2019 (11) TMI 517 - AT - Income Tax

Revision u/s 263 - gift received from HUF - whether HUF can be considered as a relative or not ? - distinction between lack of inquiry and inadequate inquiry - case reopened for assessment - HELD THAT - Gift received by the assessee in that case was from his HUF. The assessee was the member of HUF from where gift came to the assessee. The assessment was reopened for conducting an inquiry about the gifts received from Satish Garg HUF. The assessee is not member of Satish Garg HUF. Therefore, the Assessing Officer has erred in construing position of law while accepting the stand of the assessee. A perusal of the assessment order would indicate that no proper inquiry has been made by the Assessing Officer with regard to construing the meaning of expression relative employed in section 56(2) of the Act. The Assessing Officer has based his finding on a decision where HUF has given gifts to its members, and not stranger HUF, therefore, order of the Assessing Officer is erroneous to this extent. Without going into the larger aspect, whether HUF can be considered as a relative or not, we examine the aspect, whether the Assessing Officer has conducted an inquiry and formed an opinion on the basis of record available before him. He has misread the judgment and applied on the given facts without elaborate discussion. Therefore, to this extent, we are of the view that the ld.Commissioner has rightly taken cognizance under section 263, and has rightly set aside the assessment order. As far as additional show cause notice issued under section 263 on 21.3.2018 is concerned, by way of this notice, the ld.Comissioner wish to inquire the gift received by the assessee for ₹ 6 lakhs from his HUF. We find that this issue was not subject matter of reassessment. The assessment was not reopened for conducting an inquiry on this issue, and therefore the ld.Commissioner cannot take cognizance of an issue which has already attained finality in the regular assessment order passed under section 143(3) on 13.3.2014. The Assessing Officer has nowhere inquired this issue in the assessment order; nor it was subject matter of re-assessment. Therefore, it could not be taken up by the ld.Commissioner for taking up this issue. He should have questioned the original assessment order passed under section 143(3) on 13.3.2014, which has not been done by him. Therefore, the finding of the Commissioner recorded qua additional show cause notice is concerned, is not sustainable. We quash this finding and part of that order is vacated.

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act, 1961.
2. Treatment of gifts received from Hindu Undivided Families (HUFs) as income.
3. Application of law regarding the definition of "relative" under section 56(2) of the Act.
4. Adequacy of inquiry conducted by the Assessing Officer.

Issue 1: Jurisdiction of CIT under section 263:
The appeal was against the order of the ld.Pr.Commissioner passed under section 263(1) of the Income Tax Act, 1961. The CIT set aside the assessment order, believing it to be erroneous and prejudicial to the Revenue's interest. The CIT issued show cause notices and ultimately remitted the issue back to the Assessing Officer for fresh examination and re-adjudication.

Issue 2: Treatment of gifts received from HUFs as income:
The case involved gifts received by the assessee from HUFs, leading to a dispute over whether such gifts should be considered income. The ld.CIT contended that gifts from non-relative HUFs should not be treated as received from a relative under section 56(2) of the Act. The Assessing Officer had initially accepted the gifts as exempt based on a previous ITAT order. The CIT disagreed with this interpretation, leading to the reassessment.

Issue 3: Application of law regarding the definition of "relative":
The key contention was whether gifts from HUFs should be treated as received from relatives under section 56(2) of the Act. The ITAT analyzed various judgments to establish principles guiding the CIT's actions under section 263. The CIT's decision was based on the belief that the Assessing Officer's order was erroneous and prejudicial to Revenue's interest due to misinterpretation of the law.

Issue 4: Adequacy of inquiry conducted by the Assessing Officer:
The Assessing Officer's inquiry into the gifts received from HUFs was questioned for its adequacy and correctness. The ITAT found that the Assessing Officer had not conducted a proper inquiry into the definition of "relative" under section 56(2) of the Act. The ITAT concluded that the CIT was justified in setting aside the assessment order due to the lack of a thorough inquiry and misapplication of law by the Assessing Officer.

In conclusion, the ITAT partially allowed the assessee's appeal, highlighting the importance of proper inquiry and correct application of law in tax assessments. The judgment emphasized the need for Assessing Officers to conduct detailed inquiries and apply legal provisions accurately to avoid erroneous assessments. The decision also clarified the jurisdiction of the CIT under section 263 and the principles guiding such actions.