2014 (10) TMI 217 - AT - Income Tax

Association of persons (AO) or co-ownership Whether confirming assessment in the hands of co-ownership would amount to double taxation of same income - AO was of the view that the return of income was filed merely to indicate the amount of income to be computed of collective co-ownership to determine allocable income amongst respective co-owners/members wherein the shares of all members of AOP were definite and determinate and the income from property earned by all joint co-owners was to be taxed mandatorily in the hands of respective co-owners as per provisions of section 26 of the I.T. Act - Held that - The FAA and the role played by the Tax Consultants while advising the assessees - while applying for PAN Card it is duty of the assessee to tick the status in which the assessee is likely to be assessed and if there is any dispute the same has to be brought to the notice of the AO - these two assessees filed Form No. 49A in the name of Ritesh Ramesh Shah & Others and Praful Ramesh Shah & Others which would clearly indicate that they are not claiming the status as individual - There cannot be any doubt that the assessees would have taken sufficient care to apply for PAN Card through some Tax Consultants but still the applications are made specifically in the name of and Others but in the status of individual . Each of them has a specific share in the property - It is not known as to what is the common action taken by all of them together - There cannot be any dispute that if income is earned by virtue of joint action, it has to be assessed as Association of Persons and not in the hands of each co-owner - the AO has to take proper care and analyse the facts of each case and on examination he should have recorded an appropriate finding as to whether the share of each individual is determinate and whether it is assessable as AOP or in the hands of each individual under section 26 of the Act - It also needs verification as to how the refund is granted to the individual with the same PAN Card when the PAN card is issued in the name of Firm - It is intriguing that from year to year not only proceedings were completed under section 143(1) but also under 143(3)/CIT(A) but this aspect was not examined thus, the order of the CIT(A) is to be set aside and the matter is remitted back to the AO for fresh adjudication Decided partly in favour of assessee.

Issues Involved:
1. Determination of income under section 143(1) of the Income Tax Act.
2. Classification of the status of the assessees (Individual vs. Association of Persons/Body of Individuals).
3. Double taxation concerns.
4. Allocation of rental income among co-owners under section 26 of the Income Tax Act.
5. Procedural errors in the issuance and use of PAN cards.

Issue-wise Detailed Analysis:

1. Determination of Income under Section 143(1):
The primary issue revolves around the correctness of the Assessing Officer's (AO) determination of income under section 143(1) of the Income Tax Act. The AO processed the returns showing total income but assessed tax payable as Nil, leading to an intimation under section 143(1) determining the total tax payable. The CIT(A) upheld this procedure, stating that no adjustments other than those specified in section 143(1) can be made, and allocation of rental income among co-owners is not one of them.

2. Classification of Status (Individual vs. AOP/BOI):
The assessees filed returns in the status of 'individuals' but obtained PAN cards indicating 'Firm' status. The Tribunal noted the confusion and errors in the classification of the assessees' status. The AO and CIT(A) failed to properly address whether the income should be assessed as an Association of Persons (AOP) or Body of Individuals (BOI) or in the hands of individual co-owners.

3. Double Taxation Concerns:
The assessees argued that taxing the same income in the hands of the AOP/Group of Individuals would result in double taxation since the income had already been included in the individual returns of the co-owners. The Tribunal acknowledged this concern, highlighting that the income should be assessed in the hands of the respective co-owners under section 26 of the Income Tax Act to avoid double taxation.

4. Allocation of Rental Income Among Co-owners under Section 26:
The assessees contended that the rental income from jointly owned property should be allocated among the co-owners as per section 26 of the Income Tax Act. The Tribunal noted that the co-owners had already included their share of income in their individual returns. The CIT(A) and AO, however, did not consider this allocation in their assessments, leading to the Tribunal's decision to set aside the matter for re-examination.

5. Procedural Errors in Issuance and Use of PAN Cards:
The Tribunal criticized the procedural errors in the issuance and use of PAN cards. The assessees applied for PAN cards in the status of 'individuals' but received PAN cards indicating 'Firm' status. The Tribunal emphasized the need for proper monitoring and correction of such errors by the Income Tax Department to avoid complications in tax assessments.

Conclusion:
The Tribunal highlighted the casual approach of the Tax Authorities and Tax Consultants, leading to procedural errors and misclassifications. The matter was set aside to the file of the CIT(A) for re-examination, with directions to call for a remand report from the AO and reconsider the issues in accordance with the law. The appeals filed by the assessees were treated as partly allowed.

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