1. On account of difference of opinion between the learned Members of Income-tax Appellate Tribunal, Cochin Bench, the following question has been referred to me:
“Whether, in the facts and circumstances of the case, the CIT(Appeals) is justified in holding that no addition can be made in the hands of the assessee towards undisclosed income from the liquor business carried on by the firms M/s. Malabar Associates. ?”
2. In my view the answer to the question is self-evident as it is a question of addition of undisclosed income from business admittedly “carried on by the firm M/s. Malabar Associates”. If the business is carried on by the firm, then whether it is disclosed income or undisclosed income, is to be assessed in the hands of the firm and not in the hands of the partners. In spite of the above short answer, I proceed to consider the facts and circumstances of the case as emerging from the dissenting orders of the two learned Members.
3. The premises of the assessee were searched u/s.132 of the Income-tax Act, 1961, but no incriminating documents were found. The Revenue also carried search at the premises of one Shri K.K. Sasi, who was the Accountant of several partnership firms in the block period, in which the assessee was a partner. Accordingly, assessee was asked to file a return u/s.l58BC for the block period. A ‘Nil’ return was filed. In the statement recorded u/s. 132(4) on 29-07-1999 and also in response to notice issued to the assessee during the course of assessment proceedings, assessee admitted that he was a partner in 22 concerns as under:
(1) M/s. Hotel Amritha, Mavoor Road, Calicut (Managing partner);
(2) Hotel Hotel Mariya (Hotel Diplomat) Mavoor Road Junction, Calicut (Managing partner);
(3) M/s. Queens Hotel, Jail Road Junction, Calicut;
(4) M/s Hotel Panchami, Thiruvalla (Red Wood Hotel (P) Ltd.);
(5) M/s. Hotel Soorya, Irrity;
(6) M/s. Beach Hotel, Beach Road, Calicut (Managing Partner);
(7) Irrity Chits and Finance, Irrity;
(8) Malabar Plantations. Thaliparamba, Chuzhali;Online GST Certification Course by TaxGuru & MSME- Click here to Join
(9) Ganga Kaveri hotel Gundalpet, Karnataka (Managing partner);
(10) Mattanoor Wines;
(11) Wayanad Wines;
(12) Bathery Liquors;
(13) Pulpath Liquors;
(14) Kaynichira Liquors;
(15) Thalapuzha Liquors;
(16) High Range Wines;
(17) Malabar Associates;
(18) Associate Liquors;
(19) KVK Wines;
(20) KVK Liquors;
(21) Wynad Wines Enterprises; and
(22) Chaithanya Liquors.
4. In the assessment completed u/s,158BC, the Assessing Officer made several additions on account of cash balance, agricultural income, personal expenses and also income from Toddy Shop Nos. 68, 69, 70 & 78, but I am not concerned with those additions in the reference. I am concerned with the income from toddy and arrack business, which was treated as undisclosed income on the basis of certain documents found from the preemies of Sri K.K. Sasi, who was admittedly the Accountant of the firms. Assessee contended before the Assessing Officer that income shown in the seized document was undisclosed income of M/s. Malabar Associates. The Assessing Officer did not accept the same in the assessment order. He assessed the share of undisclosed income on the£ basis of seized documents in the hands of the assessee. separate from partners for the purpose of assessment. Both disclosed and undisclosed income of firm is to be assessed in the hands of the firm and not in the hands of the partners.
11. Reverting to the facts as found by both the learned Members, it is not in dispute that the documents found in the course of search from the premises of Shri K.K. Sasi belonged to the firms. The Assessing Officer also took some share income (40 % and 70%)in the hands of the assessee. If the income was earned by the firm or on behalf of the firm, whether disclosed or undisclosed, it has to be assessed in the hands of the firm only. Provisions of Chapter XIV-B relates only to assessment of undisclosed income make the position more than clear. There is no machinery to assess the income of the firm in the hands of the partner, merely because it is not disclosed in the accounts of the firm. Such assessment in the hands of the partner can not be justified merely because the income is pocketed by the partner. In my opinion, the view taken by the learned Accountant Member is against the basic schemes of assessment contained in the Income-tax Act and therefore cannot be accepted as correct.
12. It is further to be noted that in similar circumstances, undisclosed income of Hotel Amritha at Calicut and all several other concerns has been assessed in the hands of the firm. Having made assessment in the hands of the firm, there was no question of taking any share of above income in the hands of the partner, in the light of the provisions referred to above. The Revenue has also accepted similar position in the assessment of firm, M/s. Associate Liquors and matter has not been challenged before the Tribunal. Why no proceedings were taken in the hands of M/s. Malabar Associates under Chapter XIV-B is not clear from the record. Even if the assessee did not furnish the requisite details ‘ regarding above firm that would not be a ground to make the assessment of alleged share of undisclosed (or disclosed) income in the hands of the firm. As per the settled law, income has to be assessed in the hands to which it belongs.
13. The learned representative of the assessee during the course of hearing has also pointed out errors in the proposed order of learned Accountant Member. He rightly said that observation that firm M/s. Malabar Associates is not in existence or de funct or dissolved, are factually incorrect. Legal inferences drawn by learned Accountant Member was also not correct. On his own showing that in the case of firm, partners have joint and several liability, the firm M/s. Malabar Associates could have been assessed through the assessee partner and liability of that firm recovered from the assessee and other partners in accordance with law. It was further not possible or permissible under the law to make assessment of income of firm in the hands of the assessee partner, merely because he had pocketed some portion of undisclosed income of the firm. Income of firm could only be assessed in the hands of the firm and not in the hands of the partner, i.e. the assessee.
14. In the light of the above discussion, I agree with the order proposed by learned Judicial Member and answer the question accordingly.