Itta/9/2000 Of 1Uran Bhanand Co Hyd v. The Asst.comm Of Income Tax Hyd

THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B.LOKURANDTHE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA NO.9 OF 2000 DATED JANUARY, 2012 Between: M/s.Suraj Bhan & Co.,21-2-82/1, Gulzar House,Hyderabad, rep. by its Partner. …Appellant And The Assistant Commissioner of Income Tax,(Inv.) Circle 2(2), Basheerbagh, Hyderabad. ...Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B.LOKURANDTHE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA NO.9 OF 2000 O R D E R(Per Sri Justice Sanjay Kumar) In this assessee’s appeal under Section 260-A of the IncomeTax Act, 1961 (for short, ‘the Act’), the following substantial questionof law was framed for consideration by this Court at the time of itsadmission: “Whether the Tribunal was correct in law in upholding theproportionate addition of 75% in the hands of the firm on theground of low withdrawals by the partners for meetingdomestic expenditure of members of larger HUF, especiallyhaving regard to the fact that the individual partners haveother sources of income as seen from the assessmentorder”? The matter pertains to the Assessment Year 1989-90. Theassessee is a registered partnership firm carrying on business injewellery. It was assessed under Section 143(3) of the Act for theprevious year, a period of 17 months from 23.10.1987 to31.03.1989, by the Assistant Commissioner of Income Tax,Inv.Circle-2, Hyderabad, under order dated 20.12.1991. TheAssessing Officer made three additions to the income of theassessee firm, one of which was on the ground that there wereinsufficient withdrawals by the partners towards their domesticexpenditure, considering their status and standard of living. Pertinent to note, the assessee firm comprised a larger HUFconsisting of 30 members of whom 12 were minors. Estimating theexpenses of each member for the period of 17 months atRs.10,000/-, the Assessing Officer put the total expenditure of thefamily at Rs.2,40,000/-, excluding 6 infants from the reckoning. Heapportioned 75% of this amount to the assessee firm and thebalance 25% to M/s.Ganesh and Company, another family firm. Asthe drawings reflected by the assessee firm in its books of accounttotalled only Rs.1,00,300/-, the Assessing Officer worked out adeficiency of Rs.80,000/- and added the same to the income of theassessee firm. Aggrieved by this and the other two additions, theassessee firm appealed to the Commissioner of Income Tax(Appeals) – II, Hyderabad. By order dated 05.05.1993, theCommissioner reduced the addition made towards shortfall ofpersonal drawings by the partners from Rs.80,000/- to Rs.60,000/-taking into account the family’s agricultural income of Rs.20,000/-.The assessee then carried the matter in appeal before the IncomeTax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad, in ITANo.1339/Hyd/93. By its order dated 31.03.1999, the Tribunalconfirmed the addition of Rs.60,000/- to the income of the assesseefirm owing to the shortfall in the withdrawals by the partners towardstheir expenditure, while setting aside the other two additions madeby the authorities below. Hence, this appeal by the assessee. It is admitted by the Revenue that the larger HUF of theassessee firm consisted of a number of smaller HUFs andindividuals, who were all separately assessed to income tax. It isthe settled legal position that under the Income Tax Act, a registeredpartnership firm is a separate assessable entity distinct from itspartners who can also be assessed individually. [COMMISSIONER OF INCOME-TAX V/s. FIGGIES (A.W.) AND COMPANY[[1]]].Theassessment order itself reflects that the HUFs and individuals who It is admitted by the Revenue that the larger HUF of theassessee firm consisted of a number of smaller HUFs andindividuals, who were all separately assessed to income tax. It isthe settled legal position that under the Income Tax Act, a registeredpartnership firm is a separate assessable entity distinct from itspartners who can also be assessed individually. [COMMISSIONER OF INCOME-TAX V/s. FIGGIES (A.W.) AND COMPANY[[1]]].Theassessment order itself reflects that the HUFs and individuals who form part and parcel of the larger HUF have separate share income,property income and interest income and that they are allindependently assessed to income tax. Surprisingly, there are nodetails in the assessment order as to how the Assessing Officercame to the conclusion that the expenditure reflected fell short whencompared to the life style of the partners of the assessee firm. Theentire exercise appears to be grounded on speculation. No materialwas analysed by the Assessing Officer in this regard for arriving athis findings. Further, there is no explanation forthcoming as to whythe firm is to be mulcted with these additions when the partnerswhose withdrawals were allegedly found to be on the lower sidewere separately assessed to income tax individually or as smallerHUFs. Notably, similar additions made by the Assessing Officer forthe assessment years 1986-87 to 1988-89 and the succeedingassessment years from 1990-91 to 1992-93 were deleted in appealby the Commissioner of Income Tax (Appeals). A copy of the orderdated 14.08.1995 passed by the Commissioner of Income Tax(Appeals) is placed on record. The appellate authority was of theopinion that if the Assessing Officer felt that the drawings in thefamily expenditure were not adequate, he could have consideredthe same either in the hands of the individual partners or in thehands of the HUF, but he should not have presumed that theundisclosed income for personal expenditure had emanated fromthe business of the firm. Admittedly, this view of the appellateauthority was not challenged by the Revenue. However, theexplanation of the Revenue before the Tribunal on this aspect wasthat the matter had not been pursued because the monetary aspectinvolved was negligible. Dealing with the same, the Tribunal opinedthat non-filing of appeals in respect of those years would not estopthe Assessing Officer from reasonably estimating the amount necessary for meeting the HUF expenditure. It is no doubt true that the principles of res judicata would not applyto income tax proceedings as each assessment year would form a unitand what is decided in one year may not apply in the following year.However, where a fundamental aspect permeating through the differentassessment years has been found as a fact one way or the other andparties have allowed that position to be sustained by not challenging theorder, it would not be at all appropriate to allow the position to be changedin a subsequent year. In the absence of any change in the circumstances,the Revenue would be bound by the previous decision and no attemptshould be made to reopen the question. [M/s.RADHASOAMI SATSANG V/s. COMMISSIONER OF INCOME TAX[[2]]]. It would be seen that the Commissioner of Income Tax(Appeals) on principle decided the issue of making additions to thefirm’s income in the event drawals towards family expenditure werefound to be inadequate against the Revenue. That positiontherefore stood settled. Merely because the meagre monetary effectinvolved discouraged the Revenue from carrying the matter furtherin appeal, the question ought not to have been reopened. Further,even on merits, we are of the opinion that the Revenue was notcorrect in making an addition to the firm’s income on the ground thatpartners’ withdrawals towards their personal expenditure weredeficient, when such partners were separately assessed to taxeither as individuals or smaller HUFs. This issue ought to havebeen taken up in their assessments and not in that of the assesseefirm. That apart, we find that the entire exercise undertaken by theAssessing Officer was inspired by surmise and speculation and nomaterial whatsoever is available on record to support his findings,be it with regard to the withdrawals not being commensurate withthe status and life style of the family or the lack of another source forsuch expenditure. It may be noticed that as per the assessee firm’s own admission - only the bulk of the household expenditure wasdrawn from the assessee firm. Without establishing the othersources for the balance withdrawals and without recording a findingthat the total withdrawals were, on facts, inadequate to account for arealistic estimate of the family’s expenditure, the Assessing Officercould not have come up with figures and estimates on pureconjecture. The record also reflects that the 25% addition made bythe Assessing Officer to the income of M/s.Ganesh and Company,the other family firm, was also set aside in appeal with validreasons. The Tribunal completely lost sight of these aspects andbaldly concluded that the Commissioner (Appeals) was justified insustaining the addition of Rs.60,000/-. We disagree. In the result, we answer the question of law raised in thisappeal in the negative and against the Revenue. The appeal isaccordingly allowed. No costs. -------------------------------- MADAN B.LOKUR, CJ. ---------------------------- SANJAY KUMAR, J. ______ JANUARY, 2012PGS [1](1953) 24 ITR 405[2](1992) 1 SCC 659