1998 (3) TMI 188 - AT - Income Tax

Addition Undisclosed Money Technical Error Natural Justice Benami Transaction Rental Income

Summary

Issues Involved:
1. Restoration of the matter to the file of the Assessing Officer regarding income from house property and unexplained investment.
2. Sustenance of income on account of rental income by treating an individual as benami of the appellant.

Issue-wise Detailed Analysis:

1. Restoration of the matter to the file of the Assessing Officer regarding income from house property and unexplained investment:

The appeal concerns the restoration of the matter to the file of the Assessing Officer by the CIT(A) regarding income from house property shown in the name of the assessee's wife and unexplained investment in the name of another individual. The Assessing Officer made four additions in the hands of the assessee based on unexplained income attributed to the assessee's wife and another individual. The assessee contended that these additions were made without providing an opportunity to explain, citing various case laws in support.

The CIT(A) agreed that no opportunity was given and restored the matter to the Assessing Officer for explanation. However, the assessee argued that this restoration was against the principles of natural justice and that the additions should have been deleted instead. The Tribunal noted that the legal irregularity could not be cured by merely restoring the matter. The Tribunal referenced the case of Prem Agencies v. CIT, where the High Court held that the Tribunal should not decide on merits without the AAC's findings.

In this case, the Tribunal found that the Assessing Officer made additions without affording an opportunity to the assessee and based on observations from different assessment years and other individuals' cases. The Tribunal emphasized that the principles of natural justice were violated, making the Assessing Officer's order legally infirm and not curable. Consequently, the Tribunal canceled the CIT(A)'s order and the Assessing Officer's order, declaring them ab initio void.

2. Sustenance of income on account of rental income by treating an individual as benami of the appellant:

The second issue pertained to the sustenance of clubbing of rental income of the appellant's minor son. The rental income was earned by the minor son from a property purchased on his behalf. The Assessing Officer added this income to the assessee's income, stating that the house was benami and the minor son could not earn the income independently.

The CIT(A) confirmed this addition, observing that the minor son had no source of income and the loans for the property were managed by the assessee. The Tribunal, however, found that no additions were made on account of loans received in the minor son's name and that the money received as rent was not used by the assessee. The Tribunal referred to the case of Prakash Narain v. CIT, which outlined the criteria for determining benami transactions, emphasizing that the source of purchase money is crucial.

The Tribunal concluded that the Assessing Officer failed to prove the transactions as benami, considering factors such as the property being in the minor's name, the title deed, and the source of investment. The Tribunal found that the rental income was used by the minor son, not the assessee, and thus, the addition could not be sustained. The Tribunal deleted the addition of Rs. 11,283 and allowed the appeal.

Conclusion:

The Tribunal found that the Assessing Officer's order was legally infirm due to the violation of natural justice principles and canceled the CIT(A)'s and Assessing Officer's orders. Additionally, the Tribunal deleted the addition of rental income attributed to the minor son, concluding that the transactions were not benami. The appeal was allowed in favor of the assessee.