Hon'ble Aditya Nath Mittal, J.
1. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short, the Act) arises out of judgment and order dated 20.6.2002 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in ITA No. 8152/Del/1992 for the assessment year 1988-89. The appeal was admitted on 19.7.2007, on the following substantial questions of law:-
"(1) Whether on the facts and in the circumstances of the case the Tribunal is legally justified in holding that the reasons recorded for reopening the assessment does not stand legal security.
(2)Whether on the facts and circumstances of the case the Tribunal is legally justified in deleting the following additions.
(i) Rs. 1, 55, 000/- on account of unexplained investment in the hundies holding that there was no escapement of income in respect of hundies.
(ii) Rs. 49, 925/- as profit earned by Km. Rashmi and Master Annu Bansal holding that there was no justification for treating the income of the assessee.
(iii) Rs. 40, 000/- on account of cash deposit in the named Ramesh Chandra Agrawal.
(3) Whether on the facts and in the circumstances of the case the Tribunal is legally correct in holding that interest charges U/s 139 (8) and 215/217 is not sustainable."
2. The assessee is a partner in M/s Chandra Timber Traders of Chandra Timber Group. The search and seizure operations were conducted on 19.1.1989 at the business and residential premises of the firm and the partners of the group. The assessee filed a return on 6.1.1989 showing total income at Rs. 32, 000/-. The A.O issued a notice under Section 148 of the Act on 8.11.1989 in pursuance to which the assessee submitted that the return originally filed by him may be taken as return filed in response to notice under Section 148 of the Act. The A.O found that the returns were filed in the name of assessee's children Km. Rashmi Bansal and Master Annu Bansal for assessment year 1988-89, with interest income of Rs. 4936/-; and Rs.4920/- respectively and other income of Rs. 19, 984/- and Rs. 20, 085/-, out of the profit earned through M/s Mahavir Prasad Atul Kumar, Delhi and M/s Paras Nath Trading Co., Delhi.
3. The AO observed that capital investment in the return was out of the sources, which were discussed in the orders of earlier year and were held to be the income of the assessee. The interest income also belonged to the assessee. The AO did not accept the explanation of the assessee that his children had independent income, although accounts were filed in respect of the children namely the capital accounts, interest account, balance sheet and profit & loss account along with return of the income. The AO found that the minor children, not competent to enter into contract except through their guardian, did not earn any income. Their income was that of the assessee. The papers seized during the course of search were only a part of the scheme in which the assessee distributed his income. The AO thus made addition of Rs. 49, 925/- in the income of the assessee. For unexplained investment in hundies, the AO observed that during the course of search, certain hundies were recovered, on which he made addition of Rs. 1, 55, 000/- in the income of the assessee. He also found that there was cash credit in the name of Shri Ramesh Chand in the books of the assessee for which no confirmation was filed. Since the identity and financial status of the creditors were not proved, the amount was treated as undisclosed income and was added to the income of the assessee. The AO made addition of Rs. 40, 000/- on this count. The AO also directed to charge interest under Section 139 (8) and Section 215/217 of the Act.
4. In the appeal filed by the assessee, the CIT (A) upheld the validity of the proceedings and sustained the addition of rs. 49, 925/- being the profit earned by the minor children; Rs.1, 55, 000/- on account of unexplained investment in hundies as well as unexplained deposit of Rs. 40,000/- in the name of Shri Ramesh Chan Agarwal.
5. The Income Tax Appellate Tribunal allowed the appeal of the assessee, with the findings that so far as the sustenance of the addition of Rs. 49, 925/- being the profit earned by the minor children during the search, not a single paper or any material was found from which any adverse inference could be drawn to hold that the income belonged to assessee. The return was filed by the minors with capital account and profit and loss account and the same was accepted by the AO. Relying upon CIT v. K.K. Birla (1982) 137 ITR 126 (Cal) and CIT vs. B.K. Birla (1986) 157 ITR 348 (Cal) the Tribunal held that the father could conduct the business on behalf of minors. In such case the income of the minors cannot be included in the hands of the guardian. There was no justification for treating the income for the minor as income of the assessee.
6. In respect of addition of Rs. 1, 55, 000/-, it was held by the Tribunal that the accounting period mentioned in the assessment order would be December, 1987 to 31st March, 1989 (transitional period). The assessee had shown the entire hundies amounting to Rs. 1, 55, 000/- in the return filed for the assessment year 1989-90. These hundies could not be assessed in the assessment year 1988-89, and even otherwise these were disclosed by the assessee in the relevant year 1989-90, hence the addition of Rs. 1, 55, 000/- was deleted. Regarding addition of Rs. 40,000/- made on account of cash deposit in the name of Shri Ramesh Chand Agarwal, the Tribunal held that the assessee had submitted confirmation letter from the creditor, which was duly filed before the AO. The creditor was assessed to tax and his Permanent Account Numbers were given in the confirmatory letter. The A.O did not issue summons to him. The department also did not dispute the fact that summon was issued to other creditors and not Shri Ramesh Chand Agarwal. The AO in his reasons treated the amount to be unexplained investment/income. If the AO had desired to examine Shri Ramesh Chand Agarwal, it was expected to him to summon him also as other creditors. The Tribunal deleted this addition of Rs. 40, 000/- also and consequently the charge of interest was also not found legally sustainable.
7. Shri Govind Krishna, learned counsel appearing for the revenue submits that the Tribunal was not legally justified in setting aside the orders of the AO, and CIT (A). The reasons recorded for reopening the assessment do not stand legal scrutiny. He submits that Km. Rashmi Bansal and Master Annu Bansal were minor children of the assessee. They did not carry out any independent business. Their income was rightly clubbed with the income of the assessee. The income from hundies, which were found during search, were also correctly added to the income of the assessee and that the assessee had failed to produce Shri Ramesh Chand Agarwal and to establish the genuineness of the unexplained deposit of Rs. 40, 000/-.
8. We have examined the orders passed by the Income-tax authorities and do not find any error of law in the order of the Tribunal. There was no material found in the search on which the income of the minor children, who were independent assessees and were filing returns along with the capital account and profit and loss account. Their father could have carried out the business on their behalf and thus the Tribunal was right in holding that their income could not be clubbed with the income of the assessee. Section 64 (iii) was omitted by the Finance Act, 1992 with effect from 1.4.1993 and Section 64 (1A) providing for clubbing of all income of the minor child to be included in the income of the individual was inserted by the same Act with effect from 1.4.1993. In the present case, we are concerned with the assessment year 1989-90 to which Section 64 (1A) will not apply.
9. So far as the hundies are concerned, the Tribunal has rightly recorded the findings that the assessee had shown the entire hundies amounted to Rs. 1,55,000/- in the return filed for the assessment year 1989-90. These hundies, therefore, could not be assessed in the assessment year 1988-89, specially when the income fell within the transitional period of November/December 1987 to 31.3.1989.
10. So far as the findings that Shri Ramesh Chand Agarwal had given confirmatory letter along with his Permanent Account Number and thus, if the AO had any doubt, he should have issued notice to Shri Ramesh Chand Agarwal to confirm the genuineness of transaction and his creditworthiness. We find that the Tribunal did not commit any error in setting aside the findings in this regard recorded by the AO and CIT (A).
11. We do not find any error of law in the order of the Tribunal in deleting the additions mentioned in the question no. 2 and on the same grounds we do not find any legal error in the order of the Tribunal in holding that the interest charged under Section 139 (8) and 215/217 was not sustainable.
12. The questions of law raised are thus decided in favour of the respondent-assessee and against the revenue.
13. The Income Tax Appeal is dismissed.
Dt.04.10.2012 RKP/