TaxTMI 
TaxTMI 
2007 (7) TMI 344
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.... erred in law and on facts in confirming the action of the Assessing Officer in framing the impugned assessment upon the appellant even though nothing was chargeable to tax upon him. 3. That having regard to the facts and circumstances of the case learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in framing the impugned assessment under section 147 more so when statutory conditions prescribed were not complied with. 4. In any view of the matter in any case, framing of the impugned assessment under section 147 was bad in law and against the facts of the case. 5. That having regard to the facts and circumstances of the case, learned Commissioner of Income-tax (Appeals) has erred in law and on facts and confirming the action of the Assessing Officer in framing the impugned assessment without serving the notice and without giving opportunity. 6. That having regard to the facts and circumstances of the case learned Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the action of the Assessing Officer not allowing the deduction on account of section 54B. 7. In....
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....er section 148 dated December 22, 2000, was issued to the assessee for the assessment year 1996-97 as he had sold agricultural lands situated at VPo Ishlampur, Gurgaon to some private builders. In compliance to notice under section 142(1) Shri R. P. Gupta, advocate attended the proceedings and filed the return of income for the assessment year 1996-97 on April 2, 2002, stating nil income and agricultural income of Rs. 40,000. Only during the course of hearing Shri R. P. Gupta, advocate and the assessee submitted an affidavit stating that he had sold his ancestral agricultural land in VPo Ishlampur, Gurgaon for a consideration of Rs. 9,59,540. Though the assessee filed his return of income in the status of individual but as per note-sheet entry dated February 22, 2002, he was asked : You have claimed the status of the assessee as individual, whereas the lands sold were ancestral. Why the status of Hindu undivided family should not be taken. If the Hindu undivided family status is taken the rebate under section 54B is not allowable. Shri R. P. Gupta, advocate along with Shri Suraj Mal the asses see attended on February 28, 2002, stated as under : Shri R. P.....
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....ided family. 7. The learned Commissioner of Income-tax (Appeals) while dealing with this issue has considered the submissions of the assessee and also reply of the Assessing Officer. He has observed that at the time of initiation of proceedings under section 148 of the Act, it is not incumbent on the Assessing Officer to be aware of all the facts of the case. What the law requires from him is that at the stage of initiation of proceedings under section 148, there is prima facie belief that income had escaped assessment. After considering the decisions reported as Praful Chunilal Patel v. M. J. Makwana/Asst. CIT [1999] 236 ITR 832 (Guj) ; ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; ITO v. Biju Patnaik [1991] 188 ITR 247 (SC) ; Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) and looking to the facts of the case learned Commissioner of Income-tax (Appeals) held as under : "In this case, there was information that land belonging to one Shri Suraj Mal had been sold and that income from capital gains in respect of this land has escaped assessment. The assessee filed a return and indeed showed income under the head ' Capital gains' but....
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....ived the benefit of an agreed order cannot be allowed to turn around and urge that such an order was incorrect or unwarranted." 9. The learned Commissioner of Income-tax (Appeals) therefore held that the Assessing Officer was fully justified in holding the status of the assessee as that of the Hindu undivided family as against the claim of the status of an individual. 10. Relying on the decisions reported as CIT v. G. K. Devarajulu [1991] 191 ITR 211 (Mad), CIT v. R. Vijayakumar [1995] 214 ITR 483 (Mad) and Pravin Chand Mohin Kumar v. CIT [1994] 208 ITR 11 (Raj), learned Commissioner of Income-tax (Appeals) also held that the assessee is not entitled to deduction under section 54B when the status is that of Hindu undivided family. 11. Before us, learned counsel for the assessee not only disputed the orders of the lower authorities, but also challenged that there was no valid notice to the assessee and hence the proceedings are void ab initio. It was submitted that notice dated December 12, 2000, at page 54 of the paper book was in the name of individual and the property referred to therein does not belong to the assessee. Even the notice dated November 29, 2000, at page 56....
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....estion were ancestral can be acted upon or not. In this regard following minutes as recorded in the order sheet, a copy of which is available at pages 29 and 31 of the paper book, are relevant : "Shri R. P. Gupta, advocate appearing along with Shri Suraj Mal. Return of income declaring nil income filed and has shown agricultural income at Rs. 40,000. Written reply filed. You have claimed the cost price as on April 1, 1981, at Rs. 2.50 lakhs per acre. However, the Addl. Commissioner of Income-tax, Faridabad, in another case adopted the rate at Rs. 2,00,000 per acre. Please explain why it should not taken at Rs. 2 lakhs per acre. You have claimed the status of the assessee as individual whereas the lands sold were ancestral, why the status of Hindu undivided family should not be taken. If the Hindu undivided family status is taken then the rebate under section 54B is not allowable. As regards the construction of house, you are required to explain the cost of construction. Case adjourned to February 28, 2002. Shri R. P. Gupta, advocate along with Shri Suraj Mal appeared. Written submissions filed. He has stated that the status of the asses see should be take....
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....placed in the paper book at pages 60-77, is of any assistance to the assessee as the issue in question has not been discussed in those cases. Additionally, it is not disputed by the assessee that under similar circumstances and in respect of the same property, brother of the assessee, Shri Bharat Singh was also assessed in the status of Hindu undivided family and the decision in his case is squarely applicable in the case of the assessee. 17. Looking at the totality of the facts and circumstances of the case, we are of the considered view that there is no infirmity or illegality in the order passed by the lower authorities. 18. We are, therefore, not inclined to interfere with the order passed by the learned Commissioner of Income-tax (Appeals). 19. In the result, the appeal filed by the assessee is dismissed. 20. P. K. Bansal (Accountant Member).-I have gone through the proposed order of my learned brother, but I could not be able to agree with the said proposed order of my learned brother both with regard to the reasoning and the conclusion arrived at. I, therefore, propose to write my separate order along with the reasoning. 21. The brief facts of the case are tha....
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....,00,000 per acre, please explain why it should not be taken at Rs. 2 lakhs per acre. You have claimed the status of the assessee as individual whereas the lands sold were ancestral, why the status of Hindu undivided family should not be taken. If the Hindu undivided family status is taken then the rebate under section 54B is not allowable. As regards the construction of house, you are required to explain the cost of construction with index. Case adjourned to February 28, 2002." 22. As per the record, the return was filed by the assessee in individual capacity on February 25, 2002, and the same was initiated by Income-tax Officer Ward-3 on February 26, 2002. The copy of the same is available at page 51 of the paper book. No notice under section 143(2) was issued on this return. The Departmental representative could not produce the copy of the return filed on February 22, 2002, as recorded by the Assessing Officer in the order sheet or the copy of the notice being served on the assessee individual or Hindu undivided family capacity under section 143(2). 23. The impugned assessment was made on February 28, 2002, at determining the total income of Rs. 1,65,100 by recording follow....
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....the Hindu undivided family. Having once agreed, he therefore, cannot go back. 19. The assessee who had accepted an agreed order cannot be allowed to turn around and urge that such an order was incorrect or unwarranted. In this regard reliance is also placed on the Punjab and Haryana High Court decision in the case of Kanshi Ram Wadhwa v. CIT [1982] 138 ITR 830. Though this decision was given in regard to the calculation of depreciation but the principle laid down by the High Court in this case applies squarely to the assessee' s case also. The Lordships had observed in this case (page 832) : ' It is a matter of common knowledge that at the time of final arguments the assessee sometimes prefer to have an agreed order passed by the Income-tax Officer and the order passed is sometimes not strictly in accordance with the return . . . . Had the assessee not consented to have an agreed order of assessment, the Income-tax Officer would have perhaps held an enquiry for determining his actual income for that year. The assessee having derived the benefit of an agreed order cannot be allowed to turn around and urge that such an order was incorrect or unwarranted. . .....
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.... Suraj Mal not on the assessee Hindu undivided family. Our attention was also brought to the order sheet, copy of which is at pages 29 to 31 of the paper book, which starts from February 5, 2002, and records the proceedings dated February 5, 2002, February 13, 2002, February 22, 2002 and February 28, 2002 only. It was vehemently submitted that no proceedings could be said to have taken place before that date. It was also denied that any return was filed on or before February 25, 2002. The return was filed only on February 25, 2002, as admitted in the assessment order itself in the individual capacity and that the assessee had attended only in response to notice under section 142(1) on February 13, 2002, and again on February 22, 2002 and finally on February 28, 2002, as is clear from the order sheet. Thus the question of any discussion on February 22, 2002, on return already filed and the claim of status therein does not arise. No notice under section 143(2) was issued on the return filed on February 25, 2002. Even on that ground the order passed under section 143(3) read with section 147 without issuing notice under section 143(2) is invalid. The assessment order, remand report an....
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....ded family cannot be imposed on the appellant. And this fact has been recognized by the same Assessing Officer himself in the case of Sh. Ram Singh and Sh. Chet Ram." The learned authorised representative further relied on the written submissions filed on January 2, 2006. 28. With regard to cost of acquisition, it was submitted that the hon'ble Tribunal in the case of Ishwar Singh set aside the case to the Assessing Officer to take the value as on April 1, 1981, as taken by him/Commissioner of Income-tax (Appeals) in similar other cases of the same village, which it was urged, as per orders brought on record at pages 70 and 75, was Rs. 4 lakhs per acre. It was therefore, contended that in this case also the same value be adopted as on April 1, 1981. 29. The learned Departmental representative justified the action of lower authorities submitting that notice under section 148 was validly issued. But when questioned by the Bench, he agreed that there is no notice issued to the assessee-Hindu undivided family. Even there is no notice on record for initiating proceedings under section 148 on December 22, 2000. It was also conceded that no notice under section 143(2) was issued....
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....ued in the case of the assessee Hindu undivided family. The assessee- Hindu undivided family filed no return. The proceedings under section 147 were initiated in the case of Shri Suraj Mal in individual capacity although even no evidence for the service of the notice under section 148 on Shri Suraj Mal is available on record. The return of income was filed on February 25, 2002, while the Assessing Officer has mentioned in the order sheet on February 22, 2002, that the return of income declaring nil income was filed in the case of Suraj Mal. No evidence was filed by the learned Departmental representative before us to prove that the assessee either in individual or Hindu undivided family capacity filed the return on February 22, 2002, although the learned Departmental representative has brought the assessment record. In my opinion, no valid assessment can be framed under section 143(3) on the return which was never filed or if filed until and unless the notice under section 143(2) is issued to the assessee. I have seen the order sheet and found that there is nothing on record for issuance of notice under section 143(2) either in respect of the return which Assessing Officer presumed....
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....ssessee-Hindu undivided family. The question arises whether such an assessment on the assessee-Hindu undivided family is valid one or not. Relevant provisions of section 147 are as under : " If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the p....
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....he Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the apex court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initial stage, what is required is ' reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant mate rial on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). The scope and effect of section 147 as substituted with effect from April 1, ....
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....ional and arbitrary. To put it differently, it must be reasonable and must be based on reasons, which are mate rial. In S. Narayanappa v. CIT [1967] 63 ITR 219 it was noted by the apex court that the expression ' reason to believe' in section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith ; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings under section 147 can be challenged in a court of law." It was further observed (page 89) : "Up to 31st March, 1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act under section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment,....
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....onal and not arbitrary. Further, section 148(2) makes it obligatory on the part of the Assessing Officer to record his reasons to believe before issuing notice under this section. Serving of the notice on the assessee is also mandatory under section 148(1) requiring the assessee to furnish within such period as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year. Thus in view of the provisions of sections 147 and 148, all the following conditions must be satisfied for a valid action being taken by the Assessing Officer : (a) The Assessing Officer must have the reasons to believe that the assessee has escaped income chargeable to tax. (b) The reasons to believe must be recorded by the Assessing Officer prior to the issuing of any notice to the assessee. (c) Before making the assessment, the Assessing Officer must serve notice on the assessee requiring him to furnish the return in accordance with the provisions of section 148(1). 35. Looking to the facts of the case, I find that none of the condit....
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....IT [1984] 149 ITR 567 (Raj) pertains to the assessment of an association of persons as firm, where, under the 1922 Act, the Income-tax Officer was given discretion under section 3 read with section 30 either to assess the firm or its partners, an association of persons or the members of the associations individually, but now under the Income-tax Act, 1961, such a discretion is not available. Thus, this case relates to specific provisions of the Act which empower the Assessing Officer to assess the firm as an association of persons and cannot be applied generally for assessing any person in any other capacity or status. Further, this case does not relate to an assessment passed under section 143(3) read with section 147. Initiation of the valid proceedings was not in dispute. Thus this case also in our opinion will not assist the Revenue. The other case of CIT v. Durga Prasad More [1969] 72 ITR 807 (SC) relates to the issue whether the Department is bound to locate source of receipt assessable as income. Question was if an income liable to tax in India was earned by the assessee the Department had not to prove the source thereof. Once again this too did not relate to the determinati....
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....sment on another person i.e., the Hindu undivided family by converting the return filed by an individual. But it could be done by initiating separate proceedings against the Hindu undivided family if the Assessing Officer was of the opinion that a particular income belonged to the Hindu undivided family and was taxable in the hands of the Hindu undivided family, which has not been done in this case. 37. Coming to the case of CIT v. K. Adinarayana Murty [1967] 65 ITR 607 (SC), on which the learned authorised representative has strongly relied on, the facts in this case are that the respondent was an Hindu undivided family. Subsequent to the original assessment, the Income-tax Officer had information that the respondent had done some procurement business and earned large profits which had escaped assessment for the assessment year 1949-50. Since for the assessment year 1954-55, the Income-tax Officer had taken the status of the respondent to that of an " individual", he issued a notice under section 34 of the Indian Income-tax Act on March 22, 1957, to reopen the assessment for the assessment year 1949-50 in the status of an individual, having taken the sanction of the Commissione....
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....swered the question of " time-barred assessment" . In this case assessment was made under the Mysore Income- tax Act, 1923, on the death of the assessee in the hands of legal representative " S" where the High Court held that there was no provision corresponding to section 24B of the Indian Income-tax Act, 1922, in the Mysore Act to make an assessment on legal representative and cancelled the assessment. The Revenue wanted that the assessee should therefore be given the status of Hindu undivided family (as envisaged by the Mysore Act) because no reassessment could be made against the family as it was barred by time. The Supreme Court held that since the assessment was made in respect of assessee' s income on his legal representative in the status of an individual and not as the karta of his Hindu undivided family, the Department could not be permitted to change its case at the stage before the Supreme Court and contend that in reality the assessee was the family. 40. In view of aforesaid discussion, I hold that conversion of status from individual to Hindu undivided family and vice versa cannot take place on the same return. For this a fresh notice has to be issued to that t....
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....ce was served to the assessee Hindu undivided family ? 2. Whether there was valid service of notice under section 143(2) on the assessee-Hindu undivided family ? 3. Whether on the facts and circumstances of the case, the assessment order passed must be annulled or confirmed so far it relates to the validity of the proceedings initiated under section 147 and service of notice on the assessee under section 143(2) is concerned ? 4. Whether on the facts and circumstances of the case, the Assessing Officer erred in framing the assessment in the status of Hindu undivided family on the basis of consent given by the assessee although the notices were issued in the status of the individual ?" 46. The facts of the case are that the assessee (exact status is a matter of controversy) sold some land, in the period relevant to the assessment year 1996-97, on which, according to the Revenue, taxable capital gain had accrued. The Assessing Officer accordingly initiated action to assess the gain and issued notices under section 148 of the Income-tax Act. First notice dated November 28, 2000, is alleged to have been issued by the Income-tax Officer, Ward-2, Gurgaon. How....
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....hereas the land sold were ancestral, why the status of Hindu undivided family should not be taken, if the Hindu undivided family status is taken then the rebate under section 54B is not allowable. As regards the construction of house, you are required to explain the cost of construction. Case adjourned to February 28, 2002. Shri R. P. Gupta, advocate along with Shri Suraj Mal appeared. Written submission filed. He has stated that the status of the assessee should be taken as Hindu undivided family as the lands were ances tral. As regards the cost of land on April 1, 1981, he has no objection for taking it at Rs. 2,00,000 per acre as taken in the other case/of Shri Subh Ram village Ishlampur (assessed by Addl. Commissioner of Income-tax, Spl. Range, Faridabad). He argues that the rebate under section 54B is not allowable to the Hindu undivided family. For the construction cost he has filed the valuation report which is at Rs.3,54,000 + Rs. 3,38,000 = Rs. 6,92,000. But the assessee claimed the rebate under section 54B at Rs. 6,00,000. No bank interest or any other income admitted. Agricultural income has been shown at Rs. 40,000." 49. The Assessing Offic....
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....otice was issued under section 143(2) of the Income-tax Act on return filed on February 25, 2002. In the opinion of the learned Accountant Member, the entire proceedings of assessment were illegal. In the present case, the Assessing Officer further had " no reason to believe that income had escaped assessment" to take action under section 147 of the Act. The matter was treated as covered against the Revenue as per decision of the Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173. The learned Accountant Member also held that conditions of section 147/148 were not satisfied. The learned Accountant Member relied upon the decision in the case of CWT v. Ridhkaran [1972] 84 ITR 705 (Raj) where the question was whether return filed as Hindu undivided family could be assessed as individual without fresh return. The hon'ble High Court held that the Wealth-tax Officer is not competent to assess them in the status of individual without serving them with notice to file fresh return as individual. The learned Accountant Member categorically held that conversion of status from individual to the Hindu undivided family and vice versa cannot tak....
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.... hearing and Shri K. P. Garg chartered accountant has been heard on behalf of the appellant. Shri Durga Charan Dash, Commissioner of Income-tax (Departmental representative) and Shri Amit Govil, senior Departmental representative have been heard for the Revenue. The first question required to be considered is whether any legal and valid notice under section 148 was issued in this case. As already noted, first notice under section 148 was issued on November 28, 2000. But that is not the notice which is relied upon or mentioned by the Assessing Officer in the assessment order. Apparently, this notice was issued without recording reasons under section 148(2) of the Income-tax Act on November 28, 2000, whereas reasons were recorded a day later i.e. on November 29, 2000. Perhaps, for the above reasons, the Assessing Officer ignored and issued second notice on December 12, 2000, (wrongly written as December 22, 2000, in the assessment order). I have already noted reasons under section 148(2) of the Income-tax Act for issuing the said notice. The said notice suffers from several legal infirmities. In the first place, the transaction noticed related to sale of some agricultural land sold t....
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....s of the Hindu undivided family, cannot be allowed to turn around and argue that such an order was incorrect or unwarranted. According to the learned Judicial Member, principle of estoppel is applicable in this case. In my view, the Income-tax Act recognizes status of the Hindu undivided family different from individual status of karta of the Hindu undivided family. Two are treated as different legal entities. Therefore, it is necessary that notice under section 148 of the Income-tax Act should be sent in the correct status because jurisdiction to make assessment is assumed by issuing valid notice. Admittedly, in this case, it was sent to the individual. The assessment of the Hindu undivided family is taken to be justified on the basis of the decision of the hon'ble Punjab and Haryana High Court in the case of Kanshi Ram Wadhwa [1982] 138 ITR 830. The headnote of the said case is as under : "The essence of the scheme of the Indian Income-tax Act is that depreciation is allowed, year after year, on the actual cost of the assets as reduced by the depreciation actually allowed in earlier years. It follows, therefore, that even in the case of assets acquired before the pre....
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....rred with consent of the parties. Therefore, in my view, after having issued notice under section 148 of the Income-tax Act to the individual, the Income-tax Officer had no jurisdiction to assess the Hindu undivided family of the assessee. He could assume jurisdiction by issuing valid notice under section 148 of the Income-tax Act after satisfying conditions laid down under section 147. This was not done and, therefore, entire proceedings have rightly been held by the learned Accountant Member to be illegal and without jurisdiction. In the case of CIT v. K. Adinarayana Murty [1967] 65 ITR 607 (SC), the notice was issued by the Assessing Officer to Hindu undivided family but assessment was made in the status of the individual. Their Lordships observed as under (headnote) : "Under the scheme of the Income-tax Act, the ' individual' and the ' Hindu undivided family' are treated as separate units of assessment and if a notice under section 34 of the Act is wrongly issued to the assessee in the status of an individual and not in the correct status of an Hindu undivided family, the notice is illegal and all proceedings taken under that notice are ultra vires and ....