2016 (9) TMI 709 - AT - Income Tax

Reopening of assessment - transfer envisaged under section 2(47) has not taken place by virtue of such impugned development agreement - Validity of notice - notice issued in the name of HUF - Held that - It is the case of the assessee that the notice under section 148 vesting jurisdiction with the Assessing Officer has been addressed to the HUF entity namely Shri Dnyaneshwar Govind Kalbhor (HUF) whereas the PAN Number mentioned in the notice pertains to the Dnyaneshwar Govind Kalbhor obtained in his individual capacity. We also note the contention of the Assessee that the entire basis to proceed for reassessment is founded upon the return of income belonging to the Individual. We observe that the contention put up on behalf of the assessee that the HUF was not in existence at all during the relevant assessment year 2007-08 and no return of income was filed by the HUF at all either before the initiation of reassessment proceedings or subsequent thereto remains un-rebutted. Further, the reasons have been recorded under section 148(2) in the name of the Individual Shri Dnyaneshwar Govind Kalbhor whereas the notice has been issued in the name of HUF i.e. Shri Dnyaneshwar Govind Kalbhor (HUF) . The fact of non existence of HUF is paramount and strikes to the very root of purported jurisdiction sought to be acquired by the AO under S. 147 of the Act. In the background of these discernible facts, it is manifest that the notice issued under section 148 purporting to grant jurisdiction to the Assessing Officer is void ab initio and bad in law. Consequent order passed by the Assessing Officer without jurisdiction thus is a nullity. Assessing Officer has nowhere indicated the quantum of income which has escaped or is likely to have escaped assessment. Thus, the entire process so initiated appears to be vague and listless. The formation of reason to believe is expected to be qua the quantum of income that has escaped assessment on prima facie consideration of relevant material. The escapement in generic terms stated to be in millions without formulating any belief thereon is bizarre & inexplicable. On this ground also, the action of the Assessing Officer in issuing notice under section 147 cannot be approved. Needless to say, the assessing officer does not enjoy unbridled or sweeping powers in the matter of reopening an assessment. The provisions of section 147 are structured with inbuilt safeguards and requirements of the provision need to be strictly complied with. From the recorded reasons, we may note that while purported sale proceeds of ₹ 5,76,15,000/- is referred to by the Assessing Officer, the corresponding cost of acquisition of property which is germane to determination capital gain allegedly escaped has not been referred to at all. Apparently, the Assessing officer has pre-supposed the existence of capital gains without acquiring objective knowledge about the cost of acquisition of assets. In the absence of cost of acquisition available, it is nearly impossible to visualize with some degree of certainty as to whether such transaction has resulted in any gain at the first place or not to allege escapement thereof. Thus, the action of the AO is marred on this score also. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 147/148 of the Income Tax Act.
2. Validity of notice issued under section 148 to a non-existent HUF.
3. Validity of notice under section 143(2) based on a non-existent return.
4. Determination of Long Term Capital Gain and its assessment.
5. Interpretation of the development agreement under section 2(47).
6. Ownership and partition of the property.
7. Estimation of property value as of 01/04/1981.
8. Deduction under section 54F for the purchase of flats.
9. Partnership status of the HUF in M/s. N.D. Construction.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under section 147/148 of the Income Tax Act:
The assessee challenged the jurisdiction of the Assessing Officer (AO) assumed under section 147/148, claiming the notice was issued to a non-existent HUF and under an incorrect PAN. The Tribunal found that the notice under section 148 was addressed to the HUF using the PAN of the individual, which was a fundamental defect. The HUF was not in existence during the relevant assessment year, which made the notice void ab initio and the subsequent assessment order a nullity.

2. Validity of notice issued under section 148 to a non-existent HUF:
The Tribunal noted that the notice under section 148 was issued to a non-existent HUF, and the reasons recorded for issuing the notice pertained to the individual. This discrepancy rendered the notice invalid. The Tribunal emphasized that the jurisdiction to issue a notice under section 148 must be based on valid grounds, and in this case, it was not.

3. Validity of notice under section 143(2) based on a non-existent return:
The Tribunal observed that the notice under section 143(2) was issued based on a return that was never filed by the HUF. The return mentioned in the notice pertained to the individual, not the HUF. This invalidated the notice under section 143(2) and, consequently, the assessment proceedings based on it.

4. Determination of Long Term Capital Gain and its assessment:
The Tribunal found that the AO had not determined the cost of acquisition of the property, which is essential for calculating capital gains. The reasons recorded for reopening the assessment did not indicate the quantum of income that had escaped assessment, making the entire process vague and unfounded.

5. Interpretation of the development agreement under section 2(47):
The assessee argued that the development agreement did not constitute a transfer under section 2(47) as the possession of the property was not transferred to the developer, and only a part payment was received. The Tribunal did not delve deeply into this issue since the reassessment proceedings were already found to be invalid.

6. Ownership and partition of the property:
The Tribunal noted that the CIT(A) had erroneously held that the property belonged to the appellant HUF and another HUF in equal ratio. However, since the reassessment proceedings were invalid, this issue did not require further adjudication.

7. Estimation of property value as of 01/04/1981:
The assessee contested the CIT(A)'s estimation of the property's value at ?5 per sq ft as against the assessee's claim of ?28.10 per sq ft based on an Approved Valuer's Certificate. This issue was rendered academic due to the invalidity of the reassessment proceedings.

8. Deduction under section 54F for the purchase of flats:
The CIT(A) had not allowed the deduction under section 54F for the purchase of four flats. However, this issue also became academic due to the invalidity of the reassessment proceedings.

9. Partnership status of the HUF in M/s. N.D. Construction:
The CIT(A) had held that the appellant HUF was a partner in M/s. N.D. Construction, sharing 50% profit. This issue was not further examined due to the invalidity of the reassessment proceedings.

Conclusion:
The Tribunal held that the reassessment proceedings initiated under section 147/148 were invalid due to the issuance of notice to a non-existent HUF and under an incorrect PAN. Consequently, the reassessment order was set aside, rendering all other grounds raised by the assessee academic and infructuous. The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The consequential proceedings under section 154 were also rendered non-est.