2019 (6) TMI 1726 - HC - Income Tax

Unexplained investment in purchase of property in terms of Section 69 - Determination of real ownership - property belonged to the partners or firm - defence of the petitioner was that the property belonged to the individual partners and did not constitute a partnership asset - firm submitted that the property in question had been purchased from a mortgagor in satisfaction of mortgage debt in their capacity as co-owners. HELD THAT - The issue of ownership of the property has not been appreciated by the respondent in proper perspective. The Commissioner himself stated that the property has been jointly purchased by all five partners of the firm. How he arrives at this conclusion is unclear. No doubt the property could have been jointly purchased. However that by itself does not make it a partnership asset. The transaction thus ought to have been examined especially in the context of ownership that is whether the same had been purchased using the funds of the firm or the funds of the individuals and whether the ownership vests in the name of the firm or the joint name of the partners. In the light of the fact that the impugned order is bereft of any proper reasoning for confirmation of the order of assessment it is of the view that this issue be re-visted and examined by the Commissioner after taking into account the submissions of the assessee and any supporting evidences that may be produced before him in this regard. The impugned order is thus set aside and the matter is remanded to the file of the Commissioner of Income Tax who will hear the petitioner de novo and pass a speaking order.

Summary

Issues Involved:
Assessment under Section 148 of the Income Tax Act, 1961 for the assessment year 2007-2008, ownership of property in question, rejection of revision application under Section 264 of the Act based on lack of accounting records, determination of property ownership as a partnership asset, lack of proper reasoning in the impugned order.

Assessment under Section 148:
The petitioner, a partnership firm, received a notice under Section 148 of the Income Tax Act for the assessment year 2007-2008, resulting in an assessment by the assessing authority bringing to tax an unexplained investment in the purchase of property. The defense put forth was that the property was owned by individual partners and not a partnership asset. The firm contended that the property was acquired from a mortgagor in satisfaction of a mortgage debt as co-owners, supported by a sale deed and payment details. However, the assessment order brought the sale consideration as unexplained income for the firm.

Rejection of Revision Application under Section 264:
The petitioner filed a revision application under Section 264 of the Act before the Commissioner of Income Tax, seeking to challenge the assessment order. The Commissioner rejected the application, citing the non-production of accounting records before the Assessment Officer during the assessment proceedings. The Commissioner upheld the assessment order based on the belief that the property was jointly purchased by all five partners of the firm, dismissing the contention that it belonged to the partners individually.

Determination of Property Ownership as a Partnership Asset:
The High Court observed that the Commissioner did not properly consider the issue of property ownership. While the Commissioner stated that the property was jointly purchased by all partners, the Court highlighted the importance of examining whether the property was purchased using firm funds or individual funds and in whose name the ownership vested. Merely joint purchase does not automatically make it a partnership asset, necessitating a detailed analysis to determine ownership. The Court found the lack of proper reasoning in the Commissioner's decision and ordered a re-examination of the issue, directing the Commissioner to consider all submissions and evidence before making a decision.

In conclusion, the High Court set aside the impugned order and remanded the matter to the Commissioner of Income Tax for a fresh hearing. The Commissioner was instructed to pass a detailed order after considering all aspects of property ownership and the submissions of the petitioner. The Court directed the completion of this process within six weeks and closed the case without any costs.