TMI Blog2001 (2) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... pment agreement was entered into on 17-7-1986 to sell away the entire land as agricultural lands without converting the same into 'N.A.' or without dividing the land into plots. The price was also fixed at Rs.60,000 per acre. 3. A search was carried at the residential premises of one of the three friends, namely, Shri W.G. Jain which continued from 2-11-1995 to 3-11-1995. After the search, the Assessing Officer issued notice under section 158BD to an AOP constituted of the above three persons. The assessee filed return of income in Form No. B under protest showing 'Nil' income and denying existence of any such assessable entity as the alleged AOP. While framing the assessment under section 158BC read with sections 158BD and 143(3), the Assessing Officer held that the three persons mentioned above constituted an AOP and were carrying on business in lands. He has discussed this aspect in para 3 of the assessment order and mainly he has given three reasons as follows: (1) The land was purchased jointly; (2) The possession and ownership of land remained with the owners jointly; (3) 7 acres of land was sold jointly and hence the three co-owners constituted an AOP. After having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported to have been invoked, no attempt was made to ascertain by the Assessing Officer who could have jurisdiction over such an entity. It has been assumed that the address of the alleged AOP is the address of Shri W.G. Jain (who alone was subjected to search under section 132 and other two members were complete strangers and not members of Jain family). 5. According to the learned counsel, each of the co-owners had made a full and true disclosure of the facts relating to sale of land and disclosed capital gain in their respective hands, which was accepted by the department. In this connection, he drew our attention to the orders of assessment placed at pages 64 to 67 of the paper book. He submitted that Block assessment is based merely on change of opinion on the same set of facts and not on the basis of any material or evidence found as a result of search. He emphatically pointed out that it is not even the Assessing Officer's case that any material or document was found during the search which was not earlier known to the department as a result of which Some undisclosed income was discovered. Pointing to para 3 of the assessment order where the Assessing Officer has given thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-6-1997 by which the Assessing Officer has tried to justify his finding. The learned counsel drew our attention to the exact wording of the letter which is as under: "However, the agreement of sales entered into with several purchasers by you of Phase II covering 14.5 acres of said land shall be complied by us on payment of balance amount and we are ready to execute the sale deeds in favour of the said purchasers within a month after receipt of balance consideration." The learned counsel submitted that the above makes it very clear that even upto 5-9-1997 there was no sale effected and it is difficult to understand on what basis the Assessing Officer can say that 14.5 acres have been 'sold'. He further submitted that possession of land was given to M/s Tirupati Land Developers in July 1986 itself and hence the case is not governed by the law amending definition of 'transfer' w.e.f. 1-4-198 8 and it is not the case of the Assessing Officer also. Thus, according to the learned counsel, inclusion of the alleged profit is clearly erroneous assuming without admitting that any AOP existed. He further drew our attention to our order in the case of Wajrachand G. Jain v. Asstt. CIT [IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79] 119 ITR 69 (Bom.) and also drew our attention to Shri D.M. Harish on Income-tax, Vol. I page 232. 10. We have considered the rival submissions and perused the facts on record. The vital question to be decided by us is whether the Assessing Officer rightly assumed jurisdiction to assess A.O.P. constituted of three persons. It is well settled that jurisdiction cannot be conferred by consent or by acquiescence. Before assuming jurisdiction, it was obligatory on the part of the Assessing Officer to prove that there existed an AOP constituted of three persons which obligation he has failed to discharge. He has simply presumed that the three persons constituted an AOP when in fact there did not exist any A.O.P. at all. 11. In CITv. Indira Balkrishna [1960] 39 ITR 546, the Hon'ble Supreme Court has defined an A.O.P. as under: "The word 'associate' means 'to join in common purpose, or to join in an action'. Therefore, 'association of persons', as used in section 3 of the Income-tax Act, means an association in which two or more persons join in a common purpose of common action, and as the words occur in a section which imposes a tax on income, the association must be one the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the sale of the land in question. On a reference, the Punjab Haryana High Court held that there was evidence on which the Tribunal had arrived at a positive finding of fact that the assessees did not constitute an association of persons and that transaction did not amount to an adventure in the nature of trade. 13. The status of association of persons was once again considered by the Hon'ble Supreme Court in the case of G. Murugesan Bros. v. CIT[1973] 88 ITR 432 where the Hon'ble Apex Court held that for forming an association of persons, the members must join together for the purpose of producing an income, that an association of persons could be formed only when two or more individuals voluntarily combined together for a certain purpose, that volition on the part of the members was an essential ingredient, that for receiving dividends from shares, there was no question of any management, and that an association could not be inferred from the mere fact that more than one person jointly, owned shares and jointly received the dividends, The above ratio laid down by the Hon'ble Apex Court was applied by the Calcutta High Court in the case of Rama Devi Agrawalla v. CIT [1979 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, all the three co-owners were advocates by profession and the onus was heavily on the Assessing Officer to prove by some evidence or material to infer a joint enterprise in respect of the said land. The Assessing Officer has completely failed to place on record any evidence or material to prove that there was in association of persons. In fact, no association of persons existed and the Assessing Officer issued a notice to a non-existent entity and such a notice is an invalid notice. Accordingly, the assessment framed by the Assessing Officer is void ab initio and the same is accordingly quashed. 15. Coming to the contentions of the learned D.R., we find that the reliance placed by him on the judgment of the Delhi High Court in the case of Joint Financiers (P.) Ltd. and of the Bombay High Court in Smt. Bhanunmati A. Sanghavi's case is misplaced. Both the judgments are on the nature of adventure in the nature of trade and not on the status of AOP. To the same effect are the observations of the learned Author Shri D.M. Harish on page 232 of Vol. I of his Book. In the instant case, we are concerned with the status of the entity and not with any adventure in the nature of trade an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
