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TMI Blog1987 (4) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... e IAC in the instant case go to establish that these are businesses of the assessee only as there are sufficient evidences from which inference could be drawn that it is the fact and the evidences are in the nature of business being identical in nature common cash book seized on survey employees being common, finances are interlinked and there have been purchases and sales between them and that the initial assessment in the hands of the two ladies was done in a summary fashion and it is also admitted by the assessee himself that the entire business of all the firms are under his control. 2.1 The learned Senior Departmental Representative has filed paper book running 221 pages, which included photo copy of the common cash book. Drawing our attention to this common cash book, he pleaded that the manner in which the first page is written up which is started after the usual Pooja, which is done and in the opening page it has been mentioned as rough cash book of Nemichand Garg that is the assessee as clearly establishes that the businesses belonged to the assessee. He pleaded that this should be made note of. He further submitted that the cash book had opening balance of Rs. 695.58 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the learned Senior Departmental Representative, it was rather strange for an employer not to know the residential address of his Munim. Referring to the same page, the learned Senior Departmental Representative wanted us to make a note of the fact that Shri Ramesh Kumar Bansal was a relative of the assessee, who also did the work of a Munim and even his address could not be provided, which is also rather strange. At this point of time, the learned Senior Departmental Representative chose to refer the statement of Shri Ramdeo Joshi, who was a Munim of the assessee, which statement is at page 128 of the paper book filed by the department. At pages 130 and 131, Shri Ramdeo was specifically asked about certain entries that were recorded in the common cash book against which it was written "not to be entered" and the reason therefor. The reply given by him was that since it was so written he did not enter into the books of account of any of the concerns and the purpose was with a view to show a lesser income. The learned Senior Departmental Representative drew our attention to statement of Shri Ramesh Kumar Bansal, which is at pages 34 to 39 in which Ramesh Kumar had admitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the two ladies having filed the returns showing the business to be owned by them, which assessments having been done on a summary fashion should not be taken into account as relevant when the issue of benami is to be decided. The two ladies were examined and they, no doubt, admitted that the business did belong to them. At this point of time, it was brought to our notice that the capital that was brought in by the ladies is in the shape of income from tailoring business or in the shape of income from sale of Papad etc. for which there is no evidence available. Even the balance sheet of the ladies did not indicate owning of any sewing machine. It was further submitted that the wife of the assessee at the time of start of her business had borrowed amounts from the assessee, which fact should be seen in the light of the various evidences that have been placed on record as only a manner to cover up the actual fact. The statement of the ladies as were given by them before the ITO are no more than the self-serving statement and need only to be rejected. The employees who were engaged such as Munim, jober, folder etc., were shown to be common employees. The examination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this conclusion, he had placed reliance on the statement of the Munim and the jober, chowkidar and folder, who had all claimed that they were working for the two ladies. He was further impressed by the fact that each of these concerns had separate power connection, separate trade marks, separate licences etc. It was, therefore, pleaded that the CIT(A) was in error in coming to the conclusion that the business did not belong to the assessee and, accordingly, the prayer was that the order of the ITO must be restored which has been passed after obtaining the approval of the IAC u/s. 144B. 5. On the issue of the trading addition, the plea was in view of lack of manufacturing record, absence of stock register as well as the common cash book containing mention not to be accounted for clearly goes to indicate that the books of accounts are not reliable and only estimate has to be made. In the circumstances, the estimate as was made by the ITO cannot be said to be reasonable, which has been deleted by the CIT(A) without any basis. 5.1 The learned Senior Departmental Representative had placed reliance on McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), K.P. Varghese v. ITO [1981] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g him the copy of detailed submissions that were made by the assessee before him to which the ITO had replied vide his letter dated 26th of October, 1986, the copy of which is at pages 1 to 3 of the paper book. Referring to this reply of the ITO, Mr. Jain submitted that at the time of survey the department found six different powerlooms under the shed owned by the assessee. Of these, the department is holding that the income of Krishna Textile and Dinesh Textile as belonging to the assessee for the reason that they are owned by his wife and his mother-in-law. According to Mr. Jain, the ITO has proceeded merely on the promise and supposition of existence of a similar cash book such as the one found at the time of survey for the earlier period as well. The statement of the assessee during the time of survey was emphatic about the fact that earlier there were only three firms and, therefore, there was no necessity of maintaining any such memoranda book and since in the year under reference the number of firms had gone up to six, the memoranda book was maintained so that the entries are not omitted. Referring to the ITO's reply, he submitted that the ITO is only surmising of possibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , who was old enough, and this by itself does not make the assessee the owner of the businesses. It was further pleaded that the CIT(A) had further realised the fact that the initial capital was brought in by the ladies, the profits were under their control and that it never flowed to the coffers of the assessee, which are essential ingredients for establishing a benami ownership. The CIT(A), therefore, considering the overall situation of the fact was convinced that the various propositions laid by the ITO did not have material to support and, rather, the assessment was framed merely on the basis of doubt in the minds of the ITO. The CIT(A) was further observant about the fact that the ITO has made a observation that but for the help of the assessee the ladies could not have shown such as huge profit i.e. to the tune of 63 per cent of the initial capital contributed by the respective ladies, which also laid him to come to the conclusion that the assessee was only providing a helping hand. The learned counsel also on a test check basis provided the various vouchers of different dates in the respective books of accounts of the concerns so as to establish that the transactions are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the ITO for his comments and the learned ITO had provided the comments vide his reply dated 26-10-1984. The relevant submissions of the ITO in the abovesaid letter are as under : " (i) Clubbing of income of M/s. Dinesh Textile Industries, M/s. Naresh Powerloom Factory in the hands of Shri Nemichand Garg, Prop. M/s Sanjay Powerloom Factory. In this connection it is submitted that survey operation under section 133A of the IT Act was conducted and certain books of accounts of various concerns namely : 1. Sanjay P/L Factory, Prop. Shri Nemichand Garg 2. Naresh P/L Factory, Prop. Krishna Devi 3. Sanjaykumar Naresh Kumar, consisting of three partners viz. Shri Nemichand Garg, 20 per cent, Shri Girdharilal brother 40 per cent and Shri Kanhiyalal brother-in-law 40 per cent. 4. Dinesh Textiles Renuka Textiles, Prop. Mohini Devi. 5. Krishna Textiles, Prop. Krishna Devi. 6. Kanhiya Weaving Mills Prop. Kanhiyalal. were impounded. The owners of the various concerns are close relatives of the appellant Sh. Nemichand Garg. From the examination of the account books it was noticed that there exists interlacing and interconnection of finance and Shri Nemichand Garg exercises c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Textiles Industries, (e) Kanhiya Weaving Mills Krishna Textiles and Renuka Textiles. The above facts reveal that Shri Nemichand Garg in fact is the real owner of all the aforesaid concern and hence income pertaining to Smt. Krishna Devi Prop. Naresh P/L Factory and income pertaining to Smt. Mohini Devi Prop M/s Dinesh Textiles Industries have been clubbed in the hands of Shri Nemichand Garg, Prop. M/s Sanjay Powerloom Factory, Kishangarh in the assessment year 1978-79. It is also mentioned here that Smt. Krishna Devi is a wife of Shri Nemichand Garg and Smt. Mohini Devi is a mother-in-law of Shri Nemichand Garg. Financial aspects: It is submitted that Smt. Mohini Devi started powerloom business with a nominal capital of Rs. 6,500 only in the assessment year 1976-77 which was too modest for running of an independent business. She has earned net profit of 63 per cent in relation to her capital employed which was ordinarily impossible for a person engaged in household activities without any business experience or trade experience or formal education in this regard. Out of her total assets of Rs. 23,116 a sum of Rs. 12,430 has been raised as a loan from Shri Nemichand Garg, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the ladies from the banks for which confirmations are available in the files of the ladies. The learned CIT(A) was also impressed by the fact that the ladies had separate bank accounts, separate electric connections, separate sales-tax Registration Nos., separate accounts were also maintained and the statement of the ladies also showed that they were aware of the business and that they had admitted to have looked after the business which was also corroborated by the employees. The learned CIT(A) had also examined the statement of the assessee and considered his reply that he was looking after the affairs of the various concerns located in his shed. According to him, the common cash book is in the nature of memoranda book while as per the ITO this is the main record which indicated that the business belonged to the assessee. As observed by the CIT(A), re-examination of the common cash book revealed that there were no opening cash balances nor closing balances of any of the day. On a test check the bills of respective concerns were also examined in the presence of the parties as having been duly entered in the respective accounts on a day to day basis maintained for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriage of her daughter and son also is a possible indication of the ownership by the ladies. The statement of the ladies though taken almost after year of survey clearly indicates that they were aware of their ownership of their power-looms and had clearly answered various questions about the nature of business, their bank accounts etc. which were also supported by the statement of the employees. The ladies' statement also revealed that they were looking after the business though the help of the assessee was always available. When we weigh the various circumstances with the various submissions as well as other materials of events, it appears that the approach of the department is one of suspicion or doubt since it involved ladies one of whom being the wife of the assessee and the other, the mother-in-law of the assessee. on an identical situation in the case of Ramchand Shakerlal v. ITO decided on 5-9-1984 where also ladies were involved the question that was arrived at was that there is nothing wrong if ladies are also carrying on business and this by itself does not lead to the conclusion that they were incapable of running of the business or to own the business. In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -piece and in fact her husband was the real owner of the business. In the instant case, before us, the transactions that are involved are not of such high magnitude and the profitability is also meagre. No doubt, if they are assumed to be one concern the rate of taxation could have been slightly on the higher slab it does not mean that in every case where the ladies are involved the ownership really vests with their husbands. 16. In 3 Tax World 267, the department had proceeded on the lines that since ladies were partners by means of gifts received from their husbands they were in fact benamidars of their husbands. The conclusion of the Tribunal was that this may be a reason to doubt the transaction but not conclusive enough. Further, one or two solitary transactions of purchase between one concern and another also does not lead to the conclusion that it is one business. As in the case of establishing of a benami transaction which requires the establishment of the fact that initial capital was by the real owner the profits earned flowed back to the real owner and that the capital was also under the control of the real owner, where the benamidars are third parties a similar findin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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