KIRIT D. SANGHVI AND 2 OTHERS,MUMBAI vs. ITO 13(3)(1), MUMBAI

आदेश / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER:

The present appeal had been filed by the assessee against the order of the CIT(A)-24, dated. 27.08.2013, which in itself arises from the order passed by the A.O u/s 154 of the Income-tax act, 1961 (for short ‘Act’), dated. 24.02.2012, therein rejecting an application filed by the assessee seeking rectification of an intimation u/s 143(1) of the ‘Act’, dated. 18.03.2011. The assessee assailing the order of the CIT(A) had carried the matter in appeal before us, raising the following grounds of appeal:-

“A Upholding the order u/s. 154 1) The learned Commissioner of income Tax (Appeals) 24, Mumbai [CIT(A)] erred on facts and in law in holding that the order passed by the Income Tax Officer - 13(3)(1), Mumbai (AO) u/s. 154 did not call for any interference as there was no mistake apparent from record and thus upholding the demand of Rs.47,44,630/- raised by the AO on the appellant. 2) The learned CIT(A) and the AO failed to appreciate that the appellant was a Co-ownership consisting of 3 members and holding immovable property jointly and the income derived there from was assessed in the hands of the members as per the provisions of section 26. The income from property having been assessed in the hands of the member's u/s. 26, the capital gains on

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sale of such property could not be assessed in the status of AOP. 3) The appellant prays that your honours direct the AO to assess the income offered by the appellant declaring tax payable at Rs. nil by apportioning the said income in the hands of the co-owners and the tax levied by the AO of Rs.47,44,630/- may be deleted. B) General 4) The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal.” 2. Briefly stated, the facts of the case are that the assessee, viz. M/s Kirit D. Sanghvi & 2 Others is a Co-ownership of three persons, viz. Mr. Kirit D. Sanghvi, Mrs. Prabhaben V. Seth, and Kantilal N. Shavadia (HUF), owning certain properties in which all the three co-owners had equal 1/3rd share each. That during the year under consideration, viz. A.Y. 2009-10, income by way of ‘Long term Capital gains’ (LTCG) of Rs. 2,10,81,660/- from sale of a co-owned property, Income from house property of Rs. 3,650/- and Income from other sources of Rs. 3,016/- had arisen in the hands of aforesaid co-ownership. Though the respective 1/3rd share of the income of the co-ownership is claimed to have been duly reflected by all the three co-owners in their respective returns of income alongwith payment of the taxes corresponding to the same, however for computation purposes a return of the co-ownership was separately filed by the assessee as on 3 | P a g e

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21.07.2009 showing the same very income of Rs. 2,10,88,326/- (supra), against which a tax liability of Rs. Nil was shown. That the very filing of the aforesaid overlapping returns for the same very income, viz. the co-owners on the one hand, while for the co- ownership on the other hand is as a matter of fact the very genesis of the controversy under consideration.

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143(3). It was thus in the backdrop of the aforesaid facts therein claimed by the assessee that not only subjecting the aforesaid income to tax in the hands of the co-ownership was inconsistent with the accepted past history of the assessee, but rather as a matter of fact now when the co-owners had as in the past shown their share of income from the co-ownership in their respective returns of income, and accordingly paid the taxes on the same, therefore the very raising of the demand towards tax of Rs. 47,44,630/- vide the intimation u/s 143(1), therein suffered from a mistake which was apparent from the record, and as such amenable for rectification. However, the A.O not finding favor with the claim of the assessee, therein vide his order passed u/s. 154, falling short of words, rejected the application by simply saying that as the return of the assessee was processed u/s 143(1), therefore as per him there was no mistake apparent from record. That at this stage it would be relevant and pertinent to observe that the assessee had not assailed the intimation u/s 143(1), dated. 18.03.2011 vide which the aforesaid demand of Rs. 47,44,630/-(supra) was raised, except by way of filing of the present application before the A.O u/s 154. 5. The assessee being aggrieved with the order passed by the A.O u/s 154 wherein the latter had declined to rectify the intimation, therein carried the matter in appeal before the CIT(A). The assessee submitted before the CIT(A) that the A.O on the basis of a non-speaking order had rejected the application moved before him u/s 154. It was submitted by the assessee that in the backdrop of the fact that the co-owners had shown their share of income from the co-ownership in their respective returns of 5 | P a g e

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income and paid the taxes on the same, therefore the raising of the demand of Rs. 47,44,630/- inescapably led to double taxation. It was further submitted by the assessee that as contemplated in Sec. 26, where a property is co-owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not constitute an ‘AOP’, but rather the respective share of income was liable to be assessed in the hands of the said co-owners. The CIT(A) however did not find favor with the contentions of the assessee, and observing as under:- “Assessee has itself filed its return of Income in form number ITR-5 in the status of “Association of persons" declaring total income of Rs.2,10,88,330/- and specifically marked its status as “Number 5" declaring total income of Rs.2,10,88,330/- not only on first page of return of income but in all other columns of the 28 page return of income. Assessee had shown the total income of Rs. 2,10,88,330/- for taxation in the return of income and if its contention was that income was not assessable and consequently taxable in its hands in the status of “Association of persons", it should have shown and declared its total income at Rs. Nil in all the columns of 28 page return of income and the acknowledgement of return of income filed on 21/7/2009, however, assessee had consistently shown total income at Rs.2,10,88,330/- and income under the heads house property, long term capital gains and income from other sources at Rs.3,650/-, Rs.2,20,88,326/- and Rs.3,016/- respectively in other columns of return of income. Assessee 6 | P a g e

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had nowhere indicated that the total income of Rs.2,10,88,330/- is assessable and to be apportioned in fixed/determinate proportions anywhere in the return of income and non-payment of taxes do not imply or indicate that the total income is not assessable and consequently taxable in the hands of and in the status of "Association of persons”, but in the hands of individual co-owners in the fixed proportions under section 67A read with section 86 of I.T. Act, 1961. Moreover, when an assessee offers income of Rs. 210,8,330J- in its return of income in the status of “Association of persons” by clearly indicating its status as number 5' and files its return in form number ITR-5, it is prima fade indicative of the factual affairs of the assessee's claim and the return of income is required to be processed u/s. 143(1) as such and the return was processed as such assessing total income at Rs.2,10,8,330/-, Non-payment of taxes by the assessee does not vitiate legally the processing of return of income in anyway. Moreover there was no contradictory indication on any of the 28+1 pages of the return of income to take a contrary or different view. Nevertheless assessee's CA filed two applications and furnished the details and documents to show that its income under house property and capital gains had always been apportioned in the hands of individual co-owners upto A.Y 2008-09, however the taxability and apportionment of the house property income in the hands of individual co-owners as per section 26 of I. T. Act 1961 was specifically not brought to the notice of the AO. Even otherwise, assessee had

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requested for correction of its mistake in filing return of income In the status of "Association of persons" and declaration of total income from Rs.2,10,88,330/- to Rs. Nil. Assessee has not admitted its own mistake but has tried to pass the blame by pointing out that it is the AO’s mistake and not its own. Prima facie, AO has examined the return of income and all its columns showing total income of Rs. 2,10,88,330/- in the status of "Association of persons" as per the return of income in form number 1TR-5 Prescribed under I.T. Rule, 1962 and correctly processed the same u/s 143(1) of.LT. Act, 1961. Prima facie there was no mistake from the records consisting of 28+1 page return of income and apparently there was "no mistake apparent from the records" which was rectifiable u/s. 154 of I.T. Act, 1961. Evidence submitted by the assessee's CA vide two letters are extraneous and do not support assessee's contention that the "mistake was apparent from the records" and therefore the application for rectification u/s. 154 of I.T. Act, 1961 was correctly rejected by the AO vide Letter dated 24/2/2012. This finds support in following judgments:- 1) T S Balaram v/s. Volkart Bros, ---1971/ITR/50/SC 2) CIT v/s. Hero Cycles-228/ITR/463/SC 3) CIT Vs. Kshari Metal -237/ITR/165/Sc In short, assessee’s appeal is devoid of merits and the same is dismissed on merits and in law. However, as the decision is given on technical grounds for the reason that there is no provision in the Act to assess the 8 | P a g e

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members in respect of the income generated/derived from other than the head “Income from house property”, as per section 26 of I.T. Act, 1961, but fact remains that the assessee admitted the income from capital gains in the hands of members, thus, it amounts to double taxation, i.e. in the heads of co-ownership and also in the hands of members, Therefore, in the interest of justice, the Assessing Officer is directed to rectify the intimation in the cases of members either suo moto or at the instance of assessee as the same is a rectifiable mistake.” , dismissed the appeal and upheld the order passed by the A.O. u/s 154. 6. That the assessee being aggrieved with the order of the CIT(A) had thus carried the matter in appeal before us. The Ld. Authorized representative for the assessee (for short ‘A.R’) in support of his contention that the CIT(A) had erred in upholding the rejection of the application filed by the assessee under Sec. 154 seeking rectification of a mistake in the intimation issued u/s 143(1), therein reiterated the submissions made before the lower authorities. It was submitted by the Ld. A.R that the order passed by the CIT(A) was liable to be vacated and necessary directions be issued to the A.O to carry out rectification of the mistake in the intimation issued u/s 143(1). It was thus in the backdrop of the aforesaid averments therein submitted by the Ld. A.R that the demand of Rs.47,44,630/- wrongly raised in the hands of the assessee was liable to be vacated. That on the other hand the Ld. Departmental representative (for short ‘D.R’)

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supported the orders of the lower authorities and submitted that the demand raised in the hands of the assessee was pursuant to processing of the return of income filed by the assessee, therefore as observed by the CIT(A) there was no mistake apparent from record and the application filed by the assessee u/s 154 had rightly been rejected by the A.O. It was thus submitted by the Ld. D.R that the present appeal filed by the assessee was devoid of any merit and was liable to be dismissed. 7. We have heard the Authorized Representatives of both the parties, perused the orders of the lower authorities, as well as the material produced before us. We may herein point out that as the present appeal before us had been filed by the assessee against the order of the CIT(A) therein upholding the orders passed by the A.O u/s 154, therefore the scope of adjudication by us would stand circumscribed and in the backdrop of the limited scope of jurisdiction of the A.O u/s 154, as such would lie in a narrow compass, viz (i). Whether the A.O had validly exercised his powers u/s 143(1) and raised a demand of Rs.47,44,630/- in the hands of the assessee; and (ii). Whether the infirmity, if any, in the intimation passed by the A.O u/s 143(1) can safely be held to be one which is glaring, patent, obvious and apparent from record, therein rendering it amenable for rectification u/s 154. 8. We have perused the facts of the case and find that the order passed u/s 154 by the A.O therein declining to rectify the intimation u/s 143(1) is absolutely a non-speaking order which is devoid and bereft of any reasoning. The A.O falling short of words

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had rejected the application filed by the assessee by way of a cryptic order, therein observing as under:- “Refer to your Return of Income for A.Y. 2009-10 declaring net total income of Rs. 2,10,88,326/-. The same was processed u/s 143(1) on 21/7/2009 resulting into a demand of Rs. 47,44,630/-. Hence, there is no mistake which is apparent from the record and cannot be rectified.” We have given a thoughtful consideration to the facts of the case and though at the first blush find that it is the assessee who had filed the return of income in the status as that of an AOP, and as such had put the machinery of the department in motion, as a result whereof the returned income was summarily accepted u/s 143(1) and a consequential demand towards ‘tax’ and ‘Interest’ of Rs. 47,44,630/- was raised, therefore in the backdrop of the said factual matrix, the latter thereafter cannot be allowed to turn around and challenge the very processing of the return of income so filed by it. We rather find it beyond our comprehension that in the backdrop of the facts as had been averred by the Ld. A.R before us, now when as claimed by the assessee, the income under consideration had been reflected by the respective co- owners in their returns of income and subjected to tax, then what prompted the filing of the aforesaid return therein reflecting the same income in the hands of the ‘AOP’?. May the facts be as they are, we after perusing the records are of the considered view that the A.O by passing the aforesaid non-speaking order had thus failed to address the specific issues raised by the assessee in his application filed u/s 154. We further find that the assessee had

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assailed the failure on the part of the A.O to pass a speaking order by raising a specific ‘Ground of appeal No. 5’ before the CIT(A), however the same too met the same fate and had remained unadjudicated by the said first appellate authority. We are unable to persuade ourselves to subscribe to and put the stamp of acceptance on the non-speaking order passed by the A.O u/s 154, and thus keeping in view the totality of the facts of the case, in all fairness set aside the matter to the file of the A.O for disposing of the application of the assessee afresh. The A.O is herein directed to pass a speaking order and therein adjudicate on the basis of a well reasoned order all the issues raised by the assessee in his application filed before him u/s 154.

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Shabdia (HUF), as co-owners having equal 1/3rd share each, therefore in light of the facts r.w the settled position of law, the LTCG on the sale of the aforesaid property could only be brought to tax in the hands of the respective co-owners, and not in the hands of the AOP. We find substantial force in the contention of the Ld. A.R and thus direct the A.O that he shall consider the aforesaid contention of the assessee while passing a fresh order u/s 154. We however are not oblivious of the limited scope of jurisdiction of the A.O in the course of proceedings u/s 154, and in the backdrop of the same therein direct that the A.O restricting himself to the ‘records’ as would be relevant to the present case in context of the proceedings before him, shall therein proceed with and verify the aforesaid factual position as regards the co- ownership of the property under consideration in equal 1/3 share by the aforesaid respective co-owners, and in case if the facts as claimed before us are borne from the return of the assessee and found to be in order, then the A.O shall keeping in view the mandate of Sec. 26, as well as the judgments of the Hon’ble Supreme Court so passed in the case of : CIT Vs. Indra Bal Krishna (1960) 39 ITR 546 (SC) and G. Murugesan & Bros. Vs. Commissioner Of Income Tax (1973) 88 ITR 432 (SC), wherein the Hon’be Apex Court had held that an AOP can come into existence only when two or more persons as per their volition had joined hands in a common purpose or common action for producing of income, therein adjudicate upon the claim of the assessee. That in case if it is gathered from the facts borne from the return of income of the assessee that the property is co- owned by the respective members of the AOP, then without

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prejudice to the fact that the income had been shown by the assessee, and thereafter processed by the department u/s 143(1) in the hands of the AOP, the A.O shall in light of the judgment of the Hon’ble Supreme Court in the case of : ITO Vs. Ch. Attchaiah (1996) 218 ITR 239 (SC), wherein the Hon’ble Apex Court making it obligatory on the part of the department to assess the income in the hands of the right person, and the right person alone, irrespective of the fact that which course is more beneficial to the revenue, had therein observed as under:- “We are of the opinion that under the present Act, the ITO has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Sec. 183 shows that where the Parliament intended to provide an option, it provided so expressly Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the AO (ITO) has taxed

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the said income in the hands of another person contrary to law.” , shall therein proceed with and subject to tax the aforesaid income in the hands of the ‘right person’, i.e the individual co- owners. We thus in light of our aforesaid observations restore the matter to the file of the A.O, who shall dispose of the application filed by the assessee by passing a fresh and well reasoned speaking order u/s 154 of the ‘Act’. Needles to say, the A.O prior to disposal of the application shall afford an opportunity of being heard to the assessee. 9. The appeal of the assessee is thus allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the open court as on 29/03/2017.

Sd/- Sd/- (R.C Sharma) (Ravish Sood) रेखा सदस्म/Accountant Member न्मायमक सदस्म/Judicial Member भुंफई Mumbai; ददनांक Dated :29.03.2017

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आदेश की प्रयतलरपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent 2. आमकय आमुक्त(अऩीर) / The CIT(A) 3. आमकय आमुक्त / CIT – concerned 4. पवबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ड पाईर / Guard File 6. आदेशधिुसधर/ BY ORDER,

उप/सहधयक पंजीकधर (Dy./Asstt. Registrar) आयकर अपीऱीय अधर्करण, भुंफई / ITAT, Mumbai.

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