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Shri Nath Suresh Chand Ram Naresh Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1982)2ITD466(All.)
AppellantShri Nath Suresh Chand Ram Naresh
Respondentincome-tax Officer
Excerpt:
1. since the above appeals relate to the same assessee and also involve more or less common contentions, they are disposed of by this consolidated order for the sake of convenience.2. munna lal moti lal was an huf of which shri moti lal was the karta.this entity was duly assessed to income-tax up to the assessment year 1967-68 vide gir no. 711-m. there is no dispute about this fact, which is also proved from a copy of the notice issued under section 143(2) of the income-tax act, 1961 ('the act') on 28-11-1967, and a photostat copy of the same appears at page 35 of the paper book submitted by the assessee. shri moti lal died sometime in april 1967. according to the assessee, the business originally carried on by munna lal moti lal, which was in sarrafa, was later on carried on in the name.....
Judgment:
1. Since the above appeals relate to the same assessee and also involve more or less common contentions, they are disposed of by this consolidated order for the sake of convenience.

2. Munna Lal Moti Lal was an HUF of which Shri Moti Lal was the karta.

This entity was duly assessed to income-tax up to the assessment year 1967-68 vide GIR No. 711-M. There is no dispute about this fact, which is also proved from a copy of the notice issued under Section 143(2) of the Income-tax Act, 1961 ('the Act') on 28-11-1967, and a photostat copy of the same appears at page 35 of the paper book submitted by the assessee. Shri Moti Lal died sometime in April 1967. According to the assessee, the business originally carried on by Munna Lal Moti Lal, which was in sarrafa, was later on carried on in the name of Moti Lal Shri Nath. However, there was no change in the status which continued to be the HUF, though its karta now was Shri Nath. . This business was continued up to 31-7-1969 According to the assessee, on 31-7-1969, there was a partition of the family when the capital of Rs. 14,716.66 was divided between three brothers, namely, Shri Nath, Suresh Chand and Ram Naresh, who were also its coparceners. The case of the assessee is that the partition is evidenced by the entries in the books of account, although decision to partition was taken orally.

3. As per the version of the assessee, after the partition of the family, with effect from 31-7-1969, Shri Ram Naresh left. Shri Nath and Suresh Chand started the business in partnership, in the name of Shri Nath Suresh Chand. Again, as per the assessee, this firm was dissolved on 31-3-1972. After its dissolution Shri Suresh Chand started his separate business of sarrafa, with effect from 1-4-1972, in the name and style of Suresh Chand Manish Kumar. Besides, Shri Nath also started his separate business in the name of 'Shri Nath'. This too was in sarrafa.

4. A search was conducted at the premises of the assessee on 18-11-1976, by the income-tax department. In this search, books of Moti Lal Shri Nath, Shri Nath Suresh Chand and Suresh Chand Manish Kumar were seized.

5. Earlier to the search and seizure of the books by the department, the various members of the family, namely, Shri Nath, Shri Suresh Chand and Smt. Kamla Devi w/o late Shri Moti Lal, Smt. Shakuntla Devi w/o Shri Nath, Smt. Asha Rani w/o Shri Suresh Chand and Smt. Santosh Kumari w/o Shri Ram Naresh, had filed their individual returns sometime in 1975-76. These persons also gave a written history of their cases, stating that Shri Moti Lal was doing business as HUF in the name and style of Munna Lal Moti Lal, which was dissolved in the year 1967, that after his death Shri Nath became the karta of the HUF and carried on the business, till the assessment year 1970-71. In the history, it was further stated that after the above period, there was a verbal partition. The ITO was of the opinion that in the eyes of income-tax law, a verbal partition had no meaning. He was of the view that the business having been done in the capacity of the HUF, the presumption was that the HUF continued to exist. After going through the seized books of account, he was further of the opinion that there was escapement of income in the case of the HUF. He, accordingly, recorded his reasons and submitted a proposal for the sanction of the Commissioner, on 30-12-1976, in terms of Section 151 of the Act. In the reasons recorded by him, he described the name of the assessee as 'Shri Nath Suresh Chand Ram Naresh karta Shri Nath, Saraugi, Barabanki'. The status described was HUF. The Commissioner accorded his sanction, stating that he was satisfied on the reasons recorded by the ITO that it was a fit case for the issue of a notice under Section 148 of the Act. The ITO, after the receipt of the sanction of the Commissioner, issued notices under Section 148 of the Act on 9-12-1976, for the assessment years 1972-73 to 1975-76. Subsequently, on 28-1-1977, he further issued similar notices for the assessment years 1968-69 and 1969-70. Similar notices under Section 148 were also issued for the assessment years 1970-71 and 1971-72, on 23-2-1977. For the assessment year 1976-77, he issued a notice under Section 139(2), on 9-12-1976.

There is no dispute about either of the above facts. In view of the notices issued under Section 148, he also recorded the reasons for the issue as 'return not filed'. All these notices were duly served on Shri Suresh Chand. Shri Suresh Chand also filed returns declaring the incomes at nil figures. Along with these returns, he also wrote a letter to the ITO on 3-4-1977. In this letter, he stated that the notices appeared to have been wrongly issued since no business was being done in the name in which the notices were issued. It was further stated in the letter that since the notice had been issued, they were being complied with by filing the returns showing nil income. It was also requested in the letter that the proceedings started by the ITO may be filed. It may, however, be stated here that the column to show 'Status', in all these returns was left blank by Shri Suresh Chand although the returns were duly signed by him.

6. After the receipt of the letter from the assessee, the ITO issued notices under Section 143(2), on 2-8-1977, when the date of hearing was fixed on 9-8-1977. On 9-8-1977, the assessee again wrote to the ITO stating that the notices had been issued to wrong persons, who did not carry on any business and, therefore, there was no escapement of any income. It was also stated that the notices had been challenged by filing the return showing nil income by the person who received them along with a forwarding letter. There was again a request in this letter to the ITO for cancelling the proceedings. On 16-3-1978, the ITO clarified the issue by a letter. He addressed this letter to Sarvashri Shri Nath, Suresh Chand, Ram Naresh as coparceners of the HUF, styled as Munna Lal Moti Lal. The clarification is contained in paragraphs 3 and 4 of this letter in the following words : M/s Munna Lal Moti Lal was assessed to income-tax in the status of HUF and you all are the coparceners of the above HUF. In this connection please note that as neither has there been any claim to the partition of the family styled as M/s Munna Lal Moti Lal, nor has any order to this effect been passed under Section 171(3) of the Income-tax Act, 1961, the business continues to be that of the HUF, irrespective of the fact under what name the business is carried out in the market and the notices issued earlier under Section 148 were meant for the HUF. In case you had filed the returns for the assessment years 1968-69 to ] 976-77 showing nil income under any misconception, you are given another opportunity to file a return even now in the status of the HUF.Thereafter, Suresh Chand again wrote to the ITO on 23-3-1978 challenging his jurisdiction to initiate proceedings under Section 147 of the Act, by issue of an invalid notice under Section 148.

7. The ITO in the course of the reassessment proceedings for the assessment years under appeal rejected the contention of the assessee that he had no jurisdiction to initiate proceedings under Section 147 of the Act. He observed in the assessment order for the assessment year 1968-69, which is the leading order, that Shri Suresh Chand had himself admitted that the HUF of Munna Lal Moti Lal was in existence. According to him, under Section 171(1) of the Act a HUF hitherto assessed to income-tax shall be deemed for the purposes of the Act to continue to be a HUF, except where and insofar as finding of partition had been given under the above section. He further observed in the order that in the assessee's case, there was no claim for any partition, total or partial, by any member of the family during the course of the assessment proceedings and, therefore, the question of passing an order under Section 171(3) did not arise and the status continued to remain that of HUF. In this connection, he also relied on a decision of the Allahabad High Court in Pratap Chandra v. ITO [1975] 100 ITR 551. It was held in this case that for the purposes of the Act, a HUF will be deemed to continue as such, notwithstanding that in proceedings in the civil court it may have in fact been disrupted. Such disruption cannot be recognised in any proceedings under the Act so long as an order to that effect has not been passed under Section 25A(1) of the 1922 Act [corresponding to Section 171(3) of the 1961 Act]. The ITO then proceeded to determine the income of the HUF for different years and made assessments accordingly. We will have occasion to deal with this aspect of the matter separately.

8. The assessee appealed to the AAC. It was first objected before the latter that the notices issued under Section 148 were bad in law since they had not been issued to any 'person' as defined in Section 2(57) of the Act read with the charging Section 4. It was further submitted that in the absence of valid returns, the issue of notices under Section 143(2) as well as the orders made under Section 143(3) were illegal. It was also argued that since the person to whom the notices under Section 148 had been issued, had not filed any returns, the orders were bad in law. The AAC did not agree with either of the above contentions. He also stated in his letter, annexed to the return for the first time, that the notices appeared to have been wrongly issued since no business was being done in the name on which the notices had been issued. The ITO had informed that Munna Lal Moti Lal was assessed to income-tax in the status of HUF and the appellants were coparceners of the said HUF.He further observed that the ITO had clearly mentioned that neither there had been a claim of partition in the family styled as Munna Lal Moti Lal, nor any order under Section 171(3) had been passed. According to the AAC, therefore, the business continued to be that of the HUF irrespective of the fact under what name it was carried on in the market and the notices were meant to assess the income of the said HUF.He also took support from Section 292B of the Act which had been brought on the statute with effect from 1-10-1975. He then dealt with the quantum of incomes in different years and allowed relief in some years and dismissed the appeals for other years.

9. Against the above findings of the AAC, the assessee is now in appeal before us. We will first deal with those contentions, which refer to the validity of the assessments. The first contention of the learned counsel for the assessee in this respect was that Munna Lal Moti Lal having already been assessed by the ITO up to the assessment year 1967-68 vide GIR No. 711-M, the notices under Section 148 should have been addressed in that name if the ITO desired to assess that entity.

He further submitted that the assessee misunderstood the notices to be relating to an AOP of Shri Nath, Suresh Chand and Ram Naresh. Relying on the decision of the Supreme Court in Y. Narayana Chetty v. ITO [1959] 35 ITR 388, he submitted that the notice prescribed by Section 148 for the purpose of initiating reassessment proceedings was not a mere procedural requirement ; the service of the prescribed notice on the assessee was a condition precedent to the validity of any reassessment made under Section 147. If no notice was issued or if the notice issued was shown to be invalid, then the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void. He then referred to the decision of the Bombay High Court in Madhav Motor Stores v. CIT [1978] 115 ITR 887. It was held in this case that where the notice of reassessment was issued to the assessee in the status of a firm and there was no valid notice issued in the status of a HUF, an assessment in the status of HUF would not be valid. Reference was also made to a decision of the Calcutta High Court in the case of Rama Devi Agarwalla v. CIT [1979] 117 ITR 256. It was held in this case that if a notice under Section 34 of the 1922 Act (corresponding to Section 48 of the 1961 Act) was ambiguous or defective or otherwise invalid, the same could not be cured by taking into account and/or looking into other documents whereby such defects could be rectified and/or omissions filled in.

10. The learned counsel for the assessee then referred to some other cases. One of them is of the Mysore High Court in Lakshmibai v. ITO [1972] 86 ITR 804. In this case also it was held that a valid notice is an essential pre-requisite for reopening an assessment under Section 147. In this case, a notice under Section 148 purporting to reassess a HUF was addressed to the mother of the karta. It was held that the notice was illegal and without jurisdiction and liable to be quashed.

In another decision of Ravinder Narain v. ITO [1974] 96 ITR 612, the Delhi High Court had held that the notices addressed to the individuals could not be taken to be intended to relate to the assessee, as an association of persons, which was distinct from the individual parties.

The Calcutta High Court in the case of Bhagwan Devi Saraogi v. ITO [1979] 118 ITR 906 had held that if the authority concerned did not acquire jurisdiction in the absence of a valid notice being served, the entire proceeding would be without jurisdiction and void and even consent on the part of the assessee would confer no jurisdiction on the ITO. In this case a notice of reassessment was served on Smt. B.D.Saraogi and others, but did not indicate whether B D. Saraogi and others was a firm or an association of persons. It was held that the notice was invalid and was liable to be quashed. The learned counsel for the assessee also submitted that the ITO, who had issued notices under Sections 148 and 139(2) was different from his successor ITO who had issued the clarification to the assessee vide letter dated 16-3-1978 stating that the notices were meant for the HUF of Munna Lal Moti Lal and, therefore, this subsequent clarification did not give any jurisdiction to the earlier ITO. He also pointed out that a new GIR No.S-229 was given to the assessee's case, which was different from the GIR under which Munna Lal Moti Lal was being assessed by the ITO.11. The next submission of the learned counsel for the assessee was that even if it was assumed, though not admitted, that proper notices under Section 148 had been served on the assessee-HUF, then also assessments could not take place as there were no properly verified returns before the ITO. To support this contention, he referred to the decision of the Allahabad High Court in Addl. CIT v. Shyam Lal Moti Lal Khurja [1981] 129 ITR 291.

12. The third submission of the counsel for the assessee was that the factum of partition of the family on 31-7-1969 was before the ITO, which was duly supported by the entries of the partition of the capital in the books of account and, therefore, he was not justified to proceed with the assessments without complying with the provisions of Section 171. He submitted that, although there might not have been a formal claim in writing before the ITO, the fact that there was a partition in the family was duly brought to the notice of the ITO and which alone was required in terms of Section 171. He also submitted that subsequent to the assessment year 1976-77, the AAC had directed the ITO to examine the case in the light of the provisions of the above section. He also submitted that under Hindu law even an oral partition of HUF could take place, though in the present case, there were entries in the books of account evidencing the fact of partition. He contended that since the ITO had ignored the provisions of Section 171, the assessments completed by him were illegal and invalid in law.

13. The next submission of the learned counsel for the assessee was that the fiction contained in Section 171 about continuity of the HUF was a limited one and that it did not further extend to indicate that it also had income liable to tax. According to the counsel, if the HUF as such had not received any income, it was inconceivable that any income of any other person, though that person was an erstwhile member of the family, could be assessed as income of that HUF. The section enabled by virtue of a legal fiction, to assess an entity, which had really ceased to exist, treating it as in existence, but such assessment must be of the income earned or received by the real HUF.This is what Section 171 had provided The counsel supported his submission by referring to the decision of the Kerala High Court in ITO v. Smt. N.K. Sarada Thampatty [1976] 105 ITR 67. He also in this connection referred to a decision of the Allahabad High Court reported in [1972] UPTC 603. Another legal submission of the learned counsel for the assessee was that there was no presumption that the HUF had any income which could be assessed. He submitted that the burden to prove that the HUF had any income was on the department in view of the principle laid down by the Supreme Court in Anil Kumar Roy Chowdhury v.CIT [1916] 102 ITR 12. It was held in this case that the person who asserts that certain property is joint family property has to prove that it is so. The counsel also in this connection referred to an earlier decision of the Allahabad High Court in Ram Kishan Das Munnu Lal v. CIT [1961] 41 ITR 452. The learned counsel then proceeded to deal with the individual assessments and the incomes assessed. We have already stated above that this aspect of the matter will be dealt with by us a little later.

14. The learned departmental representative on the other hand submitted that it was not necessary to give reasons for initiating reassessment proceedings in a notice under Section 148. He further submitted that even the status need not be mentioned in such a notice. Referring to Section 171, he submitted that an HUF, hitherto assessed as undivided, shall be deemed for the purposes of the Act to continue to be an HUF except where a finding of partition had been given under the above section in respect of the HUF. He further submitted that for giving such a finding, it was necessary for the assessee to make a claim at the time of making an assessment that a partition, whether total or partial, had taken place among the members of the family. According to the learned departmental representative, only after such a claim had been made that the ITO was required to make an enquiry thereinto, and then record a finding as to whether there had been a total or partial partition of the joint family property. He contended that in the present case there was no such claim either by the family or on its behalf. He further submitted that a family was joint both in food and worship and that the burden lay on the assessee to prove that there was either a total or partial partition. In this connection he referred to the decision of the Supreme Court in Narendra Kumar J. Modi v.CIT[1976] 105 ITR 109 to point out that the income-tax authorities were not bound even by a partition decree and that they had their own view to take.

15. The learned departmental representative then dealt with the validity of the notices issued under Section 148. He did not deny that they had been issued not in the name of Munna Lal Moti Lal as such, but they had been issued in the names of three persons, namely, Shri Nath, Suresh Chand and Ram Naresh, who were the coparceners of the family and whose identity was not in doubt. He further submitted that even the notice under Section 143 was issued on 2:8-1977 to the above identity stating that its karta was Shri Nath which was also a fact. He further submitted that such a notice could not mislead the assessee particularly in view of the clarification issued by the ITO on 16-3-1978 which we have already quoted above in our order.

16. The learned departmental representative then referred to a number of decided authorities. He first cited the case of Radhey Lal Balmukand In re. [1942] 10 ITR 131, a decision of the Allahabad High Court. It was held in this case that it is not obligatory upon the ITO in a notice issued to an assessee under Section 22(2) of the 1922 Act, to strike off such of the four capacities as do not apply to the assessee and to clearly indicate in which capacity the assessee is required to submit the return. It is the duty of the person receiving the notice to score out the irrelevant capacities in the notice. In another case of Mohd. Haneef v. CIT [1955] 27 ITR 447, the Allahabad High Court held that the ITO could not in the reassessment proceedings of a different assessee, assess an entirely new entity. In this case, the ITO started reassessment proceedings and issued a notice to A, who was the principal officer of an association of individuals consisting of A, B, C and D, without indicating whether the notice was issued to him as a principal officer of the association or as an individual. In the reassessment proceedings he found that A was principal officer, representing another association of individuals E and F to whom the income already assessed as well as the escaped income belonged and assessed A to tax accordingly. On appeal, the Tribunal held that the association of individuals, which was taxable consisted of A, B, C and D and not E and F. It was held on the facts that the notice issued to A under Section 34 of the 1922 Act was not bad in law. The Court further observed that it would have been desirable, although it was not necessary, to mention in the notice that it was being issued to him as 'principal officer' of an association of individuals consisting of himself and three others. It was also held that the ITO could not in the reassessment proceedings of A, B, C and D assess an entirely new association of individuals E and F and that it was not open to the Tribunal to convert an assessment made against A as representing an association of individuals composed of E and F and assess him as representing an association of individuals composed of himself B, C and D. The Court held that if the Tribunal had considered that the ITO had wrongly treated E and F as the assessees, the case should have been remanded to the ITO so that he could start proceedings against them and pass a suitable assessment order. The learned departmental representative also referred to another decision of the Allahabad High Court in Kanodia Brothers v. ITO [1965] 57 ITR 765. He finally relied on the decision of the Allahabad High Court in Pratap Chandra (supra).

17. The learned departmental representative then supported his submission by referring to Section 292B. According to this section, no return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act, shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding, if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

18. The learned departmental representative finally submitted that the assessee had claimed partition "of the family only in the course of assessment proceedings in the assessment year 1977-78, in respect of the business assets with effect from 31-7-1969, and, therefore, the claim was being investigated in that year. He again contended that there was no formal claim in the assessment years 1968-69 to 1976-77, which were now under appeal before us. He contended that in the absence of any such claim, it was proper for the ITO to proceed to assess the income of the HUF. About the income as such, he contended that the ITO could not be expected to put on blinkers as held by the Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540. He further submitted that the duty of the ITO was to assess that person who was the owner of the income, irrespective of the fact whether the various assets stood in some other name. To support this submission, he referred to the decision of the Allahabad High Court in Badri Prasad & Sons v. CIT [1975] 98 ITR 657 and that of the Supreme Court in Jamnaprasad Kanhaiyalal v. CIT [1981] 130 ITR 244. He also pointed out that the assessments of the various members of the family had been made only as a protective basis and, therefore, it was all the more necessary for the ITO to find out the correct income of the family and assess it accordingly.

19. The learned counsel in reply to the various legal propositions made out by the learned departmental representative, referred to the decision of the Supreme Court in CIT v. K. Adinarayana Murthy [1967] 65 ITR 607. It was held in this case that under the scheme of the Act an 'individual' and the 'HUF' are treated as separate units of assessment and if a notice is wrongly issued to the assessee in the status of an individual and not in the correct status of an HUF, the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction.

20. We have given our careful thought to the various submissions placed on behalf of the rival parties. We are of the opinion that the notices issued by the ITO under Section 148 for the assessment years 1968-69 to 1975-76 and the one issued under Section 139(2) for the assessment year 1976-77 are legal and valid. In this connection, it will be useful to refer to the reasons recorded by the ITO for seeking the sanction of the Commissioner in terms of Section 151. We have already referred to those reasons in brief elsewhere in this order. It was brought to the notice of the ITO that the HUF of Munna Lal Moti Lal was dissolved in 1967, after the death of Shri Moti Lal. There is no doubt that there could not be a dissolution of the HUF on the death of the karta alone.

In any case it was this language which was used by the assessee and its various members in their different letters to the ITO. The ITO further stated that subsequently Shri Nath became the karta of the HUF and carried on the business till the assessment year 1970-71 after which there was claimed to be a verbal partition in the family. The ITO was of the view that such a partition could not be recognised, unless there was a formal claim from the assessee and an order under Section 171(3) was also passed. In other words, he intended to assess Munna Lal Moti Lal. For these reasons, the status described by him was also that of HUF. It has, therefore, to be held that the ITO intended to take reassessment proceedings only against Munna Lal Moti Lal. It is no doubt correct that he named the HUF as 'Shri Nath Suresh Chand Ram Naresh'. However, he correctly stated the name of the karta as Shri Nath. We cannot blame the ITO for giving a different name. We have already stated above that even according to the assessee, after the death of Shri Moti Lal in April 1967, the business was not carried on in the name of Munna Lal Moti Lal, but in a different name of Moti Lal Shri Nath of which Shri Nath was the karta. There were other changes also subsequently and names of the businesses also underwent changes.

The ITO was, therefore, not sure in which name the business was being carried on at the time he issued the notices under Section 148. In this connection, we agree with the submission of the learned departmental representative and follow the cases relied on by him. The Allahabad High Court itself in Radhey Lal's case (supra) had held that it was not obligatory upon the ITO in a notice issued to an assessee under Section 22(2) of the 1922 Act to strike off such of the four capacities as did not apply to the assessee and to clearly indicate in which capacity the assessee was required to submit the return. It is the duty of the person receiving the notice to score out the irrelevant capacities in the notice. In the case of Mohd. Haneef (supra), it was held that the ITO could not in the reassessment proceedings assess an entirely new entity and that the notice issued to an assessee, without indicating whether the notice was issued to him as principal officer of the association or as an individual was not bad in law. In the present case, since the ITO from the very beginning intended to assess either Munna Lal Moti Lal or its successor, it cannot be said that he intended to proceed or could proceed against any other entity. We, therefore, hold that there was no infirmity in the notices issued by the ITO. Even if there was any such infirmity in correctly naming the assessee, it is deemed to have been removed by Section 292B. The earlier authorities on the point were decided without the effect of this provision of law.

Section 292B clearly states that a notice shall not be treated as invalid merely by reason of any mistake, defect or omission in such a notice. The description of the name can either be a mistake or a defect in the notice and that is cured in terms of the above section. There is no doubt, as contended by the learned counsel for the assessee, that Section 292B is a procedural section and does not confer jurisdiction upon the ITO. However, so far as the question of conferring jurisdiction is concerned, we are clear in our mind that it was rightly assumed by the ITO in the case of Munna Lal Moti Lal or that business in whatever name it was subsequently carried on. We again, in this connection, rely on the reasons recorded by the ITO while seeking the sanction of the Commissioner.

21. In our opinion none of the decisions cited on behalf of the asscssee take a contrary view. In Lakshmibai (supra) the facts were different. There the notice purporting to reassess a HUF was addressed to the mother of the karta. That is not the case here. In the case of Ravinder Narain (supra) the notices were addressed to the individuals and there was nothing to indicate that they were intended to relate to the assessee as an AOP which was distinct from the individual parties.

That is also not the case here. In the case of Bhagwan Devi (supra) the notice of reassessment was served on Smt. B.D. Saraogi and others, but did not indicate whether Smt. Bhagwan Devi and others was a firm or an association of persons. In the case of Madhav Motor Stores (supra), the notice of reassessment was issued to the assessee in the status of a firm and there was no valid notice issued in the status of a HUF. The decision of Rama Devi Agarwala (supra) was rendered before Section 292B carne on the statute. The Supreme Court in the case of Y. Narayana Chetty (supra) laid down that the notice prescribed by Section 34, for the purpose of initiating reassessment proceedings, is not a mere procedural requirement. There is no quarrel about this principle before us. We, therefore, hold that there was valid service of notices under Section 148 for the assessment years 1968-69 to 1975-76 and of a notice under Section 139(2) for the assessment year 1976-77, on the assessee.

This contention of the assessee, therefore, fails.

22. We also do not find any merit in the second contention of the learned counsel for the assessee that if the return was not verified properly, there was no return at all and no assessment could at all take place. We were not told in what manner the returns submitted by Shri Suresh Chand were invalid. The mere fact that he did not fill the column of status was of no consequence particularly when the returns were submitted in response to the notice issued under Sections 148 and 139(2) by the ITO. This fact has been admitted by the assessee in its letter dated 3-4-1977 that it was in compliance with the notices described above that the returns were being filed showing nil income.

The case of Shyamlal Motilal (supra) is not of any avail to the assessee. In that case it was found that the returns had not been signed and verified by the karta of the HUF and, therefore, they could not be treated as that of the HUF. In fact, in the returns, a junior member of the larger family had described himself as an individual in one place and as a HUF in another. That is not the case here.

23. In our opinion, however, there is considerable merit in the third submission of the learned counsel for the assessee, that the factum of partition was before the ITO and it was his duty to comply to the provisions of Section 171. What Section 171 requires is that at the time of making an assessment, it should be claimed by or on behalf of any member of the family assessed as undivided that a partition, whether total or partial, had taken place among the members of such family. If there is any such claim it is the duty of the ITO to make an enquiry thereinto, after giving notice of the enquiry to all the members of the family, it is also his duty, on the completion of the inquiry to record a finding as to whether there has been a total or partial partition of the joint family property and then proceed in accordance with the procedure laid down in Section 171(4). What is meant by 'claim' is the question for consideration. According to us, it implies two things. The first is that it should be duly brought to the notice of the ITO that there has been a partition in the family and secondly, the claim of such partition should be asserted before him.

Section 171 does not require anything beyond this on the part of the family. We find that both these requirements were complied with in the present case. It was duly brought to the notice of the ITO that there had been partition in the family. This fact has, as already pointed out above, been recorded by the ITO in the reasons for re opening the assessments, submitted for the sanction of the Commissioner. It was a different thing that he did not accept that partition. The assessee also, through its various letters, asserted that the family of Munna Lal Moti Lal was no more in existence. We, therefore, hold that the assessee had made a claim before the ITO in terms of Section 171(2). It was, therefore, the duty of the ITO to make an enquiry thereinto, then proceed further in terms of Sub-sections (3) and (4) of Section 171.

Since this has not been done, we hold that the assessments made by him after the claim that the partition had taken place on 31-7-1969, are not valid. However, this finding will apply only to the assessment, years 1970-71 to 1976-77. We accordingly set aside all these assessments and direct the ITO to proceed to comply with the various provisions of Section 171. We may make it clear as we have already held above, that the service of notices under Sections 148 and 139(2) for all these years was valid and the jurisdiction for reassessment or assessment was correctly assumed by the ITO. We, therefore, direct him to proceed to make fresh assessments as if the notices under Sections 148 and 139(2) had been validly served. He is only to comply with the terms of Section 171 and then make fresh assessments in accordance with law.

24. That leaves us with the assessments of the assessment years 1968-69 and 1969-70. We have already held that the notices under Section 148 for both these years were validly served. No other infirmity was pointed out to us in making these two assessments. The only submission in this connection was that the incomes assessed in these two years were not correct and the ITO was not justified in including the incomes belonging to the members of the family in the assessments. It was also submitted that the incomes assessed were excessive.

25. We will first deal with the assessment year 1968-69. The first contention in this appeal, relates to the estimate of income of the assessee-HUF at Rs 6,000 against Rs. 2,481 declared as per the ledger seized in the search. In our opinion, the ITO is not justified in estimating this income when the ledger was found in the search itself.

There is no evidence on record to show that the assessee was maintaining duplicate books of account. Obviously, therefore, the ledger found in the search is the true ledger and the income shown therein has to be accepted as the correct income of the assessee. We, therefore, direct that the sum of Rs. 6,000 included in the total income should be substituted by the amount of Rs. 2,481.

26. The next contention relates to the inclusion of Rs. 4,000, being the income of Smt. Kamla Devi, in the assessment of the assessee-HUF.We have gone through the statement of Smt. Kamla Devi submitted in the course of her own personal assessment. She has given a history of her investments. There is no evidence on record to show that she had received any funds from the HUF. The ITO merely observed that she had not been able to prove the source of initial capital, nor the fact that she had been doing money-lending and pawning business independent of the HUF. In this connection, we agree with the submission of the learned counsel for the assessee that it is for the person who asserts that a certain property is joint family property to prove that it is so. It is, therefore, for the department to prove that the property or investment belonging to Smt. Kamla Devi belonged to the assessee and, therefore, income arising from these investments also belonged to the assessee. The department has not brought any evidence to prove this fact. We, therefore, hold that the income of Smt. Kamla Devi amounting to Rs. 4,000 could not be included in the total income of the assessee for the above assessment year. We give a similar finding regarding the unexplained investment in the construction of the house. There is nothing to show that the house that stood in the name of Smt. Kamla Devi did not. belong to her but belonged to the assessee-HUF. The burden for proving so lay on the department, which has not been discharged. We, therefore, exclude the entire amount of Rs. 41,500 also from the assessment. The same finding will apply to the notional income of Rs. 500 from property if the same related to the above house.

27. We, however, confirm the addition of Rs. 4,000 on account of low withdrawals. The withdrawals shown by the assessee for the purpose of expenses were only of Rs. 2,000, which obviously were not sufficient to maintain the family. The addition of Rs. 4,000 is, therefore, sustained.

28. We now take the assessment year 1969-70. In this year, the ledger of the assessee showed its income at Rs. 4,741. Against this, it was estimated at Rs. 6,000. For the reasons already given above, we direct that the amount of Rs. 4,741 should be substituted for Rs 6,000. For the reasons already given above, we exclude the income of Rs. 5,000 belonging to Smt. Kamla Devi from the assessment as also the income from self-occupied property amounting to Rs 500 if related to the house constructed by her. We give a similar finding in the case of Rs. 6,500, being the investment in the name of Smt. Asha Rani. Here also there was no evidence to show that she was the recipient of any funds from the assessee-HUF. The burden in this respect, which lay on the department, was not discharged. However, for the reasons already stated above, we confirm the addition of Rs. 4,000 added on account of the low withdrawals for the maintenance of the family.


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