Ita/503/2016 Of Pr. Commissioner Of Income Tax-4 v. Rajkumar C (Huf)

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11 DAY OF JANUARY 2071PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW A BETWEEN: LT.A. NCO.503 OF 2016 1.|PR. COMMISSIONER OF INCOME TAX-4. BMTC COMPLEX, KORMANGALA. 2 |DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1), BANGALORE. (BY SRI. E.I. SANMATHI, ADV.,)- .., APPELLANTS. AND" RAJKUMAR C (HUF)NO.259/B, 7TH CROSS|HSR LAYOUT, SECTOR-IBANGALORE-5601L02PAN: AAMHR4O/4B. .., RESPONDENT (BY SRI. RAJESH CHANDER KUMAR, ADV.) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 27.04.2016 PASSEDIN ITA NO.1379/BANG/2014 FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT AND SET ASIDE THE.APPELLATE ORDER DATED 27-04-2016 PASSED BY THE ITAT, A.BENCH,BENGALURU, IN|APPEAL|PROCEEDINGSIN|LIA NO.1379/BANG/2014 FOR ASSESSMENT YEAR 2005-06, ASSOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER:RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS I.7T.A. COMING ON FOR’ HEARING, THIS’ DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2005-06.The appeal was admitted by a bench of this Court videorder dated 21.11.2017 on the following substantial|questions of law:| “Whether, on tne facts and in the}circumstances of the case, the Tribunal isright in setting aside the re-assessmentorder passed by the assessing authority byholding that the are no valid reasonsrecorded by the assessing authority toinvoke re-assessment proceedings undersection 147 even when the assessingautnority nas given valid reasons forinvoking re-assessment proceedings and all the ingredients of section 14/7 areSatisfied in the case of assessee to invokere-assessment proceedings? ’. 2 |Today, the appeal is admitted on thefollowing additional substantial question of law: 'Whether on the facts and In the.circumstances of the case, the tribunal Is right in law in holding that re-assessmentorder is bad in law ignoring Section 150 read|with Section 153 and Explanation 2 toSection 153 of the Act whereby AssessingAuthority is empowered to include anyIncome excluded from total income of one|persona and Neld to be the income of anotherperson, then an assessment of sucn income.on such other person shall be deemed to beone made in consequence of or to give effect|to any finding or direction contained in the)Said order?’ 3.)Facts leading to filing of this appeal brieflystated are that a search was conducted in the premises_of one K.Purushottham Reddy on 26.08.2008 and also al theresidenceofoneA.R.Chandrashekarand|C.RajkKumar. During the course of the search, at thepremises of C.RajkKumar undisclosed income from saleand purchase of immovable properties was noticed forthe Assessment Years 2005-06, 2006-07 and 2007-08for amounts of Rs.1,44,75,000/-, Rs.160,62,250/- and.Rs.2,94,58,337/- respectively. Aforesaid C.RajkKumar|who worked as real estate agent filed return of income)in individual capacity and not as HUF. During the courseof the search on 26.08.2008, it was stated by him thathe had not declared / disclosed income from real estatetransaction and the same would be declared in thereturn of income of HUF. The Assessing Officer videorder dated 28.02.2010 concluded tne assessment.under Section 143(3) read witn Section 153(c) in thehands of the individual by making several additionsmainly with regard to sale of properties. — 4Tne assessee thereupon filed an appealbefore tne Commissioner of Income Tax (Appeals). In 4Tne assessee thereupon filed an appealbefore tne Commissioner of Income Tax (Appeals). In the appeal also the assessee again contended that the)income belongs to HUF. It was held that the landbelongs to HUF , which devolved on HUF by a registeredpartition deed dated 05.08.1978 and income arising|from sale of the property has to be assessed in thehands of HUF and assessment of income in the hands of.individual was held to be incorrect. The Commissioner of.Income Tax (Appeals) by an order dated 05.08.2011directed the Assessing Autnority to proceed to againstHUF to assess the income as belonging to HUF. The.revenue challengedtheorder|passedDy theCommissioner of Income Tax (Appeals) before theIncome Tax Appellate Tribunal (hereinafter referred to.as the tribunal for short). The tridDunal by an orderdated 25.08.2014 dismissed the appeal preferred by therevenue. A notice under Section 148 of the Act wasissued to the HUF for the period under consideration andthe assessing authority after recording reasons fortaking up the re-assessment proceedings passed an order of re-assessment under Section 144 and Section.147 of the Act by an order dated 25.03.2013 and.subjected the income to tax which had _ escapeassessment. The assessee thereupon challenged the)aforesaid order in an appeal before the Commissioner of.Income.Tax(Appeals)whoby|an|orderdated|25.08.2014 affirmed the order passed by the Assessing|Officer. TheaSS@C@SSCthereuponapproachedthetribunal. The tribunal Dy an order dated 27.04.2016allowed the appeal preferred by the assessee. In theaforesaid factual background, this appeal has been filed by the revenue. 5.|Learned counse!] for the revenue submittedtnat the tribunal grossly erred in setting aside the orderof the re-assessment solely on the ground that the)Assessing Authority has not recorded any independentfindings to revoke re-assessment proceedings and tneSame was initiated on account of directions issued byCommissioner of Income Tax (Appeals) who is a Superior authority. It is also urged that the tribunal hasnot considered the applicability of provision of Section.150 read with Section 153 and Explanation 2 to Section|153 of the Act which empowers the Assessing Authorityto include any income excluded from total income of oneperson and to hold the same to be the income of.another person and on assessment of such income of.such other person shall be deemed to made inconsequence or to give effect to any finding or direction.contained in the order. It Is also contended that the.tribunal has not interfered with the finding of the)Commissioner of Income Tax (Appeals) that a colorabledevice has been adopted by the assessee and about theconduct of the assessee as well as the applicability ofprovisions of Section 171 of the Act. It is also submittedthat satisfaction recorded by the Assessing Authority for|invoking re-assessment proceeding under Section 147 of.the Act satisfied all the conditions set out therein and.the tribunal ought to Nave appreciated that the instant case is covered under clause (a) to Explanation 2 toSection 147 and Section 150 read with Section 153 of.the Act and Explanation 2(b) of Section 153 of the Actwere attracted to the facts of the case. 6.|It was also pointed out that Commissioner ofIncome Tax (Appeals) by an order dated 05.08.2008deleted the addition of undisclosed income in the hands.of the assessee and directed the Assessing Authority to|include the same in the hands of HUF and on receipt ofthe aforesaid order, the re-assessment proceeding was|initiated Dy the Assessing Authority within parameters of Section 147 of the Act. It is also pointed out that theassessee is Diowing hot and cold as in the case of theindividual the assessee has contended that HUF Is liable.to pay tax and incase of HUF, it is contended thatreasoningrecordedfor.re-assessmen.IS.notInaccordance with Section 148 of the Act, which shows the.conduct of the assessee who is trying to avoid paymentof admitted tax. [It is furtner submitted tnat the tribunal 6.|It was also pointed out that Commissioner ofIncome Tax (Appeals) by an order dated 05.08.2008deleted the addition of undisclosed income in the hands.of the assessee and directed the Assessing Authority to|include the same in the hands of HUF and on receipt ofthe aforesaid order, the re-assessment proceeding was|initiated Dy the Assessing Authority within parameters of Section 147 of the Act. It is also pointed out that theassessee is Diowing hot and cold as in the case of theindividual the assessee has contended that HUF Is liable.to pay tax and incase of HUF, it is contended thatreasoningrecordedfor.re-assessmen.IS.notInaccordance with Section 148 of the Act, which shows the.conduct of the assessee who is trying to avoid paymentof admitted tax. [It is furtner submitted tnat the tribunal ought to have appreciated that the assessee hasaccepted the order of Commissioner of Income Tax(Appeals) holding that HUF is liable to pay tax and ifHUF did not exist as per the assessee then the orderought to have challenged before the tribunal by theassessee. Therefore, the assessee cannot now contendthat the HUF cannot be taxed. It is also urged thatintention of the assessee Is to avoid tax and the same Isqa colorable device. It Is submitted that the matter.requires re-consideration by the tribunal. In Support ofaforesaid submissions, reliance has been placed on"MAHADEO PRASAD RAIS (DECD) VS. INCOME TAX|OFFICER&|ANR.',(1991)|192ITR|402,‘COMMISSIONER OF INCOME TAX VS. FARUKANVAR COMPANY, (1993) 199 ITR 433, POONJA.ARCADE|VS,ASSISTANTCOMMISSTONER|OF|INCOME TAX’, (2010) 326 ITR 123, ‘KALYAN ALABAROT VS. M.H.RATHOD, (2010) 328 ITR 521,"R,B.BANSILAL ABIRCHANDFIRMYS, COMMISSIONER OF INCOME TAX, (1968) 70 ITR74,'TNCOMETAXOFFICERVS,|BACHULALKAPOOR’, (1966) 60 ITR 74, ‘COMMISSIONER OFINCOME TAX VS. ABDUL KHADER AHMED’, (2006)AJSB5 ITR 57 J.|On the other hand, learned counsel for theassessee submitted that the condition precedent forinitiating re-assessment proceedings under Section 14/7of the Act is that the Assessing Officer should have thereason to believe that the income chargeable to tax had.escaped assessment. In the instant case, the Assessing|Officer has not recorded any reasons for re-opening theassessment and has merely acted with reference to thedirections issued by the Commissioner of Income Tax(Appeals). It is also urged that initiation of re-assessment|proceedingsshould)be|donebytheAssessing Officer only on the satisfaction recorded byhim and not on the direction of the higher authority anda quasi judicial authority which is expected to perform. statutory function cannot act on the dictates of anyauthority. It is further submitted that the directions ofthe Commissioner of Income Tax (Appeals) to theAssessing Officer to re-open the assessment in case ofassessee (HUF) cannot be sustained in the eye of law. Itis also submitted that when once the partition has taken.place, the assessment has to be conducted underSection 1/71 and not under Section 14/7 of the ActSince, the notices have been issued under Section 147.the aforesaid notices are ab initio void. Alternatively, itis submitted that in case, contentions of the assesseeare not accepted the matter may be remitted to thetribunal for decision afresh In accordance with law. In.Support of his submissions, rellance Nas been placed ondecisions iIn‘INCOME TAX OFFICER, A WARDSTTAPUR|VS,MURLIDHARBHAGWANDAS|HUNGERFORD INVESTMENT TRUST LIMITED (INLIQUIDATION) INTERVENER., (1964) 6 SCR 411,‘CONSOLIDATED COFFEE LIMITED VS. INCOME TAX OFFICER’, 1983 SCC ONLINE KAR 301,|‘CONSOLIDATED COFFEE LIMITED VS. INCOMETAXOFFICER,1991(187)|ITR43,"PEITCOFLECTRONICS AND ELECTRICALS LIMITED VS.|DEPUTY COMMISSIONER OF INCOME TAX AND.OTHERS,,199)SCCONLINE|CAL368,‘'COMMISSINOER OF INCOME TAX, U.P.VS. M/SMOHD. SHAKOOR MOHD. BASHIR’, (1973) 4 SCC.107. TAX OFFICER’, 1983 SCC ONLINE KAR 301,|‘CONSOLIDATED COFFEE LIMITED VS. INCOMETAXOFFICER,1991(187)|ITR43,"PEITCOFLECTRONICS AND ELECTRICALS LIMITED VS.|DEPUTY COMMISSIONER OF INCOME TAX AND.OTHERS,,199)SCCONLINE|CAL368,‘'COMMISSINOER OF INCOME TAX, U.P.VS. M/SMOHD. SHAKOOR MOHD. BASHIR’, (1973) 4 SCC.107. 8 _We have considered the submissions made§by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of relevant extracts of clause (a) to Explanation 2.to Section 147, Section 150 and clause (a) and (bD) toExplanation 2 to Section 153, which read as under: Explanation 2 - For the purposes of thissection, the following shall also be deemed to be cases wnere income chargeable to tax nhasescaped assessment, namely:-— Clause (a) where no return of income hasbeen furnished by the assessee although Nis|total income or the total income of any other|person in respect of which he Is assessable|under this Act during the previous yearexceeded the maximum amount which Is not!chargeable to income- tax; 150.Provision|forCaS@Cswhereassessment is in pursuance of an order on|appeal, etc. (1) Notwithstanding anything containedin section 149, the notice under section 148may be issued at any time for the purpose of|making an assessment or reassessment or|recomputation in consequence of or to give)effect to any finding or direction contained inan order passed by any authority in any|proceeding under this Act by way of appeal,|reference or revision 1 or by a court in any|proceeding under any other law]. Explanation 2 - for the purposes of this|section, where, by an order referred to in|clause (I) of sub-Section (6) - (a) any income is excluded from the total|income of the assessee for an Assessment|Year, then, an assessment of such income for|another.assessmeplnYearShall,for.thepurposes of Section 150 and this section, be|deemed to be one made in consequence of or|to give effect to any finding or directioncontained in the said order; or (b) any income is excluded from the totalincome of one person and held to be the.income of another person then, an assessment|of such income on such other person shall, for|the purposes of Section 150 and this section,be deemed to be one made in consequence of or to give effect to any finding or direction|contained in the said order, if such otherperson was given an opportunity of being|heard before the said order was passed:| oiFrom perusal of the order passed by thetribunal, it is evident that the tribunal has set aside theorder of assessment mainly on the ground that the)Assessing Authority has not recorded independentfindings to revoke re-assessment proceeding and the order of re-assessment has been passed on the direction.sof the Commissioner of Income Tax (Appeals). Thetribunal has not considered the provisions of Explanation.2(b) to Section 153 of the Act, by which the Assessing|Authority is empowered to include any income excludedfrom total income of a person and is treated to beincome of another person, then such an assessment ofthe income on such other person shall be deemed to bepaid in consequence of or to give effect to any finding ordirection contained in the said order. Therefore, since’the order of assessment has been passed by the tribunalwithout taking note of Section 150 read with Section153 as well as explanation 2 to Section 153 of the Act,we answer the additional substantial question of law in.favour of the revenue and against the assessee.Therefore, we do not propose to deal with the rivalcontentions. In the result, the order passed by thetribunal dated 27.04.2016 is quashed and the tribunal isdirected to decide the appeal by taking into account the ��������������%�������&'+�����%�������&'(���������������������������������������������������������������������������������������������������������������� ��������������������� ��� �����������