THE COMMISSIONER OF INCOME TAX vs. MR MANISH KUMAR PAJWANI

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ITA/1047/2008HC KarnatakaKAHC01047163200820 January 2015Bench: B.VEERAPPA,N.KUMAR10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first substantial question of law regarding the assessment of lottery business income in the hands of HUF or individual was a question of fact. The Court noted that the HUF was registered for sales tax on August 2, 1999, and the assessee's father, who intended to run the lottery business as HUF, died on October 16, 1999. The assessee continued the business as Kartha of the HUF. The Court found no basis for the lower authorities' inference that the HUF lacked funds, as the father died shortly after registration. The Court also noted the assessee's request to adjust undisclosed income and seized cash as advance tax for HUF. Therefore, the Tribunal was justified in holding that the lottery business income should be assessed in the hands of the HUF. Regarding the second substantial question, the Court observed that seized materials indicated the finance business was carried on by three persons as an AOP. Notices under Section 158BC were issued to the AOP, and returns were filed in the status of AOP. Thus, the undisclosed income from the finance business was rightly assessed in the hands of the AOP. The appeal was dismissed.

What were the facts?

The Revenue filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) which set aside the orders of lower authorities. The assessee, Mr. Manish Kumar Pajwani, was engaged in lottery business under M/s. Luck Associates and unregistered finance business under Easy Finance. A search on November 10, 2000, resulted in the seizure of Rs. 8,00,000 in cash and 430 grams of gold jewellery. The Assessing Officer assessed the undisclosed income in the assessee's individual capacity for both businesses. The Commissioner of Income-tax (Appeals) affirmed this order. The ITAT, however, directed that the lottery business income be assessed in the hands of the HUF and the finance business income be assessed in the hands of an Association of Persons (AOP). The assessment years are not explicitly stated for the entire period but the search was conducted on 10.11.2000, and the order under challenge is for the period 01.04.1990 to 10.11.2000.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether the Tribunal was right in deleting the addition of income from lottery business in the hands of the assessee, treating it as HUF's income and not the assessee's, based on Sales Tax Returns. 2. Whether the Tribunal was right in deleting the addition made representing the assessed income from finance business by holding that it represented the income of AOP solely on the basis of investment made in finance business when factually no AOP existed. The Revenue argued that the lottery business income should be assessed in the individual capacity of the assessee. For the finance business, the Revenue contended that no AOP existed and the assessment should be in the individual capacity. The Assessee argued that the lottery business was carried on as Kartha of the HUF, which was registered for sales tax purposes. For the finance business, the Assessee argued it was carried on as an AOP, and notices were issued to the AOP, and returns were filed as AOP. The Tribunal's decision was based on the registration of HUF and the seized materials indicating an AOP for the finance business.

Which sections of the Income-tax Act were involved?

Section 260A,Section 158BC,Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 20th DAY OF JANUARY 2015

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.VEERAPPA

I.T.A. NO. 1047/2008

BETWEEN :

1.

The Commissioner Of Income Tax,

C. R. Building,

Attavara, Mangalore.

2.

The Asst. Commissioner Of Income-Tax, Central Circle,

Mangalore.

...APPELLANTS

(By Sri Jeevan J. Neralagi, Adv.)

AND :

Mr. Manish Kumar Pajwani, M/s. Luck Associates, 503, Kunil Centre, Hampankatta, Mangalore.

…RESPONDENT

(By Sri A. Shankar & M. Lava, Advocates . . . .

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This I.T.A. is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 30.06.2008 passed in IT(SS)A No.129/BNG/2004, for the Assessment year 01.04.1990 to 10.11.2000, praying to:

(i) formulate the substantial questions of law stated therein,

(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in IT(SS)A No.129/BNG/2004, dated 30.06.2008 and confirm the order passed by Assessing Authority in the interest of justice.

This I.T.A. coming on for hearing, this day, N.Kumar J., delivered the following:

JUDGMENT

The Revenue has preferred this appeal against the order passed by the Tribunal, which has set-aside the order passed by the Lower Authorities on the ground that the undisclosed income is to be assessed in the hands of the HUF, insofar as the lottery business is concerned and insofar as the finance business is concerned, it is to be assessed as AOP under the name

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Easy Finance and not under the name of the assessee in his individual capacity.

2.

The assessee is doing lottery business under the trade name M/s. Luck Associates, Mangalore. He is also running unregistered finance business under the name and style of Easy Finance. A search as conducted on 10.11.2000 and a cash of Rs.8,00,000/- was seized and gold jewellery weighing 430 grams was found. The assessee in his statement stated that the main stockists of lottery were M/s.Pooja Agencies and M/s. Ganesh Agencies of Delhi, M/s. Sri Laxmi Venkatesh Lottery, Mangalore and M/s. M & Co., Bangalore. The Assessing Authority passed an order on 29.11.2002 under Section 158BC read with Section 143(3) of the Income-tax Act, 1961 (for short, hereinafter referred to as `the Act’). The Assessing Authority did not accept the case of the assessee and held that the undisclosed income offered

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has to be assessed in the name of the assessee in his individual capacity in respect of both lottery business and finance business. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax(Appeals), who affirmed the said order. Thereafter, the Assessee preferred a second appeal to the Tribunal.

3.

The Tribunal, on consideration of the entire material on record took note of the fact that the assessee’s father by name Harshad Rai Pajwani has got HUF registered under the provisions of the Sales tax on 02.08.1999. However, he died on 16.10.1999. Thereafter, the son carried on the said lottery business as kartha of the HUF. Therefore, the Tribunal was of the view that the authorities were not justified in assessing the undisclosed income relatable to the lottery business in the hands of the individual, but it ought to

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be assessed in the hands of the HUF. Insofar as the finance business is concerned, it was done under the name of Easy Finance. The seized materials, show the names of Prakash, Rajesh and Jagadish, who are the members of the association. In fact the notice was issued to AOP. In those circumstances, the Tribunal was of the view that even the undisclosed income relating to the finance business have to be assessed in the hands of AOP and not in the hands of the assessee, in his individual capacity. Accordingly, it allowed the appeal, set-aside the impugned orders and accepted the case of the assessee.

4.

Aggrieved by the said order, the Revenue is in appeal. This appeal was admitted to consider the following substantial questions of law: (i) Whether in the facts and circumstances of the case the Tribunal was right in deleting the addition of income from

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lottery business in the hands of the assessee treating it as HUF’s income and not the assessee on the basis of the Sales Tax Returns filed?

(ii) Whether the Tribunal was right in deleting the addition made representing the assessed income from finance business by holding that it represented the income of AOP solely on the basis of investment made in finance business when factually no AOP existed?

5.

We have heard the learned counsel appearing for the parties.

6.

Insofar as the first substantial question of law is concerned, whether the undisclosed income relatable to, particularly the lottery business, is to be assessed in the hands of the individual or HUF, is purely a question of fact. The Tribunal has taken note of the undisputed

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fact that the father of the assessee got registered the HUF under the provisions of the Sales Tax on 02.08.1999, which is not in dispute. It shows that the father wanted to do lottery business as HUF. Unfortunately, within two months there from, that is on 16.10.1999, the father died. It is the case of the assessee that he continued the said business as the Kartha of the HUF. The reason given by the Lower Authorities to come to the conclusion that the amount is to be assessed in the hands of the assessee as an individual instead of HUF is that the HUF did not have money to invest in this business as they have not maintained any accounts. The said inference drawn by the assessing authority is without any basis. As is clear from the aforesaid facts, the sales tax registration was done on 02.08.1999 and within two months, the father died. Therefore, the question of the father maintaining the books of accounts, would not arise. After the death

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of the father, the son is carrying on with the said business. If he had maintained the accounts and if he had disclosed all the amounts in the accounts, it seems that it would not have been treated as undisclosed income. It is because books were not maintained and returns were not filed, the authorities laid their hands on the undisclosed income. Therefore, the Tribunal was justified in the facts of the case in holding that the said amount is to be assessed in the hands of the HUF in the aforesaid circumstances and not in the hands of the assessee in his individual capacity. In fact during such proceedings, the assessee had requested the authorities to adjust this undisclosed income and seized cash as advance tax for HUF and therefore, we do not find any infirmity in the order passed by the Tribunal, which calls for interference. Hence, we answer the first substantial question of law in favour of the assessee and against the Revenue.

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7.

Insofar as the second substantial question of law is concerned, it is not in dispute that the seized materials disclose the names of the three persons namely, Manish, Jagadish and Rajesh. They were carrying on the finance business under the name and style of `Easy Finance’ as Association of Persons.

8.

In fact the notice under Section 158BC of the Act was issued in the capacity as AOP only on 08.11.2002. Even before issue of that notice, returns had been filed in the status of AOP and the tax had been paid. The returns filed by the assessee on 24th August, 2001 for all the three years from 1999-2000, 2000-2001 and 2001-2002 shows undisclosed income as Nil. In the light of the aforesaid evidence on record the undisclosed income relatable to the finance business is to be assessed in the hands of the AOP and not as an individual. Thus, second substantial question

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of law is answered in favour of the assessee and against the Revenue.

9.

For the aforesaid reasons, we do not see any merit in this appeal. Appeal is dismissed.

Sd/- JUDGE

Sd/- JUDGE

SPS

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