1986 (6) TMI 54 - AT - Income Tax

Summary

Issues:
1. Validity of assessment in the status of HUF based on return filed as an individual.
2. Ownership of businesses Arvind Vastralaya and Janata Handloom Stores.
3. Admissibility of fresh evidence under rule 46A.

Analysis:

Issue 1: Validity of assessment in the status of HUF based on return filed as an individual.
The Income Tax Officer (ITO) issued a notice under s. 139(2) to the assessee as Karta of HUF, but the assessee submitted the return as an 'Individual.' The ITO completed the assessment in the status of HUF, including income from businesses run by the assessee's sons. The Appellate Assistant Commissioner (AAC) held the assessment invalid, as the return was filed as an individual. The department challenged this decision, arguing that the AAC should not have decided the HUF status issue. The assessee contended that past assessments were as an individual, and the ITO was wrong to assess as HUF. The Tribunal found the ITO erred in assessing as HUF based on the individual return, supporting the assessee's position.

Issue 2: Ownership of businesses Arvind Vastralaya and Janata Handloom Stores.
The ITO attributed income from these businesses to the assessee as Karta of HUF, alleging they were actually run by the assessee's sons. The AAC, however, found evidence that the sons operated independently, holding separate trade licenses and maintaining separate households. The Tribunal agreed, stating that the mere fact of initial capital gifting did not prove control or ownership by the assessee. The Tribunal ruled in favor of the assessee, directing exclusion of the businesses' income from the HUF assessment.

Issue 3: Admissibility of fresh evidence under rule 46A.
The department objected to the AAC admitting fresh evidence, citing violation of rule 46A. The assessee argued that the evidence supported the individual assessment status. The Tribunal found the evidence relevant, as it demonstrated the past assessment history and the assessee's belief in individual assessment. The Tribunal upheld the AAC's decision to consider the evidence, supporting the assessee's position.

In conclusion, the Tribunal dismissed the departmental appeal, upholding the AAC's decision to invalidate the HUF assessment and exclude income from the businesses in question. The assessee's cross-objection was partially allowed, affirming the individual assessment status.