Commissioner of Income Tax and Others vs Manish Kumar Pajwani

N. Kumar, J—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 Hindu undivided family, in so far as the lottery business is concerned and in so far as the finance business is concerned, it is to be assessed as an association of persons under the name Easy Finance and not under the name of the assessee in his individual capacity. 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 November 10, 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 and Co., Bangalore. The assessing authority passed an order on November 29, 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 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.

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 Hindu undivided family registered under the provisions of the sales tax on August 2, 1999. However, he died on October 16, 1999. Thereafter, the son carried on the said lottery business as karta of the Hindu undivided family. 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 be assessed in the hands of the Hindu undivided family. In so far 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 the association of persons. 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 association of persons and not in the hands of the assessee, in his individual capacity. Accordingly, it allowed the appeal, sot aside the impugned orders and accepted the case of the assessee.

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 in the circumstances of the case, the Tribunal was right in deleting the addition of income from lottery business in the hands of the assessee treating it as Hindu undivided family''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 association of persons solely on the basis of investment made in finance business when factually no association of persons existed?"

We have heard the learned counsel appearing for the parties.

In so far 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 the Hindu undivided family, is purely a question of fact. The Tribunal has taken note of the undisputed fact that the father of the assessee got registered the Hindu undivided family under the provisions of the sales tax on August 2, 1999, which is not in dispute. It shows that the father wanted to do lottery business as Hindu undivided family. Unfortunately, within two months therefrom, that is, on October 16, 1999, the father died. It is the case of the assessee that he continued the said business as the karta of the Hindu undivided family. 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 Hindu undivided family is that the Hindu undivided family 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 August 2, 1999, and within two months, the father died. Therefore, the question of the father maintaining the books of account would not arise. After the death 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 Hindu undivided family 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 Hindu undivided family 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.

In so far 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 an association of persons.

In fact the notice under section 158BC of the Act was issued in the capacity as an association of persons only on November 8, 2002. Even before issue of that notice, returns had been filed in the status of an association of persons and the tax had been paid. The returns filed by the assessee on August 24, 2001, for all the three years from 1999-2000, 2000-01 and 2001-02 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 association of persons and not as an individual. Thus, second substantial question of law is answered in favour of the assessee and against the Revenue. For the aforesaid reasons, we do not see any merit in this appeal. The appeal is dismissed.

I