2014 (6) TMI 441 - AT - Income Tax

Amendment of assessment on appeal - Order u/s 267 r.w section 251 of the Act Validity of trust u/s 6 of Indian Trusts Act Held that - It is not on the unfettered discretion of the appellate authority to give any directions and there are strict legal provisions on the scope of what directions or findings can be given in the course of the appellate proceedings Relying upon Rajinder Nath Vs CIT 1979 (8) TMI 3 - SUPREME Court - a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year - it must be directly involved in the disposal of the case - CIT(A) does indeed have the powers to issue such directions - The powers to give such directions is one thing, but relaxation in time limit for completion of assessment u/s 153(3) is quite another thing - That relaxation u/s 153(3), as evident from Explanation 3 to Section 153(3), can only come into play when the person in whose hands income is to be added, as a result of these findings or directions, was given an opportunity of being heard before the said order (i.e. appellate order) was passed . The opportunity of hearing to the assessee in whose hands income of the assessee in appeal is to be added, it is condition precedent for giving any finding adverse to such assessee vis- -vis the time limits for completion of his assessment, reassessment or recomputations are concerned - unambiguous scheme of Explanation 3 to Section 153(3) - an appellate authority does not do so, the affected assessee cannot be put to any disadvantage as far as the statutory time limits for completion of assessments, reassessment or re-computations - An opportunity to be so given should be a specific opportunity and the affected assessee is required to be put to notice on that issue - A general hearing given to the representative of the trusts in question cannot, in our humble understanding, be equated with such specific opportunity to the affected assessee and the affected assessee being put to notice about the conclusions adversely affecting him. Unless the assessee was given a specific opportunity of being heard, before the appellate order in the cases of Gurunanakdevji Trust, Guru Govind Singhji Trust and Guru Teg Bahadurji Trust was passed or unless the order was passed within the time limits set out u/s 153(1) or (2), the order cannot be said to be sustainable in law - The time limit u/s 153(1) and (2) are clearly not satisfied on the facts of this case since it is not a case of serving the notice u/s 148, the assessment year is 2002-03, a valid return was duly filed and processed, and yet the impugned order was passed on 4th December 2006 - The scheme of the Income Tax Act fiercely guards the rule of finality to income tax proceedings, whether in assessment, reassessment, revisions, rectifications or any other proceedings, and once the time limit for that course of action is over, the finality thereto cannot be disturbed except under the specific provisions of the Act - The only thing which can help the cause of the revenue is thus a specific notice of hearing having been given to the assessee before us, as mandated by Explanation 3 to Section 153(3) - It is only when the AO can demonstrate that the assessee was given a specific opportunity of hearing, before the appellate order dated 3.10.2005 was passed in the cases of Gurunanakdevji Trust, Guru Govind Singhji Trust and Guru Teg Bahadurji Trust, that the assessment order can be treated as legally valid. Thus, the matter is to be remitted back to the AO for verification - In case it is found this assessee has not been given any such specific opportunity of hearing, the impugned assessment order shall stand quashed and the matter rests there. - Decided in favour of Assessee.

Summary

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Validity of the trusts under Section 6 of the Indian Trusts Act.
3. Taxability of trust income in the hands of trustees.
4. Opportunity of hearing to the assessee.
5. Application of Section 153 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was time-barred by four days. However, after reviewing the condonation petition and hearing the rival contentions, the tribunal decided to condone the small delay. Consequently, the appeal was admitted and taken up on merits.

2. Validity of the Trusts under Section 6 of the Indian Trusts Act:
The CIT(A) held that the trusts in question (Gurunank Devji Trust, Guru Govind Singhji Trust, and Guru Teg Bahadurji Trust) were not valid as they did not come into existence in accordance with Section 6 of the Indian Trusts Act, 1882. Furthermore, the CIT(A) observed that the source of all capital shown in the balance sheet had not been properly examined and concluded that these trusts were not genuine.

3. Taxability of Trust Income in the Hands of Trustees:
Following the CIT(A)'s directions, the Assessing Officer added the income from the trusts in equal proportion to the income of the trustees. The assessee, being a trustee, had his share of income from the trusts added to his total income, resulting in an assessment of Rs. 4,83,850. The CIT(A) upheld this assessment, confirming that the order was passed in accordance with the directions of the CIT(A) and no findings to the contrary were given by the ITAT Agra.

4. Opportunity of Hearing to the Assessee:
The tribunal noted that the assessee was not given any opportunity of hearing by the CIT(A) at the stage of holding that the income of the three trusts was to be taxed in the hands of the trustees. The tribunal emphasized that as per Explanation 3 to Section 153(3), the assessment of income on another person (in this case, the trustees) can only be valid if that person was given an opportunity of being heard before the appellate order was passed. The tribunal found that a general hearing given to the representatives of the trusts could not be equated with a specific opportunity given to the affected assessee.

5. Application of Section 153 of the Income Tax Act, 1961:
Section 153 provides time limits for completing assessments, reassessments, and recomputations. However, these time limits do not apply when assessments are made as a result of findings or directions in appellate orders, provided the affected person was given an opportunity of being heard. The tribunal observed that the impugned order was passed well after the statutory time limits and without giving the assessee a specific opportunity of hearing. Therefore, the tribunal concluded that the impugned order could not be sustained in law unless the Assessing Officer could demonstrate that the assessee was given such an opportunity.

Conclusion:
The tribunal remitted the matter to the Assessing Officer for verification of whether the assessee was given a specific opportunity of hearing before the appellate order was passed. If no such opportunity was given, the impugned assessment order would stand quashed. If the opportunity was given, the Assessing Officer would need to address the assessee's objections on merits through a speaking order. The appeal was allowed for statistical purposes, and the matter was restored to the Assessing Officer as directed.