2021 (9) TMI 987 - AT - Income Tax

Invalid assessment on Hindu Undivided Family annulled due to non-existence at assessment time.

Shri. K. Ramesh Reddy, HUF Versus The Assistant Commissioner of Income Tax, Circle -1 (2) (2), Bengaluru.

Shri. K. Ramesh Reddy, HUF Versus The Assistant Commissioner of Income Tax, Circle -1 (2) (2), Bengaluru. - TMI Issues Involved:1. Validity of assessment on a Hindu Undivided Family (HUF) that has been disrupted.2. Applicability of Section 171 of the Income Tax Act, 1961, to a HUF not previously assessed as such.3. Protective assessment and its implications.Detailed Analysis:1. Validity of Assessment on a Disrupted HUF:The primary issue was whether an assessment could be made on a HUF that had been disrupted before the assessment order was passed. The assessee contended that the joint family was partitioned on 14.01.2005, and thus, the HUF ceased to exist on the date of the assessment order (30.11.2006). The Tribunal referred to the Karnataka High Court's decision in CIT Vs. Lakanna & Sons, which stated, 'no assessment can be made on a HUF if at the time of assessment, it has become divided because at that point of time, there could be no undivided family in existence which could be taxed.' Consequently, the Tribunal held that since the HUF was not in existence on the date of assessment, the assessment was invalid.2. Applicability of Section 171 of the Income Tax Act, 1961:The Tribunal examined whether Section 171, which deals with the assessment after partition of a HUF, applied to this case. Section 171(1) states, 'A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family except where and insofar as a finding of partition has been given under this section in respect of the Hindu undivided family.' The Tribunal noted that the assessee HUF had never been assessed as a HUF before, and thus, the provisions of Section 171 did not apply. The Tribunal cited various judicial pronouncements supporting the view that Section 171 applies only to families previously assessed as undivided.3. Protective Assessment and Its Implications:The AO had made a protective assessment in the status of HUF to safeguard the revenue's interest, pending the finalization of the issue by the High Court. The CIT(A) upheld this action, noting that the Karnataka High Court had held the properties in question were joint family properties and the income therefrom should be assessed in the hands of the HUF, not the individual. However, the Tribunal found that the CIT(A) did not fully substantiate the partition facts and doubted the disruption of the HUF. The Tribunal emphasized that the CIT(A) had not given any findings on the partition and that the High Court's decision did not address the disruption of the HUF but only the nature of the properties and income assessment.Conclusion:The Tribunal concluded that the assessment made on 30.11.2006 on the assessee as HUF was invalid since the HUF was not in existence at that time. The provisions of Section 171 did not apply as the HUF had never been previously assessed as such. Consequently, the Tribunal annulled the assessment in the hands of the HUF and allowed the appeal of the assessee. The other grounds of appeal were not considered due to the annulment of the assessment.Pronouncement:The appeal of the assessee was allowed, and the assessment in the hands of the HUF was annulled.