Karnataka High Court

Pr. Commissioner Of Income Tax-4 vs Rajkumar C (Huf) on 11 January, 2021

Author: Alok Aradhe Rangaswamy

                                 1



     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 11TH DAY OF JANUARY 2021

                          PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                             AND

     THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                   I.T.A. NO.503 OF 2016
BETWEEN:

1.     PR. COMMISSIONER OF INCOME TAX-4
       BMTC COMPLEX, KORMANGALA.

2.     DEPUTY COMMISSIONER OF INCOME TAX
       CIRCLE-7(1), BANGALORE.
                                            ... APPELLANTS
(BY SRI. E.I. SANMATHI, ADV.,)

AND:

RAJKUMAR C (HUF)
NO.259/B, 7TH CROSS
HSR LAYOUT, SECTOR-I
BANGALORE-560102
PAN:AAMHR4074B.
                                            ... RESPONDENT
(BY SRI. RAJESH CHANDER KUMAR, ADV.)
                             ---
      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 27.04.2016 PASSED
IN ITA NO.1379/BANG/2014 FOR THE ASSESSMENT YEAR 2005-
06, PRAYING TO:
      (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
APPELLATE ORDER DATED 27-04-2016 PASSED BY THE ITAT, 'A'
BENCH, BENGALURU, IN APPEAL PROCEEDINGS IN ITA
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NO.1379/BANG/2014 FOR ASSESSMENT YEAR 2005-06, AS
SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER
RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

     THIS I.T.A. COMING ON FOR HEARING,         THIS      DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:


                      JUDGMENT

This appeal under Section 260A of the Income Tax

Act, 1961 (hereinafter referred to as the Act for short)

has been preferred by the revenue. The subject matter

of the appeal pertains to the Assessment year 2005-06.

The appeal was admitted by a bench of this Court vide

order dated 21.11.2017 on the following substantial

questions of law:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in setting aside the re-assessment order passed by the assessing authority by holding that the are no valid reasons recorded by the assessing authority to invoke re-assessment proceedings under section 147 even when the assessing authority has given valid reasons for invoking re-assessment proceedings and

all the ingredients of section 147 are satisfied in the case of assessee to invoke re-assessment proceedings?".

2. Today, the appeal is admitted on the

following additional substantial question of law:

'Whether on the facts and in the circumstances of the case, the tribunal is right in law in holding that re-assessment order is bad in law ignoring Section 150 read with Section 153 and Explanation 2 to Section 153 of the Act whereby Assessing Authority is empowered to include any income excluded from total income of one persona and held to be the income of another person, then an assessment of such income on such other person shall be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order?'

3. Facts leading to filing of this appeal briefly

stated are that a search was conducted in the premises

of one K.Purushottham Reddy on 26.08.2008 and also

at the residence of one A.R.Chandrashekar and

C.Rajkumar. During the course of the search, at the

premises of C.Rajkumar undisclosed income from sale

and purchase of immovable properties was noticed for

the Assessment Years 2005-06, 2006-07 and 2007-08

for amounts of Rs.1,44,75,000/-, Rs.160,62,250/- and

Rs.2,94,58,337/- respectively. Aforesaid C.Rajkumar

who worked as real estate agent filed return of income

in individual capacity and not as HUF. During the course

of the search on 26.08.2008, it was stated by him that

he had not declared / disclosed income from real estate

transaction and the same would be declared in the

return of income of HUF. The Assessing Officer vide

order dated 28.02.2010 concluded the assessment

under Section 143(3) read with Section 153(c) in the

hands of the individual by making several additions

mainly with regard to sale of properties.

4. The assessee thereupon filed an appeal

before the Commissioner of Income Tax (Appeals). In

the appeal also the assessee again contended that the

income belongs to HUF. It was held that the land

belongs to HUF , which devolved on HUF by a registered

partition deed dated 05.08.1978 and income arising

from sale of the property has to be assessed in the

hands of HUF and assessment of income in the hands of

individual was held to be incorrect. The Commissioner of

Income Tax (Appeals) by an order dated 05.08.2011

directed the Assessing Authority to proceed to against

HUF to assess the income as belonging to HUF. The

revenue challenged the order passed by the

Commissioner of Income Tax (Appeals) before the

Income Tax Appellate Tribunal (hereinafter referred to

as 'the tribunal' for short). The tribunal by an order

dated 25.08.2014 dismissed the appeal preferred by the

revenue. A notice under Section 148 of the Act was

issued to the HUF for the period under consideration and

the assessing authority after recording reasons for

taking up the re-assessment proceedings passed an

order of re-assessment under Section 144 and Section

147 of the Act by an order dated 25.03.2013 and

subjected the income to tax which had escaped

assessment. The assessee thereupon challenged the

aforesaid order in an appeal before the Commissioner of

Income Tax (Appeals) who by an order dated

25.08.2014 affirmed the order passed by the Assessing

Officer. The assessee thereupon approached the

tribunal. The tribunal by an order dated 27.04.2016

allowed the appeal preferred by the assessee. In the

aforesaid factual background, this appeal has been filed

by the revenue.

5. Learned counsel for the revenue submitted

that the tribunal grossly erred in setting aside the order

of the re-assessment solely on the ground that the

Assessing Authority has not recorded any independent

findings to revoke re-assessment proceedings and the

same was initiated on account of directions issued by

Commissioner of Income Tax (Appeals) who is a

superior authority. It is also urged that the tribunal has

not considered the applicability of provision of Section

150 read with Section 153 and Explanation 2 to Section

153 of the Act which empowers the Assessing Authority

to include any income excluded from total income of one

person and to hold the same to be the income of

another person and on assessment of such income of

such other person shall be deemed to made in

consequence or to give effect to any finding or direction

contained in the order. It is also contended that the

tribunal has not interfered with the finding of the

Commissioner of Income Tax (Appeals) that a colorable

device has been adopted by the assessee and about the

conduct of the assessee as well as the applicability of

provisions of Section 171 of the Act. It is also submitted

that satisfaction recorded by the Assessing Authority for

invoking re-assessment proceeding under Section 147 of

the Act satisfied all the conditions set out therein and

the tribunal ought to have appreciated that the instant

case is covered under clause (a) to Explanation 2 to

Section 147 and Section 150 read with Section 153 of

the Act and Explanation 2(b) of Section 153 of the Act

were attracted to the facts of the case.

6. It was also pointed out that Commissioner of

Income Tax (Appeals) by an order dated 05.08.2008

deleted the addition of undisclosed income in the hands

of the assessee and directed the Assessing Authority to

include the same in the hands of HUF and on receipt of

the aforesaid order, the re-assessment proceeding was

initiated by the Assessing Authority within parameters of

Section 147 of the Act. It is also pointed out that the

assessee is blowing hot and cold as in the case of the

individual the assessee has contended that HUF is liable

to pay tax and incase of HUF, it is contended that

reasoning recorded for re-assessment is not in

accordance with Section 148 of the Act, which shows the

conduct of the assessee who is trying to avoid payment

of admitted tax. It is further submitted that the tribunal

ought to have appreciated that the assessee has

accepted the order of Commissioner of Income Tax

(Appeals) holding that HUF is liable to pay tax and if

HUF did not exist as per the assessee then the order

ought to have challenged before the tribunal by the

assessee. Therefore, the assessee cannot now contend

that the HUF cannot be taxed. It is also urged that

intention of the assessee is to avoid tax and the same is

a colorable device. It is submitted that the matter

requires re-consideration by the tribunal. In support of

aforesaid submissions, reliance has been placed on

'MAHADEO PRASAD RAIS (DECD) VS. INCOME TAX

OFFICER & ANR.', (1991) 192 ITR 402,

'COMMISSIONER OF INCOME TAX VS. FARUK

ANVAR COMPANY', (1993) 199 ITR 433, 'POONJA

ARCADE VS. ASSISTANT COMMISSIONER OF

INCOME TAX', (2010) 326 ITR 123, 'KALYAN ALA

BAROT VS. M.H.RATHOD', (2010) 328 ITR 521,

'R.B.BANSILAL ABIRCHAND FIRM VS.

COMMISSIONER OF INCOME TAX', (1968) 70 ITR

74, 'INCOME TAX OFFICER VS. BACHU LAL

KAPOOR', (1966) 60 ITR 74, 'COMMISSIONER OF

INCOME TAX VS. ABDUL KHADER AHMED', (2006)

285 ITR 57.

7. On the other hand, learned counsel for the

assessee submitted that the condition precedent for

initiating re-assessment proceedings under Section 147

of the Act is that the Assessing Officer should have the

reason to believe that the income chargeable to tax had

escaped assessment. In the instant case, the Assessing

Officer has not recorded any reasons for re-opening the

assessment and has merely acted with reference to the

directions issued by the Commissioner of Income Tax

(Appeals). It is also urged that initiation of re-

assessment proceedings should be done by the

Assessing Officer only on the satisfaction recorded by

him and not on the direction of the higher authority and

a quasi judicial authority which is expected to perform

statutory function cannot act on the dictates of any

authority. It is further submitted that the directions of

the Commissioner of Income Tax (Appeals) to the

Assessing Officer to re-open the assessment in case of

assessee (HUF) cannot be sustained in the eye of law. It

is also submitted that when once the partition has taken

place, the assessment has to be conducted under

Section 171 and not under Section 147 of the Act.

Since, the notices have been issued under Section 147

the aforesaid notices are ab initio void. Alternatively, it

is submitted that in case, contentions of the assessee

are not accepted the matter may be remitted to the

tribunal for decision afresh in accordance with law. In

support of his submissions, reliance has been placed on

decisions in 'INCOME TAX OFFICER, A WARD

SITAPUR VS. MURLIDHAR BHAGWAN DAS

HUNGERFORD INVESTMENT TRUST LIMITED (IN

LIQUIDATION) INTERVENER', (1964) 6 SCR 411,

'CONSOLIDATED COFFEE LIMITED VS. INCOME

TAX OFFICER', 1983 SCC ONLINE KAR 301,

'CONSOLIDATED COFFEE LIMITED VS. INCOME

TAX OFFICER', 1991 (187) ITR 43, 'PEICO

ELECTRONICS AND ELECTRICALS LIMITED VS.

DEPUTY COMMISSIONER OF INCOME TAX AND

OTHERS', 1992 SCC ONLINE CAL 368,

'COMMISSINOER OF INCOME TAX, U.P.VS. M/S

MOHD. SHAKOOR MOHD. BASHIR', (1973) 4 SCC

107.

8. We have considered the submissions made

by learned counsel for the parties and have perused the

record. Before proceeding further, it is apposite to take

note of relevant extracts of clause (a) to Explanation 2

to Section 147, Section 150 and clause (a) and (b) to

Explanation 2 to Section 153, which read as under:

Explanation 2 - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

Clause (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income- tax;

150. Provision for cases where assessment is in pursuance of an order on appeal, etc. (1) Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision 1 or by a court in any proceeding under any other law].

Explanation 2 - for the purposes of this section, where, by an order referred to in clause (i) of sub-Section (6) -

(a) any income is excluded from the total income of the assessee for an Assessment Year, then, an assessment of such income for another assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or

(b) any income is excluded from the total income of one person and held to be the income of another person then, an assessment of such income on such other person shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, if such other person was given an opportunity of being heard before the said order was passed:

9. From perusal of the order passed by the

tribunal, it is evident that the tribunal has set aside the

order of assessment mainly on the ground that the

Assessing Authority has not recorded independent

findings to revoke re-assessment proceeding and the

order of re-assessment has been passed on the direction

sof the Commissioner of Income Tax (Appeals). The

tribunal has not considered the provisions of Explanation

2(b) to Section 153 of the Act, by which the Assessing

Authority is empowered to include any income excluded

from total income of a person and is treated to be

income of another person, then such an assessment of