IN
THE ITAT, PUNE BENCH ‘B’
Konkani
Bharat Dairy Farm (AOP)
v.
Assistant
Commissioner of Income-tax, Cir-2, Nashik
C.
L. Sethi, Judicial Member
And
Ahmad Fareed, Accountant Member
IT
Appeal Nos. 1173 to 1180 (PN) of 2004
AND
1515 (PN) of 2005
[ASSESSMENT
YEARS 1993-94 TO 2001-02]
APRIL
30, 2007
Section 4, read with section 148, of the Income-tax Act, 1961 - AOP -
Assessable as - Assessment years 1993-94 to 2001-02 - Whether volition on part
of members to form an ‘association of persons’ is an essential ingredient -
Held, yes - Four members of a family were carrying on business of dairy farming
- On basis of statement of one of members ‘K’, recorded during survey conducted
under section 133A at their business premises, Assessing Officer held that
dairy business was being carried on by an AOP - Thus, he issued notices under
section 148 in name of dairy farm being run by family and farmed assessment
orders, accordingly, in status of AOP - However, there was no material on record to show that
members of family had joined together, of their own volition, and had pooled
their funds/resources with a view to jointly engage themselves in common
activity of dairy business, and facts brought on record only showed that family
members were doing their business at same premises and that they were helping
each other in their business activities - Whether on facts, it could be said
that Assessing Officer failed to discharge his onus to prove that an AOP
existed and, consequently, impugned assessment, made in status of AOP was not
sustainable - Held, yes - Whether further, since notices under section 148 were
not served on all four members, on this ground also, assessment order became
unsustainable and deserved to be quashed - Held, yes
Four members a family - father and his three sons, were carrying on the business of dairy farming. A survey was conducted under section 133A at their business premises and on the basis of statement given by one of the sons ‘K’, during the surrey, the Assessing Officer held that that dairy business was being carried on by an AOP formed by the said four persons of the family. The alleged members argued that during the survey no effort was made by the authorized officer to identify the buffalos belonging to them individually, that the buffalos were identifiable by the badges attached to their body - ears and/or neck, that they were filing their returns in their individual capacity in respect of their individual dairy business which were accepted by the department. It was further submitted that registrations under the Bombay Shops and Establishment Act, 1948 were available in the names of individual members, that they were enrolled under section 5(2) of the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975, that they had separate electric connections provided by Maharasthstra State Electricity Board, Nasik, that municipal taxes were paid separately by them, and that there existed separate electric connections, water connections, borewells, electric motors, etc. However, the Assessing officer initiated proceedings under section 147 against such an AOP and passed assessment orders, accordingly, in the status of AOP.
On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.
On second appeals:
In terms of the provisions of sections 4 and 2(31) an AOP must be
one in which two or more persons join in a common purpose or common action, the
object of which is to produce income, profits or gains. Hence, volition on the
part of the members of the ‘association’ is an essential ingredient. (
The decision of the Assessing Officer was, primarily, based
on the statement of one of the family members, ‘K’, recorded during the survey
conducted under section 133A at their business premises. The Assessing Officer
had noted in his order that while giving his statement, ‘K’ had taken the help
of other members of the AOP, that the dairy business was being conducted, for
the last 8 years, by all the four members from a common premises (tabelas),
that there were 498 buffalos, that there was a common activity and design of
production and sale of milk by all the members, that the members were unable to
identify their respective buffalos, that during the survey the authorized
officer did not find badges affixed on the body of buffalos for identification,
that the purchase and sale of milk was effected under a common name, that
during the survey conducted under section 133A it was noted that credit cards
were being used for selling milk in one name, that no books of account were
maintained which could show that the business was being done by the members in
their individual capacity, that cash, cattle feed, milk cans and other material
were kept together without any separate identification, that salary, wages, electricity
charges, municipal taxes were paid under common name and not separately by
individual members, that an employee stated, in reply to questions, that milk
was brought to the shop from the farm, that ‘K’, in his statement stated that
sale of about 2000 litres of milk was made by the dairy which had 450 buffalos
out of which only about 350 were producing milk, that the affidavits filed by the members were
afterthought. (
The reasons given by the Assessing Officer for holding that an AOP
existed were not supported by relevant material on record. What actually
transpired at the time of survey was not borne out from records. For instance,
the Assessing Officer had noted in his order that at the time of survey the
buffalos belonging to individual members were not identifiable, but the
material/basis for this observation was not brought on record. The Assessing
Officer did not appear to have examined the other two members. (
The Assessing Officer and the Commissioner (Appeals) had put much emphasis
on the fact that books of account were not maintained in respect of the dairy
business. But, this fact went to support the case of the assessee that the
members were doing their business in their individual capacity and, hence,
there was no need to keep the records, and that the existence of an AOP should
have surely necessitated maintenance of books of account or some such records.
In fact, apart from the statement of one of the members, no documentary
evidence appeared to have been found during the survey to support the
conclusions reached by the lower authorities. (
There was no material on record to show that the four members of the
family had joined together, of their own volition, and had pooled their
funds/resources with a view to jointly engage themselves in the common activity
of dairy business. The facts brought on record only showed that the family
members were doing their business at the same premises and that they were
helping each other in their business activities. The Commissioner (Appeals) had
rightly noted in his order that the onus was on the Assessing Officer to prove
that an AOP existed and the Assessing Officer failed to discharge that onus. (
Also, it was contended by the assessee that the notices under section 148
were not served on all the four members and, therefore, the proceedings under
section 147 were not valid. In ground No. (1) raised before the Commissioner
(Appeals) the assessment order was pleaded to be annulled, being without
jurisdiction. In the ground no. (3), the proceedings initiated under section
147 had been challenged, on the ground of being not in accordance with law. It
was seen that the notices under section 148 were addressed to the dairy farm
being run by the family. There was nothing on record to show that these notices
were served on all the four members. (
In a case where the existence of an AOP is admitted by the assessee and
its members and its Principal Officer is duly identified, a notice served on
such Principal Officer alone will be a valid notice in view of the provisions
of section 282(2)(c). But in a case where four persons assessed individually
were held by the Assessing Officer to form an AOP, in that case the onus will
be on the Assessing Officer to prove that an AOP existed and also the notice
under section 148 will have to be served on all the members in order to validly
assume jurisdiction under section 147. (
In the instant case, there was no material on record to snow that the
notices under section 148 were served on all the four members. On this ground
alone the assessment orders became unsustainable and deserved to be quashed. (
Therefore, the decision of the lower authorities that there existed an
AOP, constituted by the aforesaid four family members - father and his three
sons, could not be sustained. And once it had been held that the impugned AOP
did not exist, all the assessment orders passed by the Assessing Officer in the
status of AOP were to be quashed. (
In the result, the appeals were to be allowed. (