P.Madhurajan (INDL.), Salem V. ACIT, Salem

ITA 585/CHNY/2009

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7648 (ITAT-CHENNAI)
• Duration Of Justice: 7 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 28-12-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2009
• Court: TRIBUNAL
• Department Lawyers: R DURAI
• Assessee Lawyers: G BASKAR
• Keywords: Unexplained investment; Charitable institution
• Section: 131; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS. 584 & 585/MDS/2009 / ASSESSMENT YEARS : 2004-05 & 2005-06 SHRI M. GOVINDARAJAN, L/R OF LATE SHRI P. MADHURAJAN, NO.3/20, SOUNDAMMAN KOIL STREET, ELAMPILLAI - 637502 PAN: AIRPM6868M V. THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, SALEM. ( /APPELLANT) ( !' /RESPONDENT) # /APPELLANT BY : SHRI G. BASKAR, ADVOCATE !' # /RESPONDENT BY : SHRI R. DURAIPANDIA N, SR. AR # /DATE OF HEARING : 28.12.2016 # /DATE OF PRONOUNCEMENT : 22.02.2017 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER : THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINS T THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS), SAL EM, DATED 27.02.2009 AND PERTAINS TO THE ASSESSMENT YEARS 200 4-05(ITA NO.268/06-07) AND 2005 06(ITA NO.269/06-07). 2 I.T.A. NO. 584&585/MDS/2009 2 A SEARCH UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS CARRIED OUT IN THE RESIDENCE A ND BUSINESS PREMISES OF LATE:SHRI P. MADHURAJAN ON 10.08.2004. THE SEARCH RESULTED IN SEIZURE OF UNACCOUNTED CASH RS.1.3 CROR ES 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 TRU ST KNOWN AS MADHURAJAN LEELAVATHI CHARITABLE TRUST. THE SCHOOL WAS ORIGINALLY FOUNDED BY SHRI R. VADIVELU AND SMT.SHYAMALA AN D OTHERS. THE ASSESSEE JOINED THE SAID TRUST KNOWN AS RAJARAJESH WARI TRUST AND THE TRUST WAS SUBSEQUENTLY SUCCEEDED BY M/S. MADHUR AJAN LEELAVATHY CHARITABLE TRUST. THE INCOME TAX DEPART MENT HAS EXAMINED SHRI R. VADIVELU ON 13.08.2004 BY ASST. D IRECTOR OF INCOME TAX, SALEM UNDER SECTION 131 OF THE ACT AND SHRI R. VADIVELU HAS GIVEN THE STATEMENT STATING THAT THE S CHOOL WAS FUNCTIONING IN 30 CENTS OF LAND TAKEN ON LEASE FOR FIVE YEARS IN NOVEMBER 2000. OUT OF THE SIX TRUSTEES, FOUR TRUS TEES NAMELY 1. PALANISAMY, KOMARAPALAYAM 2. SARGUNAVATHI,BHAVANI 3. MUNIAPPAN, POOLAMPATTI, 4. RAJA, POOLAMPATTI WIT HDREW FROM THE TRUST RECEIVING RS.50,000/- EACH ORIGINALLY CONTRIB UTED BY THEM. THUS SHRI R. VADIVELU AND SMT. SHYAMALA REMAINED A S TRUSTEES. 3 I.T.A. NO. 584&585/MDS/2009 THE TRUST WITNESSED FINANCIAL DIFFICULTIES WHILE CO NSTRUCTING THE SCHOOL BUILDING AND HENCE SHRI VADIVELU APPROACHED SHRI MADHURAJAN AND A NEW TRUST BY NAME RAJARAJESWARI TR UST WAS FORMED IN 2003 AND THE ASSESSEE BECAME THE PRESIDEN T AND HIS SON SHRI M. GOVINDARAJAN AS VICE PRESIDENT AND SHRI R. VADIVELU FUNCTIONED AS A SECRETARY AND SMT. SHYAMALA AS TRUS TEE. TWO MORE BUILDINGS ADMEASURING 5500 SQ.FT WERE ALSO BUI LT. 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. V ADIVELU FURTHER STATED THAT HE HAS AVAILED A LOAN FROM M/S. BALA MU RUGAN FINANCE TO PURCHASE THE OLD BUS AND TWO MAHINDRA VANS FOR T HE PURPOSE OF AMMAN EDUCATION TRUST ACTIVITIES AND THE ASSESSEE SHRI P. MADHURAJAN HAS PAID A SUM OF RS.4 LAKHS TOW ARDS THE LOAN TAKEN BY AMMAN EDUCATION TRUST. IN ADDITION SHRI V ADIVELU HAS TAKEN LOANS OF RS.14 LAKHS FOR RUNNING THE EDUCATIO NAL SOCIETY WHICH WAS ALSO SETTLED BY THE ASSESSEE. ACCORDING TO SHR I 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 T HE ASSESSEE. FURTHER, THE ASSESSING OFFICER FOUND THAT THE ASSES SEE HAS MADE 4 I.T.A. NO. 584&585/MDS/2009 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.5 0,000/- 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 S MT. SHYAMALA DURING THE YEAR 2004. ACCORDING TO THE ASSESSING OF FICER TOTAL SUM OF RS.45,10,000/- WAS INVESTED BY SHRI P. MADHURAJA N IN THE RAJARAJESWARI TRUST FOR RUNNING THE BRINDAVAN MATRI CULATION 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 ASSE SSMENT YEAR 2004-05 AND THE BALANCE AMOUNT OF RS.12,88,538 IN T HE ASSESSMENT YEAR 2005-06 WHICH THE ASSESSEE AGITATED IN THIS APPEAL. 5 I.T.A. NO. 584&585/MDS/2009 3. DURING THE SEARCH PROCEEDINGS, THE ASSESSEE ADM ITTED ADDITIONAL INCOME OF RS.25 LAKHS TOWARDS THE INVEST MENT IN BRINDAVAN MATRICULATION SCHOOL. SUBSEQUENTLY, THE ASSESSEE EXPLAINED THAT THE INVESTMENT IN RAJARAJESWARI TRUS T VANS WERE FINANCED BY ICICI AND ALSO HDFC BANK LOANS. THE T OTAL VALUE OF INVESTMENT AMOUNTING TO RS.45 LAKHS INCLUDING BUILD INGS 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 PR EPARED AFTER THE DATE OF SEARCH AND AS ON THE DATE OF SEARCH THERE W ERE NO BOOKS OF ACCOUNTS THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SUM RS.45,10,000/- WAS AN INDEPENDENT TRANSACTION FOR W HICH SOURCE NEEDS TO BE EXPLAINED. SINCE NO EXPLANATION WAS FU RNISHED BY THE ASSESSEE THE ASSESSING OFFICER HAS ASSESSED RS.45,1 0,000/- AS SEPARATE INVESTMENT MADE FROM UNEXPLAINED SOURCES F OR THE ASSESSMENT YEARS 2004-05 AND 2005-06, PLACING RELIA NCE ON THE STATEMENT RECORDED FROM SHRI R. VADIVELU. AGGRIEVE D BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPE AL BEFORE THE CIT (APPEALS). THE LD. CIT (APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER AS PER THE FINDING GIVEN I N PARA NO.8 AS UNDER: 6 I.T.A. NO. 584&585/MDS/2009 PARA 8: AFTER GOING THROUGH THE SUBMISSION S OF THE APPELLANT AND CONTENTIONS OF THE AO, THE ISSUE BEFORE US IS TO AS CERTAIN WHETHER THE APPELLANT HAS MADE UNACCOUNTED INVESTMENTS TO THE T UNE OF RS.32,21,362/- IN M/S. RAJARAJESWARI TRUST WAS RUNNING BRINDAVAN S CHOOL. I FIND THAT THE TURST IE. M/S. RAJARAJESHWARI TRUST CAME INTO OPERA TION ON 6-2-2003 AND IT EXISTED MUCH BEFORE THE DATE OF SEARCH. THE ADDITI ON WAS MADE BY THE AO MAINLY BASED ON THE EVIDENCE OF SWORN STATEMENT REC ORDED FROM SRI R. VADIVELU, WHO WAS ONE OF THE MEMBERS RUNNING THE SC HOOL PRIOR TO THE TAKEN OVER BY THE APPELLANT. THERE IS NO DOUBT THA T 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 SECRET ARY OF THE MANAGEMENT COMMITTEE. THEREFORE, THE CREDIBILITY OF THE STATE MENT MADE BY SRI R. VADIVELU CANNOT BE DISPUTED. THE AO ALSO PROVIDED THE OPPORTUNITY OF CROSS-EXAMINATION TO SRI P. MADHURAJAN AND THE CROS S-EXAMINATION ALSO CONFIRMED THE INVESTMENTS MADE BY THE APPELLANT. T HE APPELLANT ALSO IN HIS SWORN STATEMENT CONFIRMED THE FACT THAT HE IS TAKIN G OVER THE AFFAIRS OF THE SCHOOL SINCE SRI R. VADIVELU AND SMT. VASANTHA SHYA MALA WERE FINDING IT DIFFICULT TO MANAGE THE SCHOOL. THE APPELLANT ALSO CONFIRMED SPECIFICALLY THAT HE CAME FORWARD TO SETTLE THE LOANS AND TOOK O VER THE ADMINISTRATION OF THE ABOVE SCHOOL. THE ABOVE EVIDENCES CLEARLY P OINT OUT THAT THE APPELLANT HAS MADE INVESTMENTS IN THE SCHOOLS AND A LSO AGREED TO SETTLE THE LOANS TAKEN BY THE SCHOOL. THE POINT TO BE NOTED I S WHETHER THE LOAN AMOUNT HAS TO BE CONSIDERED INDEPENDENT OF THE INVE STMENT MADE IN THE CONSTRUCTION OR WHETHER THE LOAN AMOUNT HAS BEEN PL OUGHED BACK INTO THE SCHOOL AS CONSTRUCTION EXPENDITURE. AS PER THE STA TEMENT OF SRI. R. VADIVELU, THE CONSTRUCTION EXPENDITURE AMOUNTED TO RS.20 LACS AND THE BORROWALS WERE INDEPENDENT OF THE INVESTMENT MADE I N THE CONSTRUCTION. THE APPELLANT COULD NOT PRODUCE ANY EVIDENCE TO SHO W THAT THE CONSTRUCTIONS IN FACT HAVE BEEN MADE OF THE BORROWA LS. IN FACT BOTH SEEMS TO HAVE EXISTED AT DIFFERENT POINTS OF TIME AS THER E IS NO CASH FLOW STATEMENT PRODUCED TO ESTABLISH THAT THE BORROWALS INDEED HAV E BEEN DEPLOYED IN THE CONSTRUCTION. FURTHER, THE APPELLANT HAS PROVIDED C ERTAIN VERIFIABLE BORROWALS WHICH SEEMS TO BE AN AFTERTHOUGHT AND THE SAME HAVE NOT BEEN MENTIONED PRIOR TO THE ASSESSMENT OR DURING THE COU RSE OF THE ASSESSMENT. 7 I.T.A. NO. 584&585/MDS/2009 THE FACT REMAINS THAT THE BORROWALS HAS BEEN MADE B Y THE TRUST AND THE SAME IS EITHER SETTLED BY SRI P. MADHURAJAN DIRECTL Y OR THROUGH THE TRUST. IN THE ABSENCE OF ANY EVIDENCE TO ESTABLISH THAT THE L OANS 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 MA TRICULATION SCHOOL AT RS.32,21,362/-. FURTHER, THE PLEA OF THE APPELLANT THAT THE UNEXPLAINED INVESTMENT IS MET OUT OF UNEXPLAINED SOURCES AND TH EREFORE THERE IS NO JUSTIFICATION FOR ADDING RS.20 LACS TOWARDS CONSTRU CTION OF THE BUILDING HAS NO BASIS SINCE THERE IS NO ONE-TO-ONE RELATIONSHIP BETWEEN THE TWO. THE APPELLANT ALSO SOUGHT ADJUSTMENT OF OTHER UNEXPLAIN ED INCOME TOWARDS THE UNEXPLAINED INVESTMENT IN THE SCHOOL. THE ABOVE PL EA IS NOT SUPPORTED BY ANY EVIDENCE AND IN THE ABSENCE OF PROPER CASH FLOW STATEMENT THE POSSIBILITIES PROPOUNDED BY THE APPELLANT MAY BECOM E INNUMERABLE. UNLESS THERE IS CLEAR CUT EVIDENCE TO PROVE THAT TH ERE 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. 4. APPEARING FOR THE ASSESSEE, THE LD. AR ARGUED TH AT 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 W AS REPAID BY THE ASSESSEE. THE ASSESSEE HAS JOINED THE TRUST AF TER CONSTRUCTION OF THE BUILDING AND HE HAD NO KNOWLEDGE OF THE COST OF CONSTRUCTOR AND THE SOURCE OF CONSTRUCTION. A SUM OF RS.7,10,0 00/- ADDED BY THE ASSESSING OFFICER WAS ACCOUNTED IN THE TRUST AN D IT SHOULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE AGAIN. THE AR CONTENDED THAT THE INVESTMENTS MADE BY HIM WERE FUL LY EXPLAINED IN THE REVISED TRIAL BALANCE AND THE BALANCE WAS ADMIT TED AS INCOME. 8 I.T.A. NO. 584&585/MDS/2009 THEREFORE, THE LD. AR VEHEMENTLY OPPOSED THE ADDITI ON MADE BY THE ASSESSING OFFICER AND CONFIRMED BY LD. CIT (APP EALS). 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL PLACED ON RECORD. AS NOTICED FROM THE LD. CIT(A) O RDER THE ENTIRE ADDITION WAS MADE ON THE BASIS OF THE STATEMENT REC ORDED FROM SHRI R. VADIVELU. THE ASSESSING OFFICER MADE ADDIT ION OF RS.20 LAKHS FOR COST OF CONSTRUCTION OF THE SCHOOL BUILDI NG AND RS.18 LAKHS TOWARDS REPAYMENT OF THE LOANS PAID ON BEHALF OF SH RI R. VADIVELU, AGGREGATING TO TOTAL OF RS.38 LAKHS. OUT OF RS.38 LAKHS RS.32,21,362/- WAS ADDED IN THE ASSESSMENT YEAR 200 4-05. THE ASSESSING OFFICER HAS GIVEN OPPORTUNITY TO CROSS EX AMINE SHRI R. VADIVELU AND SHRI VADIVELU WAS CROSS EXAMIN ED BY THE ASSESSEE. ACCORDING TO SHRI R. VADIVELU, THE ASSES SEE HAS INVESTED RS.20 LAKHS FOR CONSTRUCTION OF THE BUILDI NG. RAJARAJESWARI TRUST WAS FORMED IN 2003 AND THE INVESTMENT WAS MAD E IN 2003 TO JULY2004 ACCORDING TO SHRI VADIVELU. SHRI VADIVELU AND SMT SHYAMALA CONTINUED TO BE IN THE TRUST TILL JULY 200 4. THERE WAS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS MADE THE INV ESTMENT IN CONSTRUCTION OF THE SCHOOL BUILDING SEPARATELY FROM UNACCOUNTED SOURCES. THE ASSESSEE HAS ADMITTED UNACCOUNTED INC OME DURING 9 I.T.A. NO. 584&585/MDS/2009 THE SEARCH OPERATION A SUM OF RS.1,61,30,000/- AS P ER PAGE NO.34 OF THE PAPER BOOK ENCLOSED ALONG WITH THE LETTER DA TED 14.07.2006 BY THE ASSESSEES AUTHORIZED REPRESENTATIVE ADDRESS ED TO ACIT, CENTRAL CIRCLE, SALEM. AS PER THE EXPLANATION OF T HE AR, THE ASSESSEE RECONSTRUCTED THE BOOKS OF ACCOUNTS WITH T HE AVAILABLE EVIDENCES AND WORKED OUT THE ADDITIONAL INCOME TAKI NG INTO CONSIDERATION OF THE EXPLAINED SOURCES. THE DIFFE RENCE BETWEEN THE EXPLAINED SOURCES AND THE INVESTMENT WAS OFFERE D AS ADDITIONAL INCOME AND PAID TAXES AS PER THE DETAILS FILED IN P AGE NO.34 OF THE PAPER BOOK. THE ASSESSEES INVESTMENT IN RAJARAJES WARI TRUST ALSO INCLUDED IN THE ADDITIONAL INCOME OFFERED BY THE AS SESSEE DURING THE SEARCH. THE CONTENTION OF THE LD. AR WAS THAT THE ENTIRE UNEXPLAINED INVESTMENT IN BRINDAVAN MATRICULATION S CHOOL WAS EITHER EXPLAINED OR IT WAS ADMITTED AS ADDITIONAL I NCOME WITHOUT LEAVING SCOPE FOR UNEXPLAINED INVESTMENT. 6.0 THE FIRST ISSUE IS REGARDING INVESTMENT IN RESP ECT OF COST OF CONSTRUCTION OF RS.20 LAKHS IN THE BUILDING. THE RA JARAJESWARI TRUST WAS FORMED WITH SHRI P. MADHURAJAN AND OTHERS IN 20 03 AND THE ASSESSING OFFICER HAS ASSESSED THE COST OF CONSTRUC TION OF RS.20 LAKHS AS UNEXPLAINED INVESTMENT. THIS ADDITION WAS MADE MAINLY 10 I.T.A. NO. 584&585/MDS/2009 ON THE BASIS OF THE STATEMENT RECORDED FROM SHRI R. VADIVELU. NO OTHER EVIDENCE WAS FOUND DURING THE COURSE OF SEARC H AND NO OTHER EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFF ICER EVIDENCING THE UNEXPLAINED COST OF CONSTRUCTION IN THE SCHOOL BUILDING. NO DETAILS WERE CALLED FOR FROM THE MUNI CIPAL AUTHORITIES REGARDING THE COMMENCEMENT OF CONSTRUCTION AND COMP LETION, AND THE BUILDING PLANS. THE ASSESSING OFFICER HAS NOT REFERRED THE MATTER TO THE DEPARTMENTAL VALUATION OFFICER TO ASC ERTAIN THE ACTUAL COST OF CONSTRUCTION. NO DETAILS HAVE BEEN CALLED FOR FROM SHRI R. VADIVELU TO EXAMINE THE ACTUAL AMOUNT OF COST OF CO NSTRUCTION, DATE OF COMMENCEMENT AND DATE OF COMPLETION OF CONSTRUCT ION. IN THE ABSENCE OF EVIDENCE TO ESTABLISH THAT THE AMOUNT OF RS.20.00 LAKHS INVESTED BY THE ASSESSEE, THE ASSESSING OFFICER CA NNOT 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 ASSES SING OFFICER HAS NOT DISCHARGED THE ONUS RELATING TO UNEXPLAINED INV ESTMENT OF THE ASSESSEE. THE ASSESSEE HAS STATED THAT, BY THE TIM E HE JOINED THE 11 I.T.A. NO. 584&585/MDS/2009 TRUST THE CONSTRUCTION OF THE BUILDING WAS COMPLETE D. THEREFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE LD.CIT (APPE ALS) .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 LA KHS (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 AM OUNT OF RS.14,21,362/- WAS INCLUDED IN THE ADDITION OF RS.3 2,21,362/-. THE AMOUNT OF RS.32,21,362/- CONSISTS OF RS.18 LAKHS PA ID ON BEHALF OF SHRI R. VADIVELU AND THE AMOUNT OF INVESTMENT DECLA RED AS PER THE TRIAL BALANCE FILED ALONG WITH THE RETURN OF INCOME . THE TRIAL BALANCE WAS FURNISHED BEFORE THE ASSESSING OFFICER AT THE T IME OF ASSESSMENT. ONCE THE TRIAL BALANCE WAS PRODUCED BE FORE THE ASSESSING OFFICER AND THE AMOUNT WAS ACCOUNTED, THE SOURCE STANDS EXPLAINED AND NO AMOUNT CAN BE TREATED AS UN EXPLAINED UNLESS THE LIABILITY REPRESENTING THE ASSET PROVED TO BE BOGUS. THOUGH THE ASSESSEE WAS NOT MAINTAINING BOOKS OF AC COUNTS AS ON THE DATE OF SEARCH, THE ASSESSEE HAS TAKEN THE LOAN S FROM 12 I.T.A. NO. 584&585/MDS/2009 EXPLAINABLE SOURCES, THE BOOKS WERE RECONSTRUCTED A ND 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 A S UNEXPLAINED. THE ADDITION MADE BY THE ASSESSING OFFICER IS DELET ED AND THE LD.CIT(A) ORDER ON THIS ISSUE IS SET SIDE. 7. THE NEXT ISSUE IS ADDITION OF RS.18 LAKHS RELATI NG TO THE PAYMENT OF LOAN TO M/S. BALA MURUGAN FINANCE AND MI SCELLANEOUS 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. VADIVE LU HAS STATED THAT THE LOANS TAKEN FROM BALA MURUGAN FINANCE AND THE M ISCELLANEOUS LOANS WERE SETTLED BY THE ASSESSEE. NO EVIDENCE WA S FOUND AT THE TIME OF SEARCH SHOWING THAT THE ASSESSEE HAS SETTLE D THE LOANS TAKEN BY SHRI R. VADIVELU. STATEMENT WAS RECORDED FROM SHRI R. VADIVELU BY THE ADIT WHICH WAS CROSS EXAMINED BY TH E ASSESSEE AND SHRI VADIVELU WAS UNABLE TO PRODUCE ANY EVIDENC E 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 13 I.T.A. NO. 584&585/MDS/2009 ASSESSEE HAS DENIED ANY PAYMENT TOWARDS THE SETTLEM ENT OF LOANS AND ADVANCES, THE ASSESSING OFFICER SHOULD HAVE MAD E INDEPENDENT ENQUIRIES AND BROUGHT THE EVIDENCE ON R ECORD TO SHOW THAT THE ASSESSEE HAS REPAID THE LOANS TAKEN BY SHR I R. VADIVELU. ALTERNATIVELY, THE LOANS REPAID BY SHRI R. VADIVELU ON ACCOUNT OF BALA MURUGAN FINANCE AND THE MISCELLANEOUS LOANS WO ULD 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 DURI NG THE SEARCH ASSESSMENT PROCEEDINGS. THIS FACT HAS BEEN ADMITT ED 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 BROUG HT ON RECORD TO SHOW THAT THE ASSESSEE HAS MADE THE PAYMENT OF R S.18 LAKH AND SETTLED THE LOANS OF SHRI R. VADIVELU. IN THE ABSE NCE 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 ASSESSEES APPEAL ON THIS ISSUE IS ALLOWED. 14 I.T.A. NO. 584&585/MDS/2009 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR TH E ASSESSMENT YEAR 2004-05 STANDS ALLOWED. 9. NOW COMING TO ITA NO.585 OF 2009 FOR THE ASSESSM ENT YEAR 2005-06, THE ASSESSING OFFICER MADE THE BALANCE AMO UNT OF RS.12,88,538/- (RS.45,10,000-RS.32,21,362) IN THE A SSESSMENT YEAR 2005-06. THE AMOUNT OF RS.12,88,538/- REPRESE NT RS.7,10,000/- RELATING TO THE PAYMENT MADE TO SHRI R. VADIVELU, RS.5,00,000/- AND SMT. SHYAMALA, RS.2,10,000/- (AGG REGATING TO RS.7,10,000/-) AND THE BALANCE AMOUNT REPRESENT T HE DIFFERENCE IN COST OF CONSTRUCTION OF THE BUILDING. 10. REGARDING THE INVESTMENT MADE IN 2003 IN RESPEC T OF THE COST OF CONSTRUCTION, WE HAVE DISCUSSED IN DETAIL I N EARLIER PARAGRAPH NO.626.1 AND HELD THAT THE ASSESSING OFFI CER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASS ESSEE HAS MADE INVESTMENT IN CONSTRUCTION OF THE SCHOOL BUILD ING 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. 15 I.T.A. NO. 584&585/MDS/2009 THE ORDERS OF THE LOWER AUTHORITIES ARE SET-ASIDE ON THIS ISSUE AND THE ASSESSEES APPEAL IS ALLOWED. 11. 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 ALREA DY INCLUDED IN THE RETURN OF INCOME. HOWEVER, ON VERIFICATION OF THE STATEMENT OF ADDITIONAL INCOME ENCLOSED ALONG WITH THE LETTER DA TED 14.07.2006 ONLY THE AMOUNT OF RS.2,80,000/- WAS ADMITTED AS AD DITIONAL 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). 16 I.T.A. NO. 584&585/MDS/2009 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN ITA NO.585 OF 2009 FOR THE ASSESSMENT YEAR 2005- 06 . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( . . ) (D.S. SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, /DATED: 22 ND FEBRUARY, 2017. JR. # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( )/CIT(A), SALEM 4. &' /CIT 5. ! $ /DR 6. () /GF.