2019-VIL-467-MP-DT

MADHYA PRADESH HIGH COURT

I.T.A. No. 83 to 103/2006, I.T.A. No.399/2007, I. T. A. No.323/2007

Date: 03.09.2019

THE COMMISSIONER OF INCOME TAX-II

Vs

SHRI HARNARAYAN BHAGAT (HUF) , M/s . GAURI SHANKAR, SHRI SHESH NARAYAN BHAGAT, SHRI HARNARAYAN BHAGAT, KHIRKIYA

For the Appellant : Ms. Veena Mandlik, learned counsel
For the Respondent : Mr. P. M. Choudhary, learned Senior Counsel with Mr. R.K. Sarda and Ms. Rashi Gohil, learned counsel

BENCH

Mr. Justice S. C. Sharma And Mr. Justice Shailendra Shukla

JUDGMENT

PER : S. C. SHARMA, J.

Regard being had to the similitude in the controversy involved in the present cases, the appeals were analogously heard and by a common order, they are being disposed of by this Court. Facts of I.T.A.No.83/2006 are narrated hereunder.

02-The present appeal has been filed by Commissioner of Income Tax under Section 260A of the Income Tax Act, 1961 (hereinafter referred as “Act of 1961”) against common order dated 30/12/2005 passed in I.T.A.No.818 and 819/Ind/1998 and other connected matters passed by the Income Tax Appellate Tribunal, Indore (hereinafter referred as “ITAT”).

03-The facts of the case reveal that a search operation was carried out under Section 132 against the assessee on 24/09/1993 and during the course of search the assessee stated that he was initial partner of firm M/s. Radhakishan Balkishan carrying on the business of grocery (Kirana) along with sons. Later on, on account of his retirement from the partnership firm, his three sons namely Shri Gauri Shankar, Shri Shesh Narayan and Shri Ganesh Narayan continued with the business activities under the name and style of M/s. Gauri Shankar & Brothers. It was also stated by him that M/s. Shree Traders was the proprietary concern of of Shri Shesh Narayan engaged in teh business of money lending, cotton trading, etc., however, funds were supplied by the assessee M/s. Radhakishan Balkishan.

04-The facts of the case also reveals that M/s. Shree Traders was shown as branch of M/s. Gauri Shankar & Brothers since Assessment Year 1986-87 and the aforesaid fact was brought on record in the partnership deed on 06/04/1992 for the first time.

The firm M/s. Gauri Shankar & Brothers was dissolved w.e.f. 01/04/1993 and its business activities have been taken over by M/s. Bhagat Brothers, a partnership concern of Shri Shesh Narayan Bhagat.

05-During the course of proceedings under Section 132(5) in the case of Shri Shesh Narayan Bhagat, it was claimed that M/s. Shree Traders was a proprietary concern of Shri Harnarayan Bhagat (HUF), assessee and father of Shri Shesh Narayan Bhagat. It was also stated by Shri Shesh Narayan Bhagat in proceedings under Section 132(5) that the business of money lending was being carried out by his father as Karta of HUF and as his father became old, he executed a general Power of Attorney in favour of Shri Shesh Narayan to carry out his business on 01/07/1992.

06-It was further stated by Shri Gauri Shankar, elder son of the assessee that he ceased as a partner of M/s. Gauri & Brothers since 25/10/1990 and he has no idea about execution of the partnership deed dated 06/04/1992 of which he was a partner and wherein M/s. Shree Traders has been shown as branch of M/s. Gauri Shankar & Brothers. During the course of proceedings under Section 132(5), Shri Gauri Shankar has furnished copy of family settlement certificate dated 25/10/1990 and the original document was also seized from the residence of the assessee.

07-Later on a notice under Section 148 dated 30/03/1995 was issued and in response the assessee has filed return of income in the status of HUF. Thereafter, the assessment under Section 143(3)/147 was made on 27/03/1997. The assessment made on 27/03/1997 in short is as under:-

(a)	Income as per return	Rs. 6,000/-
(b)	Addition:
(i)	Unexplained investment in the mortgage business and interest income thereon	Rs. 10,779/-
(ii)	Unexplained investment / credit to Samuhik Kheti Khata	Rs. 1,21,429/-
(iii)	Undisclosed income of M/s. Shree Traders	Rs. 24,000/-
	Thus Total income assessed was	Rs. 1,62,208/-

The assessment order also reveals that the assessee has made a disclosure through Shri Shesh Narayan Bhagat of Rs. 1,50,000/-, however, later on retracted the same during post search period and during assessment proceedings.

08-The Assessing Officer has made addition of Rs. 16,779/- on protective basis on account of unexplained investment in money lending business (Girvi business) and interest income therefrom, which included income of Rs. 6,000/- disclosed by the assessee under this head. Thus, made an addition of Rs. 10,779/-. The Commissioner of Income Tax has deleted this addition in full stating that there is no concrete basis for estimation of income from money lending business.

09-The matter has finally reached the ITAT. The appeals were also filed by the Department and the ITA relying upon the decision of Hon'ble Supreme Court in the case of K.M. Sharma Vs. ITO reported in 254 ITR 772 has directed the Assessing Officer to apply Sub Section (1) & (2) of Section 150 of the Income Tax Act, 1961, which intends to lift the embargo of the period of limitation under Section 149 enabling the authorities to reopen the assessment not only on the basis of the order passed in the proceedings under the Act of 1961 but also on the basis of an order of a Court in any proceedings under any law.

10-The Income Tax Appellate Tribunal, Indore Bench, Indore relying upon the decision in the case of Jeetmal Nagri Vs. CWT reported in 148 ITR 139 (M.P.) has held that the income earned by Shri Harnarayan Bhagat should has been assessed in his individual capacity, whereas the income earned by his sons with the assistance of their shares provided to them under the partial partition of the HUF, should have been assessed in their HUF status, in case of each son consisting of himself, his wife and their children.

11-The Department as well as assessee both have challenged the order passed by the ITAT and the present bunch of cross appeals / objections have been filed by the respondents assessees against common order dated 30/12/2005 passed by ITAT, Indore Bench, Indore in bunch of appeals filed by Harnarayan Bhagat and others. The ITAT after holding in favour of the assessees (appellants) that after partial partition of HUF of Harnarayan Bhagat, Harnarayan could not have been assessed in the status of HUF and his sons could not have been assessed as Individuals has further remanded the matters and directed the Assessing Officer to reopen the assessments of new assessees for all assessment years after 1989 and assess them in correct / new status. The respondents herein are aggrieved only by such direction given by ITAT to make assessments in new status as it has the effect of bar of limitation prescribed under Section 149 for issue of notices for assessments / re-assessments / re-computation as also the limitation prescribed by Section 153 for completing the assessments / re-assessments / re-computation.

12-Learned counsel for the respondent submits that since the Income Tax Department was also aggrieved by the appellate order passed by ITAT, the department preferred appeals under Section 260-A of the Act of 1961 on the substantial questions of law arising out of appellate order, however, the appeals filed by the Department have already been dismissed by this Court as not maintainable in view of the “Tax Effect” being less than prescribed monetary ceiling limit as prescribed in CBDT circular. Although, initially the cross objections filed by assessee (respondents) in the appeals filed by the Income Tax Department were also dismissed along with the appeals of Income Tax Department, later on this Court on a review application filed by assessees restored the cross- objections and has admitted the same on substantial questions of law formulated by this Court.

13-The following substantial question of law arises in the present appeal:-

“Whether, the learned ITAT was justified in not treating the Harnarayan Bhagat as a separate HUF for making the assessment in the status of HUF or erred in issuing the direction in making the fresh assessment in a new status when the said assessment is barred by limitation.”

14-The controversy in the present cases is therefore, about validity of directions made by ITAT to make assessments Harnarayan Bhagat and his three sons in the new status of Individuals / HUFs after holding that the earlier assessments made in the status of HUF / Individuals were not correct.

15-Shri Harnarayan Bhagat was assessed in the status of HUF as Karta in respect of the business carried on in the name of Shri Radhakishan Balkishan. A partial partition of HUF business took place on 13/11/1974 in which Smt. Bansibai W/o Harnarayan, Shri Harnarayan and their three sons were given equal shares. The said partial partition was accepted by ITO under Section 171 of the Act of 1961. No business assets were left in the HUF and business of HUF came to an end after the said partition.

16-Since wife of Harnarayan Bhagat was also allotted her equal share in the above partial partition, so far as the HUF of Harnarayan Bhagat is concerned, Harnarayan was left as the sole surviving coparcener in said HUF and his status was converted into an individual in respect of assets allotted to him in the above partial partition, however, despite the said position, Shri Harnarayan wrongly filed the returns in the status of HUF. Similarly the three sons of Harnarayan who were married having wife and children also wrongly filed their respective returns as individuals although their correct status on receipt of the property in partial partition was that of their respective HUFs.

17-Assessments of Harnarayan Bhagat for various assessments years were completed in the wrong status of HUF by Assessing Officer on the basis of returns filed without examining his correct status post partition. Similarly assessments of his sons were completed in status as Individuals of his sons were completed in status as Individuals as against correct status of their respective HUFs which were challenged in appeals by all assessee on the ground that, mere admission of the assessees about wrong status could not bring liability upon them and Assessing Officer ought to have assessed them in the correct status, that is, Harnarayan ought to have been assessed in the status of individual and his sons ought to have been assessed in the status of their respective HUFs consisting of their respective wives and children. The matters reached in ITAT and the ITAT, Indore Bench, Indore has disposed of all the appeals by its impugned common order dated 30/12/2005 and the present cross objections are arising out of said common order to the extent of directions given by ITAT to the Assessing Officer to make assessments in new status.

18-A perusal of ITAT's order would show that the ITAT in paragraph No.20 of its order has accepted the contention of assessee that, if the assessee has committed any mistake by filing returns in wrong status of HUF, it was always the duty of Assessing Officer to make assessment in correct status, particularly when all facts were known to him. The ITAT, after referring to the decisions in the case of Jeetmal Nagri (Supra) has held as under:-

“Since Harnarayan and his wife were given equal shares, independent of each other in partial partition, Harnarayan Bhagat did not retain the status of HUF. Similarly so far as the sons are concerned since on the date of partial partition they were married and having children they from their respective HUF with their wife and children. Accordingly, ITAT held that the income earned by Harnarayan Bhagat should have been assessed in his individual capacity, whereas income earned by his sons with the assistance of their shares received under partial partition should have been assessed in their HUF status, in case of each son consisting of himself, his wife and children. The issue was accordingly decided by ITAT in favour of assessees.”

19-The respondents have further submitted that after coming to above conclusion that the assessment were made in wrong status, the ITAT has then in paragraph No.21 of its order, further directed the Assessing Officer to make assessment in case of Harnarayan Bhagat in his individual capacity and in case of three sons in the status of their HUF consisting in case of each son, of himself, has wife and their children, although period of limitation prescribed for their assessments have already expired. The said direction is challenged because such directions would have the effect of lifting bar of limitation prescribed for making the assessments in respective hands.

20-The contention of the learned counsel for the respondent is that so far as the decision of ITAT to the effect that, after the partial partition Harnarayan Bhagat could not be assessed in the status of HUF but he should have been assessed in the status of individual and his sons could not have been assessed in the status of HUF but they should have been assessed in their HUF status is concerned, since the appeals filed by Income Tax Department have already been dismissed, the said part of order of ITAT has attained finality and the only question that is required to be decided in present cross-objections at the instance of the assesses is as to whether, the ITAT have directed direct Assessing Officer to make assessment in new status because such directions would have the effect of lifting the bar of limitation prescribed for reopening assessments / completing assessments of the respective assesses in the new status.

21-Learned counsel has drawn the attention of this Court towards Section 150(1) of the Act of 1961 which lifts the bar of limitation described under Section 149 for issuing a notice under Section 148 for making an assessment or reassessment or re-computation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this act by way of appeal, reference or revision or by a Court in any proceeding under any other law. Similarly, he has drawn the attention of this Court towards the provisions of Section 153 (3) (as the said provision was in force at the relevant point of time), which also lifted the bar of limitation and permitted the assessment to be completed at any time, where assessment, reassessment, re-computation is made on the assessee or any person, in consequence of or to give effect to any finding or direction contained in an order under Sections 250, 254, 260, 262, 263 or 264 or in any order of any Court in a proceeding otherwise by way of appeal or reference under this Act.

22-He has further contended that the expression “in consequences of or to give effect to any finding or directions contained in any order” has been interpreted by the apex Court. Reliance has been placed upon a judgment delivered by the apex Court in the case of ITO Vs. Murlidhar Bhagwandas reported in (1964) 52 ITR 335, wherein the apex Court has held that the expressions “findings” and “directions” in second proviso to Section 34(3) (the provisions of which were similar to the above provisions), means, a finding necessary for giving relief in respect of the assessment for year in question, and the direction which the appellate or revisional authority, as the case may be, was empowered to give under the sections mentioned in the proviso. A “finding” therefore, could only be that finding which was necessary for disposal of appeal with respect of assessment of a particular year.

It was further held that the AAC might hold, on the evidence that the income shown by the assessee was not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The findings in that context were that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year, but that was not a finding necessary for disposal of appeal in respect of year of assessment in question. That the expression “any person” in second proviso of Section 34 (3) referred to one who would be liable to be assessed for the whole or part of income, that went into the assessment of the year of appeal or revision. The apex Court, therefore, held that the second proviso the Section 34(3) did not save the time limit prescribed under Section 34(1) in respect of escaped assessment of a year other than that which was subject matter of appeal or revision, as the case may be, and accordingly the notice issued in that case was held to be barred by limitation, not saved by second proviso to Section 34(3).

23-Reliance has also been placed upon a judgment delivered in the case of Rajinder Nath Vs. CIT reported in (1980) 120 ITR 14. The apex Court in the aforesaid case has held that the expressions “finding” and “direction” in Section 153(3) are limited in meaning. If finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for disposal of a particular case, that is to say, in respect of a particular assessee and in relation to particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that, in order to render a finding in respect of A, a finding in respect of B may be called, for instance, where the facts show that the income can belong either to A or B or to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respective to B is initially involved as a step in the process of reaching the ultimate finding respecting. If however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for disposal of case pertaining to A.

24-As regards the expression “direction” in Section 153(3)(ii) of the Act, it is now well settled that it must be express direction necessary for disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding case before it. The expressions “findings” and “direction” in Section 153(3)(ii) must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or Court. The apex Court has referred to decision made in case of Murlidhar Bhagwandas (Supra). He has also placed reliance upon the judgments delivered in the case of N.Kt. Shivalingam Chettiar Vs. CIT reported in (1967) 66 ITR 586, Foramer Vs. CIT reported in (2001) 247 ITR 436 and Gupta Traders Vs. CIT reported in (2004) 135 ITR 504.

25-In light of the aforesaid judgments, it can be safely gathered that the direction given by the ITAT to make assessment in new status are clearly contrary to the law laid down by the apex Court in the aforesaid cases and the order of the ITAT to the aforesaid extent deserves to be quashed and is accordingly quashed in all the appeals. The question of law answered is in favour of the assessee.

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