9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 876 - AT - Income TaxValidity of re-assessment order passed u/s 147 r.w.s. 144B - addition u/s. 56(2)(vii)(b)(ii) of the Act - Clubbing of minor son s income - assessee categorically explained that the minor son s income was clubbed with the return of income filed as per clause (a) of Explanation to section 64 of the Act in the hands of the mother therefore reopening of minor son s income in the hands of the father assessee herein is not proper in law. HELD THAT - The income-tax return filed by the mother on 08.08.2015 wherein the minor son s income is also shown by her. The assessee also explained in his reply letter dated 27-01-2022 to the show cause notice produced copy of the Purchase Agreement dated 19-01-2015; Axis Bank statement of minor son from 01-01-2015 to 31-03-2015 wherein claimed the acquisition of property was loan taken from his uncle who is the Proprietor of Bhansali Associates. Without verification of the above details and records furnished by the assessee the ld.AO proceeded with re-assessment proceedings on the wrong assessee viz. the father assessee herein which is against the provision of law. Further the clubbing of income in the hands of the mother was also informed by the assessee before the lower authorities the AO had not taken cognizance of the same and proceeded with re-assessment proceedings which is clearly against the provisions of law. Therefore the entire re-assessment proceedings itself is bad in law and the same is liable to be quashed. Consequently the addition made by the AO is hereby deleted. Appeal of the assessee is hereby allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Validity of Reopening under Section 147 of the Act Relevant legal framework and precedents: Section 147 permits reopening of assessment if the Assessing Officer (AO) has reason to believe that income chargeable to tax has escaped assessment. However, reopening after four years requires strict adherence to procedural safeguards and valid reasons. The reopening must be against the correct assessee and based on credible material. Court's interpretation and reasoning: The Tribunal noted that the original assessment was completed under section 143(3) after scrutiny, accepting the returned income. The reassessment notice under section 148 was issued after four years, alleging non-declaration of investment in immovable property. However, the property was purchased in the name of the minor son, whose income was clubbed with the mother's income as per clause (a) of Explanation to section 64. The AO reopened the case against the father, the appellant, despite the income being declared and taxed in the hands of the mother. Key evidence and findings: The assessee submitted the mother's return showing the income of the minor son included therein. The AO did not dispute the clubbing but proceeded to reopen the assessment against the father. The Tribunal observed that the AO failed to take cognizance of the clubbing provision and reopened the case against the wrong assessee. Application of law to facts: Since the income of the minor was declared and taxed in the mother's hands, reopening the assessment against the father was without jurisdiction and contrary to the provisions of section 64 and section 147. The Tribunal held that the reassessment proceedings were bad in law and liable to be quashed. Treatment of competing arguments: The Revenue supported the reopening and addition, relying on the difference between stamp duty valuation and declared consideration. The assessee argued non-applicability of reassessment to the father and proper clubbing of income with the mother. The Tribunal favored the assessee's submissions based on statutory provisions and facts. Conclusion: The reopening of assessment under section 147 against the father was invalid and the reassessment proceedings were quashed. Justification of Addition under Section 56(2)(vii)(b)(ii) Relevant legal framework and precedents: Section 56(2)(vii)(b) deals with taxation of receipt of immovable property without consideration or for inadequate consideration. The valuation is generally based on stamp duty value or fair market value, and the difference is treated as income in the hands of the recipient. Court's interpretation and reasoning: The AO added Rs. 44,66,666/- (1/3rd share of the minor son) representing the difference between stamp duty value (Rs. 2.55 crores) and declared purchase price (Rs. 1.21 crores). However, the Tribunal noted that the minor's income was clubbed with the mother's and the addition was made in the hands of the father, which was impermissible. Key evidence and findings: The assessee produced the sale agreement showing the father as natural guardian, the mother's return including minor's income, and bank statements evidencing loan for purchase. The AO did not verify these details before making the addition. Application of law to facts: As the income belonged to the minor and was clubbed with the mother, the addition could not be made in the father's hands. Furthermore, the Tribunal accepted the assessee's contention that the AO failed to independently verify the valuation and ignored relevant evidence. Treatment of competing arguments: The Revenue argued that the addition was justified based on undervaluation of property. The assessee challenged the valuation and pointed to clubbing provisions. The Tribunal ruled in favor of the assessee on both grounds. Conclusion: The addition under section 56(2)(vii)(b)(ii) was deleted as it was made in the wrong hands and without proper verification. Applicability of Clubbing Provision under Section 64 Explanation (a) Relevant legal framework and precedents: Explanation (a) to section 64 mandates that income of a minor child shall be clubbed with income of the parent whose income is higher, except where the income is earned by the minor from manual work or activity involving application of skill, talent or specialized knowledge. Court's interpretation and reasoning: The Tribunal noted that the minor's income from the immovable property was clubbed with the mother's income, who had filed return declaring the same. Therefore, the income could not be taxed in the hands of the father. Key evidence and findings: The mother's return and income computation statement showing the minor's income were on record. The AO failed to consider this and proceeded against the father. Application of law to facts: The reassessment and addition were made ignoring the statutory clubbing provision, rendering the proceedings illegal. Treatment of competing arguments: The Revenue did not dispute the clubbing but maintained the addition on valuation grounds. The Tribunal emphasized the primacy of correct assessee identification under section 64. Conclusion: The income of the minor being clubbed with the mother precluded taxation in the father's hands. Valuation by Departmental Valuer Officer and Consideration of Objections Relevant legal framework and precedents: Valuation of immovable property for tax purposes must be fair, reasonable, and based on verifiable data. The first proviso to section 56(2)(vii) and sections 50C and 155(15) provide for valuation norms and dispute resolution. Court's interpretation and reasoning: The Tribunal observed that the AO and CIT(A) accepted the DVO's valuation without independent verification and failed to address the objections raised by the assessee regarding stamp duty values and purchase price. Key evidence and findings: The assessee submitted stamp duty authority website data and statements challenging the DVO's higher valuation. The AO did not adequately consider these submissions. Application of law to facts: The failure to independently verify and consider objections violated principles of natural justice and led to an unjust addition. Treatment of competing arguments: The Revenue relied on DVO's report as conclusive. The assessee urged for proper scrutiny and adjustment of addition. Conclusion: The valuation accepted by the lower authorities was not properly scrutinized, warranting deletion of addition. Restriction of Addition as per First Proviso to Section 56(2)(vii) read with Sections 50C and 155(15) Relevant legal framework and precedents: The first proviso limits addition to the difference between fair market value and consideration, with section 50C providing for valuation based on stamp duty value, and section 155(15) empowering reassessment on valuation disputes. Court's interpretation and reasoning: The assessee alternatively sought restriction of addition to Rs. 5,16,333/- being 1/3rd of the difference between DVO's valuation of Rs. 1.36 crores and purchase consideration of Rs. 1.21 crores. Key evidence and findings: The Tribunal noted this was a secondary submission, but since the primary addition was deleted, this became moot. Application of law to facts: The Tribunal did not need to decide this alternative ground after quashing the reassessment. Treatment of competing arguments: Revenue did not concede to this alternative. Conclusion: Not adjudicated due to dismissal of reassessment. Compliance with Principles of Natural Justice and Proper Appreciation of Facts Relevant legal framework and precedents: Tax proceedings must comply with principles of natural justice, including fair hearing and proper consideration of submissions. Court's interpretation and reasoning: The Tribunal found that the AO and CIT(A) ignored several submissions and explanations by the assessee, including documentary evidence and legal provisions. Key evidence and findings: Multiple letters, return copies, bank statements, and valuation objections were on record but not adequately considered. Application of law to facts: The failure to consider relevant material and submissions violated natural justice and led to erroneous orders. Treatment of competing arguments: Revenue did not adequately address these procedural lapses. Conclusion: Orders passed without proper appreciation of facts are liable to be set aside. Levy of Interest and Penalty under Sections 234A/B/C/D and 271(1)(c) Relevant legal framework and precedents: Interest and penalty provisions apply when there is delay or concealment of income. However, if reassessment is invalid, these levies cannot sustain. Court's interpretation and reasoning: Since the reassessment itself was quashed, the consequential interest and penalty confirmed by CIT(A) also could not stand. Key evidence and findings: No independent justification for interest and penalty apart from reassessment order. Application of law to facts: Interest and penalty are contingent on valid assessment. Invalid reassessment nullifies these charges. Treatment of competing arguments: Revenue sought confirmation; Tribunal rejected in view of quashing reassessment. Conclusion: Interest and penalty levied were deleted. 3. SIGNIFICANT HOLDINGS The Tribunal held that: "The entire re-assessment proceedings itself is bad in law and the same is liable to be quashed." "The AO had not taken cognizance of the clubbing of income in the hands of the mother, which was informed before the lower authorities, and proceeded with re-assessment proceedings against the father which is clearly against the provisions of law." "The addition made by the AO is hereby deleted." "The appeal of the assessee is hereby allowed." Core principles established include:
|
