1983 (9) TMI 124 - AT - Income Tax

Summary

Issues Involved:
1. Justification of CIT's order under Section 263 of the IT Act, 1961.
2. Validity of the assessment order framed by the ITO.
3. Partial partition of HUF and its recognition by the Revenue.
4. Compliance with Section 171 of the IT Act regarding the partition claim.
5. Conduct of the Revenue in accepting the assessee's claims over the years.

Issue-wise Detailed Analysis:

1. Justification of CIT's Order under Section 263 of the IT Act, 1961:
The primary issue raised by the assessee is the justification of the CIT (Central) in passing an order under Section 263 of the IT Act for the assessment year 1978-79. The assessee contends that the CIT's order, which held the assessment order framed by the ITO as erroneous and prejudicial to the interest of the Revenue, is not justified. The assessee argues that the Revenue has consistently accepted the partial partition and framed assessments accordingly, making it unjust to reverse this stance after a significant period.

2. Validity of the Assessment Order Framed by the ITO:
The assessee challenges the CIT's finding that the assessment order by the ITO was erroneous. The ITO had framed the income-tax and wealth-tax assessments for M/s Jagat Singh & Sons (both larger and smaller HUF) and Harmohinder Singh individually, based on the partial partition of the HUF. The assessee maintains that these assessments were consistent with the facts disclosed in the returns and should not be deemed erroneous.

3. Partial Partition of HUF and Its Recognition by the Revenue:
The case revolves around the partial partition of an HUF styled as M/s Jagat Singh & Sons, where Harmohinder Singh received Rs. 35,000, and the balance Rs. 1,75,000 remained with the smaller HUF. The assessee asserts that this partition was disclosed in the wealth-tax returns and was accepted by the Revenue in subsequent assessments. The CIT's order under Section 263 challenges this recognition, which the assessee disputes.

4. Compliance with Section 171 of the IT Act Regarding the Partition Claim:
Section 171 of the IT Act requires a claim of partition to be made during assessment, followed by an inquiry and a recorded finding by the ITO. The assessee argues that it complied with these requirements by disclosing the partition in the wealth-tax return and submitting an application to the ITO. The Revenue's acceptance of this partition in subsequent assessments indicates compliance, despite the CIT's contention that no formal finding was recorded.

5. Conduct of the Revenue in Accepting the Assessee's Claims Over the Years:
The assessee highlights the consistent conduct of the Revenue in accepting the partial partition over several years, framing assessments accordingly. This long-standing acceptance, the assessee argues, should not be undone after 11 years, as it would be harsh and unjust. The Tribunal agrees, noting that the ITO's conduct and the Revenue's acceptance of the partition in practice indicate that the partition was effectively recognized, even if not formally recorded in writing.

Conclusion:
The Tribunal finds that the ITO's inquiry and the Revenue's consistent acceptance of the partial partition over the years substantiate the assessee's claim. The CIT's order under Section 263 is deemed unjustified, and the Tribunal annuls it, allowing the assessee's appeal. The Tribunal emphasizes that the ITO's failure to formally record the partition in writing should not penalize the assessee, given the consistent treatment of the partition in assessments. The appeal is allowed, and the order of the CIT is annulled.