2017 (12) TMI 1057 - AT - Income Tax

Tribunal upholds income assessment for individuals vs. HUF, allows appeals on unexplained credits

The Tribunal dismissed the appeals regarding the assessability of income in the hands of individuals vs. HUF, upholding the AO's and CIT(A)'s findings. ... Assessment of income of HUF - proof of existence of HUF - Held that:- Section 171 of the Income-tax Act refers to the assessment in the status of HUF after partition wherein it is stated that a HUF, hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a HUF unless there is a finding of partition is recorded . Similarly, with regard to partial/total partition, any claim made by the assessee requires to be verified by the AO upon giving due notice to the members of the family. Moreover, with regard to fresh claim of existence of HUF, without there being any assessment in the earlier years or proof of holding assets by a major HUF, the burden is heavy upon assessees to satisfy the AO that assets were held by the major HUF. In the instant case, there was no such evidence on record. It was only subsequent to the survey operations, assessees came out with a plea that they were maintaining sheeps and goats in the status of main HUF, which were passed on to the separated HUFs. In our considered opinion, assessees miserably failed to bring on record any proof of existence of HUF and it’s ancestral nucleus. Under the above circumstances, we are of the view that finding of the AO as well as ld. CIT(A) with regard to non-existence of HUF deserves acceptance. Accordingly, we hold that the income declared by the HUFs are assessable in the hands of individuals. Since AO had assessed the income of HUFs in the hands of the individuals, which in turn, were accepted by ld. CIT(A), we uphold the orders of AO on this count. However, the income of the HUF is clubbed and assessed in the individual hands, the assessment of HUF and the HUF income was assessed to tax protectively. Accordingly, the assessment made in the hands of HUF is quashed and the tax collected in the hands of HUF may be adjusted against the tax demands of individuals. In the result, both the appeals in the individual capacity as well as in the capacity of HUF are dismissed. Unexplained cash deposits - collective income of family - Held that:- It is noted from the records that the assessee has no independent sources of income. The deposits in the bank are the income of the family. We find that there is only two cash deposits and all other entries are transfers from the other accounts or credits for closure of deposits accounts. Since the transfers and credits are internal transfers, these deposits cannot be questioned as these are verifiable and established sources. AO could have verified from the bank itself, but chose not to do. With regard to cash deposits of ₹ 3,25,000/-, the husband of assessee has submitted that these are out of family fund. Since, we have adjudicated the income of the HUF belongs to the individual, there is sufficient funds available with the family to make such deposits. It is pertinent to note that assessee does not have any independent source of income, source is only from the family income. As there is enough funds available in the family to make such deposits, we accept the contention of the assessee and delete the addition made. Issues Involved:1. Whether the income offered by the assessee on behalf of HUF is assessable in the hands of the individual.2. Whether the Short Term Capital Gain on transfer of shares and Mutual Funds should be taxed at normal rates or at 10%.3. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.4. Unexplained credits in bank accounts and their tax implications.Issue-wise Detailed Analysis:1. Assessability of Income in the Hands of Individual vs. HUF:The primary issue was whether the income declared by the assessee in the capacity of HUF should be assessed in the hands of the individual. The Tribunal noted that the assessee failed to provide sufficient evidence to prove the existence of HUF. The assessee's claims were based on an unregistered partition deed, which was not substantiated by independent evidence. The Tribunal emphasized that HUF is a creature of law and cannot be created by the act of parties. There should be ancestral nucleus passed to the next generation, which was not demonstrated in this case. As a result, the Tribunal upheld the findings of the AO and CIT(A) that the income declared by the HUFs should be assessed in the hands of the individuals.2. Taxation of Short Term Capital Gain:The assessee contended that the Short Term Capital Gain on transfer of shares and Mutual Funds should be taxed at 10% rather than normal rates. However, this issue was not elaborated upon in the judgment, and the Tribunal did not provide a specific ruling on this matter, focusing instead on the primary issue of HUF vs. individual income.3. Levy of Interest under Sections 234A, 234B, and 234C:The Tribunal noted that the charging of interest under sections 234A, 234B, and 234C is consequential in nature. Therefore, the AO was directed to adjust the interest charges accordingly, based on the final assessment of income.4. Unexplained Credits in Bank Accounts:For the cases of Smt. T. Jayashree, Smt. Swaroopa Rani, and T. Kalpana Rani, the issue revolved around unexplained credits in their bank accounts. The AO added these amounts as unexplained credits, which the CIT(A) confirmed. However, the Tribunal found that most of the deposits were internal transfers or credits for closure of deposit accounts, which were verifiable and had established sources. The Tribunal accepted the contention that the cash deposits were out of family funds, as there was sufficient family income to support these deposits. Consequently, the Tribunal deleted the additions made by the AO in these cases.Conclusion:The appeals regarding the assessability of income in the hands of individuals vs. HUF were dismissed, affirming the AO's and CIT(A)'s findings. The Tribunal quashed the protective assessment of HUF and directed that any tax collected in the hands of HUF be adjusted against the tax demands of individuals. The appeals concerning unexplained credits in bank accounts were allowed, with the Tribunal accepting the explanations provided by the assessees and deleting the additions made by the AO. The consequential interest charges were directed to be adjusted based on the final assessments.