2021 (7) TMI 625 - AT - Income Tax

Assessment of HUF v/s individual members - Reopening of assessment u/s 147 - Capital gain on sale of property three persons, who belong to HUF - notice has been issued in the name of individual capacity and the assessment has also been made in the individual hands - HELD THAT - As observed that the immovable property which was purchased in the year 1962 was sold on 02/02/2006 for a sum of ₹ 2 crores under a registered agreement of sale-cum-GPA and the sale deed was entered into by three persons. It is fact that the property was sold by aforementioned three persons, who belong to HUF, whereas the notice has been issued in the name of individual capacity and the assessment has also been made in the individual hands. It is clear form the clause as in Agreement of sale-cum-GPA the Special Officer and Competent Authority, ULC, Hyderabad has passed the order that the property belongs to HUF. The AO assessed the capital gains in the hands of the individual assessees, which is not proper. We, therefore, set aside the order of CIT(A) in this case and accordingly, allow the appeal of the assessee. Assessments in the name of three persons - Three appellants names were not found in the agreement of sale-cum-GPA for the impugned property. Therefore, assessments made in these three appellants cases are void-ab-initio. In the result, these three appeals are allowed.

Issues Involved:

1. Validity of assessing capital gains in the hands of individuals instead of HUF.
2. Validity of notice issued under Section 148 without mentioning the status of the assessee.
3. Validity of assessments made on individuals who were not parties to the sale agreement.

Detailed Analysis:

1. Validity of Assessing Capital Gains in the Hands of Individuals Instead of HUF:

The primary issue revolves around whether the capital gains from the sale of property should be assessed in the hands of individuals or Hindu Undivided Family (HUF). The property in question was sold by three individuals who claimed it was part of their HUF. The Assessing Officer (AO) assessed the capital gains in the hands of individuals, arguing that the property was not clearly established as HUF property due to the lack of an order under Section 171(1) of the Income Tax Act, 1961, recognizing the partition of the HUF.

The appellants contended that the property was purchased by the late K. Uma Maheshwar Reddy as the Karta of the HUF and that a partition deed dated 31/12/1966 divided the property among the three brothers, forming independent HUFs. The partition deed and other supporting documents, including the order from the Special Officer and Competent Authority under the Urban Land Ceiling Act, confirmed the HUF status of the property.

The Tribunal observed that the property was indeed sold by individuals who belonged to an HUF, and the notice was incorrectly issued in individual capacity. The Tribunal referred to the Agreement of Sale-cum-GPA, which clearly stated that the property was part of the joint family property. The Tribunal concluded that the AO’s assessment of capital gains in the hands of individuals was improper and set aside the CIT(A)’s order, allowing the appeal in favor of the assessee.

2. Validity of Notice Issued Under Section 148 Without Mentioning the Status of the Assessee:

The appellants argued that the notice issued under Section 148 was invalid as it did not mention the status of the assessee (whether individual or HUF). The AO admitted that the status was not mentioned in the notice and that the assessee took advantage of this technical point to avoid paying capital gains tax.

The Tribunal did not specifically address the validity of the notice in its final order but focused on the broader issue of whether the capital gains should be assessed in the hands of individuals or HUF. By setting aside the assessments made in the individual capacity, the Tribunal implicitly acknowledged the procedural flaw in the notice.

3. Validity of Assessments Made on Individuals Who Were Not Parties to the Sale Agreement:

In the cases of K. Nagarjuna Reddy, K. Bheemi Reddy, and K. Thirumaleswara Reddy, the AO assessed capital gains on individuals who were not parties to the sale agreement. The appellants contended that these assessments were null and void since their names were not found in the sale agreement.

The Tribunal observed that the names of these three appellants were indeed not found in the agreement of sale-cum-GPA for the impugned property. Consequently, the assessments made in these cases were declared void-ab-initio, and the appeals were allowed.

Conclusion:

The Tribunal allowed all the appeals, setting aside the assessments made in the individual capacity and declaring the assessments on non-parties to the sale agreement as void. The Tribunal emphasized the importance of correctly identifying the status of the assessee and adhering to procedural requirements under the Income Tax Act.

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