2022 (11) TMI 72 - AT - Income Tax

Validity of Reopening of assessment u/s 147 v/s assessment u/s 153C - Assessment in the hands of HUF - AR submitted that the AO is required to pass order u/s 153C of the I.T.Act and not u/s 144 r.w.s. 147 - HELD THAT - In the instant case, admittedly, when the directions were issued by the CIT(A) in the case of the individual to assess the income in the hands of the HUF, the assessments in the hands of the HUF had not become time barred. The directions of the CIT(A) is very clear and specific. The CIT(A) directed the A.O. to assess the income in the hands of the HUF, instead of the individual (while allowing the appeal in the case of the individual). Therefore, taking into account the provisions of section 150(1) of the I.T.Act, we hold that the reassessment completed is justified and valid in law. As in the case of CIT v. M/s.Lakkanna Sons 2005 (5) TMI 684 - KARNTATAKA HIGH COURT held that when HUF was not assessed in that status prior to the relevant assessment year, the Assessing Officer has erred in assessing the assessee as an HUF after the disruption of the HUF. It was held by the Hon ble Court that fiction that a joint family shall be deemed to continue, enunciated in section 171(1) of the I.T.Act is only for limited purpose of roping in cases of joint families which had hitherto been assessed. It was further observed by the Hon ble Court that it is not possible to extend that fiction beyond the field legitimately intended by the statute. It was held by the Hon ble Court that the expression hitherto assessed occurring in section 171 of the I.T.Act is significant and only HUF which had suffered in the past would deem to continue to be HUF till an order of partition u/s 171(1) is recorded HUF was partitioned on 30.06.2002. Admittedly, the said partition deed was forming part of the seized document during the course of search. The Assessing Officer, who passed the original order u/s 153C of the I.T.Act in the individual case had accepted the partition, which was part of seized material. The assessment order u/s 144 r.w.s. 147 of the I.T.Act in the case of HUF was completed on 25.03.2013. In the instant case, the HUF was disrupted / partitioned as on the date of assessment (Assessment order in case of HUF was . completed on 25.03.2013) and the HUF having not been assessed in the past, the assessment order in the status of HUF is invalid, going by the dictum laid down by the judicial pronouncements cited supra. Therefore, the assessment order dated 25.03.2013 in status of HUF is hereby quashed. It is ordered accordingly.

Summary

Issues:
Validity of reassessment in the hands of HUF based on directions from CIT(A) to assess income in HUF's hands. Time limit for issuance of notice u/s 148 of the I.T.Act. Legality of assessing disrupted HUF.

Analysis:

Issue 1: Validity of reassessment in the hands of HUF based on CIT(A) directions
The Hon'ble High Court directed the ITAT to consider provisions of Section 150 and Section 153 of the I.T.Act after finding that the original order of assessment lacked independent findings and was based on the Commissioner's directions. The CIT(A) directed the Assessing Officer to assess the income in the hands of the HUF, leading to reassessment. The ITAT initially decided in favor of the assessee, but the High Court set aside the decision, emphasizing the importance of following statutory provisions. The ITAT, in its recent judgment, upheld the reassessment, citing Section 150 of the I.T.Act, which allows for extended time limits when assessments are made based on directions from higher authorities. The reassessment was deemed valid as the assessments in the HUF's hands were not time-barred when the CIT(A) issued the directions.

Issue 2: Time limit for issuance of notice u/s 148 of the I.T.Act
The ITAT analyzed the time limit for issuing notice under Section 148 of the I.T.Act and found that it was not barred by limitation due to the provisions of Section 150(1) of the I.T.Act. The reassessment process was deemed legally sound, considering the statutory framework and the specific directions given by the CIT(A) to assess the income in the HUF's hands.

Issue 3: Legality of assessing disrupted HUF
The ITAT acknowledged that the HUF was partitioned before the assessment in the HUF's status. Referring to judicial precedents, including the case of CIT v. M/s.Lakkanna & Sons, it was established that assessing a disrupted HUF is not permissible under the law. The ITAT cited the limited scope of Section 171 of the I.T.Act and other relevant provisions, emphasizing that assessments can only be made on HUFs previously assessed as undivided. As the HUF in question had not been assessed in the past and was disrupted before the assessment, the ITAT quashed the assessment order in the status of HUF.

In conclusion, the ITAT partly allowed the appeals filed by the assessee, upholding the validity of reassessment based on CIT(A) directions but quashing the assessment order in the status of the disrupted HUF. The judgment provides a detailed analysis of legal provisions and judicial precedents to ensure a fair and lawful resolution of the issues at hand.