2021 (2) TMI 644 - HC - Income Tax

Reopening of assessment u/s 147 - addition of undisclosed income in the hands of the assessee or HUF - assessee who worked as real estate agent filed return of income in individual capacity and not as HUF - During the course of the search it was stated by him that he had not declared / disclosed income from real estate transaction and the same would be declared in the return of income of HUF - tribunal set aside the order of assessment mainly on the ground that the Assessing Authority has not recorded independent findings to revoke re-assessment proceeding and the order of re-assessment has been passed on the directions of the Commissioner of Income Tax (Appeals) - Whether tribunal is right in law in holding that re-assessment order is bad in law ignoring Section 150 read with Section 153 and Explanation 2 to Section 153 of the Act ? - HELD THAT - The tribunal has not considered the provisions of Explanation 2(b) to Section 153 of the Act, by which the Assessing Authority is empowered to include any income excluded from total income of a person and is treated to be income of another person, then such an assessment of the income on such other person shall be deemed to be made in consequence of or to give effect to any finding or direction contained in the said order. Therefore, since the order of assessment has been passed by the tribunal without taking note of Section 150 read with Section 153 as well as explanation 2 to Section 153 of the Act, we answer the additional substantial question of law in favour of the revenue and against the assessee. Therefore, we do not propose to deal with the rival contentions. In the result, the order passed by the tribunal dated 27.04.2016 is quashed and the tribunal is directed to decide the appeal by taking into account the provisions of Section 150 and Section 153 of the Act after affording an opportunity of hearing to the parties.

Summary

Issues:
1. Re-assessment order under Section 147 challenged by the revenue.
2. Validity of re-assessment order under Section 150 and Explanation 2 to Section 153.
3. Assessment of income belonging to HUF.
4. Tribunal's decision to set aside the re-assessment order.

Issue 1: Re-assessment order under Section 147 challenged by the revenue

The appeal was filed by the revenue challenging the re-assessment order passed by the Assessing Authority under Section 147 of the Income Tax Act, 1961. The primary contention was that the Tribunal erred in setting aside the re-assessment order on the grounds that the Assessing Authority did not record independent findings to initiate re-assessment proceedings. The revenue argued that all conditions under Section 147 were satisfied, and the Assessing Authority had valid reasons for invoking re-assessment proceedings.

Issue 2: Validity of re-assessment order under Section 150 and Explanation 2 to Section 153

A new substantial question of law was admitted regarding the validity of the re-assessment order under Section 150 and Explanation 2 to Section 153 of the Act. The revenue contended that the Tribunal failed to consider the provisions of Section 150 read with Section 153, which empower the Assessing Authority to include income excluded from one person and treat it as the income of another person. The Tribunal's decision was challenged based on the applicability of these sections.

Issue 3: Assessment of income belonging to HUF

The case involved a dispute over the assessment of income arising from the sale of properties belonging to an individual but claimed to be the income of a Hindu Undivided Family (HUF). The Commissioner of Income Tax (Appeals) directed the Assessing Authority to assess the income as belonging to the HUF. The Tribunal upheld this decision, leading to the revenue challenging the order through re-assessment proceedings. The issue revolved around the proper assessment of income based on ownership and legal structures.

Issue 4: Tribunal's decision to set aside the re-assessment order

The Tribunal set aside the re-assessment order primarily due to the lack of independent findings by the Assessing Authority and the reliance on directions from a higher authority. The Tribunal's decision was criticized for not considering the relevant provisions of the Act, specifically Section 150 and Explanation 2 to Section 153. The High Court directed the Tribunal to reconsider the appeal, taking into account these provisions and affording an opportunity for both parties to present their case.

In conclusion, the High Court quashed the Tribunal's decision and directed a re-consideration of the appeal, emphasizing the importance of adhering to the statutory provisions governing re-assessment proceedings and the assessment of income. The judgment highlighted the need for proper application of the law in determining tax liabilities and ensuring fair treatment of taxpayers.