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Income Tax Appellate Tribunal, ‘B’ BENCH, BENGALURU
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
years: 2003-04 & 2004-05) 2. & 1159/Bang/2013 (Assessment years: 2003-04 & 2004-05) 3. ITA Nos.1160 & 1161/Bang/2013 (Assessment years: 2003-04 & 2004-05) And 4. ITA No.1162/Bang/2013 (Assessment year: 2003-04)
5 . (Assessment year: 2003-04) and 6. (Assessment year: 2003-04)
K.Muniswamy Reddy (HUF), 2. K.Muniswamy Reddy (Indl), No.119, Coconut Garden, 3rd Cross, New Thippasandra, HAL II Stage, Bengaluru-560075. 3. K.Govinda Reddy (Indl.), 4. K.Govinda Reddy (HUF), No.1198, Renuka Nilaya, New Thippasandra, HAL III Stage, Bengaluru-560075. 5. K.Ramesh Reddy (HUF) 6. K.Ramesh Reddy (Indl.) No.953, ‘Sunkamma Nilayam’ 12th Main, HAL II Stage, Indiranagar, Bengaluru-560038. … Appellant Vs. Asst. Commissioner of Income-tax, Central Circle 1(3), ... Respondent Bengaluru. to 1164/Bang/2013 Page 2 of 24 Assessees by : Shri V.Srinivasan, Advocate. Respondent by : Shri G.Kamaladar, Standing Counsel
Date of hearing : 03/04/2017 Date of pronouncement : 07/06/2017 O R D E R Per BENCH: All these appeals are filed by the assessee directed against different orders of the CIT(A) for different assessment years. Since common issue is involved in all these appeals, we proceed to dispose of the same by way of this common order.
First, we take up the appeals bearing & 1159/Bang/2013 in the case of K.Muniswamy Reddy (Indl.) for assessment years 2003-04 and 2004-05.
Brief facts of the case are as under: There is Krishna Reddy, HUF of which kartha is Shri Krishna Reddy. The said Krishna Reddy has three sons viz., K.Muniswamy Reddy, K.Govinda Reddy and K.Ramesh Reddy. These individuals have inherited certain properties through partition of Krishna Reddy, HUF. Income derived from these properties is assessed in individual capacity of the respective persons by the AO. Income arising out of above properties was assessed by the AO in the status of individual following the order of the Tribunal.
ITA Nos1156 to 1164/Bang/2013 Page 3 of 24 3. Being aggrieved an appeal was filed before the CIT(A). By the time the orders are passed by the CIT(A), the Hon’ble High Court of Karnataka reversed the order of the Tribunal in dated 08/12/2014 and the Hon’ble High Court held that the properties are to be assessed in the hands of HUF. Therefore, the CIT(A) deleted the addition made on account of the following properties:
But in respect of building KMR Building, the CIT(A) held that it belongs to individual as the AR failed to identify this property in the HUF partition deed dated 20/04/1999.
Being aggrieved, the assessee is before us in for the assessment year 2003-04 contending that rental income from KMR Building amounting to to 1164/Bang/2013 Page 5 of 24 Rs.62,500/- cannot be assessed in the hands of the assessee in the status of an individual as the Hon’ble High Court held that this property belongs to HUF.
After considering the rival submissions and perusing material on record, it is undisputed fact that in the immediately preceding assessment year i.e. 2003-03, the Hon’ble High Court that this property belongs to HUF of the appellant. Therefore, should be assessed only in the hands of the HUF of the appellant. Hence, the grounds of appeal filed by the assessee are allowed.
7. For the assessment year 2004-05, apart from assessment of rental income from KMR Building, there is one another issue viz., unexplained investment on account of cost of construction in residential complex situated at site No.17, HASB Khata No.1071/448/17 Krishna Enclave Apartment, LB Sastry Nagar, Bengaluru. The AO made addition of Rs.7,63,000/-. It is contended on behalf of the assessee that the property belongs to HUF and therefore, no addition can be made in the individual assessment. Without prejudice to above it is further argued that difference in cost of construction made by the DVO and shown by the assessee is less than 10% of the total cost. In the circumstances, it is prayed that no addition should be made and reliance in this regard was placed on the decision of the ITAT in ITA Nos1156 to 1164/Bang/2013 Page 6 of 24 dated 16/10/2009 in the case of Smt.Anasuya K Naik.
7.1 On appeal before the CIT(A), the CIT(A) had rejected the claim that the property belongs to HUF on the ground that it was purchased in the name of the appellant and his wife Smt. K.Radha after partition deed.
7.2 In our considered opinion, the CIT(A) was not justified in rejecting the same merely on the ground that this property does not find a place in the partition deed. It is always possible that property can be acquired out of nucleus of the funds of the HUF in which event, property always belongs to HUF. Therefore, income arising out of the property should be assessed only in the hands of the HUF. Thus, the appeals filed by the assessee viz. & 1159/Bang/2013 are allowed.
K.Govinda Reddy (Indl.): (ITA Nos.1160 & 1161/Bang/2013 Assessment years: 2003 & 2004-05):
Ground No.2 challenges assessment of annual value of property at Renuka Bangalore, in the status of the individual of the assessee. It is the contention of the assessee that it belongs to joint family and therefore, should be assessed in the status of HUF. In support of this, he relied on the order of the Hon’ble High Court of Karnataka passed for assessment year 2002-03 to 1164/Bang/2013 Page 7 of 24 wherein it was held that this property should be assessed in the hands of HUF alone. The claim of the assessee is that this property was purchased on 3/2/1992 out of funds received pursuant to partition deed of his HUF. This contention was rejected by the CIT(A) holding that there was no documentary evidence in support of the partition of HUF. It was urged that the entire property was vacant during the year. Hence, no annual value should be assessed to tax.
After hearing rival submissions and perusing material on record, there is no bar under law to throw individual property into common hotchpot of HUF, even if the contention of the assessee that this property was purchased out of funds received on partition under partition from erstwhile HUF of his father to be disbelieved. In the circumstances, we hold that annual value of property is to be assessed in the hands of the HUF. Thus ground No.2 is allowed.
Ground No.3 challenges the assessment of annual value at No.1198, Renuka Nilaya, HAL III Stage, Bangalore. It is claimed that purchase of site and construction of building thereon have been made out of sale consideration received from assessee’s share of flats in Krishna Apartment which are identified as HUF property. This contention was disbelieved by the AO as well as the CIT(A) on the ground that there was no evidence on record to demonstrate that this land was purchased to 1164/Bang/2013 Page 8 of 24 and construction thereon was made out of sale consideration of HUF income, whereas the contention of the assessee is that since nucleus of funds is from HUF, same should be assessed in the hands of HUF only. After considering same, we are of the considered opinion that in absence of contrary evidence, explanation tendered in support of source of acquisition of property should be accepted. Therefore, we hold that annual value of property should be assessed only in the individual capacity.
In the result, the both the appeals are allowed.
(K.Ramesh Reddy, Indl.): (2003-04):
The only ground of appeal challenges addition on account of assessment of short term capital gains of Rs.14,30,100/- on sale of property at survey No.39/3, Doddanakundi, Bengaluru,. It was stated before the AO that this property was purchased in the name of K.Muniswamy Reddy out of funds available with erstwhile joint family of Krishna Reddy. Therefore, it belongs to HUF. This version was disbelieved by the AO as well as the CIT(A) in absence of any documentary evidence.
After considering rival submissions and perusing material on record, it is trite law that in absence of any contrary evidence, explanation tendered by the assessee should e accepted. There is nothing on record to disbelieve the to 1164/Bang/2013 Page 9 of 24 explanation tendered by the assessee. We hold that short term capital gains should be assessed only in the hands of HUF.
In the result, appeal filed by the assessee is allowed.
ITA Nos.1156 & 1157/Bang/2013 (AYs: 2003-04 & 2004-05) (K.Muniswamy Reddy, HUF): (AY: 2003-04)(K. Govinda Reddy, HUF): ITA Nos.1163/Bang/2013 (AY: 2003-04)(K. Ramesh Reddy, HUF): 13. The only issue involved in all these appeals is whether assessment can be made on disrupted HUF which is not hitherto assessed to tax. It is the contention of the assessees that annual value of the property should be assessed only in the status of HUF of the assessee. This contention has been accepted by Hon’ble High Court of Karnataka but it is the contention of the assessee that this HUF was partitioned on 14/01/2005 which was registered on 12/2/2005 and this undivided family was not assessed to tax hitherto. This issue has come up before the Hon'ble jurisdictional High Court in the case of CIT vs. Lakkanna & Sons (ITRC No.57/1994 dated 26/05/2005) wherein it was held that where HUF has not been assessed earlier, enabling provisions of section 171 of the Act cannot be applied to assess after partition in status of HUF. The relevant portion of the judgment is as under:
In light of the ratio laid down by the Hon’ble High Court in the above case, since HUF of respective parties is already disrupted, there cannot be any assessment. Therefore, assessments framed in the present case are cancelled.
In the result, the appeals filed by the assessees are allowed.