AO Can’t Tax Husband for Business Income taxed to Wife during Scrutiny

Ketan Prabhulal Dalsaniya Vs DCIT (ITAT Indore)

The case of Ketan Prabhulal Dalsaniya Vs DCIT before the Income Tax Appellate Tribunal (ITAT) in Indore sheds light on the complexities surrounding the clubbing of income between spouses. This article delves into the details of the case and the implications of the tribunal’s ruling.

The crux of the matter revolved around the addition of income allegedly earned by Ketan Prabhulal Dalsaniya’s wife, which was clubbed with his income as per Section 64(1)(ii) of the Income-tax Act. This addition stemmed from a statement made by Dalsaniya during a search conducted in the Coral Group of Morbi.

The contention put forth by Dalsaniya’s counsel was that the income, including business income, had already been disclosed and taxed in the returns filed by his wife under Section 153A of the Act. These returns had been accepted by the Assessing Officer in scrutiny assessments for the respective years.

During the proceedings, it became evident that there was no rebuttal from the Department to challenge the factual assertion made by Dalsaniya’s counsel. Consequently, the tribunal ruled in favor of Dalsaniya, asserting that once the income of the wife had been accepted in her scrutiny assessments, the Department couldn’t tax the same income again in the hands of the husband.

The tribunal’s decision rested on the principle that the Department is precluded from adopting a contrary stance after having accepted the income as belonging to the wife in the scrutiny assessments. Therefore, the appeals filed by Dalsaniya were allowed, effectively nullifying the additions made by the Assessing Officer.

The ruling in the case of Ketan Prabhulal Dalsaniya Vs DCIT serves as a precedent highlighting the importance of consistency in tax assessments. Once the income of a spouse has been scrutinized and accepted by the Department, it cannot be subjected to double taxation by attributing it to the other spouse. This decision underscores the significance of adherence to procedural fairness and the principles of tax law in ensuring equitable treatment for taxpayers.

FULL TEXT OF THE ORDER OF ITAT INDORE

All these appeals are related to the same assessee and have been filed for different assessment years, against the consolidated order passed by the ld. Commissioner of Income-tax (Appeals)-11, Ahmedabad [hereinafter referred to as “CIT(A)” for short] dated 09.02.2023 passed under Section 250(6) of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for the Assessment Years (AYs) 2013-14 to 2019-20.

2. It was common ground that the issue involved in all the appeals was identical arising in the background of identical set of facts; therefore, all the appeals were taken up together for hearing and are being disposed of by this consolidated order for the sake of convenience.

3. Giving a brief background of the case, the ld. Counsel for the assessee pointed out that in consequence to search action conducted in the group cases of Coral Group of Morbi on 03.01.2019, warrant u/s 132(1) of the Act was also executed in the case of the assessee. Thereafter, assessment was framed in terms of Section 153A of the Act on the assessee in all the impugned years before us. It was pointed out that one common addition was made in all the years pertaining to the income allegedly earned by the wife of the assessee which was clubbed in the hands of the assessee as per the provisions of Section 64(1)(ii) of the Act. The ld. Counsel for the assessee contended that all these additions were made based on the statement of the assessee recorded during search contending allegedly that his wife did not perform any business activity. The ld. Counsel for the assessee drew our attention to the additions so made to the income of the assessee in various years before us as tabulated in the ld. CIT(a)’s order at page no.3 as under:-

4. It was contended that the assessee’s appeal before the ld. CIT(A) against the order passed by the Assessing Officer was dismissed; aggrieved by which, the assessee has now come up in appeal before us in all the impugned years.

5. The ld. Counsel for the assessee contended that in all the appeals accordingly there was a solitary issue involved pertaining to the clubbing of income of the wife of the assessee in the hands of the assessee in terms of provisions of Section 64(1)(ii) of the Act. He pointed out that the common ground was raised in all the appeals and drew our attention to the grounds raised in the appeal of the assessee for AY 2013-14 in IT(SS)A No. 25/Rjt/2023 which read as under:-

“1. The grounds of appeal mentioned hereunder are without prejudice to one another.

2. The learned Commissioner of Income-tax (Appeals)-11, Ahmedabad [CIT(A)] erred on facts as also in law in rejecting appellants plea that no addition could have been made in the order passed u/s 153A of the Act, in absence of there being incriminating material found from the appellant. The order passed making addition without there being any incriminating materials may kindly be deleted.

3. The Id. CIT(A) erred on facts as also in law in confirming the addition of Rs.1,84,370/- u/s 64(1)(ii) made on the surmises that the income declared by the appellant’s wife Kalyaniben Dalsaniya is unaccounted income of appellant. The addition confirmed is totally unjustified and uncalled for and the same may kindly be deleted.”

6. During the course of hearing before us, ld. Counsel for the assessee contended that this addition made in the hands of the assessee was not sustainable for the simple reason that this income including income from business, had been returned to tax in the hands of the wife of the assessee in returns filed u/s 153A of the Act and which had been accepted by the Assessing Officer passing an assessment order u/s 143(3) r.ws. 153A of the Act in all the years. Copy of the acknowledgment of return of income, computation of income, profit and loss account and assessment order in the case of the wife of the assessee for all the impugned assessment years i.e. AYs 2013-14 to 2019-20, were filed before us in a paper-book comprising of 51 pages.

7. The ld. DR was unable to controvert the factual contention made by the ld. Counsel for the assessee as above.

8. In view of the above, since the income of the wife of the assessee stands accepted in her hands by the Department in scrutiny assessment vide order passed u/s 143(3) of the Act, on returns filed in consequence to the search action conducted on her u/s 153A of the Act, we find that there is no case with the Revenue now to tax the same income in the hands of the assessee also in terms of the clubbing provisions of Section 64(1)(ii) of the Act. Having accepted the said income as belongs to the assessee’s wife in scrutiny assessment, the Department is now debarred from taking a contrary view and taxing it in the hands of the assessee on the ground that his wife was not actually carrying out any business. In view of the above, all the appeals of the assessee are allowed in above terms.

9. In effect, all the appeals filed by the assessee are allowed.

Order pronounced in the open Court on 7^th February, 2024 at Ahmedabad.