TMI Blog1991 (2) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... iness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Srima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases 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 provin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaining 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred 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 (e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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