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

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 was issued against an individual beneficiary for unexplained cash deposits under Section 69A, but the trust filed the appeal instead of the beneficiary. The tribunal held that while the trust is the primary assessee under Section 160(1)(iv), the department can directly assess the beneficiary under Section 166. Since the assessment was made against the beneficiary, only she had the right to appeal. The beneficiary was granted liberty to file a delayed appeal before the CIT(Appeals) with liberal consideration for the delay.

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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.

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