1981 (3) TMI 97 - AT - Income Tax

Appeal allowed for non-existent HUF assessment, departmental appeal dismissed as infructuous.

The Tribunal allowed the assessee's appeal, canceling the assessment made on the Hindu Undivided Family (HUF) as it was not in existence on the assessment ... Assessment Year Issues Involved:1. Validity of assessment on a Hindu Undivided Family (HUF) post-partition.2. Jurisdiction of the Income-tax Appellate Commissioner (IAC) under section 144B(4).3. Gross profit addition and its estimation.Detailed Analysis:1. Validity of Assessment on HUF Post-Partition:The primary issue in the assessee's appeal was whether an assessment could be made on a Hindu Undivided Family (HUF) that was no longer in existence due to partition. The facts revealed that a return was initially filed on 31-12-1975 in the status of an individual, and later on 6-8-1976, a return was filed in the status of HUF. The assessee claimed a partition effective from 30-6-1976 and sought recognition of this partition under section 171 of the Income-tax Act, 1961. The Income Tax Officer (ITO) recognized the partition on 13-3-1979, but the assessment was completed on 25-9-1978, before this recognition. The Commissioner (Appeals) upheld the ITO's decision, stating that the HUF was in existence based on a declaration made on 8-12-1976.The Tribunal noted that the assessee had not been assessed as HUF prior to the assessment year 1975-76. The ITO's order dated 13-3-1979, which accepted the partition effective from 30-6-1976, was still valid. The Tribunal emphasized that section 171 applies only to a Hindu family 'hitherto assessed as undivided.' Since the family was not assessed as HUF before the assessment year 1975-76, the procedure under section 171 could not be applied. The Tribunal cited several precedents, including Rameswar Sirkar v. ITO and Shyam Sundar Bajaj v. ITO, which supported the view that a family not previously assessed as HUF cannot be assessed as such after partition. Consequently, the Tribunal concluded that the assessment made on 25-9-1978 was invalid as the HUF was not in existence on that date and thus canceled the assessment.2. Jurisdiction of the IAC under Section 144B(4):The assessee also contended that the Income-tax Appellate Commissioner (IAC) had no jurisdiction to change the basis of the assessment order under section 144B(4) from an addition to the valuation of closing stock to an addition based on inadequate gross profit. The Tribunal did not consider this issue in detail because the primary issue of the validity of the assessment was resolved in favor of the assessee, rendering this ground moot.3. Gross Profit Addition and Its Estimation:The departmental appeal challenged the Commissioner (Appeals)'s decision to reduce the gross profit addition from 35% to 15%. However, since the Tribunal had already canceled the assessment on the grounds that the HUF was not in existence, this issue became infructuous. The Tribunal did not address the gross profit addition further.Conclusion:The Tribunal allowed the assessee's appeal, canceling the assessment made on the HUF as it was not in existence on the assessment date. The departmental appeal was dismissed as it became infructuous due to the cancellation of the assessment.