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2023 (2) TMI 258 - AT - Income TaxRectification of mistake u/s 154 - Apportionment of income between spouses governed by Portuguese Civil Code - Addition being 50% of share in the hands of assessee s spouse u/s. 5A - HELD THAT - AO did not bring on record whether any notice issued to the assessee before passing an order u/s. 154 of the Act. DR did not bring on record any evidence whatsoever to show that any notice issued to the assessee in the alleged rectification proceedings. CIT(A) categorically acknowledged the order passed u/s. 155 of the Act is not valid, inspite of which, confirmed the order of AO even recording a finding to the extent that the AO has taken corrective steps in passing another rectification order u/s. 154 of the Act, in our opinion is not justified. Admittedly, there is no mistake apparent from the record in the case of assessee to rectify the total income determined by the AO u/s. 143(1) of the Act and as rightly pointed by the ld. AR that making addition in the hands of the assessee by taking into account 50% share from the assessment of assessee s spouse is not a mistake apparent from the record. Rectification order passed by the AO u/s. 155 of the Act as confirmed by the CIT(A) is invalid, liable to be quashed. Order of CIT(A) is not justified in confirming the order of AO passed u/s. 155 of the Act and it is set aside. Thus, the grounds raised by the assessee are allowed. Validity of reopening of assessment u/s 148 - HELD THAT - No doubt the income of the husband and wife under any head of income except under the head salaries shall be apportioned equally between the husband and wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively u/s. 5A of the Act which was inserted by the Finance Act, 1994 with retrospective effect from 01-04-1963. Admittedly, the scrutiny assessment u/s. 143(3) of the Act was completed in the case of assessee s husband and the AO required to apportion 50% from the total income determined in the case of assessee s husband to total income of the assessee. The said 50% income which was not included in the original assessment and also not taken into consideration in the original assessment, is to be termed as income which has escaped assessment within the meaning of section 147 such income cannot be brought to assessment and taxed except in accordance with the provisions thereof u/s. 147 - AO by following the procedure contemplated u/s. 147 and 153 of the Act reopened the assessment concluded under intimation u/s. 143(1) of the Act and brought to tax in the hands of the assessee i.e. 50% share from the total income determined under scrutiny assessment proceedings in the case of assessee s spouse correctly - ground No. 1 raised by the assessee is dismissed. Addition made in the hands of the assessee in terms of operation of provisions u/s. 5A - HELD THAT - A new provisions u/s. 5A of the Act has been inserted by Finance Act, 1994 with retrospective effect from 01-04-1963 and the present year under consideration is being A.Y. 2009-10, the said provisions u/s. 5A is applicable to the facts on hand. The said new section was incorporated for determination of the income of persons governed by the Portuguese Civil Code, 1860 residing in the State of Goa, Union territories of Dadra and Nagar Haveli and Daman and Diu. Admittedly, the assessee and her spouse governed by the Portuguese Civil Code and therefore the provisions of section 5A is applicable. Provisions u/s. 5A(1) provides that the income from all the sources except from the head salaries shall be apportioned equally between the husband and of the wife and such income should not be assessed as income of community property. The income so apportioned will be included separately in the total income of the husband and of the wife. CIT(A) discussed the issue in ground Nos. 1 and 2 in detail vide paras 7 and 8 of the impugned order and by following the provisions of sub-section (1) of section 5A of the Act confirmed the order passed by the AO in apportioning the 50% share of income from her spouse determined under scrutiny assessment proceedings - We totally agree with the reasons recorded by the CIT(A) in confirming the order of AO - ground Nos. 2 and 3 raised by the assessee are dismissed.
Issues Involved:
1. Validity of addition made by the AO under Section 5A of the Income Tax Act. 2. Validity of reopening assessment under Section 148 of the Income Tax Act for A.Y. 2009-10. 3. Confirmation of addition in the hands of the assessee under Section 5A of the Income Tax Act. Detailed Analysis: Issue 1: Validity of Addition Made by the AO under Section 5A of the Income Tax Act for A.Y. 2007-08 The assessee challenged the addition of Rs. 6,87,582/- made by the AO under Section 5A of the Act, which was 50% of the spouse's income. The AO initially determined the assessee's total income at Rs. 1,04,566/- under Section 143(1) and later rectified it by adding the spouse's income share under Section 155. The CIT(A) acknowledged the technical incorrectness of the order under Section 155 but confirmed the AO's action based on a corrective measure taken under Section 154. The Tribunal noted that no notice was issued to the assessee before passing the order under Section 154 and found no mistake apparent from the record to justify the rectification. Thus, the rectification order under Section 155 was deemed invalid and quashed, allowing the assessee's appeal. Issue 2: Validity of Reopening Assessment under Section 148 of the Income Tax Act for A.Y. 2009-10 The assessee contested the reopening of assessment under Section 148, arguing that there was no material justifying the reassessment. The AO issued the notice under Section 148 after the time limit for completing the assessment under Section 143(3) had expired. The AO aimed to bring 50% of the spouse's income under Section 5A into the assessee's total income. The Tribunal upheld the AO's power to reopen the assessment under Section 147, noting that the income from the spouse's assessment constituted income that had escaped assessment. The reopening was found valid, and the ground raised by the assessee was dismissed. Issue 3: Confirmation of Addition in the Hands of the Assessee under Section 5A of the Income Tax Act The assessee challenged the CIT(A)'s action in confirming the addition under Section 5A. The Tribunal noted that Section 5A, applicable from A.Y. 2009-10, mandates the equal apportionment of income (except salaries) between spouses governed by the Portuguese Civil Code. The CIT(A) confirmed the AO's order, apportioning 50% of the spouse's income to the assessee. The Tribunal agreed with the CIT(A)'s detailed reasoning, stating that the apportionment was a consequence of the provisions under Section 5A. The grounds raised by the assessee were dismissed, and the CIT(A)'s order was upheld. Conclusion: The appeal for A.Y. 2007-08 was allowed, quashing the rectification order under Section 155. The appeal for A.Y. 2009-10 was dismissed, upholding the reopening of assessment under Section 148 and the addition under Section 5A. The Tribunal's decision emphasized the procedural correctness and the applicability of Section 5A in determining the income of spouses governed by the Portuguese Civil Code.
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