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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the Revenue and the cross objection by the assessee are directed against the order dated 20/09/2013 of the ld. Commissioner of Income- tax (Appeals)-XXV, New Delhi for assessment year 2009-10. The grounds of appeal
raised by the Revenue are as under:
1. On the fact and circumstances of the case, ld. CIT(A) has erred in deleting addition of Rs. 63,47,405/- made on account of cash deposit in bank account u/s 69A of the Income Tax Act, 1961.
C.O. No. 219/Del/2014 2. Whether the ld. CIT(A) is correct in not appreciating the prohibition of section 19(2) of the Indian Partnership Act, 1932 on the opening of account by a partner in his own name on behalf of the firm, which is further not in consonance with the terms of the partnership deed of the firm M/s. Moti Mahal Restaurant.
Whether learned CIT(A) is correct in not appreciating that the Bank account in the assessee’s individual name was not the Bank account of the firm M/s. Moti Mahal Restaurant, in which the assesse was a partner.
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
The cross objection raised by the assessee are as under:
1.
Whether the learned CIT(A) was justified in holding that the objections raised and filed by the appellant during the course of assessment against the issuance of notice u/s 148 of the Income Tax Act, 1961 by the assessing officer ward 30(1) were dealt with and settled vide order sheet entry dated 26/11/2012 after which the appellant participated in the assessment proceedings uninterruptedly without raising any objections in spite of the fact that the assessing officer clearly stated in his assessment order that the assessee has not filed any objection against the reasons recorded by him on the basis of which notice u/s 148 was issued.
2. Whether the assessing officer was required to dispose off the objections filed by the assessee against the reasons recorded by him before he start the assessment proceedings as per law separately by an speaking order.
3. Whether having acquiesced and participating in the assessment proceedings by the assessee, is too late for the appellant to argue that non disposal of the objections was a fatal flaw vitiating the order passed by assessing officer.
4. Whether the appeal filed by the department is within the time allowed under the Income Tax Act.
3. The facts in brief of the case are that for the year under consideration, the assessee filed return of income on 26/11/2009 declaring total income of the Rs. 3,82,960/-. According to the Annual Information Return (AIR), it was found that the assessee made cash deposits of Rs. 30,87,200/- in saving account. In reply to the notice sent for verification of financial transaction, the assessee accepted the cash as belonging to his partnership firm, namely, ‘Moti Mahal Restaurant’. The claim of the assessee was not verified in absence of any supporting evidence and the Assessing Officer after recording reasons that the income had escaped assessment, issued notice under section 148 of the Income Tax Act, 1961 (in short ‘the Act’). In the counsel’s letter dated 09/09/2012, the assessee requested C.O. No. 219/Del/2014 for the reasons for issuance of notice under section 148 of the Act, which according to the Assessing Officer, were provided to the assessee, as recorded in the order sheet entry dated 14/09/2012. According to the Assessing Officer, the assessee did not file objection to the issuance of notice under section 148 of Act and reassessment proceedings were completed on 25/03/2013, making addition of Rs. 63,47,405/- on account of unexplained deposits in the bank account and addition of Rs. 74,301/- on account of undisclosed interest income. Before the Ld. Commissioner of Income-tax (Appeals), the assessee challenged the re- assessment proceedings on the ground that its objections to the re-assessment proceedings was not disposed off by the Assessing Officer as well as challenged the additions on merit. The Ld. Commissioner of Income-tax (Appeals), upheld the re-assessment proceedings in view of the judgment of the Hon’ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Private Limited, (2007) 291 ITR 500, however deleted the addition of Rs. 63,47,405/- on merit. Aggrieved, the Revenue and the assessee both are in appeal and cross objections respectively raising grounds as reproduced above.
Before us, the ld. Senior Departmental Representative, relying on the order of the Assessing Officer, submitted that the assessee failed to explain cash deposits in the bank account with the help of receipts appearing in the partnership firm, namely, M/s. Moti Mahal Restaurant and, therefore, the addition made by AO was justified. 5. On the other hand, the ld. Authorized Representative of the assessee submitted that for the purpose of depositing the daily sale proceeds of the partnership firm M/s Moti Mahal Restaurant, the assessee opened a saving account no. 08240100014118 in the Bank of Baroda, Daryaganj New Delhi, in which a sum of Rs. 63,47,405/- was found deposited by the Assessing Officer. Subsequently, balance from another account No. 8240100001772, which was in the joint name of the assessee and another partner of the firm, Smt. Kushal Deep C.O. No. 219/Del/2014 was also deposited in the saving account in the name of the assessee. He further submitted that the assessee and the firm continued to treat the said saving accounts as the bank accounts of the firm and no cash sales were deposited in the current account of the firm maintained with Citibank. He further submitted that the amounts were transferred by way of cheques from the said saving bank account to the current account of the firm maintained with Citibank. He further submitted that opening and closing balances of the said bank accounts were shown in the balance sheet of the partnership firm. According to the ld. Authorized Representative, the cash deposits were the sales of the partnership firm and duly explained with the help of the sales receipts recorded in the books of accounts of the partnership firm and in view of these facts no addition was warranted in the case of the assessee.
We have heard the rival submission and perused the material on record. The Ld. Commissioner of Income-tax (Appeals) has comprehensively dealt the issue in dispute and decided as under: “On a concatenation of the aforesaid facts it was abundantly clear that the amounts deposited in the personal savings bank account Nos. 0824010001772 & 08240100014118 amounting to Rs 63.47.405/- stood reflected in the books of account and the balance sheets of the audited return of income filed by the appellant’s firm M/s Moti Mahal Restaurant. Simply put, the deposits in the SB accounts of the appellant individual Sh. Vinod Chadha did not represent the deposits of his concealed/undisclosed income. During the course of appellate proceedings, it was successfully established that the said deposits were duly accounted for by the appellant's firm. The periodicity pertaining to the filing of the returns of income of the appellant's firm and the appellant individual also served as a strong and cogent evidence of the fact that prior to detection of deposits for Rs 63,47,405/- lying in the SB accounts of the appellant individual, the appellant had already disclosed them in his firm's return of income. "Income once taxed cannot be doubly taxed." The emphasis of the Ld. Assessing Officer, therefore, on clause 12 of the partnership deed of M/s Moti Mahal Restaurant was undue and highly misplaced. While it is true that the partnership is a creature of the statute and all the partners have to strictly abide by the terms of the deed of the partnership, there can be no denying the fact that a partner acts as an agent on behalf of the others on the principles of mutuality. In other words, the partners have implied authorities to transact the business of the partnership firm in a bonafide manner and if any partner fails to conform to the standards laid down in the partnership deed, he becomes liable for action at the hands of the other partners. In the instant case, however, the appellant seemingly opened the savings bank account no. 08240100014118 without the consent of the other partners, but his and the other C.O. No. 219/Del/2014 partners' subsequent conduct i.e. raising no voice against the action of the appellant. Sh Vinod Chadha, in opening a SB account in his own name to be operated singly by him for depositing the firm’s receipts etc. only go to reinforce the belief that the appellant's aforesaid conduct had their approval. Reticence is tacit approval, is the legal maxim. In the instant case, the returns of income of the firm M/s Moti Mahal Restaurant reflecting the SB account of the appellant Sh Vinod Chadha also went to prove that the other partners did not consider such an action of the appellant to be in violation of "Clause-12" otherwise they could have brought a suit against him. In this context Section 15 of the Indian Partnership Act also becomes relevant. The said section reads as under:- "Section-15:- Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business…………Section 14 and 15 of the Indian Partnership Act speak about what would constitute the property of a firm and lay down that such property shall be held for the purpose of the partnership, thereby indicating that so long as the partnership continues, no part of the assets of the partnership could be regarded as belonging to any individual partner. No individual partner can predicate his share in a particular property belong to the firm. No doubt, since a firm has no legal existence, the partnership, property will vest in all the partners and in that sense every partner has an legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership however no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (Hi) of clause (b) of Section 48. " In other words as held by a full bench of the Lahore High Court in Ajudhia Pershad Ram Pershad vs. Sham Sunder, AIR 1947 Lah. 13 at p. 20 (FB) while a partnership is in existence, no partner can point to any part of the assets of the partnership as belonging to him al one. " On a plain and simple reading of the fore referred section it would be clear that the appellant Sh Vinod Chadha did not act in congruence with the law on the subject when he opened an account to be operated independently by him for depositing the sales, receipts etc. of the firm M/s Moti Mahal Restaurant, the partnership firm in which he was a partner. To this extent the objection of the Ld. AO was fully justified but his overlooking the subsequent facts and circumstances of the case made his reasoning fallible. The subsequent action of the appellant on the other hand in treating his savings bank accounts used for crediting and debiting the business transactions of his firm M/s Moti Mahal Restaurant as the property of the firm neutralized the rigours of Section 15 of the Indian Partnership Act, 1932 and went to prove that the unity of ownership of the property i.e. bank accounts of the appellant individual namely account Nos. 0824010001772 & 08240100014118 were not taken away from the other partners in as much as the said bank accounts were revealed in the income tax return of the partnership firm for the relevant AY to which the deposits amounting to Rs 63,47,405/- related. In other words none of the partners were deprived of the benefits of the sales C.O. No. 219/Del/2014 transactions of the partnership firm M/s Moti Mahal Restaurant in breach of the contract of partnership. Even otherwise, the trail of money lying deposited in the saving bank accounts of the appellant and not the dictates of the clause-12 of the partnership deed was significant from the point of view of the taxability of the deposits amounting to Rs 63,47,405/-. The Ld. AO was misconceived and misdirected in harping on something which was of little consequence as far as the question of bringing to tax the sum of Rs 63,47,405/- lying in the SB accounts was concerned. Having regard to all the aforesaid facts, the ground no. 3 of the appellant is allowed by deleting the addition of Rs 63,47,405/-.”
We find that as far as source of the cash deposit of Rs. 63,47,405/- in the saving bank account of the assessee is concerned, it is explained as the cash sales of the partnership firm, namely, M/s Moti Mahal Restaurant, in which the assessee is one of the partners. The objection of the Revenue is, however, that the section 19(2) of the Partnership Act, 1932 prohibits opening of an account by a partner in his own name on behalf of the firm. It is also objected by the Revenue that opening of the account in the name of partner was not in accordance to the terms of the partnership deed of M/s Moti Mahal Restaurant. According to the section 19(2)(b) of the Indian Partnership Act, 1932, in absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to open a bank account on behalf of the firm in his own name. The implied authority of the partner binds the firm against the acts of the firm. This restriction on the implied authority of the partner is subject to the usage or custom of the trade, therefore, in absence of evidences of usage or custom of the trade, we cannot say that there was any violation of section 19(2) of the Indian partnership Act, 1932. In our opinion, what is important is that in deposit of trading receipts of the firm in the bank account of the partner, the assessee has not violated any of the provisions of the Income Tax Act, even if it may be a violation of the section 19(2) of the Indian Partnership Act, 1932, and further, there is no dispute that the money belonged to the partnership firm and after deposit, the money was transferred to the partnership firm, in such circumstances, no addition is called for in the case of partner of the firm. In the C.O. No. 219/Del/2014 case of Coka Cola Export Corporation etc. vs. Income Tax Officer & Anr. reported in 231 ITR 200, the Hon’ble Apex Court has held that any violation of the FERA, 1973 was to be examined by the Reserve Bank of India or the Central Government, and it was not any violation of the provisions of the Income Tax Act, 1961. The relevant paragraph of the judgment is reproduced as under:
“15. Mr. Salve, learned counsel for the appellant, submitted that the High Court has wrongly addressed itself to the issue involved in the writ petitions on the question of interpreting the effect of the two letters. He said that it was not correct for the High Court to leave the decision to the ITO and that there was failure on the part of the High Court to exercise its jurisdiction which it manifestly did possess. Mr. Salve also referred to a few decisions of this Court as to when the ITO can assume jurisdiction under s. 147 of the Act. We, however, think that it is not necessary for us to refer to any of those decisions as law is well settled on the subject starting from Calcutta Discount Co. Ltd. vs. ITO & Anr. (1961) 41 ITR 191 (SC) : TC 51R.779. In the present case what we find is that though proceeding for each assessment initiated by the ITO was under s. 147(a) of the Act but the High Court considered the same to be one under s. 147(b) of the Act without further examining the question if notices under s. 148 of the Act on that ground will be within the period of limitation. Again, we do not think that we need to delve into this field as we find the High Court erred in not exercising its jurisdiction when the facts were all there and law clear on the subject. Having examined the matter threadbare after entertaining the writ petitions in exercise of its jurisdiction under Art. 226 of the Constitution and after granting full relief for the asst. yrs. 1967-68 to 1969-70 and partly for the asst. yrs. 1971-72 to 1973-74, the High Court was not justified in staying its hands and leaving the matter with the ITO to decide the question of the effect of the two letters. The High Court was to examine if the ITO possessed jurisdiction to correctly invoke the provisions of s. 147 of the Act in that were these two letters provided material for him to initiate the reassessment proceedings and did these constitute information to give him a reason to believe that income chargeable to tax had escaped assessment. We have seen above that these two letters have been issued under the provisions of FERA and deal with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under s. 56 of 1973 Act and under C.O. No. 219/Del/2014 s. 23 of 1947 Act. The FERA contains stringent provisions for conservation of the foreign exchange resources of the country and the proper utilization thereof in the interests of the economic development of the country and for that purpose regulation of certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange, etc. Reference in this connection be made to the preamble of the 1973 Act or even to 1947 Act. The embargo so placed by these two letters on the ground of foreign remittance to be made abroad by the appellant has nothing to do with the amount of disallowances under the IT Act. As already seen above, the letter dt. 6th Nov., 1974 allows remittances within the overall ceiling of 80 per cent of export earnings applicable to the remittances of the Indian branch of the appellant on all counts. The assessments for the years 1971-72 to 1973-74 were already complete before the issuance of this letter. If any remittance of foreign exchange having been made in excess of prescribed limit from 1st Jan., 1969 that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the FERA, 1973. That, however, cannot be a ground for the ITO to assume jurisdiction to start reassessment proceedings either under s. 147(a) or 147(b) of the Act on the ground that that will be so "in consequence to information" in his possession in the shape of these two letters. Whatever amount be payable in respect of home office expenses or service charges by the Indian branch to its principal office abroad as allowed by the IT authorities under the IT Act, remittance can only be permitted under the provisions of the FERA by the Reserve Bank of India. Both Acts - IT Act and FERA - operate in different fields.”
In view of above, we find no infirmity in the order of the ld. Commissioner of Income-tax (Appeals) on the issue in dispute and accordingly we uphold his findings on the issue in dispute. The grounds of appeal
are accordingly dismissed. Thus, appeal of the Revenue is dismissed.
9. Now, we take up the cross objection of the assessee in which, the assessee has raised legal ground. In its ground, the assessee has objected to not disposing its objections against reopening of the assessment by the Assessing Officer through a separate speaking order. We find that the assessee has already been C.O. No. 219/Del/2014 allowed relief on merit of the addition and, therefore, the issue is rendered only academic, thus , we are not inclined to adjudicate upon the cross objection of the assessee. Accordingly, the cross objections are dismissed as infructuous.
10. In the result, the appeal of the Revenue and the cross objections of the assessee are dismissed. The decision is pronounced in the open court on 13th July, 2016.