1978 (3) TMI 9 - HC - Income Tax

Court upholds tax assessment orders for 1963-64 and 1965-66, rejects annulment, awards costs to revenue

The court ruled against the assessee, upholding the validity of the assessment orders made by the Income-tax Officer for the years 1963-64 and 1965-66. ... Assessment Issues:- Annulling assessments made by the Income-tax Officer for the assessment years 1963-64 and 1965-66- Validity of assessment proceedings and jurisdiction of the Income-tax departmentAnalysis:The case involved a reference made under sub-s. (2) of s. 256 of the I.T. Act regarding the annulment of assessments made by the Income-tax Officer for the years 1963-64 and 1965-66. The assessment pertained to M/s. Shyam Lal Moti Lal, initially an HUF, which claimed partition in 1955-56 but did not pursue it further. Manohar Lal, son of Shyam Lal, filed returns in 1963-64 and 1965-66, which led to the ITO treating them as returns of the HUF. The AAC set aside the assessment orders due to lack of proper opportunity for the assessee, prompting appeals to the Income-tax Appellate Tribunal.The main contention before the Tribunal was whether the assessment orders against the firm Shyam Lal Moti Lal should be annulled, considering the returns were not filed by the karta of the HUF. The Tribunal held that since the firm did not file any return, the assessment orders were invalid and should be annulled. The Commissioner of Income-tax challenged this decision, arguing that the returns filed by Manohar Lal should be considered on behalf of the HUF. However, the Tribunal found that the returns did not meet the requirements under s. 140 of the I.T. Act for someone other than the karta to file on behalf of the HUF.Another issue raised was whether the assessment orders could still be passed based on Manohar Lal's returns, either in his individual capacity or on behalf of a smaller HUF. The Tribunal noted the ambiguity in the returns but emphasized that the ITO should have clarified this with Manohar Lal instead of annulling the assessments. The department had the jurisdiction to assess based on these returns, even if not on behalf of the larger HUF.The counsel for the assessee argued that once the department treated the returns as belonging to Shyam Lal Moti Lal, they could not later attribute them to Manohar Lal. However, the court disagreed, stating that the department had the authority to assess based on the returns filed, even if not on behalf of the original HUF. The annulment of assessment proceedings was deemed incorrect as the proceedings were not without jurisdiction, leading to a ruling against the assessee in favor of the department.In conclusion, the court answered the reference question in the negative, supporting the department's position, and awarded costs to the revenue.