1997 (3) TMI 131 - AT - Income Tax

Summary

Issues Involved:
1. Validity of appointing Shri Sudarshan Kumar as an agent of Shri Prem Kumar Bhagat.
2. Justification of additions of Rs.6,000 and Rs.55,000 to the income.
3. Compliance with the directions of the AAC by the ITO.
4. Requirement of passing an order under section 163(2) of the Income-tax Act, 1961.
5. Determination of the status of the assessee as non-resident or resident and ordinary resident.

Detailed Analysis:

1. Validity of Appointing Shri Sudarshan Kumar as an Agent:
- The ITO appointed Shri Sudarshan Kumar as the agent of his non-resident brother, Shri Prem Kumar Bhagat, without passing a formal order under section 163(2) of the Income-tax Act, 1961. The AAC initially set aside the assessment, directing the ITO to first determine whether Shri Prem Kumar is a non-resident and then consider appointing Shri Sudarshan Kumar as his agent after providing an opportunity to be heard.
- The AAC later confirmed the ITO's appointment of the agent, stating that Shri Sudarshan Kumar himself had declared his status as an agent in the return filed on 18-5-1973 and in subsequent letters dated 20-2-1976 and 27-2-1976. The AAC held that there was no need for further opportunity under section 163(2) as the appointment was not in dispute.

2. Justification of Additions of Rs.6,000 and Rs.55,000:
- The AAC upheld the ITO's additions of Rs.6,000 and Rs.55,000, stating that the assessee did not have sufficient funds for these investments. The AAC noted that the appellant first deposited Rs.55,000 on 7-4-1972 and then withdrew Rs.90,000 on the same day. The AAC concluded that the assessee had no valid explanation for the source of these funds, thus justifying the additions.

3. Compliance with the Directions of the AAC by the ITO:
- The ITO issued notices under section 143(2) but did not explicitly comply with the AAC's directions to determine the non-resident status of Shri Prem Kumar and to appoint Shri Sudarshan Kumar as an agent with due opportunity to be heard. The ITO proceeded with the best judgment assessment under section 144 due to non-compliance by the assessee.

4. Requirement of Passing an Order under Section 163(2):
- The Accountant Member disagreed with the Judicial Member, emphasizing that the ITO's failure to pass an order under section 163(2) before making the assessment rendered the assessment invalid. The Accountant Member cited the Punjab and Haryana High Court decision in Kanhaya Lal Gurmukh Singh and the Madras High Court decision in Express Newspapers (P.) Ltd., which held that a formal order under section 163(2) was necessary even if the assessee had filed a return as an agent voluntarily.

5. Determination of the Status of the Assessee:
- The Tribunal held that the status of the assessee should be taken as non-resident to meet the ends of justice and comply with section 163 of the Act. The assessee had filed the return as the agent of a non-resident, which justified treating him as a non-resident.

Separate Judgments Delivered:
- The Judicial Member upheld the ITO's actions, stating that the assessee's voluntary declaration as an agent and non-resident status in the return and subsequent letters negated the need for a formal order under section 163(2).
- The Accountant Member, however, insisted on the necessity of a formal order under section 163(2) before making the assessment, citing judicial precedents and the requirement for due process.

Conclusion:
- The Third Member agreed with the Accountant Member, emphasizing the necessity of passing an order under section 163(2) before making the assessment. The assessment was held to be invalid due to the ITO's failure to comply with this requirement, and the appeal of the assessee was allowed.
- The Tribunal confirmed the additions of Rs.6,000 and Rs.55,000, finding no valid explanation from the assessee for these investments.