Vildirect: IncomeTax-caselaws-1991-VIL-130-ITAT-JAI

1991-VIL-130-ITAT-JAI

Equivalent Citation: TTJ 040, 333,

Income Tax Appellate Tribunal JAIPUR

Date: 13.02.1991

MADHOLAL.

INCOME TAX OFFICER.

BENCH

Member(s) : CH. G. KRISHNAMURTHY., H. S. AHLUWALIA., A. KALYANASUNDHARAM.

JUDGMENT

These four appeals are more or less otherwise inter connected. They are, therefore, disposed of by this single order.

2. The main dispute in these appeals relates to the addition of incomes earned by Smt. Shanti Devi and Smt. Mansa Devi and M/s Srimodhapur Textiles in the name of Sri Manoharlal who admits to be the proprietor of M/s Manohar Textiles, Madanganj, Kishangarh. Shri Manoharla drives income from production of clloth after purchasing yarn and converting it into cloth with the help of some power looms. He has also some trading activities. There was a search at his premises and it was found that four concerns were run by him, namely, Manohar Textiles, Shanti Txtiles, Mansa Textiles and Srimadhopur Textiles. All these concerns filed separate returns of income at more or less below taxable limits. The ITO thoroughly scrutinised the account books and other facts and was of the opinion that these concerns really belonged to Sri Manoharlal, who had divided its business to divert the profits. He also was of the opinion that the books of the assessee were defective. In case of M/s Manohar Textiles, total purchases and manufacturing of cloth from 4th Oct., 1978 was to the tune of Rs. 86,111 whereas the sales were only Rs. 39,675. The closing stock was at Rs. 4,196. Thus the purchases and manufacturing exceeded the sales and closing stock by Rs. 42,244. The assessee was confronted with this discrepancy and ultimately stated that this was because when he purchased some articles, he sent it for checking and sizing and it was only when he received the purchase bills that the entries were made in the books. But, some times, the sales were made before the receipt of the purchase bills. This showed that the assessee was not maintaining the books regularly and had also not maintained any journal or Bahi to keep records of the transactions. He had only manipulated the purchases and sales as they suited his convenience. The assessee's concerns involved manufacturing processes and he should have maintained manufacturing a/c including day to day consumption of raw-material as well as production, but, he did not do so. Therefore, the provisions of s. 145(2) were attracted. The assessee has shown a gross profit at about 10.9 per cent and manufacturing expenses to the tune of Rs. 43,463 had further been claimed in the profit and loss account. After giving the margin for that, the G.P. would come to only 3 per cent which was ridiculously low. The AAC, therefore, ultimately estimated the addition of Rs. 18,430, besides that a sum of Rs. 3,101 which was spent on purchase of electric motor was held to a capital expenditure. The books of the assessee further showed a cash credit of Rs. 3,000 in the name of Sri Dwarka Pd. deceased husband of Smt. Kamla Devi on 31st July, 1978. This Dwarka Pd., according to the statement of Smt. Kamla Devi had died more than five years ago and, therefore, this cash credit was obviously bogus. The same was added to the assessee's income.

3. Coming to the aspect of clubbing in the case of Srimadhopur Textiles, the assessee stated that he was running this concern in partnership with Smt. Kamla Devi, where the enquiries from the Bank of Baroda revealed that Srimadhopur Textile was being shown in the bank as proprietory concern, whose proprietor was shown to be Manoharlal. Smt. Kamla Devi was the mother-in-law of Sri Manoharlal and was residing away from Kishangarh. All the activities of this concern were done by Sri Manoharlal and according to the ITO this was the assessee's concern.

4. Similarly, regarding M/s Shanti Textiles, the statement of Smt. Shanti Devi showed that she had absolutely no idea regarding the investment and she categorically stated that it was her husband who was looking after the business activities. She even did not know the location of her business premises and the factory. She had purported to make an investment of Rs. 6,101, the source whereof was again not explained. In her own case a protective assessment had been made wherein this point was discussed in detail. Therefore, the income in the name of Smt. Shanti Textiles was liable to be clubbed in the hands of the assessee. Again Mansa Textiles was being run in the name of Smt, Mansa Devi, who was wife of the brother of the assessee. According to the ITO, this was again a benami concern of the assessee who was managing the entire business, so much so, that the bank account was being operated by Sri Manoharlal alone. This aspect of the matter was also discussed in the assessment order of Smt. Mansa devi. That assessment was made on a protective basis. This lady was a housewife and lived with her husband at some other place.

5. In the search operations completed on 26.9 (sic) the assessee was found in possession of a book in which transactions relating to all the four concerns were recorded at one place. When confronted, the explanation of the assessee was that all these four concerns had a common Accountant and in order to keep track of banking transactions, a common note book had been kept. However, the ITO pointed out that this very Munim was looking after the account of some other concerns like M/s Naresh Textiles, Naresh Factory but the transactions of these concerns were not recorded in these books. It were only transactions of the four concerns, mentioned above, that were recorded therein. This showed that there was one common man behind all these four businesses. Apart from that, two workers, namely Sri Jagdish s/o Nauratmal and Jadgish s/o Gipalji were examined and they specifically stated that all the 12 looms in the common shed shall belong to Sri Manoharlal. There was no production register maintained for each of these looms.

6. Coming to the estimate of profits in Srimadhopur Textiles, the assessee showed profit of Rs. 3,598 on total sales of Rs. 1,95,077. In another account of Sooth Cone, a loss of Rs. 3,548 had been shown on total sales of Rs. 1,00,895. Keeping in view that no proper books of a/c had been maintained, the ITO proposed an addition of Rs. 12,277. The IAC in his directions under s. 144B computed the trading additions at Rs. 15,727. A further addition of Rs. 10,000 was made on account of bogus cash credit standing in the name of Smt. Kamla Devi. Besides that a sum of Rs. 1,500 was disallowed on account of disallowable Dalali expenses. Thus, the total income of this business was computed at Rs. 32,179. In case of Mansa Textiles, again the ITO noticed that the assessee had debited certain manufacturing expenses in the trading and loss account. Ultimately, he estimated the gross profit at Rs. 37,134 as against Rs. 12,324 shown by the assessee and made an addition of Rs. 12,324 raising the income of this concern at Rs. 21,915. In case of Shanti Textiles, a trading addition of Rs. 4,117 was made as per directions of the IAC, a sum of Rs. 6,101 was added on account of unexplained credit in the name of the assessee and Rs. 4,200 were added on account of squared up accounts in the name of Ramzan Imamuddin. Thus, the total income of the assessee was computed at Rs. 1,06,610.

The assessee went in appeal to the CIT(A) who discussed the matter at length. In case of Shanti Textiles, he upheld the conclusion of the ITO that it really belonged to the assessee. He, however, deleted the trading addition of Rs. 4,117. As regards her own unexplained cash credit of Rs. 6,101, he reduced it to Rs. 3,000 and deleted the cash credit in the name of Ramzan Imamuddin, as according to him this amount represented credit for supply of goods. In case of Mansa Textiles, he again upheld the conclusion of the ITO that the business done by this concern really belonged to the assessee. However, he was of the opinion that if the machinery parts and repairs of Rs. 14,142 were taken out from the profit and loss account or manufacturing a/c, the gross profit worked out to be 6 per cent which would be quite reasonable. He, therefore, deleted the addition of Rs. 12,324 which accordingly to him was wrongly made to the trading results. Apart from that he directed that proper deduction shall be granted on the power looms and the ITO had no reason for disallowing it on the capital cost. In case of Srimadhopur Textiles, the CIT(A) was of the opinion that the matter requires reconsideration. The ITO was directed to appreciate the entire material and evidence on the record and the question of genuineness of partnership was directed be decided by him afresh. The income of the firm was also to be recomputed. As regards cash credits standing in the name of Smt. Kamla Devi, the matter was also restored back to the file of the ITO who was directed to examine the genuineness of the deposits after giving another opportunity to the assessee. Besides that he held that the entire addition in respect of business of this concern could not be made in the hands of the assessee and the ITO should also examine the question of registration to this concern.

7. As regards the trading results of Manohar Textiles itself, the CIT(A) reduced the trading addition of Rs. 15,727 to Rs. 7,000 and directed the deletion of credit of Rs. 3,000 standing in the name of Smt. Kamla Devi. Apart from that, he directed the ITO to re-examine the question of depreciation on the electric motor.

8. Both the assessee and the Department have come in second appeals against this order of the CIT(A). Apart from that there are two more appeals by the Department against the order of the AAC in the assessments of Smt. Shanti Devi and Smt. Mansa Devi for the asst. yr. 1982-83 which were made by the ITO in a protective capacity. The AAC has made them substantive on the assumption that the CIT(A) had already deleted the incomes earned by these parties from the income of the assessee. The Department has, therefore, come up in second appeals before us.

9. We have heard the representatives of the parties at length in all these matters. So far as appeal Nos. 1152 and 1153 are concerned, they are liable to be accepted on the short ground that the AAC has wrongly construed the order of the CIT(A) who had actually held that the businesses carried on in the names of Shanti Devi and Mansa Devi did not really belong to them. Moreover, the case of Sri Manoharlal was not before the AAC, therefore, he could not say as to whom this income really belonged. His making the protective assessment to be substantive ones, is, therefore, liable to be set aside on this short ground.

10. We now come to the two main appeals. In the assessee's appeals a number of grounds have been taken. The first relates to the addition of Rs. 3,101 on account of capital contribution by Smt. Shanti Devi. It was stated that the Indian ladies do keep certain monies on various occasions which are received by them on various occasions. Keeping in view the status of this lady, the possession of Rs. 6,101 being with her was not impossible. We would ordinarily have accepted this contention, but this is not the only money belonging to Smt. Shanti Devi. In answer to the question put by the ITO at the time of search, she stated that she had fixed deposits in the Union Bank in the sum of Rs. 2,500. If she had been carrying on her own business with her money she would ordinarily require all the money for doing this business and would have any more money to keep in fixed deposits in a bank. This ground appears to have no substance and is, therefore, rejected.

11. We next come to the main issue, namely, whether Smt. Mansa Devi and Shanti Devi had their separate business? The learned Representative of the assessee referred to a number of authorities, namely, CIT vs. Daulat Ram Rawatmull 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC), Manilal Dahyabhai vs. CIT (1959) 37 ITR 398 (Bom), Madura Knitting Co. vs. CIT (1969) 30 ITR 764 (Mad), United Patel Construction Co. vs. CIT (1966) 59 ITR 424 (MP), SSA Gangamirthammal & Co. vs. CIT (1969) 74 ITR 473 (Mad), Setabganj Sugar Mills Ltd. vs. CIT (1961) 41 ITR 272 (SC). Reference was also made to a judgment of this Tribunal in M/s Ramchand Shankerlal vs. ITO (ITA No. 940/Jp/82). According to him, it was laid down in these authorities that the apparent should be presumed the real unless the contrary was proved. Even, if some of the ladies were not able to give satisfactory accounts of their relations with the other partners, the normal presumption of law that they were the partners, inasmuch as, they had not denied their ownership and that presumption should have been taken in the matter. There was no restriction on a lady to carry on the business. These ladies had their capital. They could have carried on their business. May be that the business was supervised by Sri Manoharlal and other employees and the ladies may not have personally attended to it, but, there was no bar in the ladies carrying on their business. Particular reference was made in this behalf to the fact that four power looms stood in the name of each of these persons, Smt. Shanti Devi and Smt. Mansa Devi. In this behalf, the representative of the assessee drew our attention to the statement of Smt. Shanti Devi, where she had owned her having carried on this business. Orders of the Sales- tax Department and the Department registering the power looms in separate names were produced for our perusal. After carefully considering all the facts and circumstances of the case, we are not inclined to accept this contention. Smt. Shanti Devi was found on the spot when the search party went there. According to Mr. Dani, she was not in a composed state of mind as she had been suddenly taken aback and, therefore, could have made some mistakes. We are afraid, that we are not inclined to attach any importance to this argument. It was pointed out by the D/R that the search party reached the place in the morning and Shanti Devi kept them waiting there till evening, on the ground that she was not prepared to give any statement. Ultimately, she made a statement. It cannot be said that she had lost frame of her mind for the whole day. She clearly stated that she had four power looms and cloth is manufactured by M/s Shanti Textiles. But, she also added that she did not know how much capital had been invested. This was only known to her husband. Here we are not considering the lady as a partner. It is stated to be her own proprietory concern. Again she clearly said that the work of supervision and sales were done by her husband. Lastly she stated that she did not know the exact place where the factory is located. These answers by her clearly show that, in fact she was not taking any interest in the factory and it was her husband who was conducting the entire business. The earlier part of her statement clearly records that the Income-tax people had come in the morning, but, she had not given the key but gave the key when she was told that otherwise the cup-board would be broken open. Mansa Devi was not produced in the proceedings at all although she is stated to be carrying on business in her own name. When the question of benami nature of the transaction was involved and Mansa Devi was carrying on her own business, she should have at least been produced by the assessee or come forward in her own proceedings to depose on her own behalf. Even the notice sent to Smt Mansa Devi at the address mentioned in the return, namely, Mansa Textiles were never served upon her. They were either served upon some employees or upon Sri Manoharla himself. Throughout the income-tax proceedings, in respect of Mansa Textiles or Smt. Shanti Devi, Manoharla attneded it. Even before us Shri Dani appeared for all of them. The fact that all looms are not in the name of Sri Manoharlal does not improve the position because it was not disputed before us that one person was allowed to have only four power looms in his name so that Sri Manoharlal could not have more than 4 power looms in his name and naturally he had to run the other looms in the name of somebody else. One is his wife and the other is his brother's wife. In this behalf, the only possible source from where these facts could be verified were either the employees or the banks. Now all the bank accounts were being operated by Sri Manoharlal. Both the employees stated to the raiding party they were employees of Sri Manoharlal. May be that since Sri Manoharlal was looking after the business, they stated accordingly. But, then there should be positive evidence, the form of actual carrying on of business by a different person. This is not a case of partnership where one person can be stated to be an active partner and other a sleeping partner. If a husband wants to carry on business in the name of his wife, he is allowed to do so, but then it is really his income and not the income of his wife. Even if the husband and wife were partners in a concern, the income might be clubbed under s. 68 of the IT Act. In the present case, the husband is running 12 looms, four in the name of his wife and four in the names of brother's wife. The wife does not know anything. The brother's wife never came forward to make any statement. The employees stated that they are the employees of the husband. The husband has been conducting all these proceedings as well as the bank a/c. The husband himself admits that Smt. Mansa Devi had given authority to operate the bank a/c to him and the same was done by his own wife. What more is required to show that they were really the business of the husband Sri Manoharlal. We, therefore, reject the assessee's grounds raised in this behalf.

12. Apart from that there are some grounds relating to non-consideration of claim of depreciation on the cost of four power looms. Since the matter has been sent back to the ITO in relation to the business of Srimadhopur Textiles, we direct that he shall look into this matter afresh.

13. There is a ground relating to trading addition in the case of M/s Manoharlal Textiles. The CIT(A) sustained an addition of Rs. 7,000. According to the assessee, even if the old rate were to be applied, the addition could be only Rs. 1,400. The expenses of the various businesses having been mingled it is not possible to rely on the books straight away. But, keeping in view all the circumstances, we restrict the addition to Rs. 4,000.

14. Another ground taken is that no interest had been levied either under s. 215 or 217. Similarly, no interest had been levied by the ITO under s. 139(8). Therefore, no interest could be charged in the demand notice itself. The grounds raised in this behalf were not considered by the CIT(A). Normally, we would have directed the ITO to look into these orders afresh, but here we find that while the ITO has specifically issued penalty notices, he has not made any reference to charging of interest. In these circumstances, the assessment order itself miserably fails to levy interest. The demand notice can be considered along with the assessment order, for purpose of calculation. But, if the assessment order does not make any reference to charging of interest, the question of calculation would not arise. The interest charged under s. 215 and 217 having not been levied in the original assessment order, should be deemed to have been deleted.

15. We now come to the Departmental appeal. Two grounds have been taken therein, namely, that the CIT(A) was wrong in admitting fresh evidence in the shape of deed of partnership of the so called firm Srimadhopur Textiles without giving any opportunity of being heard to the ITO. The CIT(A) was also wrong in directing the ITO to examine Srimadhopur Textiles was a genuine concern or merely a benami concern of the assessee and deleting the addition of Rs. 32,179. Since the CIT(A) has only sent the matter back to the ITO and the first appellate authority has a right to restore the matter back, after setting aside the order, even if he has been a little lenient in admitting additional evidence, to our mind, this is no ground to interfere with his order at this stage because, he has not decided the matter finally. It was pointed out by the Departmental Representative that the so called partnership deed between Sri Manoharlal and Smt. Kamla Devi was executed on 28th July, 1979, i.e., long after the expiry of the accounting year. Even that document is not a partnership deed. It only mentions some past transactions and is a simple agreement. There appears to be some force in this contention and obviously this partnership firm may not be entitled to registration. But, still the question as to how much money Smt. Kamla Devi had invested and what was the income earned by her, would have to be considered. The balance income, of course, would not be treated as an income of URF but would belong to Sri Manoharlal, the present assessee, because it can only be excluded from his total income, if it is taxed elsewhere and there being no regular partnership, this income will not be taxed as the income of any firm. The only thing is that Smt. Kamla Devi may have made some investment on the death of her husband and there might be an agreement between her and the assessee to pay her something in lieu thereof. To this extent, the assessee's income will be taken away by an over-riding title and for this purpose the matter has certainly to be looked into. Moreover, as we have pointed out above, the question of depreciation has not been considered by the CIT(A) and we have directed the ITO to look into this matter also. Therefore, we do not at this stage think it fit to interfere with the order of the CIT(A) restoring the matter to the ITO and we leave the matter after noting down the arguments of the Departmental Representative which can be duly considered by the ITO, after giving other party an opportunity of being heard.

16. In the result the ITA Nos. 736 is partly allowed 783 is dismissed, while ITA Nos. 1152 and 1153 are allowed.

23rd April, 1986

A. KALYANSUNDHARAM, A.M.

I have had the benefit of going through the order of my learned brother. The issue in these appeals are in respect of who is the owner of the various power looms. According to the Department was a common book on the basis of which entries were made in separate book of the four assessees. This particular action in the opinion of the Department has been so made to defeat the provisions of the Act and has the basis of tax evasion. The claim of the assessee on the other hand was that the memoranda book was so maintained by one person for recording of transaction of the various persons and the examination of the memoranda book would indicate that the entries itself clearly indicate to whom it belongs. Subsequently what was done was accounting of transactions as are related to the separate assessees. According to the assessee this was so done in view of the smallness of the size of transaction and in view of the smallness of the transaction it did not require an elaborate office and everything was routed through one roof. This was explained during the course of hearing as similar to what transpires in a bank which receipts and pays money on behalf of several of its customers. It was also argued that the separate power looms which were purchased by separate person from their own sources were brought together under one roof for effective utilisation of all the power looms as it was the practice of Textile Commissioner not to allot more than 4 power looms per head. From this two situations arise. The first being that the investment per head per four looms being small, a person with a small capital could start a small organisation for himself. On the other hand it could also be that a person wanting to have more than four power looms, as in the present case, there are 16 power looms might use the names of three other persons and purchase the power looms in their names out of his own money and use it in his own premises and for his own purpose. In this respect the statement of Smt. Shanti Devi which has been referred to both by the learned Departmental Representative and the Authorised Representative of the assessee is clearly indicative of the fact that she is the owner of the property. To a question that was put to her specifically as to whether she has any power looms in her name, she replied that she is owner of 4 power looms and she gave some explanation about the source from which she came to be the owner of the power looms which explanation was found to be unsatisfactory by Department. In the case of the other lady Smt. Mansa Devi, she was not at all examined. However, on her behalf Shri Manohar Lal appeared before the IT authorities as her Manager and gave reasoning. The statement of two of the employees who were commonly working for all the power looms were recorded by the Department according to whom their master or employer was Shri Manohar Lal. This particular statement was connected with the statement of Smt. Shanti Devi, where she had admitted that she does not carry on the work herself but, was done by Shri Manohar Lal. The point, I am trying to derive at is that the parties concerned in whose names the looms stand have not denied that Shri Manohar Lal was looking after the operations of their power looms. The suspicion that is in the mind of the Department is because of a close relationship of the persons with Shri Manohar Lal and also for the reasons that Shri Manohar Lal happens to look after all the 16 power looms. Even in the case of the partnership concern in which Shri Manohar Lal is a partner alongwith Smt. Kamla Devi, the same view was taken by the ITO but the CIT(A) was of the view that it could not be clubbed with Shri Manohar Lal. There is no denial of the fact, that separate books of accounts have been maintained in respect of the 4 power looms and there is no finding of this particular fact that the accounts in respect of the 4 different concerns have all been written up in one and the same day. On the date of survey the Department seized all the books of accounts and records of all the 4 concerns. The main suspicion in the minds of the Department in respect of the accounts is due to the reason that they have all been found in one place. To my mind, this also does not lead to the conclusion that there is only one main person to whom all the activities should be related to. The other reasoning given is that all the power looms are found in one place. It is not denied that, in that place apart from the looms of 4 persons concerned, there are other looms owned by different persons and operated by different persons so that the space required for 4 of such looms being so little, it could be effectively used by bringing in more looms under one roof. To my mind, if Shri Manohar Lal was the real owner there was absolutely no necessity for him to represent the others as Manager and also appear before the IT Authorities if it were not a true fact that he was the Manager. If he was the owner he could have asked any other person to appear on behalf of the different persons before the IT Authorities to substantiate the fact that they are separate owners. This he did not do, which further strenghthens the claims of the assessee that it was probably a genuine case purely intended to bring in the sources available with different persons for effective management and operation, to which proposition there can be no bar under any Statute. The further suspicion is due to the fact that some of the parties are ladies and very closely related. The Department has taken an adverse view to the answer of Smt. Shanti Devi that it is her husband who is looking after the business. It was also argued by the learned Senior Departmental Representative that the lady when confronted by the IT Department in the morning made them wait till the evening, after which only she allowed them to carry out the search and, therefore, the submission that was made was itself incorrect to hold that the lady was unaware of what was happened around and for this reason the answer that it was her husband who was managing the business should be taken to mean as that her husband is the owner, to my mind is totally improper. If the stand of the Department is taken as right then it means that no Hindu lady could carry on any business either by herself or through a representative or even act as a partner in a firm. It is an accepted fact that in most cases ladies are dormant or sleeping or financing partners. No doubt, that there is no agreement that the husband of the lady would be managing her affairs for her but as is the general practice which is prevalent in the society that husband managing the affairs of her husband to which proposition I do not think that there can be any objection from any point so long as the genuineness of the lady possessing the funds and having invested the funds for the business have been established. On the question of genuineness, the CIT(A) was of view that she did not prove the genuineness. To my mind, since the entire transaction has been coloured by suspicion due to closeness of relationship of the parties concerned, proper enquiries have not been made. I am, therefore, of the view that this matter should have been looked into afresh by the CIT(A) on the basis of observations made by me above and come to the conclusion whether the other parties are benami of Shri Manoharlal or the other parties are parties by themselves and Shri Manohar Lal is only their mouth piece or manager. I, therefore, set aside the order of the CIT(A) in all the cases to be redone.

The other issues raised by the assessee would be considered in the light of his finding on the main issue. The appeals partly allowed on these terms.

5th Dec., 1990

CH. G. KRISHNAMURTHY, PRESIDENT

The assessee in this matter is an Individual deriving income from purchasing of yearn and converting into cloth with the help of powerlooms. It appears under the policy of the Government, the installation of powerlooms is regulated by the law to be administered by the Textile Commissioner who has to give permission. No person, it is mentioned, can have more than four power-looms. During the search operations conducted by the Department, it came to their notice that there were four other textile units run in the following names:

1. M/s Manohar Textiles

2. M/s Srimadhopur Textiles

3. M/s Mansa Textiles

4. M/s Shanti Textiles

M/s Manohar Textiles is the proprietory concern of the assessee Shri Manoharlal. M/s Srimadhopur Textiles is a partnerships concur between the assessee and Smt. Kamla Devi, the assessee's mother-in-law. M/s Mansa Textiles is claimed to have been owned by Smt. Mansa Devi wife of the assessee's brother. M/s Shanti Textiles is claimed to be by one Smt. Shanti Devi, wife of the assessee Shri Manoharlal. These four person have filed their individual returns disclosing certain incomes all of which were below Rs. 10,000 and assessments of them were completed, I am told, on a protective basis. Somehow, because of the close relationship or because of some other factors which will be unfolded in the course of this order, the Department got suspicious that all these concerns belonged to the assessee and they were floated in the names of those persons with a view to divert the profits. One of the reasons that prevailed with the ITO to come to this conclusion was that Shri Manoharlal, the assessee herein was handling the business of other concerns also; that in the survey operations the account books of all those concerns were found kept at one place; that the workers of all four concerns were common and one of whom on examination had mentioned that he was working for Shri Manoharlal only thereby exhibiting his ignorance that these concerns belonged to persons other than the assessee Shri Manoharlal. In the case of M/s Srimadhopur Textile, the ITO noticed that in the Bank, M/s Srimadhopur Textiles were shown as the preparatory concern of the assessee and other partner Smt. Kamla Devi was the partner residing outside, far away from the place and business activities were being looked after by the assessee.

2. In the case of M/s Shanti Textiles though it was shown to be the proprietory concern of Smt. Shanti Devi wife of the assessee Shri Manoharlal, she in her statement recorded on 26th July, 1979 had stated that she had absolutely no idea either as regards the investment made by her in the concern or even about the location of the business and that her husband was looking after the entire business activities. It was said that a sum of Rs. 6,000 was invested by her in M/s Shanti Textiles, but there was no proper explanation for the investment. As regards Mansa Textisles, again he held that though this was shown to be the preparatory concern of Smt. Mansa Devi w/o the assessee's brother, the Bank a/c of this concern was operated by Shri Manoharlal as Manager, and that Smt. Mansa Devi was only a housewife and had no knowledge of the business. Another factor that prevailed with the ITO was that during the course of survey operations completed on 26th Sept., 1979, the assessee was found in possession of records which contained the entries of all the four concerns and when confronted the assessee Shri Manoharlal mentioned that it was because all those four concerns had common accountant and transactions were recorded at one place to keep track of the banking transactions. Then one of the workers by name Shri Jagdish was examined on oath. He stated that all the looms in the names of the ladies belonged to the assessee. The ITO, thus, came to the conclusion that there was a common management, common funds and common employees and, therefore, the incomes of these concerns belonged to the assessee. He, therefore, clubbed the incomes of these concerns. I am not here concerned with the quantum of incomes except with the fact that they were clubbed and included in the income of the assessee.

3. In appeal before the CIT(A) against these additions while he confirmed the treatment of Smt. Shanti Devi and Smt. Mansa Devi as Benamidars of the assessee and confirmed the inclusion of the incomes of Mansa Textiles and Shanti Textiles, he held that in the case of Srimadhopur Textiles, the addition was not justified and the matter required further investigation by the ITO. So the assessment was set aside in so far as this issue was concerned.

4. Against the order of the CIT(A), further appeal was preferred before Tribunal, but the members of the Jaipur Bench who heard the appeal could not agree on the conclusion to be reached. The learned Judicial Member held that the Department was justified in treating Smt. Shanti Devi and Smt. Mansa Devi as the Benamidars of the assessee and that the incomes shown to have been earned by them really belonged to the assessee. But the learned Accountant Member held that there was no proper examination made by the Department in coming to those conclusions inasmuch as in the case of Mansa Textiles, neither Smt. Mansa Devi was examined nor her husband and to arrive at such a conclusion without examiny them was improper; that the Department had only suspicion before them, and not any conclusively proved facts and then on the basis of that suspicion it was not proper for the Department to arrive at a conclusion against the assessee. He, therefore, desired that the matter should be sent back to the CIT for fresh examination. It is thus that the matter has come up before me as a Third Member under s. 255(4) of the IT Act, 1961.

5. First there was a difference of opinion between the members as to the point of difference of opinion. The learned Judicial Member mentioned the point of difference as under:

"Whether the eight power looms run in the names of Smt. Shanti Devi & Smt. Mansa Devi should be deemed to really belong to the assessee as has been decided by the Judicial Member or the matter should be looked into afresh by the CIT(A) on the basis of certain observations made by the Accountant Member."

The learned Accountant Member mentioned the point of difference as under:

"Whether the Department had carried out all the exercise in collecting the evidence to establish that the real owner of the power loom is, in fact, Shri Manoharlal or they are harping merely on the basis of a suspicion in which case the conclusion as such having been coloured by suspicion is a conjecture or a surmise and, therefore, requires further examination or not."

But on a close reading there does not appear to be any difference of opinion between the two Members on the point inasmuch as while the learned Accountant Member wanted the matter to be sent back to the CIT for fresh examination in the light of the observations made in his order the Judicial Member confirmed the inclusion of the income having taken that the Department had conclusively proved the Benami nature of the transactions. There is thus no difference on the point of difference of opinion. I have to, therefore, arrive at a finding as to whether the inclusion of the incomes arising to the ladies should be confirmed or deleted or the matter should be sent back for fresh verification.

6. I have heard at length the learned counsel for the assessee Shri R.S. Dani and Shri S.K. Kundra, the learned Departmental Representative and perused the records and statements. This is a case where the Department alleges the Benami nature of the transactions. It is now well settled law that the Benami nature can be established only by proving that the income arising to the Benamidar was really enjoyed by the person who set up the Benami. It was to be proved that the investment must be related to the real persons who set up the theory of Benami. That is to say that the Department has to show at least Prima facie, that the assessee had invested the money in running Shanti Textiles and Mansa Textiles and that he had enjoyed the income either in part or to the entire exclusion of the ladies. The material which the Department has got on record, shows only a strong suspicion, but suspicion, howsoever strong it is, cannot take the place of proof. This is settled law.

6A. Nowhere in the orders of the ITO or that of the Commissioner an attempt was made to show as to who enjoyed the income. It is true that the Department has successfully proved that the management of these concerns was in the hands of the assessee. But, that is not per se sufficient to arrive at the finding of the Benami nature because it is not uncommon for the husband to help the wife in her business or the wife of his brother or the mother-in-law. The assessments made, though on a protective basis, of those ladies, were not yet cancelled. The capital investment by the ladies, it was only said, was not conclusively proved, but it was not shown that the investment made by those ladies was the investment made by the assessee in their names, nor any addition appeared to have been made in the hands of the ladies or in the hands of the assessee for that matter treating the investment made in those firms as the undisclosed income of either of the ladies or of the assessee. Doubts may arise in the mind of the Department about the true nature of the investment, but doubts by themselves cannot established the ownership. The conclusion can be established only by tracing the firm's funds to the assessee. From the books of the assessee there do not seem to be any entries showing the investment in the books of those concerns. The learned Judicial Member after recording the submission of the assessee that the money was invested by the ladies out of their own funds and, therefore, belonged to them did not come to any contrary finding. In other words, there was no finding in his order that the contention raised by the assessee that capital was contributed by the ladies was false, nor is there any finding in the order of the learned Accountant Member about this aspect. I have to, therefore, proceed as a Third Member on the premise that the members have agreed at least by implication that the capital was invested by the ladies out of their own funds and that the assessee was there only for management. In so far as the other point of enjoyment of income is concerned, neither in the order of the ITO nor in the order of the Commissioner, nor in the orders of the Member was there a finding that the income derived by those ladies was enjoyed by the assessee either in full or in part. But on the contrary there was an exercise made by the learned counsel for the assessee before me as well as before the authorities below that the income was enjoyed by those ladies exclusive to the assessee and that there were no inter-connecting transactions between the firms nor inter-lacing transactions. In a case of this nature the account books would be the primary evidence to prove the benami nature. The Department has all the account books with it. It should have examined the account books thoroughly and found out some inter-connecting transaction to sustain an inference that there was some benefit derived by the assessee from these concerns so as to prove the point of enjoyment of the income. That has not been done at all in this case. Therefore, the enjoyment of incomes of these ladies was not at all proved. Under these circumstances when the two main ingredients laid down by the Courts in India about the proving of the benami nature was not established, merely because there was a confession by the assessee that he was managing the affairs of those concerns (which includes operation of the bank account) an inference of benami nature cannot be drawn, so as to make it as a fact to justify the inclusion of those incomes arising to these ladies in the hands of the assessee. When the assessee was managing the affairs of those concerns and when he employed common labourers and a common Accountant, it is but natural to expect some entries being made in the ledgers to be sorted out later to the respective accounts. That does not by itself prove the Benami nature. This entry together with the other evidence collected by the Department should be seen in the light of the admission made by the assessee that he was managing the affairs of these concerns. As I said earlier, mere management does not conclusively establish the Benami nature of the transaction although it can be a pointer in that direction. Moreover, the Department has not examined Smt. Mansa Devi which is fatal to the conclusion, it arrived at about the Benami nature. It now transpired before me that the statement recorded from one of the labourers, i.e., Shri Jagdish who claimed to have said that the assessee was the owner of all the looms was recorded one day prior to the date of assessment, and that statement was never put to the assessee. The assessee was thus denied an opportunity of explaining the statement or from cross-examining the labourer and, therefore, the statement should not have been relied upon by the Department to urge that to the outside world, the assessee was holding himself out as the owner of all the looms even though they were in the names of other ladies nor the fact that because the assessee had got four looms under the law he was prevented from taking more looms and, therefore, conveniently roped in the other ladies to expand the business, does not establish that those ladies were benamidars of the assessee unless, as I said, the important ingredients of benami nature are established.

7. One more aspect that needs to be mentioned in this case is that even though Smt. Shanti Devi mentioned that she does not know anything about the investment of the capital or the location of the premises, that does not prove that she was not owner. For a house-wife in a business handled by her husband, need not know the details and merely because of her ignorance of the details an inference against her cannot be drawn, unless she claims that she knows everything about business but the Department was able to falsify her statement by collecting evidence and by putting it to her. That is not the case here. The Departmental Representative has relied before me on a large number of cases reported in CIT vs. U.G. Krishnaswami Naidu (1972) 86 ITR 239 (Mad), Seth Ramnath Daga vs. CIT (1971) 82 ITR 287 (Bom), Kalwa Devadattam & Ors. vs. Union of India & Ors. (1963) 49 ITR 165 (SC), 14 Taxman 455 (Bom), Dilip Kumar Mitra vs. CIT (1983) 141 ITR 358 (Cal), Kurella Pullayya vs. CIT (1962) 45 ITR 364 (AP) and Sree Mennakshi Mills Ltd. vs. CIT (1957) 31 ITR 28 (SC). I have gone through these decisions both in the course of hearing as well as in my chamber and I find nothing in these judgments to support the stand of the Department. In all these cases what was laid down was that in case the assessee is not able to properly explain the source of investment or where there is evidence to show that the enjoyment of the income was with the person who set up the Benami nature, the income could be assessed in the hands of the real owner including the Benamidar. That is the basic law and it is only by applying those facts in this case that I have come to the conclusion that the Benami nature was not proved.

8. Before I conclude, I have also to deal with an argument raised on behalf of the Department based on the rule of evidence that the apparent is real and the onus of proving to the contrary is one the person who asserts it. In this case the Department has asserted that the apparent was not the real state of affairs and brought in enough of evidence and thus the onus shifted to the assessee and the assessee failed to discharge its onus and, therefore, the conclusion drawn by the Department must have to be approved. I find it difficult to accept this proposition in its entirety. In the ultimate analysis what has to be seen is whether the onus lies upon the Department which is asserting that the apparent is not the real was discharged. When the assessee was called upon by the Department and his statement was recorded, he categorically stated that he was only acting as a Manager and that the ladies were the respective owners of the respective business. Thus the assessee can be said to have discharged the onus that lay upon it by its assertion. Thereafter according to me the onus shifted to the Department and nothing was brought on record to show that the ladies were not the owners of those businesses other than relying upon the evidence already brought on record. This, in my opinion, is not sufficient to say that the onus was discharged which lay on the Department. Another argument that I have to deal with is about the effect of the Benami Transactions (Prohibition) Act, 1988. This Act, by s. 4(1) declares that no suit, claim or action to enforce any right in respect of any property held Benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner. The interpretation of this Act had come up for consideration before the Supreme Court very recently in the case of Mithilesh Kumari & Anr. vs. Prem Behari Khare (1989) 76 CTR (SC) 27 : (1989) 177 ITR 97 (SC). After adverting to the provisions of this Act, the Supreme Court laid down the three cardinal principles, one was that this Act related to the past transactions also and was, therefore, retrospective in nature. When by s. 4(2) of the Act the law nullified the defences available to the real owners in recovering Benmai property from the Benamidar, the law must be applied irrespective of the time of the Benami transactions; that a suit filed by the respondent to recover the property in that case could be said to be pending as suit included an appeal arising from the judgment in the suit. Explaining the effect of sub-s. (2) of s. 4 of that Act, by which the defences based on any right in respect of property held Benami were nullified, the Supreme Court pointed out that once the property is found to have been held as Benami, the real owner is bereft of any defence against the person in whose name the property is held or any other person. In other words in its sweep s. 4 envisages past benami transactions also within its retroactively. In this sense the Act is both a penal and disqualifying statute. In the case of qualifying or disqualifying statute, it may be necessarily retroactive. As defined in s. 2(a) of this Act, a Benami transaction is a transaction in which property is transferred to one person for consideration paid or provided by another person. "Property" has been defined in s. 2(c) as meaning "property of any kind, whether movable or immovable tangible or intangible and includes any right or interest in such property". Sec. 3 of this Act prohibits Benami transactions. It says that no person shall enter into any benami transactions. Sub-s. (2) of s. 3 provides an exception to the entering into of Benami transactions by taking away from its purview purchase of property in the name of wife or unmarried daughter. In the case of property purchased in the name of wife or unmarried daughter, sub-s. (2) says that it shall be presumed, unless the contrary is proved, that the said property has been purchased for the benefit of the wife or the unmarried daughter. Now bearing the principles enunciated by the Supreme Court on the provisions of Benami Act in mind, can it be said (even if granting argument of the Department that it is the Benami property of the assessee) the assessee can be assessed to tax in respect of the said income when the Benami transactions are prohibited. No suit shall lie against the Benamidar for the recovery of the property although the property purchased in the name of the wife is exempted from the operation of this Act. To my mind even though it does not arise out of the difference of opinion between the members, still it appears to have relevance and in my view there is no reason why in the face of the provisions of this Act the property in the name of the wife cannot be said to belong to the husband, i.e., the assessee herein till the contrary was proved, which in this case, I hold, was not proved.

8. After consideration of the above, I am of the view that the eight power-looms run in the names of Smt. Shanti Devi and Smt. Mansa Devi belonged to them that the income therefrom was not to be included in the income of the assessee. I, therefore, do not agree with the view of the learned Judicial Member. In this view of the matter I am of the opinion that the matter need not go back to the CIT for fresh enquiry.

9. The matter will now go before the regular Bench for the disposal of the appeal in accordance with the opinion of the majority.

13th Feb., 1991

J.K. VERMA, A.M.

All these four appeals were inter-connected and were, therefore, sought to be decided by a common order. However, there was a difference of opinion on one point between the then learned Judicial Member and the then learned Accountant Member. The matter was, therefore, referred to the Third Member and the Hon'ble President of the Tribunal as a Third Member has decided the issue vide his order dt. 5th Dec., 1990. We are, therefore, passing the order in these cases on the basis of the majority opinion so far as the disputed point is concerned.

2. The first objection in ITA No. 736/JP/84 was that the learned CIT(A) erred in sustaining the addition of Rs. 3,101 being the capital contributed by Smt. Shanti Devi as unexplained out of her total investment of Rs. 6,101. Vide para 10 of the order of the then Judicial Member dt. April, 1986, the Tribunal had held that this objection of the assessee was to be rejected. Since there was no difference on this point, this objection of the assessee is rejected for reasons discussed in para 10 of the order mentioned above.

3. Another objection of the assessee was that the CIT(A) erred in holding that the business of M/s Shanti Textiles so also that of M/s Mansa Textiles belonged to the assessee and in clubbing the income of those concerns with the income of the assessee.

4. On this point there was a difference of opinion between the two members at that time. The Hon'ble President vide his order dt. 5th Dec., 1990 referred to above has held, for reasons given in details in his order, that the power looms run in the names of Smt. Shanti Devi and Smt. Mansa Devi belonged to them and that the income therefrom was not to be included in the income of the assessee. It is, therefore, directed that the income of Smt. Shanti Devi and Smt. Mansa Devi from the 8 (eight) power looms run in their names or in other words in the names of M/s Shanti Textiles and M/s Mansa Textiles shall not be included in the income of Shri Manoharlal.

5. Another objection in ITA No. 736/JP/84 was that the CIT(A) had erred in not disposing of ground No. 4 before him wherein objection was raised for not allowing the depreciation on the cost of power looms, the value of which was appearing in the balance sheet. This matter is restored to the file of the ITO as per the direction in para 12 of the order of the then Judicial Member to look into the matter afresh.

6. Another objection of the assessee was regarding a trading addition of Rs. 7,000 upheld by the learned CIT(A) out of a total addition of Rs. 15,727 made by the ITO. A per para 13 of the order of the then learned Judicial Member, this addition is restricted to Rs. 4,000.

7. Next two objections of the assessee were regarding charging of interest under ss. 215/217 and 139(8). As per para 14 of the order of the then learned Judicial Member, the interest so charged is directed to be deleted.

ITA No. 783/Jp/84:

8. In this Departmental appeal the Revenue had objected to admission of fresh evidence by the CIT(A) as also regarding holding M/s Shrimadhopur Textile, which was claimed to be a partnership concern of Shri Manoharlal and Smt. Kamla Devi, as a separate concern without giving an opportunity to the ITO to examine whether there exists any genuine firm or that was merely a benami concern of the assessee and not upholding the addition of Rs. 32,179. In his order dt. April, 1986 referred to above the then learned Judicial Member has held that so far as the action of setting aside of the assessment is concerned, the CIT(A) was justified even if it was after taking a little lenient view and admitting fresh evidence. Still it has been held that the ITO shall be entitled to make fresh enquiries and to decide afresh regarding the genuineness of the firm so also the question to whom the income of that concern belongs or whether there is over-riding title. In these circumstances the ITO shall also be free to decide whether it is a separate concern or it belongs to Shri Manoharlal in his individual capacity. Accordingly the appeal filed by the Revenue is allowed in part.

ITA Nos. 1152 & 1153/Jp/85:

9. In these cases while the ITO had taken the view that the income of Smt. Shanti Devi and Smt. Mansa Devi respectively belonged to Shri Manoharlal and had, as such, assessed them on protective basis. In the appeals filled by both the ladies, the learned AAC had taken the view that they were not the benamies and hence held the assessment made in their hands as absolute on the basis of the decision of the learned CIT(A) in the case of Shri Manoharlal dt. 26th April, 1985. In the judgment of the then learned Judicial Member dt. April, 1986 it was held that the AAC had wrongly construed the order of the CIT(A) who had actually held that the business carried on in the names of Smt. Shanti Devi and Smt. Mansa Devi did not really belong to them. Moreover, the case of Shri Manoharlal was not before the AAC. Therefore, he should not say as to whom this income really belonged. It was accordingly ordered that his making the protective assessment to be substantive one was liable to be set aside on this short ground.

10. It was argued before us by the learned counsel for the assessee that now since the Hon'ble President as a Third Member has decided that the business of Smt. Shanti Devi and Smt. Mansa Devi is their own business, it was no longer necessary to set aside the order of the learned AAC. The learned Senior Departmental Representative on the other hand argued that since the learned Third Member had not expressed any opinion on this issue, the matter may be permitted to be enquired into afresh as held by the then learned Judicial Member.

11. After hearing both the sides and taking into account all the facts and circumstances of the case, we are of the opinion that since the main issue has been decided against the Revenue by the learned Third Member and as such by the Tribunal, it is no longer necessary to again examine whether the income from M/s Shanti Textiles and M/s Mansa Textile really belongs to Smt. Shanti Devi and Smt. Mansa Devi respectively or not. We, therefore, uphold the orders of the learned AAC in these cases and accordingly both the appeals filed by the Department, namely, ITA Nos. 1152 & 1153/JP/85 are dismissed.

12. Accordingly while ITA Nos. 736 and 783/Jp/84 are allowed in part, the ITA Nos. 1152 & 1153/Jp/85 are dismissed.

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