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2007 (7) TMI 344 - AT - Income TaxIncome Escaping Assessment - Validity of initiation of the proceedings u/s 147/148 - service of notice u/s 143(2) on the assessee-HUF - transaction noticed related to sale of some agricultural land - Whether, the Assessing Officer erred in framing the assessment in the status of HUF on the basis of consent given by the assessee although the notices were issued in the status of individual? - Difference of Opinion between learned Members of Income-tax Appellate Tribunal - Third Member Order - Order ld. AM - HELD THAT - The ld. AM further held that neither any valid notice was issued in this case to the assessee nor reasons were recorded regarding escapement of income of HUF. Hence, proceedings against HUF were void ab initio. Moreover, he found that reasons recorded related to evasion of sum of Rs. 68.54 lakhs and Rs. 13.80 lakhs respectively against assessment in this case of made at income of Rs. 1.65 lakhs only. Apparently, reasons recorded relate to some other person of some other property. The ld. AM further found that no notice was issued u/s 143(2) of the Income-tax Act on return filed on 25-2-2002. In the opinion of the ld. AM, the entire proceedings of assessment were illegal. In the opinion of the ld. AM, the entire proceedings of assessment were illegal. In the present case, the Assessing Officer further had no reason to believe that income had escaped assessment to take action u/s 147 of the Act. The ld. AM also held that conditions of section 147/148 were not satisfied. In the present case, notice was issued to an individual u/s 148 and return also filed by an individual and, thus, question of determination of status did not arise. If the Assessing Officer was of the opinion that notice has wrongly been issued to the individual, he had every right to issue fresh notice to the HUF but no such action was taken. He, therefore, annulled the assessment. Order ld. JM - Assessee had consented to be assessed in the status of the HUF although the notice was issued to the assessee in individual capacity. Had the assessee not consented to the assessment in the status of HUF, the Assessing Officer might have examined the issue of status and issued notice to the assessee in that status. Having consented to assessment in the status of HUF, now the assessee cannot be allowed to turn around and argue that such an order was incorrect or unwarranted. The Assessing Officer had first obtained the consent of the assessee and, thereafter, proceeded to make assessment on 28-2-2002. The ld. CIT (A) in the impugned order had rightly relied upon the decision in the case of Kanshi Ram Wadhwa 1981 (11) TMI 41 - PUNJAB AND HARYANA HIGH COURT . He held that principle of Estoppel as Rule of Evidence and section 115 of Evidence Act recognizes this rule were applicable. The basis of Estoppel is that it would be unfair and unjust to allow a party to depart from a particular state of affair, which another has taken to be correct. The ld. JM upheld the assessment and dismissed the appeal in his proposed order. Third Member Order - I have already noted reasons u/s 148(2) of Income-tax Act for issuing the said notice. The said notice suffers from several legal infirmities. In the first place, the transaction noticed related to sale of some agricultural land sold to Kale Shekh Builders Pvt. Ltd. and not by the assessee. Further sale consideration is taken at a sum of Rs. 13,80,000. This is not the transaction with which the assessee was connected. So, notice was issued in respect of some other transaction carried by some other person. Secondly, the notice is admittedly issued to the assessee Suraj Mal, individual. No notice was issued to the HUF in which status the assessment was subsequently made. The assessee has vehemently contended throughout that no notice u/s 148 was served on the assessee. There is neither any finding nor there is any material to refute the claim of the assessee. In the above circumstance, it is difficult to hold that a valid notice u/s 148 of the I.T. Act was issued in this case. Reason to believe that income had escaped assessment was formed by taking a transaction not carried by the assessee. The status in which notice was issued was also wrong as even as per the Assessing Officer, the land was ancestral and, therefore, notice should have been issued to the assessee in the status of HUF. Notices were issued without application of mind. It is a settled law that there must be valid reasons, material and circumstances leading to belief that income had escaped assessment. Any good or bad reason is not sufficient to sustain initiation of proceedings u/s 147/148 as valid. Therefore, agree with the reasons given by the ld. AM for holding that no valid proceedings were initiated in this case u/s 147/148 of the Income-tax Act. It is also settled law that assessment under the Income-tax Act has to be made in accordance with statutory provisions and not on agreement or consent of the assessee. The jurisdiction to make assessment can be assumed only on satisfaction of condition as prescribed under the law. It cannot be conferred with consent of the parties. Therefore, in my view, after having issued notice u/s 148 of the Income-tax Act to the individual, the ITO had no jurisdiction to assess HUF of the assessee. He could assume jurisdiction by issuing valid notice u/s 148 of the Income-tax Act after satisfying conditions laid down u/s 147. This was not done and, therefore, entire proceedings have rightly been held by the ld. AM to be illegal and without jurisdiction. In the case of K. Adinarayana Murty 1967 (4) TMI 1 - SUPREME COURT , the notice was issued by the Assessing Officer to HUF but assessment was made in the status of the individual. It is clear from that the department cannot be permitted to change the status from individual to HUF . In the first place, the Assessing Officer had no jurisdiction to assess HUF as he did not issue any notice u/s 147/148 in the case of the HUF . This defect of jurisdiction could not be cured by obtaining consent from the assessee. Therefore, the assessment has to be held to be without jurisdiction. It was rightly directed to be cancelled by the ld. AM. Thus, the assessment cannot be sustained and has rightly been cancelled by the ld. A.M. For the aforesaid reasons, I agree with the proposed order of the ld. A.M. In this case, the learned Third Member has agreed with the order passed by the ld AM, whereby the assessment has been cancelled. In accordance with the said order passed by the learned Third Member, the assessment stands cancelled. In the result, the appeal filed by the assessee stands allowed.
Issues Involved:
1. Liability to be assessed in the status of Hindu Undivided Family (HUF) and not as an individual. 2. Validity of the notice issued under section 147/148 in the status of an individual while the assessment was made in the status of HUF. 3. Compliance with statutory conditions prescribed under section 147. 4. Validity of the assessment without serving the notice and without giving an opportunity. 5. Denial of deduction under section 54B. 6. Disallowance of investments made on the purchase of agricultural land. 7. Charging of interest under sections 234A and 234B. Detailed Analysis: 1. Liability to be Assessed in the Status of HUF: The assessee contested the liability to be assessed as HUF, arguing that the return was filed as an individual. The Tribunal noted that during the proceedings, the assessee's counsel agreed to the assessment in the status of HUF, acknowledging that the lands sold were ancestral. The Commissioner of Income-tax (Appeals) held that the assessee, having consented to the status of HUF, could not later contest this status. The Tribunal upheld this view, relying on the principle that an agreed order cannot be contested later, as established in the case of Kanshi Ram Wadhwa v. CIT [1982] 138 ITR 830 (P&H). 2. Validity of Notice Issued under Section 147/148: The Tribunal found that the notice under section 148 was issued to the assessee in the status of an individual, while the assessment was made in the status of HUF. The Tribunal noted that no notice was issued to the HUF, and the reasons recorded for the notice related to a different transaction. The Tribunal, therefore, held that the initiation of proceedings under section 147/148 was invalid, as it did not comply with the statutory requirement of issuing notice to the correct entity. This was supported by the decision in CIT v. K. Adinarayana Murty [1967] 65 ITR 607 (SC), which held that a notice issued in the wrong status is illegal and without jurisdiction. 3. Compliance with Statutory Conditions under Section 147: The Tribunal emphasized that for valid initiation of proceedings under section 147, the Assessing Officer must have "reason to believe" that income has escaped assessment. The Tribunal found that the reasons recorded for issuing the notice were not related to the assessee's transaction, making the notice invalid. The Tribunal relied on the decision in Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173 (Delhi), which underscored the necessity of valid reasons for initiating proceedings under section 147. 4. Validity of Assessment without Serving Notice: The Tribunal noted that no notice under section 143(2) was issued to the assessee in the status of HUF. The Tribunal held that the issuance of notice under section 143(2) is mandatory for a valid assessment under section 143(3). The absence of such notice rendered the assessment invalid, as established in the case of CIT v. Lunar Diamonds Ltd. [2006] 281 ITR 1 (Delhi). 5. Denial of Deduction under Section 54B: The Tribunal upheld the denial of deduction under section 54B, as the status of the assessee was HUF. The Tribunal relied on the decisions in CIT v. G. K. Devarajulu [1991] 191 ITR 211 (Mad) and Pravin Chand Mohin Kumar v. CIT [1994] 208 ITR 11 (Raj), which held that deduction under section 54B is not allowable to HUF. 6. Disallowance of Investments on Purchase of Agricultural Land: The Tribunal found that the investments made on the purchase of agricultural land were not in the name of the assessee but in the name of his sons. Consequently, the rebate under section 54B was not allowable, as the investments were not made in the assessee's name. 7. Charging of Interest under Sections 234A and 234B: The Tribunal upheld the action of charging interest under sections 234A and 234B, as the assessment was held valid in the status of HUF, and the interest was chargeable as per the provisions of the Income-tax Act. Conclusion: The Tribunal annulled the assessment as it was made in the status of HUF without issuing a valid notice under section 148 to the HUF. The proceedings initiated under section 147 were held to be invalid due to the absence of a valid notice and non-compliance with statutory conditions. Consequently, the appeal of the assessee was allowed, and the assessment was annulled.
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