HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Division Bench : HON'BLE MR. JUSTICE S. C. SHARMA AND HON'BLE MR. JUSTICE SHAILENDRA SHUKLA I. T. A. No.83/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat (HUF) I. T. A. No.84/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat (HUF) I. T. A. No.85/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.86/2006 Commissioner of Income Tax-II Vs. M/s. Gauri Shankar I. T. A. No.87/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.88/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.89/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.90/2006 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.91/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.92/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.93/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.94/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.95/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.96/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.97/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.98/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.99/2006 Commissioner of Income Tax-II Vs. Shri Shesh Narayan Bhagat I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -2- I. T. A. No.100/2006 Commissioner of Income Tax-II Vs. M/s. Gauri Shankar I. T. A. No.101/2006 Commissioner of Income Tax-II Vs. M/s. Gauri Shankar I. T. A. No.102/2006 Commissioner of Income Tax-II Vs. M/s. Gauri Shankar & Bros. I. T. A. No.103/2006 Commissioner of Income Tax-II Vs. M/s. Gauri Shankar I. T. A. No.323/2007 Commissioner of Income Tax-II Vs. Shri Harnarayan Bhagat I. T. A. No.399/2007 Asst. Commissioner of Income Tax Vs. Shri Harnarayan Bhagat, Khirkiya Ms. Veena Mandlik, learned counsel for appellant. Mr. P. M. Choudhary, learned Senior Counsel with Mr. R.K. Sarda and Ms. Rashi Gohil, learned counsel for respondent. O R D E R (Delivered on this 03rd day of September, 2019) Per : S. C. Sharma, J. Regard being had to similitude in controversy involved in present cases, appeals were analogously heard and by common order, they are being disposed of by this Court. Facts of I.T.A.No.83/2006 are narrated hereunder. 02- present appeal has been filed by Commissioner of Income Tax under Section 260A of Income Tax Act, 1961 (hereinafter referred as Act of 1961 ) against common order dated 30/12/2005 passed in I.T.A.No.818 and 819/Ind/1998 and other connected matters passed by Income Tax Appellate Tribunal, Indore (hereinafter referred as ITAT ). I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -3- 03- facts of case reveal that search operation was carried out under Section 132 against assessee on 24/09/1993 and during course of search assessee stated that he was initial partner of firm M/s. Radhakishan Balkishan carrying on business of grocery (Kirana) along with sons. Later on, on account of his retirement from partnership firm, his three sons namely Shri Gauri Shankar, Shri Shesh Narayan and Shri Ganesh Narayan continued with business activities under name and style of M/s. Gauri Shankar & Brothers. It was also stated by him that M/s. Shree Traders was proprietary concern of of Shri Shesh Narayan engaged in teh business of money lending, cotton trading, etc., however, funds were supplied by assessee M/s. Radhakishan Balkishan. 04- facts of case also reveals that M/s. Shree Traders was shown as branch of M/s. Gauri Shankar & Brothers since Assessment Year 1986-87 and aforesaid fact was brought on record in partnership deed on 06/04/1992 for first time. firm M/s. Gauri Shankar & Brothers was dissolved w.e.f. 01/04/1993 and its business activities have been taken over by M/s. Bhagat Brothers, partnership concern of Shri Shesh Narayan Bhagat. 05- During course of proceedings under Section 132(5) I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -4- in case of Shri Shesh Narayan Bhagat, it was claimed that M/s. Shree Traders was proprietary concern of Shri Harnarayan Bhagat (HUF), assessee and father of Shri Shesh Narayan Bhagat. It was also stated by Shri Shesh Narayan Bhagat in proceedings under Section 132(5) that business of money lending was being carried out by his father as Karta of HUF and as his father became old, he executed general Power of Attorney in favour of Shri Shesh Narayan to carry out his business on 01/07/1992. 06- It was further stated by Shri Gauri Shankar, elder son of assessee that he ceased as partner of M/s. Gauri & Brothers since 25/10/1990 and he has no idea about execution of partnership deed dated 06/04/1992 of which he was partner and wherein M/s. Shree Traders has been shown as branch of M/s. Gauri Shankar & Brothers. During course of proceedings under Section 132(5), Shri Gauri Shankar has furnished copy of family settlement certificate dated 25/10/1990 and original document was also seized from residence of assessee. 07- Later on notice under Section 148 dated 30/03/1995 was issued and in response assessee has filed return of income in status of HUF. Thereafter, assessment under Section 143(3)/147 was made on 27/03/1997. assessment made on 27/03/1997 in short is as under:- I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -5- (a) Income as per return Rs.6,000/- (b) Addition: (i) Unexplained investment in Rs.10,779/- mortgage business and interest income thereon (ii) Unexplained investment / credit to Rs.1,21,429/- Samuhik Kheti Khata (iii) Undisclosed income of M/s. Shree Rs.24,000/- Traders Thus Total income assessed was Rs.1,62,208/- assessment order also reveals that assessee has made disclosure through Shri Shesh Narayan Bhagat of Rs.1,50,000/-, however, later on retracted same during post search period and during assessment proceedings. 08- Assessing Officer has made addition of Rs.16,779/- on protective basis on account of unexplained investment in money lending business (Girvi business) and interest income therefrom, which included income of Rs.6,000/- disclosed by assessee under this head. Thus, made addition of Rs.10,779/-. Commissioner of Income Tax has deleted this addition in full stating that there is no concrete basis for estimation of income from money lending business. 09- matter has finally reached ITAT. appeals were also filed by Department and ITA relying upon decision of Hon'ble Supreme Court in case of K.M. Sharma Vs. ITO reported in 254 ITR 772 has directed Assessing Officer to I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -6- apply Sub Section (1) & (2) of Section 150 of Income Tax Act, 1961, which intends to lift embargo of period of limitation under Section 149 enabling authorities to reopen assessment not only on basis of order passed in proceedings under Act of 1961 but also on basis of order of Court in any proceedings under any law. 10- Income Tax Appellate Tribunal, Indore Bench, Indore relying upon decision in case of Jeetmal Nagri Vs. CWT reported in 148 ITR 139 (M.P.) has held that income earned by Shri Harnarayan Bhagat should has been assessed in his individual capacity, whereas income earned by his sons with assistance of their shares provided to them under partial partition of HUF, should have been assessed in their HUF status, in case of each son consisting of himself, his wife and their children. 11- Department as well as assessee both have challenged order passed by ITAT and present bunch of cross appeals / objections have been filed by respondents assessees against common order dated 30/12/2005 passed by ITAT, Indore Bench, Indore in bunch of appeals filed by Harnarayan Bhagat and others. ITAT after holding in favour of assessees (appellants) that after partial partition of HUF of Harnarayan Bhagat, Harnarayan could not have been assessed in status of HUF and I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -7- his sons could not have been assessed as Individuals has further remanded matters and directed Assessing Officer to reopen assessments of new assessees for all assessment years after 1989 and assess them in correct / new status. respondents herein are aggrieved only by such direction given by ITAT to make assessments in new status as it has effect of bar of limitation prescribed under Section 149 for issue of notices for assessments / re-assessments / re-computation as also limitation prescribed by Section 153 for completing assessments / re-assessments / re- computation. 12- Learned counsel for respondent submits that since Income Tax Department was also aggrieved by appellate order passed by ITAT, department preferred appeals under Section 260-A of Act of 1961 on substantial questions of law arising out of appellate order, however, appeals filed by Department have already been dismissed by this Court as not maintainable in view of Tax Effect being less than prescribed monetary ceiling limit as prescribed in CBDT circular. Although, initially cross objections filed by assessee (respondents) in appeals filed by Income Tax Department were also dismissed along with appeals of Income Tax Department, later on this Court on review application filed by assessees restored cross- I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -8- objections and has admitted same on substantial questions of law formulated by this Court. 13- following substantial question of law arises in present appeal:- Whether, learned ITAT was justified in not treating Harnarayan Bhagat as separate HUF for making assessment in status of HUF or erred in issuing direction in making fresh assessment in new status when said assessment is barred by limitation. 14- controversy in present cases is therefore, about validity of directions made by ITAT to make assessments Harnarayan Bhagat and his three sons in new status of Individuals / HUFs after holding that earlier assessments made in status of HUF / Individuals were not correct. 15- Shri Harnarayan Bhagat was assessed in status of HUF as Karta in respect of business carried on in name of Shri Radhakishan Balkishan. partial partition of HUF business took place on 13/11/1974 in which Smt. Bansibai W/o Harnarayan, Shri Harnarayan and their three sons were given equal shares. said partial partition was accepted by ITO under Section 171 of Act of 1961. No business assets were left in HUF and business of HUF came to end after said partition. 16- Since wife of Harnarayan Bhagat was also allotted her equal share in above partial partition, so far as HUF of Harnarayan Bhagat is concerned, Harnarayan was left as sole I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 -9- surviving coparcener in said HUF and his status was converted into individual in respect of assets allotted to him in above partial partition, however, despite said position, Shri Harnarayan wrongly filed returns in status of HUF. Similarly three sons of Harnarayan who were married having wife and children also wrongly filed their respective returns as individuals although their correct status on receipt of property in partial partition was that of their respective HUFs. 17- Assessments of Harnarayan Bhagat for various assessments years were completed in wrong status of HUF by Assessing Officer on basis of returns filed without examining his correct status post partition. Similarly assessments of his sons were completed in status as Individuals of his sons were completed in status as Individuals as against correct status of their respective HUFs which were challenged in appeals by all assessee on ground that, mere admission of assessees about wrong status could not bring liability upon them and Assessing Officer ought to have assessed them in correct status, that is, Harnarayan ought to have been assessed in status of individual and his sons ought to have been assessed in status of their respective HUFs consisting of their respective wives and children. matters reached in ITAT and ITAT, Indore Bench, Indore has disposed of I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 10 - all appeals by its impugned common order dated 30/12/2005 and present cross objections are arising out of said common order to extent of directions given by ITAT to Assessing Officer to make assessments in new status. 18- perusal of ITAT's order would show that ITAT in paragraph No.20 of its order has accepted contention of assessee that, if assessee has committed any mistake by filing returns in wrong status of HUF, it was always duty of Assessing Officer to make assessment in correct status, particularly when all facts were known to him. ITAT, after referring to decisions in case of Jeetmal Nagri (Supra) has held as under:- Since Harnarayan and his wife were given equal shares, independent of each other in partial partition, Harnarayan Bhagat did not retain status of HUF. Similarly so far as sons are concerned since on date of partial partition they were married and having children they from their respective HUF with their wife and children. Accordingly, ITAT held that income earned by Harnarayan Bhagat should have been assessed in his individual capacity, whereas income earned by his sons with assistance of their shares received under partial partition should have been assessed in their HUF status, in case of each son consisting of himself, his wife and children. issue was accordingly decided by ITAT in favour of assessees. 19- respondents have further submitted that after coming to above conclusion that assessment were made in wrong status, ITAT has then in paragraph No.21 of its order, further directed Assessing Officer to make assessment in case of Harnarayan Bhagat in his individual capacity and in case of three sons in status of their HUF consisting in case of each son, of I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 11 - himself, has wife and their children, although period of limitation prescribed for their assessments have already expired. said direction is challenged because such directions would have effect of lifting bar of limitation prescribed for making assessments in respective hands. 20- contention of learned counsel for respondent is that so far as decision of ITAT to effect that, after partial partition Harnarayan Bhagat could not be assessed in status of HUF but he should have been assessed in status of individual and his sons could not have been assessed in status of HUF but they should have been assessed in their HUF status is concerned, since appeals filed by Income Tax Department have already been dismissed, said part of order of ITAT has attained finality and only question that is required to be decided in present cross- objections at instance of assesses is as to whether, ITAT have directed direct Assessing Officer to make assessment in new status because such directions would have effect of lifting bar of limitation prescribed for reopening assessments / completing assessments of respective assesses in new status. 21- Learned counsel has drawn attention of this Court towards Section 150(1) of Act of 1961 which lifts bar of limitation described under Section 149 for issuing notice under I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 12 - Section 148 for making assessment or reassessment or re- computation in consequence of or to give effect to any finding or direction contained in order passed by any authority in any proceeding under this act by way of appeal, reference or revision or by Court in any proceeding under any other law. Similarly, he has drawn attention of this Court towards provisions of Section 153 (3) (as said provision was in force at relevant point of time), which also lifted bar of limitation and permitted assessment to be completed at any time, where assessment, reassessment, re-computation is made on assessee or any person, in consequence of or to give effect to any finding or direction contained in order under Sections 250, 254, 260, 262, 263 or 264 or in any order of any Court in proceeding otherwise by way of appeal or reference under this Act. 22- He has further contended that expression in consequences of or to give effect to any finding or directions contained in any order has been interpreted by apex Court. Reliance has been placed upon judgment delivered by apex Court in case of ITO Vs. Murlidhar Bhagwandas reported in (1964) 52 ITR 335, wherein apex Court has held that expressions findings and directions in second proviso to Section 34(3) (the provisions of which were similar to above provisions), I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 13 - means, finding necessary for giving relief in respect of assessment for year in question, and direction which appellate or revisional authority, as case may be, was empowered to give under sections mentioned in proviso. finding therefore, could only be that finding which was necessary for disposal of appeal with respect of assessment of particular year. It was further held that AAC might hold, on evidence that income shown by assessee was not income for relevant year and thereby exclude that income from assessment of year under appeal. findings in that context were that income did not belong to relevant year. He might incidentally find that income belonged to another year, but that was not finding necessary for disposal of appeal in respect of year of assessment in question. That expression any person in second proviso of Section 34 (3) referred to one who would be liable to be assessed for whole or part of income, that went into assessment of year of appeal or revision. apex Court, therefore, held that second proviso Section 34(3) did not save time limit prescribed under Section 34(1) in respect of escaped assessment of year other than that which was subject matter of appeal or revision, as case may be, and accordingly notice issued in that case was held to be barred by limitation, not saved by second proviso to I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 14 - Section 34(3). 23- Reliance has also been placed upon judgment delivered in case of Rajinder Nath Vs. CIT reported in (1980) 120 ITR 14. apex Court in aforesaid case has held that expressions finding and direction in Section 153(3) are limited in meaning. If finding given in appeal, revision or reference arising out of assessment must be finding necessary for disposal of particular case, that is to say, in respect of particular assessee and in relation to particular assessment year. To be necessary finding, it must be directly involved in disposal of case. It is possible in certain cases that, in order to render finding in respect of A, finding in respect of B may be called, for instance, where facts show that income can belong either to or B or to no one else, finding that it belongs to B or does not belong to B would be determinative of issue whether it can be taxed as A's income. finding respective to B is initially involved as step in process of reaching ultimate finding respecting. If however, finding as to A's liability can be directly arrived at without necessitating finding in respect of B, then finding made in respect of B is incidental finding only. It is not finding necessary for disposal of case pertaining to A. 24- As regards expression direction in Section 153(3)(ii) I. T. A. No.83/2006, 84/2006,85/2006, 86/2006, 87/2006, 88/2006, 89/2006, 90/2006, 91/2006, 92/2006, 93/2006, 94/2006, 95/2006 96/2006, 97/2006, 98/2006, 99/2006, 100/2006, 101/2006, 102/2006, 103/2006, 323/2007 and 399/2007 - 15 - of Act, it is now well settled that it must be express direction necessary for disposal of case before authority or Court. It must also be direction which authority or Court is empowered to give while deciding case before it. expressions findings and direction in Section 153(3)(ii) must be accordingly confined. Section 153(3)(ii) is not provision enlarging jurisdiction of authority or Court. apex Court has referred to decision made in case of Murlidhar Bhagwandas (Supra). He has also placed reliance upon judgments delivered in case of N.Kt. Shivalingam Chettiar Vs. CIT reported in (1967) 66 ITR 586, Foramer Vs. CIT reported in (2001) 247 ITR 436 and Gupta Traders Vs. CIT reported in (2004) 135 ITR 504. 25- In light of aforesaid judgments, it can be safely gathered that direction given by ITAT to make assessment in new status are clearly contrary to law laid down by apex Court in aforesaid cases and order of ITAT to aforesaid extent deserves to be quashed and is accordingly quashed in all appeals. question of law answered is in favour of assessee. Certified copy as per rules. (S. C. SHARMA) (SHAILENDRA SHUKLA) JUDGE JUDGE Tej Digitally signed by Tej Prakash Vyas Date: 2019.09.23 11:10:50 +05'30' Commissioner of Income-tax-II v. Harnarayan Bhagat (HUF)