9911796707
TMI Blog1986 (9) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... econd part in his individual capacity." In this appeal, we are concerned with Shri Juturu Sankaraiah, party of the second part, who is said to be a nominee of two minor sons and a minor daughter of Krishnamurthy, Proddatur, to the extent of 9/36th share in each case. The firm was granted registration. The original assessment was made in the case of the assessee on 27-6-1981 in which the share of income from the partnership firm of International Fibre Sacks Co. was taken at Rs. 14,392 being one-fourth of 36 per cent share in the firm. The assessment was completed under section 143(1) of the Act. The Commissioner exercising his jurisdiction under section 263(1) was of the view that as per the firm's assessment order dated 24-8-1981, a sum of Rs. 57,560 being 36 per cent share in the profits of the firm was apportioned to the assessee. But, in the assessment of the assessee, the share was taken only at Rs. 14,392 being one-fourth of 36 per cent. He also noticed that the assessee had clearly indicated in his return of income that out of 36 per cent share in the profits of the firm amounting to Rs. 42,495, a sum of Rs. 31,872 was deducted as being the share of profit referable to Jutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er considering the relevant materials, the ITO granted continuation of registration of the firm treating the firm as genuine for the purposes of the Act. The assessment of the partners is only a consequential one emanating from the assessment of the firm. The return of income disclosed that the assessee had specifically drawn the attention of the ITO that out of the 36 per cent share which he derived from the firm three-fourth belonged to the minor children of Shri Krishnamurthy explaining why the assessee had deducted the amount representing three-fourth of 36 per cent share in income statement. This was also before the ITO. He had accordingly accepted the contention of the assessee that he is a benamidar of the minor children of Shri Krishnamurthy in respect of three-fourth of 36 per cent share. It is not as if he had blindly accepted the return of the assessee even though the assessment was made under section 143(1). Therefore, he submitted that the Commissioner's conclusion that the ITO had not applied his mind to the facts of the case or materials on record is not supported by evidence. In view of this, the Commissioner was not empowered to invoke the provisions of section 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither error nor prejudice caused to the revenue in such assessment. Before setting aside the order of the ITO, it is the duty of the Commissioner to establish that the order suffered from both error and prejudice. In this case, there was neither error nor prejudice, and, therefore, even on merits, the Commissioner's order cannot be sustained. 5. Shri Sreerama Rao submitted that nothing was suppressed from the ITO in the course of the assessment of the firm or in the assessment of the partner-assessee. It is not always necessary for the benami transactions to remain underground ; either the real owner or the benamidar could proclaim the benami relationship. In this case, the assessee's benami relationship with the 'minor children of Shri Krishnamurthy to the extent of three-fourth of 36 per cent share in the profit or loss of the firm has been incorporated in the partnership deed itself to which all partners have subscribed their names and signatures. This very partnership was before the ITO ; other partners also have vouchsafed for this in Form No. 12A filed with the ITO. The assessee had also disclosed to the minors that he is their benamidar for specified shares in the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p deed and other materials which were before the ITO might have enabled him to determine the genuineness of the firm and these cannot be extended to any further inferences. The assessment of the partners is separate. In this assessment, the ITO is bound to consider whether the assessee is the real owner of the share income obtained from the firm, in order to determine the real ownership of share income for purposes of assessment in the hands of the partner. The ITO ought to have considered several factors such as : (i) in the case of minor who is incompetent to contract, any person other than the father and natural guardian could take upon himself the responsibility of being a benamidar of the minor, and (ii) whether any third party could act as a benamidar of the minor without the express consent of the father and natural guardian. Merely by accepting the partnership deed for purposes of registration or continuation thereof, it cannot be said that the ITO had applied his mind to any of these aspects before he proceeded to assess the partners. Therefore, the Commissioner was right in invoking the provisions of section 263(1). 7. We have heard rival submissions and perused rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded two reasons for invoking his powers under section 263. He had also clearly stated that the ITO had not applied his mind to the claim of deduction made by the assessee in the statement accompanying the return of income. He is also of the view that the ITO had not enquired into the factual genuineness and the legal validity of the claim. Thus, the Commissioner has stated not only the reasons for invoking section 263 but also the basis on which his reasons are founded. Thus, the conditions precedent for invoking the power under section 263 as explained in the above two decisions are satisfied in this case. 9. The third case relied on by the learned counsel for the assessee is with regard to the order passed by an ITO in contravention of section 124 of the Act, which the Commissioner sought to revise. It was also held in that case that merely because there has been contravention of provisions of section 124 it cannot be held that the Commissioner could exercise the power under section 263(1) unless he is also satisfied that the assessment order in question is prejudicial to the interests of revenue. Thus, the facts of this case are not on all fours with the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, Shri J. Sankaraiah or the father and natural guardian ? In this context, Shri Sreerama Rao relies on the declaration made by Shri J. Sankaraiah to the effect that in the event of loss, their father and natural guardian had agreed to share the loss. This statement by the assessee is not worth the piece of paper on which it is written, because it purports to impose a liability on the father and natural guardian by a third party in case loss is sustained by the firm. Moreover, this is only a unilateral declaration. Obviously, minors, in view of their incapacity to contract, cannot act on this declaration. Shri Krishnamurthy, who is the father and natural guardian of the minors, had not recorded his consent to the contents of the declaration. Whatever be the nature of the declaration, it cannot be enforced by the minors or by their father and natural guardian. It cannot be presumed that the father of the minor children will enforce the declaration, because in that case he will be saddled with the liability to share the loss of the minors in case loss is sustained by the firm. Therefore, we reject the arguments of the learned counsel that the recitals in clause 14 of the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevance to the matter of assessment but none in regard to the question of registration. This is exactly the point at issue before us. If the assessee is really the benamidar of some other persons, certainly he is entitled to be assessed in respect of his real share income. But, has it been proved by cogent evidence that the assessee, though a partner holding 36 per cent share in the profits and losses of the firm, is really a benamidar of the minor sons of Shri Krishnamurthy ? Apart from the self-serving recital in the partnership deed and crediting the share of profit to the accounts of the minor children, no other material has been brought on record to give positive proof of benami relationship. As far as self-serving recitals are concerned, the Supreme Court in the case of Durga Prasad More observed at page 545 that the taxing authorities were not required to put on blinkers while looking at the documents produced before them ; they were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. The surrounding circumstances in this case are quite peculiar. In this assessment year, the assessee is said to be benamidar o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... children of Shri Krishnamurthy. 14. It was argued by Shri Sreerama Rao that the consideration has proceeded from the minors in that they have agreed to leave the amounts lying to their credit in the firm in which the assessee is a partner. No doubt, the amounts belonging to the minors are lying with the firm in their individual accounts and profits are credited to the accounts of the minors. That does not mean that consideration did proceed from the minors for the sake of appointing the assessee as benamidar. The amounts were there with the firm already and the minors did not choose to withdraw the same. In the absence of evidence, we are unable to appreciate the link between the assessee becoming a benamidar and minor children leaving the amount with the firm. 15. It was submitted by Shri Sreerama Rao that at several stages of assessment the files of the partnership firm and of the assessee were scrutinised before the assessments were completed and, therefore, there was no error or prejudice, the existence of which alone would give rise to cause of action under section 263. It may be that the files were scrutinised several times at different stages, but mere scrutiny by severa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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