Suraj Bhan & Co. V. The Assistant Commissioner of Income Tax, (Inv.) Circle 2(2), Basheerbagh, Hyderabad

ITTA/9/2000

AI Insights

The case involves M/s. Suraj Bhan & Co., a partnership firm engaged in the jewellery business, which appealed against the addition of Rs.60,000 to its income by the Income Tax Appellate Tribunal, Hyderabad. The addition was based on the Assessing Officer's conclusion that the withdrawals by the partners for their domestic expenditure were insufficient compared to their lifestyle. The firm argued that the partners were separately assessed to income tax and had other sources of income. The court examined whether the Tribunal was correct in upholding the addition and found that the Assessing Officer's conclusions were based on speculation without any concrete material, leading to the decision in favor of the firm.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 796433 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 01-01-2012
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME-TAX V/s. FIGGIES (A.W.) AND COMPANY, M/s.RADHASOAMI SATSANG V/s. COMMISSIONER OF INCOME TAX
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment Year 1989-90; HUF; Income Tax; Income tax appellate tribunal; Jewellery business; Low withdrawals; Partnership firm; Domestic Expenditure
• Section: 143(3); 260-A

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B.LOKUR AND THE 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.LOKUR AND THE 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 Income Tax Act, 1961 (for short, ‘the Act’), the following substantial question of law was framed for consideration by this Court at the time of its admission: “Whether the Tribunal was correct in law in upholding the proportionate addition of 75% in the hands of the firm on the ground of low withdrawals by the partners for meeting domestic expenditure of members of larger HUF, especially having regard to the fact that the individual partners have other sources of income as seen from the assessment order”? The matter pertains to the Assessment Year 1989-90. The assessee is a registered partnership firm carrying on business in jewellery. It was assessed under Section 143(3) of the Act for the previous year, a period of 17 months from 23.10.1987 to 31.03.1989, by the Assistant Commissioner of Income Tax, Inv.Circle-2, Hyderabad, under order dated 20.12.1991. The Assessing Officer made three additions to the income of the assessee firm, one of which was on the ground that there were insufficient withdrawals by the partners towards their domestic expenditure, considering their status and standard of living. Pertinent to note, the assessee firm comprised a larger HUF consisting of 30 members of whom 12 were minors. Estimating the expenses of each member for the period of 17 months at Rs.10,000/-, the Assessing Officer put the total expenditure of the family at Rs.2,40,000/-, excluding 6 infants from the reckoning. He apportioned 75% of this amount to the assessee firm and the balance 25% to M/s.Ganesh and Company, another family firm. As the drawings reflected by the assessee firm in its books of account totalled only Rs.1,00,300/-, the Assessing Officer worked out a deficiency of Rs.80,000/- and added the same to the income of the assessee firm. Aggrieved by this and the other two additions, the assessee firm appealed to the Commissioner of Income Tax (Appeals) – II, Hyderabad. By order dated 05.05.1993, the Commissioner reduced the addition made towards shortfall of personal 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 Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad, in ITA No.1339/Hyd/93. By its order dated 31.03.1999, the Tribunal confirmed the addition of Rs.60,000/- to the income of the assessee firm owing to the shortfall in the withdrawals by the partners towards their expenditure, while setting aside the other two additions made by the authorities below. Hence, this appeal by the assessee. It is admitted by the Revenue that the larger HUF of the assessee firm consisted of a number of smaller HUFs and individuals, who were all separately assessed to income tax. It is the settled legal position that under the Income Tax Act, a registered partnership firm is a separate assessable entity distinct from its partners who can also be assessed individually. [COMMISSIONER OF INCOME-TAX V/s. FIGGIES (A.W.) AND COMPANY[1]]. The assessment 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 all independently assessed to income tax. Surprisingly, there are no details in the assessment order as to how the Assessing Officer came to the conclusion that the expenditure reflected fell short when compared to the life style of the partners of the assessee firm. The entire exercise appears to be grounded on speculation. No material was analysed by the Assessing Officer in this regard for arriving at his findings. Further, there is no explanation forthcoming as to why the firm is to be mulcted with these additions when the partners whose withdrawals were allegedly found to be on the lower side were separately assessed to income tax individually or as smaller HUFs. Notably, similar additions made by the Assessing Officer for the assessment years 1986-87 to 1988-89 and the succeeding assessment years from 1990-91 to 1992-93 were deleted in appeal by the Commissioner of Income Tax (Appeals). A copy of the order dated 14.08.1995 passed by the Commissioner of Income Tax (Appeals) is placed on record. The appellate authority was of the opinion that if the Assessing Officer felt that the drawings in the family expenditure were not adequate, he could have considered the same either in the hands of the individual partners or in the hands of the HUF, but he should not have presumed that the undisclosed income for personal expenditure had emanated from the business of the firm. Admittedly, this view of the appellate authority was not challenged by the Revenue. However, the explanation of the Revenue before the Tribunal on this aspect was that the matter had not been pursued because the monetary aspect involved was negligible. Dealing with the same, the Tribunal opined that non-filing of appeals in respect of those years would not estop the 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 apply to income tax proceedings as each assessment year would form a unit and what is decided in one year may not apply in the following year. However, where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. In the absence of any change in the circumstances, the Revenue would be bound by the previous decision and no attempt should 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 the firm’s income in the event drawals towards family expenditure were found to be inadequate against the Revenue. That position therefore stood settled. Merely because the meagre monetary effect involved discouraged the Revenue from carrying the matter further in appeal, the question ought not to have been reopened. Further, even on merits, we are of the opinion that the Revenue was not correct in making an addition to the firm’s income on the ground that partners’ withdrawals towards their personal expenditure were deficient, when such partners were separately assessed to tax either as individuals or smaller HUFs. This issue ought to have been taken up in their assessments and not in that of the assessee firm. That apart, we find that the entire exercise undertaken by the Assessing Officer was inspired by surmise and speculation and no material whatsoever is available on record to support his findings, be it with regard to the withdrawals not being commensurate with the status and life style of the family or the lack of another source for such expenditure. It may be noticed that as per the assessee firm’s own admission - only the bulk of the household expenditure was drawn from the assessee firm. Without establishing the other sources for the balance withdrawals and without recording a finding that the total withdrawals were, on facts, inadequate to account for a realistic estimate of the family’s expenditure, the Assessing Officer could not have come up with figures and estimates on pure conjecture. The record also reflects that the 25% addition made by the Assessing Officer to the income of M/s.Ganesh and Company, the other family firm, was also set aside in appeal with valid reasons. The Tribunal completely lost sight of these aspects and baldly concluded that the Commissioner (Appeals) was justified in sustaining the addition of Rs.60,000/-. We disagree. In the result, we answer the question of law raised in this appeal in the negative and against the Revenue. The appeal is accordingly allowed. No costs. -------------------------------- MADAN B.LOKUR, CJ. ---------------------------- SANJAY KUMAR, J. ______ JANUARY, 2012 PGS [1] (1953) 24 ITR 405 [2] (1992) 1 SCC 659 "