towards the unexplained investment in the school. The above plea is not supported by any evidence and in the absence of proper cash flow statement the possibilities propounded by the appellant may become innumerable. Unless there is clear cut evidence to prove that there exist one-to-one relationship between the source and the investment, it will be difficult to accept any explanation. The appeal on this ground is dismissed.”
Appearing for the assessee, the Ld. AR argued that the assessee has not repaid any loans taken by Shri R. Vadivelu as stated by him. The CIT (Appeals) was not correct in assuming that a sum of Rs.18 lakhs borrowed by Shri R. Vadivelu was repaid by the assessee. The assessee has joined the trust after construction of the building and he had no knowledge of the cost of Constructor and the source of construction. A sum of Rs.7,10,000/- added by the Assessing Officer was accounted in the trust and it should not be added back to the income of the assessee again. The AR contended that the investments made by him were fully explained in the revised trial balance and the balance was admitted as income.
Therefore, the Ld. AR vehemently opposed the addition made by the Assessing Officer and confirmed by Ld. CIT (Appeals).
We heard the rival submissions and perused the material placed on record. As noticed from the Ld. CIT(A) order the entire addition was made on the basis of the statement recorded from Shri R. Vadivelu. The Assessing Officer made addition of Rs.20 lakhs for cost of construction of the school building and Rs.18 lakhs towards repayment of the loans paid on behalf of Shri R. Vadivelu, aggregating to total of Rs.38 lakhs. Out of Rs.38 lakhs Rs.32,21,362/- was added in the assessment year 2004-05. The Assessing Officer has given opportunity to cross examine Shri R. Vadivelu and Shri Vadivelu was cross examined by the assessee. According to Shri R. Vadivelu, the assessee has invested Rs.20 lakhs for construction of the building. Rajarajeswari Trust was formed in 2003 and the investment was made in 2003 to july2004 according to Shri Vadivelu. Shri Vadivelu and Smt Shyamala continued to be in the trust till July 2004. There was no evidence to show that the assessee has made the investment in construction of the school building separately from unaccounted sources. The assessee has admitted unaccounted income during the search operation a sum of Rs.1,61,30,000/- as per page No.34 of the paper book enclosed along with the letter dated 14.07.2006 by the assessee’s authorized representative addressed to ACIT, Central Circle, Salem. As per the explanation of the AR, the assessee reconstructed the Books of Accounts with the available evidences and worked out the additional income taking into consideration of the explained sources. The difference between the explained sources and the investment was offered as additional income and paid taxes as per the details filed in page No.34 of the Paper Book. The assessee’s investment in Rajarajeswari Trust also included in the additional income offered by the assessee during the search. The contention of the Ld. AR was that the entire unexplained investment in Brindavan Matriculation School was either explained or it was admitted as additional income without leaving scope for unexplained investment.
6.0 The First issue is regarding investment in respect of cost of construction of Rs.20 lakhs in the building. The Rajarajeswari Trust was formed with Shri P. Madhurajan and others in 2003 and the Assessing Officer has assessed the cost of construction of Rs.20 lakhs as unexplained investment. This addition was made mainly on the basis of the statement recorded from Shri R. Vadivelu. No other evidence was found during the course of search and no other evidence was brought on record by the Assessing Officer evidencing the unexplained cost of construction in the school building. No details were called for from the Municipal authorities regarding the commencement of construction and completion, and the building plans. The Assessing Officer has not referred the matter to the departmental valuation officer to ascertain the actual cost of construction. No details have been called for from Shri R.
Vadivelu to examine the actual amount of cost of construction, date of commencement and date of completion of construction. In the absence of evidence to establish that the amount of Rs.20.00 lakhs invested by the assessee, the Assessing Officer cannot merely rely on the statement of Shri R. Vadivelu and assess the amount as unexplained investment in the hands of the assessee. The assessee has already declared the investment in the trial balance at Rs.14.21 lakhs. It is a burden on the part of the Revenue to prove that the assessee has made the investment over and above the amount declared in the return of income. The Assessing Officer has not discharged the onus relating to unexplained investment of the assessee. The assessee has stated that, by the time he joined the trust the construction of the building was completed. Therefore, we are unable to uphold the order of the Ld.CIT (Appeals) .Hence the order of the Ld.CIT (Appeals) is set aside on this issue and the appeal of the assessee is allowed.
6.1 Out of the cost of construction of Rs.20.00 lakhs (discussed in paragraph -6) an amount of Rs.14,21,362/- was the addition made by the A.O in the A.Y 2004-05. As per the trial balance as on 31.03.2004, the assessee has disclosed a sum of Rs.14,21,362/- as investment in Rajarajeswari Trust. The said amount of Rs.14,21,362/- was included in the addition of Rs.32,21,362/-. The amount of Rs.32,21,362/- consists of Rs.18 lakhs paid on behalf of Shri R. Vadivelu and the amount of investment declared as per the trial balance filed along with the return of income. The trial balance was furnished before the Assessing Officer at the time of assessment. Once the trial balance was produced before the Assessing Officer and the amount was accounted, the source stands explained and no amount can be treated as unexplained unless the liability representing the asset proved to be bogus.
Though the assessee was not maintaining books of accounts as on the date of search, the assessee has taken the loans from explainable sources, the books were reconstructed and arrived at the unexplained part of investment on the basis of cash flow and accretions to assets. Therefore, the amount of Rs.14,21,362/- cannot be added to the returned income separately as unexplained.
The addition made by the Assessing Officer is deleted and the ld.CIT(A) order on this issue is set side.
The next issue is addition of Rs.18 lakhs relating to the payment of loan to M/s. Bala Murugan Finance and miscellaneous loans taken by Shri R. Vadivelu and settled by the assessee. The Assessing Officer made the addition entirely on the statement of Shri R. Vadivelu. In the statement Shri R. Vadivelu has stated that the loans taken from Bala Murugan Finance and the miscellaneous loans were settled by the assessee. No evidence was found at the time of search showing that the assessee has settled the loans taken by Shri R. Vadivelu. Statement was recorded from Shri R.
Vadivelu by the ADIT which was cross examined by the assessee and Shri Vadivelu was unable to produce any evidence to prove that the loans taken by him were in fact settled by the assessee. In such circumstances, source of repayment of loan remained unexplained in the hand of Shri Vadivelu but not the assessee. When the assessee has denied any payment towards the settlement of loans and advances, the Assessing Officer should have made independent enquiries and brought the evidence on record to show that the assessee has repaid the loans taken by Shri R. Vadivelu.
Alternatively, the loans repaid by Shri R. Vadivelu on account of Bala Murugan Finance and the miscellaneous loans would constitute income in the hands of Shri R. Vadivelu. The assessee has already explained the source of Rs.45,10,000/- in the Books of accounts filed along with the return of income during the search assessment proceedings. This fact has been admitted by the Assessing Officer. The Assessing Officer has made effort to tax Rs.18 lakhs separately in the hands of the assessee as a separate and independent payment. But no evidence was brought on record to show that the assessee has made the payment of Rs.18 lakh and settled the loans of Shri R. Vadivelu. In the absence of any evidence we are unable to uphold the addition made by the Assessing Officer and the same is deleted. We set aside the orders of the lower authorities on this issue. The assessee’s appeal on this issue is allowed.
In the result, the appeal of the assessee for the assessment year 2004-05 stands allowed.
Now coming to of 2009 for the assessment year 2005-06, the Assessing Officer made the balance amount of Rs.12,88,538/- (Rs.45,10,000-Rs.32,21,362) in the Assessment Year 2005-06. The amount of Rs.12,88,538/- represent Rs.7,10,000/- relating to the payment made to Shri R. Vadivelu, Rs.5,00,000/- and Smt. Shyamala, Rs.2,10,000/- (aggregating to Rs.7,10,000/-) and the balance amount represent the difference in cost of construction of the building.
Regarding the investment made in 2003 in respect of the cost of construction, we have discussed in detail in earlier Paragraph No.626.1 and held that the Assessing Officer has not brought on record any evidence to show that the assessee has made investment in construction of the school building and made the investments over and above the amount admitted in the trial balance. Therefore, the addition representing the cost of construction amounting to Rs.5,78,538/- is deleted as explained.
The Order’s of the lower authorities are set-aside on this issue and the assessee’s appeal is allowed.
The next issue is relating to the amounts paid to Shri R.
Vadivelu and Smt. Shyamala of Rs.5,00,000/- and Rs.2,10,000/- respectively. The assessee stated the amounts already included in the return of income. However, on verification of the statement of additional income enclosed along with the letter dated 14.07.2006 only the amount of Rs.2,80,000/- was admitted as additional income. But the remaining amount was not admitted in the return of income. Therefore, the remaining amount of Rs.4,30,000/- remains unexplained and we confirm the addition of Rs.4,30,000/- and uphold the order of the Ld.CIT(A).
In the result, the appeal of the assessee is partly allowed in of 2009 for the Assessment Year 2005-06.