TMI Blog1990 (12) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... rns 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 4-10-1978 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 article, 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 sometimes, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order of Smt. Mansa Devi. That assessment was also 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 26-9-1979 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 Jagdish S/o Gopalji were examined and they specifically stated that all the 12 looms in the common shed shall belong to Sri Manoharlal. There was no separate production register maintained for each of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 re-consideration. The ITO was directed to appreciate the entire material and evidence on the record and the question of genuineness of partnership was directed to 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 afresh. 7. As regards the trading results, of Manohar Textiles itself, the CIT(A) reduced the trading addition of Rs. 15,727 to Rs. 7000 and directed the deletion of credit of Rs. 3000 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Dahyabhai v. CIT [1959] 37 ITR 398 (Bom.), Madura Knitting Co. v. CIT [1956] 30 ITR 764 (Mad.), United Patel Construction Co. v. CIT [1966] 59 ITR 424 (MP), SSA Gangamirthammal Co. v. CIT [1969] 74 ITR 473 (Mad.), Setabganj Sugar Mills Ltd. v. CIT [1961] 41 ITR 272 (SC). Reference was also made to a judgment of this Tribunal in Ramchand Shankerlal v. ITO [IT Appeal No. 940 (Jp.) of 1982]. 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Manoharlal himself. Throughout the income-tax proceedings, in respect of Mansa Textiles or Smt. Shanti Devi, Manoharlal attended 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, in the form of actual carrying on of business by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails to levy interest. The demand notice can be considered along with the assessment order, for the 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 sections 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 receives and pays money on behalf of several of its customers. It was also argued that the separate power looms which were purchased by separate persons 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 pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icion 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 pain 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 Income-tax 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 Income-tax Authorities to substantiate the fact that they are separate owners. This he did not do, which further strengthens the claim of the assessee that it was probably a genuine case purely intended to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of his finding on the main issue. The appeals are partly allowed on these terms. THIRD MEMBER ORDER 1. The assessee in this matter in an Individual deriving income from purchasing of yam and converting into cloth with the help of power-looms. He has four power-looms. it appears under the Policy of the Government, the installation of power-looms 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 Shand Textiles. M/s Manohar Textiles is the Proprietary concern of the assessee Shri Manoharlal. M/s Srimadhopur Textiles is a -partnership concern 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. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries-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 Income-tax Officer 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 Commissioner of Income-tax (Appeals) 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 Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Member wanted the matter to be sent back to the Commissioner of Income-tax 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 not well settled law that the Benami nature can be established only by proving that the income arising to the Benamidars was really enjoyed by the person who set up the Benami. It was also 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point of enjoyment of income is concerned, neither in the order of the Income-tax Officer nor in the order of the Commissioner, nor in the orders of the Members 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 interconnecting transactions between the firms nor of 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 transactions 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 proved. Under these circumstances when the two main ingredients laid down by the Courts in India about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by her husband need not know the details and merely because her ignorance of the details an inference against her cannot be drawn, unless she claims that she knows everything about the 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 v. U. G. Krishnaswami Naidu [1972] 86 ITR 239 (Mad.), Seth Ramnath Daga v. CIT [1971] 82 ITR 287 (Bom.), Kalwa Devadattam v. Union of India [1963] 49 ITR 165 (SC), Harinarayan Jamnadas Lakhani v. CIT [1983] 14 Taxman 455 (Bom.), Dilip Kumar Mitra v. CIT [1983] 141 ITR 358 (Cal.), Kurella Pullayya v. CIT [1962] 45 ITR 364 (AP) and Sree Meenakshi Mills Ltd. v. 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. When by section 4(2) of the Act the law nullified the defences available to the real owners in recovering Benami 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-section (2) of section 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 of any other person. In other words in its sweep section 4 envisages past Benami transactions also within its retroactivity. In this sense the Act is both a penal and a disqualifying statute. In the case of qualifying or disqualifying statute, it may be necessarily retroactive. As defined in section 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. "Propert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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