ORDER
G. D. AGRAWAL, A. M. :
All these appeals by the assessee are directed against the order of the CIT(A), Muzaffarnagar. Since common grounds are involved, they are disposed of by this consolidated order for the sake of convenience.
2. The first ground of appeal, in all these appeals, reads as under :
“That the learned CIT(A) erred both in law and on facts in failing to appreciate that the assessment by the learned Assessing Officer is totally untenable as there does not exist any AOP and the alleged AOP constituting of Nihal Chand, Harish Chand and Suresh Chand did not exist.”
2.1 The facts of the case are that there was search at the residence and business premises of Nihal Chand, Harish Chand and Suresh Chand on 21st Feb., 1989. As a result of the search certain NSCs, FDRs, household jewellery pawning jewellery were found and seized. Certain books of accounts and other documents were also found and seized. The Assessing Officer opined that there was an AOP consisting of Nihal Chand, Harish Chand and Suresh Chand. He formed such opinion on the following grounds :
(a) The assessee could not file any reliable documentary evidence to prove that the alleged HUF in the style of Nihal Chand Harish Chand was actually in existence to carry on business of pawning and trading.
(b) The assessee could not prove that the alleged HUF had sufficient funds for carrying on business of pawning at such a large scale. The assessee could not give the details of zamindari abolition bond, its number and even the name of the person to whom these bonds were sold for Rs. 40,000. So the claim of the assessee that the HUF carried on the business of pawning with the funds received from the sale of zamindari abolition bonds is not substantiated.
(c) The claim of the members of the AOP that part of pawning business was conducted by Shri Nihal Chand in his individual capacity is not correct. The book maintained for individual money lending business of Nihal Chand was not written in the hand writing of Shri Nihal Chand but by Shri Suresh Chand.
(d) Shri Nihal Chand, Harish Chand and Suresh Chand were having their individual funds mainly from agricultural income, salary income and grain trading income respectively which they pooled together for earning income from pawning and trading.
(e) At the time of search Shri Harish Chand admitted that the income from pawning and trading has been earned jointly by him and Shri Nihal Chand and Shri Suresh Chand. Shri Suresh Chand also in his statement admitted that the income declared was the income of himself, his son Suresh Chand and his brother Naresh Chand together.
(f) The various rough books of accounts in the form of some note books and nothings in loose papers were found and seized from the residential and business premises of the members and entries therein also proved that the entire money lending income was earned by single entity up to the asst. yr. 1981-82. These records of entire interest income at one place also proved it beyond doubt that such income belongs to one entity.
(g) The funds invested in money lending and trading business are also found to belong to the three members, namely, Shri Nihal Chand, Harish Chand and Shri Suresh Chand. Whereas, Shri Nihal Chand and Shri Harish Chand have contributed their funds mainly from agricultural income and salary income respectively, Shri Suresh Chand has contributed his funds from trading business done by him from 1966 onwards.
2.2 In view of the above, the Assessing Officer issued notice under S. 148/139(2) in the name of the AOP for asst. yrs. 1981-82 to 1989-90. The assessee filed the return declaring nil income in response to the notices issued. It was claimed by the assessee during the assessment proceedings that there was no AOP in existence. However, the Assessing Officer not being satisfied with the explanation of the assessee completed the assessment for asst. yrs. 1982-83 to 1989-90 in the status of AOP. The CIT(A) upheld the order of the Assessing Officer in all the years. Hence, these appeals before us by the assessee.
3. At the time of hearing before us, the learned counsel for the assessee argued at length. At the outset, he submitted that there was no AOP named as Nihal Chand, Harish Chand and Suresh Chand, on the other hand, there was an HUF, namely, Nihal Chand Harish Chand. He further submitted that Shri Nihal Chand and Shri Harish Chand both are sons of Shri Prabhu Dayal. Shri Nihal Chand had no issue. Shri Suresh Chand was the son of Shri Harish Chand. Harish Chand was in Govt. service and retired in the year 1981 as Postmaster. Shri Nihal Chand and Shri Suresh Chand were living in the village Kandhla, Distt. Muzaffarnagar. It was an old zamindar family and on abolition of zamindari, bonds were received. The bonds were encashed in the year 1951 for a sum of Rs. 40,000. He further submitted that Nihal Chand and Suresh Chand were living together in the said village Kandhla. No return of income was filed by them prior to the search. He referred the statement of Suresh Chand, Harish Chand and Nihal Chand and submitted that from the statement it is evident that there was no AOP. On the other hand, there was an HUF which carried on the money lending business after the death of Prabhu Dayal, father of Shri Nihal Chand and Shri Harish Chand. He further submitted that the members of the HUF were living together, were having the common mess and were carrying on the business together from the premises belonging to the HUF. Thus, there was a clear evidence of the existence of the HUF as well as of the business carried on by the HUF. He also submitted that there was no evidence of any partition between the members of the HUF and in the absence of evidence to the contrary the normal presumption is of the jointness of the HUF. In this respect, he relied upon the following decisions :
(a) Surjit Lal Chhabda vs. CIT (1975) 101 ITR 776 (SC);
(b) CIT vs. Ghanshyam Das Mukim (1979) 118 ITR 930 (P&H).
He further submitted that the existence of the HUF is accepted by the Assessing Officer himself as he made the assessment on substantive basis in the hands of the HUF in respect of the property income. He also filed various documents to show that the said HUF had possessed agricultural land in as back as 1920, 1930, 1940, etc. He further submitted that for the purpose of AOP the Revenue has to establish that the two or more members have joined together for common purpose and common action. In this respect, he relied upon the following decisions :
(i) CIT vs. Indra Balkishan (1960) 39 ITR 546 (SC);
(ii) Commr. of Agrl. IT vs. Raja Ratangopal (1966) 59 ITR 728 (SC);
(iii) AMC Muthuvaithilingam Chettiar & Ors. vs. Govt. of Madras (1968) 69 ITR 330 (Mad).
He further submitted that there was no evidence of joining together of Shri Nihal Chand, Shri Harish Chand and Shri Suresh Chand. He submitted that they were the members of the HUF and, therefore, they were already united. So the question of their joining again together does not arise. He also submitted that the claim of the Assessing Officer is that the AOP is carrying on the business since past 20 years while Shri Harish Chand was in the employment of the Central Govt. at that time. There cannot be any presumption that a Govt. employee was carrying on the business unless it is proved by the Revenue. Since, there was no evidence at all to prove that Shri Harish Chand was carrying on any business as a member of the AOP, the conclusion of the Assessing Officer is without any basis. He further submitted that Shri Suresh Chand was assisting Shri Naresh Chand and he was not carrying on any business either in his individual capacity or as the member of the AOP.
3.1 He further submitted that the income assessed in the hands of the AOP mainly belonged to the HUF. Apart from the income disclosed by the HUF, the Assessing Officer has only added some interest income which belongs individually to Shri Nihal Chand and Shri Harish Chand. The individual income of Shri Nihal Chand was from the money received on the death of his maternal uncle as per his will and the individual interest income of Shri Harish Chand was out of the amount received by him on retirement from the service. Thus, the submitted that there was clear evidence that the individual interest income of Naresh Chand and Harish Chand was out of their individual funds and it was neither the income of the HUF nor of the AOP.
4. The learned Departmental Representative relied upon the orders of the Assessing Officer and the CIT(A). He also relied upon the statements of Shri Suresh Chand, Shri Nihal Chand and Shri Harish Chand recorded at the time of search. He pointed out that Shri Suresh Chand and Shri Nihal Chand were sitting together in the shop. While surrendering the income, Shri Suresh Chand has clearly mentioned that the income belongs to himself, Shri Nihal Chand and Shri Harish Chand and the surrender is being made with the consent of other two members. The books of accounts were found to have been written by Shri Suresh Chand and in the books of accounts there was no mention about the fact that the books belonged to the HUF. In the statement during the search also nobody mentioned about the existence of the HUF or carrying on of the business by the HUF. He submitted that the business was being carried on jointly and there was intermingling of funds in such a manner that nothing could be segregated. He also submitted that there was no evidence of the existence of HUF. There was no evidence of the bonds received by the HUF and sold/transferred for Rs. 40,000 in the year 1951. There was no documentary evidence of the ancestral property so as to establish the nucleus in the hands of the HUF. The pawning license was not produced. No return was filed before the date of the search. He further submitted that Shri Nihal Chand, Shri Suresh Chand and Shri Harish Chand joined together for common purpose for earning of the income and they jointly carried on the business. Therefore, the assessment in the status of the AOP was quite justified. In this respect, he relied upon the following decisions :
(1) Madhusudan Goverdhan Das (1994) 2209 ITR 888 (Bom);
(2) CIT vs. C. Karunakaran & Ors. (1988) 170 ITR 426 (Ker);
(3) CIT vs. Smt. Vimla Lal (1983) 143 ITR 16 (All).
In view of the above, he submitted that the orders of the authorities below be upheld.
5. We have carefully considered the arguments of both the sides. The claim of the learned Departmental Representative as well as the Assessing Officer is that the entire income was earned at one place by side entity and not by different entities. There was complete intermingling of the funds. Therefore, there is an AOP consisting of Shri Nihal Chand, Harish Chand And Suresh Chand. The learned counsel for the assessee has also admitted that the income mainly belongs to one entity except some interest income of Shri Nihal Chand on the amount received as per will and interest income of Harish Chand on the amount received at the time of retirement from the employment. His claim is that the said one entity is the HUF and not the AOP. Therefore, the basic issue before us is whether the single entity which derived income from money lending and trading is AOP or the HUF. In the assessment order, the Assessing Officer has opined that there was no HUF in existence. We are unable to accept such a conclusion of the Assessing Officer. The family pedigree of the members is as under :
Prabhudayal
½
½
Nihal Chand
Harish Chand
½
½
½
Suresh Chand
Ramesh Chand
Adesh Kumar
It is not in dispute that at the time of search the above members (except the members who are in employment outside) lived together with their wives and children. They were having common mess. It is a settled law that the normal state of every Hindu family is joint in the absence of proof of division. Here, in this case, the members of the family who are lineally descendent from a common ancestor (Shri Prabhudayal) were, along with their wives and children, found to be living together. There was no evidence of the partition amongst them. Thus, we have no hesitation in holding that there was HUF in existence. Moreover, the same Assessing Officer, namely, Asstt. CIT, Inv. Cir., Muzaffarnagar has accepted the existence of HUF while completing the assessment of Shri Nihal Chand, Harish Chand, HUF vide his consolidated order for asst. yrs. 1980-81 to 1989-90 dt. 30th Sept., 1991 as he assessed the income from property at Baghpat in the hands of the HUF on substantive basis.
5.1 The next claim of the Revenue is that there was no nucleus of the HUF. Here also the claim of the Revenue is contradicted by the order of the HUF M/s. Nihal Chand Harish Chand where the property income has been accepted on substantive basis. Once it is accepted that the HUF was having a property its nucleus is established. Therefore, the claim of the Revenue can at best be that there was not sufficient funds with the HUF, to carry on the money lending business, to the extent, as found to have been carried on as per search. The claim of the assessee is that it is an old zamindar family. On the abolition of zamindari it had received zamindari abolition bonds which were transferred in the year 1951 for a sum of Rs. 40,000. Apart from this it is submitted that the family had agricultural land for which the various documents relating to old years, namely, 1916, 1923, 1931, 1932, 1935 and 1941 were filed before us. These documents were also stated to have been filed before Assessing Officer. Though the assessee has not been able to prove with documentary evidence that it had received a sum of Rs. 40,000 on transfer of zamindari abolition bonds, it cannot be lost sight of that the matter related to as back as the year 1951. The other evidence filed by the assessee to establish that the father/forefather of Shri Nihal Chand and Shri Harish Chand had the agricultural land, has not been controverted. Moreover, even assuming that the HUF had not proved initial investment fully can it be concluded that business was not carried on by the HUF ? And can it be further presumed that the business was carried on by the AOP. In our opinion reply to both the question is No. There is a clear evidence of existence of HUF and nucleus in its hands is also established. The members of the HUF were found to be living together and carrying on the business jointly. They have also explained source of initial investment in the business of the HUF. Now, that explanation was not substantiated by the HUF with documentary evidences. However, the Revenue has also not brought on record any material to prove that the explanation of the assessee was false. In such circumstances and keeping in view that matter is as old as more than 40 years, the issue has to be decided on preponderance of probabilities. In view of the facts of the case as discussed the probability of business being carried on by the HUF is much more than that by the AOP.
5.2 The learned Department Representative has relied upon that the books were written by Shri Suresh Chand and in the books of accounts there is no mention about HUF. The writing of the books of accounts by Shri Suresh Chand will not lead to any inference that the books belonged to AOP and not to the HUF. Similarly if in the books there is no mention of HUF, there is no mention about the AOP also.
5.3 The Assessing Officer has concluded that Shri Nihal Chand, Shri Harish Chand and Shri Suresh Chand were having their individual funds, mainly, from agricultural income, salary income and grain trading income which they pooled together for earning income from pawning and trading. However, we do not find any evidence in support of such conclusion. There was no evidence that Shri Harish Chand invested his salary income for the purpose of business of the HUF. On the other hand, there is clear claim that whatever amount he received at the time of his retirement, was utilised for the purpose of money lending business by him separately. We also do not find any evidence of any individual trading business carried on by Shri Suresh Chand. As per the statement of Shri Suresh Chand, after doing Intermediate in the year 1966, he was sitting with his uncle Shri Nihal Chand.
5.4 The Revenue and the assessee both relied upon the statement of the concerned person recorded at the time of search to support their claim. Therefore, it is necessary to reproduce the relevant portion of the statements which are as under :
Statement of Shri Suresh Chand, dt. 21st Feb., 1989 :
Question/Ans. : I had passed intermediate examination in year 1986. After that I am sitting with my uncle Shri Nihal Chand. Shop is in the name of M/s. Nihal Chand Suresh Chand. In shop the business is purchase and sale of rice and pulses. Goods are purchased from local market. Apart from it in the shop. The business of money lending are also made.”
Quest. : How many members are there in your family and what will be monthly house expense ?
Ans. In my family the following members are :
(i) Myself
(ii) Wife – Smt. Suresh Kumar.
(iii) Km. Anita Rani – appearing in M. A. Examination, Age – 20 years.
(iv) Atul Kumar. He has left the study. He is inter fail. Age – 18 years.
(v) Anuj Kumar, Age – 7 years, study in second class. Study in Children Academy. Fee paid Rs. 30 per month.
(vi) Uncle Shri Nihal Chand.
(vii) Mother Smt. Angoori Devi.
(viii) Father Shri Harish Chand.
My monthly expenses are 4 to 5 thousand. Residential is ourself which is ancestral.”
Quest. : You have just said that my family monthly expenses are 4-5 thousand and you do not pay any income-tax. Wherefrom you have met this expenses.
Ans. Income from orchards are there, rental income and the pension of father is there from which the household expense are met and the income from interest is also there.”
Statement of Shri Suresh Chand, dt. 22nd. Feb., 1989;
Quest. : Do you want to disclose your undisclosed income in accordance with Expln. 5 of S. 271(1)(c)(3) of IT Act (Explanation was read over).
Ans. : As I have already said in my statements that the business of me, my father and my uncle are joint. Our source of income are from pawning and trading of rice and pulse. I declare the income from these business as below. . . . . . . .
This declaration is being made with the consent of other two members, i.e., my father and uncle.”
Statement of Shri Harish Chand, dt. 21st Feb., 1989 :
Quest. : Do your family have joint kitchen of separately ?
Ans. : Our family is joint.
Statement of Shri Harish Chand, dt. 22nd Feb., 1989;
Quest. : Do you like to disclose your any undisclosed income under Expln. 5 of S. 271(1)(c) of IT Act ?
Ans. : In this matter my son Shri Suresh Chand have disclosed the undisclosed income totaling Rs. 5,87,000 in different financial years with which I am agreed. In fact this income is of mine and my son Suresh Chand and my brother Nihal Chand – total income of all the three which have been disclosed.”
Statement of Shri Nihal Chand recorded on 21st Feb., 1989 :
“Besides it, the business of pawning is also carried by Suresh Chand. I am not separated from him and the income of orchard and income from pawning and the income from pulses all remain together and the expenses are also jointly. We have the license of pawning. The income from pawning would be about 2-3 thousand peer month. My two other nephews are in service at Delhi and Kota. We do not pay income-tax because our income is of Zamindar.”
After reading the above statements it is true that Shri Suresh Chand has clearly stated that the income declared by him is the joint income of himself, his father and uncle and this declaration is made by him with the consent of other two members. Such statements of Suresh Chand were also accepted by other members, namely, Shri Nihal Chand and Shri Harish Chand. But from such statements it cannot be concluded that the joint income was of the AOP. The joint income could very well be of the HUF. Moreover, from the other portions of the statement itself it is evident that they were living together, they have accepted that their family is joint, the household expenditure is common and it is also accepted that there was no separation of the members of the family.
5.5 The claim of the Revenue is that there is complete intermingling of the funds and, therefore, it should be presumed that there was the business carried on by the AOP. The observation of the Assessing Officer at page 7 para 6 is as under :
“… the funds of all the three persons named above were pooled and utilised together to earn pawning and trading income and the same are found to be intermingled. In absence of any separate account of three persons, the shares of these persons can also not be determined.”
In our opinion, the above factual position does not at all support the theory of AOP. On the other hand, it is a clear indication of there being no AOP. Had the individual members brought their funds in the AOP, there must have been the separate account of each of the members, in which money brought by them would have been credited. There being no account of the members in the books of accounts maintained is a strong circumstantial evidence in favor of the HUF. Because in the HUF no member has any definite share in the income or asset of the HUF till they are united. The share is ascertained only on partition of the HUF.
5.6 In view of the totality of the above facts, we do not find any evidence to hold that there was an AOP constituted of Shri Nihal Chand, Shri Harish Chand and Shri Suresh Chand, which carried on the business of money lending and trading. Both the parties have relied upon a number of decisions but the facts of all the cases relied upon are quite different than the facts under appeal before us. Therefore, it is unnecessary to discuss them here. As we have held that there is no AOP named as Nihal Chand, Harish Chand and Suresh Chand, we are unable to sustain assessment of the said AOP. Accordingly, we allow Ground No. 1 and quash the assessment in the status of AOP. In view of this finding it is unnecessary to consider the other grounds of appeal raised by the assessee. Accordingly, the assessees appeals for all the years are allowed.