Judgment:
These appeals of the Revenue have arisen from two separate orders of even dt. 21st Aug., 1990, of Dy. CIT(A) - 6, Ahmedabad. The matters relate to asst. yr. 1988-89. Since these appeals have arisen out of the same set of facts, for convenience sake we took up the hearing together and dispose them of by this common order.
2. In this appeal, the matter relates to assessment of Smt. Bhartiben Ghanshyambhai made on protective basis and clubbing of income from Rupa Textile Engineers (Rupa for short) of which the assessee is the proprietor, in the hands of her husband Shri Ghanshyambhai R. Thakkar.
3. It is to be mentioned that the assessee filed return of income on 23rd Sept., 1988, declaring a total income of Rs. 19,100. She is proprietor of Rupa which has business of manufacturing and sale of textile machinery. Since it was a manufacturing concern and proprietor being a lady the Assessing Officer (AO) carried on a survey operation under s. 133A of the IT Act at the office premises at Khadia, Ahmedabad, on 2nd Feb., 1989. During the survey operation he found that assessees husband Shri Ghanshyambhai R. Thakkar (G. R. Thakkar) was carrying out his proprietary business in the name of Bharat Industrial Corporation for supply of measuring instruments, thermometers, etc. to textile mills. He also found that said G. R. Thakkar was doing another business in the name of Rupa though business was in the name of his wife Smt. Bhartiben G. Thakkar (B. G. Thakkar). He further found that books of accounts of both concerns were in the same premises of Khadia office, Ahmedabad, and was written by same accountant. The AO further found that purchase and sales for both the concerns were made by Shri G. R. Thakkar. The AO also found two blank cheques duly signed by Smt.
B. G. Thakkar and kept in the same premises. At the time of survey Smt.
B. G. Thakkar was not available in the office at Khadia as well as in the factory premises situated at Ambawadi, Ahmedabad. During the course of said survey operation G. R. Thakkar gave a letter dt. 2nd Feb., 1989, to the AO accepting therein the fact that he was attending all the functions of the business of Rupa on behalf of his wife. He further stated in the letter that he had no objection for clubbing of income of Rupa along with the income of Bharat Industrial Corporation. Later on, Smt. B. G. Thakkar also filed a letter dt. 2nd Feb., 1989, stating the fact that she did not attend any function of her proprietary business in the name of Rupa and as such she did not have any objection for clubbing the income from M/s Rupa in the hands of her husband as her husband used to attend all the functions of business in the name of Rupa. A statement of Smt. B. G. Thakkar was also recorded under s. 131 on 13th Feb., 1989. In that statement also she agreed that she would have no objection for clubbing the income from Rupa in the hands of her husband. After gathering those facts, the AO required the assessee to explain as to why the income from Rupa was not to be clubbed in the hands of R. G. Thakkar. The assessee in response to letter No.Ward-2(1)/331-R/88-89, dt. 13th March, 1989, of the AO filed a reply dt. 20th March, 1989. In her reply dt. 20th March, 1989, the assessee said that actually M/s Rupa was initially a partnership concern which came into existence in Samvat Year 2037 relevant to asst. yr. 1982-83 and that partnership concern consisted of the following 5 partners : It was added that there was a deed of partnership dt. 16th May, 1981, in Samvat Year 2039. Two partners viz., Arvindsinh Indrasinh Solanki and Smt. Indumati Maheshkumar retired from the said partnership firm from 3rd May, 1983, by deed of retirement dt. 5th May, 1983, and the business of the firm continued with the remaining partners. A new partner Sunilkumar Chandrakantbhai Thakkar was admitted from 4th May, 1983, vide a deed of partnership executed on 6th May, 1983. The four partners carried on the business till S.Y. 2041. The firm was dissolved by deed of dissolution dt. 17th Feb., 1984, and as per the terms and conditions of said dissolution the assessee Smt. Bhartiben G. Thakkar took over the assets and liabilities of the said business. The assessee said that she had contributed her capital in the said partnership firm out of the money which she had received as gift from her brother as well as insurance income. Explaining the business being run at joint office at Khadia as well as finding of books of accounts, etc. it was said that business premises belonged to Shri Ranchodlal Bhurabhai Thakkar, the father-in-law. There was a separate cabin. The factory was situated at Ambawadi wherein manufacturing was done and the stock was stored at factory. The business of M/s Rupa was carried on by the own staff of the said firm. The accountant Shri Himatbhai Shah was doing part time job. He was writing the books of accounts not only of M/s Rupa and M/s Bharat Industrial Corporation but other concerns also. The said accountant was given separate remuneration for his work. It was further said that blank cheques were given to assessees husband because some immediate payments were to be made. However, it was explained that at times her husband used to extend his help in the business he being one of the family members. However, those explanations of the assessee did not find favour with the AO. The AO noted that the firm which was started in S.Y. 2037 was mainly consisted of the family members.
Ranchhodlal was father-in-law and Smt. Sushilaben C. Thakkar was wife of brother of assessees husband. The AO observed that in fact the business of the said firm was virtually carried on by G. R. Thakkar because his father Ranchhodlal, the wife of his brother Smt. Sushilaben C. Thakkar, and Smt. Bhartiben G. Thakkar (the assessee) were sleeping partners. The AO was very specific that the business in the name of Rupa was in reality that of Shri G. R. Thakkar. The AO also did not accept the contention of the assessee that she had contributed capital in the erstwhile partnership firm. According to the AO, there were no evidence to show that if she had received gift from her brother and was having money from insurance business. The AO noted that Smt. B. G.Thakkar in her statement under s. 131 admitted that at the time of marriage she had received only gold ornaments and some vessels. There was no evidence if she had sold any ornaments to contribute the capital in the erstwhile partnership firm or that she had a gift of Rs. 10,000 from her brother. Referring to the letters dt. 2nd Feb., 1989, given by the assessee as well as G. R. Thakkar and also the statement of the assessee recorded on 13th Feb., 1980, under s. 131 of the Act the AO said that there was a clear-cut admission on the part of the assessee that M/s Rupa in the name of assessee was on paper only and in reality the business belonged to her husband G. R. Thakkar. The AO further pointed but that it was also admitted by G. R. Thakkar and Smt. B. G.Thakkar in their respective letters that they had no objection for clubbing the income of Rupa in the hands of G. R. Thakkar. The AO particularly noted from the statement that Smt. B. G. Thakkar used to look after the household affairs only. She rarely used to go to factory and if ever she went there it was just for a sort of entertainment with her children. The AO in that view of the matter arrived at a conclusion that in reality the business of M/s Rupa was that of R. G. Thakkar, the husband of the assessee, and that since both husband and wife admitted that income was to be clubbed in the hands of husband viz., R. G.Thakkar, the AO assessed the income of M/s Rupa in the hands of Shri R.G. Thakkar on substantive basis and completed the assessment of the assessee on protective basis.
4. Against the said order of the AO the assessee went in appeal before the Dy. CIT(A). Before the Dy. CIT(A) all those contentions were reiterated and also various documents including the earlier assessments of the assessee were submitted. The learned Dy. CIT(A) considering those contention and documents reversed the order of the AO and directed him to complete the assessment of the assessee on substantive basis. Against said order of Dy. CIT(A) now the Revenue are in appeal.
5. Shri M. P. Lohia, the learned Departmental Representative, vehemently objected to the order of the learned Dy. CIT(A). He said that the learned Dy. CIT(A) did not examine the matter in controversy in right perspective. Instead of giving due consideration to the facts found during the survey operation under s. 133(1A) of the IT Act and the facts gathered in the statement of Smt. B. G. Thakkar recorded under s. 131 of the IT Act, the Dy. CIT(A) considered various extraneous matters, added the learned Departmental Representative.
Recapitulating the facts of the case, the learned Departmental Representative said that M/s Rupa was not a simple trading concern but it was engaged in business of manufacturing and sale of textile machinery for which considerable standard of professional or technical capabilities were required. The learned Departmental Representative said that such professional or technical capability was not with Smt.
B. G. Thakkar and that was why the entire business activities of that business were being carried out by the husband of the assessee. The learned Departmental Representative said that aforesaid fact was clear when the survey was conducted in the business and factory premises of M/s Rupa. The learned Department Representative recounted the various facts which the AO found during survey. Elaborating the submissions, the learned Departmental Representative said that business premises of the assessee were the same where Shri G. R. Thakkar was carrying on his business in the name of M/s Bharat Industrial Corporation. All relevant documents, papers and books of accounts were in same premises and was managed and handled by the husband of the assessee. Even the books of accounts were being written by one accountant viz., Shri Himatbhai Shah. The learned Departmental Representative further said that even the business transactions and financial transactions were managed and carried out by the husband of the assessee and that was obvious from the fact that two blank cheques were found in the said business premises. It was emphasised by the learned Departmental Representative that factory premises were situated at Ambawadi, Ahmedabad, and during the survey operation assessee was not found there. Rather, it was her husband who was managing the activities also. The learned Departmental Representative referred to the questions put to her and the answers given by her. The questions being 21, 22, 23, 24 and 25 are as follows : "Q. 21. You are staying in Bhattha and bank account is in Khadia, how you operate Ans. : My husband handling complete works of Rupa Textiles, and this business handling on my name. All administration works handling by my husband.
Ans. : My office staff and factory staff handling purchase and sales as per my husbands instruction. My husband handling all bank accounts and business responsibilities.
Q. 25. Then how you can say that you are independent owner of your business Ans. : This business is only on paper, but completely handling by my husband." The learned Departmental Representative emphasised that assessee herself admitted that business of M/s Rupa was in her name only on paper but in reality it was her husband who was the real owner of M/s Rupa. The Departmental Representative having referred to answer to question No. 9 also submitted that she used to go to factory rarely and on Sunday with her children by way of having entertainment and amusement. The learned Departmental Representative reiterated that the learned Dy. CIT(A) did not consider all those aspects in correct perspective. He further said that AO rightly came to the conclusion that even at the starting of the firm in 1981 the assessee was having no capital to contribute because the AO had specifically asked to produce evidence to that regard but she failed to produce any evidence to show that she was having capital to invest. According to the learned Departmental Representative, the order of the learned Dy. CIT(A) should be reversed.
6. On the other hand, Shri L. G. Thakkar, the learned counsel of the assessee, strongly supported the order of the learned Dy. CIT(A) and opposed the submissions of the learned Departmental Representative. The learned counsel submitted that while framing the assessment order of the assessee the learned AO relied on few facts only and even did not consider those facts in conjunction with various material made available in the appeal record. The learned counsel reiterated the same submissions which were placed before the Dy. CIT(A). He said that Shri G. R. Thakkar was not the real owner of M/s Rupa as concluded by the learned AO. He said that Rupa was started as a partnership firm as back as on 16th May, 1981, by a deed of partnership dt. 16th May, 1981. The learned counsel referred to page 26/10 to 15 of the paper book and said that there were 5 partners and Smt. B. G. Thakkar was having 20% share.
The learned counsel submitted that in 1983 two partners retired from 3rd May, 1983, and to that effect a deed of retirement was executed.
The learned counsel referred to page 26/16-18 of the PB. It was added by him that the firm was reconstituted having admitted a new partner viz., Shri Sunilkumar Chandrakantbhai Thakkar and to that effect another partnership deed was executed on 6th May, 1983. The learned counsel said that the aforesaid firm did business upto asst. yr.
1985-86 and during these years, the partnership firm was allowed registration by the IT Department considering the firm to be genuine and so were the partners. It was argued by the learned counsel that it was never questioned by the Department during that period that M/s Rupa was a benami firm of Shri G. R. Thakkar. The learned counsel referred to page 26/22-27 of paper book and submitted that the assessee had the following share in distribution of profit and loss of the said firm : The learned counsel referred to copies of the assessment orders of M/s Rupa for asst. yrs. 1982-83, 1983-84, 1984-85 and 1985-86. He said that there was a family dispute and so the said partnership firm was dissolved by a dissolution deed dt. 17th Dec., 1984. The learned counsel said that as per the terms and conditions agreed the assessee took over the business of M/s Rupa. She took over the assets and liabilities of said business and became the sole proprietor. The learned counsel said that for the asst. yrs. 1986-87 and 1987-88 the assessee furnished return of income claiming herself to be the proprietor of said M/s Rupa and accordingly taxes were paid on total income of Rs. 20,764 and Rs. 20,760, respectively. The learned counsel referred to assessment orders for the two assessment years compiled at pages 29 to 33 of the paper book. He emphasised that at the beginning of the accounting year relevant to the assessment year under consideration the assessee was having capital in her account at Rs. 81,520. The learned counsel emphasised that this was not a case of starting of a new business by her husband in the name of the assessee or with the help of the assessee. Actually, the business was going on since long as a genuine firm with genuine partners. The learned counsel said that after the assessee became the sole proprietor of M/s Rupa all necessary corrections were carried out in various Government Departments. The learned counsel added that the assessee was declared as a proprietor in the Sales-tax Department, Industries Department, bank, etc. The learned counsel of the assessee referred to pages 26/34, 26/35 and 26/36 which were respectively certificate issued by Industries Department, sales-tax registration certificate under the ST Act and Central Sales-tax registration certificate. The factory premises were transferred in her name as it was on lease and the lease rent was paid. The learned counsel said that legally Smt. B. G. Thakkar was the owner of M/s Rupa. He said that it was not correct to say that assessee was not having her own capital contribution in the year 1981 when the partnership was started. The learned counsel said that she had capital which was invested with Ambica Vijay Cotton Ginning and Pressing Factory. At the close of S.Y. 2038 she was having capital of Rs. 16,131.67. The learned counsel produced the relevant account of Smt. B. G. Thakkar in the books of M/s Ambica Vijay Cotton Ginning and Pressing Factory, Ahmedabad, compiled at page 26/28 of the PB. The learned counsel reiterated that the Revenue had not brought any evidence in the appeal record to show that if the capital was invested by the husband of the assessee or that he was the real owner of M/s Rupa. The learned counsel said that business premises at Khadia really belonged to the father-in-law of the assessee. The assessee had its separate business premises having own cabin. Both the assessee and her husband were sharing the premises as the building belonged to the father-in-law. The learned counsel further said that Shri G. R. Thakkar being a family member was extending help in business activities but that did not mean that he was managing the entire business. Maintaining the submission the learned counsel of the assessee said that husband of the assessee was doing completely a different business for, he was selling measuring instruments, thermometers, etc. whereas M/s Rupa was doing business of manufacturing textile machinery spareparts. It was said by the learned counsel that separate books of accounts were maintained and so also the business was being managed and run by the manager and other staff members of M/s Rupa. The learned counsel reiterated that there was no harm if at occasions the assistance of Shri G. R. Thakkar was taken. The learned counsel of the assessee referred to page 26/37 of the PB in order to show the details of the salary being paid to various staff and workers. The learned counsel referring to the statement of Smt. B. G. Thakkar submitted that no doubt answers to some questions were damaging to the case of the assessee but when those answers were read with the other answers which appear in her statement and various other documents as referred to above the things were very straight. The learned counsel said that the Revenue would not to be allowed to make out its case taking into consideration one or two answers only. For coming to a discreet conclusion the entire statement of Smt. B. G. Thakkar was to be considered. The learned counsel referred to question Nos. 2, 3, 10 and 13 and their respective answers which are as follows : Ans. : Mostly I am giving instruction to my husband for factory work.
And he is handling works as per my instruction." Referring to these answers the learned counsel of the assessee submitted that Smt. B. G. Thakkar was not an illiterate lady but she passed SSC in 1975-76 with Maths, English and Science. The learned counsel said that the business was not so big or sophisticated where a high degree of technical or professional qualification was required.
The learned counsel further said that the assessee was very emphatic to say that she was the proprietor of M/s Rupa. The learned counsel further said that she used to go to factory and enquire about the business from staff. He also said that she used to give instructions to her husband for factory work and the activities of the business were handled as per her instructions. The learned counsel said that if the entire statement was considered along with the various documents as to from the starting of the partnership firm and assessee being a genuine partner and further that she being assessed as a proprietor of said M/s Rupa for asst. yrs. 1986-87 and 1987-88 there remained hardly any doubt that if she was the real owner of M/s Rupa. The learned counsel said that nowhere in her statement the assessee ever said that it was her husband who was the real owner of M/s Rupa. The learned counsel also said that the assessee being a woman and being inexperienced to face officials of IT Department in haste or in perplexed state of mind might have stated, without realising the consequence of the statement, something against her interest but when the entire material was considered viz., the material collected during the survey operation and statement recorded under s. 131 of the IT Act, it was not proved that the assessee was not the real owner of Rupa. The learned counsel further said that the assessee as well as her husband also without properly understanding the consequence of clubbing of the income of Rupa in the hands of G. R. Thakkar agreed for the same. Though they agreed for such a proposal of clubbing of income, that could not be done in view of the facts and circumstances of the case, urged the learned counsel of the assessee. According to him, the order of the learned Dy. CIT(A) was justified and that required no interference.
7. On due consideration of submissions of both sides and the material available in the appeal record, including the papers compiled in the paper book, we do not find merit in the case of the Revenue. From the material made available in the appeal record, it is to be seen that this is not the assessment year in which the business in the names of M/s Rupa has been started. Rather, the business is being done right from 1981. Upto asst. yr. 1985-86 the business has been run by partnership firm. All along those years, the firm has been held to be genuine and so are the partners. The partners shares have been duly allocated during those years including the assessee as we have seen from the paper compiled at page 26/29-31 of the paper book. It is to be further seen that in asst. yrs. 1986-87 and 1987-88 M/s Rupa has become the proprietary business of assessee and she has been accordingly assessed. Nothing has been brought in the appeal record by the Revenue to show that if the partnership firm right from asst. yrs. 1982-83 to 1985-86 has been benami of Shri G. R. Thakkar. There is nothing to show that if Smt. B. G. Thakkar has been a partner as benami of her husband or that she contributed towards her share capital in partnership firm for and on behalf of her husband. Even in the accounting year relevant to asst. yrs. 1986-87 and 1987-88 there is no such material when actually the assessee became the sole proprietor of M/s Rupa. Various documents have been placed before us such as certificate from Industries Department, Sales-tax Department, etc., which prove that the assessee was the proprietor of M/s Rupa. No doubt, the authorities below of the Revenue have relied much upon the material collected in course of survey under s. 133(1A) of the IT Act and the statement recorded under s. 131 of the Act but other documents were to be seen.
We agree with the learned counsel of the assessee that statement of the assessee should not be considered having chosen one part or other of it but that has to be considered in its entirety and when we have considered the various statements as noted above we find that at no stage she had admitted that if G. R. Thakkar is the real owner of M/s Rupa. Managing the business from same premises has also been properly explained. For, it is to be seen that the business premises is property of Shri Ranchhodlal B. Thakkar who is no other than the father-in-law of the assessee. So, by sharing the same premises by assessee and her husband for carrying out independently two completely different types of business it cannot be taken that the business of M/s Rupa is that of G. R. Thakkar. We find from the material made available in the appeal record that business of the assessee is being managed by separate staff and G. R. Thakkar has been rendering his help. Such type of lending of assistance in a family business by members of the same family is not unusual. So, when we set together the entire facts and circumstances of the case, it is manifest that Smt. B. G. Thakkar is the owner and not her husband G. R. Thakkar and so clubbing of income from M/s Rupa in the hands of Shri G. R. Thakkar is unjustified. The learned Dy. CIT(A) has rightly reversed the order of the AO on this point. The order of the Dy. CIT(A) is justified and so we uphold it.
9. This appeal concerns Shri G. R. Thakkar, the husband of Smt. B. G.Thakkar. The AO has clubbed Rs. 29,910 being the income from the business of M/s Rupa of which Smt. B. G. Thakkar is the sole proprietor in the hands of the assessee. The Dy. CIT(A) has deleted the same holding that clubbing was unjustified because it was Smt. B. G. Thakkar who was the real owner of M/s Rupa and not Shri G. R. Thakkar, the assessee in the present appeal. Against that order of the learned Dy.
CIT(A) the Revenue are in appeal.
10. We may point out that in the case of Smt. B. G. Thakkar being ITA No. 4060/Ahd/1990 we have held that Smt. B. G. Thakkar is the real owner of M/s Rupa as a proprietor and the AO was not justified in clubbing the income from the business of M/s Rupa in the hands of Shri G. R. Thakkar, the assessee. Consistent with that decision we hold that the learned Dy. CIT(A) was justified in cancelling the clubbing of income from M/s Rupa in the hands of the assessee as done by the AO.11. The next disputed point relates to deletion of Rs. 60,000 being bad debt. We may point out here that this ground of appeal was not taken at the time of filing of the appeal. But during the course of hearing the learned Departmental Representative having drawn our attention towards the appellate order submitted that by mistake no ground was taken against the deletion of bad debt of Rs. 60,000. The learned Departmental Representative made a request that permission was to be given to raise this additional ground which would be regularised after taking formal approval of the CIT and which was finally regularised.
12. After hearing both the sides and since the matter in controversy was already a matter of consideration before the authorities below we admitted the additional ground and heard both the sides.
13. During the course of assessment proceedings the AO noted that assessee debited an amount of Rs. 60,266 being bad debt but since no details were furnished the AO added the same to the total income of the assessee. The Dy. CIT(A) however, deleted the same. It is to be noted that before the learned Dy. CIT(A) the learned counsel of the assessee furnished full details. It was said that the amount was due from M/s Indequip Engineering Ltd. to whom goods were sold in the earlier year.
It was further explained that the last sale was on 5th Sept., 1983. It was further said that the company went in liquidation and even legal notices were issued through Advocate but nothing was yielded. It is to be pointed out that considering those contentions of the assessee, the learned Dy. CIT(A) deleted the said addition.
14. We have heard the rival submissions and have gone through the appeal record. In fact, the Dy. CIT(A) has examined the matter in controversy in great detail. While deleting the addition the Dy. CIT(A) has observed as follows : "6. It is seen that the bad debt pertained to M/s Indequip Engineering Ltd. with whom the appellant had business dealings. The copies of account for S.Y. 2039 to 2043 have been produced. It is seen that in S.Y. 2039, the opening debit balance was Rs. 80,287 to which further amounts were added and the total debt came to Rs. 1,24,167 as against this amount, the appellant received payments of Rs. 64,000 by cheques on various dates in 1983 and balance of Rs. 60,167 remains as balance to be recovered. This amount due to be recovered was carried forward as irrecoverable in the books for S.Y. 2040, 2041, 2042 and 2043. The debtor company went into liquidation and the legal notices sent through advocate did not find any favour. Therefore, the appellant lost hope of any recovery out of the amount of Rs. 60,167 and ultimately during the year under consideration and after waiting for four years the appellant thought fit to treat the said amount as bad debt. The ITO was, therefore, not justified in disallowing the bad debt claimed by the appellant considering the above factual position. Although the amount of bad debt is of Rs. 60,167, the ITO has disallowed, in fact, an amount of Rs. 60,000 in the assessment order in the computation of income. Therefore, the disallowance of Rs. 60,000 is deleted." We find the order of the learned Dy. CIT(A) justified and so we uphold it on this point.