Appeal to High Court – High Court should not overrule the findings of the Tribunal and Commissioner (Appeals) on the factual aspects and in case of doubt should remit the matter for deciding the matter afresh after giving reasonable opportunity to the assessee.

The assessee was engaged in the business of jewellery and money-lending. He was 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. He was 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 Chit Funds, Coimbatore and M/s. United Fabrics, Tiruppur. A search was conducted in the business premises of the assessee on 31st January, 2001, u/s. 132 of the Income-tax Act, 1961, hereinafter referred to as “the Act”, by the Investigation Unit II, Coimbatore. During the course of the search, various incriminating documents were seized, which indicated that the assessee did not disclose the correct income earned by him in the returns filed by him before conducting such a search. Before the date of the search, the assessee filed returns of income only up to the assessment year 1998-99. Therefore, a notice u/s. 158BC of the Act was issued to the assessee on 28th February, 2001. The search was concluded on 13th March, 2001. On 18th September, 2002, block return in Form 2B was filed by the assessee for the period from 1st April, 1990 to 13th March, 2001, declaring a loss of Rs. 16,47,844. In response to the notices and the letters issued, the assessee made written as well as oral submissions in respect of his income and investments during the said block period. The documents seized from his business premises and the documents produced by him were scrutinised and after hearing the assessee, the Assessing Officer completed the assessment. The Assessing Officer made additions of (i) Rs. 42 lakh on account on-money received from sale of Raja Street properties; (ii) Rs. 60,72,900 being bogus outstanding deposit in jewellery; (iii) Rs. 3,83,000 being bogus outstanding fixed deposits in Sri Velmurugan Finances; (iv) Rs. 26,63,130 in respect of unexplained payments made to various parties, and (v) Rs. 2,00,000/- being sale proceeds of A.P. Lodge.

As against the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) II, Coimbatore, who by order dated 25th March, 2004, allowed the appeal in part. Aggrieved by the said order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal and the assessee filed cross-objection in respect of the disallowed portion. The Income Tax Appellate Tribunal, by its common order dated 23rd November, 2006, dismissed the appeal filed by the Revenue and partly allowed the cross objection filed by the assessee. Challenging the same, the Revenue filed appeal before the High Court.

The High Court allowing the appeal held that
(i) the Assessing Officer had not committed any error in making the addition of Rs. 42 lakh, while completing the block assessment,
(ii) out of Rs. 60,92,900/- a sum of Rs. 21,21,400/- was assessable as undisclosed income,

On appeal to the Supreme Court by the assessee, the Apex Court, after going through the judgment of the High Court, observed that the High Court had overruled the decisions of the Income Tax Appellate Tribunal and of the Commissioner of Income Tax (Appeals) on factual aspects also. By way of illustration, the Supreme Court pointed out that the High Court had stated that cash flow statements submitted by the assessee were not supported by the documents. According to the Supreme Court, in such a case, the High Court should have remitted the case to the Commissioner of Income Tax (Appeals) giving opportunity to the assessee to produce relevant documents. The Supreme Court, for the aforestated reasons, set aside the judgement of the High Court and remitted the case to the Commissioner of Income Tax (Appeals), to decide the matter uninfluenced by the judgment of the High Court.