INCOME TAX OFFICER -42(1)(3), MUMBAI, MUMBAI vs. MANOHARISINGH NATHUSINGH DEORA, MUMBAI

The brief facts of the case are that the assessee is an individual. The assessee filed his return of income for impugned assessment year declaring a total income of Rs.1,66,780/-. Subsequently, the case was reopened under section 147 of the Income-tax Act (“the Act”) on the basis of information received from the Investigation Wing that substantial credits aggregating to Rs.3,30,89,394/- had been routed through bank accounts maintained with Axis Bank and Rajkot Nagrik Sahakari Bank Ltd., which were not proportionate with the income disclosed by the assessee.

During the reassessment proceedings, the Assessing Officer issued notices under sections 143(2), 142(1) and summons under section 131 of the Act asking the assessee to explain the nature and source of the credits appearing in the bank accounts and also to furnish supporting documentary evidence. The assessee submitted that he was engaged in commission agency and cheque discounting activities and the commission earned ranged between 0.05% and 0.10%. The assessee further contended that the transactions reflected in Form 26AS did not belong to him. However, according to the Assessing Officer, the assessee failed to substantiate these explanations by producing any documentary evidence. The Assessing Officer observed that the assessee neither furnished complete narration of the bank transactions nor produced details of the persons from whom cheques were received or to whom payments were made. The assessee did not furnish any books of account, confirmations or other supporting evidence during the course of assessment proceedings. The Assessing Officer further observed that despite repeated opportunities and issuance of summons, neither the assessee nor his authorised representative furnish any specific evidence explaining the source and nature of the credits. Accordingly, the Assessing Officer held that the assessee had failed to discharge the burden cast upon him under the Act and therefore treated the aggregate credits of Rs.3,30,91,490/- appearing in the bank accounts as unexplained money under section 69A of the Act.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(Appeals). Before the learned CIT(A), the assessee produced additional documentary evidence including the partnership deed of M/s Ambika Enterprises, bank account opening forms, bank mandates, bank statements and information obtained under the Right to Information Act. The assessee submitted that the major bank account maintained with Rajkot Nagrik Sahakari Bank Ltd. and the Axis Bank account did not belong to the assessee in his individual capacity but belonged to the partnership firm, M/s Ambika Enterprises, of which the assessee was only one of the partners. The assessee further submitted that a partnership firm is a separate taxable entity under the Income-tax Act and, therefore, the credits appearing in the bank accounts of the firm could not be assessed in the hands of an individual partner. After examining the documentary evidence, the learned CIT(Appeals) found that the bank account opening forms, bank mandates, bank statements and the RTI reply issued by the Department itself clearly established that the impugned bank accounts were maintained in the name of M/s Ambika Enterprises. The learned CIT(Appeals) observed that the Assessing Officer had proceeded on an erroneous assumption that the bank accounts belonged to the individual assessee without carrying out proper verification of the ownership of the accounts. The CIT(A) held that since the bank accounts belonged to the partnership firm, which is a separate assessable entity under the Income-tax Act, the credits appearing therein could not be assessed in the hands of the individual partner merely because he was one of the partners of the firm. On this basis, the learned CIT(Appeals) deleted the entire addition of Rs.3,30,91,490/- made under section 69A of the Act.

The Department is in appeal before us against the order passed by the learned CIT(Appeals).

We have heard the rival contentions and perused the material available on record. Before us, the Counsel for the assessee submitted that the assessee was only an employee of main concerned person, who firstly directed the assessee to become a Partner in the partnership firm M/s Ambika Enterprises and it the employer of the assessee who had effectively opened and operated the bank accounts held with Axis Bank and Rajkot Nagrik Sahakari Bank Ltd. It was submitted that the assessee was only a name lender and neither the partnership firm M/s Ambika Enterprises nor the bank accounts held with Axis Bank and Rajkot Nagrik Sahakari Bank Ltd. were managed or operated by him and neither did the money so deposited in such bank accounts belonged to the assessee.

We have heard the rival contentions and perused the material available on record. The learned Counsel for the assessee submitted that the assessee was merely an employee of the principal person controlling the affairs of M/s Ambika Enterprises. It was contended that at the instance and under the directions of such principal person, the assessee was inducted as a partner in the partnership firm only as a name lender and had no real or effective control over the affairs of the firm. It was further submitted that the bank accounts maintained with Axis Bank and Rajkot Nagrik Sahakari Bank Ltd. were neither opened nor operated by the assessee in his independent capacity. According to the learned Counsel, the said bank accounts were in fact opened, controlled and operated by the principal person and the assessee had merely lent his name as a partner. It was accordingly argued that the monies deposited in the said bank accounts never belonged to the assessee and, therefore, the additions could not be sustained in his hands.

We have given thoughtful consideration to the rival submissions and perused the material available on record.

We find that the submissions advanced before us raise several factual issues which have not been comprehensively examined either by the Assessing Officer or by the learned CIT(Appeals). The Assessing Officer proceeded on the premise that the impugned bank accounts belonged to the assessee and, therefore, treated the aggregate credits appearing therein as unexplained money under section 69A of the Act. On the other hand, the learned CIT(Appeals) accepted the assessee's contention that the bank accounts belonged to the partnership firm M/s Ambika Enterprises and, on that basis alone, deleted the addition holding that the credits could not be assessed in the hands of the individual partner.

However, the specific plea now advanced before us is not merely that the bank accounts belonged to the partnership firm, but that the assessee himself was only a nominal partner and an employee of another person who was the real person controlling the affairs of the partnership firm and operating the bank accounts. If this contention is factually correct, it would require a detailed examination of the constitution of the partnership firm, the role and responsibilities of partners, the manner in which the bank accounts were opened and operated, the identity of the persons who actually authorised and conducted the banking transactions, the ownership of the monies deposited therein, the source of such deposits, the books of account of the partnership firm and the flow of funds reflecting in the bank accounts. These factual aspects have neither been investigated by the Assessing Officer nor examined by the learned CIT(Appeals).

In our considered opinion, neither the addition made by the Assessing Officer nor the outright deletion granted by the learned CIT(Appeals) can be sustained without a comprehensive factual enquiry into the true nature of the transactions and the real ownership of the monies deposited in the impugned bank accounts. The issue requires verification as to whether the bank accounts were in fact operated by the assessee, by the partnership firm through its authorised partners, or by any third person acting behind the facade of the partnership. The Assessing Officer shall also verify whether the transactions recorded in the bank accounts have been reflected in the books of account of M/s Ambika Enterprises or any other entity, identify the real beneficiary of the funds and ascertain in whose hands the impugned transactions are legally liable to be assessed. Mere inclusion of the assessee as a partner in the partnership deed would not, by itself, conclusively establish that the transactions belonged to him, nor would the mere existence of the partnership firm automatically establish that the entire credits necessarily belonged to the firm. These questions can only be answered after a thorough examination of all relevant documentary evidence and surrounding facts.

Accordingly, in the interest of justice, we restore the matter to the file of the Assessing Officer for de novo adjudication. The Assessing Officer shall call for and examine all relevant evidence, including the partnership deed, bank account opening forms, mandate forms, specimen signatures, KYC documents, books of account of M/s Ambika Enterprises, bank statements, income-tax records of the partnership firm and any other material necessary to determine the real nature of the transactions. The Assessing Officer shall specifically examine the assessee's contention that he was merely a name lender and the bank accounts and the funds deposited therein were actually controlled and operated by another person. After carrying out such factual verification and affording adequate opportunity of hearing to the assessee, the Assessing Officer shall pass a fresh order in accordance with law. We make it clear that we have expressed no opinion on the merits of the controversy and all issues are kept open for fresh adjudication.

The appeal of the Revenue is allowed for statistical purposes