1986 (9) TMI 129 - AT - Income Tax

A Firm, A Partner, Assessment Year, Attributable To, In Part, Minor Child, Orders Prejudicial To Interests, Partnership Deed, Share Income

Summary

Issues Involved:
1. Validity of the Commissioner's order under section 263(1) of the Income-tax Act, 1961.
2. Assessment of the assessee's income from the partnership firm.
3. Benami relationship claim by the assessee.
4. Jurisdiction and procedural aspects under section 263(1).

Detailed Analysis:

1. Validity of the Commissioner's Order under Section 263(1):
The Commissioner invoked section 263(1) of the Income-tax Act, 1961, on the grounds that the Income Tax Officer (ITO) did not apply his mind to the claim of deduction of Rs. 31,872 made by the assessee. The Commissioner noted that the ITO failed to make any enquiry into the factual genuineness or legal validity of the claim. The Commissioner issued a notice under section 263 and, despite initial consent from the assessee's representative, the consent was later withdrawn. However, the Commissioner proceeded with his order, stating the reasons for invoking section 263 and the basis for his reasons.

2. Assessment of the Assessee's Income from the Partnership Firm:
The assessee, a partner in International Fibre Sacks Co., held a 36% share in the firm. The partnership deed specified that the assessee was a nominee (benamidar) for three minor children of Krishnamurthy for three-fourths of his share. The ITO initially assessed the assessee's share of income as one-fourth of 36%, accepting the assessee's claim that he was a benamidar for the minors. The Commissioner, however, found that the ITO did not properly scrutinize this claim, leading to an erroneous and prejudicial assessment.

3. Benami Relationship Claim by the Assessee:
The assessee claimed to be a benamidar for the minor children of Krishnamurthy, as specified in the partnership deed. The Commissioner and the Tribunal found that there was no independent evidence to support this claim beyond the self-serving recitals in the partnership deed. The Tribunal noted that minors cannot share the loss of the firm according to section 30 of the Indian Partnership Act, 1932, and found the declaration by the assessee regarding the guardian's agreement to share losses to be unenforceable and not credible.

4. Jurisdiction and Procedural Aspects under Section 263(1):
The Tribunal upheld the Commissioner's jurisdiction under section 263(1), noting that the Commissioner had clearly recorded reasons for invoking his powers, including the ITO's failure to apply his mind and make necessary enquiries. The Tribunal cited relevant case law to support the Commissioner's jurisdiction and the requirement for the Commissioner to state the reasons and basis for his conclusions. The Tribunal found that the conditions precedent for invoking section 263 were satisfied.

Conclusion:
The Tribunal upheld the Commissioner's order under section 263(1), finding that the ITO's assessment suffered from an error and prejudice to the revenue. The assessee's claim of being a benamidar for the minors was not substantiated by independent evidence, and the procedural requirements for invoking section 263 were met. The appeal was dismissed.