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2019 (2) TMI 221 - AT - Income TaxTreatment as member of AOP - only grievance of the assessee that is to be addressed is that whether Deepali is a member of the AOP or not? - Held that - It is imperative that the AO must first decide that whether M/s. Deepali Design and Exhibits Pvt. Ltd is a member of PICO Deepali Overlays and Consortium as a member of PICO Deepali Overlays Consortium or not. Further, it is claimed that by subsequent agreements Deepali has exited the AOP. It could not be ascertained from the assessment orders that those agreements were before the lower authorities or not. Even if they are placed before lower authorities whether they have been examined from the angle of the controversy raised before us. It is stated that Deepali was not the members of the AOP after 1/6/2010. It is also not prohibited that member originally member of AOP cannot exit the AOP. Therefore this aspect needs greater examination by the AO. Further Deepali apparently did not have any opportunity to show to the assessing officer that it The LD AO opportunity of hearing to the Deepali. Thereafter, If it is held to be a member of the AOP , then it should be given a proper opportunity of hearing and then the ld AO should pass a fresh assessment order in accordance with law. If Deepali Design and Exhibits Pvt. Ltd is held to be not a member of AOP, then it does not have any locus standi in the present appeal against those orders passed by the lower authorities and further the tax demand raised on the AOP is not recoverable from the Deepali Design and Consortium Pvt. Ltd but by other means . In view of this, we set aside ITA for Assessment Year 2011-12 filed in the name of PICO Deepali Overlays Consortium and signed by Deepali Design and Exhibits Pvt. Ltd back to the file of the ld AO, with a direction to first decide whether Deepali Design and Exhibits Pvt. Ltd is a member of AOP or not. If it is held to be a member, then Deepali be given a proper opportunity of hearing on the merits of the various additions made in the assessment order u/s 69A and other disallowances u/s 37 in the hands of assessee AOP. After that ld AO may pass an order on assessee AOP in accordance with law and all other consequences u/s 177 (3) of the act Shall also be applicable on Deepali. Order passed u/s 177(3) of the act by the AO is neither disputed before us in this appeal nor before the lower authorities. Therefore as the same was not subject matter of this appeal we do not adjudicate the same.
Issues Involved:
1. Determination of whether M/s Deepali Design and Exhibits Pvt. Ltd. is a member of the AOP (Association of Persons). 2. Validity of the tax recovery proceedings under Section 177(3) of the Income Tax Act. 3. Legitimacy of the appeal filed by M/s Deepali Design and Exhibits Pvt. Ltd. and the condonation of delay in filing the appeal. Issue-Wise Detailed Analysis: 1. Determination of Membership in AOP: The primary issue is whether M/s Deepali Design and Exhibits Pvt. Ltd. (Deepali) is a member of the AOP, M/s PICO Deepali Overlays Consortium. The revenue authorities contend that Deepali is a member based on the consortium agreement, which mentions Deepali holding a 20% share. The assessment order and appellate orders have treated Deepali as a member of the AOP. However, Deepali denies this membership, arguing that it was not involved in the consortium beyond a certain point and that subsequent agreements altered the original terms. The Tribunal directed the Assessing Officer (AO) to verify and submit a remand report on whether Deepali is indeed a member of the AOP. The AO's remand report concluded that Deepali was a member based on various documents, including audit reports and agreements. However, Deepali contested this, citing a lack of volition and involvement in the AOP's activities, referencing legal precedents and a CBDT circular to support its stance. The Tribunal noted the necessity for the AO to first determine Deepali's membership status in the AOP. If Deepali is found to be a member, it should be given an opportunity to present its case on the merits of the additions made in the assessment order. The Tribunal emphasized that the AO must re-examine the agreements and other evidence to ascertain the true nature of Deepali's involvement. 2. Validity of Tax Recovery Proceedings under Section 177(3): The tax recovery proceedings under Section 177(3) of the Income Tax Act were initiated against Deepali, treating it as a member of the AOP. According to Section 177(3), every person who was a member of the AOP at the time of discontinuance or dissolution is jointly and severally liable for the tax, penalty, or other sums payable. The Tribunal noted that Deepali had been served an order under Section 177(3) and directed to pay a significant tax demand. The Tribunal highlighted that the AO must first conclusively determine whether Deepali is a member of the AOP. If Deepali is not a member, the tax demand raised on the AOP is not recoverable from Deepali. The Tribunal remanded the case back to the AO to decide on Deepali's membership and provide it with an opportunity to be heard on the merits of the case. 3. Legitimacy of the Appeal and Condonation of Delay: Deepali initially filed an appeal (ITA No. 1561/Del/2017) against the order of the CIT (A), but the Tribunal questioned the validity of this appeal, as it was filed by an alleged member of the AOP rather than the AOP itself. Consequently, the AOP filed a separate appeal (ITA No. 4929/Del/2018), signed by Deepali, which was delayed. The Tribunal considered the reasons for the delay and found that the delay was justified due to the confusion over who could file the appeal. The Tribunal adopted a pragmatic and liberal approach, condoning the delay to ensure substantial justice. The Tribunal emphasized that technical issues should not obstruct the merits of the case and allowed the appeal filed by the AOP for statistical purposes. Conclusion: The Tribunal dismissed the initial appeal (ITA No. 1561/Del/2017) filed by Deepali as an alleged member of the AOP. It allowed the subsequent appeal (ITA No. 4929/Del/2018) filed by the AOP, signed by Deepali, for statistical purposes. The Tribunal remanded the case back to the AO to determine whether Deepali is a member of the AOP and to provide Deepali with an opportunity to be heard on the merits of the additions made in the assessment order. The Tribunal also clarified that the order under Section 177(3) was not disputed in this appeal and, therefore, was not adjudicated.
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