Income Tax Appellate Tribunal - Amritsar
Assistant Commissioner Of Income Tax vs Janak Raj Chauhan on 30 August, 2005
Equivalent citations: (2006)102TTJ(ASR)297
ORDER
Bhavnesh Saini, J.M.
1. All the appeals by the Revenue are directed against the different orders of the CIT(A), Jalandhar for the asst. yrs. 1984-85 to 1989-90.
2. Some of the issues are common in all the Departmental appeals, therefore, all the appeals were heard together and we dispose of the same by this common order.
3. We have heard the learned representatives of both the parties and gone through the observations of the authorities below.
4. The learned Departmental Representative mainly relied upon the orders of the AO.
However, the learned Counsel for the assessee relied upon the submissions made before the authorities below and particularly before the CIT(A). He has also filed synopsis in all the assessment years which were also raised before the CIT(A). The learned Counsel for the assessee mainly argued that the CIT(A) was justified in allowing the appeals of the assessee on all the issues as such the Departmental appeals are liable to be dismissed. The learned Counsel for the assessee also referred to order of the Tribunal, Amritsar Bench in the case of Janak Raj Chauhan and Ors. v. Asstt. CIT (2002) 75 TTJ (Asr) 260 : (2002) 257 ITR 79 (Asr)(AT).
5. We have considered the rival submissions and material available on record and the findings of the authorities below. We take the appeals ground-wise as under:
6. ITA No. 525/Asr/1997 (asst. yr. 1984-85):
6.1 Ground No. 1: On this ground, the Revenue challenged the quashing of the assessment order on the point of jurisdiction. The CIT(A) following the decision of the Hon'ble Punjab & Haryana High Court in the case of Lt Col. Paramjit Singh v. CIT quashed the assessment order. This issue was raised by the Revenue in ITA No. 524/Asr/1997 for the asst. yr. 1983-84 in the matter of Asstt. CIT v. Janak Raj Chauhan (assessee) (supra). This Tribunal vide order dt. 12th July, 2005 in the aforesaid matter decided this ground in favour of the Revenue. By following the same order, we set aside the order of the CIT(A) and order of the AO with regard to the jurisdiction is restored. This ground of appeal of the Revenue is ' accordingly allowed.
6.2 Ground No. 2: On this ground, the Revenue challenged the deletion of the addition of Rs. 20,000 made on account of unexplained investment to acquire right to sale plot of 3.5 Marias located at Tagore Nagar, Jalandhar.
6.3 Briefly, the facts are that in the assessment order the AO has mentioned that in the seized documents there were one Power of Attorney (POA) in favour of the assessee for sale of some property. He estimated an income of Rs. 20,000 for obtaining such right being POA for the sale of the property. It was submitted before the CIT(A) that the AO has not appreciated that the assessee has been doing business of property dealer and therefore, finding of the POA of any of his client does not give any justification to make the addition of Rs. 20,000 on estimate basis, It was submitted that the assessee has declared commission from property dealer at Rs. 7,200 for the year under consideration.
6.4 The CIT(A) considering the submissions of the assessee was of the view that mere possession of the POA to dispose of some property does not authentically lead to an inference for estimation of the income. The CIT(A) was of the (view) that income can be estimated only on the basis of actual sales transacted through the assessee. The CIT(A) accordingly deleted the addition.
6.5 On consideration of the above facts, we are of the view that the CIT(A) was justified in deleting the addition. The POA would not give right to the assessee in his individual capacity to acquire any right, title or interest in the property unless the facts are brought on record that POA was subject to consideration. The AO has not brought any evidence on record to justify his estimate of income. Mere recovery of POA from the possession of the assessee is not enough to estimate income against the assessee. The law is clear that POA is meant for doing the certain acts on behalf of the principal. It is also subject-matter of cancellation. Only certain acts which have been authorised by the POA could be exercised. Therefore, the AO was not justified in drawing adverse inference against the assessee that on the basis of recovery of POA the assessee earned the income. There is no merit in the appeal of the Revenue. The same is accordingly dismissed on this ground.
7. Ground No. 3:-On this ground, the Revenue challenged the deletion of addition of Rs. 41,900 made on account of unexplained investment made by the assessee in the name of Smt. Suhagwanti (assessee's mother) and Shri Hans Raj (assessee's father-in-law), The facts as taken from the record are that the addition was made of Rs. 41,900 on account of unexplained investment jointly made by Smt. Suhagwanti and Shri Hans Raj in purchasing plot of land on 26th May, 1983. Both of them had equal share in the property. The same was sold in the accounting period relevant to the asst. yr. 1991-92 by the assessee after obtaining the POA to dispose of the plot. While explaining the source of the investment of the assessee's mother Smt. Suhagwanti, it was submitted before the AO that she had the income from dairy-farming and regarding the source of Shri Hans Raj, it was submitted that he had the savings from the business as goldsmith. The AO, however, inferred that vesting of the power to use the consideration received from the sale of the plot establishes that these persons were the benamidar of the assessee and the investment in their names in the purchase of the plot was made by the assessee which has not been satisfactorily explained. He has accordingly made the addition in the hands of the assessee.
7.1 The addition was challenged before the CIT(A). It was submitted that the mother and father-in-law of the assessee invested and contributed equal amount in the purchase of the property and the investments have been made by them from their own sources. It was explained that Smt. Suhagwanti had a dairy business. It was started by Shri Amar Chand, father of the assessee in the year 1965 or so. The assessee and his another brother Shri Jagdish Raj Chauhan also joined in carrying of the said business after few years. The father of the assessee died in the year 1976 and thereafter, the said business was carried on by the mother of the assessee. It was also explained that the brothers separated in 1979 and started their own businesses. However, the mother of the assessee continued to do the business of dairy and had income besides agricultural income. She had also carved out the colony in different years. The identity and capacity to make investment was established. It was further submitted that the AO has not brought any evidence to disprove the financial source of mother of the assessee. Similarly, it was submitted that Shri Hans Raj is father-in-law of the assessee and had been doing the business of goldsmith at Phagwara for the last 40-50 years and he has made investment from his own source. It was also explained that he is having property at Jalandhar and it was looked after by the assessee as a POA. It was submitted that addition in the hands of the assessee is unjustified. It was further submitted that the notices under Section 148 were issued to Smt. Suhagwanti for the asst. yrs. 1991-92 and 1993-94 in response to which the assessee submitted that she has expired on 21st Aug., 1992, hence notices are to be issued through legal heirs. The copies of the bank account showing the sale proceeds of the land were filed along with other transactions. The evidences with regard to the sales and purchases of immovable properties were also filed and it was submitted that the assessee was only in his early 20 at the time of purchase and, therefore, he cannot be a benamidar of the aforesaid persons. The assessee further submitted that the transaction right from 1970 onwards were supported by sale deeds. As regards investments by Shri Hans Raj are concerned, the assessee submitted photocopies of the bank ledger account in which father-in-law of the assessee had a locker account. Licence to run goldsmith business was also filed. It was submitted that he was a man of means and made the investment in the property, His withdrawal from the bank was also proved. The CIT(A) considering the material on record was of the view that the assessee has acted merely as a POA holder of his mother and father-in-law. The CIT(A) on the basis of material on record also held that both the above persons were having sources to make investment and as such the finding of the AO that assessee was benamidar is unjustified. The CIT(A) also held that the investment made by both the persons be considered in their individual cases. He has also directed the AO to initiate the proceedings against the legal heirs of Smt. Suhagwanti in case all the investments made by her from her own sources. The CIT(A) deleted the addition in the hands of the assessee.
7.2 On consideration of the above facts, we are of the view that the CIT(A) was justified in deleting the addition in the hands of the assessee. As is held above on the basis of POA, no right, title or interest is created unless it is supported by sale consideration. Nothing is proved from record to show that the assessee acquired any right, title or interest in the property because of POA. Nothing is proved that POA was subject to consideration or was supported by any sale agreement. The assessee merely acted as a POA holder on behalf of his mother and father-in-law. The Hon'ble Allahabad High Court in the matter of Prakash Narain v. CIT held that in case of benami, the burden of proof is on the Revenue to show that transaction was benami. The Hon'ble Allahabad High Court further held that 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 purchase, (3) motive, (4) the position of the parties and the relationship, (5) the custody of the title deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale. It was further held that 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.
7.3 On consideration of the above decision ,of the Hon'ble Allahabad High Court, we are of the view that the AO has not brought any evidence or material on record to prove that the assessee's relative was benamidar of the property. Apart from above conditions specified in this case, the CIT(A) on the basis of the material on record held that the investments have been made by Smt. Suhagwanti and Shri Hans Raj. On such premises, the CIT(A) directed to initiate the proceedings in the name of Smt. Suhagwanti through her legal heirs. Considering the above, we do not find it to be a fit case to interfere in the impugned order of the CIT(A) on this issue. There is no merit in this ground of appeal of the Revenue. The same is accordingly dismissed.
8. Ground No. 4: The Revenue has challenged the direction of the CIT(A) with regard to the levy of interest under Sections 139(8), 215 and 217 of the IT Act. The learned representatives of both the parties have conceded that on this point the Tribunal, Amritsar Bench, in the case of the same assessee dismissed the Departmental appeal vide order dt. 12th July, 2004 (supra). By following the same order, this ground of appeal is dismissed.
9. No other ground is argued or pressed.
10. As a result, the appeal of the Revenue is partly allowed.
11. ITA No. 539/Asi/1997 (asst yr. 1985-86):
11.1 Ground No. 1: On ground No. 1, the Revenue challenged the order of the CIT(A) holding that the assessee's mother Smt. Suhagwanti cannot be treated as the benamidar of the assessee. On this issue, we have dismissed the Departmental appeal in ITA No. 525/Asr/1997. By following the same order, we dismiss this ground of appeal of the Revenue.
12.1 Ground No, 2: On this ground, the Revenue challenged deletion of addition of Rs. 2 lakhs made on account of profit in the sale of agricultural land in village Kohala.
12.2 The AO has mentioned in the assessment order that the agricultural land was acquired by the assessee in his name and also in the name of his wife Smt, Kamaljit and mother Smt. Suhagwanti. This land was sold for Rs. 3 lakhs. The land in the name of Smt. Suhagwanti was sold for Rs. 1,08,000 whereas the land in the name of the assessee and his wife was sold at Rs. 96,000 each. The AO observed that the assessee's wife and his mother has been held by him as the benamidar of the assessee and since the assessee was engaged in purchase and sale of the agricultural land as his regular trading activity, the profit on the sale is to be treated, as income from business. He thus made an addition of Rs. 2 lakhs for the difference between the sale price and the cost price of the land.
12.3 The addition was challenged before the CIT(A) and it was submitted that the land was purchased in the accounting periods 1980-81 and 1981-82, relevant to the asst. yrs. 1981-82 and 1982-83 and before its sale in the accounting period, relevant to the asst. yr. 1985-86, the assessee has been carrying on the agricultural operation in the land and showing agricultural income therefrom. It was contended that the assessee's main business was of property dealing on commission basis and it was a rare occasion that he happened to purchase some piece of agricultural land in village for own agricultural purposes and the same had to be sold under compelling circumstances caused by terrorists activities in the area. It was further submitted that this was the investment for earning the agricultural income and the same could not be treated as a trading activity. To support the contention that the agricultural land in village Kohala is far away from the municipal limits, the assessee has furnished the necessary documentary evidence.
12.4 The CIT(A) considering the facts of the case was of the view that the purchase and sale of land in this case could not be treated as trading activity as the assessee cultivated the land for about three years prior to sale. The CIT(A) was also of the view that the land is situated in village Kohala, about 17 Kms. from Jalandhar City and is not liable to capital gain. The CIT(A) was also of the view that the assessee would not have had any intention to earn the profit from the investment. The CIT(A) accordingly held that the AO was not justified in treating the transaction as business transaction and further held that since the agricultural land is situated far away from the urban limits, the same is not liable even to be capital gains. The addition was accordingly deleted.
12.5 The learned Departmental Representative could not contribute much on this issue. No material is filed before us to contradict the findings of the CIT(A).
12.6 On the other hand, the learned Counsel for the assessee relied upon the submissions made before the CIT(A) and also relied upon the decisions mentioned in the synopsis. In the case of G. Venkataswami Naidu & Co. v. CIT , the Hon'ble Supreme Court held:
If a person invests money in land intending to hold it, enjoy its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade.
The Hon'ble Punjab & Haryana High Court in the case of Kaur Singh v. CIT held:
The assessee had purchased the property in the year 1967 and the Revenue had not brought any evidence to show that at the time of purchase, the assessee had an intention to sell the property. The mere fact of carving out the plots in a portion of the land, without proof of anything more, could not give rise to the conclusion that the transaction was an adventure in the nature of trade. Therefore, the Tribunal was not right in holding that the income derived by the assessee from the sale of plots was an adventure in the nature of trade.
12.7 We have heard the rival submissions. The CIT(A) has given specific findings that the assessee cultivated the land for about three years from the date of the purchase when it was sold. The reasons for the sale have been explained which appears to be reasonable in view of the law and order situation prevailing in the State of Punjab due to the terrorist activities. The assessee also filed sufficient material before the authorities below to show that land is situated far away from the urban limits and was not subjected to tax even on capital gains. These facts strengthen the findings of the CIT(A) that the assessee had no intention to sell the property when it was purchased. Considering the above discussion and the authorities referred to above, we do not find any justification to interfere in the order of the CIT(A). There is no merit in the appeal of the Revenue on this issue. The same is accordingly dismissed.
13. No other ground is argued or pressed.
14. As a result, the appeal of the Revenue is dismissed.
15. ITA No. 540/ASI/1997 (asst yr. 1986-87):
15.1 Ground No. 1: On ground No. 1, the Revenue has challenged the findings of the CIT(A) as regards findings of benamidar. This ground is already decided above in ITA No. 525/Asr/1997. This ground is squarely covered in favour of the assessee. The same is accordingly dismissed.
16. Ground No. 2: On ground No. 2, the Revenue has challenged the deletion of addition of Rs. 7,500 on account of profit on the sale of the plots in residential colony named Shastri Nagar, Ludhiana. The AO made the addition of Rs. 7,500 for the profits on sale of plot in the residential colony, Shastri Nagar, Ludhiana.
16.1 Briefly, the facts are that a search under Section 132 of the IT Act was carried out at the assessee's premises on 31st July, 1992. The seized material revealed that a land was developed near Ludhiana as a residential colony called Shastri Nagar. The assessee in his statement stated that he purchased the land in 1974 for about Rs. 72,000 per acre, which was converted into about 200 plots measuring 100 sq. yds. to 200 sq. yds. and sold @ Rs. 35 to Rs. 36 per sq. yd. and the area was developed as New Shastri Nagar. Later on, in the course of the assessment proceedings, he submitted that the land in fact was purchased by his wife, Smt. Kamaljit and mother Smt. Suhagwanti and he only acted as 'Mukhtar' (power of attorney holder). The AO, however, treated them as his benamidars and found that as per the registered sale deeds found in the course of the search, the assessee has received the sale price in the year under consideration.
16.2 The addition was challenged before the CIT(A) and it was submitted that the possession of the plot was handed over in 1974 to 1980 after receipt of the instalments but due to the provisions of land ceiling the sale deed could not be executed at that time which were executed much later. The sale consideration mentioned in the deed did not pass on to the assessee as the payment was received much earlier at lower rates. The AO, however, observed that the sale deeds as finally registered are vital for the computation of the income and the assessee has contradicted his own stand in the case of sale of another property by saying that it should be taxed in the year when the transfer takes place through a valid sale deed. The AO after allowing a deduction of 25 per cent of the cost made the addition. It was submitted before the CIT(A) that the land was purchased in Ludhiana by his mother and his wife in 1974 and he was appointed only as Mukhtar (power of attorney holder) by a registered deed and the said land was developed and were sold in plots by 1981. The consideration was received and possession has been given to the purchasers, who have constructed their houses but the sale deeds have been executed later on at the rates fixed by the Government for the purpose of stamp duty. It was, therefore, submitted that the actual transfer has taken place and all the plots were sold between 1974-75 to 1980-81 and hence, the property was sold in those years and as such, such transactions cannot be brought to tax in the year under consideration as only sale deed was executed. The assessee relying upon the provisions of Section 53A of the Transfer of Property Act had contended that a person who deals in the immovable property has to declare the income arising from the transactions under Section 53A of the Transfer of Property Act for the previous year in which these transactions relate. It was further contended that the property did not belong to the assessee as he acted only as a Mukhtar. The assessee produced volume of the records before the CIT(A) to show that the plots were sold between 1974-75 to 1980-81 and the purchasers have constructed their own houses over the plots. It was also submitted that the AO has not given proper opportunity at the stage of assessment, therefore, request was made to the CIT(A) to admit these documents in evidence. The CIT(A) forwarded the evidence to the AO with the direction to examine the same. The AO filed his report dt. 20th July, 1997 in which after scrutinising the evidences filed before the CIT(A) gave remarks that the documents pertained to the period upto 1980, The AO however, maintained the addition that since sale deed was executed in the year under consideration, therefore, the addition is justified.
16.3 The CIT(A), considering the material on record, was of the view that transactions for transfer of the land in plots were completed upto the year 1980 and considerations were also received. The CIT(A) relied upon Section 53A of the Transfer of Property Act as well as amended provisions in Section 2(47) of the IT Act and stated that transfer includes as mentioned in Section 53A of the Transfer of Property Act. The CIT(A) also relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Podar Cement (P) Ltd. in which it was held that the requirement of registration of sale deed in the context of Section 22 is not warranted. The CIT(A) considering the entire material on record was of the view that the plots were sold prior to 1980, therefore, no addition could be made in the year under consideration merely because sale deeds were executed in this year. The CIT(A) accordingly, deleted the addition and allowed the appeal of the assessee.
16.4 The learned Departmental Representative relied upon the order of the AO and the learned Counsel for the assessee relied upon the order of the CIT(A).
16.5 On consideration of the above facts, we do not find any justification to interfere in the order of the CIT(A). The evidences filed before the CIT(A) were sufficient to hold that the plots, in question, were sold prior to the year 1980 through consideration. The reason for executing the sale deeds subsequently is also explained, which appears to be reasonable as because of Ceiling Act, the sale deeds could not have been registered. The Government usually fixes the rates for the purpose of fixing the sale consideration under the stamp duty. Since the stamp duty is to be paid according to the Government rates, therefore, there could have been increase in the sale amount shown in the sale deeds for the purpose of registration. These were facts which were properly explained before the CIT(A) for executing of the sale deed subsequently. The definition of "transfer" is amended under Section 2(47) of the IT Act, which includes the transfer through part performance under Section 53A of the transfer of Property Act, 1882. The possession of the properties were given against the consideration prior to the year 1980 as explained before the CIT(A), therefore, it was to be treated as transfer within the meaning of Section 2(47) of the IT Act. Since there is no transfer of the property in the year under consideration and no material is brought on record to prove such facts, therefore, the CIT(A) was justified in deleting the addition in the hands of the assessee in the year in question. As a result, there is no merit in the appeal of the Revenue on this issue. This ground of appeal of the Revenue is accordingly dismissed.
17. Ground No. 3: In ground No. 3, the Revenue has challenged the deletion of addition of Rs. 1,02,500 made on account of unexplained investment in the purchase of agricultural land in village Alichak. The AO made the addition for the half share of the assessee's mother treating her benamidar of the assessee. The assessee explained the source of income of his mother, Smt. Suhagwanti and proved before the CIT(A) that she is not benamidar of the assessee. The CIT(A) considering the facts and the material on record was of the view that Smt. Suhagwanti is not benamidar of the assessee and, therefore, the part of investment made by her be considered in her case independently through her legal heirs. We have dealt with this issue above in ITA Nos. 525/Asr/1997 and 539/Asr/1997. By following the same order, we dismiss this ground of appeal of the Revenue.
18. No other ground is argued or pressed.
19. As a result, the appeal of the Revenue is dismissed.
20. ITA No. 541/Asr/1997 (asst. yr. 1987-88):
20.1 Ground No. 1: The Revenue challenged the findings of the CIT(A) holding that Smt. Suhagwanti cannot be treated as the benamidar of the assessee. On this issue, we have dismissed the Departmental appeal above. By following the same order, we dismiss the above ground of appeal of the Revenue.
20.2 Ground No. 2: On ground No. 2 the Revenue challenged the findings of the CIT(A) directing the AO to allow the deduction under Section 80T of the IT Act to the tune of Rs. 46,900 on the sale of shop.
20.3 Briefly, the facts are that the assessee is dealer in the property. The AO treated the sale of shop also as income from business or profession. The AO, therefore, disallowed the assessee's claim to treat the same as the long-term capital gain and also rejected the assessee's claim for deduction under Section 80T of the IT Act.
20.4 The addition was challenged before the CIT(A) and it was explained as to how the transactions have been entered into without any intention of trading in land and building. It was also submitted that these transactions were intended for the purpose of earning the profit which was also declared in the return of income. The assessee also furnished for each year the transactions which resulted into the capital gain and not as profit from business or profession. It was also contended that the AO has treated all the transactions under the head 'Income from business or profession'. It was submitted before the CIT(A) that the assessee filed return for the year under reference declaring income of Rs. 61,768 which consisted of Rs. 83,800 as capital gain out of which deduction was claimed at Rs. 46,900. The capital gain related to sale of 5 shops sold in July and September, 1986 which were acquired on 9th Nov., 1981 when plot was purchased and upon which these shops were constructed. The purchase and sale of such like shops was not part of his trading activity and it has never been regular and systematic activity of the assessee but was entirely an investment to acquire a capital asset. It was further submitted that the shops were let out from December, 1983 and net rental was received in the asst. yr, 1984-85 at Rs. 4,000 and in the asst. yrs. 1985-86 and 1986-87 at Rs. 10,000 each. It was submitted that later on all the shops were sold, would clearly prove that the assessee has no intention to make trading in the shops. Therefore, the assessee is entitled for deduction. Considering the material on record, the CIT(A) was of the view that the sale of the shops is chargeable under the head 'Capital gains' and accordingly the assessee is entitled for deduction under Section 80T of the IT Act.
20.5 The learned Departmental Representative could not contradict the findings of the CIT(A).
20.6 The above facts clearly prove that the assessee after purchase of the plot, constructed the shops which were also let out upon which the rent has been received for three years. Only thereafter all shops have been sold. It would, therefore, prove that the assessee had no intention to deal in the shops for the purpose of business when it was purchased. Otherwise, the assessee would not have let out the property to different tenants. The CIT(A) was, therefore, justified in holding that at the most the capital gains could be charged upon which the assessee is entitled for deduction under Section 80T of the IT Act. We do not find any irregularity in the order of the CIT(A). We confirm the same and dismiss this ground of appeal of the Revenue.
21. Ground No. 3: On this issue, the Revenue has challenged the deletion of addition of Rs. 5,91,096 made by adding 1/3rd share of the assessee and also 1/3rd share of his mother, Smt. Suhagwanti by treating her as assessee's benamidar in the profit from the sale of the land at village Mussadabad, Nazafgarh, New Delhi.
21.1 Briefly, the facts are that the AOP was formed by the assessee, his mother Smt. Suhagwanti and his brother Shri Jagdish Raj Chauhan for sale of the land at village Mussadabad, Nazafgarh, New Delhi. The AO has added not only the 1/3rd share of the assessee but also 1/3rd share of Ms mother, Smt. Suhagwanti by treating her as assessee's benamidar. The AO has taken the share of the profit of the assessee in a sum of Rs. 2,95,548 and his mother, Smt. Suhagwanti at Rs. 2,95,548 (Rs. 5,91,096).
21.2 The CIT(A) was of the view that this issue has already been decided for the asst. yrs. 1987-88 to 1989-90 in the case of assessee's brother Shri Jagdish Raj Chauhan in which AO was directed to initiate proceedings for the assessment of the AOP if he has jurisdiction to assess the AOP. It was also argued that the AO should follow the decision of the Hon'ble Supreme Court. The CIT(A) was of the view that the assessment is to be made in the case of AOP and the AO was directed to proceed in accordance with the provisions of Section 167B of the IT Act while assessing the AOP or assessing the share for the rate purposes because Section 167B was amended by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989 and the AOP is to be assessed at the maximum marginal rate in which case share of the member is not at all includible in the income of the members. The CIT(A) was of the view that the directions given in the case of Shri Jagdish Raj Chauhan are clearly applicable in this case and accordingly the addition made in that case of the assessee was deleted.
21.3 The learned Departmental Representative relied upon the order of the AO, 21.4 The learned Counsel for the assessee has, however, argued that the CIT(A) was justified in deleting the addition in respect of the income of the AOP in the share of assessee and of his mother. He has relied upon the judgment of the Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah in which the addition was deleted from the hands of the assessee for the very reason that the same is the income of the AOP. The learned Counsel for the assessee submitted that admittedly this income in respect of sale of plot at village Mussadabad, Nazafgarh, New Delhi was the income of the AOP which is assessed separately in the hands of Shri Janak Raj Chauhan. He has further submitted that the matter came up before the Tribunal, Amritsar Bench in the case of the above AOP and the order of the Tribunal is reported in (2002) 75 TTJ (Asr) 260: (2002) 257 ITR 79 (Asr)(AT) (supra) and the matter is pending in the High Court. He has submitted that since the maximum rate of tax is applied in the case of AOP therefore, the share of individual member of the AOP could not be assessed separately.
21.5 We have considered the rival submissions and material on record. It is not in dispute that the AOP in the name of Shri Janak Raj Chauhan and others was in existence and was also assessed to tax. This finds support from the order of the Tribunal, Amritsar Bench in the case of Shri Janak Raj Chauhan as reported in (2002) 75 TTJ (Asr) 260: (2002) 257 ITR 79 (As)(AT) (supra). The CIT(A) also gave direction to proceed in the case of AOP in the case of Shri Jagdish Raj Chauhan and others and in pursuance thereof the AOP assessed separately, We may also mention that Smt. Suhagwanti cannot be held to be the assessee's benamidar as held by us above on different grounds as she was having independent source of income. Therefore, the entire findings of the AO on this issue are erroneous and the CIT(A) was justified in deleting the addition on this issue. There is no merit in the appeal of the assessee (sic-Revenue) on this issue. The same is accordingly, dismissed.
22. No other ground is argued or pressed.
23. As a result, the appeal of the Revenue is dismissed.
24. ITA No. 542/Asr/1997 (asst. yr. 1988-89):
24.1 Ground No. 1: On ground No. 1, the issue as regards Smt. Suhagwanti is benamidar of the assessee, we have already dismissed the Departmental appeal above. By following the same order, this ground of appeal of the Revenue is dismissed.
25. Ground No. 2: On ground No. 2, the Revenue has challenged the deletion of addition of Rs. 81,750 made on account of profit on sale of the plots in the residential colony named Shastri Nagar, Ludhiana. On this issue, we have dismissed the Departmental appeal in ITA No. 540/Asr/1997. By following the same order, we dismiss this ground of appeal of the Revenue.
25.1 Ground No. 3: On this issue, the Revenue challenged the deletion of the addition of Rs. 7,45,360 made by adding 173rd share of the assessee and also l/3rd share of his mother, Smt. Suhagwanti by treating her as assessee's benamidar in the profit from the sale of the land at village Mussadabad, Nazafgarh, New Delhi. On this issue, we have dismissed the Departmental appeal in ITA No. 541/Asr/1997. By following the same order, we dismiss this ground of appeal of the Revenue. This ground of appeal of the Revenue is accordingly dismissed.
26. Ground No. 4: On this issue, the Revenue challenged the deletion of addition of Rs. 9,025 made on account of profit on sale of land in the name of Smt. Suhagwanti treating her as benamidar of the assessee. The CIT(A) following his earlier order directed that she is not the benamidar of the assessee and if the addition is to be made, the same could be made in her name through legal heirs. On this issue, we have already dismissed the Departmental appeal on separate ground. By following the same findings, we dismiss this ground of appeal of the Revenue.
27. Ground No. 5: On this ground, the Revenue has challenged the deletion of addition of Rs. 40,000 made by adding the income of the two minor sons of the assessee, namely, S/Shri Raj Kumar and Rakesh Kumar.
27.1 Briefly, the facts are that the assessee in his statement stated that he has purchased land in the name of his minor sons. Date of birth of Shri Raj Kumar is 13th Jan., 1971 and date of birth of Shri Rakesh Kumar is 13th April, 1972. It was also disclosed that he made disclosure for the asst. yrs. 1991-92 and 1992-93. The AO observed that no returns were filed by his two sons prior to the search but subsequently filed returns, on 30th June, 1995 by his two sons for the asst. yrs. 1988-89 to 1994-95 and for some of the years the income was declared when they were minors. The income was declared on estimate basis as property-dealer in both the cases without any supporting material. The AO was, therefore, of the view that invalid returns were filed beyond the statutory period with an attempt to show capital built-up for explaining the investments in acquisition of the immovable properties, etc. He observed that for the asst. yrs. 1988-89 and 1989-90 an estimated income of Rs. 20,000 each was shown for both the years whereas for the asst. yr. 1990-91, the income was estimated at Rs, 30,000 in each case. The AO did not take any action on those invalid returns filed beyond the time of filing of the return but the estimated income declared in their case was included in the hands of the assessee. He also held his two sons as the benamidar of the assessee in respect of the various assets/income acquired in their names. The CIT(A) considering the submissions of the assessee and material on record deleted the entire addition. His findings in paras 10.2 are reproduced for reference as under:
10.2 I have considered the facts of the case and also gone through the elaborate written submissions filed by the assessee. During the accounting period relevant to the asst. yrs. 1988-89 and 1989-90 for which the estimated income from property dealings has been declared in the name of the two sons, they were minors. They were not legally competent to enter into an agreement for the purchase and sale of the property, though in their names the guardian can make the sale and purchase of the property not detrimental, to their interest. Similarly, they can also not execute any power of attorney to dispose of the property of third parties. The learned AO has rightly observed that the invalid return has been filed in their name only as an attempt to explain the investments made in their name. The AO has also correctly observed that there is no supporting evidence to show that they in fact have earned any income. In this view of the matter, however, I see no reason as to why the income declared in their hands should be assessed in the hands of the assessee when there is no evidence of the minors having earned any such income. It is only if any investment is made in their names that the source of the investment can be examined and if the same is found to be either unexplained or not satisfactorily explained then the same can be added as income from undisclosed sources in the hands of the father, if apparently there is no source to explain in the hands of the minors. In my opinion, therefore, there is no justification of making the addition of Rs. 40,000 each in asst. yrs. 1988-89 and 1989-90 in the hands of the assessee by treating the income declared in the name of the minors as the income of the assessee when in fact there is no evidence of the income earned by the minor. These additions are, therefore, deleted.
27.2 The learned Departmental Representative relied upon the orders of the AO.
27.3 On the other hand, the learned Counsel for the assessee submitted that since there was no basis for filing of the returns as per the version of the AO and the returns were treated invalid, therefore, there is no basis for making addition in the hands of the assessee. The learned Counsel for the assessee further submitted that investments in the names of sons have been made in the subsequent years which has no bearing upon the appeal under consideration. He has submitted that the findings of the AO clearly established that addition is unjustified as if no income accrued or earned could not be added in the hands of the assessee.
27.4 We have considered the rival submissions and material on record. We find from the order of the AO that investments are stated to be made in the asst. yrs. 1991-92 and 1992-93. The AO has treated the returns filed by Shri Raj Kumar and Shri Rakesh Kumar to be invalid. He has also held that there is no basis for showing income. He has also held that invalid returns are filed with the sole purpose of capital built-up explaining the investment. The findings of the AO, therefore, clearly established that no income has been earned or accrued in favour of sons of the assessee, i.e., Shri Raj Kumar and Shri Rakesh Kumar. If no income accrued or earned according to the AO by the sons of the assessee, then we fail to understand how the addition on such income can be made in the hands of the assessee. We may also mention here that the AO failed to appreciate/consider the relevant provisions of law applicable to the assessment year under appeal in respect of making addition in the hands of the assessee in respect of the income allegedly earned by the minors. The addition in the case of the assessee in respect of alleged income earned/accrued to the minors could be made with the aid of Section 64 of the IT Act. The relevant provisions in Section 64 of the IT Act in the relevant years 1988-89 and 1989-90 in appeal did not allow addition of the above nature of alleged income to be made in the hands of the assessee. We accordingly do not find any justification to interfere in the order of the CIT(A). This ground of appeal of the Revenue is, therefore, dismissed.
28. No other ground is argued or pressed.
29. As a result the appeal of the Revenue is dismissed.
30. ITA No. 543/Asr/1997 (asst. yr. 1989-90):
30.1 Ground No. 1: On ground No. 1, the Revenue challenged the findings of the CIT(A) that Smt. Suhagwanti is not the benamidar of the assessee. On this issue, we have already dismissed the appeal of the Revenue in different years. By following the same, we dismiss this ground of appeal of the Revenue.
31. Ground No. 2: On ground No. 2, the Revenue challenged the deletion of addition of Rs. 66,149 made by adding l/3rd share of the assessee and also 1/3rd share of his mother, Smt, Suhagwanti by treating her as the assessee's benamidar in the profit from the sale of the land at village Mussadabad, Nazafgarh, New Delhi. On this issue, we have dismissed the Departmental appeal in ITA Nos. 541/Asr/1997 and 542/Asr/1997. By following the same, we dismiss this ground of appeal of the Revenue.
32. Ground No. 3: On ground No. 3, the Revenue challenged the deletion of addition of Rs. 40,000 made by adding income of the two minor sons of the assessee, namely, Shri Raj Kumar and Shri Rakesh Kumar. We have dismissed this ground of appeal in ITA No. 542/Asr/1997. By following the same, we dismiss this ground of appeal of the Revenue.
33. Ground No. 4: On ground No. 4, the Revenue challenged the deletion of addition of Rs. 1,02,617 made on account of assessee's mother's share in AOP in the profit from sale of land developed as colony at New Ashok Nagar, Basti Sheikh, Jalandhar by treating the assessee's mother as his benamidar. We have dismissed the appeal of the Revenue on the issue of income earned by the AOP in which the assessee, his mother Smt, Suhagwanti and his brother Shri Jagdish Raj Cnauhan were members. This issue is dealt with in ITA No. 541/Asr/1997. By following the same order, we dismiss this ground of appeal of the Revenue.
34. Ground No. 5: On ground No. 5, the Revenue challenged the deletion of addition of Rs. 31,540 made on account of sale of agricultural land in the names of the assessee and his mother Smt. Suhagwanti in village Alichak. In the assessment order, the AO has mentioned that as per the seized material the assessee purchased agricultural land in village Alichak in his own name and also in the name of his mother during June and July, 1985. This land was sold during the accounting year 1988-89, relevant to the asst. yr. 1989-90. The profit from the sale came to Rs. 15,780 for the assessee and equal amount for the assessee's mother. The total profit comes to Rs. 31,540. It was argued that sale of the agricultural land is exempt from the tax. However, the AO treated it to be the business of the assessee and made the addition.
34.1 The addition was challenged before the CIT(A) and it was submitted that the assessee had purchased agricultural land in July, 1985 for cultivation. He carried on the cultivation operation and derived income from agriculture at Rs. 5,000 for the asst. yrs. 1986-87, 1987-88 and 1988-89 and the same were declared in his returns of income and assessed by the AO. It was submitted that due to terrorists activities the land was sold, therefore, inference of the AO is unjustified that the assessee is engaged in the business activities of dealing in agricultural land. It was further submitted that the AO has not pointed out any material to justify the treatment of sale of such land as income from business when the said land was neither purchased as stock-in-trade nor treated as such by the assessee and purchase and sale of agricultural land was never a regular and systematic activity of the assessee. The CIT(A), accordingly, deleted the addition.
34.2 The learned representatives of both the parties stated that the issue is same as is argued in ITA No. [339/Asr/1997 though the profit is different. It is stated that the findings on this issue in ITA No. 539/Asr/1997 may be followed.
34.3 Considering the above submissions, we are of the view that the CIT(A) was justified in allowing this ground of appeal of the assessee. Nothing is pointed out to us if the property falls within the urban area or that the same agricultural land was purchased with the intention of selling. The assessee earned agricultural income from the same which was shown in three years. Therefore, there cannot be intention on the part of the assessee at the time of purchasing agricultural land that it was meant for sale for the purpose of business. We have dismissed the identical ground in respect of different property in ITA No. 539/Asr/1997. By following the same, we dismiss this ground of appeal of the Revenue. However, we may add here that further observations of the CIT(A) are not correct. The CIT(A) observed that there is no justification in treating the sale of agricultural land as business income. Such observations are unwarranted as on different set of facts even the sale of agricultural land could have been treated as business income of the assessee if the assessee would have been dealing in agricultural land for the purpose of business. The observations of the CIT(A) are, therefore, expunged from the order. The net result would be that there is no merit in the appeal of the Revenue. The same is accordingly dismissed on this issue.
35. No other ground is argued or pressed.
36. As a result, the Revenue's appeal is dismissed.
37. As a result, the Revenue's appeal in ITA No. 525/Asr/1997 is partly allowed whereas the remaining Revenue's appeals in ITA Nos. 539 to 543/Asr/1997 are dismissed.