2025 (7) TMI 945 - AT - Income Tax

Applicability of Maximum Marginal Rate u/sec 167B - share of members in the AOP - HELD THAT - AR mentioned that the appellate authority has erred in observing that the share of the members of AOP is indeterminate whereas the no portion of profit or surplus of the AOP/Association is distributed to its members as the share is Zero Percent and is determinate. AR demonstrated and placed the copy of the CIT(A) order for A.Y.2023-24 dated 18-04-2024 where the facts are similar and the relief was granted by the appellate authority. Therefore CIT(A) order and submissions of the AR shall provide with one more opportunity of hearing to the assessee to substantiate the case with evidences and information on the disputed issue. Accordingly we set aside the order of the CIT(A) and remit the entire disputed issues to the file of the CIT(A) to adjudicate afresh on merits and the assesse should be provided adequate opportunity of hearing and shall cooperate in submitting the information for early disposal of the appeal. And we allow the grounds of appeal of the assessee for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

• Whether the application of the Maximum Marginal Rate (MMR) of tax under section 167B of the Income Tax Act to the assessee, an Association of Persons (AOP), was justified.
• Whether the share of members in the AOP is indeterminate or determinate, and the consequent tax implications under the relevant provisions.
• Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in rejecting the assessee's rectification application under section 154 and sustaining the imposition of MMR.
• Whether the CIT(A) ought to have granted relief to the assessee based on similar facts in the assessment year 2023-24 and judicial precedents.
• The procedural propriety and correctness of the orders passed by the AO, CIT(A), and the National Faceless Appeal Centre (NFAC) in applying the MMR to the assessee's income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Maximum Marginal Rate (MMR) under Section 167B of the Income Tax Act

Relevant Legal Framework and Precedents: Section 167B of the Income Tax Act empowers the tax authorities to apply the Maximum Marginal Rate of tax in specific cases where the share of members of an AOP is indeterminate or cannot be ascertained. The provision is intended to prevent tax avoidance by entities that do not disclose or distribute income among members distinctly.

Judicial precedents have clarified that the applicability of MMR under section 167B is contingent upon the indeterminacy of members' shares in the AOP. If the shares are determinable and fixed, MMR should not be imposed.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) and AO had applied MMR on the ground that the share of members in the AOP was indeterminate. However, the assessee contended that the share of each member was "Zero Percent" and hence determinate, as no portion of the profit or surplus was distributed.

The Tribunal observed that the CIT(A) had overlooked the factual submissions and judicial decisions, including the relief granted to the assessee in the assessment year 2023-24 on similar facts. The Tribunal found that the AO and CIT(A) failed to consider the evidence demonstrating the determinate nature of members' shares.

Key Evidence and Findings: The assessee submitted factual paper books and judicial decisions supporting the contention that the members' shares were fixed at zero percent and that the entire income was assessed at the AOP level without distribution. The Tribunal took note of the CIT(A)'s order for A.Y. 2023-24 granting relief on the same issue.

Application of Law to Facts: Given that the shares were fixed and no distribution was made, the Tribunal concluded that the provisions of section 167B were inapplicable. The imposition of MMR was therefore not justified on the facts of the case.

Treatment of Competing Arguments: The Revenue, through the Departmental Representative, supported the CIT(A)'s order upholding the MMR application. However, the Tribunal found the Revenue's argument unpersuasive as it did not adequately address the evidence of determinate shares and the precedents.

Conclusion: The Tribunal held that the application of MMR under section 167B was erroneous and that the matter required reconsideration with proper opportunity to the assessee to substantiate the claim.

Issue 2: Rectification Application under Section 154 and Subsequent Appeals

Relevant Legal Framework: Section 154 allows rectification of mistakes apparent from record. The rejection of the rectification petition by the Central Processing Centre (CPC) was challenged by the assessee.

Court's Interpretation and Reasoning: The Tribunal noted that the CPC rejected the rectification without adequately considering the factual submissions and legal position. The CIT(A) upheld the CPC's rejection, but the Tribunal found that the CIT(A) failed to provide a reasoned order reflecting the merits of the rectification claim.

Key Evidence and Findings: The Tribunal observed that the rectification petition raised a substantive issue regarding the applicability of MMR, which was not a mere clerical or arithmetical error but a question of law and fact needing detailed adjudication.

Application of Law to Facts: The Tribunal concluded that the rectification petition's rejection was not justified without proper examination and that the CIT(A) erred in dismissing the appeal without granting the assessee a fair opportunity to prove its case.

Treatment of Competing Arguments: The Revenue maintained that the rectification was rightly rejected and the CIT(A) order was correct. The Tribunal, however, emphasized the need for a fresh hearing and adjudication on merits.

Conclusion: The Tribunal set aside the orders of the CIT(A) and remanded the matter for fresh adjudication, directing that the assessee be given adequate opportunity to present evidence and submissions.

Issue 3: Consistency of Orders and Grant of Relief in Similar Cases

Relevant Legal Framework: The principle of consistency in tax adjudication requires that similar facts and issues be treated uniformly across assessment years unless there is a change in law or facts.

Court's Interpretation and Reasoning: The Tribunal took note of the CIT(A)'s order for A.Y. 2023-24 wherein relief was granted on the same issue, indicating an inconsistency in the treatment of the assessee's cases.

Key Evidence and Findings: The assessee produced the CIT(A) order for A.Y. 2023-24 dated 18-04-2024, which granted relief from MMR application. The Tribunal found that the facts and legal issues were substantially similar across the years under appeal.

Application of Law to Facts: The Tribunal held that the principles of natural justice and fairness required that the assessee be granted relief in the present appeals as well, or at least be given an opportunity to prove entitlement to such relief.

Treatment of Competing Arguments: The Revenue did not provide any justification for the inconsistency. The Tribunal implicitly criticized this lack of uniformity.

Conclusion: The Tribunal directed the CIT(A) to reconsider the matter afresh in line with the relief granted in the later year and to provide the assessee a fair hearing.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt:

"Considering the facts, circumstances