2019 (1) TMI 934 - AT - Income Tax

Assessment framed in the hands of Ramesh Upadhyay, HUF - larger HUF was partitioned or disrupted as per the memorandum of oral partition which was later on registered by partition deed dated 26.04.2002 - Held that - Assessment cannot be framed in the hands of Ramesh Upadhyay, HUF, as it has already been disrupted among smaller HUF. Unexplained investments in FDRs - Held that - Whenever the investment in FDRs are to be examined, the agricultural income earned by the assessee in different assessment years should also be examined and credit of the same should be given. In the foregoing paras, we have categorically held that the additions made on account of unexplained investment in the FDRs cannot be made in the hands of Ramesh Upadhyay, HUF as it was disrupted through memorandum and in the hands of E. Krishna Murthy, individual as FDRs belongs to all the family members. The addition can only be made in the hands of the smaller HUF i.e., E. Krishna Murthy, E. Vidyaranya, E. Thrivikrama, E Manohara and E. Sudharshan. CIT(A) confirmed the additions in the hands of the smaller HUF but the proper credit of the agricultural income was not given. We therefore are of the view that the entire investment in FDRs should be apportioned amongst all the smaller HUF. Similarly, the total agricultural income earned from the agricultural holdings and the business income should also be apportioned amongst all the smaller HUFs for its adjustment against the investment in FDRs in different assessment years. We therefore set aside the order of CIT(A) and restore the matter to AO with the direction to recompute the investment in FDRs in all the smaller HUFs E. Krishna Murthy, E. Vidyaranya, E. Thrivikrama, E Manohara and E. Sudharshan by making equal distribution and for computing the unexplained investment in each and every small HUFs, the adjustment of agricultural income estimated by the CIT(A) and business income earned by the individual smaller HUF should be given while computing the unexplained investment in FDRs in different assessment years. - Decided against revenue.

Issues Involved:
1. Validity of assessments made on the larger HUF (Hindu Undivided Family) after its claimed partition.
2. Attribution of unexplained investments in Fixed Deposit Receipts (FDRs) to individual or HUF entities.
3. Crediting agricultural income against unexplained investments in FDRs.
4. Proper allocation of unexplained investments among smaller HUFs post-partition.

Detailed Analysis:

1. Validity of Assessments on Larger HUF Post-Partition:
The Tribunal examined whether assessments could be made on the larger HUF, Ramesh Upadhyay, HUF, after its claimed partition. The CIT(A) held that the larger HUF was dissolved as per a memorandum dated 22.03.2002 and a registered partition deed dated 26.04.2002. The CIT(A) concluded that no assessments could be made on the joint family after its disruption, relying on various judicial pronouncements. The Tribunal agreed with this view, affirming that the larger HUF could not be assessed for periods after its partition.

2. Attribution of Unexplained Investments in FDRs:
The Tribunal considered the attribution of unexplained investments in FDRs found during a search under section 132 of the Income Tax Act. E. Krishna Murthy initially admitted that the FDRs belonged to him and his family members, but later retracted, stating that the investments were made by the HUFs. The Tribunal noted that no independent evidence was provided by the Revenue to support the claim that the entire FDRs belonged to E. Krishna Murthy individually. The Tribunal emphasized that retracted statements require corroborative evidence, which was lacking in this case.

3. Crediting Agricultural Income Against Unexplained Investments:
The Tribunal acknowledged that the agricultural income earned by the family should be credited against the unexplained investments in FDRs. Both the AO and CIT(A) had estimated the agricultural income, but the Tribunal found that proper credit was not given while making additions. The Tribunal directed that the agricultural income should be considered while computing the unexplained investments in the hands of the smaller HUFs.

4. Proper Allocation of Unexplained Investments Among Smaller HUFs:
The Tribunal held that the unexplained investments in FDRs should be examined in the hands of the smaller HUFs formed after the partition of the larger HUF. The Tribunal directed the AO to recompute the investments by apportioning the total FDRs and agricultural income among the smaller HUFs (E. Krishna Murthy, E. Vidyaranya, E. Thrivikrama, E. Manohara, and E. Sudharshan). This approach ensures a fair distribution and proper adjustment of agricultural income against the investments.

Conclusion:
The Tribunal dismissed the Revenue's appeals against the CIT(A)'s decision to quash the assessments on the larger HUF. It allowed the appeals of E. Krishna Murthy, individual, and smaller HUFs for statistical purposes, directing the AO to recompute the unexplained investments by considering the agricultural income and distributing the investments among the smaller HUFs. The Tribunal's decision emphasizes the importance of corroborative evidence and proper allocation of income and investments post-partition.

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