2020 (2) TMI 360 - HC - Income Tax

Status of HUF - T ime limit for completion of assessment - scope of the term Direction u/s 153 - Exclusion of certain period - Validity of directions made by ITAT to make assessments Harnarayan Bhagat and his three sons in the new status of Individuals / HUFs after holding that the earlier assessments made in the status of HUF / Individuals were not correct - HELD THAT - Validity of directions made by ITAT to make assessments Harnarayan Bhagat and his three sons in the new status of Individuals / HUFs after holding that the earlier assessments made in the status of HUF / Individuals were not correct. Shri Harnarayan Bhagat was assessed in the status of HUF as Karta in respect of the business carried on in the name of Shri Radhakishan Balkishan. A partial partition of HUF business took place on 13/11/1974 in which Smt. Bansibai W/o Harnarayan Shri Harnarayan and their three sons were given equal shares. The said partial partition was accepted by ITO under Section 171 of the Act of 1961. No business assets were left in the HUF and business of HUF came to an end after the said partition. Since wife of Harnarayan Bhagat was also allotted her equal share in the above partial partition so far as the HUF of Harnarayan Bhagat is concerned Harnarayan was left as the sole surviving coparcener in said HUF and his status was converted into an individual in respect of assets allotted to him in the above partial partition however despite the said position Shri Harnarayan wrongly filed the returns in the status of HUF. Similarly the three sons of Harnarayan who were married having wife and children also wrongly filed their respective returns as individuals although their correct status on receipt of the property in partial partition was that of their respective HUFs. Assessments of Harnarayan Bhagat for various assessments years were completed in the wrong status of HUF by Assessing Officer on the basis of returns filed without examining his correct status post partition. Similarly assessments of his sons were completed in status as Individuals of his sons were completed in status as Individuals as against correct status of their respective HUFs which were challenged in appeals by all assessee on the ground that mere admission of the assessees about wrong status could not bring liability upon them and Assessing Officer ought to have assessed them in the correct status that is Harnarayan ought to have been assessed in the status of individual and his sons ought to have been assessed in the status of their respective HUFs consisting of their respective wives and children. As regards the expression direction in Section 153(3)(ii) of the Act it is now well settled that it must be express direction necessary for disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding case before it. The expressions findings and direction in Section 153(3)(ii) must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or Court. The direction given by the ITAT to make assessment in new status are clearly contrary to the law laid down by the apex Court in MURLIDHAR BHAGWAN DAS 1964 (1) TMI 5 - SUPREME COURT N KT. SIVALINGAM CHETTIAR 1967 (3) TMI 16 - SUPREME COURT FORAMER 2000 (8) TMI 45 - ALLAHABAD HIGH COURT and GUPTA TRADERS 1981 (12) TMI 36 - ALLAHABAD HIGH COURT and the order of the ITAT to the aforesaid extent deserves to be quashed and is accordingly quashed in all the appeals. The question of law answered is in favour of the assessee.

Summary

Issues Involved:
1. Validity of directions made by ITAT to make assessments in the new status of Individuals/HUFs.
2. Whether the assessments were barred by limitation under Sections 149 and 153 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Directions Made by ITAT:
The controversy centers on the directions made by the ITAT to reassess Harnarayan Bhagat and his three sons in the new status of Individuals/HUFs, after determining that the earlier assessments were incorrectly made in the status of HUF/Individuals. The ITAT held that after the partial partition of HUF, Harnarayan Bhagat should have been assessed as an individual, and his sons should have been assessed in their respective HUF status, consisting of themselves, their wives, and children. This decision was based on the fact that after the partial partition on 13/11/1974, Harnarayan Bhagat did not retain the status of HUF, and his sons, being married with children, formed their respective HUFs. The ITAT's direction to reassess in the new status was challenged on the grounds that it would lift the bar of limitation prescribed for assessments.

2. Barred by Limitation:
The respondents argued that the ITAT's directions would lift the bar of limitation prescribed under Sections 149 and 153 of the Income Tax Act, 1961. Section 150(1) allows for the reopening of assessments without the limitation period if it is in consequence of or to give effect to any finding or direction in an order by any authority or court. However, the Supreme Court in cases like ITO Vs. Murlidhar Bhagwandas and Rajinder Nath Vs. CIT clarified that the expressions "finding" and "direction" must be necessary for the disposal of the case in respect of a particular assessee and assessment year. A finding incidental to the main issue or not necessary for the disposal of the case does not lift the bar of limitation. The ITAT's direction to reassess in the new status was deemed contrary to these principles, as it would have the effect of bypassing the prescribed limitation period for reassessments.

Conclusion:
The High Court concluded that the ITAT's directions to reassess in the new status were contrary to the law laid down by the Supreme Court regarding the limitation period for assessments. Therefore, the ITAT's order to that extent was quashed, and the question of law was answered in favor of the assessee.