2014 (2) TMI 1214 - AT - Income Tax

Clubbing of Income - whether Punjab Timber Trading Company is a bogus proprietary concern? - Held that - In the case before us, it has not been shown that any material was being purchased form M/s Punjab Plywood Industries or any amount has come from that firm. It is also not brought on record that business was conducted from the same premises. It is only on the statement recorded during the search where Smt. Meena Garg i.e the assessee has said that she was not running any business concern in the name of M/s Punjab Timber Trading Co but later on in respect of question No. 24, during the assessment proceedings she clearly stated that she was confused and nervous. Question No. 24 and its answer reads as under;- Q24. In the statement recorded on the date of search you have specified that you are not filing any return of income or have any business concern. Please clarify as to why you had stated so when today you are doing timber business. Ans. I denied doing any business as I was nervous and thought the questions being asked related to my husband s business. Every person during the search sometimes nervous. Further, we find that Revenue has not shown whether any capital has moved from Punjab Plywood Industries to M/s Punjab Timber Trading Company. In the absence of such nexus, there is no provision to hold that the firm i.e. M/s Punjab Timber Trading Co run by the assessee was benami of M/s Punjab Plywood Industries. Therefore, we set aside the order of Ld. CIT(A) and hold that M/s Punjab Timber Trading Company is not a bogus proprietary concern. - Decided in favour of assessee.

Summary

Issues:
Clubbing of Income - Whether the income of the wife can be clubbed with a firm where the husband is a partner.

Analysis:
The case involved appeals against the order of the Ld. CIT(A)(Central), Gurgaon, where the common issue raised was the clubbing of income of Meena Garg Prop M/s Punjab Trading Co. Yamuna Nagar with the income of M/s Punjab Plywood Industries. The Assessing Officer concluded that Punjab Timber Trading Co was being run by Punjab Plywood Industries, and Meena Garg had only lent her name to the business. On appeal, it was argued that Meena Garg's proprietary concern had an independent PAN number and income could only be clubbed under specific provisions. The Ld. CIT(A) upheld the Assessing Officer's decision, relying on case law and stating that Meena Garg's denial of running a business was clear. The appellant reiterated that there was no provision to club individual income with a firm where the husband is a partner, and distinguished the cited case law based on factual differences. The Tribunal noted that the case cited was decided under the old Act and had specific facts supporting the finding of 'benami' business. In the current case, no such evidence was presented, and Meena Garg's initial denial of running a business was attributed to nervousness during the search. The Tribunal found no nexus between the two firms and set aside the Ld. CIT(A)'s order, ruling that Punjab Timber Trading Company was not a bogus proprietary concern. Consequently, the appeals filed by the assessee were allowed.