1983 (12) TMI 92 - AT - Income Tax

Issues Involved:
1. Inclusion of interest income from the firm Bankimchandra & Co. in the assessee's total income.
2. Inclusion of the assessee's share of income from the firm Bankimchandra & Co. in the assessee's total income.
3. Justification of the addition of Rs. 20,000 as unexplained investment.
4. Justification of the addition of Rs. 28,480 as unexplained investment in interest-bearing advances.

Issue-wise Detailed Analysis:

1. Inclusion of Interest Income from the Firm Bankimchandra & Co. in the Assessee's Total Income:

The assessee, a minor represented by his father, filed a return showing income from interest amounting to Rs. 13,379, which included Rs. 10,531 received from the firm Bankimchandra & Co., where he was admitted to the benefits of the partnership. The Income Tax Officer (ITO) made an ex parte assessment under section 144 of the Income-tax Act, 1961, and included this interest income in the assessee's total income. The Appellate Assistant Commissioner (AAC) set aside the assessment, directing the ITO to examine the terms and conditions of the partnership deed to determine whether this interest should be assessed in the assessee's hands. However, the Tribunal found that the AAC was not justified in this direction as the interest income was shown in the return and offered for assessment by the assessee. Therefore, the Tribunal reversed the AAC's order and restored the ITO's order on this issue.

2. Inclusion of the Assessee's Share of Income from the Firm Bankimchandra & Co. in the Assessee's Total Income:

The AAC held that the share of the assessee-minor from the firm Bankimchandra & Co. had already been assessed and included in the total income of the assessee's father. Under section 64 of the Act, the income of a minor child from admission to the benefits of partnership in a firm is includible in the total income of the parent with the higher income. The Tribunal upheld the AAC's conclusion that this share income could not be included in the total income of the assessee-minor and should be included in the total income of the father or mother, depending on whose income was higher. Hence, the Tribunal found the AAC's order justified and upheld it on this issue.

3. Justification of the Addition of Rs. 20,000 as Unexplained Investment:

The AAC found that the assessee's grandmother had made a gift of Rs. 15,000 on 17-6-1968, which was invested in various firms and banks, swelling to more than Rs. 20,000 before being invested in the firm Bankimchandra & Co. The ITO had not provided any material to disprove the assessee's claim of investments from the gift. The gift-tax assessment order of the grandmother, which subjected her to gift-tax on this amount, was also considered valid and genuine. Therefore, the AAC concluded that the nature and source of the investment of Rs. 20,000 were satisfactorily explained, and the addition of this amount as unexplained investment was not justified. The Tribunal agreed with the AAC's conclusion and upheld the deletion of the Rs. 20,000 addition.

4. Justification of the Addition of Rs. 28,480 as Unexplained Investment in Interest-bearing Advances:

The AAC had deleted the addition of Rs. 28,480 for unexplained investments in interest-bearing advances to various parties, based on material provided by the assessee that was not before the ITO. The Tribunal noted that Rule 46A of the Income-tax Rules, 1962, requires that additional evidence should not be admitted without recording reasons in writing and without giving the ITO a reasonable opportunity to examine the evidence. Since the AAC's order violated Rule 46A by considering new material without allowing the ITO to examine it, the Tribunal set aside the AAC's order on this issue and remanded the matter back to the AAC for a fresh decision, keeping in view the Tribunal's observations.

Conclusion:

The appeal was partly allowed. The Tribunal reversed the AAC's order regarding the inclusion of interest income from the firm Bankimchandra & Co. in the assessee's total income and restored the ITO's order. The Tribunal upheld the AAC's decision that the share of the assessee-minor from the firm should not be included in his total income but in the total income of the parent with the higher income. The Tribunal also upheld the deletion of the Rs. 20,000 addition as unexplained investment. However, the Tribunal set aside the AAC's order on the Rs. 28,480 addition and remanded the issue back to the AAC for a fresh decision.

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