Srinivas Batchu, Karimnagar V. Income Tax Officer, Ward-2, Karimnagar

ITA 939/Hyd/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3027 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 19-02-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 03-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S. MURALI MOHAN
• Keywords: Gift; Diversion of income; Assessment record
• Section: 148; 2; 143(3); 133A; 234B; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B - SMC , HYDERABAD BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.936 TO 940/HYD/2019 ASSESSMENT YEARS: 2012 - 13 TO 2016 - 17 SRINIVAS BATCHU, J AMMIKUNTA, KARIMNAGAR DISTRICT. PAN: AHKPB 0190 M VS. INCOME TAX OFFICER, WARD - 2, KARIMNAGAR. (APPELLANT) (RESPONDENT) ITA NO S . 963 TO 967/HYD/2019 ASSESSMENT YEAR S : 2012 - 13 TO 2016 - 17 BHASKAR BATCHU, J AMMIKUNTA, KARIMNAGAR DISTRICT. PAN: ABDPB 0870 B VS. INCOME TAX OFFICER, WARD - 2, KARIMNAGAR. (APPELLANT) (RESPONDENT) ASSESSEE BY: SMT. S. SANDHYA REVENUE BY: SMT. S. MURALI MOHAN, DR DATE OF HEARING: 19/02/2020 DATE OF PRONOUNCEMENT: 05 /0 3 /2020 ORDER ALL THE ABOVE CAPTIONED APPEALS ARE FILED BY BOTH THE ASSESSEES AGAINST THE ORDERS OF THE LD. CIT(A) - 2, HYDERABAD IN APPEAL NOS.10234,10235, 10237, 10246, 10247, 10226, 10227, 10236, 10238, 10239/2018 - 19, DATED 08/04/2019 PASSED U/S. 143(3) R.W.S 147 OF TH E ACT FOR THE AYS 2012 - 13 TO 2016 - 17. SINCE ISSUES IN VOLVED IN THE SE 2 APPEALS OF BOTH THE ASSESSEES FOR ALL THE RELEVANT ASSESSMENT YEARS ARE THE SAME, THEY ARE CLUBBED AND HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2. BOTH THE ASSESSEES HAVE RAISED SEVERAL IDENTICAL GROUNDS IN THEIR RESPECTIVE APPEALS HOWEVER, THE CRUXES OF THE ISSUES ARE ENCAPSULATED HEREIN BELOW FOR ADJUDICATION: - (I) THE LD. C IT (A) HAS ERRED IN UPHOLDING THE ORDER OF THE LD. AO WHO HAVE ASSESSED THE INTEREST INCOME ARISING FROM THE PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PARTNER, IN THE HANDS OF THE ASSESSEE, WHEN THE FACT WAS THAT THE ASSESSEE HAD REPRESENTED HIS HUF IN T HE FIRM AS A PARTNER AND THE INTEREST INCOME ARISING FROM THE PARTNERSHIP FIRM WAS DECLARED IN THE HANDS OF ASSESSEES HUF. (II) THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAS LEVIED INTEREST U/S. 234B & 234C OF THE ACT. 3. THE BR IEF FACTS OF THE CASE ARE THAT A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED IN THE CASE OF M/S. VAJRAKALPA COTTON AND M/S. SHAKTI MURUGAN INDUSTRIES ON 12/04/2017 WHEREIN THE MANAGING PARTNER OF THE FIRM ADMITTED INCOME WHICH WAS NOT RECORDED IN THE BOOKS O F ACCOUNT. SINCE BOTH THESE ASSESSEES ARE RELATED PARTIES, NOTICE WAS ISSUED U/S. 148 OF THE ACT AND THE CASE WAS REOPENED. FINALLY, ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S 147 OF THE ACT IN THE MONTH 3 OF DECEMBER 2018 IN THE CASE OF BOTH THE ASSESSEES FOR ALL THE RELEVANT ASSESSMENT YEARS . 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , IT WAS NOTICED BY THE LD.AO THAT BOTH THE ASSESSEES HAD NOT DECLARED IN THEIR RETURN OF INCOME THE INTEREST INCOME EARNED FROM THE RESPECTIVE ABOVE - MENTIONED PARTNERSHIP FIRMS WHEREIN BOTH THE ASSESSEES WERE PARTNERS . ON QUERY THEY HAD EXPLAINED THAT BOTH THE ASSESSEES WERE PARTNERS IN THE FIRMS ON BEHALF OF THEIR HUF , HENCE THEY HAD DECLARED THE INCOME IN THE HANDS OF THE HUF AND DULY PAID THE TAX. HOWEVER, THE LD. AO OPINED THAT THE INTEREST INCOME EARNED BY THE PARTNERS FROM THE FIRM HAS TO BE ASSESSED IN THE HANDS OF THE PARTNERS/ ASSESSEE AND NOT IN THE HANDS OF THE PARTNERS/ ASSESSEES HUF FOR THE FOLLOWING REASONS: - I) THE RETURN FILED OF THE SAI D PARTNERSHIP FIRM STATES THAT THE PARTNER IS THE APPELLANT IN INDIVIDUAL CAPACITY AS PER THE PAN MENTIONED. II) THE PARTNERSHIP FIRM NOWHERE MENTIONS THE PARTNER BEING HUF. THE CONTENTION OF THE APPELLANT IS INCORRECT THAT, THE INDIVIDUAL / HUF CAPACITY IS NOT REQUIRED TO BE MENTIONED. III) THERE WAS NO PROOF FURNISHED BY THE APPELLANT, THAT THE HUF HAD INVESTED FUNDS IN THE PARTNERSHIP FIRM. IV) THE FILING OF THE RETURN IN THE HUF CAPACITY IS OF NO RELEVANCE, AS THE SAME DOES NOT ATTRACT MUCH TAX AS THE INCOME IS SUBJECTED TO TAX AS PER SLABS. THEREFORE, THE SAME IS THE CASE OF DIVERSION OF INCOME FROM A HIGHER TAX SLAB TO A SLAB WHICH HAS VERY MARGINAL TAX LIABILITY. THEREFORE, THE CONTENTION OF THE APPELLANT THAT IT LEADS TO DOUBLE TAXATION IS INC ORRECT, AS IN THE PRESENT CASE THE INDIVIDUAL HAS BEEN A DEFAULTER AND HAS NOT FILED RETURNS FOR SO MANY YEARS. THE TAX IN THE HANDS OF HUF IS NOT EQUIVALENT OR REMOTELY CLOSE TO TAX IN THE HANDS OF THE INDIVIDUAL, SO THE CASE OF DOUBLE TAXATION BEING PLE ADED IS COMPLETELY INCORRECT ON FACTS. V) THE A.O. HAS RIGHTLY HELD THAT THE INCOME HAS TO BE TAXED IN THE HANDS OF THE CORRECT PERSON AND NOT AS PER THE DECLARATION OF THE APPELLANT. VI) THE APPELLANTS ADDITION RESULTS IN A HUGE DEMAND ALONG WITH TAX PLUS INTER EST ON ACCOUNT OF NON - FILING OF RETURNS AND NON - ADMISSION OF INCOME VOLUNTARILY. 4 VII) THE APPELLANTS PLEA THAT HUF FUNDS WERE INVESTED IN JUST A STATEMENT AND NO COGENT EVIDENCE HAS BEEN GIVEN, THEREFORE THE PREMISES OF THE ARGUMENT FURNISHED BY THE APPELLANT HOLD NO WATER AND THE SUBSEQUENT PLEADINGS THEREFORE, ARE PRIMA FACIE DEVOID OF MERIT. 5. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. AO BY AGREEING WITH HIS VIEW. HOWEVER, THE LD. CIT (A) ACCEPTED ONE OF THE GROUNDS RAISED BY THE ASSESSEE WHEREIN HE DIRECTED THE LD. AO TO VERIFY WHETHER THE ASSESSEE S OR THE HUF IS THE PARTNER FROM THE ASSESSMENT RECORDS FOR THE AY 2010 - 11 TO 2014 - 15 IN THE CASE OF MR. SRINIVAS BATCHU AND FROM THE ASSESSMENT RECORDS FOR THE AY 2009 - 10 TO 2014 - 15 IN THE CASE OF MR. BHASKAR BATCHU BY OBSERVING AS UNDER: HOWEVER, THERE IS ONE ARGUMENT OF THE APPELLANT WHICH IS OF SOUND GROUND THAT THE CASE OF M/S. SHAKTI MURUGAN INDUSTRIES / M/S. VAJRAKALPA COTTON HAS BEEN ASSESSED U/S. 143(3) FOR A.Y. 2010 - 11 TO A.Y. 2014 - 15, I.E., FOR 5 YEARS AND THE RECORDS OF THE PARTNERSHIP FIRM WILL THEREFORE SPEAK FOR ITSELF, WHETHER THE APPELLANT ISI A PARTNER OR HUF IS A PARTNER. THE A.O. IS DIRECTED TO GET THIS INFORMATION REGARDING THE NAMES AND STATUS OF PARTNERS OF M/S. SHAKTI MUR UGAN INDUSTRIES FROM THE JURISDICTIONAL A.O. OF THE FIRM IF THE CASE OF THE FIRM IS ASSESSED WITH SOME OTHER A.O. AND IF THE JURISDICTIONAL A.O. STATES THAT PARTNER OF THE FIRM IS THE APPELLANT AS AN INDIVIDUAL, THEN NO RELIEF IS TO BE GRANTED, AND IF THE JURISDICTIONAL A.O. STATES THAT THE PARTNER OF THE FIRM IS HUF, THEN THE ADDITION HAS TO BE DELETED. THIS DIRECTION IS LIMITED TO A FACTUAL FINDING FROM THE JURISDICTIONAL A.O. OF THE PARTNERSHIP FIRM. IN CASE, THE A.O. OF THE APPELLANT AND PARTNERSHIP F IRM ARE SAME, IT IS NEEDLESS TO STATE THAT THE A.O. MAY VERIFY THE RECORDS IN A FACTUAL MANNER TO ARRIVE AT THE STATUS OF PARTNER. THE APPELLANT IS DIRECTED TO COOPERATE IN THE MANNER FOR THE FURNISHING OF THE SAID EVIDENCE, IF REQUIRED. SUBJECT TO THE A BOVE DIRECTIONS, THE ADDITION IS SUBJECTED TO FACTUAL VERIFICATION FROM JURISDICTIONAL A.O. THE APPELLANT HAS RAISED 5 GROUNDS FROM GROUND NOS. 2 TO 6 WHICH ARE RELATING TO THE ADDITION UNDER CONSIDERATION WITH THE ABOVE DISCUSSED PERSPECTIVES AND ARE NOT PRECISE GROUNDS BUT A NARRATION OF VARIOUS ISSUES, THEREFORE ARE NOT FIT TO BE ADJUDICATED IN THE MANNER IN WHICH THEY ARE PRESENTED. HOWEVER, THE APPELLANTS PLEA IS SUBJECT TO A FACTUAL VERIFICATION AND THEREFORE NO PREJUDICE IS CAUSED ON THAT ACCOU NT. 5 6. BEFORE US, THE LD. AR VEHEMENTLY ARGUED THAT BOTH THE ASSESSEES REPRESENTED IN THE PARTNERSHIP FIRM ON BEHALF OF THEIR HUF AND THEREFORE THE INTEREST INCOME ARISING FROM THE PARTNERSHIP FIRM HAS TO BE NECESSARILY ASSESSED IN THE HANDS OF THE HUF A ND NOT IN THE HANDS OF THE INDIVIDUAL ASSESSES . THE LD. AR FURTHER SUBMITTED THAT THE HUF HAD ALREADY DECLARED THE INTEREST INCOME EARNED FROM THE PARTNERSHIP FIRM IN THEIR RETURN OF INCOME AND TAX WAS DULY PAID AND THEREFORE, THE SAME INCOME CANNOT BE ASS ESSED IN THE HANDS OF THE ASSESSEE - INDIVIDUALS ONCE AGAIN . IT WAS THEREFORE PLEADED THAT THE ADDITION MADE IN THE HANDS OF BOTH THE ASSESSEES MAY BE DELETED. THE LD. DR ON THE OTHER HAND VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE LD . REVENUE AUTHOR ITIES. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. IT IS PERTINENT TO MENTION THAT UNDER HINDU LAW A HUF IS A FAMILY WHICH CONSISTS OF ALL PERSONS LINEALLY DESCENDED FROM A COMMON ANCESTOR AND INCLUDES THEIR WIV ES AND UNMARRIED DAUGHTERS. THUS, HUF IT IS CREATED AUTOMATICALLY BY BIRTH. USUALLY THE ASSETS OWNED BY THE HUF ARE THROUGH GIFT S , WILL, ANCESTRAL PROPERTY OR PROPERTY ACQUIRED FROM THE SALE OF JOINT FAMILY PROPERTY OR PROPERTY CONTRIBUTED TO THE COMMON POOL BY MEMBERS OF HUF. THE MEMBERS OF THE HUF ARE CALLED AS THE COPARCENERS AND THE ELDEST COPARCENER IS KNOWN AS KARTA, WHO IS R ESPONSIBLE FOR HANDLING THE AFFAIRS OF THE FAMILY. IT IS FURTHER PERTINENT TO MENTION THAT ANY OF THE COPARCENERS CAN POOL - IN TO HIS / 6 HER HUF ANY OF HIS / HER INDIVIDUAL ASSET / CASH / BULLION ETC., AT ANY POINT OF TIME. FURTHER, IT IS EVIDENT THAT HUF IS TREATED AS A PERSON U/S. 2(31) OF THE INCOME TAX ACT, 1961 HAVING SEPARATE ENTITY. FURTHER, A HUF CANNOT DIRECTLY OR INDIRECTLY BECOME PARTNER OF A FIRM BECAUSE THE FIRM IS AN ASSOCIATION OF INDIVIDUALS. EVEN IF A PERSON IS NOMINATED BY THE HUF TO JOIN A PARTNERSHIP FIRM THE PARTNERSHIP WILL BE BETWEEN THE NOMINATED PERSON AND THE OTHER PARTNERS OF THE FIRM. HOWEVER, THERE IS NOT BAR IN THE LAW FOR PROHIBITING A HUF TO NOMINATE ITS COPARCENERS AS PARTNER IN A FIRM. THEREFORE, AS FAR AS THE HUF IS CONCE RNED, THE BENEFITS ARISING FROM THE PARTNERSHIP FIRM IN WHICH A COPARCENER OF THE HUF IS NOMINATED TO BECOME PARTNER IN THE FIRM, SHALL ACCRUE TO THE HUF AND NOT TO THE PARTNER OF THE FIRM WHO IS ALSO A COPARCENER OF THE HUF. IT IS ALSO PERTINENT TO MENTIO N THAT ANY COPARCENER CAN CONTRIBUTE EVEN HIS PERSONAL ASSET INTO THE HUF HOTCHPOTCH AT ANY POINT OF TIME. IN THIS SITUATION, WHEN THE ASSESSEE S CLAIM THAT THEY ARE REPRESENTING THE HUF IN THE PARTNERSHIP FIRM AS PARTNER AND FURTHER STATES THE FACT THAT THE INTEREST INCOME DERIVED FROM THE FIRM IS DISCLOSED IN THE RETURN OF INCOME OF THE HUF AS ITS INCOME, AND IF SUCH FACT IS FOUND TO BE CORRECT, THEN THE REVENUE SHALL NOT HAVE ANY LOCUS STANDI TO TREAT SUCH INCOME IN THE HANDS OF THE INDIVIDUAL ASSESSEES . FOR THE AFORESTATED REASONS, I AM OF THE CONSIDERED VIEW THAT IF THE INTEREST INCOME ACCRUED FROM THE PARTNERSHIP FIRM IS DISCLOSED IN THE RETURN OF INCOME OF THE HUF AND TAXES DULY PAID, THEN THE SAME INCOME CANNOT BE TREATED AS 7 THE INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, I HEREBY REMIT ALL THESE APPEALS BACK TO THE FILE OF THE LD. AO TO VERIFY WHETHER THE INTEREST ACCRUED FROM THE PARTNERSHIP FIRM HAS BEEN DISCLOSED AS THE INCOME OF THE HUF IN THE RETURN OF INCOME FILED BY THE HUF AND TAXES D ULY PAID, AND IF FOUND SO, DELETE THE ADDITION MADE ON ACCOUNT OF INTEREST INCOME ACCRUED FROM THE FIRM IN THE CASE OF BOTH THE ASSESSES FOR ALL THE RELEVANT ASSESSMENT YEARS . IF FOUND OTHERWISE, THE LD. AO SHALL PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW AND MERIT. ACCORDINGLY, GROUND NO.1 IS DISPOSED OFF. 8. WITH RESPECT TO GROUND NO.2, I HEREBY HOLD THAT THE LEVY OF INTEREST U/S. 234B & 234C OF THE ACT IS CONSEQUENTIAL IN NATURE AND THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS DEVOID OF MERITS. 9 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. PRONOUNCED IN THE OPEN COURT ON 05 TH MARCH , 2020. SD / - ( A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER HYDERABAD, DATED: 05 TH MARCH, 2020 . OKK COPY TO: - 1) (I) SRINIVAS BATCHU, H.NO.4 - 1, SHAKTHI MURUGAN INDUSTRIES, ELABOTHARAM VILLAGE, KARIMNAGAR MANDAL & DISTRICT 505417. (II) BHASKAR BATCHU, H.NO.3 - 3 - 31, MAIN ROAD, JAMMIKUNTA, KARIMNAGAR DISTRICT, TELANGANA 505122. 8 2) INCOME TAX OFFICER, WARD - 2, AAYAKAR BHAVAN, BEHIND BUS STATION, NEAR SWETHA HOTEL, KARIMNAGAR. 3) THE CIT(A) - 2, HYDERABAD 4) THE PR. CIT - 2, HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE