Income Tax Appellate Tribunal - Jaipur
Zafrul Hassan Iraqi vs Income Tax Officer on 31 March, 1998
Equivalent citations: [1999]68ITD276(JP)
ORDER
R.K. Gupta, J.M.
1. This is an appeal by the assessee against the order of the CIT(A), Jodhpur dt. 21st March, 1991.
Grounds No. 1, 2 & 4 are against the restoration of the matter to the file of the AO on account of income from house property shown in the name of Smt. Zafrunissa w/o of the assessee and on account of unexplained investment in the name of Parvez Iraqi. Ground No. 2 is against the sustenance of income on account of rental income of Afroz by treating him as benami of the appellant.
2. The AO made four additions amounting to Rs. 30,000, Rs. 52,000, Rs. 15,551 and Rs. 275 in the hands of the assessee on account of unexplained income shown by the assessee's wife and one Parvez Iraqi. The assessee objected by filing first appeal before CIT(A) that these additions are wrong as the assessee was not afforded even a single opportunity and he cited various case law in his favour. The CIT(A) was satisfied with the contention of the assessee that no opportunity was given by the AO to the assessee. Consequently, he restored the matter to the file of the AO to give an opportunity to the assessee for explaining the same. Now the assessee is in appeal here before us.
3. The learned Departmental Representative of the assessee submitted that the CIT(A) was not justified in restoring the matter to the file of the assessee to give an opportunity to the assessee because of in this way, the Department gets one opportunity which is wrong as this is against the principles of natural justice. While making the addition, it is mandatory that the assessee should be given an opportunity. The same was not given. Therefore, the CIT(A) should have deleted the additions instead of restoring the matter to the file of the AO. He placed reliance on the decisions cited before the CIT(A). On the other hand, the learned Departmental Representative strongly relied upon the orders of the CIT(A). He further stated that as per the decision of the jurisdictional High Court, this issue cannot be decided on merits by the Tribunal as the CIT(A) has not given its finding and the matter is restored to the file of the AO.
4. We have heard the rival submissions and considered them carefully. Before going further, we will like to see the ratio of the Jurisdictional High Court, which was relied upon by the learned Departmental Representative.
5. In the case of Prem Agencies vs. CIT (1988) 173 ITR 110 (Raj), the Hon'ble Jurisdictional High Court has held that the appeal by the Revenue to the Tribunal was merely for quashing the order of the remand passed by the AAC. The scope of the appeal was consideration of the correctness of the order of the remand. The Tribunal was not justified in proceeding to decide the question of registration on merit without the same having been decided first by the AAC and that point not having been agitated in the appeal filed by the Revenue before the Tribunal. Brief fact of the case are that the ITO rejected an application for registration of firm on the ground that it was not genuine. On appeal the AAC took the view that some further enquiry into facts was necessary and remanded the matter to the ITO. On appeal to the Tribunal against the orders of the remand, the Tribunal held that the orders of remand was not justified and proceeded to dispose of the case on merit and held that the refusal of registration was justified. On a reference, the Hon'ble High Court decided this reference in favour of the assessee and against the Revenue by holding that the Tribunal was not justified in giving the finding on merit of the case instead of remanding the case to the AAC for decision of the case on merit.
6. In the present case, the facts are different. Here is a question of legal irregularity. In view of the learned authorised representative the legal irregularity cannot be cured and in the present case, the AO made a legal irregularity.
7. For facts we will see the orders of the AO. In para 3, the AO made additions by stating as under :
"3. As discussed in the order under s. 143(3) dt. 24th March, 1990, in the case for asst. yr. 1982-83 I hold the income, arising in the name of Smt. Zafrunissa and the income from undisclosed sources, in her case amounting to Rs. 52,000 on account of unexplained cash credit, as the income of Shri Z. H. Iraqi as his income from undisclosed sources. This point is discussed, in the order under s. 143(3) in the case of Smt. Zafrunissa for the asst. yr. 1987-88 also. Similarly, as I held in the assessment order under s. 143(3) in the case of Parvez Iraqi, for asst. yr. 1987-88, I hold the income in respect of unexplained cash credit of Rs. 15,551 (unidentified cheque) as the income of Z. H. Iraqi out of his undisclosed sources. Similarly, as I held in the order under s. 143(3) for asst. yr. 1985-86 of Parvez Iraqi, I held the amount of Rs. 275 unexplained money under s. 69A of Parvez Iraqi, as the income of Z. H. Iraqi as income from undisclosed sources. These income from undisclosed sources, arising in the case of family members are treated as the income of Z. H. Iraqi, from undisclosed sources, as one Shri Z. H. Iraqi, is considered capable of having income. Penalty notice under s. 271(1)(a) is initiated on this point".
8. Now we will see provisions of s. 69A, which reads as under :
"69A : Where in any financial year the assessee is found to be owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article or the explanation offered by him is not in the opinion of the AO satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
9. Sec. 69A says that any money, bullion, etc. if found and the assessee "is not able to explain", then the additions will be made in the hands of the assessee. Here in the instant case, the position is different. As this is undisputed fact that the assessee was not given any opportunity, the AO made additions merely stating that some of the observations were made in the case of assessee's wife Smt. Zafrunissa for asst. yr. 1982-83. Some observations made in case of one Parvez for asst. yr. 1985-86 and likewise some observations were made for asst. yr. 1987-88. Here irregularity which we noted were on two-three accounts. One i.e. assessment years were different, second one those were not found from the record of the assessee, third one was discussed in some other person's case and the assessee was not given any opportunity for explaining the situation. The AO merely by stating that these incomes from undisclosed sources, arising in the case of family members are treated as the income of Z. H. Iraqi (assessee) from undisclosed sources as only Z. H. Iraqi is considered capable of having income.
10. The proposition of the AO in the eye of law cannot be sustained on the following reasons. Firstly, these additions which were considered in the hands of the family members were relating to different assessment years, secondly, the assessee was not given any opportunity. Therefore, in our considered view, the act of the AO cannot be sustained and the CIT(A) was not justified in giving further opportunity to the Department for rectifying its mistake in law, the technical error can be rectified, but legal error is not rectifiable.
11. Now we will see the ratio of the other case law relied upon by the learned authorised representative. In the case of Ponkunnam Traders vs. Addl. ITO (1972) 83 ITR 508 (Ker), the Hon'ble High Court has held that "the petitioner had no opportunity before the ITO to raise the objection that the officer could proceed to assess the petitioner only after giving notice of the material gathered by him on the basis of the enquiry conducted by him under s. 142(3). As the order of the ITO was a nullity and the petitioner had no opportunity to object to the procedure which made the order a nullity, and the fact that he did not raise the objection in the appeal or revision should not be ground for exercising the discretion of the Court against the petitioner. The breach of natural justice is itself miscarriage of justice which enables the applicant to succeed". This order was confirmed by the D.B. in case of Addl. ITO vs. Ponkunnam Traders (1976) 102 ITR 366 (Ker).
12. In the present case, the facts are similar, as the AO did not offer any opportunity to assessee to explain and on the basis of some observations made in the case of family members, he made an addition in the hands of the assessee by stating that the assessee is only capable to earn these incomes.
13. In case of CIT vs. Shyam Lal (1981) 127 ITR 816 (P&H), the Hon'ble Punjab & Haryana High Court has held that the only correct course open to the Tribunal was to annul the order passed by the ITO. The brief facts of the case were "in certain reassessments against the assessee, the ITO had included certain amounts in his income on the basis that he was a partner in firm. On appeal, the AAC annulled the assessment because he found that the assessee was not a partner in the firm and the ITO had relied upon certain material which had not been put to the assessee, for coming to the conclusion that he was a partner. On further appeal, the Tribunal found that the amount assessed in the hands of the assessee as his share of income from the firm was based on material placed on record in violation of the principle of natural justice and in fact, there was no evidence to come to the conclusion that the assessee was a partner in the firm and dismissed the appeals". On reference, the Hon'ble High Court has passed the above order.
14. The facts in the present case are not less than the facts in the case cited above. In the present case, the AO passed an order without affording an opportunity and on the basis of observations made in the case of some other persons, the additions were made in the hands of the assessee.
15. In case of R. B. Sriram Durga Pd. & Fatehchand Nursing Das vs. Settlement Commission (IT & WT) & Anr. (1989) 176 ITR 169 (SC), the Hon'ble Supreme Court has held that : "(ii) that the earlier order passed by the Settlement Commission on 24th August, 1977 was a nullity because it was made in violation of the principles of natural justice :"
16. After perusing the ratio of all these decisions (supra) we are of the opinion that the order passed by the AO was a nullity because of it was against the principle of natural justice. The opportunity was not given to the assessee for explaining his case. Neither he was confronted that the AO is going to make the additions in his (assessee's) hand. Therefore, we are of the considered view that order of the AO suffers with a legal infirmity which is not curable. The CIT(A), therefore, was not justified in restoring the matter to the AO for giving him opportunity to regularise his mistake which is not permissible as the same was against the principle of natural justice. The ratio of the decision relied upon by the learned Departmental Representative in case of Prem Agencies, is not applicable, because of in that case, the Tribunal decided the issue on merit, wherein the AAC restored the matter to the file of the AO for investigating the true facts regarding registration of the firm. Here the facts are entirely different. Here is the question of principle of natural justice, which were violated by the AO and they are not curable and, therefore, we are of the view that the AO passed an illegal order and the assessee is challenging the action of the CIT(A) regarding granting an opportunity to the Deptt. for rectifying a legal infirmity, regarding unexplained additions relating to others and discussed in others' orders which were made in the hands of the assessee without affording an opportunity. Therefore, we cancel the order of the CIT(A) and the AO as the order of the AO was ab initio void.
17. The ground No. 3 which relates to the sustenance of clubbing of the rental income of Rs. 11,283 of Mr. Afroz, minor son of the applicant.
18. Brief facts of the case are that the rental income of Rs. 11,283 was earned by Mr. Afroz, minor son of the applicant from the one-half portion of a house property at Prithvipura, Jodhpur, which was purchased on 26th May, 1986, for a consideration of Rs. 28,000 (Rs. 25,000 being purchase consideration and Rs. 3000 being expenses) on behalf and for the benefits of Mr. Afroz, minor son of the appellant. The confirmation of loans which were taken from different persons were filed and the same was admitted by the AO. He did not make any addition on that amount. He made addition of Rs. 11,283 by stating that the house is benami of the assessee. Therefore, his minor son cannot earn the income from the house.
This was only to reduce the tax liability. This addition was also made by the AO by stating that as discussed in the order under s. 143(3) dt. 28th March, 1990 for asst. yr. 1982-83, the income from the house property in the name of Afroz is to be taken as the income of Shri Z. H. Iraqi. The rental income of Z. H. Iraqi was not earlier shown. However, a revised return was filed on 26th March, 1990, declaring rental income of Rs. 11,283. The rental income of Afroz as discussed earlier, which also amounts to Rs. 11,283 is assessed in the hands of Z. H. Iraqi.
19. It was submitted before the CIT(A) that Afroz though was minor, did not work in the shop of Jodhana Suppliers as is evident from the statement recorded. It was further stated that Afroz was conscious of the property purchased in his name and the loans obtained for the property. The confirmation was also filed from the persons from whom the loans were obtained and these persons admitted that they had advanced loan for purchase of house for Afroz.
20. After considering the facts and submissions of the learned authorised representative, the CIT(A) was of the view that Afroz was a minor during the relevant period and he was studying in college. He did not have any source of income. The transaction was arranged, loans were managed by the assessee. Afroz had a simple knowledge of such property. It was further observed that the parties had also admitted that they gave loans at the asking of the assessee. Obviously, Afroz, minor, having no source of income, none could advance any loan. By making these observations, the CIT(A) confirmed the order of the AO.
21. Now here before us, the learned authorised representative reiterates his contention as made before the CIT(A). On the other hand, the learned authorised representative strongly relied upon the orders of the authorities below.
22. After hearing the submissions and other material carefully, we found that admittedly no additions were made on account of loans received in the name of Afroz for purchasing the house property. It was also noticed that the AO or the CIT(A) has not made any observation that the money received as loan was not used in any way by Afroz or it was used by the assessee. We find weight in the contention of the learned authorised representative that the appellant assisted his minor son as his natural guardian and did not take any kind of benefit from the aforesaid transactions. The minor son became legal as well as beneficial owner of the house property in question. We also find weight in the contention that no money was invested by the appellant in purchasing the house property in the name of his minor son.
23. In Prakash Narain vs. CIT (1982) 134 ITR 364 (All), the Hon'ble Allahabad High Court has delivered the decision on benami transactions which is a leading case. In this case, the Hon'ble Allahabad High Court has discussed the ratios of the various decisions of various High Courts and Supreme Court finally it was held that "the burden of proof regarding benami is upon one who alleges benami. No absolute formula or acid test, uniformly applicable in all situations, can be laid down; yet, in weighing the probabilities and for gathering the relevant indicia, the Courts are usually guided by these circumstances : (1) the source from which the purchase money came; (2) the nature and possession of the property after the purchases; (3) motive, if any, for giving the transaction a benami colour; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title deeds after the sales; and (6) the conduct of the parties concerned in dealing with the property after the sale. The above indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless, the source whence the purchase money came is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another. The mere rejection of an explanation would not entitle the Department to claim that the consideration for the purchase of the property in the name of another was provided by the assessee. Apart from the relationship between the parties, there must be some evidence or material to support the case of the benami nature of the transaction. A finding regarding benami is a finding of fact. When a finding of fact is based on material, partly relevant and partly irrelevant, then such a finding is vitiated in law".
24. After going through these guidelines, we find that the AO could not prove the transactions as benami on the following reasons :
1. The plot was purchased in the name of minor son.
2. The title deed is in the name of minor son.
3. The investment which was made for purchase of the house was taken from outsiders and the confirmations of the same are on record.
4. The minor son who was conscious that some house is in his name and some funds were taken on loan for purchase of this house by his father.
5. The money received as rent was not used by the assessee and this fact was not anywhere mentioned in the order of the AO or in the orders of the CIT(A) that who used that money.
25. On the other hand, we have already stated that there is weight in the contention of the learned authorised representative that benefit received as rent of the house was used only by the beneficiary i.e. Afroz in whose name the property is registered and was purchased for him only. Therefore, all the circumstances go in favour of the assessee and the addition on this account, therefore, cannot be sustained. In view of the same, we delete the addition of Rs. 11,283.
26. In the result, we allow the appeal of the assessee.