2014 (12) TMI 605 - HC - Income Tax

Assessment after partition of a Hindu undivided family u/s 171 mandatory requirement to conduct inquiry fulfilled or not Held that - Section 171 states that at the time of making an assessment u/s 143 or section 144, if it is claimed on behalf of the assessee that the property is a joint family property subject to partial or total partition, the AO shall make an inquiry thereto after giving notice of the inquiry to the members of the family - in the assessment order, the AO discloses the fact of family partition, filing of the application u/s 171 thereafter he takes note of the material available on record and then records a finding with regard to the partition, to say that assessee has not adduced any evidence in this regard and proceed to decide the matter but did not conduct any inquiry as contemplated under sub-section (2) of section 171 inasmuch as no notices to other members of the family were issued nor a detailed inquiry has been conducted relying upon Kapurchand Shrimal Versus Commissioner of Income-Tax, AP 1981 (8) TMI 2 - SUPREME Court - the AO has failed to comply with the statutory provision inasmuch as a detailed inquiry as contemplated u/s 171(2) after notice to the family members has not been done thus, the matter is to be remitted back to the AO for re-consideration Decided in favour of assessee.

Summary

Issues:
Assessment under section 143(3) without conducting inquiry and deciding application under section 171.

Analysis:
The petitioner's grievance was that the Assessing Officer passed an assessment order under section 143(3) without conducting any inquiry into the application under section 171 filed by the assessee. The facts revealed that the petitioner had requested consideration of a partial partition of family property under section 171 during assessment proceedings. Despite the Appellate Tribunal remanding the matter back to the Assessing Officer for fresh consideration, the subsequent assessment order was passed without conducting the necessary inquiry. The petitioner argued that such failure to conduct an inquiry into the partition was an error on the face of the record, citing the Supreme Court's judgment in Kapurchand Shrimal vs. Commissioner of Income Tax-(1981) 24 CTR (SC) 345.

The Supreme Court's ruling in Kapurchand's case emphasized that when an application is made under section 171, the Assessing Officer must conduct a detailed inquiry into the claimed partition before proceeding with the assessment. The provisions of section 171 required the Assessing Officer to issue notices to all family members and conduct a thorough inquiry before making any assessment. The assessment order in question did not comply with these requirements as it lacked a detailed inquiry and notice to family members, as mandated by sub-section (2) of section 171. The court noted that the Commissioner also failed to consider these aspects in the order dated 27.03.2008.

Consequently, the High Court allowed the petition, quashed the assessment order dated 28.12.2006, and the Commissioner's order dated 27.03.2008. The matter was remanded back to the Assessing Officer to conduct a proper inquiry into the partition as required by sub-section (2) of section 171 of the Income Tax Act, 1961, and proceed with the assessment in accordance with the law. The court's decision was based on the failure to adhere to the statutory provisions regarding inquiries into claimed partitions under section 171.