2003 (2) TMI 153 - AT - Income Tax

Tribunal excludes Intercorp Associates' income, dismisses Revenue's appeals, and partially allows assessee's cross-objections.

The Revenue's appeals were dismissed as not pressed, and the assessee's cross-objections were partly allowed. The Tribunal ruled that the income of the ... Crossobjection treated as an appeal under s. 253(4) - condonation of delay in filing crossobjection on sufficient cause - retraction from admission/settlement application - distinct taxable entity: firm and partner - firm income not taxable in partner's hands unless firm is sham/benami - remand to assessing officer to reconsider seized material - doctrine of substantial justice and sufficient cause (Katiji)Crossobjection treated as an appeal under s. 253(4) - condonation of delay in filing crossobjection on sufficient cause - Whether the assessee's crossobjection could be entertained despite absence/withdrawal of Revenue appeal and whether delay in filing crossobjection should be condoned. - HELD THAT: - The Tribunal held that a crossobjection is akin to an appeal and may be filed and disposed of notwithstanding that the respondent has not itself preferred an appeal or that an appeal by the other party has been withdrawn, relying on the principles that crossobjections carry the trappings of an appeal. On delay, the Tribunal examined the Registry records and the assessee's affidavit and, applying the flexible 'sufficient cause' approach articulated by the Supreme Court in Collector, Land Acquisition v. Katiji, found that the assessee had shown sufficient cause for delay (counsel's unavailability, litigation pressures) and accordingly condoned the delay and admitted the crossobjection for adjudication on merits.Crossobjection entertained; delay in filing crossobjection condoned.Retraction from admission/settlement application - doctrine of approbate and reprobate and its limits in tax law - Whether the assessee could retract from his earlier admissions in the settlement application and allied proceedings and disown inclusion of Intercorp Associates' income in his hands. - HELD THAT: - The Tribunal applied authority establishing that admissions, while important, are not invariably conclusive and may be retracted where they are erroneous or contrary to law or made under mistake. It observed that a settlement or admission cannot confer jurisdiction or override statutory taxing provisions. Considering the factual matrix - that the root of the disputed income lay in the firm ICA and that the assessee's earlier settlement was entered into to 'buy peace' amid criminal/civil complications - the Tribunal held that the assessee was entitled to retract from the settlement insofar as it purported to transfer ICA's income to his personal hands, the settlement being inconsistent with statutory allocation of taxable entities.Assessee entitled to retract from earlier settlement admission; admission not conclusive to tax firm income in assessee's hands.Distinct taxable entity: firm and partner - firm income not taxable in partner's hands unless firm is sham/benami - prohibition on substituting firm income to partner absent sham/benami findings - Whether the income of M/s Intercorp Associates (ICA) could be assessed in the hands of the assessee for the assessment years in issue. - HELD THAT: - Relying on the statutory distinction between a firm and its partners and on judicial authority that the income of an AOP/firm must normally be assessed to the firm (and not to its members) unless the firm is a sham or benamidar of the individual, the Tribunal examined the material supporting ICA's independent existence: partnership deed, bank accounts, books, notices, assessments/reassessments and proceedings in the firm's name, and proceedings before the Settlement Commission. Finding sufficient material to establish ICA as a separate taxable entity and no conclusive proof of sham or benami character, the Tribunal held that ICA's income (including its divisions and credit entries) must be excluded from the assessee's personal income for the years under appeal.Income of ICA to be excluded from assessee's hands for AYs 198687 to 198889; firm taxed separately unless sham/benami established.Remand to assessing officer to reconsider seized material - limits of remand where seized material pertains to firm and not assessee - Whether the CIT(A)'s direction to the Assessing Officer to reframe assessment after considering seized material should be sustained. - HELD THAT: - The Tribunal reviewed the CIT(A)'s remand direction, noting that CIT(A) directed reassessment to consider seized material but did not expressly rule on the specific ground seeking exclusion of ICA's income from the assessee. The Tribunal found no persuasive answer as to what seized material related to the assessee personally rather than to ICA. Given that the reassessment appeared to be based on material pertaining to the firm, and in light of the Tribunal's conclusion that ICA is a distinct taxable entity, the Tribunal held the remand direction inappropriate and expunged the instruction to reframe assessment in so far as it sought to import firmrelated seized material into the assessee's assessment.Direction to reframe assessment by considering seized material expunged; remand not sustained insofar as it would transfer firmrelated material to assessee's assessment.Exclusion of firm credits and computations from assessee's income - application of interest provisions as per law - What consequential directions should follow the exclusion of ICA's income from the assessee's assessment for the years under appeal. - HELD THAT: - The Tribunal directed that the Assessing Officer must exclude from the assessee's income the credits and computations attributable to ICA (as reflected in the settlement computation) for the assessment years in question, and retain any other income of the assessee not challenged before the Tribunal. The Tribunal also directed that interest and other consequences be determined in accordance with law and relevant Supreme Court authority on interest, indicating that interest under the pertinent provisions be charged as per law.AO to exclude ICA's credits/computations from assessee's income for the years under appeal; other individual income to stand; interest to be charged as per law.Final Conclusion: The Revenue appeals were dismissed as not pressed; the assessee's crossobjection was admitted (delay condoned) and partly allowed: the Tribunal permitted retraction from the earlier settlement insofar as it placed ICA's income in the assessee's hands, held ICA to be a distinct taxable entity (no sham/benami established) and directed that ICA's income and related credits be excluded from the assessee's income for AYs 198687 to 198889, expunging the CIT(A)'s direction to reframe assessment to tax the assessee with firmrelated seized material; consequential interest and other adjustments to follow law. Issues Involved:1. Withdrawal of Revenue's appeals.2. Validity and timeliness of the cross-objections (CO) filed by the assessee.3. Whether the income of the firm Intercorp Associates (ICA) should be included in the assessee's income.4. Whether the CIT(A)'s direction to redo the assessment considering seized materials was appropriate.Detailed Analysis:1. Withdrawal of Revenue's Appeals:The main ground of appeal by the Revenue was against the setting aside of the assessment with a direction to redo the same after examining the search materials and affording an opportunity to the assessee. During the hearing, the Departmental Representative sought leave to withdraw the appeals since the Assessing Officer (AO) had already passed orders subsequent to the CIT(A)'s direction. The appeals were dismissed as not pressed.2. Validity and Timeliness of the Cross-Objections (CO):The Departmental Representative argued that the CO should not be entertained because there was no pending appeal and it was belated. The assessee's counsel submitted that COs are as good as appeals and can be pressed even in the absence of an appeal before the Tribunal, citing provisions of Section 253(4) and relevant case law. The Tribunal agreed with the assessee's counsel, stating that a CO is to be disposed of as if it is an appeal presented. Regarding the delay, the Tribunal found that the grounds of appeal were furnished to the assessee on 22nd May 2002, and the COs were filed on 24th May 2002. The Tribunal condoned the delay, citing the Supreme Court's decision in Collector, Land Acquisition vs. Mst. Katiji & Ors., which emphasized a liberal approach in condoning delays to ensure substantial justice.3. Inclusion of ICA's Income in the Assessee's Income:The Tribunal examined whether the income of the firm ICA should be included in the assessee's income. The assessee argued that the revised return for AY 1986-87 was not valid and that the assessment was based on a settlement petition that was not binding. The assessee also contended that ICA was a valid partnership firm and not a sham entity. The Departmental Representative argued that the assessee had voluntarily filed returns accepting ICA's income in his hands and that the assessee could not retract from his admission. However, the Tribunal found that the assessee had consistently shown ICA as the correct entity liable to tax and that the firm was a valid partnership entity with its own assessments and legal proceedings. The Tribunal held that the income of ICA could not be taxed in the hands of the assessee and allowed the assessee to retract from his earlier admission.4. CIT(A)'s Direction to Redo the Assessment:The Tribunal found that the CIT(A)'s direction to reframe the assessment considering seized material was not appropriate as no seized material pertained to the assessee but only to ICA. The Tribunal expunged the direction to redo the assessment and held that the income of ICA, including its divisions and credit entries, should be excluded while computing the income of the assessee for the relevant assessment years. The Tribunal also directed that any other income earned individually by the assessee would be retained and that interest under Sections 139(8) and 215/217 would be charged as per law.Conclusion:The appeals of the Revenue were dismissed, and the cross-objections of the assessee were partly allowed. The Tribunal held that the income of ICA should be excluded from the assessee's income and expunged the CIT(A)'s direction to redo the assessment.