2024 (11) TMI 221 - AT - Income Tax

Trust cannot appeal assessment order issued directly against individual beneficiary under Section 143(3) and 69A

Kajal Deepak Trust Versus The Income Tax Officer Ward-4 (4), Raipur (C.G.)

The ITAT Raipur dismissed the appeal filed by a discretionary trust against an assessment order passed under Section 143(3) of the Income Tax Act. The ... Assessment order u/s 143(3) passed against assessee trust v/s individual beneficiary - determination of primary assessee whose income is liable to be brought to tax in the hands of the representative assessee - Unexplained money u/s. 69A - no source of the cash deposits in the bank account provided HELD THAT:- We are unable to subscribe to the explanation of the Ld. AR as regards the reason as to why the appeal was filed by 'Kajal Deepak Trust', despite the fact that the impugned assessment order u/s. 143(3) was passed in the case of the beneficiary, viz. Ms. Kajal Jadwani. Although we principally concur with the Ld. AR that the discretionary trust, viz. Kajal Deepal Trust is the primary assessee whose income is liable to be brought to tax in the hands of the representative assessee, i.e. the trustee or trustees u/s. 160(1)(iv) of the Act, but at the same time, may herein observe, that as per Section 166 of the Act there is no bar on the department to frame direct assessment of a person on whose behalf or for whose benefit income therein referred to is receivable. Accordingly, now when the A.O had proceeded with and framed the assessment u/s. 166 of the Act, i.e. in the hands of the individual beneficiary, then, in case if the said assessment order was not to be accepted, it was for the said assessee to have carried the same by way of an appeal before the CIT(Appeals). Accordingly, the Ld. AR's claim that as the trust viz, Kajal Deepak Trust is the primary assessee, therefore, no infirmity arises from the fact that the latter had filed the appeal before the CIT(Appeals) against the assessment order which was never passed in its case cannot be accepted. As the assessee, viz. Ms. Kajal Jadwani had for the aforesaid misconception failed to carry the impugned order of the A.O passed u/s. 143(3) by way of a proper appeal before the CIT(Appeals), therefore, she shall remain at a liberty to assail the impugned assessment order before the first appellate authority, who is directed to adopt a liberal approach regarding the reasons leading to the delay in preferring of the appeal before him. Appeal of the assessee trust is dismissed. Issues Involved:1. Justification of the addition of Rs. 9,00,000/- to the total income under Section 69A.2. Non-receipt of notices by the assessee due to personal disturbances.3. Filing of the appeal by the trust instead of the individual beneficiary.4. Validity of the assessment and appeal process involving the trust and the individual beneficiary.Detailed Analysis:1. Justification of the Addition of Rs. 9,00,000/-:The primary issue revolves around the addition of Rs. 9,00,000/- to the total income of the beneficiary, Ms. Kajal Jadwani, under Section 69A of the Income Tax Act, 1961. The assessee claimed that the cash deposits during the demonetization period were sourced from cash in hand as of 31.03.2016, accumulated from cash gifts received over the years. However, the Assessing Officer (A.O.) was not convinced due to the absence of 'gift deeds' and the inability to verify the identity of the donors or the genuineness of the gift transactions. Consequently, the A.O. treated the cash deposits as unexplained money under Section 69A and assessed the income at Rs. 9,96,750/-, including the unexplained amount.2. Non-receipt of Notices by the Assessee:The assessee contended that they did not receive notices due to personal disturbances, including death, separation, and illness in the family. Despite these claims, the CIT(Appeals) noted that the appellant did not participate in the proceedings or furnish any submissions, leading to the dismissal of the appeal. The CIT(Appeals) emphasized that an appeal must be effectively prosecuted, and the appellant's non-compliance indicated a lack of interest in pursuing the appeal.3. Filing of the Appeal by the Trust Instead of the Individual Beneficiary:A significant procedural issue arose as the appeal against the assessment order was filed by the trust, 'Kajal Deepak Trust,' instead of the individual beneficiary, Ms. Kajal Jadwani, in whose name the assessment was framed. The tribunal highlighted that the assessment was conducted in the hands of Ms. Kajal Jadwani, a separate entity from the trust, and thus, the appeal should have been filed by her. The tribunal found this to be a serious procedural error, rendering the CIT(Appeals)'s order unsustainable.4. Validity of the Assessment and Appeal Process:The tribunal noted that the discretionary trust, 'Kajal Deepak Trust,' is the primary assessee, and its income is to be taxed in the hands of the trustee or trustees as representative assessees. However, under Section 166, the department is allowed to frame direct assessments on the beneficiary, which was done in this case. The tribunal concluded that the appeal should have been filed by Ms. Kajal Jadwani, the individual beneficiary, against whom the assessment order was passed. Consequently, the tribunal dismissed the appeal filed by the trust but allowed Ms. Kajal Jadwani the liberty to file a proper appeal before the first appellate authority, advising a liberal approach regarding any delay in filing.Conclusion:The appeal by the trust was dismissed due to procedural errors, but the tribunal provided an opportunity for the individual beneficiary to pursue the appeal properly. The decision underscores the importance of correct procedural conduct in tax appeals, especially regarding the proper party to file an appeal.